On the surface, New York Community Bancorp (NYSE:NYCB) may look like a compelling opportunity. The bank has one of the highest asset qualities in the entire industry, pays one of the highest dividends in banking, and has dramatically underperformed its peers. In fact, over the past three years, the financial sector has risen by 59% while New York Community Bancorp has plunged by more than 30%.

However, like most "looks too good to be true" stocks, there's a lot more than meets the eye. With that in mind, here's a look at some of these compelling reasons to look at the bank as well as some of the reasons to avoid it.

Man with his hands up and a confused expression.

Image source: Getty Images.

New York Community Bancorp in a nutshell

If you aren't familiar, New York Community Bancorp is a large regional bank that focuses on the New York City metropolitan area. The company's primary focus is making loans on rent-controlled and rent-regulated multifamily buildings in New York City, and this makes up about three-fourths of the bank's loan portfolio.

Since its 1994 IPO, the bank has grown rapidly -- mainly through acquisitions -- and now has about $52 billion in total assets.

The good

There are certainly some reasons to like New York Community Bancorp, so let's go over some of the positive attributes of the bank.

First, New York Community Bank has tremendous asset quality. Rent-controlled apartment buildings are a very stable form of commercial real estate, as their tenants often pay below-market rent and continue to pay their rent even in tough times. In fact, the bank's nonperforming loan (NPL) rate of 0.14% is far below the peer group average of 0.75%. And the bank has had virtually no loan losses since 2013. That's definitely an impressive statistic.

Second, New York Community Bank has a strong presence in its markets, with the third-largest deposit market share in Queens, Nassau, and Richmond counties, and the number 10 market share in the overall New York Metro area.

New York Community Bank is also one of the highest-paying bank stocks. The current annualized dividend of $0.68 per share translates to a 6.8% yield, and it's well covered by the bank's earnings.

Finally, New York Community Bank is a cheap stock. Shares trade for a roughly 25% discount to book value, and as I mentioned, the stock has been one of the worst performers in the sector in recent years.

The bad

However, there are two sides to the story. For one thing, New York Community Bank has some of the worst profitability metrics in the sector. A return on assets of 0.76% and return on equity of 5.9% are far below what most other banks are producing. The industry benchmarks have typically been 1% and 10%, respectively, and that was before the benefits of tax reform made it easier for banks to make money.

Second, while New York Community Bank used to be one of the most efficiency operations in the industry, that competitive advantage has faded in recent years. To be clear, the 52.2% efficiency ratio the bank generated in the first quarter isn't bad -- it's right in line with peers -- but is a big change from the efficiency numbers in the 30s that the bank was formerly known for.

Also, it's worth noting that New York Community Bank doesn't enjoy the same low cost of capital that many other banks do. The bulk of its deposits are interest-bearing CDs, money market, and savings accounts. Only about 8% of the deposit base doesn't bear interest. For reference, Bank of America's deposit base is about 30% noninterest bearing, and its average cost of its interest-bearing deposits is just 0.74% versus 1.80% for New York Community Bancorp. That's a big disadvantage and makes the bank highly sensitive to rising short-term interest rates.

The verdict

To be sure, there are some things to like about New York Community Bank. And I have a generally positive opinion of the banking sector as a whole.

However, in this case, the bad has really started to outweigh the good. This is why I finally sold the stock from my own portfolio a few months ago and why I think investors would be better off putting their money to work elsewhere in the banking industry.