Growth in commercial real estate lending helped community banksin the West post the strongest first-quarter loan growth of any U.S. region, ata time when regulators are intensifying scrutiny of this asset class.

Median linked-quarter loan growth for banks under $10 billionin assets was 0.65% nationwide. CRE loan growth was likewise 0.65%. Overall loangrowth was highest in the West, driven by CRE lending.

Aaron Deer, an analyst at Sandler O'Neill & Partners, calledCRE a "bread-and-butter product" for community banks. He noted that thatmany banks have grown more cautious about the multifamily space, and that commercialand industrial balances are typically weaker in the first quarter.

Amid the growth, Stephen Klein, a partner at Miller Nash Graham& Dunn LLP, said there is concern in the industry that regulators will imposelimits on CRE concentrations.

In recent months, regulators have ramped up their focus on CRE.The Federal Reserve, OCC and FDIC remindedbanks in December 2015 of previously issued guidance on CRE, saying they will pay "special attention" to banks with higher concentrationsin these loans.

Deer said that regulators are "mindful" of the clipat which CRE prices rose in the recent past, so they are prompting banks to be carefulin managing those loans.

Median loan growth in the West was 1.82% during the first quarter,and CRE loans rose 2.21%. This was slightly higher than the 1.36% median growthin the mid-Atlantic, where CRE loans climbed 2.13%.

Deer said the West has benefited from strong growth markets andhigh-performing economies. "The Western markets have had better than averageloan growth for some time," he said. "Commercial real estate drove a bigpart of that."

Some banks in the West touted their solid CRE loan growth duringfirst-quarter earnings calls and downplayed concerns about risks cropping up intheir portfolios.

Executives from Irvine, Calif.-based Opus Bank highlighted the performance of the multifamilylending platform amid record first-quarter loan origination volume. "In spiteof industry chatter about commercial and multifamily real estate, we have tremendousconfidence in our ability to continue growing our leading multifamily lending platform,"said co-president Michael Allison. "Multifamily lending on the West Coast remainsa more favorable market environment than comparable East Coast ultra-competitivemarkets, which have experienced compressed pricing."

In Los Angeles, PreferredBank Chairman and CEO Li Yu said that the $2.68 billion bank is "conscientiously"trying to manage its CRE lending as it grows. Yu said that conversations the bankhas had with regulators indicate that the regulatory warnings about concentrationsare a governmental reminder of a "guideline." He said that by no meansis the government "trying to regulate us not to exceed that particular limitation."

"If you exceed that, you should intensify the procedureof your monitoring and your loan process," Yu added.