iStar Financial (NYSE:SFI) is one of those guilt-by-association companies. Even though the company is a commercial real estate (CRE) lender, its perceived exposure to credit risk has caused its stock price to suffer from a high of $53 down to $37 per share. Even though iStar bought subprime lender Fremont General's (NYSE:FMT) CRE division, the company has very different risk exposures from those of subprime residential lenders such as Countrywide (NYSE:CFC) and American Home Mortgage (NYSE:AHM).

In fact, iStar came through a credit-risk minefield mostly intact during its second quarter. Adjusted earnings per share increased 12% to $1.02, and adjusted earnings guidance increased to $4.00-$4.20, meaning shares are trading at a very reasonable 9 times forward earnings. Nonperforming loans crept up to 1.73% of total assets, compared with 0.56% last year, and reserve for loan losses as a percent of total assets stayed essentially flat at 0.5%, versus 0.47% last year.

During the conference call, management demonstrated a good handle on its problem loans and believes that many of them were written with higher return expectations and were good risk-adjusted bets. Management also noted that the CRE portfolio it acquired from Fremont is performing as expected.

It's noteworthy that one of the first things iStar did after closing on the Fremont deal was to change the compensation of Fremont's investment professionals from volume-based toward rewards that are more based on ultimate profitability. Volume-based lending is a sure recipe for disaster, because underwriting discipline gets compromised in favor of bonuses.

Interested onlookers can hope that iStar will continue to instill strong underwriting discipline in its loan professionals and reward current shareholders with its nearly 9% dividend yield.

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Fool contributor Emil Lee is an analyst and a disciple of value investing. He doesn't own shares in any of the companies mentioned above. Emil appreciates your comments, concerns, and complaints. The Motley Fool has a disclosure policy.