Preferred Bank Caught in Alleged Borrower Fraud Saga
Preferred Bank, a $7.6 billion-asset bank based in Los Angeles, has found itself entangled in a high-stakes alleged borrower fraud saga that has previously implicated two larger Western banks. This development comes as Preferred Bank downgraded $115 million worth of loans to nonaccrual status this week. These loans are backed by multifamily and commercial real estate properties.
Link to the Controversial Cantor Group
While Preferred Bank has not publicly identified the borrowers, court documents and other publicly available records link the bank to properties associated with the Cantor Group. The Newport Beach, California-based real estate investment firm is currently embroiled in an alleged fraud controversy. Preferred Bank has disclosed that the borrowers are currently involved in multiple intricate lawsuits with other banking institutions.
Zions Bancorp in Salt Lake City, and Western Alliance Bancorp in Phoenix, have previously filed lawsuits against entities linked to the Cantor Group. The allegations center around the borrowers securing substantial loans using collateral that had already been pledged to other lenders. These lawsuits triggered a sell-off in regional bank stocks in the fall.
An Isolated Incident
Preferred Bank’s Chief Financial Officer, Edward Czajka, confirmed that the decision to downgrade the $115 million worth of loans is tied to this particular relationship. He explained that the issue revolves around the principals of the relationship, with whom the bank has been working for several years. He added, “It’s been a great relationship until now.”
In a recent investor presentation, Preferred Bank revealed that the loans were initially marked as substandard during the fourth quarter. This action was taken due to a member of the borrowing entity being the subject of fraud allegations against another financial institution.
Denial of Wrongdoing
A lawyer representing the Cantor Group-affiliated entities in the lawsuits by Zions and Western Alliance has emphatically denied all allegations of misconduct. He dismissed the banks’ claims as unfounded.
However, the impact of these allegations on the banking sector is significant. Western Alliance Bancorp, with $92.8 billion of assets, booked an $80 million loan-loss provision in the third quarter of 2025, approximately double the amount in the second quarter, owing largely to its exposure to the Cantor Group. The $89 billion-asset Zions Bancorp, which reported recoveries in the second quarter of 2025, booked a $49 million third-quarter provision for credit losses.
Preferred Bank’s Outlook
Despite the downgrade, Preferred Bank is not predicting major losses. The five properties involved have relatively low loan-to-value ratios, with an average of 52.7%, which minimizes potential losses. The bank attributed the move to nonaccrual status to “sluggish cash flow and unacceptable payment patterns” due to the borrowers’ ongoing legal issues.
Preferred Bank is optimistic about resolving a majority of the loans by the end of the second quarter with no significant impact on earnings. The bank plans to work diligently to resolve the loans and may also provide the borrowers an opportunity to refinance the loans elsewhere.
Tim Coffey, an analyst at Brean Capital who covers Preferred, noted in a research report, “We do not forecast material losses on the downgraded loans. The borrower has substantial equity in the collateral, and is unlikely to walk away from the loans.”
About Preferred Bank
Established in 1991, Preferred Bank operates primarily as a commercial real estate lender. As of Dec. 31, approximately 50% of its $6 billion loan portfolio was made up of multifamily and commercial real estate credits. The bank reported a net income of $133.6 million in 2025, a rise of about 2% from 2024.
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