* 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
* TD shares rise as CEO shuts down Citizens deal talk
* RBC shares gain on results
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 slump in personal lending and mortgage growth began 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 that Canada's once-torrid housing market is cooling and on 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 6 percent growth in Canadian lending on the year, but growth slowed to less than 1 percent compared with 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 and 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, as it reduced loan-loss provisions and managed 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 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.
TD's results were clouded by litigation reserves taken in both the current and year-before 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, and 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.
"We are starting to see a slowdown in terms of domestic lending volumes, but it's not impeding the profitability of the retail banks at present," said John Aiken, an analyst at Barclays Capital.
"The banks have been very good at finding offsets... The question becomes the sustainability of all these issues.
Both TD and RBC raised their dividends by 5 percent.
RBC's shares rose 0.8 percent to C$64.02, while TD gained 0.7 percent to C$84.85, helped by comments by CEO Ed Clark that poured cold water on speculation TD might purchase Royal Bank of Scotland's Citizen's Bank unit.
CIBC SHARES SLIDE
Shares of CIBC, which unlike RBC and TD lacks a significant international presence, slid 0.9 percent to C$83.14 after failing to raise its dividend.
Analysts had forecast all three banks would raise their payouts, 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.
It 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 EPS of C$2.15 topped estimates of C$1.97, while loan-loss provisions fell to C$265 million from C$338 million.