UNITED STATES SECURITIES AND EXCHANGE COMMISSION

FORM 10-K

For the fiscal year ended December 31, 20032004
or

For the transition period from ____________ to ______________

Commission File # 000-50245

NARA BANCORP, INC.

3701 Wilshire Boulevard

Registrant’s telephone number, including area code:(213) 639-1700
Securities registered pursuant to Section 12(b) of the Act:None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $0.001 per share
(Title of Class)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.x Yeso Noþ

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act) Yesxþ YesNoo No

The aggregate market value of the Common Stock held by non-affiliates of the Registrant based upon the closing sale price of the Common Stock onas of the last business day of the Registrant’s most recently completed second fiscal quarter, June 30, 2003,2004, as reported on the Nasdaq National Market, was approximately $202,103,930.$397,429,000.

Number of shares outstanding of the Registrant’s Common Stock, as of March 11, 2004: 11,580,08931, 2005: 23,366,660

Portions of the Definitive Proxy Statement that will be filed in connection with the registrant’s Annual Meeting of Stockholders to be held on May 13, 2004 are incorporated by reference into Part III of this Form 10-K.

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Table of Contents

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PART I

Forward-Looking Information

          Certain matters discussed in this Annual Report onForm 10-K may constitute forward-looking statements under Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements may involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations ofregarding the business environment in which we operate, projections of future performance, perceived opportunities in the market and statements regarding our mission and vision. Forward-looking statements include, but are not limited to, statements preceded by, followed by or that include the wordwords such as “will,” “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates” or similar expressions. Our actual results, performance or achievements may differ significantly from the results, performance or achievements expressed or implied in such forward-looking statements. For a detailed discussion of the factors that might cause such a difference, see Item 1. ““Business- Factors That May Impact Our Business or the Value of Our Stock.”

          Factors that might affect forward-looking statements include, among other things:

	•		the demand for our products;
	•		actions taken by ours competitors;
	•		changes in the FDIC insurance premium;
	•		tax rate changes, new tax laws and revised tax law interpretations;
	•		adverse changes occurring in the securities markets;
	•		inflation and changes in prevailing interest rates that reduce our margins or the fair market value of the financial instruments that we hold;
	•		economic or business conditions, either nationally or in our market areas, that are worse than we anticipated;
	•		legislative or regulatory changes that adversely affect our business;
	•		the timing, impact and other uncertainties of our asset sales or securitizations;
	•		technology changes that are more difficult or expensive than we expect;
	•		increases in delinquencies and defaults by our borrowers and other loan delinquencies;
	•		increases to our provision for losses on loans and leases due to loan quality/performance deterioration;
	•		our inability to sustain or improve the performance of our subsidiaries;
	•		our inability to achieve our financial goals and strategic plans, including any financial goals related both to contemplated and consummated assets sales or acquisitions;
	•		the outcome of lawsuits or regulatory disputes; and
	•		•the demand for our products; •actions taken by our competitors; • adverse actions taken by any one of our regulatory agencies, which would limit our activities, such as a Memorandum of   Understanding or consent agreement; •changes in the FDIC insurance premium; •tax rate changes, new tax laws and revised tax law interpretations; •adverse changes occurring in the securities markets; •inflation and changes in prevailing interest rates that reduce our margins or the fair market value of the financial instruments that   we hold; •economic or business conditions, either nationally or in our market areas, that are worse than we anticipated; •legislative or regulatory changes that adversely affect our business; •the timing, impact and other uncertainties of our asset sales or securitizations; •technology changes that are more difficult or expensive than we expect; •increases in delinquencies and defaults by our borrowers and other loan delinquencies; •increases to our provision for losses on loans and leases due to loan quality/performance deterioration; •our inability to sustain or improve the performance of our subsidiaries; •our inability to achieve our financial goals and strategic plans, including any financial goals related both to contemplated and   consummated assets sales or acquisitions; •potential delisting of our stock by NASDAQ , and the effect on our stock price if this occurs; •potential litigation relating to our recent accounting restatement; •possible weaknesses in our system of internal and disclosure controls; and •credit and other risks of lending, leasing and investment activities.

          As a result, of the above, we cannot assure you that our future results of operations or financial conditionscondition or any other matters will be consistent with those presentedexpressed or implied in any forward-looking statements. Accordingly, we caution you not to rely on these forward-looking statements. We do not undertake, and specifically disclaim any obligation, to update these forward-looking statements, which speak only as of the date made.made except as may otherwise be required by law.

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Item 1. BUSINESS

General

          Nara Bancorp, Inc. and subsidiaries (“Nara Bancorp,” on a parent-only basis, and “we” or “our” on a consolidated basis)basis with its subsidiaries) is a bank holding company headquartered in Los Angeles, California. We offer a full range of commercial banking and consumer financial services through our wholly owned subsidiary, Nara Bank, N.A., a nationalCalifornia state-chartered bank (the “Bank” or “Nara Bank”). During the first quarter of 2001, Nara Bancorp became a bank holding company regulated by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”“FRB”) as part of the reorganization of Nara Bank into a holding company structure. Nara Bank was organized in 1989 and Nara Bancorp was incorporated under the laws of the State of Delaware in 2000. Nara Bank was organized in 1989 as a national bank and converted to a California state-chartered bank on January 3, 2005. Nara Bancorp’s principal business is to serve as a holding company for Nara Bank and other bank-related subsidiaries, which Nara Bancorp may establish or acquire. Our headquarters are located at 3701 Wilshire Boulevard, Suite 220, Los Angeles, California 90010, and our telephone number at that address is (213) 639-1700. Nara Bank’s deposits are insured by the Bank Insurance Fund (“BIF”), as administered by the Federal Deposit Insurance Corporation (“FDIC”), up to applicable limits. Nara Bank is a member of the Federal Reserve System.

          Nara Bancorp currently has five special-purpose subsidiaries that were formed for capital-raising transactions;transactions: Nara Capital Trust I, Nara Statutory Trust II, Nara Capital Trust III, Nara Statutory Trust IV, and Nara Statutory Trust V. In March 20002001 and 2001,2002, Nara Bancorp established Nara Capital Trust I (“Trust I”) and Nara Statutory Trust II (Trust II”), respectively. The Trust I and Trust II are statutory business trusts. The Trust I issued $10.0 million in trust preferred securities bearing a fixed rate of 10.18%. The interest is payable semi-annually for a 3030- year term. Trust II issued $8.0 million in trust preferred securities. In both issuances, we participated as part of a pooled offering with several other financial institutions. The interest rate is adjusted quarterly on March 26, June 26, September 26 and December 26 during its 30-year term based on the 3-month LIBOR plus 3.60 % and is paid quarterly. In June 2003, Nara Bancorp established Nara Capital Trust III (“Trust III”), and in December of 2003 Nara Bancorp established Nara Statutory Trust IV (“Trust IV”) and Nara Statutory Trust V (“Trust V”), respectively.. In three separate private placement transactions, the Trusts III, IV, and V issued $5.0 million, $5.0 million and $10.0 million with quarterly adjustable rates based on the 3-month LIBLORLIBOR plus 3.15%, 2.85 %,2.85%, and 2.95%, respectively, and interests are payable semi-annuallyinterest is paid quarterly for a 3030- year term. In all five issuances, we participated as part of a pooled offering with several other financial institutions. The statutory business trusts were established as part of our capital planning to compliment ourcomplement and support future growth.

          With the adoption of FIN No. 46, Nara Bancorp deconsolidated the five grantor trusts as of December 31, 2003. As a result, the junior subordinated debentures issued by Bancorp to the grantor trusts in connection with the trust preferred financing, totaling $39.3 million, are reflected in our consolidated balance sheetstatements of financial condition in the liabilities section at December 31, 2004 and 2003, under the caption as “junior subordinated“subordinated debentures.” We record interest expense on the corresponding junior subordinated debentures in the consolidated statements of income. The CompanyNara Bancorp also recorded $2.0$2.1 million in other assets in the consolidated statementstatements of financial condition at December 31, 2004 and 2003 for the common capital securities issued by the issuer trusts.grantor trusts held by Bancorp.

          Nara Bank opened for business onin June 16, 1989 under the name “United Citizens National Bank’Bank” as a national banking association. The institution’s name was changed to “Nara Bank, National Association” onin January 27, 1994.1994, and in January 2005, became “Nara Bank” after converting to a California state-chartered bank. Nara Bank is headquartered at 3701 Wilshire Boulevard, Suite 220, Los Angeles, California 90010. Nara Bank primarily focuses its business in Korean communities in California and in the greater New York City metropolitan area.

          Nara Bank supplemented its growth over the past few years through strategic acquisitions in its primary market areas in California and New York. The following is a summary of our acquisitions since 1998:

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          At December 31, 2003,2004, the Bank had two wholly owned subsidiaries. The first subsidiary, Nara Loan Center, is a New Jersey corporation organized in 2000. ItNara Loan Center is a loan production office, generating mostly SBA loans. The second subsidiary, Nara Real Estate Trust, a Maryland real estate investment trust, was formed in April of 2003. As of December 31, 2003, Nara Real Estate Trust holds only loans secured by real estate and as of December 31, 2004, had total assets of $120.0$128 million.

          Our website address is www.narabank.com.www.narabank.com. Electronic copies of our annual reportreports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and amendments to those reports, are available free of charge by visiting our website atwww.narabank.com/financial.asp.i_stock.asp andwww.narabank.com/I_finan.asp. These reports are generally posted as soon as reasonably practicable after they are electronically filed with the Securities and Exchange Commission.

Restatement of Financial Statements

          On March 30, 2005, we filed a Form 8-K announcing that on February 23, 2005, a letter (the “Letter”) dated October 10, 2002 addressed to the former President and Chief Executive Officer of Nara Bancorp, Inc. (the “Company”) and signed by the former Chairman of the Board of the Company was brought to the attention of the Audit Committee. The Letter addressed the relinquishment of certain profit sharing rights held by the former President and Chief Executive Officer payable in 2003 and 2004 and the Letter further provided that Nara Bank, a wholly-owned subsidiary of the Company, purportedly agreed to reimburse the former President and Chief Executive Officer for certain automobile and country club expenses and to provide him with compensation for additional work to be performed after his retirement, all in an amount not to exceed the amount of profit sharing rights to be relinquished by him.

          A special sub-committee of the Audit Committee of the Board of Directors of the Company (the “Subcommittee”) engaged independent counsel to conduct an investigation of matters relating to the Letter. The Subcommittee discovered that the amount the former President and Chief Executive Office relinquished was approximately $600,000 in 2002 and $0 in 2003. The Subcommittee determined that the failure to disclose and account for the arrangement to reimburse certain expense amounts up to approximately $600,000 contemplated by the Letter had a material effect on the Company’s previously issued consolidated financial statements for the year ended December 31, 2003 and 2002. The Subcommittee evaluated the error in accordance with the quantitative and qualitative guidance set forth in Staff Accounting Bulletin No. 99. As a result thereof, on March 24, 2005, the Subcommittee concluded (and on March 25, 2005 the Board of Directors concurred) that the Company should restate its consolidated financial statements for the year ended December 31, 2002 and 2003 and, accordingly, the previously issued financial statements and the related independent auditors reports thereon for the year ended December 31, 2003 and 2002 should no longer be relied upon. The Subcommittee discussed the restatement with the Company’s independent registered public accounting firm for 2004 as well as its former independent registered public accounting firm for 2003 and 2002. Additionally, the Subcommittee engaged its current independent registered public accounting firm to re-audit the Company’s 2003 and 2002 consolidated financial statements.

          On March 30, 2005, the Company announced in a current report on Form 8-K that it was restating its annual consolidated financial statements for the fiscal years ended December 31, 2003 and 2002. In the course of the re-audits of the Company’s consolidated financial statements for the fiscal years ended December 31, 2003 and 2002, certain additional errors were also identified (i.e., other than the one relating to the Letter) in the Company’s consolidated financial statements for fiscal 2003 and 2002. Specifically, errors were identified relative to accounting for bank owned life insurance, lease arrangements under which the Company occupies its premises, incentive compensation, profit sharing and bonus payments to certain employees and various other accounting matters. Accordingly, the Company’s fiscal 2003 and 2002 consolidated financial statements are also restated for these accounting errors. See Note 2 “Restatement” of the Notes to Consolidated Financial Statements for a detailed discussion of the restatements.

          All financial information contained in this Annual Report on Form 10-K gives effect to this restatement. Information regarding the effect of the restatement on our financial position and results of operations is provided in Note 2 to the Notes to Consolidated Financial Statements. Financial information included in reports on Form 10-Q, Form 10-K and Form 8-K previously filed or furnished by the Company for these periods should not be relied upon and are superseded by the information in this Annual Report on Form 10-K.

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Recent Developments

          On March 11, 2004,10, 2005, Nara Bancorp declared a dividend of $0.05$0.0275 per common share for the first quarter of 2004,2005, which is payablewas paid on April 12, 20042005 to stockholders of record on March 31, 2004.

2005. On March 9, 2004,June 23, 2005, Nara Bank signedBancorp declared a Purchase and Assumption Agreement with Interchange Bank, a New Jersey chartered bank,dividend of $0.0275 per common share for the purchase of the Hackensack branch of Interchange. Upon closing of this transaction, Nara Bank will assume approximately $1.5 million in deposits, and no loans. The purchase will allow Nara Bank to expand its branch network to the New Jersey market and meet the demands of the growing Korean-American community in New Jersey. The transaction is expected to close during the second quarter of 2004 and2005, which is subjectpayable on July 17, 2005 to normal closing conditions.stockholders of record on July 5, 2005.

Business Overview

          Our principal business activities are conducted through Nara Bank by earning interest on loans and investment securities that are funded by customer deposits and other borrowings. The difference between interest received and interest paid comprises the majority of our operating earnings. The FDIC insures Nara Bank’s deposits up to the maximum legal limits, and the Bank is a member of the Federal Reserve System.

          Through our network of 1516 branches and 58 loan production offices, we offer a full range of commercial banking and consumer financial services forto our customers, who typically are individuals and small- to medium-sized businesses in our market areas. We accept deposits and originate a variety of loans including commercial loans, commercial real estate loans, trade finance, Small Business Administration (SBA) loans, automobile and various consumer loans. To better meet our customers’ needs, our mini-market branches generally offer extended

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make up a significant portion of our loan portfolio.portfolio in the near future. We also offer small business loans to smaller retail businesses of up to $100,000$150,000 with terms of 34 to 57 years at a fixed interest rate.rates using a credit scoring system.

          Our commercial loan portfolio includes trade finance loans from theNara Bank’s International Banking Department, which generally serves businesses involved in international trade activities. These loans are typically collateralized by business assets and are used to meet the short-term working capital needs (accounts receivable and inventories) of the subject business.our borrowers. The departmentInternational Banking Department also issues and advises andon letters of credit for export and import businessesbusinesses.

          Commercial Real Estate Loans

          Real estate loans are extended for the purchase and refinance of commercial real estate and are generally secured by first deeds of trust. The maturities on such loans are generally restricted to seven years with a balloon payment due at maturity and are amortized for up to 25 years. We offer both fixed and floating rate loans. It is our policy to restrict real estate loansloan amounts to 70% of Nara Bank’s appraised value of the subject property.

          Small Business Administration Loans

          The Bank also extends loans partially secured by the U.S. Small Business Administration (SBA). The Bank extends SBA loans known as 7(a) loans and SBA 504 loans. SBA 7(a) loans are typically extended for the purpose of providing working capital, purchase of inventory, purchase of machinery and equipment, debt refinance, business acquisition,acquisitions, start-up financing, or to purchase/construct owner-occupied commercial property. SBA 7(a) loans are typically are term loans with maturities ranging from 7 to 10 years for business only related loans and are 25 years for real estate related loans. SBA loans are fully amortized with monthly payment of principal and interest monthly.interest. SBA loans normally provide forare typically floating interest rates andrate loans that are secured by business assets and/or real estate. EachDepending on the loan amount, each loan is typically guaranteed 75% to 85% by the U.S. Small Business Administration depending on the loan amount,SBA with a maximum gross loan amount perto any one small business borrower of $750,000.$2.0 million and a maximum SBA guaranteed amount of $1.5 million.

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estate. We also extend credit to accept South KoreanUnited States legal residents secured by real estate as security on a select few loans.located in South Korea. As of December 31, 2004, we had extended approximately $1.0 million in consumer loans secured by real estate in South Korea.

          Concentrations

          Loan concentrations are considered to exist when there are significant amounts of loans to a multiple number of borrowers engaged in similar activities, which would cause them to be similarly impacted by economic or other conditions. The following table describes the industry concentrations in our loan portfolio over the past five years, which exceeded 10% of our total loans as of the dates indicated:

Borrowing Activities

          When we have more funds than required for our reserve requirements or short-term liquidity needs, we sell federal funds to other financial institutions. Conversely, when we have less funds than required, we may borrow funds from both our correspondingcorrespondent banks and the Federal Reserve Bank, also known as the FRB. The maximum amount that we currently are authorized to borrow from our correspondent banks is $46$46.0 million on an overnight basis. In addition to the correspondent banks, the maximum amount that we may borrow from the FRB discount window is 97%98% of the market value of the pledged security.securities that are pledged. At December 31, 2003,2004, the par value of the securities that we have pledged securityfor this purpose was $5.0$1.8 million.

          The Federal Home Loan Bank System functions in a reserve credit capacity for qualifying financial institutions. As a member, we are required to own capital stock in the Federal Home Loan Bank of San Francisco (“FHLBSF”) and may apply for advances from the FHLBSFFHLB utilizing, Federal Home Loan Bank stock, qualifying mortgage loans and mortgage-backedcertain securities as collateral.collateral for these advances.

          The FHLBSF offers a full range of borrowing programprograms on its advanceadvances with terms of up to ten30 years at competitive market rates. A prepayment penalty is usually imposed for early repayment of these advances. As a member of the Federal Reserve Bank, we may also borrow from the Federal Reserve Bank of San Francisco.

Market Area and Competition

          We have 16 branch offices located in Los Angeles, Orange County, Oakland, Silicon Valley, and New York and 8 loan production offices located in San Jose, Seattle, Chicago, New Jersey, Atlanta, Virginia, Denver and Dallas. Most of our services are offered in Los Angeles County, Orange County, the San Francisco Bay Area, Silicon Valley (Santa Clara County), and the New York metropolitan area, each of which havehas high concentrations

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financial services providers. Proposals to change the laws and regulations governing the operations and taxation of banks, bank holding companies, and other financial institutions and financial services providers are frequently made in the U.S. Congress, in the state legislatures, and before various regulatory agencies. This legislation may change banking statutes and theour operating environment of Nara Bancorp and its subsidiaries in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. We cannot predict whether any of this potential legislation will be enacted, and if enacted, the effect that it, or any implementing regulations, would have on our financial condition or results of operations of us or any of our subsidiaries.operations. See “Item 1. Business -— Supervision and RegulationRegulation” below.”

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Department of Financial Institutions.

          Our securities are registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, (the “Exchange Act”). As such, we are subject to the information, proxy solicitation, insider trading, and other requirements and restrictions of the Exchange Act.

          Nara Bank N.A.

          NaraAs a California state-chartered bank whose accounts are insured by the Federal Depository Insurance Corporation (“FDIC”), the Bank as a national banking association, is subject to primaryregulation, supervision, examination, and regulationregular examination by the OfficeCalifornia Commissioner of Financial Institutions (“DFI” or the “California Commissioner”), and the Bank’s primary federal regulator is the Federal Reserve Board. The regulations of these agencies govern most aspects of the ComptrollerBank’s business, including the making of the Currency (the “OCC”). To a lesser extent, Nara Bank is also subjectperiodic reports, its activities relating to regulations of the Federal Deposit Insurance Corporation (the “FDIC”) as administrator of the Bank Insurance Funddividends, investments, loans, borrowings, capital requirements, certain check-clearing activities, branching, mergers and acquisitions, reserves against deposits and numerous other areas. Supervision, legal action, and examination by these agencies are generally intended to protect depositors, creditors, borrowers and the FRB.deposit insurance fund and generally are not intended for the protection of stockholders.

          If, as a result of an examination of Nara Bank, the Office ofFRB or the Comptroller of the CurrencyDFI should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other aspects of Nara Bank’s operations are unsatisfactory or that Nara Bank or its management is violating or has violated any law or regulation, various remedies are available to the Office ofFRB and the Comptroller of the Currency.DFI. Such remedies include the power to enjoin “unsafe or unsound practices,” to require affirmative action to correct any conditions resulting from any violation or practice, to issue an administrative order that can be judicially enforced, to direct an increase in capital, to restrict the growth of Nara Bank, to assess civil monetary penalties, and to remove officers and directors. The FDIC has similar enforcement authority, in addition to its authoritydirectors, and to terminate Nara Bank’s deposit insurance in the absence of action by the Office of the Comptroller of the Currency and upon a finding that Nara Bank is in an unsafe or unsound condition, is engaging in unsafe or unsound activities, or that its conduct poses a risk to the deposit insurance fund or may prejudice the interest of its depositors.

     Various requirements and restrictions under the laws of the United States and the State of California affect the operations of Nara Bank. Federal and California statutes and regulations relate to many aspects of Nara Bank’s operations, including reserves against deposits, ownership of deposit accounts, interest rates payable on deposits, loans, investments, mergers and acquisitions, borrowings, dividends, locations of branch offices and new products and services.insurance. Further, Nara Bank is also required to maintain certain minimum levels of capital. See “Capital Standards.Requirements.”

          In February 2002, Nara Bank entered into a Stipulation and Consent to the Issuance of a Consent Order (the “Consent Order”) in connection with alleged deficiencies relating to the lack of sufficient internal controls, procedures and inadequate compliance with the Bank Secrecy Act. During 2002, management took steps to comply with the Consent Order and to further compliancecomply with the Bank Secrecy Act, including, but not limited to, the implementation of new IT systems and the expansion of employee training programs. On January 22, 2003, the OCC terminated the Consent Order, and as ofsince such date Nara Bank was no longer subject to the requirements of the Consent Order.

          As a result of a recent regulatory examination, the Company’s regulatory agencies are expected to place additional restrictions and requirements on the Company which may limit the Company’s growth and expansion and its requirements.ability to pay cash dividends without prior regulatory approval.

Sarbanes-Oxley Act of 2002

          On July 30, 2002, the President signed into law the “Sarbanes-Oxley Act of 2002” (the “SOA”“SOX”). The stated goals of the SOASOX are to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies and to protect investors by improving the accuracy and reliability of corporate disclosures pursuant to the securities laws. The SOASOX has resulted in broad corporate and accounting reform for public companies and the accounting firms that audit them. Many provisions of the SOASOX became effective immediately and others became effective since passage of the law or will become effective during 2003.law.

          The SOASOX generally applies to all companies, both U.S. and non-U.S., that file or are required to file periodic reports with the Securities and Exchange Commission, (the “SEC”), under the Securities Exchange Act of 1934, or the “Exchange Act”.Act. The SOASOX includes very specific additional disclosure requirements and new corporate governance rules, requires the SEC and securities exchanges to adopt extensive additional disclosure, corporate governance and other related rules, and mandates further studies of certain issues by the SEC and the Comptroller General. The SOASOX also represents significant federal involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and to state corporate law, such as the relationship between athe board of directors and management and between athe board of directors and its committees.

     The SOA contains the following important requirements, among other things:

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	•		prohibition of most loans to a public company’s directors and executive officers;
	•		the chief executive officer and chief financial officer of a public company must certify each SEC periodic report containing financial statements;
	•		audit committee approval is required for any services provided to a company by the audit firm, with certain exceptions forde minimis services;
	•		new requirements for the major stock exchanges to adopt independence standards for audit committees and boards of directors;
	•		all SEC periodic reports containing financial statements must reflect all “material correcting adjustments” that have been identified by a company’s audit firm;
	•		new “real time” reporting by the company of certain material changes in the financial condition or operations of the company, via reports filed on Form 8-K;
	•		new whistleblower protections for employees who come forward with information relating to violations of the federal securities laws;
	•		potential compensation disgorgement provisions applicable to the company’s CEO and CFO upon a restatement of financial results attributable to misconduct;
	•		timing for Form 4 reports by executive officers and directors and other Section 16 insiders has been accelerated to two business days from the date of any transaction;
	•		new and expanded criminal penalties for various securities law violations and changes to the statute of limitations applicable to private securities law enforcement actions.

          To date, the SEC and the securities exchanges have implemented most of the requirements of the SOA. However, the SEC continuesSOX. We have incurred, and expect to issue final rules and interpretations in connection with the new requirements, and we intendcontinue to review these new requirements and comply as required. Although we anticipate that we will incur, significant additional expenseexpenses in complying with the new requirements under SOASOX and applicable rules and regulations, management does not expect that such compliance will have a material impact on our results of operations or financial condition.regulations.

          USA Patriot Act of 2001

          On October 26, 2001, the President signed the USA Patriot Act of 2001 (the “Patriot Act”). Enacted in response to the terrorist attacks on September 11, 2001, the Patriot Act is intended to strengthen U.S law enforcement’s and the intelligence communities’ abilities to work cohesively to combat terrorism on a variety of fronts. The potential impact of the Patriot Act on financial institutions of all kinds is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and requires various regulations, including:

	•		due diligence requirements for financial institutions that administer, maintain, or manage private banksbank accounts or correspondent accounts for non-U.S. persons;
	•		standards for verifying customer identification at account opening;
	•		rules to promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering;

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Bank Secrecy Act

          The Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 (the “Bank Secrecy Act”) is a disclosure law that forms the basis of the U.S. federal government’s framework to prevent and detect money laundering and to deter other criminal enterprises. Following the September 11, 2001 terrorist attacks, an additional purpose was added to the Bank Secrecy Act: “To assist in the conduct of intelligence or counter-intelligence activities, including analysis, to protect against international terrorism.” Under the Bank Secrecy Act, financial institutions such as Nara Bank are required to maintain certain records and file certain reports regarding domestic currency transactions and cross-border transportations of currency. This, in turn, allows law enforcement officials to create a paper trail for tracing illicit funds that resulted from drug trafficking or other criminal activities. Among other requirements, the Bank Secrecy Act requires financial institutions to report all cash transactions in excess of $10,000. Nara Bank has established a Bank Secrecy Act compliance policy under which, among other precautions, the Bank keeps currency transaction reports to document cash transactions in excess of $10,000 or in multiples totaling more than $10,000 during one business day, monitors certain potentially suspicious transactions such as the exchange of a large number of small denomination bills for large denomination bills, and scrutinizes electronic funds transfers for Bank Secrecy Act compliance. At this time, we do not expect that the Bank Secrecy Act will have a material impact on the results of our operations.

          Financial Services Modernization Legislation

          General.On November 12, 1999, President Clinton signed into law the Gramm-Leach-Bliley Act of 1999, also referred to as the “FSMA”.“FSMA.” The FSMA repeals the two affiliation provisions of the Glass-Steagall Act: Section 20, which restricted the affiliation of Federal Reserve Member Banks with firms “engaged principally” in specified securities activities; and Section 32, which restricts officer, director, or employee interlocks between a member bank and any company or person “primarily engaged” in specified securities activities. In addition, the FSMA also contains provisions that expressly preempt any state law restricting the establishment of financial affiliations, primarily related to insurance. The general effect of the law is to establish a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms, and other financial service providers by revising and expanding the BHCA framework to permit a holding company system to engage in a full range of financial activities through a new entity known as a financial holding company.

          The lawFSMA also:

	•		broadens the activities that may be conducted by national banks, banking subsidiaries of bank holding companies, and their financial subsidiaries;
	•		provides an enhanced framework for protecting the privacy of consumer information;
	•		adopts a number of provisions related to the capitalization, membership, corporate governance, and other measures designed to modernize the Federal Home Loan Bank system;
	•		modifies the laws governing the implementation of the Community Reinvestment Act; and
	•		addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of financial institutions.

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          Financial Holding Companies.Bank holding companies that elect to become a financial holding company may affiliate with securities firms and insurance companies and engage in other activities that are financial in nature or are incidental or complementary to activities that are financial in nature. “Financial in nature” activities include:

	•		securities underwriting;
	•		dealing and market making;
	•		sponsoring mutual funds and investment companies;
	•		insurance underwriting and agency;
	•		merchant banking; and
	•		activities that the FRB, in consultation with the Secretary of the Treasury, determines from time to time to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

          Prior to filing a declaration of its election to become a financial holding company, all of the bank holding company’s depository institution subsidiaries must be well capitalized, well managed, and, except in limited circumstances, in compliance with the Community Reinvestment Act.

          Failure to comply with the financial holding company requirements could lead to divestiture of subsidiary banks or require all activities of such company to conform to those permissible for a bank holding company. No FRB approval is required for a financial holding company to acquire a company (other than a bank holding company, bank or savings association) engaged in activities that are financial in nature or incidental to activities that are financial in nature, as determined by the FRB:FRB including:

	•		lending, exchanging, transferring, investing for others, or safeguarding financial assets other than money or securities;
	•		providing any devise or other instrumentality for transferring money or other financial assets; or
	•		arranging, effecting or facilitating financial transactions for the account of third parties.

          A bank holding company that is not also a financial holding company can only engage in banking and such other activities determined by the FRB to be so closely related to banking or managing or controlling banks as to be a proper incident thereto.

          We have not elected to become a financial holding company, although our management may reevaluate this decision as business conditions require.

          Expanded Bank Activities.The FSMA also permits national banks to engage in expanded activities through the formation of financial subsidiaries. A national bank may have a subsidiary engaged in any activity authorized for national banks directly or any financial activity, except for insurance underwriting, insurance

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          Privacy.Under the FSMA, federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to nonaffiliated third parties. Pursuant to these rules, financial institutions must provide:

	•		initial notices to customers about their privacy policies, describing the conditions under which they may disclose nonpublic personal information to nonaffiliated third parties and affiliates;
	•		annual notices of their privacy policies to current customers; and
	•		a reasonable method for customers to “opt out” of disclosures to nonaffiliated third parties.

          These privacy provisions affect how consumer information is transmitted through diversified financial companies and conveyed to outside vendors. We do not believe that these privacy provisions will have a significant impact on our operations.

          Dividends and Other Transfers of Funds

          Dividends from Nara Bank constitute the principal source of income tofor Nara Bancorp. Nara Bancorp is a legal entity separate and distinct from Nara Bank. Nara Bank is subject to various statutory and regulatory restrictions on its ability to pay dividends to Nara Bancorp. Under such restrictions,During 2005, the amount available for payment of dividends to Nara Bancorp bymaximum dividend that Nara Bank totaled $56.8could declare, without prior regulatory approval, is $36.7 million at December 31, 2003.plus the Bank’s 2005 net income. In addition, the OCCFRB and the FRBDFI have the authority to prohibit Nara Bank from paying dividends, depending upon Nara Bank’s financial condition, if such payment is deemed to constitute an unsafe or unsound practice. As a result of a recent regulatory examination, the Company’s regulatory agencies are expected to place additional restrictions and requirements on the Company which may limit the Company’s and the Bank’s ability to pay cash dividends without prior regulatory approval.

          Transactions with Affiliates

          Nara Bank is subject to certain restrictions imposed by federal law on any extensions of credit to, or the issuance of a guarantee or letter of credit on behalf of, Nara Bancorp or other affiliates, the purchase of, or investments in, stock or other securities thereof, the taking of such securities as collateral for loans, and the purchase of assets of Nara Bancorp or other affiliates. Such restrictions prevent Nara Bancorp and such other affiliates from borrowing from Nara Bank unless the loans are secured by marketable obligations of designated amounts. Further, such secured loans and investments by Nara Bank to or in Nara Bancorp or to or in any other affiliate are limited in the amounts indicated below for “covered transactions” under Regulation W. California law also imposes certain restrictions with respect to transactions involving Nara Bancorp and other controlling persons of Nara Bank. Additional restrictions on transactions with affiliates may be imposed on Nara Bank under the prompt corrective action provisions of federal law. See “-“— Prompt Corrective Action and Other Enforcement Mechanisms.”

          Regulation W.During 2003 the Federal Reserve Board’s newly-issuednewly issued Regulation W became effective, which codifies prior regulations under andan interpretative guidance with respect to transactions with affiliates. Affiliates of a bank include, among other entities, the bank’s holding company and companies that are under common control with the bank. In general, subject to certain specified exemptions, a bank or its subsidiaries are limited in their ability to engage in “covered transactions” (as defined below) with affiliates:

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	•		a loan or extension of credit to an affiliate;
	•		a purchase of, or an investment in, securities issued by an affiliate;
	•		a purchase of assets from an affiliate, with some exceptions;
	•		the acceptance of securities issued by an affiliate as collateral for a loan or extension of credit to any party; and
	•		the issuance of a guarantee, acceptance or letter of credit on behalf of an affiliate. In addition, under Regulation W:

In addition, under Regulation W:

	•		a bank and its subsidiaries may not purchase a low-quality asset from an affiliate;
	•		covered transactions and other specified transactions between a bank or its subsidiaries and an affiliate must be on terms and conditions that are consistent with safe and sound banking practices; and
	•		with some exceptions, each loan or extension of credit by a bank to an affiliate must be secured by collateral with a market value ranging from 100% to 130%, depending on the type of collateral, of the amount of the loan or extension of credit.

          Regulation W generally excludes all non-bank and non-savings association subsidiaries of banks from treatment as affiliates, except to the extent that the FRB decides to treat these subsidiaries as affiliates. Concurrently with the adoption of Regulation W, the FRB has proposed a regulation, which would further limit the amount of loans that could be purchased by a bank from an affiliate to not more than 100% of the bank’s capital and surplus.

          Check 21

             The Check Clearing for the 21^st Century Act, or “Check 21” as it is commonly known, became effective October 28, 2004. Check 21 facilitates check collection by creating a new negotiable instrument called a “substitute check,” which permits, but does not require, banks to replace original checks with substitute checks or information from the original check and process check information electronically. Banks that do use substitute checks must comply with certain notice and recredit rights. Check 21 is expected to cut the time and cost involved in physically transporting paper items and reduce float, i.e., the time between the deposit of a check in a bank and payment, especially in cases in which items were not already being delivered same-day or overnight. The Bank does not intend to utilize the Check 21 authority and processing in the near future.

Capital Requirements

          The federal banking agencies have adopted risk-based minimum capital guidelines intended to provide a measure of capital that reflects the degree of risk associated with a banking organization’s operations for both transactions reported on the balance sheet as assets and transactions which are recorded as off balance sheetoff-balance-sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheetoff-balance-sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as federal banking agencies, to 100% for assets with relatively high credit risk. The higher the category, the more risk a bank is subject to and thus the more capital that is required. As of December 31,2003,31, 2004, Nara Bank’s total risk-based capital ratio was 10.4 %.11.1%.

          The guidelines divide a bank’s capital into two tiers. Tier I includes common equity, retained earnings, certain non-cumulative perpetual preferred stock, subordinated debentures (limited to 25% of Tier 1 Capital), and minority interest in equity accounts of consolidated subsidiaries. Goodwill and other intangible assets (except for mortgage servicing rights and purchased credit card relationships, subject to certain limitations) are subtracted from Tier I capital. As of December 31, 2004, Nara Bank’s Tier I risk-based capital ratio was 9.9%.

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losses (subject to certain limitations). Certain items are required to be deducted from Tier II capital. Banks must maintain a total risk-based ratio of 8%, of which at least 4% must be Tier I capital.

          In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1I capital to total assets, referred to as the leverage ratio. For a banking organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1I capital to total assets must be 4%. As of December 31, 2004, Nara Bank’s leverage capital ratio was 9.1%. In addition to these uniform risk-based capital guidelines and leverage ratios that apply across the industry, the regulators have the discretion to set individual minimum capital requirements for specific institutions at rates significantly above the minimum guidelines and ratios. For further discussion of our capital, see Capital Resources“Capital Resources” under “Management Discussion and Analysis”.Analysis of Financial Condition and Results of Operations.”

          On July 2, 2003, the Federal Reserve BankBoard issued Supervisory Letter SR 03-13 clarifying that Bank Holding Companiesbank holding companies should continue to report trust preferred securities in accordance with current Federal Reserve BankBoard instructions which allows trust preferred securities to be counted in Tier 1I capital subject to certain limitations. The Federal Reserve hasBoard indicated it will reviewthey were reviewing the implications of any accounting treatment changes and, if necessary or warranted, willthey would provide appropriate guidance. On March 1, 2005, the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust preferred securities in Tier I capital of bank holding companies. However, under the final rule, trust preferred securities will be subject to stricter quantitative limits. The Board’s final rule limits restricted core capital elements to 25 percent of all core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits generally may be included in Tier II capital. The final rule provides a five-year transition period ending March 31, 2009, for application of the new quantitative limits.

          The following table presents the amounts of regulatory capital and the capital ratios for Nara Bancorp and Nara Bank, compared to their minimum regulatory capital requirements as of December 31, 2003.2004.

more restrictions. The federal banking agencies, however, may not treat a significantly undercapitalized institution as critically undercapitalized unless its capital ratio actually warrants such treatment.

          In addition to measures taken under the prompt corrective action provisions, commercial banking organizations may be subject to potential enforcement actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation, or any condition imposed in writing by the agency or any written agreement with the agency. Finally, pursuant to an interagency agreement, the FDIC can examine any institution that has a substandard regulatory examination score or is considered undercapitalized — without the express permission of the institution’s primary regulator.

          Safety and Soundness Standards

          The federal banking agencies have adopted guidelines designed to assist the federal banking agencies in identifying and addressing potential safety and soundness concerns before capital becomes impaired. The guidelines set forth operational and managerial standards relating to: (i) internal controls, information systems and internal audit systems, (ii) loan documentation, (iii) credit underwriting, (iv) asset growth, (v) earnings, and (vi) compensation, fees and benefits. In addition, the federal banking agencies have also adopted safety and soundness guidelines with respect to asset quality and earnings standards. These guidelines provide six standards for establishing and maintaining a system to identify problem assets and prevent those assets from deteriorating. Under these standards, an insured depository institution should: (i) conduct periodic asset quality reviews to identify problem assets, (ii) estimate the inherent losses in problem assets and establish reserves that are sufficient to absorb estimated losses, (iii) compare problem asset totals to capital, (iv) take appropriate corrective action to resolve problem assets, (v) consider the size and potential risks of material asset concentrations, and (vi) provide periodic asset quality reports with adequate information for management and the board of directors to assess the level of asset risk. These guidelines also set forth standards for evaluating and monitoring earnings and for ensuring that earnings are sufficient for the maintenance of adequate capital and reserves.

          Premiums for Deposit Insurance

          Through the Bank Insurance Fund (“BIF”), the FDIC insures the deposits of Nara Bank up to prescribed limits for each depositor. The amount of FDIC assessments paid by each BIF member institution is based on its relative risk of default as measured by regulatory capital ratios and other factors. Specifically, the assessment rate is based on the institution’s capitalization risk category and supervisory subgroup category. An institution’s capitalization risk category is based on the FDIC’s determination of whether the institution is well capitalized, adequately capitalized or less than adequately capitalized. An institution’s supervisory subgroup category is based on the FDIC’s assessment of the financial condition of the institution and the probability that FDIC intervention or other corrective action will be required.

          FDIC-insured depository institutions pay an assessment rate equal to the rate assessed on deposits insured by the Savings Association Insurance Fund (“SAIF”).

The assessment rate currently ranges from zero to 27 cents per $100 of domestic deposits. The FDIC may increase or decrease the assessment rate schedule on a semi-annual basis. An increase in the assessment rate could have a material adverse effect on our earnings, depending on the amount of the increase. The FDIC is authorized to terminate a depository institution’s deposit insurance upon a finding by the FDIC that the institution’s financial condition is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule, regulation, order or condition enacted or imposed by the institution’s regulatory agency. The termination of deposit insurance for Nara Bank could have a material adverse effect on our earnings, depending on the collective size of the particular institutions involved.earnings.

          All FDIC-insured depository institutions must pay an annual assessment to provide funds for the payment of interest on bonds issued by the Financing Corporation, a federal corporation chartered under the authority of the Federal Housing Finance Board. The bonds, commonly referred to as FICO bonds, were issued to capitalize the

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          Interstate Banking and Branching

          The BHCA permits bank holding companies from any state to acquire banks and bank holding companies located in any other state, subject to certain conditions, including certain nationwide and state imposed concentration limits. The establishment of new interstate branches is also possible in those states with laws that expressly permit it. Interstate branches are subject to certain laws of the states in which they are located. Competition may increase further as banks branch across state lines and enter new markets.

          Community Reinvestment Act and Fair Lending Developments

          We are subject to certain fair lending requirements and reporting obligations involving home mortgage lending operations and Community Reinvestment Act activities, (“CRA”). The CRA generally requires the federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low- and moderate-income neighborhoods. A bank may be subject to substantial penalties and corrective measures for a violation of certain fair lending laws. The federal banking agencies may take compliance with such laws and CRA obligations into account when regulating and supervising other activities. Furthermore, financial institutions are subject to annual reporting and public disclosure requirements for certain written agreements that are entered into between insured depository institutions or their affiliates and nongovernmental entities or persons that are made pursuant to, or in connection with, the fulfillment of the CRA.

          A bank’s compliance with its CRA obligations is based on a performance-based evaluation system, which bases CRA ratings on an institution’s lending service and investment performance. When a bank holding company applies for approval to acquire a bank or other bank holding company, the FRB will review the assessment of each subsidiary bank of the applicant bank holding company, and such records may be the basis for denying the application.

          Federal Reserve System

          The Federal Reserve Board requires all depository institutions to maintain non-interest bearing reserves at specified levels against their transaction accounts (primarily checking, NOW, and Super NOW checking accounts) and non-personal time deposits. At December 31, 2003,2004, we believe that Nara Bank was in compliance with these requirements.

Employees

          As of December 31, 2003,2004, we had 320342 full-time equivalent employees. None of our employees are represented by a union or covered by a collective bargaining agreement. Management believes that its relations with its employees are good. See Item 4(a)10 below for a list of our executive officers.

Factors That May Impact Our Business or the Value of Our Stock

          Set forth below are certain factors that may affect our financial results and operations, which you should consider when evaluating our business and prospects.

We face risks related to our recent accounting restatements, including potential litigation and regulatory actions.On March 30, 2005 we announced that we had discovered accounting inaccuracies in previously reported financial statements and concluded that we would restate our consolidated financial statements for the year ended December 31, 2002. See Item 1 Business, “Restatement of Financial Statements” for further discussion. In the course of the re-audits of our consolidated financial statements for the fiscal years ended December 31, 2003 and 2002, certain additional accounting errors were also identified.

The restatement of our financial statements and the occurrence of the events caused us to incur substantial unanticipated legal and accounting expenses. In addition, restatement may lead to litigation claims and/or regulatory proceedings against us. These claims and proceedings may include, without limitation, private securities lawsuits brought against us and regulatory investigations or proceedings initiated by the Securities and Exchange Commission, the Federal Reserve Board and the California Department of Financial Institutions. We may also be asked to enter into a regulatory agreement or order with one or more of these regulatory agencies which could limit our activities, such as a Memorandum of Understanding or consent agreement. The defense and outcome of any such claims or proceedings against us and any agreement with regulators may divert management’s attention and resources, and we may be required to pay damages if such claims or proceedings are not resolved in our favor.

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Any litigation or regulatory proceeding, even if resolved in our favor, could cause us to incur significant legal and other expenses. We also may have difficulty raising equity capital or obtaining other financing. We may not be able to effectuate our current business strategy and our future business activities may be limited. Moreover, we may be the subject of negative publicity focusing on the financial statements inaccuracies and resulting restatement and negative reactions from our stockholders, creditors or others with which we do business. The occurrence of any of the foregoing could harm our business and reputation, require us to incur significant expenses to resolve any claims and cause the price of our securities to decline or remain at current levels.

If we fail to maintain an effective system of internal and disclosure controls, we may not be able to accurately report our financial results or prevent fraud.Effective internal and disclosure controls are necessary for us to provide reliable financial reports, and these controls also help us to detect and deter fraud and to operate successfully as a public company. If we cannot provide reliable financial reports or prevent fraud, our reputation and operating results would be adversely affected. We have in the past discovered, and may in the future discover, areas of our disclosure and internal controls that need improvement in material respects. In connection with a review of our internal control over financial reporting, we identified certain deficiencies in some of our disclosure and internal controls and procedures. We have taken steps to remediate the material weaknesses in internal control over financial reporting and the ineffectiveness of our disclosure controls and procedure and have specifically addressed them in the section labeled, “Report on Management’s Assessment of Internal Control Over Financial Reporting” Under Item 9A Controls and Procedures. However we cannot be certain that our efforts to improve our internal and disclosure controls will be successful or that we will be able to maintain adequate controls over our financial processes and reporting in the future. Any failure to develop or maintain effective controls or difficulties encountered in their implementation or other ineffective improvement of our internal and disclosure controls could harm our operating results or cause us to fail to meet our reporting obligations. If we are unable to adequately establish or improve our internal control over financial reporting, our independent auditors may not be able to issue an unqualified opinion on the effectiveness of our internal control over financial reporting. Ineffective internal and disclosure controls could also cause investors to lose confidence in our reported financial information, which would likely have a negative effect on the trading price of our securities.

If we cannot maintain compliance with Nasdaq listing requirements and Nasdaq rules, Nasdaq may delist our common stock, which would negatively affect the trading price of our common stock and your ability to sell our common stock, and generally could harm our business.On April 5, 2005, we were notified by the Nasdaq Listing Qualifications Department that we were not in compliance with the requirements of certain NASDAQ rules as a result of the Company’s failure to timely file its annual report on Form 10-K for the year ended December 31, 2004 and therefore, that we were subject to delisting proceedings. On May 12, 2005 the Company attended a hearing before the Nasdaq Listing Qualifications Panel (“Panel”) and requested a conditional listing on the Nasdaq National Market until June 30, 2005 to provide the Company an opportunity to file its periodic reports with the Securities and Exchange Commission and become compliant with the NASDAQ listing requirements. As of the date of this filing, the Panel is still considering our request. If we are delisted from the Nasdaq Stock Market, trading of our common stock would thereafter be conducted in the over-the-counter market or on the National Association of Securities Dealers, Inc. “electronic bulletin board.” If this occurs, the value of our common stock would likely be adversely affected, which could negatively affect our operations and ability to raise capital. Market liquidity for our common stock could be severely and adversely affected as a stockholder would likely find it more difficult to sell shares of our common stock or to obtain accurate quotations as to the prices of our common stock. Delisting from NASDAQ could also result in the loss of confidence by prospective and existing customers and employees, which would further harm our business.

Deterioration of economic conditions in California, New York or South Korea could adversely affect our loan portfolio and reduce the demand for our services.We focus our business primarily in Korean communities in California and in the greater New York City metropolitan area. A deteriorationDeterioration in economic conditions in our market areas could have a material adverse impact on the quality of our business. An economic slowdown in

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	•		Claimsclaims and lawsuits may increase;
	•		Demanddemand for our products and services may decline; and
	•		Collateralcollateral for loans may decline in value below the principal amount owed by the borrower.

Loan loss reservesOur allowance for loan losses may not cover actual loan losses.If our actual loan losses exceed the amount we have reservedallocated for probable losses, it will hurt our business. We try to limit the risk that borrowers will fail to repay loans by carefully underwriting the loans. Losses nevertheless occur. We create reservesallowance allocations for estimated loan losses in our accounting records. We base these allowances on estimates of the following:

	•		industry standards;
	•		historical experience with our loans;
	•		evaluation of current economic conditions;
	•		regular reviews of the quality, mix and size of the overall loan portfolio;
	•		regular reviews of delinquencies; and
	•		the quality of the collateral underlying our loans.

If these allocations were inadequate, our results of financial condition could be materially and adversely affected.

A downturn in the real estate market could seriously impair our loan portfolio.As of December 31, 2003,2004, approximately 48.7% of the value58% of our loan portfolio consisted of loans secured by various types of real estate. If real estate values decline significantly, especially in California or New York, higher vacancies and other factors could harm the financial condition of our borrowers, the collateral for our loans will provide less security, and we would be more likely to suffer losses on defaulted loans.

Changes in interest rates affect our profitability.Changes in prevailing interest rates may hurt our business. We derive our income mainly from the difference or “spread” between the interest earned on loans, securities and other interest-earning assets, and interest paid on deposits, borrowings and other interest-bearing liabilities. In general, the wider the spread, the more we earn. When market rates of interest change, the interest we receive on our assets and the interest we pay on our liabilities will fluctuate. This can cause decreases onin our spread and can greatly affect our income. In addition, interest rate fluctuationfluctuations can affect how much money we may be able to lend. For example, when interest rates rise, loan originations tend to decrease.

If we lose key employees, our business may suffer.If we lostlose key employees temporarily or permanently, it could hurt our business. We could be particularly hurt if our key employees went to work for competitors. Our future success depends on the continued contributions of existing senior management personnel.

Environmental laws could force us to pay for environmental problems. The cost of cleaning up or paying damages and penalties associated with environmental problems could increase our operating expenses. When a borrower defaults on a loan secured by real property, we often purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. We may also take over the management of commercial properties whose owners have defaulted on loans. We also lease premises where our branches and other facilities are located and where environmental problems may exist. Although we have lending, foreclosure and facilities guidelines intended to exclude properties with an unreasonable risk of contamination, hazardous substances may exist on some of the properties that we own, lease, manage or occupy. We may face the risk that environmental laws could force

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operations that are more geographically diversified, we are vulnerable to greater losses if an earthquake, fire, flood or other natural catastrophe occurs in Southern California.

An increase in non-performing assets would reduce our income and increase our expenses.If the level of non-performing assets rises in the future, it could adversely affect our operating results. Non-performing assets are mainly loans on which the borrowers are not making their required payments. Non-performing assets also include loans that have been restructured to permit the borrower to have smaller payments and real estate that has been acquired through foreclosure of unpaid loans. To the extent that assets are non-performing, we have less cash available for lending and other activities.

Changes in Governmentalgovernmental regulation may impair our operations or restrict our growth.We are subject to significant governmental supervision and regulation. These regulations are intended primarily for the protection of depositors. Statutes and regulations affecting our business may be changed at any time, and the interpretation of these statutes and regulations by examining authorities may also change. Within the last several years Congress and the President have passed and enacted significant changes to these statutes and regulations. There can be no assurance that such changes to the statutes and regulations or in their interpretation will not adversely affect our business. Nara Bank is subject to regulation and examination by the Comptroller ofDFI and the Currency.Federal Reserve Board. In addition to governmental supervision and regulation, Nara Bank is subject to changes in other federal and state laws, including changes in tax laws, which could materially affect the banking industry. Nara Bancorp is subject to the rules and regulations of the Federal Reserve Board. If we fail to comply with federal and state bank regulations, the regulators may limit our activities or growth, fine us or ultimately put us out of business. Banking laws and regulations change from time to time. Bank regulations can hinder our ability to compete with financial services companies that are not regulated or are less regulated. In addition, Nara Bank has an active program of originating and selling loans guaranteed by the Small Business Administration (SBA). There have been recent proposals to the percentage of loan guarantees provided by the SBA on some categories of SBA loans to 50% from 75%. If this occurs, it is likely that we will experience a significant decrease in the number of SBA loans that we originate and sell, particularly the “7(a)” loans. See “Lending Activities” above.

       Federal and state bank regulatory agencies regulate many aspects of our operations. These areas include:

	•		the capital that must be maintained;
	•		the kinds of activities that can be engaged in;
	•		the kinds and amounts of investments that can be made;
	•		the locations of offices;
	•		how much interest can be paid on demand deposits;
	•		insurance of deposits and the premiums that must be paid for this insurance; and
	•		how much cash must be set aside as reserves for deposits.

Our stock price may be volatile, which could result in substantial losses for our stockholdstockholdersers..The market price of our common stock could be subject to wide fluctuations in response to a number of factors, including:

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Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which would dilute our existing stockholders and may be senior to our common stock for the purposes of dividend distributions, may adversely affect the market price of our common stock.stock.In the future, we may attempt to increase our capital resources by making additional offerings of debt or equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock or common stock. Upon liquidation, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our common stock. Additional equity offerings by us may dilute the holdings of our existing stockholders or reduce the market price of our common stock, or both. OurIf we issue preferred stock, if issued,we would have a preference on dividend payments that could limit our ability to make a dividend distribution to the holders of our common stock. Because oura decision to issue securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus, our stockholders bear the risk of our future offerings reducing the market price of our common stock or diluting their stock holdings in us.

Accounting Matters — Recent Accounting Pronouncements

        SFAS No. 148,EITF Issue 03-1 entitled, “AccountingThe Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments”,contains accounting guidance regarding other-than-temporary impairment on securities that was to take effect for Stock-based Compensation—Transitionthe quarter ended September 30, 2004. However, the effective date of portions of this guidance has been delayed, and Disclosure—an amendmentmore interpretive guidance is to be issued in the near future. The effect of FASB Statement No. 123, amends SFAS No. 123 to provide alternative methodsthis new and pending guidance on our financial statements is not known, but it is possible this guidance could change management’s assessment of transition for a voluntary changeother-than-temporary impairment in future periods. (See discussion in Note 3 to the Notes to Consolidated Financial Statements related to fair value-based methodvalue of accountingsecurities available for stock-basedsale.)

        FAS 123, Revised, requires all public companies to record compensation cost for stock options provided to employees in return for employee compensation. Itservice. The cost is measured at the fair value of the options when granted, and this cost is expensed over the employee service period, which is normally the vesting period of the options. This will apply to awards granted or modified on or after January 1, 2006. Compensation cost will also amendsbe recorded for prior option grants that vest after the disclosure provisionsdate of SFAS No. 123 to require prominent disclosure in both annual and interim financial statements aboutadoption. The effect on results of operations will depend on the methodlevel of accounting for stock-based employee compensationfuture option grants and the calculation of the fair value of the options granted at such future dates, as well as the vesting periods provided, and so the effect cannot currently be predicted.

        SOP 03-3 requires that a valuation allowance for loans acquired in a transfer, including in a business combination, reflect only losses incurred after acquisition and should not be recorded at acquisition. This standard applies to any loan acquired in a transfer that showed evidence of credit quality deterioration since it was made. The effect of the method usedthis new standard on reported results. The provisionsour financial position and results of SFAS No. 148 are effective for annual financial statements for fiscal years ending after December 15, 2002 and for financial reports containing condensed financial statements for interim periods beginning after December 15, 2002. We haveoperations is not determined whether we will adopt the fair value-based method of accounting for stock-based employee compensation in future periods.expected to be material upon adoption.

     The FASB issued Interpretation No. (“FIN”) 45,Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others, an interpretation of SFAS Nos. 5, 57 and 107 and rescission of FIN 34,Disclosure of Indirect Guarantees of Indebtedness of Others, in November 2002. FIN

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45 elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees that it has issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The initial recognition and measurement provisions of the interpretation are applicable on a prospective basis to guarantees issued or modified after December 31, 2002, while the provisions of the disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The adoption of such interpretation did not have a material impact on our results of operations, financial position or cash flows.

     In January 2003, the FASB issued Interpretation No. 46 — “Consolidation of Variable Interest Entities” (“FIN 46”). In December 2003, the FASB revised FIN 46 and codified certain FASB Staff Positions previously issued for FIN 46 (“FIN 46R). The objective of FIN 46 as originally issued, and as revised by FIN 46R, was to improve financial reporting by companies involved with variable interest entities. Prior to the effectiveness of FIN 46, we generally included another entity in our consolidated financial statements only if it controlled the entity through voting interests. FIN 46 changed that standard by requiring a variable interest entity to be consolidated if we were subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 applied immediately to variable interest entities created after January 31, 2003. The consolidation requirements applied to older entities in the first fiscal year or interim period beginning after June 15, 2003. The provisions of FIN 46R are required to be adopted prior to the first reporting period that ends after March 15, 2004. Our adoption of FIN 46 and FIN46R did not have a significant impact on our financial position, results of operations, or cash flows.

     In December 2003, the Accounting Standards Executive Committee of the AICPA issued Statement of Position No. 03-3 (“SOP 03-3”),Accounting for Certain Loans or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for differences between the contractual cash flows and the cash flows expected to be collected from purchased loans or debt securities if those differences are attributable, in part, to credit quality. SOP 03-3 requires purchased loans and debt securities to be recorded initially at fair value based on the present value of the cash flows expected to be collected with no carryover of any valuation allowance previously recognized by the seller. Interest income should be recognized based on the effective yield from the cash flows expected to be collected. To the extent that the purchased loans or debt securities experience subsequent deterioration in credit quality, a valuation allowance would be established for any additional cash flows that are not expected to be received. However, if more cash flows subsequently are expected to be received than originally estimated, the effective yield would be adjusted on a prospective basis. SOP 03-3 will be effective for loans and debt securities acquired after December 31, 2004. Although we anticipate that the implementation of SOP 03-3 will require significant loan system and operational changes to track credit related losses on loans purchased starting in 2005, it is not expected to have a significant effect on our consolidated financial statements.

Item 2. PROPERTIES

        Our principal executive offices are located at 3701 Wilshire Blvd., Suite 220, Los Angeles, California 90010. We conduct our operations through nineten full branch offices, six mini branch offices and foureight loan production offices located throughout California, in the greater New York City metropolitan area and in Chicago, Seattle, New Jersey, Atlanta, Virginia, Denver, and Atlanta.Dallas. We lease all of our offices. We believe our present facilities are adequate for our present needs. We also believe that, if necessary, we could secure suitable alternative facilities oron similar terms, without adversely impacting operations. The locations of our full branch offices, including our corporate headquarters, are as follows:

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Item 3. LEGAL PROCEEDINGS

          We are a party to routine litigation incidental to our business, none of which is considered likely to have a material adverse effect on us. As of December 31, 2004 and 2003, we have recorded an accrued liability of $120,000 and $-0- for litigation settlements. For a discussion of litigation risks relating to our recent accounting restatement, please see “Business-Factors That May Impact Our Business or the Value of Our Stock — We face risks related to our recent accounting restatements including potential litigation and regulatory actions”.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          No matter was submitted to a vote of our security holders, through the solicitation of proxies or otherwise, during the fourth quarter of the fiscal year ended December 31, 2003.2004.

Item 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT

     The following individuals are executive officers of Nara Bancorp and officers who are deemed to be executive officers of Nara Bancorp. Pertinent information relating to these individuals is set forth below. There are no family relationships between any of the officers.

Benjamin B. Hong- Chief Executive Officer and President — Age 71

     Mr. Hong has served as President and Chief Executive Officer of Nara Bank since 1994 and as President and Chief Executive Officer of Nara Bancorp since February 2001. Mr. Hong previously served as President and Chief Executive Officer of Hanmi Bank from 1988 to 1994. Mr. Hong briefly retired from September 2, 2003 to December 1, 2003 when Mr. Seong-Hoon Hong served as President and CEO of Nara Bank and Nara Bancorp. In December 2003, Mr. Hong returned as Interim President and CEO after Mr. Seong-Hoon Hong resigned. Mr. Hong is currently acting as Interim President and CEO until the board appoints a successor.

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          Dividends

          The following table shows cash dividends declared during 2003.2004.

          Future dividends are subject to the discretion of our Board of Directors and will depend upon a number of factors, including future earnings, financial condition, cash needs and general business conditions. Any dividendAll dividends must comply with applicable bank regulations.

          OurNara Bancorp’s ability to pay dividends is subject to restrictions set forth in the Delaware General Corporation Law. The Delaware General Corporation Law provides that a Delaware corporation may pay dividends either (i) out of

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