Harris Bankcorp Inc. has never been happier to be Canadian.

With U.S. banks still feeling the effects of the recession, the $68.2 billion-asset Harris, a unit of Bank of Montreal, plans to use its parent company's healthy balance sheet to expand its market share and target more lucrative markets.

"We're not just waiting for the recession to be over. We're actively engaged in our strategy," said Ellen Costello, Harris' chief executive. "Because we're healthy and we've got a strong capital base, we're still lending, and we're attracting new customers."

Specifically, the Chicago unit is working to attract more business customers and increase fee income from services like cash management. To support its new focus on business customers, it has picked up commercial banking teams who defected from LaSalle Bank Corp. after Bank of America Corp. bought it from ABN Amro Holding NV in 2007.

Historically, Harris has focused on consumer loans with narrow profit margins, and it has brought in more high-cost certificates of deposit than core deposits. Costello said it wants revenue from commercial customers to constitute 50% of its total, up from 35% today.

The shift in focus is beginning to pay off. In its fiscal first quarter, which ended Jan. 31, total loans rose 11% from a year earlier, to $22.1 billion. Commercial loans increased 7%, and consumer loans climbed 5%.

"We're taking advantage of the opportunities that are there because of the changes in ownership, but also because of market conditions being a little more uncertain," which weakens competitors, Costello said. "Customers are focusing on bank relationships they know they can count on."

The financial crisis hit at an awkward time for Harris. After showing only middling growth since Bank of Montreal bought it in 1984, the unit was beginning to hit its stride three years ago. In 2007 it entered Indiana by purchasing the $1.3 billion-asset First National Bank and Trust in Kokomo. A year later Harris bought two Wisconsin companies: the $1.5 billion-asset Merchants and Manufacturers Bancorp. Inc. in New Berlin and the $694.4 million-asset Ozaukee Bank in Cedarburg.

Then came the housing meltdown. Since then Harris has been saddled with losses on residential construction and other commercial real estate loans, dampening earnings and slowing business. Bank of Montreal's fiscal first-quarter provisions for credit losses for all its U.S. operations rose 77%, to $260 million.

"Harris has been a chronic underperformer for many years, but I do think Harris can be a very profitable franchise," said Craig Fehr, an analyst at Edward D. Jones & Co. LP. "They need to expand to get a lot more scale, to stretch their fixed costs across more branches, and they need to cross-sell more, which means wealth management."

Yet even when banking was booming two years ago, Harris' returns on assets and equity — 0.53% and 1.35% as of Dec. 31, 2006 — were below the averages of 6.46% and 13.37% for commercial banks with more than $10 billion of assets, according to the Federal Deposit Insurance Corp.

Costello said making more acquisitions will be critical to sparking growth. Harris wants to expand its network of 281 branches, more than a third of which still cluster in and around Chicago, into roughly 1,000 sites, which would make the network roughly equal in size to the one operated in Canada by a sister institution, BMO Bank of Montreal.

"The Midwest has always been our stated strategy, and certainly we would love to have a larger market position" in the region, she said.

Another priority for Harris is boosting cross-selling activities. To that end, it is teaming with its parent's Harris Private Bank of Scottsdale, Ariz., which offers wealth management services to Harris Bankcorp's customers and through its own offices in Arizona, Florida, Illinois and other states.

Bank of Montreal's relative health is critical to Harris' strategy, analysts said. The unit's fiscal first-quarter net income rose 3.4%, to $27 million, and revenue rose 13%, to $244 million.

"They have an advantage that most other banks don't have: a wealthy parent with deep pockets," said Ken Thomas, the president of Branchlocation.com in Miami. "That's very important when the private markets are shut down and they don't have to worry about going to the Treasury Department for capital."

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