The quarterly data published by major truck lender BMO for its recently-concluded third quarter showed slightly improved credit conditions for the bank’s sector that is a major lender to trucking.
But the report is potentially one of the last times the Canadian bank will be a source of such data. BMO was reported by Bloomberg earlier this month to be looking at a potential sale of its transportation unit, which is believed to have about 90% of its bank of business with trucking companies. The bank has not formally commented on the report.
The transportation group has seen allowances, provisions, writeoffs and impaired loans soar in recent years as the freight recession has dragged on.
There were two signals that came out of the earnings announcement and subsequent earnings call with analysts that could be seen as a sign of the bank somewhat pulling back from its transportation activities.
A smaller book of business
The size of the transportation group’s book of business took a notable downturn in the quarter that ended July 31.
Gross loans and acceptances in the transportation group at BMO were $13.67 billion in the quarter, according to the earnings release. That was the lowest level since the first quarter of 2023, which ended January 31, 2023, when the book of business was just under $13.8 billion. It had been more than $14 billion every quarter since then.
Its peak was $15.6 billion in the fourth quarter of 2023, which ended October 31 of that year.
The second signal may have come after an analyst on the call did ask about the report of the potential divestiture of the transportation sector.
The answer from CEO Darrell White did not refer to the group specifically. But he did speak about the company’s wholesale loan growth, describing BMO’s U.S-based commercial and wholesale loan activities as “a power alley for us as we go forward as well.”
But he also said BMO is “looking at managing our provisions for credit losses down. We’re looking at optimizing through some low-return assets on the balance sheet.”
An email sent to BMO inquiring whether the remarks could be seen as being directed at the transportation group–given that the answer came after the analyst question was specifically about the sector–had not been returned by publication time.
As for the specific measures of credit health in the quarterly report, there were some signs of improvement but other indications not necessarily of deterioration but where conditions had stagnated.
Provisions for credit losses in transportation–the specific category White spoke of on the call–rose to $50 million from $45 million in the second quarter. However, the figure is still down substantially from the $77 million and $85 million recorded in 2024’s third quarter and fourth quarter, respectively.
Writeoffs of $32 million were the lowest they had been in a year. The prior four quarters, starting with the third quarter of 2024, were $38 million, $63 million, $46 million and $41 million. (In the second quarter of 2022, transportation writeoffs were $1 million).
Allowances for credit losses in BMO’s transportation sector rose to $66 million from $57 million one quarter earlier. Both allowances and provisions are accounting tools to recognize troubled loads. Allowances are a hit against income, while provisions impact a company’s balance sheet.
Gross impaired loans, defined as a loan that a bank believes may not be repaid, fell to $424 million from $503 million in the prior quarter. That second quarter number was an all-time high.
The figure for the third quarter of 2024 was $424 million, which means after a 12-month up and down ride, gross impaired transportation loans at BMO finished the third quarter right where they were a year ago.
As a point of contrast, gross impaired loans in the third quarter of 2022 were $72 million.
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