Preheat oven to 350F.
To prepare cupcakes, combine 1/4 cup granulated sugar and banana; set aside. Beat 1/2 cup granulated sugar, butter, and 1 teaspoon vanilla at medium speed of a mixer until well-blended (about 3 minutes). Add eggs, 1 at a time, beating well after each addition. Add banana mixture to sugar mixture, beating well. Lightly spoon flour into a dry measuring cup; level with a knife. Combine flour, baking soda, salt, and nutmeg in a bowl, stirring well with a whisk. Add flour mixture to sugar mixture alternately with yogurt, beginning and ending with flour mixture; mix after each addition.
Spoon batter into 12 muffin cups lined with paper liners. Bake at 350F for 25 minutes or until a wooden pick inserted in center comes out clean. Cool in pan 10 minutes on a wire rack; remove from pan. Cool completely on wire rack.
To prepare the frosting, beat the powdered sugar, chilled cream cheese, and 1/2 teaspoon vanilla at medium speed of a mixer just until blended (do not overbeat). Spread frosting over cupcakes, and sprinkle with toasted walnuts.