March 1, 2018 / 12:01 PM / 8 months ago

UPDATE 3-TD Bank sees cooling mortgage demand over next 6 months

* Q1 EPS C$1.56 vs forecast C$1.46

* Bank on track to beat 7-10 percent earnings growth target

* CFO says expects growth in mortgage sales to cool (Recasts, adds comments from CFO interview on mortgage market)

By Matt Scuffham

TORONTO, March 1 (Reuters) - Toronto-Dominion Bank, Canada's second-biggest lender by market value, said it expects growth in new mortgage sales to slow over the next six months following the introduction of tougher lending rules.

Canada introduced stricter mortgage rules in January, requiring borrowers taking out uninsured mortgages to be stress-tested to determine their ability to make repayments at a rate 200 basis points above their contracted mortgage.

Chief Financial Officer Riaz Ahmed said in an interview that TD had seen record sales of new mortgages in the past three quarters but expected that to change as the new rules kick in.

"I think these things generally come in with a little bit of a lag effect," Riaz said. "The market sales data clearly shows signs of slowing down and cooling and we think this could play out over the next three to six months."

TD reported first-quarter results which were ahead of market expectations, helped by a strong performance in the United States and Canada, and said it expected to exceed its earnings target this year.

Earnings per share, excluding one-off items, rose to C$1.56 in the quarter to Jan. 31, from C$1.33 a year earlier. Analysts had on average forecast earnings of C$1.46, Thomson Reuters I/B/E/S data showed.

TD's performance means that all of Canada's 'big five' banks have reported first-quarter earnings that beat market expectations, brushing aside worries about Canada's housing markets and stalling talks to renegotiate the North American Free Trade Agreement.

Chief Executive Bharat Masrani said the operating environment "remained favourable" in the U.S. and Canada, leaving the bank positioned to exceed its target of 7 to 10 percent earnings growth this year.

"While there are risks on the horizon, if these positive conditions persist, adjusted earnings growth for the full year may exceed our medium-term target," he said in a statement.

The bank reported net income excluding one-off items of C$2.9 billion ($2.3 billion), up 15 percent, which it said reflected growth across all its businesses.

Net income at its Canadian retail business grew by 12 percent to C$1.8 billion, helped by loan and deposit growth and an increase in assets held by its wealth management business.

TD's U.S. retail business reported net income excluding one-off items of C$1 billion, up 28 percent on the year before benefiting from loan and deposit growth, higher margins and a lower corporate income tax rate.

$1 = 1.2849 Canadian dollars Reporting by Matt Scuffham; editing by Chizu Nomiyama and Nick Zieminski

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