Chairman and Chief Executive Li Yu’s eventual retirement might mean the biggest change for Preferred Bank’s governance in years.

Yu, now 84, founded the independent mid-cap institution in 1991 and took it public in 2005. After leading downtown-based Preferred Bank through crises such as the Great Recession and the Covid-19 pandemic, Yu remains the final decision maker on every major issue facing Preferred Bank, which reports total assets of more than $7.1 billion.

Now planning the bank’s next chapter, Yu is seeking growth in an increasingly uncertain world – a world that one day will have him pass the torch to his successor.

“I think it has something to do with my age,” Yu quipped, as he shared his retirement plans. “Ten years ago, we started to make plans. Five years ago, we got a little more serious.”

Yu is among a group of financial executives – Sung Won Sohn, a commissioner with the L.A. City Employee Retirement System, as well as billionaire insurance and auto loan mogul Don Hankey – who work well past the default retirement age of 65. Yu works five days a week, from 9:30 a.m.-5:30 p.m. at the company’s headquarters in the Figueroa at Wilshire skyscraper downtown.

“The reasons I’m still working have something to do with my stubbornness,” Yu said. “But it is still interesting to go to work. There’s a lot of great things ahead of us.”

Yu declined to give more details on his retirement plans except to say they are extensive and not immediate. “There is a succession plan for me, there is a succession plan for each of the five executives and succession for even one level below that,” he said.

Navigating that uncertainty

After a three-year period of relatively high interest rates, the finance community hoped to see the U.S. Federal Reserve decide to reduce rates in 2025. The Fed started easing rates in the second half of 2024, after raising them 11 times throughout 2022 and 2023 in an attempt to control inflation.

High interest rates made it harder to pay off loans, adversely impacting loan demand – one of the key drivers of bank profitability, according to Kamal Bajoria, a managing director for financial institutions investment banking at Pasadena-based Wedbush Securities. Additional turbulence is forecast as a result of President Donald Trump’s controversial tariff policies. The rise in tariffs is “expected to cut into the margins of import and export businesses as they absorb production and supply chain costs,” said Bajoria.

Tighter margins mean lower cash flow for debt service, which has affected Wall Street’s outlook on financial institutions. The S&P 500 Banks Industry Group Index has surfed through choppy waters amid the battle over tariffs. The index tumbled more than 7 %, closing out the week at 394.81 on April 4 – two days following Trump’s “Liberation Day” when he announced his new trade plan. Later in the month, the index recovered after the Trump administration delayed its most severe hike in tariffs until July, according to the New York Times. It has continued to rally through June.

Preferred Bank was no stranger to these issues. The institution in April reported a first-quarter net income of $30 million, or $2.23 per diluted share. It was a drop by more than 10% from $33.5 million, or $2.44 per diluted share, the previous year. Additionally, net interest income was $62.7 million, a decrease by $5.8 million compared last year.

Yu noted the first quarter was affected by an outsized impact to its interest income of $2.8 million on nonaccrual loans, or loans where the lender is no longer recognizing interest income because the borrower has not made payments for 90 days or more.

Like the S&P 500 banking industry index, shares of Preferred Bank has echoed the volatility of the sector. The bank’s stock price hit a low of $75.32 on April 7, following Trump’s announcement on tariffs. In February, shares had climbed as high as $93.59. Preferred Bank’s stock has since rallied from its April lows and closed at $80.36 on June 18.

The uneven post-pandemic recovery in commercial real estate is also affecting the banking industry. Southern California industrial real estate experienced a 7.5% increase in leasing activity during the first quarter of 2025, according to JLL Inc. The Los Angeles office market showed a modest recovery with 3.4 million square feet leased during the first quarter, up slightly from 3.2 million reported in the first quarter of 2024, according to Savills. 

Banks whose primary clients are in commercial real estate may experience some turbulence as a result. “If there is a recession, the first thing to be hit will be CRE loans,” Bajoria said.

Fifty-four percent of Preferred Bank’s total loan portfolio are commercial real estate loans, according to the bank. Despite the ongoing concerns, the bank said it hasn’t cut back from any of its loan activities.

“We are a relationship banking company,” a bank representative said in a statement. “While we remain prudent and vigilant in underwriting, and continue to monitor and mitigate credit risk, we continue to develop new relationships and work with long-term customers.”

Forecasting growth opportunity

Preferred Bank also found some gains during the first quarter of 2025. Its return on average assets was 1.76%, while total deposits increased by $155.9 million – about 2.6%.

Analysts following Preferred Bank’s business said the institution’s stock has rolled with banking sector’s performance, but there was reason to believe things would turn around.

David Feaster Jr. of Raymond James & Associates assigned Preferred Bank a neutral rating in April, noting in a research note that uncertainty from trade wars had weakened demand for loans and growth remains weak for the short term.

“Fortunately, the bank saw stronger than expected deposit growth where deposit costs continue to decline rapidly,” he said.

Similarly, Gary Tenner of D.A. Davidson Co. also gave a neutral rating on the bank, but he did predict Preferred would make some gains later this year.

“We expect the (net interest margin) to recover somewhat in the second quarter,” Tenner wrote.

Acknowledging the uncertainty for investors, the company pulled the trigger on a $125 million stock buyback in May.

“As organic growth has slowed, the bank’s capital ratios will continue to climb due to our high level of profitability,” Yu said in a statement at the time. “In this setting, buying back our common stock is a great use of the bank’s excess capital and an indirect way of returning capital to our shareholders.”

Other recent examples of growth include expanding brick-and-mortar retail bank locations. A full-service Manhattan branch in New York City opened in April and offers a lending team. The bank anticipates expanding its Sunnyvale location into a full-service location and relocating to Cupertino in Silicon Valley.

A stable C-suite

Another intangible that bodes well for Preferred Bank’s future: little turnover in executive leadership.

The bank’s C-suite has been staffed by the same group of executives since 2018, with some clocking in more than a decade at the institution.

Johnny Hsu, deputy chief operating officer, credits the retention of the bank’s top executives to Yu’s managerial style.

“He actively seeks out inputs from other executives and senior management for their inputs,” Hsu said. “More importantly, if things go wrong, he is the first to take responsibility. He shoulders the blame.”

Hsu has worked as deputy COO since 2018, having started off in branch operations in 1992 and climbed the ladder. His colleague, Wellington Chen, has served as the bank’s president and COO since 2012. Meanwhile, Edward Czajka has worked as the bank’s chief financial officer since 2006. Nick Pi, who has served as the bank’s chief credit officer since 2015, was tapped in May to also be the new chief risk officer overseeing the compliance department.

“Nick has been a very strong leader in credit administration, and we’re excited to have someone with his experience and knowledge taking over the role of chief risk officer,” Yu said in a statement in May. “We feel this is an important step in developing our enterprise risk oversight.”

Hsu said that the long tenure of the bank’s executives reflects Yu’s leadership and the company’s overall future. “It is his role as CEO and primary decision maker. He finds ways to work collaboratively to come to a resolution,” he said.

Paying it forward

Preferred Bank also started 2025 with boosting its philanthropy.

Following the devastating Eaton and Palisades fires in January, it donated $250,000 to relief efforts in Los Angeles.

Outside of the bank, Yu has also taken part in charity, including a 2022 donation of $1 million to the Grammy Museum at L.A. Live from the Grace and Li Yu Family Foundation.

Yu said he doesn’t see himself changing his pace any time soon.

“I’m not going to enjoy life by sitting down at the beach,” he said. “I’d rather be doing something than nothing.”