For several years some California community banks have made themselves profit standouts by concentrating on the fast-growing Chinese-American and Korean-Americans communities, known for entrepreneurship and saving.
But with smaller ethnic players and larger mainstream banks starting to nibble at their market, some are making changes to keep up the performance Wall Street has come to expect.
One is cross-selling more. Another is opening full-service branches overseas. And some are going after mainstream customers.
Take the $3.1 billion-asset Hanmi Financial Corp. in Los Angeles. Its new chief executive officer, the former Wells Fargo & Co. chief economist Sung Won Sohn, is a longtime proponent of cross-selling.
Mr. Sohn, who joined the Korean-American banking company in January, said first-quarter fee income from the insurance and investment divisions doubled from a year earlier.
This quarter Hanmi plans to launch new products, including cash-management services and second mortgages, and to add "more bells and whistles" to its credit card offering, such as free airline miles for purchases, he said.
"Before, Hanmi didn't really need to cross-sell," Mr. Sohn said. "But the landscape is changing, and we need to diversify our product base. We want to get our customers' entire relationship."
Companies such as Hanmi, as well as the $6.9 billion-asset UCBH Holdings Inc. of San Francisco and the $6.4 billion-asset East West Bancorp Inc. in San Marino, are not abandoning their traditional customer bases, which have helped them routinely achieve double-digit earnings growth and solid returns.
They are, however, altering their approach slightly in response to competition from smaller, Asian-American banks that are undercutting them more on loans and deposits. They also face competition from big banks in trade finance - a significant source of income for Asian-American banks, which have historically catered to small businesses engaged in overseas trading.
And there is another reason Hanmi, UCBH, and East West want to expand their product lines or appeal to a wider range of customers: Their bread-and-butter business - commercial real estate lending - appears to be slowing as the Golden State's red-hot market cools off.
UCBH is already feeling the pinch. Though its first-quarter earnings rose 10%, to $21.8 million, its typical year-over-year growth rate is 20% or more, said Lana Chan, an analyst at Bank of Montreal's Harris Nesbitt Inc. in New York.
Ms. Chan's explanation for the slower growth: deposits' repriced much faster than loans, mainly because UCBH had to compete with smaller competitors' "irrational" pricing as interest rates rose.
UCBH, whose main market is Chinese-Americans, is diversifying by moving overseas. It recently opened branches in Shenzhen, China and Taipei, Taiwan.
Though competitors, including East West and the $6.2 billion-asset Cathay General Bancorp in Los Angeles, have correspondent banking offices in China and Taiwan, UCBH is now accepting deposits and making loans there, said Thomas S. Wu, its president and CEO.
"We can now actually help overseas trade companies grow, and that will help to fuel" the bank's growth, Mr. Wu said.
Campbell Chaney, an analyst at Sanders Morris Harris Group in San Francisco, said the move is a natural, because foreign businesses are referred to UCBH by their U.S. import and export customers. As the overseas branches mature, UCBH's bottom line get a boost from China's torrid economic growth, he said.
East West, which primarily serves the Chinese community in the Los Angeles area, is actively targeting small and midsize mainstream businesses, according to chief financial officer Julia Gouw.
In 2001 the company bought the $128 million-asset Prime Bank in Century City. Prime's non-Asian bankers helped East West attract more mainstream customers, who now account for about 60% of its commercial deposits and loans, Ms. Gouw said.
"The overall small-to-medium-business market in California is humongous, and we'd be limiting ourselves if we only catered to Chinese-Americans," she said.
Though East West's commercial real estate lending has moderated this year - it rose 4% in the first quarter, to $2.6 billion - the business remains a focus because it attracts mainstream customers, Ms. Gouw said. Growth in that group helped boost East West's first-quarter earnings by 39%, to a record $23.5 million, she said.
Brett D. Rabatin, an analyst at First Horizon National Corp.'s FTN Midwest Securities Corp., said Hanmi's emphasis on cross-selling makes it unique among Korean-American banking companies.
Like its competitors, such as the $1.5 billion-asset Nara Bancorp in Los Angeles, Hanmi is also smart to beef up commercial and industrial lending, because commercial real estate lending is slowing, Mr. Rabatin said.
Hanmi's C&I lending grew 3% in the first quarter, to $1.25 billion, offsetting a corresponding drop in commercial real estate loans, to $956.8 million.
Korean-American banking companies' CRE lending has also been affected by a decelerating Korean economy. Many Koreans have begun reducing their U.S. investments through banking companies, Mr. Rabatin said.
Hanmi's yields have risen over the past two quarters, with the change in loan composition putting more higher-yielding loans on the books, he said. But the huge profit boost over the same period really reflects its April 2004 acquisition of the $1.1 billion-asset Pacific Union Bank, also in Los Angeles.
Hanmi's first-quarter earnings doubled year-over-year, to $13.3 million. Joseph Gladue, an analyst at Cohen Bros. Securities LLC in Philadelphia, said that Hanmi, UCBH, and East West may be unable to sustain the earnings growth of years past, but "they can do many things to still grow earnings way above the rest of the industry."
Among those things, Mr. Gladue said, they can target ethnic communities in other U.S. cities to which Asians are immigrating.
"I don't think that trend has played out yet at all," he said.
