BMO’s Q3 suggests transportation sector’s finances stabilized

Third-quarter earnings from BMO, the former Bank of Montreal, showed a transportation sector with a stabilized financial performance and some signs of improvement.

BMO is a major lender to the trucking sector, having acquired the transportation finance division of GE Capital back in 2015. Its quarterly numbers are looked to as a key barometer of the trucking industry’s financial health, in part because BMO breaks out the performance of its transportation sector. It is believed that about 75% of the BMO transportation sector book of business is in trucking.

In the third quarter ended July 31, no key benchmark number in the transportation sector worsened by any notable amount, unlike the second quarter when several measures showed significant deterioration.

Among the most significant numbers:

— Provision for credit losses in the quarter were CA$31 million (US $23.48 million), down from CA$38 million in the second quarter. However, the third quarter is still far higher than the CA$17 million of last year. BMO’s overall provisions for credit losses were higher, so the transportation division bucked that trend. Loans that fall into the impaired category do so after various criteria on repayment fail to be met by the borrower.

— Despite the provision for credit losses rising, allowances for credit losses rose slightly. They were CA$36 million in the third quarter, up CA$1 million from the second quarter. They were CA$31 million a year ago.

— The provisions and allowances for credit losses declined even though the total size of impaired loans and acceptances in the company’s transportation book was flat at C$189 million.

— Write-offs, which a bank takes when it sees little to no chance for repayment, fell to CA$30 million in the quarter. That’s down from CA$35 million in the second quarter but is still well above the CA$25 million of the first quarter and CA$16 million in the third quarter of 2019.

— The size of the BMO book of credit to the transportation sector shrunk in the third quarter. That isn’t surprising; it soared in the second quarter when businesses across the board in sectors beyond transportation were advised to pull down their revolving lines of credit to increase liquidity as the pandemic was taking hold. The category of gross loans and acceptances fell to CA$12.95 billion from $13.38 billion in the second quarter. That Q2 number had climbed from CA$12.2 billion in the first quarter, so the size of the book still remains elevated. A year ago, in the third quarter of 2019, gross loans and acceptances in the transportation sector were $12.17 billion.

John Kingston