Q1 2021 Popular Inc Earnings Call
Good morning, and welcome to the popular Inc. First quarter 2021 earnings conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.
You ask a question you May press Star then one on your Touchtone phone to withdraw from the question queue. Please press Star then two 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 Vazquez, and our CRM video story on it.
We'll review our results for the first quarter and then answer your questions. Other members of our management team will also be available during the Q&A session before.
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 todays earnings press release and are detailed in our SEC filings.
You may find today's press release and other SEC filings on our webpage at popular Dot com.
I'll now turn the call over to our CEO Ignacio Alvarez.
Good morning, and thank you for joining the call I Hope you and your loved ones are well.
We began the year with a very strong quarter, achieving net income of 263 million.
Before I discuss the highlights for the first quarter I am pleased to report 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 Companys quarterly common stock dividend from 40 to 45 cents per share and income.
On the stock repurchase program of up to $350 million.
These actions evidenced the strength of our capital position, which allows us to return capital to our shareholders. While we continue to invest in our franchise.
Serve the needs of our customers. Please turn to slide three.
Our reported net income of 263 million 86 million higher than the fourth quarter.
These results were $228 million higher than the same quarter last year.
Both quarters were impacted albeit in opposite direction due to changes in economic forecasts.
Pandemic and its impact on receipts.
First quarter results were primarily driven by an $82 million benefit and the provision for credit losses as well as higher revenue.
The increase in net interest income was driven by higher PPP related fees.
On increasing our investment portfolio.
Lower deposit costs.
Our noninterest 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.
Large part due to the unprecedented level of interest as well as our diversified sources of revenue.
And prudent risk management.
Please turn to slide four for an update on PPP and other operational matters.
With respect to the PPP program, we have funded 42000 loans totaling $1 9 billion.
Thanks Ralph.
In round two we haven't reached nearly 13000 alone or.
$78 million.
On the loans originated in round, one close to 650 million or 46% and then forgiven as at the end of the first quarter.
In Puerto Rico as on March 31, we had 62% of all PPP loans that had been originally on the island gold programs.
We have seen an acceleration on the adoption of digital channels.
Active users on army banking platform on Puerto Rico has grown by 17% since March 2020.
We captured 69% on deposits in the first quarter digital channel as well.
While slightly lower than the 71% observed in the fourth quarter. It was considerably higher than the 56% registered in the first quarter of last year.
We believe that these trends may adjust downward somewhat as the economy continues to reopen.
We expect them to remain higher than pre pandemic levels. Finally, our customer based on Puerto Rico continues to grow increasing by 12000 in the first quarter to reach more than $1 9 million unique customers.
Please turn to slide five for an update on the current macroeconomic environment in Puerto Rico.
On the first quarter business trends and custom customer activity continued to improve building up on the momentum seen in the second half of 2020 as many other restrictions that were in place were gradually loosen.
Explanations and Puerto Rico on progress along a similar trajectory as in the mainland.
On the number of the cases on the island has increased in recent weeks COVID-19 related hospitalizations remain below national levels.
And from the levels have improved but are still lower compared to last year.
Total non farm employment has increased by 2% at December 2020, but remains at 4% below the March 2020 level.
Do you on a sales have remained robust with sales of 32000 units in the first quarter.
This is the second highest quarterly level only exceeded by the prior quarter's record level.
Net sales increased by 68% from the first quarter as compared to the year ago period, which is the highest level since at least 2016.
On tourism and hospitality sector continued to improve.
With much of the World travel limited.
It has become a popular destination from mainland residents during the pandemic.
Airport traffic is improving at a rapid pace.
On a unit a arrivals went down 20% from the year ago period arrivals during the month of March from 40% higher than the previous year.
Old town demand has also picked up significantly.
Current hotel booking rate on 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.
We'll then popular clientele credit and debit card sales in dollars increased by 39% compared to last year's first quarter and had been higher than pre pandemic levels. Other.
Loan originations and it could be our increased by 15% compared to the year ago period.
Similarly, we have continued to be strength in the housing market.
While the dollar volume of mortgage originations and PPP or decreased by 15% compared to last quarter. It has increased 127% versus the first quarter of 2020.
All in all we are extremely pleased with our results from the first quarter and encouraged by the economic outlook.
I'll now turn the call over to Carlos for more details on our financials.
Thank you Ignacio good morning, Please turn to slide six as usual additional information is provided in the appendix to despite COVID-19.
<unk> earnings press release details variances from the fourth quarter.
Net interest income for the first quarter was 479 million on increase of $7 million from Q4, driven mainly by PPP loan activity.
Q1, non interest income increased by 9 million to 154 million. This was primarily driven by higher mortgage banking income by $7 6 million due to a positive quarter over quarter variance in MSR valuation of $9 2 million plus $3 5 million higher.
Earnings from portfolio investments held on.
The equity method.
The provision for the first quarter decreased by 103 million to a benefit of 82 million.
<unk> will expand on later.
Total operating expenses were 376 billion in the quarter down slightly from Q4.
The fourth quarter included 23 million in expenses related to branch closure actions and popular.
Inc.
As well as the reclassification out of the expense category of 10 million for unfunded loan commitments, which moved to the provision for credit losses.
Excluding these two items the net increase in expenses in the first quarter would have been $12 8 million.
Adjusted variances from the fourth quarter income.
Fluid a 17 million increase in personnel cost due to higher commissions incentives and other employee compensation expenses.
So the financial performance on the Corporation.
Which were partially offset by lower professional fees by $4 1 million on lower advisory costs, which tend to ramp up as the year progresses.
Business promotion expenses were down $3 9 million due to lower seasonal advertising expenses.
For 2021, we continue to expect average quarterly expenses to be between 375 and $380 million.
Continued outperformance is a result from credit and business sentiment could lead to higher expenses, mainly on the year, especially on incentives commissions and bonuses.
Our effective tax rate for the quarter was 23% compared to 20% in the fourth quarter.
For 2021, we expect the effective tax rate to be between 20 and 24%.
Chris has hired on the range you gave last quarter as we now anticipate generating a higher proportion of taxable income this year.
Please turn to slide seven.
Net interest income from the quarter was $479 million, an increase of seven 5 million from Q4.
NII on a taxable equivalent basis was $430 million.
$9 million higher than the fourth quarter.
The primary drivers of the increased impact total equivalent NII.
For higher interest income from commercial loans by 9 million, mostly driven by an increase in interest income and fees of $11 6 million on lower deposit costs, primarily on popular bank.
These items were partially offset by two fewer days in the quarter with reduce NII by roughly $8 million.
Deposits grew by $1 9 billion in the quarter. This increase was mostly seen in <unk> commercial and retail segments.
NIM improved by three basis points to three 7% in Q1 on <unk>.
Taxable equivalent basis net interest margin was 339% an increase of four basis points.
A higher margin is mostly due to higher PPP related fees and lower deposit cost.
Total loan yields increased by 15 basis points from Q1, as a result of higher Pvp related income of $23 1 million.
Moving to 11 5 million in the fourth quarter.
Due to the accelerated recognition of being on forgiveness on these loans yielded approximately 721% in this quarter compared to $3, 23% last quarter.
The remaining on amortized portion of PPP fees is approximately $50 million.
Of which 70% correspond to the second round.
At this time, we believe that most of the first from PPP loans will be forgiven during the second and third quarter of this year and on majority of the second round through the pillows by the middle of next year.
We expect margins to be stable. The Russell 2021, the ultimate result will depend on our asset mix round, two PPP originations and the speed at which these SBA guaranteed loans are forgiven.
So at the end of the first quarter, Puerto Rico public deposits were roughly $15 billion in line with last quarter.
These balances do not include the most recent curious on federal stimulus of 14 <unk> hundred dollars per person, which were received in early April.
Moving on to Puerto Rico is quickly disbursing this benefit the residents in the us.
In the first half of the year additional federal stimulus and tax revenues will increase public deposit balances, which depending on the amount on timing will be on important factor into operations net interest margin.
We continue to expect deposit balances to come down over time, driven by the restructuring on the public sector debt and the eventual restart on current debt service.
Our ending loan balances decreased by $269 million in the quarter.
The PPP portfolio accounted for $80 million of the decrease.
PPP loans issued in the first Ron dropped by 558 billion, while second round disbursement were $478 million.
We continue to see strong demand and net portfolio growth in auto loans and leases on all of our other loan portfolios at either flat or have decreased since the fourth quarter.
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 eight.
Our capital levels remain strong relative to mainland peers, and well capitalized regulatory requirements.
Our common equity tier one ratio in Q1 was 17, 2% on <unk>.
90 basis points from Q4.
As Ignacio mentioned at the start on the school.
Our announced 2021 capital plan includes two actions first an increase of popular as part of the common dividend of 12, 5% or <unk> 245 per share.
We expect our board to declare a dividend in Q2 for payment in the third quarter.
Secondly, we will execute the common stock repurchase program of up to $250 million.
While our recent buyback programs have been confused.
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 on air.
Execution of our capital plan for 2021 was delayed by one quarter.
We now plan to return to our normal capital planning schedule.
Fully resulting in an announcement on popular 2022 capital actions no later on our January 2022 webcast.
Tangible 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 to the net income.
On a return on tangible equity was 21 four in the first quarter with that I'll turn the call over to Larry.
Thank you Carlos on good morning.
During the first quarter of the year the corporation of activity improved credit quality metrics on <unk>.
Lower credit cost driven.
Driven by the improving economic environment.
Result of the unprecedented amount of government stimulus and response to move on them.
Notwithstanding our positive results given the uncertainty on the economic disruption caused by the pandemic. We continue to monitor the impact of COVID-19 on our entire loan performance.
Please turn to slide number nine to discuss credit metrics.
Nonperforming assets decreased by $50 million.
774 million this quarter.
Mainly driven by NPL decrease from 40 million, coupled with a decrease of $11 million.
The NPL decrease was mainly in Puerto Rico, driven by lower mortgage Npls of 24 million.
<unk> improved post moratorium on payment activity.
Our structural npls decreased by 7 million, mostly due to a previously reserved loan that was partially charge off.
On the another quarter the ratio of Npls to total loans held in portfolio.
It was $2 four per cent compared to two 5% in the prior quarter.
Please turn to slide number 10 to discuss NPL inflows.
Compared to the fourth quarter.
NPL inflows, excluding consumer loans decreased by 30 million driven.
Driven by a decrease of $36 million in Puerto Rico, mainly.
Mainly due to lower mortgage NPL inflows by $32 million.
In the U S.
MPL inflows increased by $6 million.
Mostly related to a construction loan.
90 days its renewal process.
It was current at the other quarters.
Turning to slide number 11.
Net charge offs amounted to 21 million.
<unk> analyzed nine basis point of average loans held in portfolio.
Compared to 42 million.
On a 58 basis points in the prior quarter.
In Puerto Rico, net charge offs decreased by 22 million on.
Mainly driven by lower commercial by $19 million.
As the prior quarter included impairment charge off from previously reserved loans.
Consumer decreased by 13 million, mainly due to recoveries of $8 million related to the sales during the quarter of previously charge off loans.
The decrease.
These were partially offset by higher construction net charge offs by 7 million.
Related to the reserve loan that was partially charge off during the quarter.
And then in the U S net charge offs were flat quarter over quarter.
The corporation's allowance for credit losses decreased by 96 million.
Toyota on 1 million driven mainly by an improved economic outlook on improved credit quality assets.
Further in the following slides.
The ratio of allowance for credit losses to loans held in portfolio decreased from $2 75 per cent.
From three zero to 5% in the prior quarter.
Excluding payment protection program loans.
On guaranteed mortgage loans. This ratio is $3 10 person.
The ratio of the allowance for credit losses to Npls held in portfolio.
Was 115%.
Per 222% in the fourth quarter of last year.
Please turn to slide number 12, <unk> details on the drivers of the variance.
For credit losses.
During the quarter.
The allowance for credit losses increased by 96 million when compared to the previous quarter.
Our interest were driven by changes to the economic outlook qualitative reserves as well as portfolio credit quality on mix.
Our ACL framework utilize it.
Total weight of differentiating our estimation process.
Combined Moody's analytics S. One baseline on those three scenarios.
While a strong recovery is evident.
We remain cautious the more adverse outcomes.
These around the impact.
New viruses strength on the Puerto Rico government's ability to utilize available for us.
As a result.
We continue to assign to the baseline scenario on the highest probability.
So by the more pessimistic scenario.
Yeah.
Our macroeconomic forecast uses a number of economic variables with.
The unemployment rate GDP being the largest drivers.
The current baseline scenario shows improvement in both ways on the one GDP growth.
Unemployment rate when compared to our previous estimates.
The forecast GDP growth for 2021 is now $4 90 per cent for the U S. On.
Three four per cent from Puerto Rico.
Well the forecast that unemployment rate average from 'twenty 'twenty. One is now $6 one per cent per the U S on eight.
8% per foot on April <unk>.
The change in the macroeconomic scenario called ACL to decreased by 64 million.
During the quarter, we added $60 million in qualitative reserve related to a commercial real estate exposure in the U S.
Total portfolio and changes caused ACL to increase by 26 million portfolio changes include fluctuations in credit quality on volume mix.
To summarize our loan portfolio exhibited improved credit quality metrics during the first quarter.
Aided by payment deferrals on government stimulus we.
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 lineal and Carlos for your updates our colleagues continue to achieve impressive results under very challenging circumstances.
I'm going to start 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-19.
Iqos still has a significant amount of hurricane recovery funds that have yet to be dispersed.
And which we expect will now start flying at a faster pace.
The 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 heavily.
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 reported that more than 80% of our employees in Puerto Rico have now received at least one dose other vaccine.
We still have more work you're doing there are other markets and we are committed to encouraging and facilitating vaccination opportunities for all of our colleagues.
Our team is focused on supporting our customers and our communities during the transition to a post COVID-19 reality, where on a strong position to contribute to net 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 to ask a question you May Press Star then one on your touched on so if you are using a speakerphone. Please pick up your handset before pressing the keys.
Withdraw from the question queue. Please press Star then two.
Our first question is from Brock Vandervliet of you Yes. Please go ahead.
Thanks for the thanks for the question I guess, starting off as a big picture on our Puerto Rican GDP.
I believe that baseline number is looking for three 4% on if you can just talk and kind of put that in context when was the last time.
We saw a number like that for Puerto.
Puerto Rico.
Oh Wow.
I'm, having trouble I mean, I don't think we've seen that since maybe 2000 net debt.
Exactly on the first few years on behalf.
This brought the probably the last time, a long time, yes.
Debt, that's kind of what I figured I guess, you know given your market share and continued our momentum in growing customers.
Okay could the gearing to.
This recovery would be greater than what you what you project, where you really don't sound like we should expect no material loan growth to overpower the PPP run off until next year, you know could it be sooner than that.
Okay.
Hopefully it will be sooner than maybe we could see some near the end on a year, but it takes time for this money income to the economy.
We expect the pace.
On the funds to flow that is because I think the government on Puerto Rico with the federal government have agreed on on.
On procedures from from from 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 started the bidding process and whatnot. So we believe is going to take time for that money to flow and again, there is such a large amount of liquid.
Entity in the system still that.
Both consumers and businesses have a lot of liquidity. So well you know maybe what maybe it would be surprised but we do have the run off coming from PPP. We still have the western portfolios are running off a bit. So what we're trying to be we're trying to be prudent on what we're projecting but.
In general we do believe there will be long haul essentially just hard to predict when we will start to see it as far as your timing on whether.
Whether it was coming broke we feel that it is.
That is just on the short term liquidity.
On the Paydowns on PPP, probably outweighed what.
But we're on.
Names in the portfolio.
Got it okay I'll step back on the Q.
Okay.
The next question is from Gerard Cassidy of RBC capital markets. Please go ahead.
Good morning, everyone. How are you.
Oh well Inc.
<unk> could you share with us maybe an update on the Puerto Rican debt restructuring I think there was a proposal on maybe made at the beginning of March of this year on the public debt on the 35 billion 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 and debt debt.
Okay public debt is moving along I mean.
N D.
I was going to say the arbitration, but it's really a mediation to meet the mediation is that going forward and it looks like it looks like they're getting getting pretty close to an agreement debt.
A significant amount of credits could sign on to <unk>.
You know I think that the physical board has put a goal of trying to get this done in 2021, which which would be optimistic but.
That said I think they they've made some significant process.
Pensions is very much tied in in in.
Into that deal because obviously.
The restructuring plan.
Currently at least the.
The rumors we've heard in the different elements of it will require some reduction.
A reduction in pensions, albeit a small one so I think thats being negotiated now.
I think that's probably the most important sticking pointed out how do you resolve that and can the government given that its revenues has done better than expected on the economy doing better than expected can the government, perhaps make some of that up.
On another way. So you know, we'll see I'm I'm relatively optimistic that they're getting close to a deal on the.
I wouldn't predict it will happen this year because it's so complicated.
We're making progress on that on the PREPA restructure I I don't know where that is right now I think.
The most pressing issue right now is it.
The fiscal <unk> I'm, sorry, the court has before in a motion to approve.
The payments to loom out under the contracts. They had approved some initial payments further transition phase luma is supposed to take over the distribution and transmission starting first and those payments have to be approved in the bankruptcy proceeding in there they are filings and motions from.
From both sides of the government and the scoreboard asking that those payments would be approved and the one of the electrical workers union opposing it.
I hope that gives you some color yeah no very good. Thank you now can we now on to take it to the next step let's assume at some point it is restructured the public debt.
We resolved the public pension issue as well can you guys walk us through how you think the deposits that are now sitting here and yeah. I think Carlos you said there are about 15 billion.
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.
Yeah.
Oh well.
No we did not know on your R&D exact.
<unk> planned for the.
Or 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 billion.
No.
A good chunk of that payment.
We will probably be funded from the accounts. The government has in popular none as early on they are accounts at other banks as well.
The high probability that a good chunk of it will come from us.
So if that were to happen then we will see other deposits go down by some amount of <unk> six $7 billion or whatever that is.
That that outflow of deposits will not have a liquidity effect in popular because thats you know on.
Victor we've fully collateralized, so we get our collateral back and we said over reported wherever you want to do so.
Liquidity event.
Okay.
In this interest rate environment is also another material and net interest income event, because a lot of those funds are in cash free cash equivalents, earning very literally.
But it is a material event on our balance sheet, because our balance sheet, a little bit outsized right now because of the backfill of those deposits on when this deposits.
Leave the balance sheet.
We 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 our NIM.
Very good and then just finally on capital.
As you know the federal reserve came out and we're going to go on to the.
Stress capital buffer construct for our largest banks on the mainland here starting in the third quarter and as part of that construct as we all know there is 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.
The DFAST 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 'twenty, two or do you think you'll still need their pre approvals.
That you've gotten in the past assuming you had to have them in the past.
Yes, I think what we've done with the fed as we've established a good relationship and technically they don't approve day.
Jack I think as was the word I would I would.
We've been careful to say that I think on our releases.
So I think we're going to continue that process has worked for us.
We share with them our capital plan, we tell them, what we're thinking and.
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 to them to them to that process.
Great. Thank you.
Okay.
The next question is from Aaron.
Average of Citi. Please go ahead.
Yeah, I guess just following up on the on the debt restructuring beyond just the deposits going out how do you expect that to go.
On a flow through to the island.
In terms of either.
New business development, or new business and how it how would that impact the popular.
I I I personally and I personally believe it's going to be a positive.
A lot of good things are happening so they can get their instructions one more it's one more strength after tiger I guess.
First of all it will show the world that Puerto Rico has is moving forward.
You know we had on not a lot of negative headlines in the past I think we're going to start seeing more positive headlines debt will be one obviously it'll be easier from Puerto Rico to predict the future and build out its budget priorities.
How much you can count on.
So I think there's just a big positive psychological but it's also a big positive from a planning and priority strategic priorities of Politico consent will now know how much money. We can count on so I think that's going to be a big positive.
Okay, and then with the 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 debt balances.
About 670, I think in the first.
In the first PPP, one and $4 78 from PPP too.
And and so.
So it's.
Whether whether we see some growth ex that or dependent on on when they get forgiven because if.
If all of the second phase waits until the beginning of next year than what's going on relieving the rest of this year is about $600 million.
Yeah.
A lot of November.
Remember the second phase of PPP.
Time 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 an.
Impossible that we might see the forgiveness on the second phase accelerate as I mentioned at this point in time, we think is going to be the first half of next year.
But if the clients get their things on ROE it could be earlier. So he will depend on this so this whole chunk of 500 debt, but we don't know exactly what the time Inc.
We are seeing strong as we've mentioned several times strong growth in.
Areas like auto loans are definitely that's a assets.
Portfolio is growing I think we can expect.
More momentum in the mainland U S also south.
South Florida is basically back to normal and we believe that New York will come back faster than most people expect.
So those areas.
Looking at also closely.
Thank you.
Again, if you have a question.
Please press Star then one the next question is from Alex toward all of Piper Sandler. Please go ahead.
Hey, good morning.
Good morning, Alex.
First off just a couple of questions around some modeling stuff as I look at NII Carlos maybe you can talk about some other levers that you have.
Or that you've been doing too.
The NII.
Actually increase this year, even if we don't get any change in rates or anything like that for example, I think you've put on some securities or purchase some securities in the first quarter, what was the timing of those purchases or the rates et cetera, and then as I look at your sort of debt.
It seems to me like there is over $1 billion of a higher cost of debt, including some trust preferreds out there.
Are there some opportunities out there to retire some of that debt.
Now that could could actually help NII over the next couple of quarters.
Yes.
You are right Alex Index, we did we did some some movement on cash inflows included.
Investment portfolio in the fourth quarter as you'll recall, we did some more of that also in the first quarter and the first quarter. It was it was largely.
Later part of the quarter. So while you see the balance is going up.
A lot of the affected net income on that movement will actually happen in the second quarter.
But you want to reduce the first quarter to two to explore the card is just PPP. The PPP is what made the difference between.
Margin, staying flat or maybe even going down a little bit.
Versus going up.
So that will continue to be true in the second quarter.
And then as you know the other big Big Elephant in the room for us as other.
Net mix, if we depending on the level and the magnitude of influx of deposits that will have a big say on our and our margin as well.
If we just boil it down take out PDP right because that's obviously, it's volatile take out cash in and maybe just ignore the NIM and just look at NII from those securities purchases what was the there's $1 2 billion if I'm not mistaken what was kind of a blended yield on that that could that could potentially.
A little bit in the second quarter.
<unk>.
I don't remember exactly I think it was probably slightly under on the 1%.
That's probably the range in which.
In which it was on it.
But do remember that so that piece goes.
Goes up from 10 cents on deferred to something probably under one.
Uh huh.
And I do remember that those are mostly.
Most of the interest rates they are tax free from our point of view.
But the other.
The other pieces of 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.
One per cent is better than 10 basis points.
But if you have stopped fronting up because that was a tuneup.
There's still waste on the underneath on it.
On NII.
Got it and then what about the trust preferreds or other higher cost on that is there an opportunity to retire that at some point in 2021.
We will continue to look on.
Opportunities to manage our capitals on under any other year I think our statement stands for.
Okay.
And then just circling back to the loan growth question obviously.
Pretty tough current just wanted against this year, but as you kind of lineup some of the things that are going to be happening over the next year or so exit bankruptcy rebuilding the power grid.
Building on housing stock resurgence in tourism.
And of the expanded unemployment benefits, maybe putting some people back into the work force. 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.
Oh, I think we have the resources from 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 it'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 out for opportunities and we're getting good referrals from people that know us so well.
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're ready we just we just need to see it materialize.
As I said in my remarks.
We just we're in a good position to take advantage of the opportunities that we see it we really see are coming.
Got it thanks for taking my questions.
Yeah.
This concludes our question and answer session I would like to turn the conference back over to Ignacio Alvarez for clothing margin.
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-19 crisis. Thank you very much.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Yes.
Yeah.