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Bank of Montreal’s M&I branch at its corporate headquarters in Milwaukee, Wis. Full-year profit from BMO’s U.S. personal and commercial banking arm topped 2012’s, but the unit’s earnings tumbled for the third straight quarter.Brian Kersey/The Globe and Mail

For a quarter that capped off a record year, Bank of Montreal's investors sure aren't showing much enthusiasm. By midday the bank's shares dropped nearly 5 per cent.

Despite encouraging Canadian loan growth and solid results from wealth management, BMO can't seem to convince investors that it is capable of churning out solid earnings growth.

Uncertainty about the U.S. operation is a major reason why. Although the full-year profit from U.S. personal and commercial banking arm topped 2012's, the unit's earnings tumbled for the third straight quarter. The most recent plunge was a big one; fourth-quarter profit of $106-million fell $24-million from the year prior.

Adding fuel to the fire, provisions for U.S. credit losses spiked last quarter, climbing to $96-million, the highest level in over two years.

BMO argues there is no reason to be alarmed. Commercial lending provisions popped "primarily due to a few accounts," rather rising across the entire U.S. lending book, and consumer lending provisions crept higher because some borrowers declared bankruptcy, but they continue to make their mortgage payments.

Should that add some comfort? Sure. These spikes could simply be one-off occurrences, meaning provisions could return to normal levels next quarter. Keep in mind that total U.S. credit provisions fell for all of 2013, relative to the year prior.

But there certainly is reason to be cautious, especially when you consider that U.S. loan growth hasn't been anything exceptional. While BMO's core U.S. commercial lending portfolio is growing at a nice clip, total year-over-year loan growth came in at just 3 per cent.

That rate is problematic because the profit BMO makes per U.S. loan is shrinking. Net interest margins south of the border dropped in each of the past five quarters, and shrank seven out of the last eight. They now sit at 3.91 per cent, down from 4.55 per cent at the end of 2011.

If the trend continues, the bank will have to prove that it can expand its loan book at a much faster rate in order to offset the squeeze.

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