- Key insight: Preferred Bank has moved a $115 million block of loans, which are backed by multifamily and commercial real estate properties, to nonaccrual status.
- What’s at stake: The $7.6 billion-asset Preferred is the latest bank to be ensnared in a saga involving alleged borrower fraud. Both Zions Bancorp. and Western Alliance Bancorp. have sued the entities, whose lawyer has denied wrongdoing.
- Forward look: Preferred believes it can resolve the nonaccrual credits by the end of the second quarter.
Los Angeles-based Preferred Bank has been pulled into a high-stakes saga involving alleged borrower fraud that previously ensnared two larger Western banks.
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Preferred disclosed earlier this week that it has downgraded to nonaccrual status a large relationship involving $115 million of loans backed by multifamily and commercial real estate properties.
While Preferred did not identify the borrowers, court filings and other publicly available documents link the $7.6 billion-asset bank to properties connected to an alleged fraud controversy involving the Cantor Group, a real estate investment firm based in Newport Beach, California.
Preferred noted in a press release that the borrowers are “involved in several complicated lawsuits with other banks.”
Both Zions Bancorp. in Salt Lake City and Western Alliance Bancorp. in Phoenix have sued entities affiliated with the Cantor Group, alleging that the borrowers obtained sizable loans by offering collateral that had already been pledged to other creditors. The lawsuits contributed to
Preferred’s decision to downgrade $115 million of loans is “definitely isolated to this relationship,” Chief Financial Officer Edward Czajka told American Banker.
“It has to do with the principals in the relationship, who we’ve been involved with for a number of years,” Czajka said. “It’s been a great relationship until now.”
In an investor presentation Thursday, Preferred said it had initially flagged the loans as substandard during the fourth quarter due to “a member of the borrowing entity being the subject of fraud allegations against another financial institution.”
A lawyer representing the Cantor Group-affiliated entities in the Zions and Western Alliance suits has said that his clients “vehemently deny all the allegations of wrongdoing” and has called the banks’ claims “unfounded.”
Western Alliance, which has $92.8 billion of assets, booked an $80 million loan-loss provision in the third quarter of 2025, roughly double the second-quarter amount, due mainly to its Cantor Group exposure.
The $89 billion-asset Zions, which reported recoveries in the second quarter of 2025, booked a $49 million third-quarter provision for credit losses.
A number of other banks have reportedly also filed suit against Cantor.
Preferred isn’t forecasting significant losses due to its downgrade. The five properties involved have relatively low loan-to-value ratios — the average is 52.7% — limiting the downside potential.
“There’s very little leverage in the overall relationship,” Czajka said.
In its Feb. 23 press release, Preferred disclosed that it opted to move the loans to nonaccrual because of “sluggish cash flow and unacceptable payment patterns,” which it attributed to the borrowers’ legal issues.
“We felt it was prudent to place them all on nonaccrual and move forward with actions that are going to resolve these credits with the least amount of disruption to our operating income,” Czajka said.
The company believes it can resolve a majority of the loans by the end of the second quarter with no significant impact on earnings.
“Management intends to aggressively work out the loans, including giving the borrowers the opportunity to refinance the loans elsewhere,” Tim Coffey, an analyst at Brean Capital who covers Preferred, wrote in a research note.
“We do not forecast material losses on the downgraded loans,” Coffey added. “The borrower has substantial equity in the collateral, and is unlikely to walk away from the loans.”
Founded in 1991, Preferred operates mainly as a commercial real estate lender. As of Dec. 31, about 50% of its $6 billion loan portfolio consisted of multifamily and CRE credits.
Preferred produced $133.6 million of net income in 2025, up about 2% from 2024.