No Longer Expecting Interest Rate Hike This Year, BMO Lowers Estimates For Cathay General Bancorp

BMO Capital Markets analyst Lana Chan does not expect interest rate hike in the current year given the happenings around the world like Brexit. Therefore, she reduced her estimations across the board. Chan reiterated Outperform rating on Cathay General Bancorp CATY but reduced the price objective to $32 from $33.

In a note, the brokerage indicated, "Management is still targeting positive operating leverage, with net interest income projected at 10% growth, fee income at 3% and noninterest expense of 5%. We are now below their NII target after taking out further rate hikes."

Chan expects 7 percent average loan growth on an annualized basis in the second quarter. He expects most of them to be fueled by RRE and CRE. He also sees some possible pick-up in C&I growth later in the current year. The optimism is due to the recent lender hiring that would start to produce results.

BMO Capital pointed out that the management sees the net interest margin to slip modestly to the 3.35-3.40 percent range from 3.42 percent in the first quarter. That was mainly because of normalized interest recoveries apart from the fresh loan yield pressure, especially in CRE.

However, the brokerage believes Cathy remained as a capital return story. The analyst pointed out Cathy was active in buying back its shares last quarter and still had about $7.5 million for the share buyback program. "We also expect another dividend hike later this year as it moves towards its targeted dividend payout ratio of 40%," the analyst concluded.