UPDATE: J.P. Morgan Reiterates Neutral Rating, Raises PT on New York Community Bancorp

In a report published Monday, J.P. Morgan & Co. reiterated its Neutral rating on New York Community Bancorp NYB, and slightly raised its price target from $13.50 to $14.50. J.P. Morgan noted, “We believe there is sufficient fundamental evidence to give the market ammunition to support either a bull or bear case on NYB stock. For the bull case, the company beat Street expectations with strong mortgage banking results saving the day. Additionally, the board again declared a $0.25 dividend. Score two points for the bulls. On the flip side, core net interest margin for the company continues to face significant headwinds. In the second quarter, the bank's reported NIM (which includes prepayment penalty fees) increased 6 bps q/q while the core NIM (excludes prepay fees) declined 10 basis points q/q, or at the higher end of management's guidance. Looking forward, management guided to expect the core NIM to decline in the 12-15 bps range in 3Q12. With core loan yields now 4.9% and new loans entering the portfolio below 4%, it would appear that there is little additional room to lower cost of deposits, and the core NIM will likely compress in the 5-15 bps range until we see short-term treasury rates ~50 bps higher. With core NIM under pressure, ROTE is expected to compress from ~17% in 2Q12 to ~13.2% by 4Q13. The bear case is that the core NIM is getting squeezed, taking profitability down for the ride and mortgage banking, which is perhaps the lowest-P/E business for a bank, is becoming an increasing component of the earnings picture.” New York Community Bancorp closed on Friday at $14.94.