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(Adds executives comments, updates share price)
By Nicole Mordant
VANCOUVER, British Columbia, Dec 4 (Reuters) - Laurentian Bank of Canada (LB.TO) raised its dividend for the first time in nearly six years on Tuesday, yet its stock fell, as fourth-quarter earnings fell short of market expectations.
Laurentian, Canada's eighth largest bank by market value, hiked its quarterly dividend by 10 percent to 32 Canadian cents after several quarters of strong loan growth.
President and Chief Executive Rejean Robitaille declined to commit to raising dividend payouts every other quarter, as Canada's other large banks generally do.
"We will review that on a quarterly basis... It is important that we will also grow the capital base," Robitaille said on a conference call.
The last time the bank increased its payout to shareholders was in the first quarter of 2002.
"The earnings recovery is largely sustainable so it was probably time to increase the dividend," said National Bank Financial analyst Robert Sedran.
Laurentian also revealed that like several other Canadian banks and companies, it was writing down its holdings of non-bank asset-backed commercial paper, a market that basically froze up in August amid worries the securities were invested in the troubled U.S. subprime mortgage sector.
The bank said it was taking a charge of C$2.9 million for its ABCP holdings, a 15 percent cut in the value of its investments in the debt securities.
Robitaille said Laurentian had benefited from ABCP troubles at its larger Quebec-based rival, National Bank of Canada (NA.TO). Some National Bank customers are disgruntled after the bank encouraged them to buy into what was believed to be low-risk commercial paper investments.
Montreal-based Laurentian reported a 34 percent rise in net income to C$30.2 million, or C$1.14 a diluted share, for the three months ended Oct. 31. That's up from C$22.6 million, or 84 Canadian cents, a year earlier.
Earnings from continuing operations were C$25.7 million, or 95 Canadian cents a share, in the quarter, compared with C$18.1 million, or 65 Canadian cents a share, a year earlier.
Sedran said that if a number of one-off items were excluded, such as a C$4 million gain from the restructuring of credit card firm Visa Inc and various tax benefits worth C$2.2 million, earnings would be 80 Canadian cents a share.
Analysts had expected Laurentian to report earnings before exceptional items of 82 Canadian cents a share, according to Reuters Estimates.
Laurentian's shares were down 92 Canadian cents, or 2.3 percent, at C$39.68 on the Toronto Stock Exchange on Tuesday afternoon. The stock is the strongest performer among Canada's eight biggest banks this year, up 31 percent.
The bank's return on equity, a measure of how efficiently a bank uses its capital, increased to 13.8 percent in the fourth quarter from 10.8 percent a year earlier.
Profit from its retail financial services business, which mainly serves clients in the province of Quebec, rose 50 percent in the fourth quarter to C$14.7 million on the back of higher loan and deposit growth.
Net income dipped 2 percent in Laurentian's commercial banking business to C$5.5 million.
Profit in Laurentian's B2B Trust unit grew 25 percent to C$7.9 million.
$1=$1.01 Canadian Reporting by Nicole Mordant; Editing by Rob Wilson