Nara Bancorp Reports Fourth Quarter Financial Results

Nara Bancorp, Inc. (the "Company”) (NASDAQ: NARA), the holding company of Nara Bank (the "Bank”) reported a net loss of $9.9 million, or ($0.39) per diluted share, for fourth quarter 2008, compared to net income of $8.3 million, or $0.32 per diluted share, for fourth quarter 2007, and $5.0 million, or $0.19 per diluted share, for third quarter 2008. For the full year 2008, net income was $2.8 million, or $0.09 per diluted share.

Min Kim, President and Chief Executive Officer, said, "As economic conditions weakened in the fourth quarter, we took aggressive actions to maintain the strength of our balance sheet. These actions included raising $67 million in capital through the TARP program, aggressively recognizing losses and recording immediate charge-offs where it was appropriate, and increasing our allowance for loan losses to 2.07% of total loans as of December 31, 2008. Our provision for loan losses of $28 million led to the net loss for the fourth quarter; however, we believe our balance sheet remains strong and we are well positioned to manage through a prolonged economic slowdown.”

Financial Highlights

Operating Results for Fourth Quarter 2008

Net Interest Income and Net Interest Margin. Fourth quarter 2008 net interest income before provision for loan losses was $22.7 million, a decrease of 10% from fourth quarter 2007. Fourth quarter 2008 net interest margin (net interest income divided by average interest-earning assets) decreased 72 basis points to 3.71% from 4.43% in the fourth quarter of 2007. The decline in net interest margin was partially offset by average interest-earning asset growth of 7.9%.

The weighted average yield on the loan portfolio for fourth quarter 2008 decreased 180 basis points to 6.75% from 8.55% for the same period last year. The decrease was the result of the prime rate-based portion of the loan portfolio repricing downward as market interest rates continued to decline, due to further reductions in interest rates by the Federal Reserve throughout 2008. The prime rate decreased 400 basis points throughout 2008. This was partially mitigated by the 50% of fixed rate loans in the portfolio at December 31, 2008. At December 31, 2007, fixed rate loans were 52% of the loan portfolio. The weighted average yield on the variable rate and fixed rate portfolios (excluding loan discount accretion) at December 31, 2008 was 4.65% and 7.62%, respectively, compared to 8.34% and 7.71% at December 31, 2007.

The weighted average yield on securities available for sale for fourth quarter 2008 decreased 61 basis points to 4.65% from 5.26% for the same period last year. The decrease was primarily due to variable rate Agency CMO investment securities repricing downward as one month LIBOR rates declined. The variable rate agency CMO portfolio was $111 million at December 31, 2008, compared to $88 million at the prior year-end.

The weighted average cost of deposits for fourth quarter 2008 decreased 111 basis points to 2.74% from 3.85% for the same period last year. The cost of time deposits decreased 195 basis points to 3.16% from 5.11%, contributing to a substantial portion of the decrease.

The weighted average cost of FHLB advances for fourth quarter 2008 decreased 67 basis points to 3.65% from 4.32% for fourth quarter 2007, reflecting the decline in market interest rates.

Following are the weighted average data at December 31, 2008 and 2007:

Sequentially, fourth quarter 2008 net interest income before provision for loan losses decreased $2.1 million, or 8%, from third quarter 2008. The decrease was primarily attributable to a decline in net interest margin resulting from rate cuts of 175 basis points by the Federal Reserve during the quarter. The net interest margin decreased 31 basis points to 3.71% for fourth quarter 2008 from 4.02% for third quarter 2008. Average interest earning assets decreased by $11 million and average interest-bearing liabilities increased by $5 million during fourth quarter 2008.

Interest income reversed for non-accrual loans (net of income recognized) was $283 thousand, $182 thousand, and $273 thousand for fourth quarter 2008, fourth quarter 2007, and third quarter 2008, respectively. Excluding this effect, the net interest margin for fourth quarter 2008, fourth quarter 2007, and third quarter 2008 was 3.75%, 4.46% and 4.07%, respectively.

Prepayment penalty income for fourth quarter 2008, fourth quarter 2007 and third quarter 2008 was $433 thousand, $560 thousand and $434 thousand, respectively. Excluding the effects of both non-accrual loan interest income and prepayment penalty income, the net interest margin for fourth quarter 2008, fourth quarter 2007 and third quarter 2008 was 3.68%, 4.36% and 4.00%, respectively.

Non-interest Income. Fourth quarter 2008 non-interest income was $2.1 million, a decrease of $3.9 million, or 66% compared to fourth quarter 2007. The decrease is due to a decline in net gains on sales of SBA and other loans, loss recognition of $1.0 million on sales of other real estate owned ("OREO”) and a loss of $834 thousand due to a net mark to market valuation of interest rate swaps.

Net gains on sales of SBA and other loans were $87 thousand for fourth quarter 2008, a decrease of 95% from $1.7 million for fourth quarter 2007. There were no sales during fourth quarter 2008. The $87 thousand net gain recognized during fourth quarter 2008 was due to loan discounts recognized on loans that were paid off. During fourth quarter 2007, the Company had net gains of $588 thousand on the sales of SBA loans and $1.1 million on the sale of other loans.

Sequentially, non-interest income decreased 49% from third quarter 2008. The decrease is primarily due to the $1.0 million loss recognized from sales of OREO and the mark to market valuation adjustment of $834 thousand on interest rate swaps mentioned earlier.

Non-interest Expense. Fourth quarter 2008 non-interest expense was $13.7 million, a decrease of 1% from $13.9 million for the same period last year. Salaries and employee benefits expense decreased by 11% over the same quarter of the prior year, primarily due to a decrease in bonus expense. Occupancy expense increased by 14% due to higher depreciation and amortization costs for the new branches opened in 2008.

Other non-interest expense increased 34% to $2.2 million for fourth quarter 2008, compared to $1.6 million for the same period last year. The increase is primarily due to an increase in credit related expense, including expenses related to OREO.

Sequentially, non-interest expense for fourth quarter 2008 decreased by 2% from $14.0 million in third quarter 2008, primarily due to lower salaries and employee benefits expense, advertising and marketing, and professional fees.

Income Taxes. The effective income tax benefit was 42% for fourth quarter 2008 compared to the effective income tax rate of 39% for fourth quarter 2007 and 42% for third quarter 2008.

Balance Sheet Summary

At December 31, 2008, total assets were $2.67 billion, an increase of 11.0% (annualized) from $2.60 billion at September 30, 2008, and an increase of 10.1% from $2.42 billion at December 31, 2007.

Gross loans receivable were $2.10 billion at both December 31, 2008 and September 30, 2008. New loan production was $81.3 million during fourth quarter 2008, compared to $105.7 million during third quarter 2008 and $188.9 million during the fourth quarter 2007. Given the importance of liquidity management, the Company focused on loan growth supported by core deposit growth, in addition to stricter loan underwriting criteria. Loan pay-offs were $48.8 million during fourth quarter 2008, compared to $81.9 million during third quarter 2008 and $76.5 million during fourth quarter 2007.

SBA loan originations were $8.0 million during fourth quarter 2008 compared to $6.9 million during third quarter 2008 and $29.0 million during fourth quarter 2007. There were no sales of SBA loans during fourth quarter 2008, compared to $5.8 million of SBA loan sales during third quarter 2008 and $24.9 million during fourth quarter 2007.

Total deposits were $1.94 billion at December 31, 2008, a slight decrease from $1.95 billion at September 30, 2008 and a 6% increase from $1.83 billion at December 31, 2007. During fourth quarter 2008, core deposits increased $23 million and brokered deposits increased $68 million, but were offset by a $99 million decrease in retail jumbo CDs. The retail deposit marketplace continues to be very competitive and rate sensitive as some financial institutions are aggressively pricing CDs in an attempt to improve liquidity. Core deposit growth was adversely affected by net funds transferred to South Korea by deposit customers to take advantage of the weakening Korean Won and higher deposit rates paid by South Korean banks.

FHLB advances were $350.0 million at both December 31, 2008 and September 30, 2008 and $297.0 million at December 31, 2007. Advances are primarily long term advances with an expected average remaining term to maturity of 3.4 years. The average interest rate at December 31, 2008 was 3.70%

Provision and Allowance for Loan Losses

The Company recorded a provision for loan losses of $28.0 million in fourth quarter 2008, compared to $3.7 million in the same period of the prior year and $6.2 million in third quarter 2008. The provision responds to the fourth quarter deterioration in credit quality.

Total delinquencies, representing loans 30 days or more past due, increased to $51.2 million from $43.8 million at September 30, 2008 and $34.7 million at December 31, 2007.

Total watch list loans increased to $136.7 million at December 31, 2008 from $90.3 million at September 30, 2008, and $30.8 million at December 31, 2007. Special mention loans increased to $71.2 million at December 31, 2008, from $38.5 million at September 30, 2008, and $9.4 million at December 31, 2007. Substandard loans increased to $55.6 million at December 31, 2008, from $44.6 million at September 30, 2008 and $20.2 million at December 31, 2007.

Non-performing loans at December 31, 2008 were $37.6 million, or 1.79% of total loans, compared to $30.5 million, or 1.45% of total loans, at September 30, 2008, and $16.6 million, or 0.83% of total loans, at December 31, 2007.

Net loan charge-offs during fourth quarter 2008 were $12.4 million, or 2.37% of average loans on an annualized basis, compared to $3.0 million, or 0.61% of average loans on an annualized basis, during fourth quarter 2007, and $6.3 million, or 1.19% of average loans on an annualized basis, during third quarter 2008. Fourth quarter 2008 charge-offs included the following with respect to three large loan relationships:

• A partial charge-off of $3.9 million on a $7 million commercial line of credit relationship that is secured by land. The borrower filed chapter 11 bankruptcy during the fourth quarter of 2008.
• A partial charge-off of $1.7 million on a $3.0 million commercial line of credit. The loan was placed in non-accrual status earlier in 2008 and the Bank agreed to a workout plan. The amount charged-off was based on the forbearance and workout terms.
• The sale of a $2.6 million non-performing commercial real estate loan for $1 million and the charge-off of the remaining $1.6 million. The loan was in the process of non-judicial foreclosure.

Excluding these loans, fourth quarter charge-offs primarily consisted of $5.1 million of loans to retail businesses, averaging approximately $101 thousand per loan. Fourth quarter 2008 gross charge-offs were substantially provided for in the allowance for loan losses at September 30, 2008. On a full year basis, 2008 net charge-offs were $25.4 million, compared to $6.6 million in 2007.

The allowance for loan losses at December 31, 2008 was $43.4 million, or 2.07% of gross loans receivable, compared to $27.8 million, or 1.33% of gross loans receivable, at September 30, 2008, and $20.0 million, or 1.00% of gross loans receivable, at December 31, 2007. The allowance for loan losses to non-performing loans was 116%, 91% and 121% at December 31, 2008, September 30, 2008, and December 31, 2007, respectively. The allowance for loan losses reflects an increase in specific allowances for impaired loans, as well as general allowances, based on quantitative and qualitative factors.

The Company provided specific allowances for certain impaired loans during the fourth quarter of 2008. The most significant was a $1.9 million specific allowance for a lending relationship totaling $11.3 million that is partially secured by first and second trust deeds on two golf courses located in Northern California. This specific allowance was made due to information received from the borrower regarding his stressed financial condition. Excluding specific allowances for impaired loans, the allowance coverage on non-impaired loans was 1.41%, compared to 0.77% at September 30, 2008 and 0.91% at December 31, 2007.

Capital

During November 2008, the Company received an investment of $67 million as a result of its participation in the U.S. Department of Treasury’s TARP Capital Purchase Program (CPP). The Company issued 67,000 shares of cumulative perpetual preferred stock, with a dividend rate of 5% per share, to the U.S. Treasury, together with warrants to purchase 1.04 million shares of the Company’s common stock.

At December 31, 2008, the Company continued to exceed the regulatory capital requirements to be classified as a "well-capitalized institution.” With the additional $67 million of TARP CPP preferred stock proceeds, all ratios improved at year-end 2008. The Leverage Ratio was 12.72% at December 31, 2008, compared to 10.42% at September 30, 2008 and 10.77% at December 31, 2007. The Tier 1 Risk-based Ratio was 14.32% at December 31, 2008, compared to 11.84% at September 30, 2008 and December 31, 2007. The Total Risk-based Ratio was 15.58% at December 31, 2008, compared to 13.08% at September 30, 2008 and 12.78% at December 31, 2007. Tangible common equity per share was $8.33 at December 31, 2008.

Outlook

For the full year 2009, Nara Bancorp expects the following:

• Credit costs to remain elevated
• Net interest margin to remain compressed due to historically low interest rates affecting loan yields and intense competition for deposits
• Modest loan growth as management seeks to match loan production to core deposit gathering

Commenting on the outlook for 2009, Ms. Kim said, "We anticipate that the operating environment will continue to be very challenging in 2009, even with the additional economic stimulus being proposed. Our primary focus will be on growing core deposits and maintaining strong liquidity; taking an aggressive posture in resolving problem assets and providing for credit losses; and maintaining strong capital levels. We will also be redeploying resources into more profitable areas of the Company by closing all but two of our loan production offices while expanding our East Coast franchise with the opening of three new branches in 2009. We fully expect our emphasis on maintaining a strong balance sheet and investing in our branch network will position us to generate profitable growth when economic conditions become more favorable.”

Conference Call and Webcast

A conference call with simultaneous webcast to discuss the Company’s fourth quarter 2008 financial results will be held today, January 30, 2009 at 9:30 a.m. Pacific / 12:30 p.m. Eastern. Interested participants and investors may access the conference call by dialing 800-218-0713 (domestic) or 303-262-2130 (international). There will also be a live webcast of the call available at the Investor Relations section of Nara Bank’s web site at www.narabank.com.

After the live webcast, a replay will remain available in the Investor Relations section of Nara Bancorp’s web site. A replay of the call will be available at 800-405-2236 (domestic) or 303-590-3000 (international) through February 6, 2009; the passcode is 11125463.

About Nara Bancorp, Inc.

Nara Bancorp, Inc. is the parent company of Nara Bank, which was founded in 1989. Nara Bank is a full-service community bank headquartered in Los Angeles, with 21 branches and 6 loan production offices in the United States. Nara Bank operates full-service branches in California, New York and New Jersey, with loan production offices in California, Nevada, Texas, Georgia, New Jersey, and Virginia. Nara Bank was founded specifically to serve the needs of Korean-Americans, one of the fastest-growing Asian ethnic communities over the past decade. Presently, Nara Bank serves a diverse group of customers mirroring its communities. Nara Bank specializes in core business banking products for small and medium-sized companies, with emphasis in commercial real estate and business lending, SBA lending and international trade financing. Nara Bank is a member of the FDIC and is an Equal Opportunity Lender. For more information on Nara Bank, visit our website at www.narabank.com. Nara Bancorp, Inc. stock is listed on Nasdaq under the symbol "NARA."

Forward-Looking Statements

This press release contains forward-looking statements including statements about future operations and projected full-year financial results that are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such forward looking statements, including, but not limited to economic, competitive, governmental and technological factors affecting the Company’s operations, markets, products, services, and pricing. Readers should carefully review the risk factors and the information that could materially affect the Company’s financial results and business, described in documents the Company files from time to time with the Securities and Exchange Commission, including its quarterly reports on Form 10-Q and Annual Reports on Form 10-K, and particularly the discussion of business considerations and certain factors that may affect results of operations and stock price set forth therein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company undertakes no obligation to revise or publicly release the results of any revision to these forward-looking statements.