Despite reporting lackluster earnings this week, Nara Bancorp received an upgrade Wednesday on speculation that the Los Angeles company will emerge soon from a memorandum of understanding ready to spend capital.

Manuel Ramirez, an analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc. boosted his rating on the $2.1 billion-asset Nara's stock to "outperform," from "market perform," citing Nara's "ample excess capital," its attractive valuation, and the "benign" credit trends evident in its first-quarter earnings report.

Nara reported late Monday that profits dropped 7% from a year earlier, to $7.3 million, or 28 cents a share, because its net interest margin decreased 48 basis points from the fourth quarter and 55 basis points from a year earlier, to 4.62%. Net loan chargeoffs were $1.3 million, or 0.31% of average loans, compared with $1.2 million, or 0.27%, in the fourth quarter.

"We acknowledge the fundamentals have deteriorated (as they have for most banks), but in our view the valuation is compelling enough to provide downside cushion for this historically high-performing bank," Mr. Ramirez wrote in a research note.

He added that Nara's tangible-equity-to-assets ratio stands at a "robust" 8.95%, and the money could be used for share buybacks or to acquire other banking companies that, like itself, target Korean-Americans.

Such companies have consistently been among the industry's top performers, but fierce competition for loans and deposits has started to take its toll. Three Nara rivals - Hanmi Financial Corp., Center Financial Corp., and Wilshire Bancorp Inc. - have all seen credit quality declines of late and their stocks have been punished.

Shares of Nara were up 3.4% late Wednesday, to $17.25, though they are still down about 17% for the year.

Since the summer of 2005 Nara has been operating under a memorandum of understanding with the Federal Reserve Bank of San Francisco and the California Department of Financial Institutions. The company was forced to restate earnings for 2002 and 2003 when it was discovered that it had accounted improperly for its compensation package for its former chief executive.

Nara is prohibited from appointing directors, changing its CEO's duties, or paying dividends without the regulators' blessing. Restrictions on paying dividends and issuing trust-preferred securities were lifted in February.

Lana Chan, an analyst at BMO Capital Markets Corp., wrote in a research note Wednesday that lifting the restrictions should boost Nara's shares, because the company will be free "to better manage the buildup of excess capital" and "pursue acquisitions again."

However, Ms. Chan left her rating at "market perform," because of continuing concerns about earnings growth in a difficult operating environment.

Nara's next examination will take place this summer, she wrote.

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