Profits fell for the second consecutive fiscal quarter at the U.S. operations of Bank of Montreal (BMO) as loan run-off at new subsidiary Marshall & Ilsley squeezed margins.

Net income declined 11% quarter-to-quarter, to $122 million, at Bank of Montreal's 672-branch U.S. division, which is being renamed BMO Harris Bank and comprises Milwaukee-based M&I and its one-time rival, Harris Bank, of Chicago. U.S. profits were up 66% from a year earlier, but those results were skewed by Bank of Montreal's $1.4 billion purchase of M&I, which closed in July.

The $512 billion-asset Bank of Montreal is Canada's fourth-largest bank and the first of the country's big four to report results for the fiscal quarter that ended April 30. Its companywide profits of $1 billion fell 7% quarter to quarter due to declines in U.S. and corporate banking, but were up 27% year-over-year due largely to the addition of M&I, the company reported Wednesday.

While the U.S. division's deposits and business loans increased in the quarter, continued run-off in a $1.5 billion portfolio of distressed commercial real estate acquired from M&I reduced net interest income in that unit, the company said in an earnings release.

Revenue fell 4.2% from the prior quarter, to $738 million, while the interest margin declined 8 basis points, to 4.35%. M&I generated unadjusted net income of $171 million, or 36% less than in the prior quarter.

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