Bank on Nara's Strong Performance

This column was originally published on RealMoney on Aug. 10 at 2:02 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Yield curve concerns have many investors shying away from banks. But there are compelling reasons not to overlook Nara Bancorp(NARA Quote).

Founded to serve the Korean-American community, it has been successful in both its mission and its business. This is a large, highly entrepreneurial population. The number of Korean immigrants in this country numbered about 11,000 in 1960. But by 2000, this population had reached 1 million. Add in children and undocumented immigrants, and the number swells to more than 1.5 million. California, where Nara is headquartered, has the largest Korean community in the country, followed by New York.

With 16 full-service branch operations in California and New York and eight loan production offices in other states and Seoul, Korea, it offers a full range of commercial banking and consumer financial services.

The bank has been a star performer. In just-released financials for the second-quarter, ended June 30, net income increased 28%, as did earnings per share. For the first half of the year, net income increased 39%, while EPS rose 41%. Its stock currently trades around $14.

Not only does the bank address a desirable market and have a strong track record, but two guru strategies I follow, those of Peter Lynch and Martin Zweig, indicate this bank is a fine, money-making machine.

The Peter Lynch Strategy

Based on my reading of Peter Lynch, Nara is a "fast grower," in the strategy's lingo, because its growth rate exceeds 20%. This is a very desirable category in which to be.

Also, the bank's P/E/G ratio (its price-to-earnings ratio relative to the growth rate) is 0.72, which is favorable. Lynch's strategy gives preference to companies with a P/E/G of 1.0 or less.

The Lynch strategy favors companies with several years of fast earnings growth, because they have a proven formula for growth that in many cases can continue many more years. The ideal growth range: 20% to 50%. Nara's is 21.5%, based on the average of the three-, four- and five-year historical EPS growth rates -- this is considered very good.

The Lynch methodology uses the equity-to-assets ratio as a way to determine a financial intermediary's health, with 5% being the minimum. Nara's E/A ratio gets a passing grade at 7.0%.