The weakening truck market had barely revealed itself in the quarterly earnings of major trucking lender BMO until its second fiscal quarter this year.

But the third-quarter figures released Tuesday show a significant deterioration in the credit standing of its thousands of trucking customers, with allowances, impairments and write-offs all climbing.

BMO’s data is for the quarter ending July 31 at the former Bank of Montreal. Its current book of business in the transportation group, which is more than 90% trucking focused, dropped slightly in the quarter to total gross loans and acceptances of CA$14.46 billion from $14.65 billion. But despite the weak market, there is no broader sign of a pullback in BMO lending to trucking: Two years ago, the book of business was $12.6 billion.

Write-offs in the transportation sector were $16 million. That is up 60% from the $10 million in the second quarter. At the peak of the roaring post-pandemic trucking market, transportation write-offs at BMO (TSE: BMO.TO) were just $1 million in the second quarter of fiscal 2022, which ended April 30, 2022.

For all of fiscal 2022, total transportation write-offs were $8 million. In fiscal 2021, transportation write-offs were $33 million. 

So far in fiscal 2023, write-offs are $30 million. If the level is repeated in the fourth quarter and total write-offs for the fiscal year are $46 million, it would be the highest annual total since fiscal 2020.  

But for perspective, the write-off total that year was $113 million. In the two years prior to that, total write-offs were $66 million and $63 million, respectively. Even if a $16 million quarterly write-off were annualized, it would put the $64 million total right in the middle of the write-offs from fiscal 2019 and fiscal 2018. 

Allowances for credit losses have not climbed significantly recently, which could signal a possible bottom. They were $18 million in the third quarter, up from just $17 million a quarter earlier. But they were also $17 million in the fourth quarter of 2021, though the relatively low level of write-offs in the months that followed suggests that some of those anticipated credit losses actually ended up with loans brought up to date.

Allowances are set aside as a result of a lender’s estimate of outstanding loan payments it does not expect to recover but before the loan is written off.

Loans can also be defined as impaired, in which a bank has determined that a loan may be at risk for default but has not yet taken allowances against it. That figure shows a significant deterioration in credit quality as well, coming in at $113 million on a gross basis and $95 million on a net basis after the $18 million in allowances is calculated. Gross impaired loans were $91 million in the second quarter.

That third-quarter figure is the highest since it reached $142 million in the second quarter of fiscal 2021. But also for perspective, BMO reported higher figures than that all through the earlier months of the pandemic and fiscal 2019. 

The closest that $113 million figure approaches based on a review of the bank’s data is a quarterly figure of $121 million in the fourth quarter of 2018 — a very strong trucking year — suggesting that while conditions are deteriorating, the customer base of BMO’s trucking clients may be reasonably strong in a world of a sub-4% Outbound Tender Rejection Index and an National Transportation Index (linehaul only), both on FreightWaves SONAR, that has struggled to get above $1.60.

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