Good morning, and welcome to the Popular, Inc. First Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
I would now like to turn the conference over to Paul Cardillo, Investor Relations Officer at Popular. Please go ahead.
Good morning and thank you for joining us. With us on the call today is our CEO, Ignacio Alvarez our CFO, Carlos Vasquez and our CRO, Lidio Soriano. They will review our results for the Q1 and then answer your questions. Other members of our management team will also be available during the Q and A session. Before we start, I would like to remind you that on today's call, we may make forward looking statements that are based on management's current expectations and are subject to risks and uncertainties.
Factors that could cause actual results to differ materially from these forward looking statements are set forth within today's earnings press release and are detailed in our SEC filings. You may find today's press release and our SEC filings on our webpage at popular.com. Will now turn the call over to our CEO, Ignacio Alvarez.
Good morning, and thank you for joining the call. I hope that you and your loved ones are well. We began the year with a very strong quarter, achieving net income of 263,000,000 dollars Before I discuss the highlights for the Q1, I am pleased to report that early this month, we announced a series of planned capital actions that we intend to execute this year. These actions include a 12.5% increase in the company's quarterly common stock dividend from $0.40 to $0.45 per share and a common stock repurchase program of up to $350,000,000 These actions evidence the strength of our capital position, which allows us to return capital to our shareholders, while we continue to invest in our franchise and serve the needs of our customers. Please turn to Slide 3.
Our quarterly net income of 263,000,000 was $86,000,000 higher than the Q4. These results were $228,000,000 higher than the same quarter last year. Both quarters were impacted albeit in opposite direction due to changes in economic forecast due to the pandemic and its impact under CECL. 1st quarter results were primarily driven by an $82,000,000 benefit in the provision for credit losses as well as higher revenues. The increase in net interest income was driven by higher PPP related fees, an increase in our investment portfolio and lower deposit costs.
Our non interest income increased due to higher mortgage banking income driven by higher MSR valuation. Credit quality trends were positive in the quarter with lower NPLs, lower NPL inflows and lower net charge offs. Our results reflect the ongoing rebound in economic activity experienced over the past few quarters in large part due to the unprecedented level of federal stimulus as well as our diversified sources of revenue and prudent risk management. Please turn to Slide 4 for an update on PPP and other operational matters. With respect to the PPP program, we have funded 42,000 loans totaling $1,900,000,000 in both rounds.
In round 2, we have originated nearly 13,000 loans for $478,000,000 Of the loans originated in round 1, close to $650,000,000 or 46% have been forgiven as of the end
of the
Q1. In Puerto Rico, as of March 31, we had funded 62% of all PP loans that have been originated on the island in both programs. We have seen an acceleration in the adoption of digital channels. Active users on our Mibanco platform in Puerto Rico have grown by 17% since March 2020. We captured 69% of deposits in the Q1 through digital channels.
While slightly lower than the 71% observed in the 4th quarter, it was considerably higher than the 56% registered in the Q1 of last year. We believe that these trends may adjust downward somewhat as the economy continues to reopen, but we expect them to remain higher in pre pandemic levels. Finally, our customer base in Puerto Rico continues to grow, increasing by 12,000 in the Q1 to reach more than 1,900,000 unique customers. Please turn to Slide 5 for an update on the current macroeconomic environment in Puerto Rico. In the Q1, business trends and customer activity continued to improve building upon the momentum seen in the second half of twenty twenty as many of the restrictions that were in place were gradually loosened.
Vaccinations in Puerto Rico have progressed along a similar trajectory as in the mainland.
While the number of
the cases on the island has increased in recent weeks, COVID related hospitalizations remain below national levels. Employment levels have improved, but are still lower compared to last year. Total non farm employment has increased by 2% since December 2020, but remains 4% below the March 2020 level. New auto sales have remained robust with sales of 32,000 units in the Q1. This is the 2nd highest quarterly level, only exceeded by the prior quarter's record level.
Cement sales increased by 68% in the Q1 as compared to the year ago period, which is the highest level since at least 2016. The tourism and hospitality sector continued to improve. With much of the world travel limited, Puerto Rico has become a popular destination for Mainland residents during the pandemic. Airport traffic is improving at a rapid pace. While year to date arrivals were down 20% from the year ago period, arrivals during the month of March were 40% higher than the previous year.
Hotel demand has also picked up significantly. The current hotel booking rate for the remainder of 2021 is above the booking level at the same time in 2019, which was a record year for tourism in Puerto Rico. Within Popular's clientele, credit and debit card sales in dollars increased by 39% compared to last year's Q1 and have been higher than pre pandemic levels. Auto loan originations at DPPR increased by 15% compared to the year ago period. Similarly, we have continued strength in the housing market.
While the dollar volume of mortgage originations PPPR decreased by 15% compared to last quarter, it has increased 127% versus the Q1 of 2020. All in all, we are extremely pleased with our results for the Q1 and encouraged by the economic outlook. I now turn the call over to Carlos for more details on our financials.
Thank you, Ignacio. Good morning. Please turn to Slide 6. As usual, additional information is provided in the appendix to the slide deck. Today's earnings press release details variances from the Q4.
Net interest income for the Q1 was $479,000,000 an increase of $7,000,000 from Q4, driven mainly by PPP loan activity. Q1 non interest income increased by $9,000,000 to $154,000,000 This was primarily driven by higher mortgage banking income by $7,600,000 due to a positive quarter over quarter variance in MSR valuation of $9,200,000 plus $3,500,000 higher net earnings from portfolio investments held under the equity method. The provision for the Q1 decreased by $103,000,000 to a benefit of $82,000,000 Lydia will expand later. Total operating expenses were $376,000,000 in the quarter, down slightly from Q4. The 4th quarter included $23,000,000 in expenses related to branch closure actions at Popular Bank, as well as the reclassification out of the expense category of $10,000,000 for unfunded loan commitments, which moved to the provision for credit losses.
Excluding these two items, the net increase in expenses in the Q1 would have been $12,800,000 The adjusted variances for the 4th quarter included a $17,000,000 increase in personnel cost due to higher commission, incentives and other employee compensation expenses that are tied to the financial performance of the corporation, which were partially offset by lower professional fees by $4,100,000 on lower advisory costs, which tend to ramp up as the year progresses and business promotional expenses that were down $3,900,000 due to lower seasonal advertising expenses. For 2021, we continue to expect average quarterly expenses to be between $375,000,000 $380,000,000 Continued outperformance as a result of improved credit and business sentiment could lead to higher expenses later in the year, especially in incentives, commission and bonuses. Our effective tax rate for the quarter was 23% compared to 20% in the 4th quarter. For 2021, we expect the effective tax rate to be between 20% 24%. This is higher than the range indicated last quarter as we now anticipate generating a higher proportion of taxable income this year.
Please turn to Slide 7. Net interest income for the quarter was $479,000,000 an increase of $7,500,000 from Q4. NII on a taxable equivalent basis was $430,000,000 $9,000,000 higher than the 4th quarter. The primary drivers of the increase in taxable equivalent NII were higher interest income from commercial loans by $9,000,000 mostly driven by an increase in PPP interest income and fees of $11,600,000 and lower deposit costs primarily at Popular Bank. These items were partially offset by 2 fewer days in the quarter, which reduced NII by roughly $8,000,000 Deposits grew by $1,900,000,000 in the quarter.
This increase was mostly seen in PPBR's commercial and retail segments. NIM improved by 3 basis points to 3.07% in Q1. On a taxable equivalent basis, net interest margin was 3.39%, an increase of 4 basis points. The higher margin is mostly due to higher PPP related fees and lower deposit costs. Total loan yields increased by 15 basis points in Q1 as a result of higher PPP related income of $23,100,000 compared to $11,500,000 in the 4th quarter.
Due to the accelerated recognition of fee income upon forgiveness, these loans yielded approximately 7.21% in this quarter compared to 3.23% last quarter. The remaining unamortized portion of PPP fees is approximately $50,000,000 of which 70% correspond to the 2nd round. At this time, we believe that most of the 1st round PPP loans will be forgiven during the 2nd Q3 of this year and a majority of the 2nd round PPP loans by the middle of next year. We expect margins to be stable the rest of 2021. The ultimate result will depend on our asset mix, round 2 PPP originations and the speed at which these SBA guaranteed loans are forgiven.
As of the end of the Q1, Puerto Rico public deposits were roughly $15,000,000,000 in line with last quarter. These balances do not include the most recent CARES Act federal stimulus of $1400 per person, which were received in early April. The government of Puerto Rico is quickly disbursing this benefit to residents in the island. In the first half of the year, additional federal stimulus and tax revenues will increase public deposit balances, which depending on the amount and timing will be an important factor in the corporation's net interest margin. We continue to expect public deposit balances to come down over time, driven by the restructuring of the public sector debt and the eventual restart of current debt service.
Our ending loan balances decreased by $269,000,000 in the quarter. The PPP portfolio accounted for $80,000,000 of the decrease. PPP loans issued in the 1st round dropped by $558,000,000 while 2nd round disbursements were $478,000,000 We continue to see strong demand and net portfolio growth in auto loans and leases, while all of our other loan portfolios are either flat or have decreased since the Q4. We expect loan balances will continue to be impacted by PPP forgiveness as well as limited demand resulting from unprecedented levels of client liquidity. As such, we do not expect overall loan growth to materialize until next year when demand resulting from expected economic growth should outpace forgiveness of PPP loans.
Please turn to Slide 8. Our capital levels remain strong relative to maintenance peers and well capitalized regulatory requirements. Our covered equity Q1 ratio in Q1 was 17.2%, up 90 basis points from Q4. As Ignacio mentioned at the start of this call, our announced 2021 capital plan includes 2 actions. 1st, an increase of Popular's quarterly common dividend of 12.5 percent or $0.05 to $0.45 per share.
We expect our Board to declare the dividend in Q2 for payment in the Q3. Secondly, we will execute a common stock repurchase program of up to $350,000,000 While our recent buyback programs have been executed via ASRs, the mechanism for the implementation of this buyback is still under consideration. We will continue to explore opportunities to manage our capital during the remainder of 2021 and in future periods. However, we do not expect further dividend increases or common stock repurchases this year. The filing of our and execution of our capital plan for 2021 was delayed by 1 quarter.
We now plan to return to our normal capital planning schedule, hopefully resulting in an announcement of Popular's 2022 capital actions no later than our January 2022 webcast. Annual book value decreased by $1.65 per share to $61.42 This decrease was driven by lower cumulative unrealized gains on investments, partially offset by our quarterly net income. Our return on tangible equity was $21,400,000 in the Q1. With that, I turn the call over to Olivier.
Thank you, Carlos, and good morning. During the Q1 of the year, the corporation exhibited improved credit quality metrics and lower credit cost, driven by the improving economic environment as a result of the unprecedented amount of government stimulus in response to the pandemic. Notwithstanding our positive results, given the uncertainty and the economic disruption caused by the pandemic, we continue to monitor the impact of COVID on our entire loan portfolio. Please turn to Slide number 9 to discuss quality metrics. Non performing assets decreased by $50,000,000 to $774,000,000 this quarter, mainly driven by an NPL decrease of $40,000,000 coupled with an audio decrease of $11,000,000 The NPL decrease was mainly in Puerto Rico driven by lower mortgage NPLs of $24,000,000 reflecting improved post moratorium payment activity.
Construction NPLs decreased by $7,000,000 mostly due to a previously reserved loan that was partially charged off. At the end of the quarter, the ratio of NPLs to total loans held in portfolio was 2.4% compared to 2.5% in the prior quarter. Please turn to Slide number 10 to discuss NPL inflows. Compared to the 4th quarter, NPL inflows excluding consumer loans decreased by $30,000,000 driven by a decrease of $36,000,000 in Puerto Rico, mainly due to lower mortgage NPL inflows by $32,000,000 In the U. S, NPL inflows increased by $6,000,000 mostly related to a construction loan that reached 90 days during its renewal process, but was current at the end of the quarter.
Turning to slide number 11, net charge off amounted to $21,000,000 or an annualized 29 basis points of average loans held in portfolio, compared to 42,000,000 dollars or 58 basis points in the prior quarter. In Puerto Rico, net charge off decreased by $22,000,000 primarily driven by lower commercial by $19,000,000 as the prior quarter included impairment charge off from previously reserved loans. Consumer decreased by $13,000,000 mainly due to recoveries of $8,000,000 related to the sale during the quarter of previously fully charge off loans. The decrease the decreases were partially offset by higher construction net charge off by $7,000,000 related to the reserve loan that was partially charge off during the quarter. In the U.
S, net charge offs were flat quarter over quarter. The corporation's allowance for credit losses decreased by $96,000,000 to $801,000,000 driven mainly by an improved economic outlook and improved credit quality, as discussed further in the following slides. The ratio of allowance for credit losses to loans held in portfolio decreased to 2.75% from 3.05% in the prior quarter. Excluding payment protection program loans and guarantee mortgage loans, this ratio is 3.10%. The ratio of allowance for credit losses to NPL's healthy portfolio was 115% compared to 122% in the Q4 of last year.
Please turn to Slide number 12 to discuss details on the drivers of the variance in allowance for credit losses. During the quarter, the allowance for credit losses decreased by 96,000,000 dollars when compared to the previous quarter. Variances were driven by changes to the economic outlook, qualitative reserves as well as portfolio credit quality and mix. Our ACL framework utilizes probability weights of different scenarios to our estimation process. We combine Moody's Analytics S1 baseline and S3 scenarios.
While a strong recovery is evident, we remain cautious to more adverse outcomes given uncertainties around the impact of new viruses' strains and the Puerto Rico government's ability to utilize the available federal assistance. As a result, we continue to assign to the baseline scenario the highest probability, followed by the more pessimistic estimate scenario. Our macroeconomic forecast uses a number of economic variables with unemployment rate and GDP being the largest drivers. The current baseline scenario shows improvements in both 2021 GDP growth and unemployment rate when compared to the previous estimates. The forecast GDP growth for 2021 is now 4.9% for the U.
S. And 3.4% for Puerto Rico, while the forecasted unemployment rate average for 2021 is now 6.1% for the U. S. And 8% for Q4. The change in the macroeconomic scenario caused the ACL to decrease by $64,000,000 During the quarter, we added $16,000,000 in qualitative reserve related to our commercial real estate exposure in the U.
S. Total portfolio changes caused the ACL to decrease by $26,000,000 Portfolio changes include fluctuations in credit quality and volume mix. To summarize, our loan portfolio exhibited improved credit quality metrics during the Q1, aided by payment deferrals and government stimulus. We will continue to carefully monitor the exposure of the portfolios to pandemic related risks and changes in the economic outlook. With that, I would like to turn the call over to Ignacio for his concluding remarks.
Thank you.
Thank you, Lidio and Carlos for your updates. Our colleagues continue to achieve impressive results under very challenging circumstances. Pablo has started off 2021 with positive momentum, driven by strong earnings, improved credit quality, record deposit levels, continued customer growth and planned capital actions. We are optimistic about the economic environment and our opportunities for the remainder of the year. In addition to the unprecedented level of federal stimulus related to COVID, Puerto Rico still has a significant amount of hurricane recovery funds that have yet to be dispersed and which we expect will now start flowing at a faster pace.
Their combined impact should generate considerable economic activity in many sectors for the coming years and we are well positioned to benefit from such activity. The pace of vaccination is also encouraging. As the data has demonstrated, massive vaccination is the key to controlling the virus. I am proud how we have been collaborating with local health authorities and community organizations by lending our facilities and personnel to help accelerate vaccination efforts in Puerto Rico. I am particularly happy to report that more than 80% of our employees in Puerto Rico have now received at least one dose of the vaccine.
We still have more work to do in our other markets and we are committed to encouraging and facilitating vaccination opportunities for all our colleagues. Our team is focused on supporting our customers and our communities during the transition to a post COVID reality.
We are
in a strong position to contribute to that recovery and leverage the opportunities that lie ahead. We are now ready to answer your questions.
We will now begin the question and answer session. Our first question is from Brock Vandervliet of UBS. Please go ahead.
Thanks for the question. I guess starting off with a big picture on Puerto Rican GDP, I believe that baseline number is looking for 3.4%. If you could just talk and kind of put that in context, when was the last time we saw a number like that for Puerto Rico?
Wow! I'm having trouble. I mean, I don't think we've seen that since maybe 2000.
The early yes, exactly. The 1st few years of 2000, Brock. It's probably
the last time that happened. A long time. Yes. That's kind of what I figured. I guess, given your market share and continued momentum in growing customers, could the gearing to this recovery be greater than what you project where you really don't sound like we should expect material loan growth to overpower the PPP runoff until next year, could it be sooner than that?
I mean, it can hopefully it will be sooner, maybe we could see something at the end of the year, but it takes time for this money to come through the economy. When we expect the pace of the funds to flow, That is because I think the government of Puerto Rico with the federal government have agreed on procedures for much of this money, but that doesn't mean that doesn't take time to work out. For example, most of these projects require some kind of a bidding process And now you'll see the government start the bidding process and whatnot. So we believe it's going to take time for that money to flow. And again, there's such a large amount of liquidity in the system still that both consumers and businesses have a lot of liquidity.
So while maybe we'll be surprised, but we do have the runoff coming from PPP. We still have the Western portfolio also running off a bit. So we're trying to be prudent in what we're projecting. But in general, we do believe there will be loan growth eventually. It's just hard to predict when we'll start to see it.
As far as the issue of timing than whether it's coming, but we feel that it is in the past is just in the short term the liquidity and the pay downs of PPP probably outweigh what we're adding to the portfolio.
Got it. Okay. I will step back in the queue. Thank you.
The next question is from Gerard Cassidy of RBC Capital Markets. Please go ahead.
Good morning, everyone. How are you? Good morning, Mark. Good
morning. I'm well.
Ignacio, could you share with us maybe an update on the Puerto Rican debt restructuring? I think there was a proposal maybe made at the beginning of March of this year on the public debt, the $35,000,000,000 or so, and then also the public pensions. And then in addition to that, any updates on what's going on with PREPA and the restructuring of that debt?
Okay. The public debt is moving along. I mean, the I was going to say the arbitration, but it's really a mediation. The mediation has been going forward. And it looks like they're getting pretty close to an agreement that a significant amount of creditors could sign on to.
I think that the fiscal Board has put a goal of trying to get this done in 2021, which would be optimistic. But that said, I think they've made significant process. The pension is very much tied into that deal because obviously the restructuring plan currently at least the rumors we've heard and the different elements of it will require some reduction in pensions albeit a small one. So I think that's being negotiated now. I think that's probably the most important sticking point is how do you resolve that and can the government given that its revenues have done better than expected and the economy is doing better than expected, can the government perhaps make some of that up in another way?
So we'll see. I'm relatively optimistic that we're getting close to a deal. I wouldn't predict it will happen this year because it's just so complicated, but they're making progress. On the proper restructuring, I don't know where that is right now. I think the most pressing issue right now is that that the fiscal I'm sorry, the court has before a motion to approve the payments to Luma under the contract.
They had to approve some initial payments for the transition phase, but Luma is supposed to take over the distribution and transmission starting June 1. And those payments have to be approved in the bankruptcy proceeding and they are filings and motions from both sides of the government and the fiscal board asking that those payments be approved and the one of the electrical workers union opposing them. I hope that gives you some color.
Yes. No, very good. Thank you.
Now can we now take it
to the next step? Let's assume at some point it has restructured the public debt and then they resolved the public pension issue as well. Can you guys walk us through how you think the deposits that are now sitting in I think Carlos you said they're about $15,000,000,000 How do you see those working their way down once the approvals are all in place, they start debt service again. Have you given that any thought?
Well, we do not know, Gerard, the exact execution plan for the restructuring. But of the things we have seen imply that there will be an upfront one time payment of something in the magnitude of $7,000,000,000 Now a good chunk of that payment will probably be funded from the accounts the government has in Popularity, not necessarily all, they have accounts in other banks as well, but it's a high probability that a good chunk of it will come from us. So if that were to happen, then we'll see public deposits go down by some amount $5,000,000 $6,000,000 $7,000,000 whatever that is. That outflow of deposits will not have a liquidity effect in Popular because as you know all deposits need to be fully collateralized. So we get our collateral back and we settle, we'll repo it whatever we want to do.
So it's not a liquidity event. And in this interest rate environment is also not a material and net interest income event, because a lot of those funds are in cash or cash equivalents earning very little. But it is a material event on our balance sheet because our balance sheet is a little bit outsized right now because of the bank to do this deposit. And when this deposit leave, the balance sheet will start looking closer to a normal course of business balance sheet. Obviously, the departure of this significant amount of liquidity will also have an effect on R and D.
Very good. And then just finally on capital, as you know, the Federal Reserve came out and we're going to go to the stress capital buffer construct for our largest banks on the mainland here, starting in the Q3. And as part of that construct, as we all know, there's not going to be the need for the pre approval of these banks for their share repurchase plans and dividend increases. When you look at your relationships with the Fed, and I know you're not part of obviously the DFAS process that the big banks go through. Do you think you will be relieved of any pre approval process on your capital action plans going forward in 2022?
Or do you think you'll still need the pre approvals that you've gotten in the past assuming you've had to have them in the past?
Yes. I think what we've done with the Fed is we've established a good relationship and technically they don't approve. They don't object, I think is the word I would we've been careful to say and I think in our releases. So I think we are going to continue that process. It's worked for us.
We share with them our capital plan. We tell them what we're thinking and generally they've become much better at responding much faster than in the past. So I think it's worked for us. I think we'll stick to that process.
Great. Thank you.
The next question is from Arren Cyganovich of Citi. Please go ahead.
Yes. I guess just following up on the debt restructuring, beyond just the deposits going out, how do you expect that to kind of flow through to the island in terms of either new business development or new business? And how would that impact or new business and how would that impact Popular?
I personally Aaron, I personally believe it's going to be a positive. I mean, a lot of good things are happening if we can get the restructuring, it's one more strike off the tiger, I guess. First of all, it will show the world that Puerto Rico is moving forward. We had a lot of negative headlines in the past. I think you're going to start seeing more positive headlines that will be 1.
Obviously, it will be easier for Puerto Rico to predict its future and build out its budget priorities knowing what how much it can count. So I think it's just a big positive psychological, but it's also a big positive from a planning and priority strategic priorities that Puerto Rico can set. We will now know how much money we can count on. So I think it's going to be a big positive.
Okay. And then with the loan growth or I guess loans being expected to be kind of flat this year, what is the balance of your current PPP loans? And excluding the PPP, would you have at least modest growth expected for the year?
The balance is about 6.70 I think in the first in the first the PPP1 and 4.78 in PPP2. And so it's whether we see some growth ex that will depend on when they get forgiven, right? Because if it's a evolve of the 2nd phase wait until the beginning of next year, then what's going to be leaving the rest of this year is about $610,000,000 But a lot of the PPP remember the second phase of PPP was designed to have a lot smaller loans and that is what it has in it. And the smaller loans actually can take advantage of this more simplified forgiveness process. So it's not impossible that we might see the forgiveness of the 2nd phase accelerate.
As I mentioned, at this point in time, we think it's going to be the first time next year. But if the clients get their things enrolled, it could be earlier. So it all depends on this additional chunk of 500 that we don't know exactly what the time is going to be.
Yes. And we are seeing strong as we've mentioned several times, strong growth in areas like auto loans. So definitely that's a portfolio that's growing. I think we can expect more momentum in the mainland U. S.
Also I think South Florida is basically back to normal. And we believe that New York will come back faster than most people expect. So those are areas that we are looking at also closely.
Thank you.
The next question is from Alex Twerdahl of Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Alex.
First off, First off, just a couple of questions around some modeling stuff. As I look at NII, Carlos, maybe you can talk about some of the levers that you have or that you've been doing to see NII actually increase this year even if we don't get any change in rates or anything like that? For example, I think you put on some securities or purchased some securities in the Q1. What was the timing of those purchases or the rates, etcetera? And then as I look at your sort of debt, it seems to me like there's over $1,000,000,000 of higher cost in debt, including some trust preferreds out there.
Are there some opportunities out there to retire some of that debt that could actually help NII over the next couple of quarters?
Yes. Well, you are right, Alex, in that we did some movement of cash into the investment portfolio in the Q4 as you recall. We did some more of that also in the Q1. In the Q1 it was largely at the latter part of the quarter. So while you see the balance is going up a lot of the effect in net income of that movement will actually happen in the 2nd quarter.
But you want to reduce the Q1 to its core. The core is just PPP. The PPP is what made the difference between margin staying flat or maybe even going down a little bit and versus going up. So that will continue to be true in the Q2. And then as you know, the other big, big elephant in the room for us is asset mix.
If we depending on the level and magnitude of influx of deposits, that will have a big say in our margin as well.
If we just boil it down, take out PPP, right, because that's obviously going to be volatile, take out cash and maybe just ignore the NIM and just look at NII. For those securities purchases, what was the there's $1,200,000,000 if I'm not mistaken, what was kind of the blended yield on that that could potentially help a little bit in the second quarter?
I don't remember exactly. I think it was probably slightly under 1%. That's probably the range in which it was, Alex. But do remember that so that piece goes up from $0.10 on the Fed to something probably under 1. And do remember that those are they're mostly treasury they are tax free from our point of view.
But the other piece of the puzzle is of course all the run off that we're having from the investment portfolio is higher yielding stuff that keeps running up. So yes, 1% is better than 10 basis points, but if you have stuff running up that was a 2.5% it still weighs on NII.
Got it. And then what about the trust preferreds or other higher cost in debt? Is there an opportunity to retire that at some point in 2021?
We will continue to look opportunities to manage our capital during the remainder of the year. I think our statement stands for itself.
Okay. And then as I just circling back to the loan growth question, obviously, it's a pretty tough current to swim against this year. But as you kind of line up some of the things that are going to be happening over the next year or so, exiting bankruptcy, rebuilding the power grid, rebuilding the housing stock, resurgence in tourism, the end of the expanded unemployment benefits, maybe putting some people back into the workforce. It seems like loan growth as we look into 2022, it might not just trickle back on, but just really explode out of the gates. Is there anything with that thinking that is flawed?
And what are you guys doing to prepare for a potential just huge ramp up in loan growth next year, if you think that's possible?
Well, I think we have the resources. We are talking about the human and technical resources to handle that. The loan sizes in Puerto Rico have grown over the years. So we're expecting that a lot of that will be in larger loans and that's something that's a bit more efficient to handle. We're looking at the different industries that have potential for growth.
We're talking closely to our clients. We are seeing a lot of renewed interest from mainland investors coming to Puerto Rico looking for opportunities. And we're getting good referrals from people that know us. So we're not just waiting for people to come in our office. We're trying to predict what's going to happen in the future.
And we're talking to people, asking what they expect their needs are going to be. So really, I think we are ready. We just need to see it materialize. And as I said in my remarks, we're in a good position to take advantage of the opportunities that we see that we really see are coming.
Got it. Thanks for taking my questions.
This concludes our question and answer session. I would like to turn the conference back over to Ignacio Alvarez for closing remarks.
Thanks again for joining us today and for all your questions. We look forward to updating you on our progress in July and please stay safe as we work our way out of this COVID crisis.
Thank you very much.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.