UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2005

March 31, 2006 or

For the transition period from _____________ to

_____________

Commission File Number: 000-50245

NARA BANCORP, INC.

(Exact name of registrant as specified in its charter)

(213) 639-1700

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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. Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act). Yes x  No ¨Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.):Act). Yes   ¨    No  x

As of October 31, 2005,April 30, 2006, there were 25,390,14225,565,948 outstanding shares of the issuer’s Common Stock, $0.001 par value.

Table of Contents

Forward-Looking Information

Certain matters discussed in this report may constitute forward-looking statements under Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. There can be no assurance that the results described or implied in such forward-looking statements will, in fact, be achieved and actual results, performance, and achievements could differ materially because our business involves inherent risks and uncertainties. Risks and uncertainties include possible future deteriorating economic conditions in our areas of operation; interest rate risk associated with volatile interest rates and related asset-liability matching risk; liquidity risks; risk of significant non-earning assets, and net credit losses that could occur, particularly in times of weak economic conditions or times of rising interest rates; risks of available for sale securities declining significantly in value as interest rates rise; and regulatory risks associated with the variety of current and future regulations as well as regulatory enforcement actions to which we are subject. For additional information concerning these factors, see “Item 1. Business - Factors That May Impact Our Business or the Value of Our Stock”1A. Risk Factors” contained in our Annual Report on Form 10-K for the year ended December 31, 2004 and Item 2 of Part I in this report under the caption “Results of Operations – Factors That May Impact Our Business or the Value of Our Stock.”2005.

PART I

FINANCIAL INFORMATION

NARA BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

ASSETS

(Continued)

NARA BANCORP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

LIABILITIES AND STOCKHOLDERS’ EQUITY

See accompanying notes to condensed consolidated financial statements (unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30,March 31, 2006 and 2005 and 2004

(Unaudited)

(Unaudited)

See accompanying notes to condensed consolidated financial statements (unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

NINETHREE MONTHS ENDED September 30,MARCH 31, 2006 AND 2005 and 2004

(Unaudited)

(Unaudited)

See accompanying notes to condensed consolidated financial statements (unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2006 AND 2005 AND 2004

(Unaudited)

(Continued)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NINETHREE MONTHS ENDED SEPTEMBER 30,MARCH 31, 2006 AND 2005 AND 2004

(Unaudited)

See accompanying notes to condensed consolidated financial statements (unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Nara Bancorp, Inc.

Nara Bancorp, Inc. (“Nara Bancorp”, on a parent-only basis, and “Company,” “we” or “our” on a consolidated basis), incorporated under the laws of the State of Delaware in 2000, is a bank holding company, headquartered in Los Angeles, California, offering a full range of commercial banking and consumer financial services through its wholly owned subsidiary, Nara Bank (“Nara Bank” or “the Bank”), which was organized in 1989 as a national bank and converted to a California state-chartered bank on January 3, 2005, with branches in California and New York as well as Loan Production Offices in California, Washington, Colorado, Georgia, Illinois, New Jersey, Virginia and Texas.

2. Basis of Presentation

Our condensed consolidated financial statements included herein have been prepared without an audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures, normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America, have been condensed or omitted pursuant to such SEC rules and regulations.

The condensed consolidated financial statements include the accounts of Nara Bancorp and its wholly owned subsidiaries, principally Nara Bank. All intercompany transactions and balances have been eliminated in consolidation.

We believe that we have made all adjustments necessary to fairly present our financial position at September 30, 2005March 31, 2006 and the results of our operations for the three and nine months then ended. Certain reclassifications have been made to prior period amounts to conform to the current year presentation. The results of operations for the interim periods are not necessarily indicative of results for the full year.

These unaudited condensed consolidated financial statements should be read along with the audited consolidated financial statements and accompanying notes included in our 20042005 Annual Report on Form 10-K.

3. Restatement

The financial information as of and forEffective January 1, 2006, we adopted the three and nine months ended September 30, 2004 is labeled “restated” as it has been revised from the information previously reported and filed for the three and nine months ended September 30, 2004 on Form 10-Q. The restatement is further discussed in Note 2 to the consolidated financial statements in our 2004 Annual Report on Form 10-K.

4. Recent Development

On September 12, 2005, Nara Bancorp completed the sale of $20 million of its common stock to Dr. Chong-Moon Lee, director and chairman of the board of directors of Nara Bancorp. Nara Bancorp issued 1,440,922 shares of its common stock to Dr. Lee at a purchase price of $13.88 per share, which was the closing bid price on the date the Stock Purchase Agreement was executed. Sandler O’Neill & Partners, L.P. provided a fairness opinion to the Company in connection with this transaction. The shares issued to Dr. Lee will not be registered for resale under the Securities Act of 1933.

5. Memorandum of Understanding

On July 29, 2005, Nara Bank, a wholly-owned subsidiary of Nara Bancorp, Inc., entered into a Memorandum of Understanding (“MOU”) with the Federal Reserve Bank of San Francisco (“Reserve Bank”) and the California Department of Financial Institutions (“Department”). Under the terms of the MOU, the Bank cannot declare dividends, without the prior written approval of the Reserve Bank and the Department. Other material provisions of the MOU require the Company and the Bank to: (i) employ an independent consultant acceptable to the Reserve Bank and the Department to conduct a review of the composition, structure and effectiveness of Nara Bank’s current directors and executive officers, (ii) prepare and submit a written plan to the Reserve Bank and the Department to strengthen the Bank’s Board of Directors’ oversight of management and operations of the Bank, (iii) prepare and submit to the Reserve Bank and the Department acceptable policies, procedures and programs to strengthen the Bank’s internal controls, (iv) prepare and submit to the Reserve Bank and the Department a written plan to strengthen the oversight of the Bank’s internal audit function, (v) take such actions necessary to comply with Section 501 of the Gramm-Leach-Bliley Act, (vi) prepare and submit to the Reserve Bank and the Department an acceptable written information security program and a comprehensive written business resumption plan, and conduct a formal test of the business resumption plan, (vii) prepare and submit a written contingency capital plan, (viii) prepare and submit to the Reserve Bank and Department financial projections for the years 2005-2007 and revise the Bank’s three-year strategic plan, (ix) prepare and submit during the term of the MOU, annual financial projections for each subsequent calendar year at least one month prior to the beginning of the calendar year, (x) notify the Reserve Bank and the Department of all revisions to the budget within 5 days of approval by the Bank’s Board of Directors, (xi) notify the Reserve Bank and the Department thirty (30) days prior to the appointment of any new director or senior executive officer or changing the responsibilities of any current senior officer, (xii) permit the Bank to make any indemnification and golden parachute or severance payments, or enter into any agreements to make such payments to institution–affiliated parties only with the prior written approval of the Board of Governors of the Federal Reserve System and concurrence of the Federal Deposit Insurance Corporation, and (xiii) prepare and submit progress reports to the Reserve Bank and the Department. The MOU will remain in effect until modified or terminated by the Reserve Bank and the Department.

Additional Company Restrictions.

The Company has agreed with the Reserve Bank and the Department to additional restrictions as well, and must take all necessary steps to ensure that the Bank complies with the MOU, and it also must report its progress to the Reserve Bank. In addition, the Company may not declare any dividends or make any payments on the outstanding trust preferred securities issued by the Company’s subsidiaries and may not receive any dividends or payments representing a reduction of capital from the Bank, without the prior written approval of the Reserve Bank. Without the consent of the Reserve Bank, the Company may not: (i) increase its borrowings, incur any debt or renew existing debt, (ii) issue any trust preferred securities, (iii) purchase any of its stock, (iv) appoint any new director or senior executive officer or change the responsibilities of any current senior executive officer, or (v) make any indemnification and golden parachute or severance payments, or enter into agreements to make such payments to institution-affiliated parties. Finally, the Company must affirmatively ensure that all regulatory reports filed, accurately reflect the Company’s condition, are filed on a timely basis, and all records, and supporting work papers are maintained.

Troubled Condition Designation.

On July 8, 2005, the Reserve Bank notified the Company and Nara Bank that it had designated the Company and Nara Bank to be in a “troubled condition” for purposes of Section 914 of the Financial Institutions Reform, Recovery and Enforcement Act of 1989. As a result of that designation neither the Company nor Nara Bank may appoint any new director or senior executive officer or change the responsibilities of any current senior executive officers without providing the Reserve Bank thirty (30) days prior written notice. The Board of Governors of the Federal Reserve System may disapprove a notice in certain circumstances. In addition, neither the Company nor Nara Bank may make indemnification or severance payments or enter into agreements with institution-affiliated parties

therefore without complying with certain statutory restrictions including prior written approval of the Board of Governors of the Federal Reserve System and concurrence from the Federal Deposit Insurance Corporation.

Progress with the MOU-Related Requirements

The Board of Directors has appointed a Joint Compliance Committee (“JCC”) consisting solely of independent directors of Nara Bancorp and Nara Bank to plan, coordinate and monitor compliance with the MOU-related requirements. The JCC has been meeting regularly with the management to closely monitor its MOU compliance progress. In addition, The Secura Group, the independent consulting firm that was engaged by the JCC, has commenced its independent review of the board and management and expects to complete the review by the end of December. Finally, the Company and Nara Bank have been able to obtain timely approvals from the regulators on various items that require approval such as the quarterly cash dividends on its common stock and the trust preferred securities. Through its quarterly progress reports, the Company and Nara Bank will keep the regulators updated of its progress on the MOU-related requirements.

6. Stock-Based Compensation

Statement of Financial Accounting Standards (“SFAS”) No. 123 (R),Accounting“Share-Based Payment” (“SFAS 123 (R)”). SFAS 123 (R) establishes accounting for Stock-Based Compensation, encourages, but does not require, companies to recordstock-based awards exchanged for employee services. Stock-based compensation cost for stock-based employees compensation plansis measured at grant date, based on the fair value.value of the award, and is recognized as expense over the employee requisite service period. We have elected to continue to account for stock-based compensation using the intrinsic value method prescribed inpreviously applied Accounting Principles Board (APB) Opinion (“APB”) No. 25,“Accounting for Stock Issued to EmployeesEmployees” and related Interpretations and provided the required pro forma disclosures of SFAS No. 123,“Accounting for Stock-Based Compensation” (“SFAS 123”). We elected to adopt the modified prospective application method as provided by SFAS 123(R), and, related interpretations. Accordingly, compensation costaccordingly, financial statement amounts for the prior periods presented in this Form 10-Q were not restated.

We adopted a stock option plan in 1989 that was replaced by the Year 2000 Long Term Incentive Plan, under which options is measured as the excess, if any,may be granted to key employees and directors of the fair value of our stockCompany. Options are generally granted with an exercise price equal to the market price at the date of grant overwith vesting periods from three to five years and have 10-year contractual terms. The Company authorized a total of 2,800,000 shares under the grant price.

We have adopted the disclosure only provisionsYear 2000 Long Term Incentive Plan as of SFAS No. 123. Had compensation costMarch 31, 2006. The Company has issued 2,426,000 shares, net of forfeitures under this plan as of March 31, 2006. As of March 31, 2006, 374,000 shares are available for our stock-based compensation plans been determined based on the fair value at the grant date for awards consistent with the provisions of SFAS No. 123, our net income and earnings per share would have been reduced to the pro forma amounts as follows:future grants.

The fair value of each option is estimated on the date of grant using Black-Scholes valuation model that uses the assumptions noted in the following table. Since this model incorporates ranges of assumptions for inputs, those ranges are disclosed. Expected volatility is based on the historical volatility of our stock. We use historical data to estimate the option exercise and employee terminations within the valuation model. The expected term of options granted and pro forma effects are computed using option pricing models, usingis derived from the following weighted-average assumptions asoutput of the grant date.option valuation model and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.

7. DividendsA summary of share option activity under the plan for the three months ended March 31, 2006 is as follows:

The aggregate intrinsic value of options exercised for the three months ended March 31, 2006 and 2005 was $1,090,000 and $525,000, respectively. Total fair value of shares vested for the same periods was $265,000 and $0.

The amount charged against income, before income tax benefit of $118,000, in relation to the stock-based payment arrangement was $288,000 for the three months ending March 31, 2006. At March 31, 2006, unrecognized compensation expense related to non-vested stock option grants aggregated to $2,595,000 and is expected to be recognized as follows:

There were no modifications of awards during the periods ended March 31, 2006 and 2005.

Nara Bancorp and Nara Bank are parties to thea Memorandum of Understanding (described in note 4 “Recent Developments”),with the Federal Reserve Bank and the California Department of Financial Institutions. Nara Bank may not declare or pay any cash dividends to Nara Bancorp without the prior written approval of the Federal Reserve Bank and the California Department of Financial Institution.Institutions. Also, under a Board resolution, Nara Bancorp may not declare or pay any cash dividends to its stockholders without the prior written approval of the Federal Reserve Bank. No assurance can be given that the regulators would approve a request to pay cash dividends.

On September 29, 2005,March 13, 2006, we declared a $0.0275 per share cash dividend which was paid on October 28, 2005April 14, 2006 to stockholders of record at the close of business on October 14, 2005.March 31, 2006. In accordance with the terms of the MOU, we submitted to, and received approval from, the Federal Reserve Bank to pay the cash dividend in addition to dividend payments on the Trust Preferred Securities related to the Subordinated Debentures.