* Loan quality, business lending drive profits
* Profit gains overshadow consumer lending slowdown
* Royal Bank of Canada, Toronto-Dominion boost dividends
* CIBC holds payout steady, sending its shares lower
* RBC shares rise, TD little changed
TORONTO, Feb 28 (Reuters) - Three of Canada's top banks posted stronger-than-expected quarterly profits on Thursday as they relied on lower loan-loss provisions, cost-cutting, and stronger international revenue to offset slower growth in domestic consumer lending.
Royal Bank of Canada and Toronto-Dominion Bank , the country's two largest banks, both raised their quarterly dividend. No. 5 lender Canadian Imperial Bank of Commerce left its payout unchanged, prompting investors to pull its shares lower.
With signs emerging that a long-awaited slowdown in personal lending and mortgage growth started to take hold in the fiscal first quarter ended Jan 31, RBC relied heavily on wholesale banking revenues to fuel its profits. TD enjoyed shrinking loan-loss provisions, stronger business loan growth, and worked hard to control costs.
"We are starting to definitely feel a slowdown in the consumer lending side, and I think you'll see a gradual slowing of the (mortgage) lending number over the course of the year," TD Chief Financial Officer Colleen Johnston told Reuters.
The banks have warned of the lending slowdown for more than a year, based on signs Canada's once-torrid housing market is cooling and a rise in consumer debt levels to record highs, suggesting a period of deleveraging may be overdue.
Growth in TD's Canadian retail lending slowed to a meager 5 percent on the year, with loan margins narrowing because of low interest rates. RBC posted a 6 percent growth in Canadian lending, but growth slowed to less than 1 percent compared to the fourth quarter of last year.
CIBC saw mortgage volumes fall due to its decision to close its discount FirstLine mortgage wing last year, but the move allowed it to raise its share of higher-margin loans.
GROWTH SLOWS, BUT PROFITS SURGE
Despite this lending slump, profits beat estimates at all three banks, highlighting their capacity to wring profit growth from their various business units.
RBC's net income rose to C$2.07 billion, or C$1.36 a share, from a year-earlier profit of C$1.86 billion, or C$1.22.
The gain was driven by a 25 percent rise in capital markets income, which benefited from higher U.S. lending and loan syndication as well as merger and acquisition activity, as well as a 24 percent jump in wealth management income. The bank has been expanding both businesses in Europe and the United States in recent years.
RBC even managed to squeeze 11 percent profit growth from its Canadian banking division, bolstering the impact of the loan growth by reducing loan-loss provisions and managing to keep interest margins steady.
Excluding special items, RBC earned C$1.38 a share, beating analysts' expectations of C$1.31, according to Thomson Reuters I/B/E/S.
"Overall, the bank reported a strong quarter and one that we view as the best in class again this quarter," CIBC World Markets analyst Robert Sedran said in a note.
TD, which has been expanding aggressively in the U.S. retail banking, posted net profit of C$1.79 billion, or C$1.86 a share, up from C$1.48 billion, or C$1.55.
The results were clouded by litigation reserves taken in both the current and year-ago quarters to cover costs stemming from its connection to a $1.2 billion Ponzi scheme run by Florida lawyer Scott Rothstein, who used the bank's accounts.
Excluding the provisions and other costs, TD earned C$2.00 a share, up from C$1.86, topping expectations of C$1.92.
TD has about 1,200 bank branches in Canada and about 1,300 in the United States. It also owns 45 percent of TD Ameritrade Holding Corp.
Loan losses also supported TD's retail banking growth, which hit 11 percent, as did a 13 percent rise in business banking. The bank saw wholesale banking profit retreat, while U.S. retail banking profits rose 9 percent, excluding the impact of the litigation reserve.
"Looking out longer term, I still think despite the increase in business growth, eventually the trends in residential and personal will drag down the entire loan growth number, (for the group)" said Tom Lewandowski, a St. Louis-based analyst at Edward Jones.
RBC's shares were up 0.9 percent at C$64.05, while TD was down 0.2 percent at C$84.09 just after midday. Both banks raised their quarterly dividends by 5 percent.
CIBC SHARES SLIDE
Shares of CIBC, which unlike RBC and TD lacks a significant international presence, were down 1.2 percent at C$82.87 after failing to raise its dividend.
Analysts had forecast all three banks would raise their payout, and Bank of Montreal unexpectedly raised its dividend on Tuesday, cementing that view.
Speaking on a conference call, CIBC CEO Gerry McCaughey said the bank had decided to play it cautious on the dividend front in part because it intends to use capital to buy back shares.
"I wouldn't read too much into our not raising the dividend this quarter," he said.
The bank earned C$798 million, or C$1.91 a share, down from C$835 million, or C$1.91, as profit was hurt by a C$148 million charge for a legal settlement with bankrupt U.S. bank Lehman Brothers.
Core profit of C$2.15 a share topped analysts' estimates of C$1.97, while loan-loss provisions dropped to C$265 million from C$338 million.