Popular, Inc. (BPOP) Q1 2021 Earnings Report, Transcript and Summary

Good morning, and welcome to the Popular, Inc. First Quarter 2021 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to Paul Cardillo, Investor Relations Officer of 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 Vázquez; and our CRO, Lidio Soriano. They will 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 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 web page at popular.com. I 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 million. Before I discuss the highlights for the first quarter, I am pleased to report that earlier 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 million. 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 current net income of $263 million was $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 due to the pandemic and its impact on the season. First quarter results were primarily driven by an $82 million 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 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, in large part due to the unprecedented level of better 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 $1.9 billion in both rounds. In Round two, we have originated nearly 13,000 loans for $478 million. Of the loans originated in Round 1 close to $650 million or 46% have been forgiven as of the end of the first quarter. In Puerto Rico, as of March 31, we had funded 62% of all PPP loans that have been originated on the Island in both programs. We have seen an acceleration in the adoption of digital channels. Active users in our Mi Banco platform in Puerto Rico have grown by 17% since March 2020. We covered 69% of deposits in the first quarter through digital channels. 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, 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 first quarter to reach more than 1.9 million unique customers. Please turn to Slide 5 for an update on the current macroeconomic environment in Puerto Rico. In the first quarter, business trends and customer activity continue to improve, building upon the momentum seen in the second half of 2020 as many of the restrictions that were in place were gradually loosen. 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 had 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 first quarter. This is the second highest quarterly level, only exceeded by the prior quarter's record level. Cement sales increased by 68% in the first quarter as compared to the year ago period, which is the highest level since at least 2016. The tourism 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 first quarter and has been higher than pre-pandemic levels. Auto loan originations at BPPR increased by 15% compared to the year ago period. Similarly, we have continued to see strength in the housing market. While the dollar volume of mortgage originations at BPPR 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 for the first quarter and encouraged by the economic outlook. I now turn the call over to Carlos for more details on our financials. Carlos Vázquez: 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 fourth quarter. Net interest income for the first quarter was $479 million, an increase of $7 million from Q4 driven mainly by PPP loan activity. Q1 noninterest 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, closed $3.5 million higher net earnings from portfolio investments held under the equity method. A provision for the first quarter decreased by $103 million to a benefit of $82 million. Lidio will expand later. Total operating expenses were $376 million in the quarter, down slightly from Q4. The fourth quarter included $23 million in expenses related to branch closure actions at Popular Bank 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 2 items, the net increase in expenses in the first quarter would have been $12.8 million. The adjusted variances for the fourth quarter included a $17 million increase in personnel costs due to higher commissions, 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 $4.1 million on lower advisory costs, which tend to ramp up as the year progresses. As business promotional expenses that were down $3.9 million due to lower seasonal advertising expenses. For 2021, we continue to expect average quarterly expenses to be between $375 million and $380 million. 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 fourth quarter. For 2021, we expect the effective tax rate to be between 20% and 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 million, an increase of $7.5 million from Q4. NII on a taxable equivalent basis was $430 million, $9 million higher than the fourth quarter. The primary drivers of the increase in factual equivalent NII were higher interest income from commercial loans by $9 million, mostly driven by an increase in PPP interest income and fees of $11.6 million and lower deposit costs, primarily at Popular Bank. These guidances were partially offset by 2 few days in the quarter, which reduced NII by roughly $8 million. Deposits grew by $1.9 billion in the quarter. This increase was mostly seen in BPPR's commercial and retail segments. NIM improved by 3 basis points to 3.07% in Q1. On a tactical 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 $23.1 million compared to $11.5 million in the fourth quarter. Due to the accelerated recognition of fee income on 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 million, of which 70% correspond to the second round. At this time, we believe that most of the first round PPP loans will be forgiven during the second and third quarter of this year, and the majority of the second ground 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 origination and the speed at which these SBA guaranteed loans are forgiven. As of 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 CARES Act Federal stimulus of $1,400 per person, which were received in early April. The Government of Puerto Rico is quickly disbursing this benefit to residents in the action. 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 million in the quarter. The PPP portfolio accounted for $18 million of the decrease. PPP loans issued in the first round, dropped by $558 million, while second round disbursements were $478 million. 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 fourth quarter. We expect loan losses 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 for goodness of PPP loans. Please turn to Slide 8. Our capital levels remain strong relative to mainland peers and well-capitalized regulatory requirements. Our common equity Tier 1 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. First, an increase of Popular's quarterly common dividend of 12.5% or $0.05 to $0.45 per share. We expect our Board to declare the dividend in Q2 for payment in the third quarter. Secondly, we will execute a common stock repurchase program of up to $350 million. Well, 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 21.4% in the first quarter. With that, I turn the call over to Lidio.

Thank you, Carlos, and good morning. During the first quarter 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 pandemic. Notwithstanding our positive results, given the uncertainty and the economic disruption caused by the pandemic we'll continue to monitor the impact of COVID on our entire loan portfolio. Please turn to Slide #9 to discuss cost credit metrics. Nonperforming assets decreased by $50 million to $774 million this quarter, mainly driven by an NPL decrease of $40 million, coupled with another decrease of $11 million. The NPL decrease was mainly in Puerto Rico, driven by lower mortgage NPLs of $24 million, reflecting improved post moratorium payment activity. Construction NPLs decreased by $7 million 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 #10 to discuss NPL inflows. Compared to the fourth quarter, NPL inflows, excluding consumer loans, decreased by $30 million, driven by a decrease of $36 million in Puerto Rico, mainly due to lower mortgage NPL inflows by $32 million. In the U.S., NPL inflows increased by $6 million mostly related to a construction loan that reached 90 days during its renewal process or was current at the end of the quarter. Turning to Slide #11. Net charge-offs amounted to $21 million or an annualized 29 basis points of average loans held in portfolio compared to $42 million or 58 basis points in the prior quarter. In Puerto Rico, net charge-offs decreased by $22 million, primarily 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 sale during the quarter of previously fully charged off loans. The decreases were partially offset by higher construction net charge-offs by $7 million related to the reserve loan that was partially charged 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 million to $801 million driven mainly by the improved economic outlook and improved credit quality as discussed further in the following slide. 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 guaranteed mortgage loans, this ratio is 3.10%. The ratio of the allowance for credit losses to NPLs held in portfolio was 115% compared to 122% in the fourth quarter of last year. Please turn to Slide #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 million, 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 realizes probability weights of different scenarios to our estimation process. We combine Moody's analytics, S1, baseline and S3 scenarios. While this strong recovery is evident, we remain cautious to adverse outcomes given uncertainties around the impact of new virus strains and the Puerto Rico government's ability to utilize the available for all systems. As a result, we continue to assign to the baseline scenario, the highest probability, followed by the more pessimistic scenario. Our macroeconomic forecast uses a number of economic variables with the unemployment rate at GDP being the largest drivers. The current baseline scenario shows improvements in both 2021 GDP growth, an unemployment rate when compared to the previous estimates. The forecast GDP growth for 2021 is down 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 Puerto Rico. The change in the macroeconomic scenario caused ACL to decrease by $64 million. During the quarter, we added $16 million in qualitative reserves related to our commercial real estate exposure in the U.S. Total portfolio changes cost a sales decreased by $26 million. Portfolio changes include fluctuations in credit quality and volume mix. To summarize, our loan portfolio exhibited improved credit quality metrics during the first quarter, aided by payment deferrals and government stimulus. We will continue to carefully monitor the exposure of the portfolios to pandemic related risk 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. Popular 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, 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 of how we have been collaborating with local authorities and community organizations by lending our facilities and personal health 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 1 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 through the transition to a post-COVID reality. We're in a strong position to contribute to that recovery and leverage the opportunities that lie ahead. We are now ready to answer your questions.

[Operator Instructions]. Our first question is from Brock Vandervliet of UBS.

I guess, starting off as 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 it 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. Carlos Vázquez: Yes, exactly. The first few years after 2000 it's probably the last time that happened.

Yes. 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 run off until next year. Could it be sooner than that?

I mean 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. What 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 it 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 mind to flow. And again, there's such a large amount of liquidity in the systems still that both consumers and businesses have a lot of liquidity. So maybe it will 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. Just hard to predict when we'll start to see it. Carlos Vázquez: As far as timing than whether it's coming, Brock, we feel that it is in the past, is just in the short term, the liquidity and the payouts of PPP probably outweigh what we're adding to the portfolio.

The next question is from Gerard Cassidy of RBC Capital Markets.

Ignacio, could you share with us maybe an update on the Puerto Rican debt restructuring, I think there was a proposal may be made at the beginning of March of this year on the public debt, 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 restructuring in that debt?

Okay. The public debt is moving along. I mean, the I was going to say the arbitration, but it's really mediation, the mitigation on the going forward, and it looks like they're getting pretty close to an agreement that a significant amount of creditors can 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 some 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 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 sticky point is how do you resolve that? And can the government given that its revenues have done better than expected. 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 they'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 PREPA restructuring, I don't know where that is right now. I think the most pressing issue right now is that the fiscal -- the -- I'm sorry, the court had put forward a motion to approve the payments to Luma under the contract, they had to prove some initial payments for the transition phase. 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 to be approved and the one of the electrical workers' union opposing them. I hope that gives you some color.

Yes. No, very good. Now can we now take it to the next step, let's assume at some point, it is restructured the public debt and they resolved the public pension initiative as well. Can you guys walk us through how you think the deposits that are now sitting here, I think, Carlos, you said they're 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? Carlos Vázquez: Yes. Well, the -- no, we do not know, Gerard, the exact execution plan for the restructuring. But the things we have seen imply that there will be an upfront onetime payment of something in the magnitude of $7 billion. Now a good chunk of that payment will probably be funded from the accounts the government has in Popular. Not necessarily all, they have accounts in other banks as well. But the high probability that a good chunk of it will come from us. So if that were to happen, then we'll see probably deposits go down by some amount, $5 million, $6 million, $7 million or 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 said it will repay whatever we want to do. So it's not a liquidity event. But -- and in this interest rate environment, it's also not a material net interest income event because a lot of those funds are in cash or cash for closings 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 is upon this. And when the deposits 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 would also have an effect on R&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 third quarter. 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 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 '22? 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 the stimulus checks, I think, is the word I would -- we've been careful to say, 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.

The next question is from Arren Cyganovich of Citi.

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 Popular?

I personally -- and 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 stripe off the tiger here, I guess. First of all, it will show the world that Puerto Rico has -- is moving forward. We had a lot of negative headlines in the past. I think we're going to start seeing more positive headlines that will be one. Obviously, it will be easier for Puerto Rico to predict this future and build out its budget priorities, know what -- how much you 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 potato consent. We'll 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? Carlos Vázquez: The balance is about $670 million, I think, in the first -- in the first -- the PPP 1 and $478 million in PPP 2. And so it's whether we see some growth ex that, it will depend on when they get forgiven, right? Because it's evolve of the second phase wait until the beginning of next year than what's going to be leaving the rest of this year is about 600 and change million dollars but a lot of the PPP -- remember, the second phase of PPP was designed to have a lot smaller goals. 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 second phase accelerate. As I mentioned, at this point in time, we think it's going to be the first half next year. But if the clients get their things on row, it could be earlier. So it will depend on this one chunk of 500 that we don't know exactly what time is going to be.

And we are seeing strong, as we've mentioned several times, strong growth in areas like auto loans. 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're looking at also closing.

[Operator Instructions]. The question is from Alex Twerdahl of Piper Sandler.

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 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's over $1 billion 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? Carlos Vázquez: Yes. Well, we -- you are right, Alex, in that we did some movement of cash into the investment portfolio in the fourth quarter, as you recall, we did some more of that also in the first quarter. In the first quarter, it was largely at the latter part of the quarter. So while you see the balances going up, a lot of the effect in net income of that movement will actually happen the second quarter. But you want to reduce the first quarter to its core. The core is just PPP. The PPP is what made the difference between margins staying flat or maybe even going down a little bit and 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 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 $1.2 billion, 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? Carlos Vázquez: I don't remember exactly. I think it is probably slightly under 1%. That's probably the range in which it was, Alex. But don't remember that -- so that piece goes up from $0.10 at the Fed to something probably under 1%. I don't 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 runoff that we're having from the investment portfolio. It's higher-yielding stuff that keeps running off. So yes, 1% is better than 10 basis points. But if you have stop running out, that was a 2.5%, it's still weighs on the NIM -- on NII.

Got it. And then what about the trust preferreds or other higher cost of debt? Is there an opportunity to retire that at some point in 2021? Carlos Vázquez: We will continue to look opportunities to manage our capital in 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 is 1 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 and thinking 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 for opportunities. And we're getting good referrals from people that know us. So we are 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 need to see it materialize. And as I said in my remarks, we just -- we're in a good position to take advantage of the opportunities that we see that we really see are coming.

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.