Bank of Montreal missed analysts’ estimates after setting aside more money than expected for potential credit losses as consumers and businesses struggle with higher interest rates.

The Toronto-based lender earned $2.59 a share on an adjusted basis in the fiscal second quarter, it said in a statement Wednesday, falling short of the $2.77 average estimate of analysts in a Bloomberg survey. The bank’s provisions for credit losses totaled $705 million in the three months through April, more than the $585 million analysts had forecast.

The bank’s shares sunk 5.7 per cent to $123.68 at 9:57 a.m. in Toronto. 

Credit conditions for consumers and businesses have continued to weaken, and Toronto-Dominion Bank and Bank of Nova Scotia each put aside more than $1 billion for potential bad loans in the quarter. National Bank of Canada, which reported its results Wednesday, said it set aside $138 million for credit losses in the second quarter, more than $131 million forecast by analysts. 

Bank of Montreal, which acquired San Francisco-based Bank of the West early last year, has faced a challenging outlook for revenue expansion in the U.S., where the interest-rate environment has pressured credit performance and hampered loan growth, Scotiabank analyst Meny Grauman wrote in a research note earlier this month.

Bank of Montreal’s U.S. business reported net income of $543 million, down 26 per cent from a year earlier, while its Canadian retail-banking division and wealth-management and capital-markets units all reported profit growth in the quarter. 

Keefe, Bruyette & Woods analyst Mike Rizvanovic said in a note to clients that Bank of Montreal shares were likely to underperform peer banks Wednesday after what he called a “tough quarter” with a “sizable miss on credit losses and underwhelming results in U.S. lending overshadowing an otherwise roughly in-line quarter.”

The lender’s overall net income rose 81 per cent to $1.89 billion, helped by lower acquisition and integration costs and a favorable comparison to the initial credit-loss provisions recorded when the Bank of the West deal was completed.

The bank said its Common Equity Tier 1 ratio rose to 13.1 per cent and announced a 4-cent increase in its quarterly dividend to $1.55 a share.