The quarterly earnings of BMO (TSX: BMO.TO) showed that the financial condition of the trucking market is continuing to get healthy.
BMO, the former Bank of Montreal, is a leading lender to the transportation sector. The company has said the bulk of the financial activity in that sector is in trucking. The data it breaks out in its quarterly earnings is considered a good barometer of the financial strength of the sector.
In that regard, the first quarter of 2021, which for BMO runs through Jan. 31, shows an industry that is doing well. The size of write-offs taken by BMO for the transportation sector fell to CA$11 million for the quarter (U.S.$ 8.7 million, at a current conversion rate of 1 Canadian dollar equaling U.S. 79 cents). That is significantly less than any recent quarterly write-off performances: CA$23 million in the fourth quarter of 2020 and CA$25 million in the first quarter of last year.
BMO as a whole took CA$113 million in write-offs in the transportation sector for all of fiscal 2020. After one quarter, it isn’t even 10% of the way to that total.
In a conference call with analysts, CEO Darryl White said the transportation group’s performance was driven by “tighter truck capacity and higher spot rates…leading to low delinquency rates, low levels of impairment and solid operating performance.”
The number on the write-offs is particularly remarkable in light of the figure that BMO took in the transportation sector in 2018, considered the strongest freight market in recent history. That year, the quarterly write-offs ranged from CA$14 million to CA$17 million. The first quarter of 2021 for BMO’s transportation sector turned in fewer write-offs than the 2018 market, and the current book of business is several billion dollars larger.
The other key statistic in the BMO quarterly numbers showing the strength of the sector is gross impaired loans, defined as those questionable whether they can be collected, both for principal and interest. Gross impaired loans for BMO’s transportation sector were down to CA$134 million in the quarter, a decline from CA$144 million in the fourth quarter of 2020. Where the improvement is most stark is a comparison to the second and third quarters of last year, when that figure was CA$189 million in both those periods.
The company’s transportation sector’s bank of business grew during the quarter. At CA$12.4 billion, it grew just 1.5% from the fourth quarter. It had soared to more than $13.3 billion in the second quarter of last year, when companies began pulling down all or a good portion of the money available to them under their revolving credit lines because of early concerns about liquidity at the start of the pandemic. But the first quarter book for 2021 is 8.2% more than the pre-pandemic book of CA$11.45 billion in the first quarter of 2020.
With the small improvement in gross impaired loans, that enabled the company to keep its allowance for credit losses steady from the fourth quarter at CA$36 million. The highest level last year was CA$36 million in the second quarter.