Good morning, ladies and gentlemen, and welcome to the Emerald Second Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Ms.
Lara Raffi, Investor Relations Officer. Thank you. Ma'am, please go ahead.
Thank you, operator. Good morning to everyone on the call, and thank you for joining us to review Amarin Banc Corp's Q2 2020 results. With me this morning are Miller Wilson, Chief Executive Officer Carlos Yaffiriola, Chief Financial Officer Miguel Palacios, Chief Business Officer and Cael Fisher, Credit Risk Manager. Before we begin, note that the company's press release, comments made on today's call and responses to your questions contain forward looking statements. The company's business and operations are subject to a variety of risks and uncertainties, many of which are beyond its control.
And consequently, actual results may differ materially from those expressed or implied. Please refer to the cautionary notices regarding forward looking statements in the company's press release. For a more complete description of these and other possible risks, please refer to the company's annual report on Form 10 ks for the year ended December 31, 2019, and the company's quarterly report on Form 10 Q for the quarter ended March 31, 2020, as well as to subsequent filings with the SEC, which you can access these filings on the SEC's website. Please note that Amarin 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 and today's call include references to certain adjusted financial measures, also known as non GAAP financial measures.
Please refer to Appendix 1 of the company's earnings presentation for a reconciliation of each non financial measure to its most comparable GAAP financial measure. I will now turn the call over to Mr. Wilsman.
Good morning, and thank you for joining Amarin's 2nd 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 COVID-nineteen pandemic and our 2nd quarter highlights. Carlos will then review our financial performance for the quarter in further detail. After our prepared remarks, Carlos, Miguel, Thiago and I will answer questions. 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 as a result, we have been able to seamlessly serve customers and keep our employees, customers and communities safe. As the number of COVID-nineteen 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 as Amarin employees begin to return to the office. Specifically, employees are only returning to the office voluntarily at a capacity of not more than 25% at any given time, except our New York LPO, which is capped at 50%. Our BCP continues to successfully support approximately 86% of our employees with remote working work capabilities.
Regarding our banking centers, we have returned to regular business hours. That said, the entire Ameren team is following strict government safety guidelines, as our goal continues to be to provide customers with the service they have come to expect, while maintaining a safe environment. Additionally, Amarin continues to provide customized loan payment relief options to customers impacted by the COVID-nineteen pandemic in accordance with regulatory guidelines, including interest only payments and forbearance options. At the end of the Q2, loans outstanding, which have been modified under these programs, totaled 1,100,000,000 dollars Modified loans on which the interest only and or forbearance period had expired totaled $519,500,000 or 46 percent of total modified loans. As of July 17, modified loans totaling $164,900,000 had scheduled payments due.
The company collected payments due on $136,900,000 of these loans through this date. Modified loans totaling $354,600,000 of payments due by July 31. Amarin also continued to participate in the Paycheck Protection Program or PPP. As of June 30, we had received approval for over 2,000 loans totaling $218,600,000 Over 90% of these loans were under $350,000 each, which translates into approximately 26,000 jobs saved. We're extremely proud of Amarin's contribution.
Looking ahead, we will continue to provide relief while closely monitoring the company's creditabilities. 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 Amarant's credit quality is closely managed amidst these unusual and highly unpredictable circumstances. Please turn to our Q2 highlights on Slide 4.
Despite COVID-nineteen related headwinds, I'm proud of the entire Amarin team for continuing to push forward and execute our relationship focused strategy. In the Q2, we recorded a loan loss provision of 48 $600,000 compared to a provision of $22,000,000 in the first quarter and a release of 1,400,000 dollars in the year ago period. Carlos will discuss the drivers of this provision in more detail shortly. As a result of this provision, we are reporting a net loss of $15,300,000 compared to net income of $3,400,000 in the first quarter and net income of $12,900,000 in the 3 months ended June 30, 2019. Lower interest income also contributed to this net loss, partially offset by and up 29.7% quarter over quarter.
Also in the quarter, our broker dealer, Ameren Investments, successfully participated in the distribution of the senior notes, which among other activities over the last year. The investments team also launched an application that facilitates customer engagement as well as our digital transformation. Please turn to Slide 5. As I mentioned, we had a net loss of $15,300,000 compared to net income of $3,400,000 in the first quarter of 2020, and net income of $12,900,000 reported in the 3 months ended June 30, 2019, largely due to the higher provision for loan losses. The adjusted net loss, which excludes restructuring expenses, was $14,200,000 compared to adjusted net income of $3,700,000 in the first quarter and $15,000,000 reported in the 3 months ended June 30, 2019.
Our return on assets was a negative 0.75 percent or a negative 0.7% on an adjusted basis, and our loss per share was $0.37 or $0.34 on an as adjusted basis. Total loans as of June 30 were $5,900,000,000 an increase of 3.6% compared to the Q1. This increase was largely driven by the PPP loans granted in the quarter and partially offset by declines in other loan originations attributable to the lack of business activity resulting from the COVID-nineteen pandemic and the more stringent credit underwriting guidelines currently in place. Funds from these PPP loans also drove total deposits, which were $6,000,000,000 as of June 30, up 3.1% from the prior quarter. The fund's small business customers had not fully utilized totaled $132,700,000 at the end of the quarter.
Additionally, we were pleased to see our foreign deposits increased by 3,500,000 dollars or 0.1 percent compared to the prior quarter. We are optimistic and hope this improvement will continue. Shareholders' equity was $830,200,000 as of June 30, a decrease of 1.3% compared to the prior quarter. This decrease in stockholders' equity is mainly the result of the company's net loss in the Q2, partially offset by 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 hand over the call to Carlos.
Thank you, Miller. Turning to Slide 6, I would like to discuss the investment portfolio. Our 2nd quarter investment securities balance was $1,700,000,000 down from the $1,800,000,000 at the end of the Q1 2020 and relatively flat year over year. During the Q2, prepayments on mortgage related securities stabilized following a surge in expected prepayments during the Q1. Still, we continue to focus decreasing floating rate investments given the current interest rate environment.
As of 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 our attention on purchasing higher yielding corporate debts, primarily in the subordinated FI sector to minimize the cost of our senior debt issues, while maintaining the duration of our portfolio. Turning to Slide 7, we provide an overview of our loan portfolio in the Q2. At the end of the second quarter, total loans were $5,900,000,000 up 3.6% compared to the Q1 of 2020 and up 2.2% compared to December 2019. As Miller mentioned previously, these increases were largely a result of the PPP loans originated during the quarter and partially offset by declines in other loan originations attributable to the current economic environment and more stringent credit guidelines as a result of the pandemic.
Loan production in the Q2 centered on the PPP loans to small businesses. As mentioned earlier, as of June 30, 2020, Ameren had received approval and funded over 2,000 loans and more than 219 through this program. Beyond PPP loans, real estate loans were also up quarter over quarter year over year due to increases in jumbo mortgages within our single family residential portfolio. Going to Slide number 8, we see the credit quality of the portfolio. We recorded a provision for loan losses of $48,600,000 during the Q2 of 2020, up from a $22,000,000 provision recorded in the Q1 of 2020 and a release of $1,400,000 in the Q2 of 2019.
This provision includes 2 key drivers. 1st, we attribute $20,200,000 estimated losses reflecting deterioration in macroeconomic environment as a result of the impact of COVID-nineteen across multiple impacted sectors. And second, the increase in provision includes $28,200,000 due to loan portfolio deterioration reflected in downgrades and specific reserve requirements. Of this amount, dollars 20,000,000 is related to a Miami based coffee trader that unexpectedly announced liquidation plans early this month. The borrower had an outstanding indebtedness of $39,800,000 as of June 30, 2020, under a revolver line of credit.
We have placed a loan in nonaccrual status, downgraded to substandard, and we're working to recover as much as possible through the liquidation proceedings. However, the outcome of this process 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 basic points compared to the prior quarter, ending at 2.04%. Next, non performing assets increased 43,900,000 dollars quarter over quarter $44,600,000 compared to the year ago period, totaling $77,300,000 at the end of the second quarter 2020.
The ratio of non performing assets to total assets was 95 basic points, up 54 basic points from both Q1 2020 and Q2 2019. From this increase, 49 basic points resulted from the loan up to the coffee trader being placed in the non accrual status. I would like to discuss our loan portfolio more broadly in light of the current COVID-nineteen market environment. Approximately 42% of our outstanding loan portfolio is tied to industries potentially more vulnerable to the challenging dynamics created by the pandemic. 67% of these exposures are secured with real estate collateral.
I would like to note that our CRE portfolio remains well diversified with not significant property type, regional or tenant concentration. This portfolio has a low loan to value, healthy debt service coverage ratios and a 42% is represented by top tier CRE customers. We are encouraged by the recent pace of recovery efforts across the country and, while cautious, expect our retail portfolio to be well positioned as the country begins phases of reopening. Ameren's retail portfolio is primarily made up of highly traffic locations, including grocery anchored shopping centers and service oriented neighborhood shopping centers, many of which are essential business or included in the early three opening phases. Finally, we remain committed to the communities we serve, particularly during these difficult times To support our customers and as Miller mentioned previously, we continue to offer customized loan payments relief in accordance with regulatory guidelines, including interest only payments and forbearance options.
While it's difficult to forecast the impact of COVID-nineteen on our credit quality, we are proactively monitoring all our credit practices as well as individual exposures per business line and geography. As a result of these solid practices, Ameren credit quality remains sound and our reserve coverage is strong. Turning to Slide 9, we can observe that in general, yield of our 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 Q1 2020. This was largely due to the impact of the Federal Reserve emergency rate costs in March 2020.
We were able to minimize the decreasing yield resulting from lower rates in the investment portfolio to only 9 basic 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 Ameren's wholesale funding strategies. In the Q2, we continue to implement wholesale funding strategies focused on managing the current low interest rate environment. At the beginning of the quarter, we modified maturities on $420,000,000 fixed rate FHLB advances, representing $2,400,000 of cost savings for the rest of the 2020. Also, as mentioned before, we completed a $60,000,000 offer in senior notes of a coupon of 5.75%, which provided the company with a new source funding as we continue to navigate the COVID-nineteen pandemic.
Looking ahead, we will continue to actively leverage opportunities in the wholesale market to decrease funding cost as we manage through the current and future market environment. Moving to Slide 11, total deposits at the end of the 2nd quarter were $6,000,000,000 up 3.1% quarter over quarter. This increase was largely driven by the funds of the Triple T loans originated during the Q2 2020, which small business customers have not fully utilized. These unused funds totaled $133,000,000 as of June 30. Additionally, higher deposits in the Q2 of 2020 include $56,000,000 growth in reciprocal deposits compared to the Q1 2020, which we offered to certain customers who wanted to make their deposits fully eligible for FDA's insurance.
Domestic deposits, excluding online deposit growth and unused PPP related deposits increased $24,500,000 in the Q2 of 2020, up approximately 0.8% from the Q1 2020. This increase was mainly driven by the continued successful execution of our relationship centric strategy. Foreign deposits, which include deposits from customers in Venezuela and other countries, increased $3,500,000 or 0.1 percent compared to the prior quarter. While customers in Venezuela continue to use their deposits to cover living expenses, the annualized decline rate of foreign deposits reversed in the 2nd quarter, showing an increase in deposits equivalent to 0.1% or 0.5% annualized compared to the annualized decline of 7.1% during the Q1 of 2020. We attribute this increase to the combination of our team's improved customer service and sales efforts capturing more share of wallet with the lower pace of economic activity in Venezuela as a result of the COVID-nineteen pandemic.
Finally, broker deposits declined 59% or 9.1% quarter over quarter. On a final note, our cost of interest bearing deposits was down 24 basis points in the Q2 of 2020 compared to the Q1. This is a result of our efforts to proactively reprice CDs, relationship money markets and tiered products. Turning to our P and L on the Slide 12. Q2 2020 net interest income was $46,300,000 down almost 6% from the 1st quarter and down almost 14% from the Q2 of 2019.
The quarter over quarter decrease was driven by assets having repriced faster than liabilities following the emergency rate costs enacted by the Federal Reserve. This quarter, LIBOR rates closely tracked the Federal Reserve costs terms of magnitude, which led to a larger impact on our interest income than in previous quarter. This resulted in lower origination and repricing rates across our portfolios. Partially offsetting the decrease were higher loan volumes resulting from our active participation in the PPP program. The year over year decrease was driven by Federal Reserve 3 cuts to the benchmark rates in 2019 in addition to the 2 emergency cuts in March this year.
These costs in a decline 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 last quarter. The net interest margin for the Q2 2020 was 2.44 percent, representing a decrease of 21 basic points from the prior quarter and 48 basic points compared to the Q2 of 2019. Looking ahead to the balance of the year, we continue to anticipate our net interest income and net interest margin to be pressured largely as a result of the low interest rate environment and uncertain economic condition caused by the COVID-nineteen. Despite a slight increase in foreign deposits reported during Q2, we expect 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 cutting rates on deposits, relationship money markets and other top pricing rates that we pay to customers. Leveraging opportunities for lower cost, including FHLB and broker CDs. As you remember, we modified $420,000,000 Continuing to maximize high yield investments, evidenced this quarter by the purchase of high yield corporate securities, actively implementing and managing flow rates in our credit portfolio, which has begun to year this year and provides higher than average spreads. I'm working to further reduce asset sensitivity, which I will discuss shortly. We remain focused on implementing these actions and evaluating order to help us to navigate through the current environment.
Now turning to Slide 13, non interest income in the 2nd quarter was $19,800,000 down 9.8 percent quarter over quarter and up almost 40% year over year. The quarter over quarter decline in non interest income was largely driven by a lower net gain on sale of investments. We recognized a $7,500,000 net gain on the sale of 30 year treasury securities compared to a $9,200,000 dollars gain in the Q1. We purchased a portfolio of 30 year treasury securities last quarter to offset higher than expected prepayment rates on mortgage related securities in an increasingly lower interest rate environment. We sold off this portfolio as the anticipated prepayment speed stabilized.
These gains together with our efforts to reduce funding cost have helped us to compensate for the impact on interest earning assets. Additionally, deposits and other service fees dipped lower as service charges and wire transfer fees continued to decline due to the implementation of Zelle and the slowdown of economic activity due to the pandemic. Also this quarter, we had no credit card referral fees, which are received annually during the Q1, partially offsetting this decline was an increase in the derivative income due to restored customer activity. Our broker dealer's 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 helped create momentum during the sales process. This activity as well as higher customer trading volumes in the current volatile market resulted in increased 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 credit card 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 affiliates. Ameren's assets under management and custody decreased $71,500,000 to 1.72 $1,000,000,000 in the Q2 of 2020 from $1,790,000,000 in the Q2 of 2019. The decrease is largely due to COVID headwinds, partially offset by account growth as Amarin sales team continue to execute our relationship centric strategy and new customer relationship balances brought in. By the acquisition of Elan 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, 2nd quarter non interest expenses was $36,700,000 down 18% quarter over quarter and down 30.6% year over year. This quarter over quarter decrease is largely due to the deferral of direct costs associated with the origination of PPP loans that Miller discussed earlier in this call. These costs are deferred and amortized over the term of the related loans as adjustments to interest income in accordance with generally accepted accounting principles and consisted of 7,800,000 dollars of salaries and other employee benefits and $700,000 of other operating expenses. Partially offsetting these declines was an increase in professional and other 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 the increase in deferred costs associated with the origination of the PPP loans.
The absence of rebranding costs last year related to our transformation efforts also contributed to this decrease. Looking to the remainder of 2020, we continue to focus in cost reduction strategies that entails physical space and key vendor analysis. On Slide 15, 2nd quarter adjusted non interest expenses was $35,400,000 down 20% quarter over quarter and down 29% year over year. Adjusted non interest expenses decreased quarter over quarter as non interest expenses were meaningfully lower due to the reason I just discussed. In the 2nd quarter, we had a restructuring expense of $1,300,000 attributed to the ongoing transformation compared to $400,000 last quarter.
This quarter costs included $1,000,000 in digital transformation expenses as we move forward with implementation stage of sales force and Ncino and staff reduction costs of about 400,000 dollars We remain committed to the implementation of initiatives that create efficiencies. We're moving forward with the closure of 2 banking centers and we're renegotiating the termination of these leases as a result of these actions. Restructuring expenses decreases 52% year over year in the Q2 due to the absence of rebranding costs related to the prior year transformation efforts. While we have reduced our staff by 1.7% since the Q2 of 2018, we have not made any staffing changes in response to COVID. Moving on to next Slide number 16.
As we have said in prior quarters and throughout this call, Ameren 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 in the increasingly low interest rate environment. We continue to implement flow 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 $60,000,000 of notional inter year treasury securities and purchase higher yielding corporate debt, mainly in the FI subordinated notes. We continue to be on the lookup to leverage opportunities to purchase higher yield, longer duration investments.
Now, I will hand it over back to Miller to conclude our prepared remarks.
Thank you, Carlos. Moving on to our last slide. We continue to execute on our goals to drive shareholder value. We remain focused on generating profitability for deposit and loan growth as well as maintaining credit quality as we navigate through the economic turmoil created by the COVID-nineteen pandemic. In the current low interest environment, we also plan to lean more on the careful management of our non interest expenses and expansion of our non interest 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, Amarant emerges stronger than before. Moreover, we look forward to continuing to support our communities through the COVID-nineteen pandemic. The entire Amarin team is heads down and pressing ahead on finding solutions for customers, whether it's a customized loan payment relief option or a new PPP loan.
We have dedicated additional employees to these efforts and will continue to be hyper focused on meeting customers' needs during this time. I know I speak for the entire Amarin team when I say we are 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 Q and A.
Thank you. Your first question is from Michael Rose of Raymond James. Your line is open.
Hey, good morning everyone. Hope you're well.
Yes, Michael. Hi, how are you? Good.
Just wanted to start with expenses. So on a core basis, if I back those items out that you called out and then add back those 7,800,000 dollars looks like we're at a run rate of about $43,000,000 so good expense control. Is that a good base in which to build off? And maybe can you talk about some of the expense reduction efforts? I know you mentioned the branch the 2 branches you're going to close.
Can you give us a sense for kind of what expenses could look like over the next quarter or 2? Thanks.
So, hi, Mike. How are you? So, in terms of the recent reduction that you noticed on the second quarter, So primarily it's driven by the PPP origination. As we mentioned
on the call, there was that
were deferred over the life of the loans. And of course, the fee income associated with these 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 $1,000,000 a quarter until we reach the 2 years anniversary of the loans. However, forgiveness or acceleration of these loans will definitely bring back those costs faster as well as the fee income.
So I wouldn't take it as a structural change. We still keep our target of being close to the 48 on a quarter on quarterly basis. This quarter, we spent about $1,000,000 on the digital transformation, but we expect that to catch up during the 3rd Q4 of the year. Remember that during the Q1, we under spent on that specific item. So progressively, the normalized cost structure should be closer to the number that we provided below before, roughly $48,000,000 to $49,000,000
Okay. That's helpful. And then, I noticed that the on the foreign deposits, the other foreign deposits were up, but the Venezuelan deposits were still down, 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 and payment platform has helped retain those international deposits. And we started at the beginning of the year a referral program also visiting other countries, in particular Colombia, where a lot of Venezuelans moved there. So we are capturing the same nature of deposits and we're expanding our relationship abroad.
And that has stabilized significant the previous deposit decay has stabilized significant and we are keeping relationship, which is very important. And also it has been compensated by commercial international accounts where we continue to have very good relationship and those have impacted very positive the trend.
Okay. I appreciate the color. And then maybe finally for me, just on the margin. Obviously, the step down this quarter, given the rate sensitivity. Should we expect some modest compression on our 4 basis ex PPP impact as we move into the Q3?
And do you have a sense for how much that might be? Thanks.
Expectation on the impact of the NIM should be roughly close to the 10 basis points extra. So it should be between the range of the $2.30 to $2.40 more or less. We ended at $2.44 but remember there is still several time deposits that we need to reprice for the remainder portion of the year. Those time deposits definitely they came at rates of 2019 and some of them 2018, which were definitely higher than the 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 we should be able to stabilize mean between the $230,000,000 to $240,000,000 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. I wanted to maybe just start on the credit side with the relationship that you guys identified and announced previously in the additional deterioration, can you just provide any details around how that relationship Hi, Mike. It's Miguel. This
Hi, Mike. It's Miguel. This is a relationship that has been in the books for more than 15 years. It has been monitored at least 20 times during those years. We did about $1,000,000,000 in constant sales liquidation transactions on an average of between $300,000 to $400,000 And since the pandemic started, we started as you know, we started monitoring our portfolio when we had constant communication with all our customers in particular with this customer.
We had communication in March April June. We were provided financial statements for December March that did not require any forbearance and we received payment through the month of May June. Definitely, it was an impact because non information of the liquidation process was given to us. We knew about this on a search with other companies that are in the same sector. So definitely, we have not had any contact with the company nor the liquidator, only with the liquidator through our legal counsel.
So we're still monitoring the situation. And by no mean there was a sign on any weakness nor in our process nor in the on conversation with the company.
It was kind of a digital event. It was filed until it gets back. Yes.
Okay. So have you conducted any sort of review, as a result of this of kind of the rest of the portfolio? Or are there any other relationships that kind of would mirror this relationship in terms of what they do on an operating basis?
Yes. We definitely not in particular because of this situation. We have review between risk, credit and the business. We have review almost 100% of the top 20 portfolio, almost 65% of the overall credit portfolio. In particular, in the credit commodities sector, we have a small presence.
Utilization has dropped significantly. Those relationships are mainly on the scrap metal and some proteins. They are under ABL with participation or with a lead bank that has expertise on those commodity traders. The ABL transaction are not relying on inventory. The majority are trade secure and all insured, sorry.
And also based on account receivables, we've had an outage every year or twice a year monitored by availability. So we don't foresee any issue. We have received financial information from at least until April May. And we are constantly reviewing those credits. And today, the exposure is around $80,000,000
Okay. And I guess just with the specifically identified relationship, what happened from a process standpoint that allowed them to end up in that big of a net loss position?
We are on the review with the legal. We have not earned the cost of the issue. As I mentioned, we received financial information up to March. We received payment on through May June. The last communication with them was typical answer related to a slowdown on sales to TOCOVI, but there was no specific reason.
And like I said, we have not been able to talk to the management of the company basically to the because of the type of liquidation that they decided to go through. And it's important to
mention that this company has went through a previous volatility in commodity prices in the past, in the 2011 coffee crisis, 2014 drought. So there was no indication that this company was not going to be able to sustain whether this situation as tends and was supported by the financial performance that we were receiving.
Okay. And I guess aside from that, did you guys provide an amount of loans that are currently in some state of deferral or forbearance And any breakdown on that by category?
So
as
provided in the documents, we have approximately
I mean from what is
left. And as mentioned, there's about 500 $1,000,000 that expired and that we have those that were due, we have received almost everything and or they have resumed payment almost everything that was due. There is another $300,000,000 that are coming due payment needs to resume by the end of this month. And we based on conversations we have with the customers and the improvement that we have seen in some of the collections and occupancy levels, we believe that that's not going to be an issue. From what is left, we will we have about 12% of the real estate portfolio will still be in one type of forbearance.
And then from the commercial, it's another 10%. So we think that this number will be reduced from the 20% that we see there to about 8% or 9% of the portfolio. And then as the situation progresses and things reopenings are happening, We believe that number should improve. We have seen that many of the customers have used the 1st 90 days as liquidity management for prevention. And have seen that in the second extension.
They have not meet for that those funds.
I guess that's a very important point because one if you look at the trend of the forbearances after reporting in the Q1 $1,100,000,000 it went to $500,000,000 now in the 2nd quarter. And most of what we discussed in the Q1 was that we identified that most of our customers were using this type of arrangements to preserve liquidity. And now it's kind of that is consistent with the performance that we're seeing that now we just have $500,000,000 still 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.
Good morning, Brady.
So I was wondering about your ability to further reduce the cost of deposits. The cost of deposits was down in the Q2, but it's still relatively high versus peers over 90 basis points. How rapidly do you think you can get that down? And how low do you think you can get on the cost of deposits from here?
Okay. That's a good question. So there are one immediate action that we're working and actually has been a work in progress since Q1, which was the progressive repricing of our high cost time deposits. So we have changed our table rate several times since the federal since the Fed funds dropped significantly in March. And now we continue to do so.
So based on the repricing schedule that we have on the time deposits, which is roughly between $300,000,000 to $400,000,000 from now to the end of the year, there should be an opportunity to reprice those time deposits to, let's call it, between 0.5 to 0.75 basic points, and that will definitely create an opportunity for cost savings. Additionally to that, we are evaluating our premium products like the relationship money market, which is roughly $400,000,000 in balances that cost us roughly 1% that also being a review for further drops. So that combination between the actions that we can take in those premium products plus the repricing of time deposits, you will definitely see a potential savings coming into the interest expenses.
Okay. That's helpful. So I know a lot has changed from when you guys went public. We have the pandemic, rates are now at 0, it's harder to grow loans. But a lot of what we talked about on the IPO roadshow is this profitability improvement 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 something you're considering further reducing the expense base from here?
Definitely, that's a work in process that we have been working for about 2 years now. We have several strategies that constantly evaluate our cost structure, not only headcount, but physical space. As we disclosed today, there are 2 branches that are being closed. So there is multiple efforts being done throughout the whole balance sheet to identify what areas are subject to have more drops in the cost structure, we continue to do so. So as I said, from physical space to an implementation of technology to create more efficiencies and increase productivity.
We are working on that day by day. And of course, efficiency impacted by the drop in the NIM, so that doesn't definitely play in our favor. But it's a work in 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 $1,100,000,000 as of June 30. So what you're saying is, as of now that number has dropped to $500,000,000 Is that correct?
That's correct. The $1,100,000 is loans the loans that we have approved for or they were under forbearance and they are those are the ones that are outstanding. Those are the loans that we provided forbearance and they are still outstanding. But out of that, we have already received payment or we expect to receive payment and some that have expired in the forbearance period and whatever is left is the $500,000,000 that we mentioned.
Better to say about $600,000,000 out of the $1,100,000 they expire their forbearance period and they are coming and
due for payments. Some of them already resumed payment as of July 17, some of them are due for payment before July 31. And it's a constant communication with the customers and customers are not requiring the extension. There are some that since the beginning were 4 80 days, so we'll still be there. But definitely if the trend continue like that, it's a good sign and also we're monitoring the situation of each of the regions where we are.
All right. Got it. Thank you.
I'm showing no further questions at this time. I would now like to turn the conference back to you, Mr. Wilson.
Thank you for joining our Q2 earnings conference call. As we manage through the unknowns of the current COVID 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 and have a wonderful day. You may all disconnect.