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- EVP, CFO
Good afternoon. Welcome to the presentation of Scotia Bank's third quarter results. I am Luc Vanneste, Executive Vice President and Chief Financial Officer. Rick Waugh, our CEO will lead off with the highlights of our results. Next, I will go over the financials. This will be followed by a review of business line performance, and an update on priorities by each of our business line heads. Then Brian Porter, our Chief Risk Officer will discuss credit quality. And finally Rick will close with some brief comments on the medium term outlook. We will then be glad to take your questions.
We also have our two Vice Chairman, as well as Jeff Heath, our new Group Treasurer, available to participate in Q&A. Before we start, I would like to refer you to Slide Two of our presentation, which contains Scotiabank's caution regarding forward-looking statements.
Rick, over to you.
- President, CEO
Well thanks very much, Luc. I must say we are very pleased to report net income of more than $1 billion this quarter, or earnings per share of $0.98. Overall, it was a very solid quarter with no large unusual items or writedowns. We continue to perform well by most metrics during a challenging period.
These solid results were achieved in large part due to our strategy of diversification across business lines, across geographies, it also reflects our focus on our three overriding priorities, The sustainable profitable revenue growth, capital management, and leadership development. This quarter each of our three businesses had higher earnings. Domestic banking had another very strong quarter with record net income. We continue to see broad market share increases in deposits, in mutual funds, in mortgages.
In international, we benefited from strong organic asset growth, as well as contributions from recent acquisitions although this was offset by some higher taxes. Scotia Capital had an excellent quarter with strong results across-the-board, in trading, Investment Banking, and in lending. It also benefited from the prudent growth of our corporate credit portfolio.
However, portfolio repricing and spread expansion had been delayed longer than we have expected. We have also experienced higher all bank funding costs in our Treasury operations. Credit quality remains stable, and loan loss provisions were basically flat compared to last year. Brian is going to provide more detail on credit quality in just a few minutes.
Overall then a very solid quarter. The environment though continues to be challenging, economies slowing around the world. However, we will continue to leverage our very strong capital, our high productivity and profitability to pursue strategic acquisitions, such as our recent opportunistic purchase of E*TRADE Canada and our additional investments in Peru. We have many options to continue our growth.
So with that, I will come back later, and turn it over to Luc, to go through our numbers in more detail.
- EVP, CFO
Thanks, Rick. Earnings rose 3% quarter-over-quarter, ROE remained very strong at 21%, and our industry leading productivity improved 50 basis points to 54.3%. EPS growth was slightly lower than net income growth, due to the higher dividends related to two new preferred share issues, Series 18 and 20.
Our balance sheet remains exceptionally strong with improving capital ratios. As Rick mentioned, we continue to see good asset growth. This quarter we also benefited from a strong performance in Capital Markets, and higher security gains. We also had minimal securities write-downs again this quarter, and loan provisions were stable. These were partially offset by higher expenses and a higher tax rate.
Year-over-year earnings were down 2%. This decrease was due mainly to higher loan loss provisions, lower Capital Markets revenues and higher expenses, due to acquisitions and in support of growth initiatives. Also as Rick mentioned, we have had relatively higher funding costs. Banks globally continue to pay a liquidity premium in the wholesale funding market, and we are seeing higher costs to hedge the banks interest rate risk. As well, the impact of a stronger Canadian Dollar hurt our EPS by $0.04.
Looking at revenues in more detail on Slide Seven, year-over-year revenues were up 5%, or 8% excluding the impact of forex, net interest income was up 7%, driven by good asset growth in our core PNC and corporate lending businesses, as well as the impact of acquisitions. This growth was partly offset by a lower net interest margin.
Other income was up 3% year-over-year. There were broad based increases in consumer driven revenues, including credit fees, cards, deposit and payment services and Mutual Fund fees, as well as higher securitization revenues. These increases were partly offset by lower trading revenues, compared to the peak levels in the same quarter last year. There were also lower securities gains.
Quarter-over-quarter, total revenues rose 6%. Net interest income increased 4% driven by good asset growth , a favorable impact of derivatives, and the two extra days in the quarter. Other income was up 10% compared to last quarter, driven by stronger Investment Banking revenue, including record revenues from Scotia Waterous. We also had higher trading revenues particularly in derivatives. As well, we had higher securities gains including a gain on the IPO of the Mexican Stock Exchange.
Turning now to Slide Eight. We continue to see double-digit asset growth. Assets were up 12% year-over-year with increases in most of the major Balance Sheet categories. Residential mortgages were up 15%, personal loans up 13%, and business and government loans rose a substantial 29%. Almost half of this increase related to our acquisition in Chile, and trading loans used to hedge derivative positions. These broad based increases were driven by both strong organic growth and our acquisitions.
Now turning to expenses on Slide Nine. Expenses increased 8% compared to the same quarter last year, due mainly to acquisitions, new branches in Latin America and Canada, and spending on other growth initiatives. These were partly offset by lower performance based compensation, and the favorable impact of foreign currency translation.
Quarter-over-quarter expenses rose 5% due to higher salaries resulting from the longer quarter, and higher performance based compensation in-line with improved trading results. As well, there was a provision for an indemnity payment in Peru. This related to a contingent liability that is now reasonably likely to be realized. We are comfortable that no further such provisions will be required.
Looking at capital on Slide 10. As Rick mentioned, Capital Management is one of our three key strategic priorities. So far this year, we have generated more than $1.3 billion of capital. We have also raised $925 million of preferred shares. This additional capital, as well as the impact of moving to the 90% floor under Basel II has resulted in higher capital ratios.
Tier 1 capital rose 50 basis points year-to-date, and tangible common equity has increased 40 basis points year-to-date. We will continue to use the strong capital base to pursue growth opportunities, both organic and by acquisition.
And with that, I will now turn it over to Chris Hodgson to talk about domestic banking.
- EVP, Head of Domestic Personal Banking
Thank you, Luc.
I will be starting on Slide 12. Domestic Banking had a record third quarter with net income of $455 million, a 16% increase year-over-year resulting in strong operating leverage of 7%. Revenues increased 9% driven by strong year-over-year growth in both assets and deposits, as well as a solid increase in fee income. This was partially offset by margin compression, due to higher levels of wholesale funding required to fund our strong asset growth, as well as a change in asset mix.
Expenses were well contained rising only 2% versus Q3 of '07. We continue to invest in revenue growth initiatives including new branches, more customer facing staff, and acquisitions. However, the impact of these investments was largely offset by our cost containment initiatives, and lower commission based compensation. Provisions for credit losses increased to $22 million compared to last year, in-line with our strong asset growth including the acquisition of Scotia Dealer Advantage, formerly known as Travelers Leasing.
Underlying credit quality continues to be good, and 90% of our retail portfolio was secured. Compared to Q2, net income grew 9%. Revenues increased 6% with strong increases in both net interest income and other income. Expense growth was well contained at 3%, rising due to higher volumes, and two extra days in the quarter.
Looking at revenues in more detail on the next slide, revenues increased 9% year-over-year. Retail and small business experienced strong volume growth. Mortgages increased 15% with growth in all sales channels. Our pipeline remains solid for the balance of the year. We also record a double-digit increase in revolving credit, as well as term and savings and checking deposits.
Commercial banking revenues increased substantially, fueled by strong organic and acquisition related asset growth. The asset growth reflects three factors, first, increased opportunities given current market conditions, second, a strong focus on margin and fee income, and thirdly, the impact of Scotia Dealer Advantage. Wealth Management revenues were flat year-over-year. Direct investing was up 20%, and Mutual Funds and Private Client Group both rose 6%, despite a challenging market. These were mostly offset by lower revenues in brokerage, due to weaker equity markets.
Slide 14 shows our market share gains. Overall, we have gained market share in a number of key areas, Personal Lending, Deposits, and Mutual Funds. Our share of residential mortgages is up six basis points year-over-year, but slowed this quarter as competition in the mortgage market continues to escalate, and we have maintained our pricing discipline through this period.
We have also continued to gain share in deposits, which is a key area of focus for us. Our year-over-year gains in both personal term deposits and total personal deposits are industry leading, even without factoring in our acquisition of Dundee Bank.
Finally we have continued to gain share in Mutual Funds up 28 basis points year-over-year, mainly in the more profitable long term funds. This represents in the more profitable long term funds. This represents the sixth consecutive quarter of market share gains in this category. Fiscal year-to-date we rank fourth in the fund industry for long term net sales. In addition, we were the number one bank in long term Mutual Fund sales in the third fiscal quarter, a clear sign that our initiatives over the past two years are paying dividends.
And as well, Scotia Capital had in excess of 80% of long term assets in the top two quartiles for one, three, and five-year performance respectively. Finally, we are focused on our top priority of driving sustainable profitable revenue growth. We are adding new branches in high growth markets. We expect to open 15 branches this year, on top of the 35 we have added last year.
We have also increased our sales staff in the important small business sector, and put more Financial Advisors into our existing branches. On the services front, our Bank the Rest deposit account is being well received by customers, with more than 70,000 enrollments thus far.
Looking at non-organic growth, we continue to build partnerships and make acquisitions to generate revenue lift. We recently entered into an agreement with HDFC Bank in India, to help us attract customers in the important multi-cultural segment, and recently, we acquired E*TRADE Canada, which will close the end of September, doubling our footprint in the attractive online brokerage space.
Overall, we are watching the economy closely. Going into Q4 we expect to see a relatively stable margin and continued asset growth, tempered with our normal final quarter increase in expenses, to support our growth initiatives.
I will now pass it over to Rob Pitfield to discuss International Banking.
- EVP, International Banking
Thanks, Chris. International Banking's net income was $321 million this quarter, up $51 million, or 19% from Q3 '07, despite the $17 million negative impact of foreign currency translation. Revenue growth was very strong, up 30%. Key drivers were strong organic loan growth spread across all key regions, as well as acquisitions, and the $40 million gain relating to the IPO of the Mexican Stock Exchange.
Expenses increased 25% versus last year, driven largely by three factors. Our acquisitions in Chile and the Caribbean and Central America, which added $49 million. Investments in revenue growth initiatives including the opening of 130 branches, and the related increases in compensation, premises, advertising, and technology, and a $28 million provision under a contractual indemnity, that Luc mentioned earlier. Similar to last quarter, international's tax rate increased significantly on a year-over-year basis, due to a more normalized tax rate in Mexico.
Provisions grew $31 million versus last year, because of higher retail provisions, which relates to higher volumes, the impact of acquisitions, and some deterioration of retail credit quality in Mexico. Net income was in-line with Q2. Revenues increased 7%, with growth in both net interest and other income. Quarter-over-quarter, expenses were negatively impacted by the indemnity expense, and higher loan loss recoveries in Q2.
Moving to Slide 18, revenues by geography, as you can see, our 30% revenue growth was very diversified. Each region increased year-over-year, with Latin America and Asia showing particularly strong growth up 84%. On a year-over-year basis, Mexico benefited from strong retail loan growth, and a higher margin. The IPO gain was partly offset by lower trading revenues.
In the Caribbean and Central America loan growth was also very strong, with retail and commercial volumes increasing 18 % and 13% respectively. The negative impact of foreign currency translation partly offsets the strong loan growth. In Latin America and Asia, the very strong increase was driven by acquisition in Chile, as well as strong and diversified organic loan growth.
Commercial volumes in Asia grew by more than 60% and improved, both commercial and retail loan volumes grew significantly, up 54% and 40% respectively. Quarter-over-quarter revenues increased to 7% with strong contributions from Mexico, the Caribbean and Central America.
Priorities, I would like to touch on a couple of these. We remain focused on expanding our distribution network, opening 22 branches during the quarter, mainly in Mexico, Chile and Peru. We are well on our way to achieving our plan to open between 90 and 100 branches this year. We continue to grow through acquisitions. In recent months we have announced three acquisitions in Peru, a key market for us.
In May, we increased our ownership in Scotiabank Peru, the country's third largest bank from 78% to 98%. We purchased Banco del Trabajo, and added more than 130 locations to serve the consumer finance segment. And in June, we acquired a 47.5% stake in Profuturo, Peru's fourth largest private pension fund, with 23% pension fund customers. These acquisitions helped solidify our leadership position in this fast growing market.
Lastly our segmentation strategy is working well. We are leveraging our expertise in consumer finance to drive growth in Chile, and other Latin American countries, and opening up private client centers to serve our more affluent clients. As well we have introduced world-class call centers in certain sites, internet banking, and credit risk management platforms, to better serve our traditional customer base.
I will now turn it over to Steve and Scotia Capital.
- Co-Head, Scotia Capital
Thanks, Rob. Scotia Capital had an excellent quarter with net income of $291 million, up 5% from Q3 '07, and up 16% from last year. This was our third best quarter ever after Q1 and Q2 last year, which both benefited from loan loss and interest recoveries.
Looking briefly at some of the trends, year-over-year revenues were up 1% from a very strong quarter last year. Expenses improved by 5%, driven by lower performance based compensation. Our ROE was very strong at 34.1%, well above last year and the prior quarter.
Quarter-over-quarter, revenues were up 21%, due to much stronger trading revenues particularly in derivatives and fixed income, which had a record quarter. Higher revenues in the lending business and our second best quarter ever in Investment Banking. Expenses rose 5% due to higher performance based compensation in-line with the higher revenues. Other operating expenses were well controlled.
Looking more closely at revenues on Slide 22, year-over-year revenues rose 1%. This was a great result, and in fact the second best quarterly revenue performance since 2002, as the vast majority of our businesses performed very well. In our lending business, we enjoyed 31% growth in loan interest, and 10% growth in credit fees. Our trading businesses also did very well, with record results in fixed income, and continued very strong results in foreign exchange and precious metals, both of which set new record highs earlier this year.
Derivatives also had a strong revenue quarter, but was down from stellar results a year ago. Quarter-over-quarter, revenues rose an impressive 21%, a gain benefiting from the strong product diversification in Scotia Capital. Trading revenues were significantly higher, particularly from derivatives, and a record quarter in fixed income trading.
Investment Banking revenues were the second best ever with ScotiaWaterous having a very strong quarter, and delivering record results. On the lending side, we benefited from much higher credit fees and loan interest. As well, last quarter included a loss on securities incurred in the US, which was not repeated this quarter.
Turning to the next slide. We have made very good progress against our priorities for the year. One of our key priorities is to further expand our client coverage globally in selected industries, particularly in energy, mining, and infrastructure. These industries represent significant opportunities for us, and our areas where we have key strengths that we can leverage. We have been successfully executing against our strategy for these industry specialties, with a coordinated approach across business lines and geographies in each of these sectors, and we are seeing some good momentum.
For example, in energy, ScotiaWaterous has achieved record results as I noted previously, and the pipeline remains strong. We recently hired a new team in Canada to focus on infrastructure, a segment that offers lots of opportunity. Estimated infrastructure spending in Canada over the next 5 to 10 years is 100 to $150 billion, and we want to be well-positioned in that market.
In mining, we recently lead some major transactions. For example, this quarter we were the exclusive advisor on a large transaction for a global mining client. We have also been leveraging our leading global position in precious metals through ScotiaMocatta, which was recently granted membership in the Shanghai Gold Exchange, China's leading precious metals exchange.
Another key priority is to continue leveraging our NAFTA capabilities, a significant competitive advantage for us. We are very pleased with the performance Scotia Capital Mexico, where our year-to-date results have us on-track for a 50% increase in whole year net income. Above all, we will continue to be disciplined about risk Management, as disciplined risk management more than anything else, has lead us to these good results and competitive positioning.
I will now pass it over to Brian.
- EVP, Chief Risk Officer
Thanks, Steve. As Rick mentioned, our credit quality remained stable this quarter despite the challenging environment. Our loan loss provisions were basically unchanged quarter-over-quarter. With respect to our exposure to the auto industry, an area of particular interest, it is well diversified and manageable. In particular, the GMAC program has performed in-line with our expectations.
Looking first at provisions in more detail, the specific provisions were $159 million this quarter, compared to $153 million last quarter. The domestic provisions were basically unchanged quarter-over-quarter, in both the retail and commercial portfolios. International provisions were down slightly, given the higher commercial recoveries in Mexico and Peru, which more than offset an increase in the retail provisions. The increased level of retail provisioning reflects continued asset growth, as well as some deterioration in the Mexican retail portfolio, mainly in credit cards.
Scotia Capital's provisions were $4 million compared to net recoveries of $9 million in Q2. The quarter-over-quarter increase was related to a provision against one account in the US. In terms of relative PCL performance, our loss ratio compares very favorably against our peer group. This quarter, the loss ratio was 23 basis points, slightly below last quarter's 24 basis points.
The next slide provides the breakdown of impaired loan formations by business line. The domestic formations were more or less in-line with those of the prior two quarters. The quality of the domestic portfolios remain stable. The international retail formations were in-line with the prior quarter. Formations were higher in our international commercial portfolio, largely due to the classification of two accounts in the Caribbean. Scotia Capital had one account classified in the quarter, partially offset by loan sales in Canada and the US. Overall, our portfolios remain in good condition.
On the next slide, we have summarized our exposure to the North American and European wholesale auto loan and acceptances, as well as auto backed securities. Our exposure to the North American and European auto industry is manageable. It represents $4.8 billion, or 4% of our total business and government loan portfolio. More than half of this portfolio is to dealers and floor planning, mostly foreign auto dealers in Canada. Approximately 60% of the wholesale portfolio is investment grade, and the loss experience has been quite low in the recent past, and is zero so far in 2008.
We also have auto backed securities totaling $7.1 billion, 97% of which are auto loans, the remaining 3% auto leases. A large portion of these securities, $5.7 billion were purchased from GMAC, which I will speak to shortly.
The last category is liquidity facilities to our own multi-seller conduits, as well as liquidity facilities to third party conduits, which are primarily auto finance conduits. Of the total $8.2 billion, $1.1 billion is to third party conduits. Approximately 84% of the assets of the third party conduits are externally rated AAA, with the balance internally rated investment grade by the bank.
Turning now to the GMAC program. As you will recall, we entered into a revolving purchase agreement to buy auto loans from GMAC, through a structured note facility more than two years ago. The revolving period will continue for another two years. The structuring of this transaction resulted in more than 90% of the notes being rated AAA. The underlying assets of these securities are all auto loans. There are no leases.
In structuring the transaction, the bank negotiated a level of credit enhancement over and above the expected losses. This enhancement is in the form of over collateralization through a discount in the purchase price. As such, we have no credit exposure to GMAC on this transaction. We gave up some of the upside for more downside protection, which has served us well.
It is important to point out that under the agreement, when the subsequent pools of securities are purchased, the enhancement is reset, based on the recent loss performance. We recently negotiated with GMAC for a portion of future draws to be Canadian based auto loans. This will enable us to diversify our risk away from the US consumer.
The credit enhancement has been more than sufficient to cover all losses to date. We run different stress scenarios on this portfolio on a regular basis. We are comfortable with the results, and expect this portfolio to continue to be profitable. Overall, while there are strains on the US consumer, we are comfortable with the performance of this program.
Finally, looking at provisions beyond 2008, in the domestic bank, we expect provisions to increase in-line with the organic growth in the portfolios. In international, retail provisions will increase as the portfolio grows, and will also be impacted by the effect of the US slowdown, most notably in Mexico and some parts of the Caribbean. Further, we anticipate lower commercial recoveries in Mexico and Peru.
We would also expect the slowdown in the US economy to have some impact on certain industries in our wholesale portfolios. Overall, we anticipate moderate increases in provisions over the medium term, and finally, as we mentioned last quarter, we do not have any exposure to auction rated securities.
I will now turn it back to Rick.
- President, CEO
Well thanks very much, Brian. So as you see in summary, we had a very solid quarter. And we feel we are well-positioned to meet the ongoing market challenges, as well as the economic slowdown.
Our diversification strategy is working well, and each business is executing on our three overriding priorities that I mentioned. We have had strong asset growth, although we do expect this will moderate somewhat going forward. Our margin has stabilized despite higher wholesale funding costs, and should gradually improve as our corporate portfolios reprice.
We have a strong Balance Sheet, and our capital ratios are excellent. We are one of the very few financial institutions in the world that is growing, yet at the same time, improving it's capital position. Our Balance Sheet strength allows us to continue this growth , to be opportunistic about acquisitions, to provide dividend growth to our shareholders, and to offer great careers for our people.
Each of our businesses has opportunities. In domestic we have good and we believe sustainable momentum. We will continue to focus on customers, customer acquisitions, and capitalize on the strength of our distribution channels. We will open more branches in the fourth quarter, and we will continue to expand our sales forces. We will also look for acquisitions and alliances to drive customer growth, and we will keep our costs well-controlled.
In international, we will reap the benefits of our expansion strategy in the faster growing emerging markets. We are building on our distribution network, and growing our Wealth Management and consumer finance business internationally. In Scotia Capital, we will continue to build on the success of our global strategy in selected industries.
We are also leveraging our unique NAFTA capabilities, and we will be benefiting from significantly higher spreads in the credit markets. We will of course, maintain our strong and proven risk management and cost control disciplines. These are two of our long proven core competencies.
So overall, despite the very real challenges I mentioned earlier, we retain a positive outlook and we expect to see profitable, sustainable growth in all of our businesses. And with that, before we open it up to Q&A, just would like to mention this will be Bob Brooks last time with us on this call, as he is retiring, and get this after 40 years, 40 years, great years with the bank. So Bob, thank you personally on behalf of both myself, and all of our colleagues at Scotiabank. A job well done.
- Vice-Chairman, Group Treasurer
Thanks, Rick.
- President, CEO
Now over to Luc for questions.
- EVP, CFO
Thanks very much, Rick. Could we have the first question on the phone, please?
Operator
Your first question comes from Jim Bantis from Credit Suisse. Please go ahead.
- Analyst
Hi, good afternoon. Just a couple of questions, when I look at the mind boggling results coming from Scotia Capital, that is really impressive in the context of record revenues, and 34% ROE, and I am just trying to understand the corporate loan growth where that is coming from, and the context of the comments that Brian had about a slowing US economy, and we all see headlines with respect to the global economy slowing.
Maybe Steve you can elaborate more on where the 32% business loans growth is coming from year-over-year, and in terms of asset class, perhaps sector, grading, rating, maybe a little bit more color to give us comfort on this strong growth?
- Co-Head, Scotia Capital
Sure, Jim. We are really seeing across-the-board, very broadly, so in all our markets, we are seeing growth, and I think that is because of our unique competitive positioning that in this environment we are actually open for business, and we are seeing some very high quality opportunity, so that continues. We have been talking about this now for a number of quarters, and we hope that this condition will continue.
So across-the-board and similar to comments in the past, we really are trending toward the investment grade, continue to have investment grade credit as the predominant asset class. We haven't seen a lot of need or reason to go down the risk quality curve, because we are seeing excellent opportunities in the investment grade. They are repricing very nicely.
We are seeing a lot of corporate to corporate consolidation, so the Private Equity market continues to be quite dead, but the corporate to corporate industry consolidation is actually quite active, and that is typically investment grade, high quality dealings, good synergies deals that make a lot of sense, capital structures that are very acceptable, so we have been participating quite actively in that sphere.
Of the growth in overall assets, some of the growth has been our total return swap business. We have seen about 24% year-over-year growth in our core loan business globally, and the balance has been a relatively manageable level of growth in our total return slot business.
- Analyst
Got it. So you are not seeing any increase in single name risks, or sector risk in that regard? I guess just worried about slipping back into perhaps what was an issue five years ago, in terms of the corporate loan book?
- Co-Head, Scotia Capital
Believe me, we are vigilant, and if by the odd chance that we ever step out of line we have got a lot of people around the table and around the bank to make sure.
- President, CEO
You can hear me nodding my head, Jim.
- Analyst
That is true, but Mr. Brooks is leaving, so there is a bit of a caution.
- President, CEO
(laughter). And he is taking the one big loan with him.
- EVP, Chief Risk Officer
(laughter).
- President, CEO
Well the single name limit is probably the most important thing that we have done, in terms of risk management in this bank over the last 10 years. We really are rigorous about complying with that risk rated constraint, and we absolutely live by that.
- EVP, Chief Risk Officer
The only point I would add to that, Jim, is we are adhering to our discipline. We monitor the exceptions, if we go over a stated limit for capital, or for M&A purposes where there is a bridge or something like that, that is reported to the Board on a quarterly basis, those exceptions have gone down in the last couple of quarters, and will continue to trend down.
- Analyst
Got it. Thanks very much for the color Brian, and just a quick question for Luc on the other segment for the sharp drop in earnings down to an 89 million loss, can you just elaborate what caused that?
- EVP, CFO
I will turn that over in a second to Jeff Heath, our Group Treasurer, because that largely relates to funding and funding costs, but I just want to confirm to everyone that relative to our funds transfer methodology, there have been no changes in that methodology. We are doing the same thing as we have done previously in that the gap in Domestic is charged to the Domestic bank on an assumed 30/60/90 day BA rate, so those rates have been coming down the short end, so Chris and his team are benefiting.
Two years ago it was going the other way so they suffered as a result, but the funding is more expensive, and that is in the other category. Maybe I can turn it now to Jeff to add a little color commentary.
- EVP, Group Treasurer
Sure, thanks. A couple of comments. I guess Treasury basically is responsible for managing the bank's interest rate risk, sort of at the top level, and liquidity risk. The costs of that largely reside in Treasury, and as you are probably aware year-over-year all banks are paying increased fundings costs in the wholesale markets, as measured by the credit spreads that are being demanded in the markets, so we are swept up in that market repricing of risk, however on a relative basis, we have good market access and pricing.
- Analyst
Thanks. It seems like the loss though seem to be exaggerated on a sequential basis, as opposed to year-over-year, was wondering if there is anything unusual in there as well?
- EVP, CFO
Well we have got some lower securities gains in the current quarter as well, that are part of Treasury units, so that will impact the number as well.
- President, CEO
Keep in mind the major securities gain in the quarter was within international, because it was the Mexican IPO, so if you net that against the securities gains within Treasury were down as Luc said, or at least were low.
- Analyst
Got it. I will requeue, thank you.
- EVP, CFO
Thanks. Next question?
Operator
Your next question comes from Robert Sedran from National Bank Financial. Please go ahead.
- Analyst
Hi, good afternoon. Brian if I could just take you to your last slide, Slide 31 I guess where you talk about the outlook for provisions over the medium term, the one aspect, or the one category where you didn't talk about a US slowdown is in the Domestic portfolio. Is the bank operating under the assumption that Canada should be able to avoid any material impact here, and are you positioning the book for that scenario?
- EVP, Chief Risk Officer
That is a good question actually, when we look through the different products in Domestic retail this past quarter, delinquencies are down basically all product lines, which is a good sign, and was a slight surprise, but the business continues to perform fairly well. We thought we might see some upticks in delinquencies in some particular products. So we are mindful.
Keep in mind that we can adapt and change very quickly, in terms of our scoring and other methodologies, but the key driver in our Domestic credit profile is employment rates and employment rates in Canada are still relatively strong, and we haven't seen the [Contagion] from the US in our Domestic retail portfolios.
- Analyst
Okay, and just turning I guess to the second category, can you talk a little bit about what your baseline scenario, or what your assumed economic performance in Mexico is for the next little while, I guess the next year or so?
- EVP, Chief Risk Officer
Yes, I think, Rob made a comment in his slides, and I made a comment in my slides, is that our international retail provisions for the quarter were approximately $80 million, 48 million of that is related to Mexico, 27 of that is related to cards in Mexico. That has been our biggest issue. We have talked about it in prior quarters. we have taken action. We think the action that we have taken is getting traction. What we have done is we changed our underwriting standards, we have changed how we acquire clients, we have gone to risk-based pricing, we have changed our collection principles.
Keep in mind that a lot of what we are seeing in Mexico is systemic. All of our counterparts have had big hits in their credit card portfolios, so we are not alone in this. We deal at the mid to higher end portion of the marketplace, but I will say that we are seeing some signs of Contagion generally in Mexico, and the credit environment in Mexico will be slightly challenging for the next three to four quarters in our estimation.
- Analyst
Thank you.
- EVP, CFO
Next question?
Operator
Your next question comes from Michael Goldberg from Desjardins Securities, please go ahead.
- Analyst
Thanks. Wonder if you could give us some thoughts on the meltdown in US banking, whether you think it provides an opportunity. What would be prerequisites for you to execute on something?
- President, CEO
Well, Mike, it is Rick. I guess I will take that one on. Thanks.
- Analyst
(laughter).
- President, CEO
Seriously, we have not had, for the last several years have not made retail banking, P&C banking in the United States any priority at all, and this was due to we thought superior opportunities in other markets. Obviously we are all aware of the significant change in valuations that we have seen over the last year, valuations in banks, the currency, and what have you, so one of the negatives that we certainly had here at Scotia, was the values were awfully high to pay in a very competitive legal regulatory environment, so the valuation is there, but it is still very competitive.
The regulation environment is actually getting worse rather than better, because I think they have to go through a major upheaval in reregulating, vis-a-vis Bear Stearns, and who is going to regulate what and how, and it is going to be a long journey, and will affect all of the participants, and of course as we are seeing, the legal system down there is reacting in many ways, and creating problems to the participants, so while values are very enticing, a lot of the issues still remain.
We are always mindful of opportunities, and when you look at the values we look, but unless we see a very compelling reason where not only are we getting value, but we can achieve going forward value, we have a very defined and disciplined process, and we will keep that. What the future will hold down there, our wholesale portfolios are giving us good, prudent leverage. We will watch it but it is not on strategy as we speak, and we still I think have got significant opportunities elsewhere, but we are in a relatively good position to look at whatever opportunities present themselves, so it is business as usual.
- Analyst
Okay, I have also got a couple of questions for Chris. What accounts for the 20% increase in managed Mutual Fund assets during the quarter? Was there any acquisition, or is it all from net flows?
- EVP, Head of Domestic Personal Banking
Michael, no, there were no acquisitions. It is just organic growth. We as I indicated in some of our numbers, we have had very strong growth in terms of our long term sales.
There has been a significant push in the last two years to provide tools to our Advisors in the branch system, and put the metrics in place, but specifically it is not from any acquisitions. This is just purely from organic growth, and we actually expect that to continue into the future, so we have had very significant margin gains in that area. We would expect those to carry forward.
- Analyst
Okay, and also, over the past year, your personal non term deposits are up about $5 billion. This is in the bank as a whole, or 14%. How much of the increase results from intensified focus in Domestic retail, and how much of that is organic versus acquisition related?
- EVP, Head of Domestic Personal Banking
Well, I think clearly we have had a significant focus on growing our deposit base over the last couple of years, and if you look at the numbers too, in terms of our growth in assets versus liabilities, you see we have narrowed that spread to almost equal. We have benefited from the purchase of Dundee Bank. We have 3.3 billion in deposits there Michael. When we bought that Bank we had 1.7 billion, so we have grown it by 1.6.
We have also had a significant focus on some product specific opportunities, during the RSP season, we brought in another 500 million in that area, but what I would like to say on this is we are not buying deposits. The reality is that we are being very disciplined in our pricing, so we actually have $10 billion in our money master account, we paid 2.25% on that, two other institutions pay more, and a couple of other institutions are about the same.
So we have been very, very price neutral in watching that, and making sure that we keep our margins in place, so we are going to continue to focus in growing our deposits, but I think the key message is that we have narrowed the gap between our growth in assets and growth in deposits.
- Analyst
So I wasn't actually asking about term deposits. I was just only interested the personal non-term. Do you have any idea what the organic growth in that is over the past year?
- EVP, Head of Domestic Personal Banking
Well it would be most of it because in terms of acquisitions, I can't think of any that would play into that Michael, so it would be organic.
- President, CEO
It would be non-term one of the wins we have had now, is we reinvigorated our small business strategy, and as you know small businesses tend to be conservative, and it is really a deposit gathering strategy, and I don't have the numbers with me, but we were very happy over the last four or five quarters in our growth in small business deposits.
- EVP, Head of Domestic Personal Banking
Small business deposits were up 1.5 billion, or 12%.
- President, CEO
Well there is 12% growth right there.
- Analyst
Thanks very much.
- EVP, CFO
Next question on the phone please?
Operator
Your next question comes from Ian de Verteuil from BMO Capital Markets, please go ahead.
- Analyst
I have a question for Brian on the GMAC portfolio. One of the things that I was surprised at was the subsequent purchases, as you say in the notes of the financials, you have an ability to reset the amount of over collateralization. Can you explain to me how that works?
- EVP, Chief Risk Officer
Sure. Just a couple things that I want to repeat that I think are crucial in the GMAC transaction, which I think once we get it out, and people have a better understanding of it so first, and I have said it before, and I say in my text these are loans, not leases.
Secondly the pools are cross-collateralized, and thirdly, the enhancement is based on the last loss experience of drawdown, so if the loss experience is going up, our credit enhancement is based on the last loss experienced. The fourth point I want to make is we have stressed this portfolio a number of different ways, and we are comfortable as I said in my text, so if you look at the stressed environment of the last three months, if it continues through the 24 months remaining of this revolver, we do not lose money, and the transaction is still profitable for the bank.
So I think that is important to note. And we stress it under a variety it of different scenarios, so if you take 2 times the original loss assumptions, the transaction is still profitable. If you take 2 times the actual loss experienced, it is still profitable.
- Analyst
So when you say cross-collateralization, what do you mean by that, because if I am correct on each, it is not GMAC or over collateralizing, it is actually you get a discounted value off of the face amount, but how does cross-collateralization work?
- EVP, Chief Risk Officer
Well, the pools work such that based on expected loss performance and actual loss performance, there is a sharing agreement with GMAC in terms of performance, and that if one pool performs better than the other, we take the excess profit or enhancement if you will, and move it to the next pool.
- Analyst
And how many pools are there in total, because I know you buy them in traunches? How many are there?
- EVP, Chief Risk Officer
Well I don't have it off the top of my head but we are generally dog this on a quarterly basis. so there are eight different pools.
- Analyst
How big can the Canadian piece end up being as a total of the total amount?
- EVP, Chief Risk Officer
25%. So based on 6 billion, that is 1.5 billion.
- Analyst
Thank you.
- EVP, Chief Risk Officer
Okay.
- EVP, CFO
Next question?
Operator
Your next question comes from Mario Mendonca from Genuity Capital Markets. Please go ahead.
- Analyst
Good afternoon. Question first for Chris Hodgson. 6.8% operating leverage in the quarter retail. You suggested that the fourth quarter would be a little heavier on expenses. 6.8% is obviously a really big number, not something we should probably expect much going forward, but what are you getting at when you refer to higher expenses in the fourth quarter? Could you put anything around that to help us gauge?
- EVP, Head of Domestic Personal Banking
Sure Mario. I think 6.8% is a big number, and I wouldn't be looking for that in Q4, but when I talked about expenses trending up in Q4, historically if you go back and look at our numbers, you will see some increased expenses, and they tend to be around a few areas.
One is project spending which we will put into Q4. The other is our branch expansion, I mentioned that we were doing 15 branches, we have opened six, so there are another nine coming in in Q4, and then there will be some acquisition costs on things that we have done over the course of this year, so if you do look at what we have done historically we will come in right around that level.
- Analyst
In terms of efficiency ratio or operating leverage?
- EVP, Head of Domestic Personal Banking
Well no, operating leverage we expect to decline in Q4, but we are going to have a positive operating leverage for the year, and we still expect a reasonable overall [nyadd] for Q4.
- Analyst
Another sort of related question in retail. Loan growth has been huge now for quite some time. I think all of us expect at some point a slowdown there.
What do you think of as a normalized sort of loan growth in Canada, what would you connect it with? Would you look at the long term, and say the sort of 6% we have seen over the last 15 years is normal, and do you expect a slowdown in the near term?
- EVP, Head of Domestic Personal Banking
Let me answer your question on the near term. We actually believe if we are looking at Q4, the pipe loin that we see is still quite solid, and I made a comment on that in some of my comments, so we do think that Q4 actually will be pretty reasonable. We are watching '09 and certainly with the markets and the environment that could have an impact, but surprisingly we have not yet seen that actually in our flows of business up to this point.
- President, CEO
We are just starting to put together what next year is going to look like, and as you know, when you hear the central bankers say they don't know what next year is going to look like, it gives us some challenges. But having said that, and particularly your question on the Canadian side, the Canadian market A) didn't have the bubbles, there are some, but not as many, B) as I think Brian or someone mentioned, the unemployment rates are still very manageable in Canada, and 3) our banking system will be lending, which are three characteristics you don't see in the United States , where all this stuff is drawn up, so we can't keep up this pace as you mentioned, and we were quite pleasantly surprised this year that at the pace of growth, but we will see growth.
We haven't got our number yet, so we aren't going to give it to you, but it will be positive, and I think the conditions will be relatively, there will be growth. Let's go that far. There will be growth.
- Analyst
I understand. Finally, Brian, you refer to unemployment being obviously a very important driver. Canada is seeing it around 6% right now, maybe 6.1, I can't remember exactly what the number is. Your own economist, BNS' economist is calling for something like 6.6 later on in 2009, and I think TD's economist is around 6.7. Do those changes say from 6, to 6.6 or 6.7, those 60 or 70 basis point lift in unemployment does that matter, or do you need to see something a little more dramatic than that, to actually push PCLs up in Canada, and loan growth down in Canada?
- EVP, Chief Risk Officer
Well that is a good question. Actually we have run some stresses on our Domestic retail portfolio, and our view is it has to get over a 100 basis point increase in unemployment to have any meaningful impact on our resale portfolio, so 50 or 60 basis points, not going to have an impact on delinquencies, PCLs. It would have an impact on loan growth though.
- Analyst
And just because you are going to hit on what I was going at, Domestic retail you say not enough of a move there. Commercial similarly? No big move unless we see 100 basis points or more?
- EVP, Chief Risk Officer
I would agree.
- Analyst
How about wholesale?
- EVP, Chief Risk Officer
Wholesale is going to be, if you go through our wholesale portfolio, I talked about some stresses on certain industries, and you know what we are mindful of. It's the auto industry, secondarily the forest industry, and anything that touches the house in the US, which obviously has an impact on unemployment rates and the consumer, but generally the general health of our commercial and wholesale portfolios is fairly good, so 50 basis points is not going to have an impact. 100 basis points or more, you start to get concerned.
- Analyst
Thank you so much. That was helpful.
- EVP, CFO
Next question, please?
Operator
Your next question comes from Sumit Malhotra from Merrill Lynch. Please go ahead.
- Analyst
Good afternoon. First one also for Brian Porter. Brian, you talked a little bit about the fact there was classification of two accounts in the Caribbean in your international commercial portfolio. Two quarters in a row we have seen a big tick up in formations and impaired loans there, yet your provisions have been in net recoveries in that segment for a good period of time. Can you talk a little bit about international commercial, and how you feel you are reserved there?
- EVP, Chief Risk Officer
Sure. As you said we, two accounts went non-accrual this quarter. They are real estate development projects. We didn't provide for them. One is $45 million, the other one is $31.5 million. We didn't provide for them because loan to value was relatively low, it is below 50% so we are very comfortable that there is enough equity in those transaction, and where we sit for the time being.
I would make a general comment about the Caribbean though is again we are feeling the impact of the US Contagion, the closer you are to the US, be it Puerto Rico or the Bahamas is feeling the pinch, and there has been a lot of hot money in real estate developments in the Caribbean in the last couple of years. We backed away from a lot of transactions. They were either done by somebody else, or they have not been done by somebody else, but the Caribbean in some of these real estate financings and projects, it's going to be a bit of a grind out, but again we have been at this for a long time, we are comfortable with our loan to values, and we will be fine.
- Analyst
Okay. I will leave that one and switch over to one for Luc. When I look at the operating segments, the three segments each of them have NIM up quarter-over-quarter, each of them have very strong operating leverage, to go back to your comments on the transfer pricing, you end up negative on operating leverage on the all bank level, and certainly there are a lot of references to higher funding costs. Is this just really a situation where we watch where the 30, 60, 90 bankers acceptance rate goes on average during the quarter, and that gives us an idea where Domestic NIM is going to go? Obviously there are a few other pieces. But in between the segments is that the way to look at it?
- EVP, CFO
I think that is fair going to Domestic, I think you need to watch what is happening on the deposit growth side as well as you have got your rates decreasing, the benefit of those deposits are less than they would be in a higher rate environment.
The other thing in terms of operating leverage, clearly a key component there is the spend, the discretionary spend and the expansion side, we continue to be a growth story, but we are committed to the positive operating leverage on an annual basis, so that is something we will have to manage go forward.
- President, CEO
One thing on the NIM, it is Rick here, just to add also on the asset side, our customers have gone over to the floating rate variable, and so that has effect and especially there is some pretty great competition out there, so the asset mix, because the margin on the floating is not as good as the five year, and I think certainly our portfolio, and I would assume most of our competitors, there has been a great swing year-over-year from the five year to the floating rate. I mean a dramatic swing, and that has some NIM implications.
- Analyst
Last one is for Chris Hodgson. Chris, you referenced it a couple of times, the strong results in the Mutual Fund side for the bank. Given the fact you seem to have momentum in the long term space and the industry right now, and considering Scotia's long held mantra of a path to control, can you talk about a situation in which you think it would be beneficial for you to have a smaller stake in the business you own today?
- EVP, Head of Domestic Personal Banking
(laughter). A slightly loaded question isn't it? I think first of all, we are very happy with the organic growth that we have had in our Mutual Fund business, and that was really the purpose of the comments that I was making earlier, and we are quite happy to go it alone in that respect.
We have also been very clear that if there were opportunities to expand our Asset Management, we would consider that, but there are two key factors. One is there has to be a good strategic fit, and secondly the pricing has to fit in with the discipline that we have had within Scotia for all of our acquisitions, so if those were there, then we do it, and if they aren't there, we don't do it. We are very, very pleased with the direction we are going with our business today, and we are going to continue to expand our Asset Management business organically, and if there are opportunities that present themselves we will look at it.
I won't comment on any of the speculation or rumors, because we have a policy not to do that, but we certainly do like to have a meaningful stake. We own 100% of our business today, and that continues to be important to us as we go forward.
- Analyst
So in the short-term, maybe for Rick, I promise this is the last one, path to control isn't necessarily a deal breaker for Scotiabank at this time?
- President, CEO
If you look over the last several years what we have done, we have done a lot of acquisitions. They tend to be add-ons and smaller ones, and what have you, but in our international side, we started out with 20 and 30% positions in Chile and Peru, in Mexico, in Thailand, we just did the Thai deal which is 25, and we do get a chance to go to 49. 175 years in long term, we have been able to A) have strategic influence, and be there when the opportunities have to build on the platform.
I have also learned in M&A over the last several years there is no one formula. What is important is that we are well disciplined and defined in what we do, and it moves us forward on our strategies. So Wealth Management as we have said time and again is a significant priority for us, because we are very conformable with our organic growth but in Canada and even international, we have got to get more scale. So whatever we do, we will be on strategy, and will move us forward on that strategy in particular in earnings.
If that is a less than 100%, or whatever the percentage is, it will have to meet a lot of other tests, so one formula doesn't fit all. So we can't comment and wouldn't on any specifics, but we will keep our discipline when we measure what we do by do we have the talent, is it on our strategy, and do the numbers make sense, we certainly have the capital, and we are in this for the long term, so we will see what gives, but I must compliment the organic growth that we are getting. I just wish we were twice the size. But we will see.
- Analyst
All right guys. Thanks for your time.
- EVP, CFO
Next question, please?
Operator
Your next question comes from Darko Mihelic from CIBC World Markets. Please go ahead.
- Analyst
Hi, thank you. I just have one question. I am hoping for some good color on it. My question is for Brian. I am looking at the US portfolio, the US corporate and commercial portfolio of about $22 billion in size, and when I compare it to one of your competitors, and I will name them, BMO, which has a $25.5 billion US corporate commercial portfolio, and if I have done this right, it looks as though you have a very small amount of gross impaired loans for that portfolio, somewhere around $86 million.
- EVP, Chief Risk Officer
That is correct.
- Analyst
That would be 10 times less than that of BMO's impairments for it's con-committment portfolio in the US, so I was wondering if you could provide some sort of break out of what you have in that portfolio, and more or less recognizing the purpose of my question is, what is going to give me comfort we aren't going to see a 10 times rise in your non-performing assets in the US? I suppose if I ignored Fairway for BMO it would only be 5 times greater than what you have, but either way, what is to say that we aren't going to see 5 to 10 times increase in the non-performing assets of your US corporate and commercial portfolio?
- EVP, Chief Risk Officer
Sure. Fair question. If you look at the concentrations by industry, Darko, and we addressed this a little bit last quarter not as directly, but the big industry industry concentrations we have are energy, and in energy we include pipelines and mid-stream assets.
It is power which is an investment grade portfolio, real estate, that includes real estate to in Canada in our commercial business, and in the US, automotive, which I have spoken about, and financial, which I can talk about as well. So if you look at that portfolio it is largely investment grade by composition, it would be approximately70% investment grade, there will be in a credit down trend, some migration pressures downward on that portfolio, but again a number of us around the table lived through the experience of 2001 and 2002, and redirecting that business in the US.
We put some disciplines, we have put controls and single name limits, exposures by industry, by Corporation, et cetera, we have adhered to those. You heard me express that earlier, so I think the big thing is we are adhering to discipline, we have dodged some of the bullets in terms of industry, and the comment I have made before Darko, is we did not go down market.
This bank had a long rich history in terms of the LBO market, and highly levered transactions in the '70's, '80s, '90s, but when we looked at it, we said we didn't have the capital to compete, and we couldn't manage the tail end risk, and that has turned out to be fortuitous for us, so I can think of in Scotia Capital this year, we have done an internal IG code of sub investment grade, IG 75, I think we have got one $30 million committment this year, so we are adhering to our discipline, we are sticking to our focus, industries where we have cross-sell potential, and we can manage the risk.
- President, CEO
If I could just add to that question, a little color as you asked for, although Brian covered it very, very adequately, there are two of us here actually around the table that lived down there for 10 years, and managed the wholesale portfolio. I did it for Scotiabank and Steve McDonald did it for another bank, we don't have to name them, so we have lived there and done that, and seen what I call the good, the bad, and the ugly.
And I think it was about three or four quarters ago, I forget, we actually gave you and everybody a presentation that if things get as bad as they were a number of years ago, we are in a much better position as a bank and in the US whatever comes to bear, and it is because of the metrics Brian just gave you, the percentage of our portfolio today versus the years that perhaps Steve and I were down there and others, the percentage that is investment grade today, and the number is not right at my fingertips, but we can get it for you because we did disclose it, it is significantly higher.
The distribution by industry is significantly broader. The distribution by counterparty and credit is significantly broader. You heard the comment our hold levels, which we embarked upon this thing over four or five years ago to bring down the average hold level, and the discipline we were at, so it is about risk management, and again I am just speaking for ourselves. We have worked very very hard and it's always been a part of risk management, as my opening comments said, it is about diversification and what have you.
We never ever also left the business. If you remember it was somewhat controversial a number of years ago, that we didn't put it non-core, and we stated it so we kept our relationships, and so most of the people we deal with we have been dealing with for not a few years, not five years, but many, many years, so it is not one silver bullet, far from it. It is a whole bunch of risk management practices, and what have and we're not going to be immune.
Our provisioning will go up. We are there. And I guess the last thing I will say and I will shut up, is look at the, there are a lot of the hung LBOs over the last year, and as Brian said, we were in that business and we are still in it, but we didn't take the big chunks and we did back off on covenant light, we did back off when we didn't like the structures, so we had none of that. Absolutely none, nil.
So and again I am only speaking for our bank, and not the others and what have you. We will have higher provisions, but I really think, and our remarks our core competencies of risk management is helping. It is not going to keep us free and clear, but it is going to move us, thanks.
- Analyst
Thanks for the color and Brian --
- EVP, Chief Risk Officer
Hello?
Operator
Your next question comes from Brad Smith from Blackmont Capital, please go ahead.
- Analyst
Thanks very much. Brian I was just wondering if you could fill in some color for me, with respect to the allowance levels. They very been basically coming down for at least the last two years, they have come down quite substantially. I tend to look at them relative to the gross loan positions, and they are still obviously above some of your peer banks, but the spread has diminished quite substantially.
I think your allowance is down from 131 basis points in Q3 '06, down to around 87 relative to your gross loans now on a consolidated basis. Is there something you can point to in the mix of your loan portfolio, something maybe in the international that is changing, and it is a permanent change that will allow you to continue to reduce that allowance to gross loans level, or is that just sort of a natural cyclical process, and it will start to rebuild at some point?
- EVP, Chief Risk Officer
First of all we are comfortable with the allowances and obviously the cushion. The big driver here is it goes back to my earlier comment, we provided for two accounts in the Caribbean that went non-accrual, $70 million, we didn't take a provision, because loan to value is below 50%. There is lots of equity ahead of us, so we are very comfortable.
We also took a provision in the US for it was non-accrual for 90 million, the provision was approximately 10 million, so you have got 166 million of non-accruals with just 10 million of provision, where obviously go through a lot of thought when we make those provisions, but that impacts the allowances and the cushion, and we have had the same sort of experience the last couple of quarters, so that is what's driving it.
- Analyst
Yes, Brian but that overall allowance, what was different in Q3 '06, when you were sitting with 131 basis points of allowance, and today, when you are sitting with 87? I could see that current quarter contributed maybe 5 basis points of that spread, but what has been going on consistently through there? And should we anticipate that to continue to ramp down?
- EVP, Chief Risk Officer
Well I think it is a function of what is happening in Scotia Capital. We have gross impaired loans in Scotia Capital are basically less than $100 million. We did have some recoveries which would have impacted that to a certain extent. We have had writedowns, and we have had significant loan growth too. Risk weighted assets have gone up considerably. That is the main driver.
- Analyst
Okay, thank you.
- President, CEO
There has been no change in our methodology.
- Analyst
Great. Thank you very much.
- EVP, CFO
Thank you for joining us on the call today. We will see you next quarter. Thank you.
Operator
Ladies and gentlemen, this concludes the conference call for today. Thank you for participating, please disconnect your lines.