Less than two years after it was rocked by accounting turmoil, a spate of senior management departures and put on a federal regulatory watch list for troubled banks, Nara Bancorp Inc. now has begun an expansion push.

Under new senior management, including recently appointed Chief Executive Min Kim, the Los Angeles bank has turned in five quarters of solid earnings performance. That has helped push its stock to a 22-month high, closing last week at more than $20 a share.

“The whole group of Korean banks has done very well since 2000, but Nara Bank has done especially well because of the growth of the local Korean-American population, impressive deposit growth and a continued influx of money from Korea,” said Brett Rabatin, research analyst with FTN Midwest Securities Corp.

Indeed, Nara, which was founded in 1989, has now grown to become the second largest Korean-American bank in California. No. 1 is Los Angeles-based Hamni Bank.

Kim, a 25-year veteran of the Korean-American banking community including the last 12 at Nara is viewed as providing stability after the bank went through three chief executive changes in two years. Most recently, Kim was chief operating officer for Nara.

After Kim’s appointment Nov. 27, Nara’s stock rose 10 percent to a peak of $21.14 a share on Dec. 6 before falling back slightly last week.

“Anybody that can string together the performance the company has had under the duress that the company has had is remarkable,” said James Abbott, an analyst with Friedman, Billings, Ramsey & Co., which is a market maker in Nara stock.

That duress began two years ago following revelations of accounting irregularities and lack of documentation for key financial records. Auditor Deloitte Touche LLP resigned and the company was forced to restate earnings going back more than a year. As a result of this, the Federal Reserve Bank of San Francisco identified the bank as “in a troubled position.”

Adding to the turmoil were changes at the top. Among them:

Benjamin Hong, the longstanding chief executive, and Thomas Chung, the chairman, were forced out in early 2005. One reason reportedly was that Hong had agreed to defer some compensation, thereby letting the bank company avoid an earnings decrease. Securities laws prohibit arrangements that appear to manipulate earnings.

To reassure shareholders and regulators, Nara’s board hired accounting industry veteran Alvin Kang last year as the bank’s chief financial officer and restructured its senior management team. The bank also reached an agreement with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions to put in place more stringent auditing and management controls.

Once these issues were resolved late last year, the bank was freed to concentrate on its primary mission: making loans and taking deposits from customers, primarily in the Korean-American community. That’s proven to be quite lucrative over the last year as Korean-American business owners have thrived and billions of dollars have poured in from mainland Korea. Much of this new money has gone into commercial real estate investment, especially in and around L.A.’s Koreatown.

Indeed, the entire Korean-American banking industry has thrived with these trends. “It’s a case of a rising tide lifting all boats,” Abbott said. He noted that the Korean community has much higher business ownership levels than most other ethnic communities and that those businesses are generating lots of cash available for deposits.

In Nara’s case, this helped net income rise to a new plateau starting in mid-2005 of about $8 million per quarter from $5 million per quarter previously. Nara had just under $2 billion in average assets in the third quarter, up from $1.78 billion in the same quarter a year ago.

Ambitious plans

Kim, who is one of the first women to take the helm at a Korean-American bank, has ambitious plans for Nara. She wants to expand geographically, broaden the services Nara offers and step up an effort to bring in clients outside of the Korean-American community.

Roughly one-third of the bank’s business now comes from other ethnic communities, including Vietnamese, Chinese-American, Indian, Persian and Latino customers. “We would like to increase those markets going forward,” Kim said. “Our niche is to provide tailored customer service to fit their needs, based on one-to-one relationships.”

Kim said the bank has hired loan officers and other officials who speak the languages of these various ethnic communities.

But analyst Abbott said that Nara might not prove as successful in penetrating these other ethnic markets as it has its own Korean-American community.

“Let’s face it, if you’re an Italian businessperson, you’re going to want to bank at an Italian bank, not a Korean bank,” he said.

Nara is also expanding geographically, in part to shield the bank from regional economic downturns. The bank has long had branches in New York and the Bay Area, but has since expanded its network of branches and loan offices to such states as Washington and Colorado. Kim said more such offices are likely in the near future.

Nara is also planning to launch new fee-based services, such as wealth management, Kim said.

This move is in response to a recent trend that could portend trouble for the bank: a declining net interest margin, which refers to the difference between the amount of money made on investing depositors’ money and the amount of money paid in interest on those loans. As the yield curve between short-term and long-term interest rates has flattened in recent months, that difference has shrunk.

By moving into fee services, the hope is to generate cash to offset the decreasing net interest margin. “We plan to start this using our existing customer base,” Kim said. “We have a lot of business customers who have become quite wealthy in the last several years and we want to help them manage their wealth.”

That may be easier said than done, analyst Abbot said.

“Most community banks don’t do fee services well. By its very nature, wealth management is an inefficient business: it costs 80 cents or more in expenses to generate a dollar in revenue and portfolio managers don’t come cheap,” Abbott said. “To do this right will take time.”

But the biggest hurdle, Kim and the analysts concur, is increased competition.

“Small banks have opened up in the last couple years and mainstream banks are also targeting Korean-American customers, especially small businesses,” Kim said. “In addition, we’re also seeing non-banks, savings and loans and credit unions becoming more aggressive in lending with their prices.”

To compete, Kim said Nara must remain true to its roots and rely on one-to-one personalized customer service.

“That is the great advantage of Korean-American banks and it’s why our customers have remained so loyal,” Kim said.