Bank loans for commercial real estate have been under the microscope ever since New York Community Bancorp took a surprise charge for loan loss reserves a month ago. Regional banks that specialize in such loans saw their already weak stock prices lose another 10%, and they slid more this week after NYCB disclosed “material weaknesses” in its loan review process and replaced its CEO.

So Barron’s is examining the banks with the highest concentration of commercial real estate loans, repeating an exercise we did a year ago. Our conclusion: They appear to have the risks under control to a greater degree than the market appreciates.

Many names are the same as when we looked a year ago, including Valley National Bancorp, Bank OZK, and Washington Federal parent WaFd. One of last year’s heavy lenders, PacWest Bancorp, left the list as it was pressed into a merger. Others landed on the list of concentrated lenders because of a merger. And then there is Merchants Bancorp, which blames high interest rates for keeping more loans on its books, as borrowers postpone fixed-rate refinancing.

Nonperforming loans have ticked up at the banks with heavy real estate lending, but remain close to industry averages. Capital levels and profit margins are holding up. These banks say they lend to commercial real estate because they are good at it and haven’t lent heavily to the downtown office towers plagued by vacancies.

Investors aren’t convinced. In the past 12 months, the SPDR S&P Regional Banking exchange-traded fund sank over 20% even as the S&P 500 rose 28%. Most of the concentrated real estate lenders in our ranking trade at lower earnings multiples than their banking peers.

The market hasn’t forgotten the 1980s and early 1990s, when bad real estate loans helped bring down hundreds of savings and loans. Or 2008, when bank losses on imprudent residential lending threatened the U.S. financial system.

The regional banks on Barron’s list say this time is different. They say they are well capitalized and their real estate lending is more conservative.

Bank OZK chief executive George Gleason says he takes his bank’s 11% selloff over the past month in stride, knowing that investors can lump differentiated lenders together. “When you say commercial real estate, you are talking about 1,000 different things using one term,” Gleason says.

With the second-highest concentration of commercial real estate loans among large banks at year end 2023, OZK outperformed every U.S. bank above $10 billion in assets, in 2023 year profitability and capital ratios. Over the 27 years since OZK came public, its stock has outperformed the S&P 500 by tenfold.

At WaFd, chief executive Brent Beardall says the bank is playing it safe by lending to fully leased apartment complexes in its Northwest region. “If we wanted to diversify into something else, we’d be taking more risk,” he says.