Weak truck market finally shows up in BMO transportation group’s quarterly report

The weak trucking market finally has caught as much as the quarterly report of Canada’s BMO, a serious lender to fleets.

In its quarterly earnings report, BMO (TSX: BMO.TO) breaks out the financial performance of its various lending sectors. Transportation is its own sector, and BMO officials have said about 90% of that book of business is trucking. The information is taken into account a powerful indicator of the health of fleets each big and small because the BMO book of business is no less than 10,000 customers. 

Whilst reports from the road and within the earnings report of publicly traded corporations weakened during the last six to nine months, the BMO earnings report showed some level of decay but nothing dramatic at the previous Bank of Montreal.

That ended with the newest report, issued Wednesday. In probably the most dramatic number reported for the second quarter of fiscal 2023, which ended March 31, provisions for credit losses within the quarter rose to CA$18 million from $6 million within the prior quarter. Provisions within the fourth quarter of 2022 were just $2 million, and BMO for the five quarters prior to that posted negative provisions. That meant BMO took more dollars out of the provisions for credit losses than it put in, fueled by the strong performance of the trucking market. 

BMO had negative provisions of $7 million for all of fiscal 2022, an indication of strength despite the “negative” term. However the last two quarters combined mean that in 2023, that figure for provisions is already as much as positive $24 million for six months.

Provisions for credit losses end in a negative impact on bank profitability. Allowances for credit provisions are an estimate of potential losses but don’t have an impact on income. They’re defined as a “contra asset.”

Allowances also showed a major increase within the second quarter. Within the transportation group, they rose to $17 million from $10 million. It was the best number because the fourth quarter of 2021, after they were also $17 million. They’re still well below the $30 million and more figures recorded in eight consecutive quarters between 2019 and 2021. 

To spotlight how significant probably the most recent quarter was within the transportation book at BMO, 

even when it posted a $38 million provision for credit losses within the second quarter of 2020, in the course of the heart of the pandemic, that quarterly figure rose only from $29 million, representing a 31% increase. Against this, the jump to $18 million in the newest quarter from $6 million just three months earlier marks a 3X jump. 

Write-offs were up 250% to $10 million. BMO posted a three-quarter run of write-offs of just $2 million, $1 million and $2 million in the ultimate quarter of 2021 through the second quarter of 2022 and had not been at $10 million or more because the second quarter of 2021. The $10 million figure for the second quarter represents a 250% increase from the primary quarter.

The BMO data also suggests that trucking corporations were hitting their lines of credit to a greater degree within the second quarter. Even in a market by which trucking corporations are disappearing, gross loans and acceptances at BMO rose to $14.6 billion, up from $13.7 billion. The second-quarter number was just barely lower than the ultimate quarter of fiscal 2022 and still well above the $13.4 billion recorded within the second quarter of 2020, when corporations in all industries were being advised to drag down as much as they may from their credit lines given liquidity concerns created by the pandemic. 

Impaired loans also rose. Gross impaired loans climbed to $91 million from $82 million. But for perspective, gross impaired loans at BMO — defined as loans by which it just isn’t likely the bank can collect the total principal and interest — were $105 million as recently because the third quarter of 2021 and peaked at $189 million within the second and third quarters of 2020.

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