Stringent credit standards have helped Canadian banks sail through the financial turmoil with relative ease. Today, they look stronger than most of their U.S. counterparts. BMO Financial's (NYSE: BMO) Bank of Montreal is one such bank with strong fundamentals.

Fewer defaults on loans and organic growth in its Canadian lending portfolio helped BMO post solid second-quarter results. But with overall consumer loans and its credit card business witnessing a slowdown, should investors worry?

The quarter in detail
BMO's net income grew by 7.5% from the year-ago quarter. This rise was primarily due to impressive growth in adjusted revenue, which increased by 5.9% on a year-on-year basis. Net interest income was $1.7 billion, up about 6.4% in local-currency terms from a year ago. But sequentially, the bank's bottom line remained flat owing to decreases in both its capital markets and personal and commercial banking Canada segments.

Like many banks in North America, provisions for loan losses fell significantly, to $153 million from $246 million a year ago. The quarter also witnessed an improvement in BMO's capital position, as its common equity ratio increased by 52 basis points while the Tier 1 ratio improved by 80 basis points. These are all very good signs.

The segments
BMO's P&C Canada segment saw an increase of 1.7% in net income from the same quarter a year ago, owing to growth in revenues as volume grew for most products. P&C U.S. witnessed a decline of 2.8% in net income despite reporting organic growth in revenue. This was due to higher provisions for credit losses and an increase in the impact of impaired loans.

Meanwhile, the bank's private client group (PCG), which saw a sharp decline of 13% in net income, seems to have suffered because of high claims in the reinsurance business related to recent earthquakes.

Capital markets' net income decreased 9.4% from the corresponding quarter last year due to an unfavorable and challenging trading environment. The corporate services segment went from a loss last year to turn a small profit thanks to higher interest on the settlement of certain income tax matters and higher securitization-related revenues because of credit card securitization.

Expanding in the U.S.
The bank's acquisition of Wisconsin-based Marshall & Ilsley (NYSE: MI) should help BMO expand its retail and commercial banking businesses by providing access to new markets. This strategic deal more than doubles BMO's U.S. branch count and allows it to grow its assets to a great extent. The company also expects Marshall & Ilsley to contribute positively to its consolidated results in the short term.

A Foolish conclusion
BMO looks like a fundamentally sound banking stock that is bettering its prospects with smart deals. While rival Royal Bank of Canada (NYSE: RY) decided to give up and exit its loss-making U.S retail unit, BMO has decided to capitalize on the U.S. recovery and future growth. Fools should pay attention.