* BMO dividend increase is its first in five years
* BMO, Scotiabank core profit slightly ahead of expectations
* Net profit boosted by acquisitions, building sale
* BMO shares up 1.3 pct, Scotiabank down 0.2 pct
By Cameron French
TORONTO, Aug 28 (Reuters) - Bank of Nova Scotia and Bank of Montreal posted slightly stronger-than-expected profits on Tuesday and increased their dividends, boosting shares of BMO, the last Canadian lender to resume dividend increases following the end of the financial crisis of 2007.
Even though the results topped analysts' expectations, neither BMO or Scotiabank could credit their domestic loan business for the outsized gains.
For BMO, Canada's No.4 bank, its enlarged U.S. banking network was the main driver, while for Scotiabank, the country's No.2 lender, the sale of its Toronto headquarters flattered the results.
The pair were the first of the big Canadian banks to report results this quarter. Depending on how their peers fare, the sector's performance could provide more evidence of a slowing Canadian economy after years of relatively steady growth.
In BMO's case, "the revenues were increased, but we're starting to see that pace of increase slowing," said John Aiken, an analyst at Barclays Capital.
Canadian banks escaped the U.S. financial crisis in relatively strong shape, and since then have been consistently ranked as the world's strongest lenders.
However, with signs emerging Canada's decade-long housing boom is peaking and Canadians in general are becoming more cautious in their borrowing, the banks' core consumer lending businesses are starting to face slowing growth.
The dividend increase was the first by BMO since in five years, before the global financial crisis, and came as a surprise to analysts who had expected Canada's No.4 bank to wait at least another quarter to do so.
But at the same time, the bank lowered its payout ratio to a range of 40-to-50 percent from 45-to-55 percent, meaning it will commit less of its profit to future payouts.
The move "means that you're going to see less increases out of BMO going forward than from the rest of the group," Aiken said
The Toronto-based bank said its quarterly profit rose 37 percent, due largely to last year's acquisition of U.S. bank Marshall & Illsley.
Net profit climbed to C$970 million (US$980 million), or C$1.42 a share, in the quarter, from a year-earlier C$708 million, or C$1.09. Stripping out one-time items, bank earned C$1.49 a share, ahead of the C$1.39 expected by analysts.
BMO paid $4.1 billion for Wisconsin-based M&I last July, doubling the bank's already-sizeable U.S. branch count to about 650. The acquisition contributed C$117 million to the bank's bottom line during the quarter, BMO said.
Looking past the gain, the results emphasized the challenges the Canadian lenders face in maintaining past profit growth.
BMO's flagship Canadian personal and commercial bank produced C$453 million in profit, a slim 2.4 percent gain year-over-year, as low interest rates squeezed margins the bank earns on its personal and commercial loans.
Total personal lending balances rose 6.3 percent, ahead of expectations, although more sluggish than in years past, while credit card balances fell slightly.
Income from BMO's private client wealth management business rose 5.7 percent to C$109 million, while its wholesale banking arm, BMO Capital Markets, saw profit fell 14 percent to C$232 million from the year before.
By midday, the bank's shares were up 1.3 percent at C$58.45.
Scotiabank, Canada's No. 3 lender, posted a 57 percent gain in profit on the back of a gain from the sale of its corporate headquarters in Toronto.
Net profit rose to C$2.1 billion, or C$1.69 a share, from C$1.3 billion, or C$1.10, a year earlier.
Stripping out a C$614 gain from the office sale and other items, the profit was C$1.22 a share, just ahead of the analysts' average estimate of C$1.19.
Scotiabank agreed to sell the 68-story Scotia Plaza office complex for C$1.27 billion to a pair of real estate investment trusts earlier this year.
The bank said it was trying to take advantage of Toronto's red-hot commercial office market, but analysts said the positive offshoot of the deal was that it strengthened Scotiabank's capital position just head of the implementation of stricter Basel III capital rules in 2013.
The bank raised its quarterly dividend by 2 Canadian cents to 57 Canadian cents a share, which was largely expected.
Its shares, which rose in early trading, leveled off by Midday and were down 0.2 percent at C$52.83.
Canadian banking profit rose 22 percent to C$521 million, helped by asset and deposit growth, as well as by lower loan-loss provisions and a gain on the sale of a leasing business.
Loan-loss provisions were C$402 million, down from C$250 million a year earlier.
International banking income climbed 29 percent to C$442 million, helped by Scotiabank's acquisition of a majority stake in Colombia's Bank of Colpatria, which closed in January. Compared with the second quarter, however, income fell 1 percent.
"There was weakness in the international banking," said Peter Routledge, an analyst at National Bank Financial.
Scotiabank paid about $1 billion for a 51 percent stake in Colpatria, one of a series of acquisitions it has made since the 2008 financial crisis.
Scotiabank bills itself as Canada's most international bank with offices in 50 countries, largely in Latin America.