---

---

SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

---

Form 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the year ended December 31, 2000 Commission File Number 0-15982

NATIONAL MERCANTILE BANCORP(Exact name of registrant as specified in its charter)

California(State or other jurisdiction of
incorporation or organization)

1840 Century Park East
Los Angeles, California(Address to principal executive offices)

95-3819685(I.R.S. Employer
Identification No.)

90067(Zip Code)

Registrant's telephone number, including area code: (310) 277-2265
No securities registered pursuant to Section 12(b) of the Act
Securities registered pursuant to Section 12(g) of the Act:

Common Stock, No Par Value
Series A Noncumulative Convertible Perpetual Preferred Stock(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/ Yes / / No

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 registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB. / /

The
aggregate market value of the voting common equity held by nonaffiliates of the registrant, based upon the closing sale price of its Common Stock as reported by the National
Association of Securities Dealers Automated Quotation System on March 7, 2001, was approximately $10.5 million.

The
number of shares of Common Stock, no par value, of the registrant outstanding as of March 7, 2001 was 1,590,515.

DOCUMENTS INCORPORATED BY REFERENCE:

Certain portions of the Company's Proxy Statement to be filed with the Commission pursuant to Rule 14a-6 under the Securities Exchange Act of
1934 in connection with the Company's 2001 Annual Meeting of Shareholders are incorporated by reference in Part III, Items 10-13 of this Annual Report on Form 10-KSB.

This Report Includes a Total of 62 Pages
Index to Exhibits on Page 60

---

---

---

NATIONAL MERCANTILE BANCORP        Table of Contents        Form 10-KSB  For the Fiscal Year Ended December 31, 2000

|                     |  |                                                                                       |  | Page(s) in
Form
10-KSB
|-------------------- |  | ------------------------------------------------------------------------------------- |  | ----------------------
|PART I              
|Item 1.              |  | Business                                                                              |  | 1                     
|Item 2.              |  | Properties                                                                            |  | 7                     
|Item 3.              |  | Legal Proceedings                                                                     |  | 7                     
|Item 4.              |  | Submission Of Matters To A Vote Of Security Holders                                   |  | 7                     
|PART II             
|Item 5.              |  | Market For Registrant's Common Equity And Related Shareholder Matters                 |  | 8                     
|Item 6.              |  | Management's Discussion And Analysis Of Financial Condition And Results Of Operations |  | 9                     
|Item 7.              |  | Financial Statements And Supplementary Data                                           |  | 36                    
|Item 8.              |  | Changes In And Disagreements With Accountants On Accounting And Financial Disclosure  |  | 36                    
|PART III            
|Item 9.              |  | Directors And Executive Officers Of The Registrant                                    |  | 36                    
|Item 10.             |  | Executive Compensation                                                                |  | 36                    
|Item 11.             |  | Security Ownership Of Certain Beneficial Owners And Management                        |  | 36                    
|Item 12.             |  | Certain Relationships And Related Transactions                                        |  | 36                    
|PART IV             
|Item 13.             |  | Exhibits, Financial Statement Schedules, And Reports On Form 8-K                      |  | 37                    
|Signatures           |  | 38                                                                                   
|Financial Statements |  | 40                                                                                   
|Exhibit Index        |  | 61                                                                                   

---



Certain
matters discussed in this Form 10-KSB may constitute forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the "Exchange Act") and as such may
involve risks and uncertainties. These forward-looking statements relate to, among other things, expectations of the business environment in which the Company operates, projections of future
performance, perceived opportunities in the market and statements regarding the Company's mission and vision. The Company's actual results, performance, or achievements may differ significantly from
the results, performance, or achievements expressed or implied in such forward-looking statements. For discussion of the factors that might cause such a difference, see "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations  Factors Which May Affect Future Operating Results".

PART I

ITEM 1. BUSINESS

National Mercantile Bancorp (the "Company") is a corporation which was organized under the laws of the State of California in 1983 and is registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended (the "BHC Act"). The Company's principal asset is the capital stock of Mercantile National Bank (the "Bank"), its wholly owned
subsidiary. The Company's principal business is to serve as a holding company for the Bank, and for other banking or banking-related subsidiaries which the Company may establish or acquire. Because
the Bank comprises substantially all of the business of the Company, unless the content requires otherwise references in this Form 10-KSB to the "Company" reflect the consolidated activities of the
Company and Bank. The Company has been authorized by the Federal Reserve Bank of San Francisco (the "Reserve Bank") to engage in lending activities separate from the Bank but to date has not done so.

The
Bank was organized in 1981 as a national banking association and obtained a Certificate of Authority to commence the business of banking from the Office of the Comptroller of the
Currency (the "OCC") in 1982. The Bank's primary business activities are to generate loans and deposits.

The
Company's present business strategy is to attract individual and small to mid-sized business borrowers in specific market niches located in its primary service area by offering a
variety of loan products and a full range of banking services coupled with highly personalized service. The Company's
lending products include revolving lines of credit, term loans and consumer and home equity loans, which often contain terms and conditions tailored to meet the specific demands of the market niche in
which the borrower operates, including the ability to evaluate the revenue streams and other sources of repayment supporting the loan. Additionally, the Company provides a wide array of deposit and
investment products that are also designed to meet specific customer needs. In order to provide the personalized service required by these customers, the Company uses a team approach to customer
service combining an experienced relationship management officer with operations support personnel.

During
the past several years the market niches targeted by the Company have included principally the entertainment industry and professional services providers. In the beginning of
2000 the Company expanded its targeted market niches to include healthcare and community based nonprofit organizations. Entertainment industry customers include television, music and film production
companies, talent agencies, individual performers, directors and producers (whom the Company attracts by establishing relationships with business management firms) and others affiliated with the
entertainment industry. Professional service customers include legal, accounting, insurance, advertising firms and their individual directors, officers, partners and shareholders. Healthcare
organizations include primarily outpatient healthcare providers such as physician medical groups, independent practice associations and surgery centers.

The
Company received regulatory approval in December 2000 to open its first regional office in Encino, California which will expand its client focused niche banking services to the
San Fernando Valley area of Los Angeles. The Encino regional office, which was opened in March 2001, will focus on

1

---

providing banking services to those affiliated with the healtcare industry as well as expanding the Bank's existing client base associated with entertainment, professional service providers and
community based nonprofit organizations.

In
order to grow and expand its array of products and services, the Company may from time to time acquire other financial service-related companies including "in-market' acquisitions
with banks of similar size and market presence. The Company has no current arrangements, understandings or agreements regarding any such acquisition. No assurance can be made that the Company will
identify a company which can be acquired on terms and conditions acceptable to the Company or that the Company could obtain the necessary regulatory approvals for such acquisition.

Competition

The banking business is highly competitive. The Company's primary service area is dominated by a relatively small number of major banks which have many offices
operating over a wide geographical area. The Company competes for loans and deposits primarily with other commercial banks, savings and loan associations, credit unions, and thrift and loan companies,
as well as with nondepository institutions, including mortgage companies, commercial finance lenders and providers of money market mutual funds. Nondepository institutions can be expected to increase
the extent to which they act as financial intermediaries. Large institutional users and sources of credit may also increase the extent to which they interact directly, meeting business credit needs
outside the banking system. Furthermore, the geographic constraints on portions of the financial services industry can be expected to erode. In addition, many of the major commercial banks operating
in the Company's primary service area offer services, such as trust services, which are not offered directly by the Company and, by virtue of their greater total capitalization, such banks have
substantially higher lending limits than the Company.

To
compete with other financial institutions in its primary service area, the Bank relies principally upon personal contact by its officers, directors and employees and providing,
through third parties, specialized services such as messenger, accounting and other related services. For clients whose loan demands exceed the Company's legal lending limit, the Company will arrange
for such loans on a participation basis with other banks. The Company also assists clients requiring other services not offered by the Company in obtaining such services from other providers.

Monetary Policy

The net income of the Bank is affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities in the
U.S. and abroad. In particular, the Board of Governors of the Federal Reserve System ("Federal Reserve Board") exerts a substantial influence on interest rates and credit conditions, primarily through
open market operations in United States government securities, varying the discount rate on member bank borrowings and setting reserve requirements against deposits. Federal Reserve Board monetary
policies have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future.

Supervision and Regulation

Bank holding companies, banks and their nonbank affiliates are extensively regulated under both federal and state law. The following is not intended to be an
exhaustive description of the statutes and
regulations applicable to the Company's or the Bank's business. The description of statutory and regulatory provisions is qualified in its entirety by reference to the particular statutory or
regulatory provisions.

Moreover,
new legislation and other regulatory changes affecting bank holding companies, banks and the financial services industry in general have occurred in the last several years
and can be

2

---

expected to occur in the future. The nature, timing and impact of new and amended laws and regulations cannot be accurately predicted.



Bank holding companies are regulated under the BHC Act and are supervised by the Federal Reserve Board. Under the BHC Act, the Company files reports of its
operations and other information with the Federal Reserve Board. The Federal Reserve Board may conduct examinations of the Company and the Bank.

The
BHC Act requires, among other things, the Federal Reserve Board's prior approval whenever a bank holding company proposes to (i) acquire all or substantially all the assets of a
bank, (ii) acquire direct or indirect ownership or control of more than 5% of the voting shares of a bank, (iii) merge or consolidate with another bank holding company, (iv) with certain exceptions,
from acquiring more than 5% of the voting shares of any company that is not a bank and (v) from engaging in any activities without the Federal Reserve Board's prior approval other than (1) managing or
controlling banks and other subsidiaries authorized by the BHC Act, (2) furnishing services to, or performing services for, its subsidiaries, or (3) conducting a safe deposit business. The BHC Act
authorizes the Federal Reserve Board to approve the ownership of shares in any company, the activities of which have been determined to be so closely related to banking or to managing or controlling
banks as to be a proper incident thereto.

Consistent
with its "source of strength" policy (see "Capital Adequacy Requirements," below), the Federal Reserve Board has stated that, as a matter of prudent banking, a bank holding
company generally should not pay cash dividends unless its net income available to common shareholders has been sufficient to fully fund the dividends, and the prospective rate of earnings retention
appears consistent with the company's capital needs, asset quality and overall financial condition.

Under
the BHC Act and regulations adopted by the Federal Reserve Board, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or financing of services.

The
Federal Reserve Board may, among other things, issue cease-and-desist orders with respect to activities of bank holding companies and nonbanking subsidiaries that represent unsafe
or unsound practices or violate a law, administrative order or written agreement with a federal banking regulator. The Federal Reserve Board can also assess civil money penalties against companies or
individuals who violate the BHC Act or other federal laws or regulations, order termination of nonbanking activities by nonbanking subsidiaries of bank holding companies and order termination of
ownership and control of a nonbanking subsidiary by a bank holding company.

A
bank holding company may become a "financial holding company" which may engage in a range of activities that are financial in nature, including insurance and securities
underwriting, insurance sales, merchant banking, providing financial, investment, or economic advisory services, any activity that a bank holding company may engage in outside of the United States,
and additional activities that the Federal Reserve Board, in consultation with the Secretary of the Treasury, determines to be financial in nature, incidental to a financial activity, or complementary
to a financial activity. The Federal Reserve Board is the primary regulator of financial holding companies.

In
order for a bank holding company to be treated as a financial holding company, all of the depository institution subsidiaries of the bank holding company must be well capitalized
and well managed, and must have achieved a rating of satisfactory or better at the most recent Community Reinvestment Act examination of each such institution. In addition, a bank holding company must
file with the Federal Reserve Board a declaration that the bank holding company elects to be a financial holding company to engage in activities or acquire and retain shares of a company that were not
permissible for a bank holding company to engage in or acquire before the enactment of the Gramm-Leach-Bliley Act, and a certification that all of the depository institution subsidiaries of the bank

3

---

holding company are well capitalized and well managed. The Board and management have determined that "financial holding company" status is not necessary at this time.



OCC.As a national bank, the Bank is subject to supervision and examination by the OCC and requirements and
restrictions under federal and state law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and limitations on the types
of investments that may be made and services that may be offered. Various consumer laws and regulations also affect the Bank's operations. These laws primarily protect depositors and other customers
of the Bank, rather than the Company and its shareholders.

The
Company's principal asset is its investment in the Bank. The Bank's ability to pay dividends to the Company is limited by certain statutes and regulations. OCC approval is
required for a national bank to pay a dividend if the total of all dividends declared in any calendar year exceeds the total of the bank's net profits (as defined) for that year combined with its
retained net profits for the preceding two calendar years, less any required transfer to surplus or a fund for the retirement of any preferred stock. A national bank may not pay any dividend that
exceeds its retained net profits then on hand after deducting its loan losses and bad debts, as defined by the OCC. The OCC and the Federal Reserve Board have also issued banking circulars emphasizing
that the level of cash dividends should bear a direct correlation to the level of a national bank's current and expected earnings stream, the bank's need to maintain an adequate capital base and other
factors. National banks that are not in compliance with regulatory capital requirements generally are not permitted to pay dividends. The OCC also can prohibit a national bank from engaging in an
unsafe or unsound practice in its business. Depending on the bank's financial condition, payment of dividends could be deemed to constitute an unsafe or unsound practice. Except under certain
circumstances and with prior regulatory approval, a bank may not pay a dividend if, after so doing, it would be undercapitalized. The Bank's ability to pay dividends in the future is, and could be,
further influenced by regulatory policies or agreements and by capital guidelines.

The
Bank's ability to make funds available to the Company is also subject to restrictions imposed by federal law on the Bank's ability to extend credit to the Company to purchase
assets from it, to issue a guarantee, acceptance or letter of credit on its behalf (including an endorsement or standby letter of credit), to invest in its stock or securities, or to take such stock
or securities as collateral for loans to any borrower. Such extensions of credit and issuances generally must be secured and are generally limited, with respect to the Company, to 10% of the Bank's
capital stock and surplus.

The
OCC regulations incorporate guidelines establishing standards for safety and soundness, including operational and managerial standards relating to internal controls and
information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth and compensation, fees and benefits, and prohibit compensation deemed
excessive. If the OCC finds that a bank has failed to meet any applicable standard, it may require the institution to submit an acceptable plan to achieve compliance and, if the bank fails to comply,
the OCC must, by order, require it to correct the deficiency.

The
OCC has enforcement powers with respect to national banks for violations of federal laws or regulations that are similar to the powers of the Federal Reserve Board with respect to
bank holding companies and nonbanking subsidiaries. See "Bank Holding Companies," above.

FDIC.The Bank is subject to examination and regulation by the Federal Deposit Insurance Corporation (the "FDIC") under
the Federal Deposit Insurance Act ("FDIA") because its deposit accounts are insured by the FDIC under the Bank Insurance Fund ("BIF").

Under
FDIC regulations, insured depository institution's are assigned to one of three capital groups for insurance premium purposes  "well capitalized," "adequately
capitalized" and "undercapitalized"  which are defined in the same manner as the regulations establishing the prompt

4

---

corrective action system under Section 38 of the FDIA, as discussed under "Capital Adequacy Requirements" below. These three groups are then divided into subgroups which are based on supervisory
evaluations by the institution's primary federal regulator, resulting in nine assessment classifications. Assessment rates for BIF-insured banks range from 0% of insured deposits for well-capitalized
banks with minor supervisory concerns to 0.027% of insured deposits for undercapitalized banks with substantial supervisory concerns.

The
FDIC may terminate the deposit insurance of any insured depository institution if the FDIC determines, after a hearing, that the institution has engaged or is engaging in unsafe
or unsound practices which, as with the OCC's enforcement authority, are not limited to cases of capital inadequacy, is in an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation or order or any condition imposed in writing by the FDIC. In addition, FDIC regulations provide that any insured institution that falls below a 2% minimum leverage ratio
(see below) will be subject to FDIC deposit insurance termination proceedings unless it has submitted, and is in compliance with, a capital plan with its primary federal regulator and the FDIC. The
FDIC may also suspend deposit insurance temporarily during the hearing process if the institution has no tangible capital. The FDIC is additionally authorized by statute to appoint itself as
conservator or receiver of an insured depository institution (in addition to the powers of the institution's primary federal regulatory authority) in cases, among others and upon compliance with
certain procedures, of unsafe or unsound conditions or practices or willful violations of cease and desist orders.

CRA.Banks and bank holding companies are also subject to the Community Reinvestment Act of 1977, as amended
("CRA"). CRA requires the Bank to ascertain and meet the credit needs of the communities it serves, including low- and moderate-income neighborhoods.
The Bank's compliance with CRA is reviewed and evaluated by the OCC, which assigns the Bank a publicly available CRA rating at the conclusion of the examination. Further, an assessment of CRA
compliance is also required in
connection with applications for OCC approval of certain activities, including establishing or relocating a branch office that accepts deposits or merging or consolidating with, or acquiring the
assets or assuming the liabilities of, a federally regulated financial institution. An unfavorable rating may be the basis for OCC denial of such an application, or approval may be conditioned upon
improvement of the applicant's CRA record. In the case of a bank holding company applying for approval to acquire a bank or other bank holding company, the Federal Reserve Board will assess the CRA
record of each subsidiary bank of the applicant, and such records may be the basis for denying the application.

In
the most recently completed CRA compliance examination, conducted in March 1998 the OCC assigned the Bank a rating of "satisfactory," the second highest of four possible ratings.
The CRA regulations governing the Company and the Bank emphasize measurements of performance in the area of lending (specifically, the bank's home mortgage, small business, small farm and community
development loans), investment (the bank's community development investments) and service (the bank's community development services and the availability of its retail banking services), although
examiners are still given a degree of flexibility in taking into account unique characteristics and needs of the bank's community and its capacity and constraints in meeting such needs. The
regulations also require certain levels of collection and reporting of data regarding certain kinds of loans.

Capital Adequacy Requirements

Both the Federal Reserve Board and the OCC have adopted similar, but not identical, "risk-based" and "leverage" capital adequacy guidelines for bank holding
companies and national banks, respectively. Under the risk-based capital guidelines, different categories of assets are assigned different risk weights, ranging from zero percent for risk-free assets
(e.g., cash) to 100% for relatively high-risk assets (e.g., commercial loans). These risk weights are multiplied by corresponding asset balances to determine a risk-adjusted asset base. Certain
off-balance sheet items (e.g., standby letters of credit) are added to the risk-adjusted asset base. The minimum required ratio of total capital to risk-weighted assets for both bank holding companies
and national banks is presently 8%. At least half of the total

5

---

capital is required to be "Tier 1 capital," consisting principally of common shareholders' equity, a limited amount of perpetual preferred stock and minority interests in the equity. The remainder
(Tier 2 capital) may consist of a limited amount of subordinated debt, certain hybrid capital instruments and other debt securities, preferred stock and a limited amount of the general loan-loss
allowance

The
minimum Tier 1 leverage ratio, consisting of Tier 1 capital to average adjusted total assets, is 3% for bank holding companies and national banks that have the highest regulatory
examination rating and are not contemplating significant growth or expansion. All other bank holding companies and national banks are expected to maintain a ratio of at least 1% to 2% or more above
the stated minimum. As of
December 31, 2000, the Company had a Tier 1 leverage ratio of 10.73% and the Bank's Tier 1 leverage ratio was 9.31%.

The
OCC has adopted regulations establishing capital categories for national banks and prompt corrective actions for undercapitalized institutions. The regulations create five capital
categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. The following table shows as of December 31, 2000 the minimum
total risk-based capital, Tier 1 risk-based capital and Tier 1 leverage ratios, all of which must be satisfied for a bank to be classified as well capitalized, adequately capitalized or
undercapitalized, respectively, together with the Company's and Bank's ratios which in all cases exceed the well capitalized minimums:

|                            |  | Total
risk-based
capital ratio |   | Tier 1
risk-based
capital ratio |   | Tier 1
leverage
ratio |     
|--------------------------- |  | ------------------------------ | - | ------------------------------- | - | --------------------- | ----
|Actual:                     |  |                                |   |                                 |   |                       |     
|National Mercantile Bancorp |  | 18.26                          | % | 17.00                           | % | 10.73                 | %   
|Mercantile National Bank    |  | 16.00                          | % | 14.74                           | % | 9.31                  | %   
|Minimum:                    |  |                                |   |                                 |   |                       |     
|Well capitalized (1)        |  | 10.00                          | % | 6.00                            | % | 5.00                  | %   
|Adequately capitalized      |  | 8.00                           | % | 4.00                            | % | 4.00                  | %(2)
|Undercapitalized            |  | 6.00                           | % | 4.00                            | % | 3.00                  | %   

---

If
any one or more of a bank's ratios are below the minimum ratios required to be classified as undercapitalized, it will be classified as significantly undercapitalized provided that
if its ratio of tangible equity to total assets is 2% or less, it will be classified as critically undercapitalized. A bank may be reclassified by the OCC to the next level below that determined by
the criteria described above if the OCC finds that it is in an unsafe or unsound condition or if it has received a less-than-satisfactory rating for any of the categories of asset quality, management,
earnings or liquidity in its most recent examination and the deficiency has not been corrected, except that a bank cannot be reclassified as critically undercapitalized for such reasons.

The
OCC may subject national banks to a broad range of restrictions and regulatory requirements. A national bank may not pay management fees to any person having control of the
institution, nor, except under certain circumstances and with prior regulatory approval, make any capital distribution if, after doing so, it would be undercapitalized. Undercapitalized banks are
subject to increased monitoring by the OCC, are restricted in their asset growth, must obtain regulatory approval for certain corporate activities, such as acquisitions, new branches and new lines of
business, and, in most cases, must submit to the OCC a plan to bring their capital levels to the minimum required in order to be classified as adequately capitalized. The OCC may not approve a capital
restoration plan unless each company that controls the bank guarantees that the bank will comply with it. Significantly and critically

6

---

undercapitalized banks are subject to additional mandatory and discretionary restrictions and, in the case of critically undercapitalized institutions, must be placed into conservatorship or
receivership unless the OCC and the FDIC agree otherwise.

Under
Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to commit resources to support each such
bank. In addition, a bank holding company is required to guarantee that its subsidiary bank will comply with any capital restoration plan. The amount of such a guarantee is limited to the lesser of
(i) 5% of the bank's total assets at the time it became undercapitalized, or (ii) the amount which is necessary (or would have been necessary) to bring the bank into compliance with all applicable
capital standards as of the time the bank fails to comply with the capital restoration plan. A holding company guarantee of a capital restoration plan results in a priority claim to the holding
company's assets ahead of its other
unsecured creditors and shareholders that is enforceable even in the event of the holding company's bankruptcy or the subsidiary bank's insolvency.

Employees

As of February 28, 2001, the Company had six officers but no employees and the Bank had 56 full-time equivalent employees (including three of whom were also
officers of the Company). The Company and the Bank believe that the Bank's relations with its employees are good and it has not encountered a strike or material work stoppage.

ITEM 2. PROPERTIES

The Bank leases approximately 24,000 square feet in an office building at 1840 Century Park East, Century City, California, the location of its principal
banking office and administrative headquarters. The effective rent under this lease was $2.33 per square feet or $55,666 per month for the period November 1, 1995 to October 31, 2000.
The effective rent for the period November 1, 2000 to October 31, 2004 is $2.83 per square foot or $67,607 per month. The rent is subject to annual adjustments for changes in property taxes and
operating costs.

In
connection with the lease, the Company issued the landlord a warrant to purchase up to 9.9% of the outstanding shares of capital stock of the Company at December 31, 1997.
The exercise price of the warrant is currently $5.00 per share of Common Stock and $10.00 per share of Series A Noncumulative Convertible Perpetual Preferred Stock. The warrant expires on December 31,
2002. The Company also granted the landlord registration rights with respect to capital stock purchased by the landlord (or its assignee) pursuant to the warrant.

The
Bank also leases approximately 1,650 square foot facility in Encino, California for the primary purpose of providing branch banking operations in the San Fernando Valley.

ITEM 3. LEGAL PROCEEDINGS

The Company is from time to time a party to lawsuits in the ordinary course of business. The Company does not believe that any lawsuit pending at December 31,
2000 will have a material adverse effect on the financial condition of the Company.

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

There was no submission of matters to a vote of shareholders during the quarter ended December 31, 2000.

7

---



PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Common Stock and Series A Noncumulative Convertible Perpetual Preferred Stock (the "Series A Preferred") of the Company are traded on the Nasdaq SmallCap
Market, under the symbols MBLA and MBLAP, respectively. The following table shows the high and low trade prices of the Common Stock and Series A Preferred for each quarter of 1999 and 2000 as reported
by the Nasdaq. Additionally, there may have been transactions at prices other than those shown during that time.

Common Stock

Series A
PreferredQuarter Ended:

High

Low

High

LowMarch 31, 1999

$
5.25

$
4.00

$
10.63

$
8.75June 30, 1999


5.25


3.75


10.25


7.38September 30, 1999


5.25


4.50


10.00


9.00December 31, 1999


5.00


3.75


9.88


8.00March 31, 2000


8.88


4.38


16.00


8.50June 30, 2000


8.00


5.50


16.25


12.50September 30, 2000


8.31


6.00


15.88


13.00December 31, 2000


7.61


6.25


14.75


13.00


At
March 7, 2001, the Company had 208 shareholders of record for its Common Stock and 20 shareholders of record for its Series A Preferred. The number of beneficial owners for the
Common Stock and Series A Preferred is higher as many people hold their shares in "street" name. At March 7, 2001, approximately 83% and 19% of the Common Stock and Series A Preferred, respectively,
were held in street name.

The
Company has not paid a cash dividend on the Common Stock since July 1990, and has never paid a cash dividend on the Series A Preferred. The Series A Preferred is entitled to a
noncumulative cash dividend at a rate of 6.5% of its liquidation preference quarterly on the first day of January, April, July, and October of each year, commencing October 1, 2000, before any
dividend may be declared upon or paid upon the Common Stock. As a California corporation, under the California General Corporation Law, generally the Company may not pay dividends in cash or property
except (ii) out of positive retained earnings or (ii) if, after giving effect to the distribution, the Company's assets would be at least 1.25 times its liabilities and its current assets would exceed
its current liabilities (determined on a consolidated basis under generally accepted accounting principles). At December 31, 2000, the Company had an accumulated deficit of $15.0 million. Further, it
is unlikely the Company's assets will ever be at least 1.25 times its liabilities. Accordingly, the Company must generate net income of in excess of $15.0 million before it can pay a dividend in cash
or property.

8

---



ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The Company recorded net income of $2.9 million or $1.08 diluted earnings per share during 2000, compared with net income of $1.0 million or $0.41 diluted
earnings per share during 1999. The improvement in net income principally resulted from an increase in net interest income of $2.4 million, brought about by the growth in average loans, and a $576,000
negative provision for credit losses. These operating results reflected a continuation of the trends since 1997, including increasing profitability, growth in total assets and the reduction of
nonperforming and classified assets. The 2000 results were the consequence of management's continuing plan to restructure the balance sheet in order to increase operating revenues while containing the
growth of operating expenses.

The
Company's total assets increased to $204.8 million at December 31, 2000 representing a $48.7 million or 31.2% increase from $156.2 million at December 31, 1999. This growth was
funded by an increase of $17.6 million in deposits and an increase of $21.3 million in other borrowed funds. Substantially all asset growth was in the loan portfolio. Loans receivable increased 49.3%
to $110.2 million at December 31, 2000 from $73.8 million at December 31, 1999. This $36.4 million increase was reflected by a growth in the commercial loans, primarily loans to entertainment and
healthcare industry related clients. Securities available-for-sale decreased 7.3% to $64.4 million at December 31, 2000 compared to $69.5 million at December 31, 1999.

The
allowance for credit losses was $2.6 million or 2.4% of loans receivable at December 31, 2000 compared to $1.9 million or 2.6% of loans receivable at December 31, 1999. This
increase in the allowance was primarily the result of a net loan recovery of $1.3 million related to a loan previously charged off, which in turn was partially offset by a $576,000 negative provision
for credit losses, during 2000. Nonaccrual loans decreased to $683,000 or 0.6% of loans receivable at December 31, 2000, compared to $932,000 or 1.3% of loans receivable at December 31, 1999. The
Company had no other real estate owned at December 31, 2000, a decrease of $382,000 from a year earlier.

Table 1
Operations Summary

|                            |            | Year
Ended
December 31,
2000 |        | Increase
(Decrease) |   | Year
Ended
December 31,
1999
|--------------------------- | ---------- | ---------------------------- | ------ | ------------------- | - | ----------------------------
|
|
|Interest income             |            | $                            | 14,460 |                     | $ | 3,915                       
|Interest expense            |            |                              | 5,023  |                     |   | 1,465                       
|                            |            |                              |        |                     |   |                             
|Net interest income         |            |                              | 9,437  |                     |   | 2,450                       
|Provision for credit losses |            |                              | (576   | )                   |   | (576                        
|Other operating income      |            |                              | 868    |                     |   | 170                         
|Other operating expense     |            |                              | 7,870  |                     |   | 1,246                       
|                            |            |                              |        |                     |   |                             
|Income before income taxes  |            |                              | 3,011  |                     |   | 1,950                       
|Income taxes                |            |                              | 67     |                     |   | 20                          
|                            |            |                              |        |                     |   |                             
|                            | Net income |                              | $      | 2,944               |   | $                           
|                            |            |                              |        |                     |   |                             

9

---

OPERATIONS SUMMARY ANALYSIS

Net Interest Income

The Company's earnings depend largely upon the difference between the income earned on its loans and other investments and the interest paid on its deposits
and borrowed funds. This difference is net interest income. The Company's ability to generate net interest income is largely dependent on its ability to maintain sound asset quality and appropriate
levels of capital and liquidity. The Company's inability to maintain strong asset quality, capital or liquidity may adversely affect (i) the ability to accommodate desirable borrowing customers,
thereby inhibiting growth in quality higher-yielding earning assets; (ii) the ability to attract comparatively stable, lower-cost deposits; and (iii) the costs of wholesale funding sources.

Net
interest income increased $2.4 million to $9.4 million during 2000 compared to $7.0 million during 1999. The components of net interest income continued to reflect increased
interest income from loans, compared to 1999. Average interest earning assets increased during 2000 to $172.1 million compared to $139.5 million during 1999. This $32.6 million or 23.4% increase in
average interest earning assets resulted primarily from a $29.1 million increase in average loans receivable. This increase was funded by an increase in average deposits of $17.6 million combined with
a $13.1 million increase in average borrowed funds.

The
weighted average yield on interest earning assets was 8.40% during 2000, an increase of 84 basis points from the weighted average yield of 7.56% during 1999. This increase was a
result of loans receivable which representing a higher proportion of average interest earning assets during 2000 compared to 1999, combined with an increase in short term interest rates during 2000.
The weighted average rates paid on interest bearing liabilities increased during 2000, compared with 1999, averaging
4.71% in 2000 against 4.08% in 1999. This increase resulted from increased average volume of higher cost other borrowings combined with an increase in average volume and rates paid for money market
deposits, during 2000. The increase in rates paid for other borrowings and money market deposits reflected the increase in short term interest rates during 2000. As a result, the net yield on interest
earning assets increased 47 basis points to 5.48% during 2000, from 5.01% during 1999.

Average
loans receivable increased 47.1% to $90.9 million in 2000 from $61.8 million in 1999. This increase reflected the Company's emphasis on continued growth of the commercial loan
portfolio, particularly loans to entertainment and healthcare industry related clients.

Average
total securities increased 2.3% to $71.7 million during 2000 from $70.1 million during 1999. The average yield on securities increased 45 basis points to 6.70% during 2000
compared to 6.25% during 1999 reflecting an increase in the average yield on the Company's portfolio of adjustable rate securities which were affected by the increase in short term rates during 2000.

Average
noninterest bearing deposits increased 24.8% to $56.8 million during 2000 compared to $45.5 million during 1999. In addition, average interest bearing deposits increased $6.3
million or 9.4% to $73.2 million during 2000 compared to $66.9 million during 1999. Average deposit increases resulted from increased marketing efforts particularly to entertainment, professional
business providers and special deposits clients. These increases were offset by a planned switch from higher rate nonrelationship "money desk" deposits to lower cost relationship related deposits.

Average
borrowed funds, represented collectively by federal funds purchased, securities sold under agreements to repurchase and other borrowings, increased to $33.4 million during
2000 compared to $20.3 million during 1999. This increase was due to the need for funds to support loan orginations, which grew faster than the Company was able to prudently grow its deposits.

10

---



2000

1999Net interest income

5.26%

4.78%Other operating income

0.48%

0.48%Provision for credit losses

0.32%

0.00%Other operating expense

(4.39%
)
(4.53%
)Income before income taxes

1.68%

0.73%Net income

1.64%

0.69%




The Company analyzes its earnings performance using, among other measures, the interest rate spread and net interest margin. The interest rate spread
represents the difference between the weighted average yield received on interest earning assets and the weighted average rate paid on interest bearing liabilities. Net interest margin (also called
the net yield on interest earning assets) is net interest income expressed as a percentage of average total interest earning assets. The Company's net interest margin is affected by changes in the
yields earned on assets and rates paid on liabilities, referred to as rate changes and changes relative to amount of interest earning assets and interest bearing liabilities. Interest rates charged on
the Company's loans are affected principally by the demand for such loans, the supply of money available for lending purposes, and other competitive factors. These factors are in turn affected by
general economic conditions and other factors beyond the Company's control, such as federal economic policies, the general supply of money in the economy, legislative tax policies, governmental
budgetary matters, and actions of the Federal Reserve Board. Table 3 presents information concerning the change in interest income and interest expense attributable to changes in average volume and
average rate. Table 4 presents the weighted average yield on each category of interest earning assets, the weighted average rate paid on each category of interest bearing liabilities, and the
resulting interest rate spread and net yield on interest earning assets for 2000 and 1999. Yields on tax-exempt investment securities presented in Table 4 have not been adjusted to a fully taxable
equivalent to recognize the income tax savings and to facilitate comparison of taxable and tax-exempt
assets because the Company does not realize a substantial tax benefit due to the utilization of net operating loss carryforwards.

The
Company's net interest margin remains high in comparison with the interest rate spread due to the continued significance of noninterest bearing demand deposits relative to total
funding sources. Average noninterest bearing demand deposits totaled $56.8 million, representing 43.7% of average deposits, during 2000, compared to $45.5 million, representing 40.5% of average
deposits, during 1999. Of these noninterest bearing demand deposits during 2000, $14.8 million or 26.1% of average noninterest bearing deposits were represented by real estate title and escrow company
deposits, compared to $14.7 million or 32.2% of average noninterest bearing deposits during 1999. While these deposits are noninterest bearing, they are not cost free funds. Customer service expenses,
primarily costs related to external accounting and data processing services provided to title and escrow company depositors are incurred by the Company to the extent that such depositors maintain
certain average noninterest bearing deposits. Customer service expense is classified as other operating expense. If customer service expenses related to escrow customers had been classified as
interest expense, the Company's reported net interest income for 2000 and 1999, would have been reduced by $550,000 and $435,000, respectively. Similarly, this would create identical reductions in
other operating expense. The net interest margin for 2000 and 1999, would have decreased 32 basis points and 31 basis points, respectively.

11

---

Table 3
Increase (Decrease) in Interest Income/Expense Due to Change in
Average Volume and Average Rate (1)

|                                                                           |                                    | 2000 vs 1999                       |       | 1999 vs 1998 |     
|-------------------------------------------------------------------------- | ---------------------------------- | ---------------------------------- | ----- | ------------ | ----
|
|
|
|
|Interest Income:                                                           |                                    |                                    |       |              |     
|Federal funds sold and securities purchased under agreement to resell      |                                    | $                                  | 98    |              | $   
|Interest-bearing deposits with other financial institutions                |                                    |                                    |      |              |     
|Securities held-to-maturity                                                |                                    |                                    |      |              |     
|Securities available-for-sale                                              |                                    |                                    | 100   |              |     
|Loans receivable (2)                                                       |                                    |                                    | 2,723 |              |     
|                                                                           |                                    |                                    |       |              |     
|                                                                           | Total interest-earning assets      |                                    |       | 2,921        |     
|                                                                           |                                    |                                    |       |              |     
|Interest Expense:                                                          |                                    |                                    |       |              |     
|Interest-bearing deposits:                                                 |                                    |                                    |       |              |     
|                                                                           | Demand                             |                                    | $     | 15           |     
|                                                                           | Money market                       |                                    |       | 239          |     
|                                                                           | Savings                            |                                    |       | (4           | )   
|Time certificates of deposit:                                              |                                    |                                    |       |              |     
|                                                                           |                                    | $100,000 or more                   |       |              | 58  
|                                                                           |                                    | Under $100,000                     |       |              | (222
|                                                                           |                                    |                                    |       |              |     
|                                                                           | Total time certificates of deposit |                                    |       | (164         | )   
|                                                                           |                                    |                                    |       |              |     
|                                                                           | Total interest-bearing deposits    |                                    |       | 86           |     
|Other borrowings                                                           |                                    |                                    | 699   |              |     
|Federal funds purchased and securities sold under agreements to repurchase |                                    |                                    | (8    | )            |     
|                                                                           |                                    |                                    |       |              |     
|                                                                           |                                    | Total interest-bearing liabilities |       |              | 777 
|                                                                           |                                    |                                    |       |              |     
|                                                                           | Net interest income                |                                    | $     | 2,144        |     
|                                                                           |                                    |                                    |       |              |     

---

12

---

Table 4
Average Balance Sheet and
Analysis of Net Interest Income

|                                                                           |                                                                                                     | 2000             |         | 1999   
|-------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------- | ---------------- | ------- | -------
|
|
|Assets:                                                                    |                                                                                                     |                  |         |        
|Federal funds sold and securities purchased under agreements to resell     |                                                                                                     | $                | 9,566   |        
|Securities available-for-sale                                              |                                                                                                     |                  | 71,662  |        
|Loans receivable (1) (2)                                                   |                                                                                                     |                  | 90,909  |        
|                                                                           |                                                                                                     |                  |         |        
|                                                                           | Total interest earning assets                                                                       |                  |         | 172,137
|                                                                           |                                                                                                     |                  |         |        
|Noninterest earning assets:                                                |                                                                                                     |                  |         |        
|                                                                           | Cash and due from banks  demand                                                                    |                  |         | 9,462  
|                                                                           | Other assets                                                                                        |                  |         | 2,571  
|                                                                           | Allowance for credit losses and net unrealized (loss) gain on sale of securities available-for-sale |                  |         | (4,778 
|                                                                           |                                                                                                     |                  |         |        
|Total assets                                                               |                                                                                                     | $                | 179,392 |        
|                                                                           |                                                                                                     |                  |         |        
|Liabilities and shareholders' equity:                                      |                                                                                                     |                  |         |        
|Interest-bearing deposits:                                                 |                                                                                                     |                  |         |        
|                                                                           | Demand                                                                                              |                  | $       | 8,066  
|                                                                           | Money market                                                                                        |                  |         | 36,312 
|                                                                           | Savings                                                                                             |                  |         | 1,348  
|                                                                           | Time certificates of deposit:                                                                       |                  |         |        
|                                                                           |                                                                                                     | $100,000 or more |         |        
|                                                                           |                                                                                                     | Under $100,000   |         |        
|                                                                           |                                                                                                     |                  |         |        
|                                                                           | Total time certificates of deposit                                                                  |                  |         | 27,456 
|                                                                           |                                                                                                     |                  |         |        
|                                                                           | Total interest-bearing deposits                                                                     |                  |         | 73,182 
|Other borrowings                                                           |                                                                                                     |                  | 32,424  |        
|Federal funds purchased and securities sold under agreements to repurchase |                                                                                                     |                  | 998     |        
|                                                                           |                                                                                                     |                  |         |        
|                                                                           | Total interest-bearing liabilities                                                                  |                  |         | 106,604
|                                                                           |                                                                                                     |                  |         |        
|Noninterest-bearing liabilities:                                           |                                                                                                     |                  |         |        
|                                                                           | Noninterest bearing demand deposits                                                                 |                  |         | 56,787 
|                                                                           | Other liabilities                                                                                   |                  |         | 1,630  
|Shareholders' equity                                                       |                                                                                                     |                  | 14,371  |        
|                                                                           |                                                                                                     |                  |         |        
|Total liabilities and shareholders' equity                                 |                                                                                                     | $                | 179,392 |        
|                                                                           |                                                                                                     |                  |         |        
|Net interest income (spread)                                               |                                                                                                     |                  |         |        
|                                                                           |                                                                                                     |                  |         |        
|                                                                           | Net yield on earning assets (2)                                                                     |                  |         |        

---

13

---

Provision for Credit Losses

Provisions for credit losses charged to operations reflect management's judgment of the adequacy of the allowance for credit losses and are determined through
periodic analysis of the loan portfolio. This analysis includes a detailed review of the classification and categorization of problem loans and loans to be charged off; an assessment of the overall
quality and collectibility of the loan portfolio; and consideration of the loan loss experience, trends in problem loan concentrations of credit risk, as well as current and expected future economic
conditions (particularly Southern California). Management, in combination with an outside firm, performs a periodic risk and credit analysis, the results of which are reported to the Board of
Directors.

During
2000 the Company realized a net recovery of $1.3 million related to a previously charged off loan. The entire recovery was accounted for as an increase to the allowance for
credit losses. Based on the resulting level of the allowance for credit losses after giving effect for this recovery, management recognized $576,000 as a negative provision for credit losses during
2000. Management determined that an increase in the allowance for credit losses was warranted due to: (i) an increasing portion of the loan portfolio being represented by larger loans (loans with
balances greater than $1.0 million); and (ii) the recent growth in loans receivable. During 1999 the Company did not record a provision for credit losses. In 2000 net loan recoveries were $1.3 million
compared to net charge offs of $248,000 in 1999.

Based
on continued loan growth, the level of nonperforming loans and a relatively constant level of charge offs, it is anticipated that the level of the allowance will remain adequate
through the first half of 2001 without a provision for credit losses. However, credit quality will be influenced by underlying trends in the economic cycle, particularly Southern California, and other
factors which are beyond management's control. Accordingly, no assurance can be given that the Company will not sustain loan losses that in any particular period are sizable in relation to the
allowance for credit losses. Additionally, subsequent evaluation of the loan portfolio, in light of factors then prevailing, by the Company and its regulators may indicate a requirement for increases
in the allowance for credit losses through changes to the provision for credit losses.

Other Operating Income

Other operating income was $868,000 and $698,000 in 2000 and 1999, respectively. A breakdown of other operating income by category is reflected below:



2000

1999(Dollars in thousands)Other operating (losses) income:Securities transactions:Net gain (loss) on sale of securities available-for-sale

$
18

$
(1
)Fee income:International services


110


87Investment services


88


60Deposit and other customer services


583


552Other:Gain on other real estate owned and fixed assets


69


Total other operating income

$
868

$
698


14

---

During
2000 the Company recorded a net gain on the sale of securities available-for-sale of $18,000 compared to a net loss of $1,000 during 1999.

Fee
income related to international, investment and deposit related services increased 11.7% to $781,000 during 2000, compared to similar fee income of $699,000 in 1999. The increase
in fee income related to international services was primarily attributable to entertainment industry clients, which continue to increase film and television production outside of the U.S. The increase
in investment and deposit related services was primarily due to deposit growth of "transaction" and money market type accounts during 2000.

Other
income during 2000 included a $69,000 gain on the sale of other real estate owned. No such gain was realized during 1999.

Other Operating Expenses

Other operating expense increased $1.3 million to $7.9 million in 2000, compared to $6.6 million during 1999. A breakdown of other operating expense by
category is reflected below:



2000

1999(Dollars in thousands)Other operating expenses:Salaries and related benefits

$
3,906

$
3,229Net occupancy


966


1,002Furniture and equipment


323


217Printing and communications


280


265Insurance and regulatory assessments


296


297Customer services


835


673Computer data processing


416


311Legal services


170


70Other professional services


396


301Other real estate owned expenses


3


45Promotion and other expenses


279


214Total other operating expenses

$
7,870

$
6,624


The
increase of 21.0% in salaries and related benefits was due to the Company's expansion of banking services including additional staffing for the new market niches of healthcare,
community based
nonprofit organizations and a new branch office. Furniture and equipment expenses increased 48.9% during 2000 to $323,000, compared to $217,000 during 1999 from costs associated with the Company's
refurbishment project of existing facilities. Client service expenses increased 24.1% during 2000 to $835,000 from $673,000 during 1999, caused primarily by an increase in volume of special deposits
combined with an increase in the overall crediting rate associated with special deposits brought about by the increase in short term market rates during 2000. Computer data processing expenses
increased $105,000 during 2000 to $416,000 from $311,000 during 1999 as a result of the planned conversion to a new data service provider. This conversion is scheduled to be completed during the first
half of 2001 and will enable the Company to provide an array of expanded services, including internet banking. Legal expenses increased 142.9% to $170,000 during 2000 from $70,000 during 1999
primarily due to the fact that in 1999 a significant portion of these expenses were recovered due to loan collections.

15

---

Income Taxes

Deferred tax assets and liabilities are recognized for the expected future tax consequences of existing differences between financial reporting and tax
reporting basis of assets and liabilities, as well as for operating losses and tax credit carryforwards, using enacted tax laws and rates. Deferred tax assets will be reduced through a valuation
allowance whenever it becomes more likely than not that all or some portion will not be realized. Deferred income tax (benefit) represents the net change in the deferred tax asset or liability balance
during the year. This amount, together with income taxes currently payable or refundable in the current year, represents the total tax expense (benefit) for the year. At December 31, 2000, the
Company's net deferred tax asset totaled $7.0 million, which was fully reserved.

The
Company's deferred tax asset consists primarily of federal and state net operating loss carryforwards ("NOL") that total $18.4 and $1.5 million, respectively. The federal NOL's
expire beginning in 2009 and the California NOL's continue to expire through 2002.

No
income tax provision was recorded during 2000 and 1999 other than alternative minimum tax ("AMT") of $67,000 and $47,000, respectively, due to the utilization of previously
unrecognized tax benefits to offset current period tax liability. At December 31, 2000, the Company has federal and state AMT credits of $278,000 and $17,000, respectively, which may be carried
forward indefinitely.

Additionally,
federal and state income tax laws provide that following an ownership change of a corporation with a NOL, a net unrealized built-in loss or tax credit carryovers, the
amount of annual post-ownership change taxable income that can be offset by pre-ownership change NOLs, built-in losses or tax credit carryovers generally cannot exceed a prescribed annual limitation.
The annual limitation
generally equals the product of the fair market value of the corporation immediately before the ownership change (subject to certain adjustments) and the federal long-term tax-exempt rate prescribed
monthly by the Internal Revenue Service. If such limitations were to apply to the Company, the ability of the Company to reduce future taxable income by the NOL's could be severely limited.

Accumulated Other Comprehensive Income

Changes in the unrealized loss on available-for-sale securities is the only component of other comprehensive income for the Company. At December 31, 2000 the
unrealized loss on available-for-sale securities was $536,000 compared to an unrealized loss of $2.5 million at December 31, 1999.

During
2000 the U.S. economy experienced an increase in short term interest rates while medium and long term interest rates declined. This created an overall "inverted" yield curve,
where short term interest rates were higher than long term interest rates, for the majority of 2000. Accordingly, this decline in medium and long term interest rates, caused by overall market
anticipation that the Federal Reserve Open Market Committee would reduce interest rates in the future, created an increase in the estimated fair value of the Company's portfolio of fixed rate
available-for-sale securities of approximately $2.0 million at December 31, 2000 compared to December 31, 1999.

16

---

FINANCIAL CONDITION

Regulatory Capital

At December 31, 2000, the Company's and Bank's Tier 1 capital, which is comprised of shareholders' equity as modified by certain regulatory adjustments,
amounted to $21.2 million and $18.2 million, respectively. At December 31, 1999, the Company's and the Bank's Tier 1 capital amounted to $14.1 million and $12.9 million, respectively. In September
2000, the Company sold 602,081 shares of its common stock at $7.25 per share through a public offering and raised net proceeds of approximately $4.2 million. The Company contributed $2.4 million of
these proceeds to the Bank, which enabled it to increase its legal lending limit and provide capital for continued growth. The following table sets forth the regulatory standards for well capitalized
institutions and the capital ratios for the Company and the Bank as of December 31, 2000 and 1999.



December 31,Well Capitalized
Standards2000

1999Company:Tier 1 leverage

5.00%

10.73%

8.98%Tier 1 risk-based capital

6.00%

17.00%

16.21%Total risk-based capital

10.00%

18.26%

17.47%Bank:Tier 1 leverage

5.00%

9.31%

8.32%Tier 1 risk-based capital

6.00%

14.74%

15.03%Total risk-based capital

10.00%

16.00%

16.29%


Liquidity Management

The objective of liquidity management is the ability to maintain cash flow adequate to fund the Company's operations and meet obligations and other commitments
on a timely and cost effective basis. The Company manages to this objective through the selection of asset and liability maturity mixes. The Company's liquidity position is enhanced by its ability to
raise additional funds as needed through available borrowings or accessing the wholesale deposit market.

The
Company's deposit base provides the majority of the Company's funding requirements. This relatively stable and low-cost source of funds has, along with shareholders' equity,
provided 80.5% and 85.4% of funding for average total assets during 2000 and 1999, respectively. This reduction of 4.9% was directly attributable to the increased volume of loans receivable, which
outpaced the growth in deposits, and required an increase in borrowed funds.

A
significant portion of remaining funding of average total assets is provided by other borrowings, specifically FHLB advances, which averaged $32.4 million during 2000 compared to
$19.1 million during 1999.

Liquidity
is also provided by assets such as federal funds sold and securities purchased under resale agreements which may be immediately converted to cash at minimal cost. The
aggregate of these assets averaged $9.6 million during 2000, as compared to $7.6 million during 1999. This increase resulted primarily from the growth in the Company's average deposits and borrowed
funds during 2000.

17

---

Liquidity is also provided by the portfolio of available-for-sale securities, which averaged $71.7 million during 2000. In addition, the unpledged portion of investment securities at
December 31, 2000 totaled $8.0 million and would be available as collateral for borrowings. Maturing loans also provide liquidity, of which $39.5 million of the Bank's loans are scheduled to mature in
2001.

At
December 31, 2000, the balance of cash and cash equivalents was $27.6 million, an increase of $17.4 million from the end of the prior year.

Net
cash provided by operating activities totaled $2.9 million in 2000 compared to $1.4 million in 1999. The primary source of funds is net income from operations adjusted for:
provision for loan losses and depreciation and amortization. Net cash used in investing activities totaled $28.7 million in 2000 compared to $19.3 million in 1999. The increase in usage resulted from
a higher net increase in loans receivable. Net cash provided by financing activities amounted to $43.1 million in 2000 compared to $15.9 million in 1999. The increase in 2000 resulted primarily from
an increase in borrowed funds and deposits and the issuance of common stock.

Asset Liability Management

Based on the Company's business, market risk is primarily limited to interest rate risk which is the impact that changes in interest rates would have on future
earnings. Interest rate risk, including interest rate sensitivity and the repricing characteristics of assets and liabilities, is managed by the Interest Rate Risk Management Committee ("IRRMC"). The
principal objective of IRRMC is to maximize net interest income within acceptable levels of risk established by policy. Interest rate risk is measured using financial modeling techniques, including
stress tests, to measure the impact of changes in interest rates on future earnings. Net interest income, the primary source of earnings, is affected by interest rate movements. Changes in interest
rates have lesser impact the more that assets and liabilities reprice in approximately equivalent amounts at basically the same time intervals. Imbalances in these repricing opportunities at any point
in time constitute interest sensitivity gaps, which is the difference between interest sensitive assets and interest sensitive liabilities. These static measurements do not reflect the results of any
projected activity and are best used as early indicators of potential interest rate exposures.

An
asset sensitive gap means an excess of interest sensitive assets over interest sensitive liabilities, whereas a liability sensitive gap means an excess of interest sensitive
liabilities over interest sensitive assets. In a changing rate environment, a mismatched gap position generally indicates that changes in the income from interest earning assets will not be completely
proportionate to changes in the cost of interest bearing liabilities, resulting in net interest income volatility. This risk can be reduced by various strategies, including the administration of
liability costs and the reinvestment of asset maturities.

Table
8 compares the Company's interest rate gap position as of December 31, 2000 and 1999. The gap report shows the Company's cumulative one year interest rate asset sensitivity gap
of $40.2 million at December 31, 2000, an increase from an asset sensitivity gap of $12.7 million at December 31, 1999. The Company has increased its loan receivable portfolio that reprice within one
year to $82.8 million at December 31, 2000 compared to $48.8 million at December 31, 1999 and its federal funds sold and securities purchased under agreements to resell that reprice within one year to
$19.7 million at December 31, 2000 compared to $4.4 million at December 31, 1999. This change was offset by an increase in borrowings, which reprice within one year to $45.0 million at December 31,
2000 compared to $23.7 million at December 31, 1999 along with an increase in time certificates of deposits which reprice within one year to $30.9 million at December 31, 2000 compared to $24.7
million at December 31, 1999.

Since
interest rate changes do not affect all categories of assets and liabilities equally or simultaneously, a cumulative gap analysis alone cannot be used to evaluate the Company's
interest rate sensitivity position. To supplement traditional gap analysis, interest rate sensitivities are also monitored

18

---

through the use of simulation modeling techniques which apply alternative interest rate scenarios to periodic forecasts of future business activity and estimate the related impact on net interest
income. The use of simulation modeling assists management in its continuing efforts to achieve earnings growth in varying interest environments.

Key
assumptions in the model include anticipated prepayments on mortgage-related instruments, contractual cash flow and maturities of all financial instruments, anticipated future
business activity, deposit sensitivity and changes in market conditions. These assumptions are inherently uncertain and, as a result, these models cannot precisely estimate the impact that higher or
lower rate environments will have on net interest income. Actual results will differ from simulated results due to the timing, magnitude and frequency of interest rate changes, changes in cash flow
patterns and market conditions, as well as changes in management's strategies.

Based
on the results of the interest simulation model as of December 31, 2000, the Company would expect an increase of approximately 3.3% in net interest income and a decrease of
approximately 4.0% in net interest income if interest rates increase or decrease by 100 basis points, respectively, from current rates in an immediate and parallel shock over a twelve-month period.

At
December 31, 2000 and 1999, the Company's distribution of rate sensitive assets and liabilities was as follows:

Table 8
Rate-Sensitive Assets and Liabilities

|                                                                        |                                  | December 31, 2000               
|----------------------------------------------------------------------- | -------------------------------- | --------------------------------
|
|
|
|Rate-Sensitive Assets:                                                  |                                  |                                 
|Federal funds sold and securities purchased under agreements to resell  |                                  | $                               
|Securities available-for-sale, at amortized cost                        |                                  |                                 
|FRB and other stock, at cost                                            |                                  |                                 
|Loans receivable                                                        |                                  |                                 
|                                                                        |                                  |                                 
|                                                                        |                                  | Total rate-sensitive assets     
|Rate-Sensitive Liabilities: (1)                                         |                                  |                                 
|Interest bearing deposits:                                              |                                  |                                 
|                                                                        | Demand, money market and savings |                                 
|                                                                        | Time certificates of deposit     |                                 
|Other borrowings                                                        |                                  |                                 
|                                                                        |                                  |                                 
|                                                                        |                                  | Total rate-sensitive liabilities
|Interest rate-sensitivity gap                                           |                                  |                                 
|                                                                        |                                  |                                 
|Cumulative interest rate-sensitivity gap                                |                                  | $                               
|                                                                        |                                  |                                 
|Cumulative ratio of rate sensitive assets to
rate-sensitive liabilities |                                  |                                 
|                                                                        |                                  |                                 

---

19

---

Table 8 (continued)
Rate-Sensitive Assets and Liabilities

|                                                                        |                                  | December 31, 1999               
|----------------------------------------------------------------------- | -------------------------------- | --------------------------------
|
|
|
|Rate-Sensitive Assets:                                                  |                                  |                                 
|Federal funds sold and securities purchased under agreements to resell  |                                  | $                               
|Securities available-for-sale, at amortized cost                        |                                  |                                 
|FRB and other stock, at cost                                            |                                  |                                 
|Loans receivable                                                        |                                  |                                 
|                                                                        |                                  |                                 
|                                                                        |                                  | Total rate-sensitive assets     
|Rate-Sensitive Liabilities: (1)                                         |                                  |                                 
|Interest bearing deposits:                                              |                                  |                                 
|                                                                        | Demand, money market and savings |                                 
|                                                                        | Time certificates of deposit     |                                 
|Other borrowings                                                        |                                  |                                 
|                                                                        |                                  |                                 
|                                                                        |                                  | Total rate-sensitive liabilities
|Interest rate-sensitivity gap                                           |                                  |                                 
|                                                                        |                                  |                                 
|Cumulative interest rate-sensitivity gap                                |                                  | $                               
|                                                                        |                                  |                                 
|Cumulative ratio of rate-sensitive assets to rate-sensitive liabilities |                                  |                                 
|                                                                        |                                  |                                 

---

Investment Securities

The Company invests in investment securities consisting primarily of mortgage-related securities to: (i) generate interest income pending the ability to deploy
those funds in loans meeting the Company's lending strategies; (ii) increase net interest income where the rates earned on such investments exceed the related cost of funds, consistent with the
management of interest rate risk; and (iii) provide sufficient liquidity in order to maintain cash flow adequate to fund the Company's operations and meet obligations and other commitments on a timely
and cost efficient basis.

The
Company generally classifies its investment securities as available-for-sale except for investment securities which the Company has the ability and the positive intent to hold to
maturity which are classified as held-to-maturity securities. There were no held-to-maturity securities at December 31, 2000 and 1999.

Table
9 provides certain information regarding the Company's investment securities

20

---

Table 9
Estimated Fair Values of and Unrealized
Gains and Losses on Investment Securities

|                                                               |  | December 31, 2000 |        | December 31, 1999
|-------------------------------------------------------------- |  | ----------------- | ------ | -----------------
|
|
|U.S. Treasury securities                                       |  | $                 | 2,008  |                  
|GNMA-issued/guaranteed mortgage pass through certificates      |  |                   | 5,288  |                  
|Other U.S. government and federal agency securities            |  |                   | 1,952  |                  
|FHLMC/FNMA-issued mortgage pass through certificates           |  |                   | 15,172 |                  
|CMO's and REMIC's issued by U.S. government-sponsored agencies |  |                   | 36,532 |                  
|Privately issued Corporate bonds, CMO's and REMIC's securities |  |                   | 4,001  |                  
|FRB and other equity stocks                                    |  |                   | 2,733  |                  
|                                                               |  |                   |        |                  
|                                                               |  | $                 | 67,686 |                  
|                                                               |  |                   |        |                  

At December 31, 2000, the Company held no more securities from any issuer other than by the U.S. government and U.S. government agencies and
corporations in which the aggregate book value exceeded 10% of the Company's shareholders' equity.

The
Company's present strategy is to stagger the maturities of its investment securities to meet overall liquidity requirements of the Company. The average duration of total
securities at December 31, 2000 was 2.75 years compared with 2.57 years at December 31, 1999. Table 10 sets forth information concerning the maturity of and weighted average yield of the Company's
investment securities at December 31, 2000.

21

---

Table 10
Maturities of and Weighted Average Yields on
Investment Securities

|                               |                                                                |   |    |    |       | After one but
within five years |   | After five but
within ten years |       |       |       |   |   |   |   |  
|------------------------------ | -------------------------------------------------------------- | - | -- | -- | ----- | ------------------------------- | - | ------------------------------- | ----- | ----- | ----- | - | - | - | - | -
|
|
|
|
|Securities available-for-sale: |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  
|                               | U.S Treasury Securities                                        |   | $  |   |       |                                |   | $                               | 2,017 |       | 5.90% |   | $ |  |   | 
|                               | GNMA-issued/guaranteed mortgage pass-through certificates      |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               | Other U.S. government and federal agencies                     |   |    |   |       |                                |   |                                 | 1,994 |       | 7.14% |   |   |  |   | 
|                               | FHLMC/FNMA-issued mortgage pass-through certificates           |   |    | 35 |       | 6.86%                           |   |                                 | 1,290 |       | 6.67% |   |   |  |   | 
|                               | CMO's and REMIC's issued by U.S. government-sponsored agencies |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               | Privately issued Corporate bonds, CMO's and REMIC's securities |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               | FRB and other equity stocks                                    |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  
|                               |                                                                | $ | 35 |    | 6.86% |                                 | $ | 5,301                           |       | 6.55% |       | $ |  |   |  |  
|                               |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  
|Amortized Cost                 |                                                                | $ | 35 |    |       |                                 | $ | 5,246                           |       |       |       | $ |  |   |   |  
|                               |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  

Actual maturities may differ from contractual maturities to the extent that borrowers have the right to call or prepay obligations with or
without call or repayment penalties.

Lending Activities

The Company's present lending strategy is to attract individual and small to mid-sized business borrowers in specific market niches located in Century City and
San Fernando Valley area of Los Angeles, by offering a variety of loan products and a full range of banking services coupled with highly personalized service. Loan products include revolving lines of
credit, term loans and consumer and home equity loans, along with array of deposits and investment accounts and often contain terms and conditions tailored to meet the specific demands of market niche
in which the borrower operates, including the ability to evaluate the revenue streams and other sources of repayment supporting the loan. In order to provide the personalized service required by these
customers, the Company uses a team approach to customer service combining an experienced relationship management officer with operations support personnel.

During
the past several years the market niches targeted by the Company have included the entertainment industry and professional services providers. In the beginning of 2000 the
Company expanded its targeted market niches to include healthcare and community based nonprofit organizations. Entertainment industry customers include television, music and film production companies,
talent agencies, individual performers, directors and producers (whom the Company attracts by establishing relationships with business management firms), and others affiliated with the entertainment
industry. Professional service customers include legal, accounting, insurance, advertising firms and their individual directors, officers, partners and shareholders. Healthcare organizations
include primarily outpatient healthcare providers such as physician medical groups, independent practice associations and surgery centers.

22

---

Loan Portfolio

The following table sets forth the composition of the Company's loan portfolio at the dates indicated:

Table 11
Loan Portfolio Composition

|                                                               |                                                      | December 31,            |        
|-------------------------------------------------------------- | ---------------------------------------------------- | ----------------------- | -------
|
|
|
|Commercial loans:                                              |                                                      |                         |        
|                                                               | Secured by one to four family residential properties |                         | $      
|                                                               | Secured by multifamily residential properties        |                         |        
|                                                               | Secured by commercial real properties                |                         |        
|                                                               | Othersecured and unsecured                          |                         |        
|Real estate construction and land development                  |                                                      |                         | 1,890  
|Home equity lines of credit                                    |                                                      |                         | 644    
|Consumer installment and unsecured loans to individuals        |                                                      |                         | 3,729  
|                                                               |                                                      |                         |        
|                                                               |                                                      | Total loans outstanding |        
|                                                               |                                                      |                         |        
|Deferred net loan origination fees and purchased loan discount |                                                      |                         | (331   
|                                                               |                                                      |                         |        
|Loans receivable, net                                          |                                                      | $                       | 110,248
|                                                               |                                                      |                         |        

Most of the Company's commercial loans are generally within $100,000 to $2.2 million and its consumer and home equity loans generally are less
than $100,000. The Company may not make any loan, with certain limited exceptions, in excess of its loan to one borrower limit under applicable regulations ($3.6 million at December 31, 2000). If a
borrower requests a loan in excess of that amount the Company may originate the loan with the participation of one or more other lenders.

Commercial Loans.The Company offers adjustable and fixed rate secured and unsecured commercial loans for working
capital, the purchase of assets and other business purposes. The Company underwrites these loans primarily on the basis that borrower's cash flow and the ability to service the debt without reliance
on the liquidation of the underlying collateral, where applicable.

Collateral
for commercial loans may include commercial or residential real property, accounts receivable, inventory, equipment, marketable securities or other assets. Real estate
secured loans generally have terms ranging from five to ten years and payments based on a 15 to 25 year amortization schedule. Real estate secured loans frequently have a maturity date shorter than
the amortization period. The original principal amount of a real estate secured loan generally does not exceed 65% to 75% of the appraised value of the property (or the lesser of the appraised value
or the purchase price for the property if the loan is made to finance the purchase of the property).

Unsecured
commercial loans include short-term term loans and lines of credit. The Company's underwriting guidelines for these loans generally require that the borrower have low levels
of existing debt, working capital sufficient to cover the loan and a history of earnings and cash flow. Typically, unsecured lines of credit must be unused for a continuous 30-day period within each
year to demonstrate the borrower's ability to have sufficient funds to operate without the credit line.

23

---

Real Estate Construction and Land Development Loans.Real estate construction and land development loans are short-term
secured loans made to finance the construction of commercial and single-family residential properties or for improvements to raw land. Over the past several years, the Company has deemphasized its
focus on this type of lending to emphasize relationship oriented commercial loans. From time to time for existing relationships the Company will make construction loans, subject to normal underwriting
criteria.

Consumer Loans and Home Equity Lines of Credit.The Company offers consumer loans and home equity lines of credit
principally as an accommodation to individuals associated with the Company's business borrowers. Home equity lines of credit provide the borrower with a line of credit in an amount which generally
does not exceed 80% of the appraised value of the borrower's residence net of senior mortgages. Consumer loans are primarily adjustable rate open ended unsecured loans (such as credit card loans) but
also include fixed rate term loans (generally under five years) to purchase personal property which are secured by that personal property. These loans (other than purchase money loans) generally
provide for monthly payments of interest and a portion of the outstanding principal balance.

Loan Concentrations

The Company provides banking services to the entertainment industry in Southern California. Table 12 below presents information about the Company's loans
outstanding to entertainment related customers at December 31, 2000 and 1999.

Table 12
Industry Concentrations of Loans

|                                                                                                                                                 |  | December 31,
|------------------------------------------------------------------------------------------------------------------------------------------------ |  | ------------
|
|
|Entertainment industry-related loans (1):                                                                                                        |  |             
|Loans for single productions of motion picture and television feature films                                                                      |  | $           
|Other loans to entertainment-related enterprises, such as television, music, film and talent agencies                                            |  |             
|Loans to individuals involved primarily in the entertainment industry                                                                            |  |             
|Loans to business management, legal and accounting firms, including their principals and employees, serving primarily the entertainment industry |  |             
|                                                                                                                                                 |  |             
|Total entertainment industry-related loans                                                                                                       |  | $           
|                                                                                                                                                 |  |             
|Percent of total loans outstanding                                                                                                               |  |             

---

The
concentration of loans to the entertainment related industry at December 31, 2000 increased to $29.9 million or 27.1% of the total portfolio compared to $20.5 million or 27.7% at
December 31, 1999. The increase during 2000 was attributable to management plans to expand the entertainment division following the growth of production staff in this area, in response to the
prominence of entertainment related companies in the Company's primary service area.

The
Company believes that the varying nature of customers represented within this group, as set forth in Table 12, indicates reasonable diversification, although significant increases
occurred during 2000 with respect to loans to entertainment related enterprises, such as television, music, film and talent agencies. Single customer concentration risk is evident by the existence of
ten borrowers with

24

---

individual loan balances greater than $1.0 million, aggregating $17.3 million or 57.9% of entertainment industry loans at December 31, 2000. Management believes its underwriting standards, collateral
and guarantees supporting such borrowings are sufficient to mitigate the risk of credit concentration. In addition, loans for the production of independently produced motion picture and television
feature films presented in Table 12, are generally supported during production by performance bonds from highly-rated insurers and either distribution commitments from major studios or, in the case of
smaller studios, standby letters of credit from large commercial banks.

Loan Rate Composition and Maturities

Of the Company's total loans outstanding, 64.1% and 56.8% had adjustable rates at December 31, 2000 and 1999, respectively. Adjustable rate loans have interest
rates tied to the prime rate and generally adjust with changes in the rate on a monthly or quarterly basis.

Of
the Company's total loans outstanding at December 31, 2000, 35.7% were due in one year or less, 40.8% were due in 1-5 years and 23.5% were due after 5 years. As is customary in the
banking industry, loans can be renewed by mutual agreement between the Company and the borrower. Because the Company is unable to estimate the extent to which its borrowers will renew their loans,
Table 13 is based on contractual maturities.

Table 13
Loan Maturities

|                                                 |                                        | December 31, 2000                   
|------------------------------------------------ | -------------------------------------- | ------------------------------------
|
|
|Aggregate maturities of total loans outstanding: |                                        |                                     
|                                                 | Commercial secured by real estate      |                                     
|                                                 |                                        | In one year or less                 
|                                                 |                                        | After one year but within five years
|                                                 |                                        | After five years                    
|                                                 | Commercial other secured and unsecured |                                     
|                                                 |                                        | In one year or less                 
|                                                 |                                        | After one year but within five years
|                                                 |                                        | After five years                    
|                                                 | Other                                  |                                     
|                                                 |                                        | In one year or less                 
|                                                 |                                        | After one year but within five years
|                                                 |                                        | After five years                    
|                                                 |                                        |                                     
|Total loans outstanding                          |                                        | $                                   
|                                                 |                                        |                                     

Credit Risk Management

The Company assesses and manages credit risk on an ongoing basis through diversification guidelines, lending limits, credit review and approval policies and
internal monitoring. As part of the control process, an independent credit review firm regularly examines the Company's loan portfolio and other credit processes, the Company's loan portfolio and
other related products, including unused commitments and letters of credit. In addition to this credit review process, the Company's loan portfolio is subject to examination by external regulators in
the normal course of business. Underlying trends in the economic and business cycle will influence credit quality. The Company seeks to manage

25

---

and control its risk through diversification of the portfolio by type of loan, industry concentration and type of borrower.

Nonperforming Assets

Nonperforming assets consist of nonperforming loans and other real estate owned. Nonperforming loans are (i) loans which have been placed on nonaccrual status,
(ii) troubled debt restructurings ("TDR's"), or (iii) loans which are contractually past due ninety days or more with respect to principal or interest, and have not been restructured or placed on
nonaccrual status, and are accruing interest as described below. Other real estate owned consists of real properties securing loans of which the Company has taken title in partial or complete
satisfaction of the loan. Information about nonperforming assets is presented in Table 14.

Table 14
Nonperforming Assets

|                                                                                                                          |  | December 31, |      
|------------------------------------------------------------------------------------------------------------------------- |  | ------------ | -----
|
|
|Nonaccrual loans                                                                                                          |  | $            | 683  
|Troubled debt restructurings                                                                                              |  |              |     
|Loans contractually past due ninety or more days with respect to either principal or interest and still accruing interest |  |              |     
|                                                                                                                          |  |              |      
|Nonperforming loans                                                                                                       |  |              | 683  
|Other real estate owned                                                                                                   |  |              |     
|Other assets-SBA guaranteed loan                                                                                          |  |              |     
|                                                                                                                          |  |              |      
|Total nonperforming assets                                                                                                |  | $            | 683  
|                                                                                                                          |  |              |      
|Allowance for credit losses as a percent of nonaccrual loans                                                              |  |              | 380.2
|Allowance for credit losses as a percent of nonperforming loans                                                           |  |              | 380.2
|Total nonperforming assets as a percent of loans receivable                                                               |  |              | 0.6  
|Total nonperforming assets as a percent of total shareholders' equity                                                     |  |              | 3.3  

Nonaccrual Loans.Nonaccrual loans are those loans for which management has discontinued accrual of interest because
there exists reasonable doubt as to the full and timely collection of either principal or interest. It is the Company's policy that a loan will be placed on nonaccrual status if either principal or
interest payments are past due in excess of ninety days unless the loan is both well secured and in process of collection, or if full collection of interest or principal becomes uncertain, regardless
of the time period involved.

When
a loan is placed on nonaccrual status, all interest previously accrued but uncollected is reversed against current period operating results. Income on such loans is then
recognized only to the extent that cash is received, and, where the ultimate collection of the carrying amount of the loan is

26

---

probable, after giving consideration to the borrower's current financial condition, historical repayment performance and other factors. Accrual of interest is resumed only when (i) principal and
interest are brought fully current, and (ii) such loans are either considered, in management's judgment, to be fully
collectible or otherwise become well secured and in the process of collection. (See "Net Interest Income" for a discussion of the effects on operating results of nonperforming loans.)

Nonaccrual
loans at December 31, 2000, decreased to $683,000 from $932,000 at December 31, 1999. Nonaccrual loans at December 31, 2000 were comprised primarily of Small Business
Administration ("SBA") loans, including $584,000 which is guaranteed by the SBA. The additional interest income that would have been recorded from nonaccrual loans, if the loans had not been on
nonaccrual status, was $83,000 and $131,000 for 2000 and 1999, respectively. Interest payments received on nonaccrual loans are applied to principal unless there is no doubt as to ultimate full
repayment of principal, in which case, the interest payment is recognized as interest income. Interest income not recognized on nonaccrual loans reduced the net yield on earning assets by 5 and 9
basis points for 2000 and 1999, respectively.

Troubled Debt Restructurings.A TDR is a loan for which the Company has, for economic or legal reasons related to a
borrower's financial difficulties, granted a concession to the borrower it would not otherwise consider, including modifications of loan terms to alleviate the burden of the borrower's near-term cash
flow requirements in order to help the borrower to improve its financial condition and eventual ability to repay the loan. At December 31, 2000 and 1999, the Company had no TDR's.

Loans Contractually Past Due 90 or More Days.Loans contractually past due 90 or more days are those loans which have
become contractually past due at least ninety days with respect to principal or interest. Interest accruals may be continued for loans that have become contractually past due ninety days when such
loans are well secured and in the process of collection and, accordingly, management has determined such loans to be fully collectible as to both principal and interest.

For
this purpose, a loan is considered well secured if the collateral has a realizable value in excess of the amount of principal and accrued interest outstanding and/or is guaranteed
by a financially capable party. A loan is considered to be in the process of collection if collection of the loan is proceeding in due course either through legal action or through other collection
efforts which management reasonably expects to result in repayment of the loan or its restoration to a current status in the near future.

There
were no loans contractually past due 90 or more days and still accruing interest at December 31, 2000 and 1999.

Other Real Estate Owned.The Company carries OREO at the lesser of the Bank's recorded investment or the fair value
less selling costs. The Company periodically revalues OREO properties and charges
other expenses for any further write-downs. During 2000, the Company sold all of its outstanding OREO for a net gain of $69,000.

Other Assets  SBA Guaranteed Loan.During 2000, the Company was paid an amount approximating
the carrying value by the SBA as full settlement.

Impaired Loans

Due to the size and nature of the Bank's loan portfolio, impaired loans are determined by a periodic evaluation on an individual loan basis. At December 31,
2000 and 1999, the Bank had classified $683,000 of its loans as impaired for which no related specific reserves was provided. The average recorded investment in, and the amount of interest income
recognized on impaired loans during the year ended December 31, 2000, were $665,000 and $2,000, respectively.

27

---

Foregone interest income attributable to nonperforming loans amounted to $83,000 in 2000 and $131,000 in 1999. This resulted in a reduction in yield on average loans receivable of 10
basis points and 22 basis points for the years ended December 31, 2000 and 1999, respectively.

Allowance for Credit Losses

The Company has a process by which it reviews and manages the credit quality of the loan portfolio. This process includes a risk rating system, uniform
underwriting criteria, early identification of problem credits, regular monitoring of any classified assets graded as "criticized" by the Company's internal grading system, and an independent loan
review process. The loan approval process is also tied to the risk rating system. The Classified Asset Committee ("CAC") meets on a quarterly basis to review, monitor, take corrective action upon all
criticized assets, and review the adequacy of the allowance for credit losses. The CAC is currently chaired by the Bank's Chief Credit Officer, with the results of the CAC's meetings reviewed by the
Officers and Directors' Loan Committee quarterly.

The
calculation of the adequacy of the allowance for credit losses is based on a variety of factors, including loan classifications, migration trends and underlying cash flow and
collateral values. On a periodic basis (two times per year), management engages an outside loan review firm to review the
Company's loan portfolio, risk grade accuracy and the reasonableness of loan evaluations. Annually, this outside loan review team analyzes the Company's methodology for calculating the allowance for
credit losses based on the Company's loss histories and policies. The Company uses a migration analysis as part of its allowance for credit losses evaluation which is a method by which specific
charge-offs are related to the prior life of the same loan compared to the total loan pools in which the loan was graded. This method allows for management to use historical trends that are relative
to the Company's portfolio rather than use outside factors that may not take into consideration trends relative to the specific loan portfolio. In addition, this analysis takes into consideration
other trends that are qualitative relative to the Company's marketplace, demographic trends, amount and trends in nonperforming assets and concentration factors.

The
Board of Directors reviews the adequacy of the allowance for credit losses on a quarterly basis. Management utilizes its judgment to determine the provision for credit losses and
establish the allowance for credit losses. Management believes, based on information known to management, that the allowance for credit losses at December 31, 2000 was adequate to absorb estimated
losses in the existing loan portfolio. However, credit quality is affected by many factors beyond the control of the Company, including local and national economies, and facts may exist which are not
known to the Company which adversely affect the likelihood of repayment of various loans in the loan portfolio and realization of collateral upon a default. Accordingly, no assurance can be given that
the Company will not sustain loan losses materially in excess of the allowance for credit losses. In addition, the OCC, as an integral part of its examination process, periodically reviews the
allowance for credit losses and could require additional provisions for credit losses.

Table
15 presents, at December 31, 2000 and 1999, the composition of the Company's allocation of the allowance for credit losses to specific loan categories designated by management
for this purpose. The Company's current practice is to make specific allocations of the allowance for credit losses to criticized and classified loans, and unspecified allocations to each loan
category based on management's risk assessment. This allocation should not be interpreted as an indication that loan charge-offs will occur in the future in these amounts or proportions, or as an
indication of future charge-off trends. In addition, the portion of the allowance for credit losses allocated to each loan category does not represent the total amount available for future losses that
may occur within such categories, since the total allowance for credit losses is applicable to the entire portfolio.

28

---

Table 15
Allocation of Allowance For Credit Losses

|                                                           |                                                      | December 31, |    
|---------------------------------------------------------- | ---------------------------------------------------- | ------------ | ---
|
|
|Allocation of the Allowance for Credit Losses:             |                                                      |              |    
|Commercial loans:                                          |                                                      |              |    
|                                                           | Secured by one to four family residential properties |              | $  
|                                                           | Secured by multifamily residential properties        |              |    
|                                                           | Secured by commercial real properties                |              |    
|                                                           | Othersecured and unsecured                          |              |    
|Real estate construction and land development              |                                                      |              | 47 
|Home equity lines of credit                                |                                                      |              | 12 
|Consumer installment and unsecured loans to individuals(1) |                                                      |              | 113
|                                                           |                                                      |              |    
|                                                           | Allowance allocable to loans receivable              |              | $  
|                                                           |                                                      |              |    

---

29

---

Table 16 presents an analysis of changes in the allowance for credit losses during the periods indicated:

Table 16
Analysis of Changes in Allowance for Credit Losses

|                                            |                                                                                                        | December 31,                                         |      
|------------------------------------------- | ------------------------------------------------------------------------------------------------------ | ---------------------------------------------------- | -----
|
|
|Balance, beginning of period                |                                                                                                        | $                                                    | 1,896
|Loan charged off:                           |                                                                                                        |                                                      |      
|                                            | Real estate construction and land development                                                          |                                                      |      
|                                            | Commercial loans:                                                                                      |                                                      |      
|                                            |                                                                                                        | Secured by one to four family residential properties |      
|                                            |                                                                                                        | Secured by multifamily residential properties        |      
|                                            |                                                                                                        | Secured by commercial real properties                |      
|                                            |                                                                                                        | Othersecured and unsecured                          |      
|                                            | Home equity lines of credit                                                                            |                                                      |      
|                                            | Consumer installment and unsecured loans to individuals                                                |                                                      |      
|                                            |                                                                                                        |                                                      |      
|                                            | Total loan charge-offs                                                                                 |                                                      |      
|Recoveries of loans previously charged off: |                                                                                                        |                                                      |      
|                                            | Real estate construction and land development                                                          |                                                      |      
|                                            | Commercial loans:                                                                                      |                                                      |      
|                                            |                                                                                                        | Secured by one to four family residential properties |      
|                                            |                                                                                                        | Secured by multifamily residential properties        |      
|                                            |                                                                                                        | Secured by commercial real properties                |      
|                                            |                                                                                                        | Othersecured and unsecured                          |      
|                                            | Home equity lines of credit                                                                            |                                                      |      
|                                            | Consumer installment and unsecured loans to individuals                                                |                                                      |      
|                                            |                                                                                                        |                                                      |      
|                                            | Total recoveries of loans previously charged off                                                       |                                                      |      
|                                            |                                                                                                        |                                                      |      
|                                            | Net (recoveries) charge-offs                                                                           |                                                      |      
|                                            | Provision for credit losses                                                                            |                                                      |      
|                                            |                                                                                                        |                                                      |      
|                                            | Balance, end of period                                                                                 |                                                      | $    
|                                            |                                                                                                        |                                                      |      
|                                            | Net loan (recoveries) charge-offs as a percentage of allowance for credit losses                       |                                                      |      
|                                            | Net loan (recoveries) charge-offs as a percentage of average gross loans outstanding during the period |                                                      |      
|                                            | Recoveries of loans previously charged off as a percentage of loans charged off in the previous year   |                                                      |      

30

---



The Company is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financing needs of its
customers. In addition to undisbursed commitments to extend credit under loan facilities, these instruments include conditional obligations under standby and commercial letters of credit. The
Company's exposure to credit loss in the event of nonperformance by customers is represented by the contractual amount of the instruments.

Standby
letters of credit are conditional commitments issued by the Company to secure the financial performance of a customer to a third party and are primarily issued to support
private borrowing arrangements. The credit risk involved in issuing a letter of credit for a customer is essentially the same as that involved in extending a loan to that customer. The Company uses
the same credit underwriting policies in accepting such contingent obligations as it does for loans. When deemed necessary, the Company holds appropriate collateral supporting those commitments. The
nature of collateral obtained varies and may include deposits held in financial institutions and real properties.

At
December 31, 2000 and 1999, standby letters of credit amounted to $731,000 and $422,000, respectively, and there were no commercial letters of credit outstanding.

Undisbursed
commitments under revocable and irrevocable loan facilities amounted to $26.1 million and $14.7 million at December 31, 2000 and 1999, respectively. Many of these
commitments are expected to expire without being drawn upon and, as such, the total commitment amounts do not necessarily represent future cash requirements.

Deposits

As indicated in Table 17, the Bank experienced a 15.7% increase in average total deposits during 2000 compared to 1999. This increase in deposits occurred
primarily as a result of growth in noninterest bearing demand deposits of $11.1 million and growth in money market deposits of $8.3 million, offset by a planned decline in higher cost money desk
deposits of $6.2 million.

Table 17
Deposit Composition
(Balances are averages)

|                                     |                                                | December 31,     |       
|------------------------------------ | ---------------------------------------------- | ---------------- | ------
|
|
|
|Noninterest-bearing demand deposits: |                                                |                  |       
|                                     | Real estate title and escrow company customers |                  | $     
|                                     | Other noninterest-bearing demand               |                  |       
|Interest-bearing demand              |                                                |                  | 8,066 
|Money market                         |                                                |                  | 36,312
|Savings                              |                                                |                  | 1,348 
|Time certificates of deposit:        |                                                |                  |       
|                                     | Money Desk                                     |                  |       
|                                     | Other:                                         |                  |       
|                                     |                                                | $100,000 or more |       
|                                     |                                                | Under $100,000   |       
|                                     |                                                |                  |       
|Total time certificates of deposit   |                                                |                  | 27,456
|                                     |                                                |                  |       
|                                     |                                                | Total Deposits   |       
|                                     |                                                |                  |       

31

---

Table 18
Maturities of Time Certificates of Deposit
$100,000 or more

|                                                      |                                           | December 31, 2000                                  
|----------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------
|
|
|Aggregate maturities of time certificates of deposit: |                                           |                                                    
|                                                      | In three months or less                   |                                                    
|                                                      | After three months but within six months  |                                                    
|                                                      | After six months but within twelve months |                                                    
|                                                      | After twelve months                       |                                                    
|                                                      |                                           |                                                    
|                                                      |                                           | Total time certificates of deposit $100,000 or more
|                                                      |                                           |                                                    

|                                                      |                                           | December 31, 1999                                  
|----------------------------------------------------- | ----------------------------------------- | ---------------------------------------------------
|
|
|Aggregate maturities of time certificates of deposit: |                                           |                                                    
|                                                      | In three months or less                   |                                                    
|                                                      | After three months but within six months  |                                                    
|                                                      | After six months but within twelve months |                                                    
|                                                      | After twelve months                       |                                                    
|                                                      |                                           |                                                    
|                                                      |                                           | Total time certificates of deposit $100,000 or more
|                                                      |                                           |                                                    

Borrowed Funds

Borrowed funds and related weighted average rates are summarized below in Table 19.

Table 19
Borrowed Funds

|                                                                        |  | 2000 |        | 1999 |     
|----------------------------------------------------------------------- |  | ---- | ------ | ---- | ----
|
|
|
|Federal funds purchased and securities sold under repurchase agreements |  | $    | 7,500  |      | 6.71
|Other borrowings                                                        |  |      | 40,000 |      | 6.59

The maximum amount of securities sold with agreements to repurchase at any month end was $7.5 million, and $2.0 million during 2000 and 1999,
respectively.

The
maximum amount of other borrowings at any month end was $40.0 million during 2000 and $26.2 million during 1999.

At
December 31, 2000, $45.0 million of borrowed funds were scheduled to mature during 2000, and $2.5 million were scheduled to mature during 2002.

32

---

Selected Financial Ratios

The following Table 20 sets forth selected financial ratios:



For the Year Ended
December 31,2000

1999Return on average assets

1.64%

0.69%Return on average shareholders' equity

20.49%

8.08%Average shareholders' equity to average assets

8.01%

8.57%


Recent Accounting Pronouncements

The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities  Deferral of the Effective Date of FASB Statement No.
133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities  an Amendment of SFAS No. 133". SFAS Nos. 133 and 138 establish
accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or as a liability measured at its fair value and that changes in the
fair value be recognized currently in the statements of operations. The Company adopted SFAS Nos. 133 and 138 on January 1, 2001. The impact of the adoption did not have a material effect on the
Company's financial position or result of operations.

In
September of 2000, the FASB issued SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities  a
replacement of FASB Statement No. 125". As of December 31, 2000, the Company has adopted accounting and disclosure requirements of SFAS No. 140 as set forth in paragraphs 15 and 17 of the Statement,
respectively. The adoption of SFAS No. 140 did not have an impact on the financial condition or the results of operations of the Company.

33

---



FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS

We face risk from changes in interest rates.

The success of our business depends, to a large extent, on our net interest income. Changes in market interest rates can affect our net interest income by
affecting the spread between our interest-earning assets and interest-bearing liabilities. This may be due to the different maturities of our interest-earning assets and interest-bearing liabilities,
as well as an increase in the general level of interest rates. Changes in market interest rates also affect, among other things:



Interest
rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions and other factors beyond
our control.

We face risk from possible declines in the quality of our assets.

Our financial condition depends significantly on the quality of our assets. While we have developed and implemented underwriting policies and procedures to
guide us in the making of loans, compliance with these policies and procedures in making loans does not guarantee repayment of the loans. If the level of our non-performing assets rises, our results
of operations and financial condition will be affected. A borrower's ability to pay its loan in accordance with its terms can be adversely affected by a number of factors, such as a decrease in the
borrower's revenues and cash flows due to adverse changes in economic conditions or a decline in the demand for the borrower's products and/or services.

Our allowances for credit losses may be inadequate.

We establish allowances for credit losses against each segment of our loan portfolio. At December 31, 2000, our allowance for credit losses equaled 2.4% of
loans receivable and 380.2% of nonperforming loans. Although we believed that we had established adequate allowances for credit losses as of December 31, 2000, the credit quality or our assets is
affected by many factors beyond our control, including local and national economic conditions, and the possible existence of facts which are not known to us which adversely affect the likelihood of
repayment of various loans in our loan portfolio and realization of the collateral upon a default. Accordingly, we can give no assurance that we will not sustain loan losses materially in excess of
the allowance for credit losses. In addition, the Office of the Comptroller of the Currency, as an integral part of its examination process, periodically reviews our allowance for credit losses and
could require additional provisions for credit losses. Material future additions to the allowance for credit losses may also be necessary due to increases in the size and changes in the composition of
our loan portfolio. Increases in our provisions for credit losses would adversely affect our results of operations.

Economic conditions may worsen.

Our business is strongly influenced by economic conditions in our market area (principally, the Greater Los Angeles metropolitan area) as well as regional and
national economic conditions and in our niche markets, including the entertainment industry in Southern California. During the past several

34

---

years economic conditions in these areas have been favorable. Should the economic condition in these areas deteriorate, the financial condition of our borrowers could weaken, which could lead to
higher
levels of loan defaults or a decline in the value of collateral for our loans. In addition, an unfavorable economy could reduce the demand for our loans and other products and services.

Because a significant amount of the loans we make are to borrowers in California, our operations could suffer as a result of local recession or natural
disasters in California.

At December 31, 2000, approximately 47% of our loans outstanding were collateralized by properties located in California. Because of this concentration in
California, our financial position and results of operations have been and are expected to continue to be influenced by general trends in the California economy and its real estate market. Real estate
market declines may adversely affect the values of the properties collateralizing loans. If the principal balances of our loans, together with any primary financing on the mortgaged properties, equal
or exceed the value of the mortgaged properties, we could incur higher losses on sales of properties collateralizing foreclosed loans. In addition, California historically has been vulnerable to
certain natural disaster risks, such as earthquakes and erosion-caused mudslides, which are not typically covered by the standard hazard insurance policies maintained by borrowers. Uninsured disasters
may adversely impact our ability to recover losses on properties affected by such disasters and adversely impact our results of operations.

Our business is very competitive.

There is intense competition in Southern California and elsewhere in the United States for banking customers. We experience competition for deposits from many
sources, including credit unions, insurance companies and money market and other mutual funds, as well as other commercial banks and savings institutions. We compete for loans and deposits primarily
with other commercial banks, mortgage companies, commercial finance companies and savings institutions. In recent years out-of-state financial institutions have entered the California market, which
has also increased competition. Many of our competitors have greater financial strength, marketing capability and name recognition than we do, and operate on a statewide or nationwide basis. In
addition, recent developments in technology and mass marketing have permitted larger companies to market loans more aggressively to our small business customers. Such advantages may give our
competitors opportunities to realize greater efficiencies and economies of scale than we can. We can provide no assurance that we will be able to compete effectively against our competition.

Our business is heavily regulated.

Both National Mercantile Bancorp, as a bank holding company, and Mercantile National Bank, as a national bank, are subject to significant governmental
supervision and regulation, which is intended
primarily for the protection of depositors. Statutes and regulations affecting us may be changed at any time, and the interpretation of these statutes and regulations by examining authorities also may
change. We cannot assure you that future changes in applicable statutes and regulations or in their interpretation will not adversely affect our business.

Our ability to use our net operating losses may be limited.

During the past three years, although we have had taxable income, we have not paid any income taxes other than alternative minimum taxes because of our net
operating loss carryforwards. As of December 31, 2000, we had net operating loss carryforwards of $18.4 million and $1.5 million for federal and state tax purposes, respectively. Our federal net
operating loss carryforward begins to expire in 2009. Our state net operating loss carryforwards continue to expire but remain available in reducing amounts through 2002. Our ability to use these
carryforwards in the future would be significantly limited if we experience an "ownership change" within the meaning of Section 382 of the

35

---

Internal Revenue Code. If our use of these carryforwards is limited, we would be required to pay taxes on our taxable income to the extent our taxable income exceeded the limited amounts which could
be offset, and our net income would be lower.

ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The consolidated financial statements required by this Item are included herewith as a separate section of this Report, commencing on page F-1.

ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this item will appear under the captions "Election of Directors," "Executive Officers," and "Compliance with Section 16(a)
Beneficial Ownership Reporting" in the Company's proxy statement for the 2001 Annual Meeting of Shareholders (the "2001 Proxy Statement"), and such information shall be deemed to be incorporated
herein by reference to that portion of the 2001 Proxy Statement, if filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the Company's
most recently completed fiscal year.

ITEM 10. EXECUTIVE COMPENSATION

The information required by this item will appear under the captions "Compensation of Executive Officers," "Compensation of Directors," "Summary Compensation
Table," "Report on Executive Compensation for 2000", "2000 Option Exercises and Year-End Option Values," and "Compensation Committee Interlocks and Insider Participation" in the 2001 Proxy Statement,
and such information shall be deemed to be incorporated herein by reference to those portions of the 2001 Proxy Statement, if filed with the Securities and Exchange Commission pursuant to Regulation
14A not later than 120 days after the end of the Company's most recently completed fiscal year.

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item will appear under the caption "Security Ownership of Principal Shareholders and Management" in the 2001 Proxy Statement,
and such information shall be deemed to be incorporated herein by reference to that portion of the 2001 Proxy Statement, if filed with the Securities and Exchange Commission pursuant to Regulation 14A
not later than 120 days after the end of the Company's most recently completed fiscal year.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item will appear under the caption "Certain Relationships and Related Transactions" in the 2001 Proxy Statement, and such
information shall be deemed to be incorporated herein by reference to that portion of the 2001 Proxy Statement, if filed with the Securities and Exchange Commission pursuant to Regulation 14A not
later than 120 days after the end of the Company's most recently completed fiscal year.

36

---

PART IV

ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) The following documents have been filed as part of this report:

1.Financial Statements

|                                                                                                          |  | Page
|--------------------------------------------------------------------------------------------------------- |  | ----
|Report of Independent Public Accountants                                                                  |  | 39  
|Consolidated Balance Sheet at December 31, 2000                                                           |  | 40  
|Consolidated Statements of Operations for the years ended December 31, 2000 and 1999                      |  | 41  
|Consolidated Statements of Changes in Shareholders' Equity for the years ended December 31, 2000 and 1999 |  | 42  
|Consolidated Statements of Cash Flows for the years ended December 31, 2000 and 1999                      |  | 43  
|Notes to Consolidated Financial Statements for the two years ended December 31, 2000                      |  | 44  

2.Financial Statement Schedules

None.

(b)
Reports on Form 8-K

(c)
Exhibits



(d)
See Item 14(a) above.

37

---



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

| |  | NATIONAL MERCANTILE BANCORP(Registrant)
| |  | ---------------------------------------
| |  | By                                     

Date:
March 23, 2001

Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

|Signature                                               |  | Title                                                                                               |  | Date          
|------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------- |  | --------------
|                                                        |  |                                                                                                     |  |               
|/s/ROBERT E. GIPSONRobert E. Gipson                     |  | Chairman of the Board                                                                               |  | March 23, 2001
|/s/ROBERT E. THOMSONRobert E. Thomson                   |  | Vice Chair                                                                                          |  | March 23, 2001
|/s/DONALD E. BENSONDonald E. Benson                     |  | Director                                                                                            |  | March 23, 2001
|/s/JOSEPH N. COHENJoseph N. Cohen                       |  | Director                                                                                            |  | March 23, 2001
|/s/ALAN GRAHMAlan Grahm                                 |  | Director                                                                                            |  | March 23, 2001
|/s/ANTOINETTE HUBENETTE, M.D.Antoinette Hubenette, M.D. |  | Director                                                                                            |  | March 23, 2001
|/s/SCOTT A. MONTGOMERYScott A. Montgomery               |  | Director, Chief Executive Officer, and Interim Principal Financial and Principal Accounting Officer |  | March 23, 2001
|/s/DION G. MORROWDion G. Morrow                         |  | Director                                                                                            |  | March 23, 2001
|/s/CARL R. TERZIANCarl R. Terzian                       |  | Director                                                                                            |  | March 23, 2001

38

---



REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To
the Shareholders and the Board of Directors
of National Mercantile Bancorp and Subsidiary:

We
have audited the accompanying consolidated balance sheet of National Mercantile Bancorp (a California corporation) and Subsidiary (collectively the "Company") as of December 31,
2000, and the related consolidated statements of operations, changes in shareholders' equity and cash flows for the years ended December 31, 2000 and 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We
conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.

In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of National Mercantile Bancorp and Subsidiary as of
December 31, 2000, and the results of their operations and their cash flows for the years ended December 31, 2000 and 1999 in conformity with accounting principles generally accepted in the United
States.

Arthur
Andersen LLP

Los
Angeles, California
January 15, 2001

39

---



NATIONAL MERCANTILE BANCORP AND SUBSIDIARY        CONSOLIDATED BALANCE SHEETS

|                                                                                       |                                                                | December 31,
2000                          |        
|-------------------------------------------------------------------------------------- | -------------------------------------------------------------- | ------------------------------------------ | -------
|
|ASSETS                                                                                 |                                                                |                                            |        
|Cash and due from banks-demand                                                         |                                                                | $                                          | 7,897  
|Federal funds sold and securities purchased under agreements to resell                 |                                                                |                                            | 19,700 
|                                                                                       |                                                                |                                            |        
|                                                                                       |                                                                | Cash and cash equivalents                  |        
|Securities available-for-sale, at fair value; aggregate amortized cost of $64,953      |                                                                |                                            | 64,417 
|FRB and other stock, at cost                                                           |                                                                |                                            | 2,733  
|Loans receivable                                                                       |                                                                |                                            | 110,248
|                                                                                       | Allowance for credit losses                                    |                                            |        
|                                                                                       |                                                                |                                            |        
|                                                                                       |                                                                | Net loans receivable                       |        
|Premises and equipment, net                                                            |                                                                |                                            | 526    
|Accrued interest receivable and other assets                                           |                                                                |                                            | 1,919  
|                                                                                       |                                                                |                                            |        
|                                                                                       |                                                                | Total assets                               |        
|                                                                                       |                                                                |                                            |        
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                   |                                                                |                                            |        
|Deposits:                                                                              |                                                                |                                            |        
|                                                                                       | Noninterest-bearing demand                                     |                                            | $      
|                                                                                       | Interest-bearing demand                                        |                                            |        
|                                                                                       | Money market                                                   |                                            |        
|                                                                                       | Savings                                                        |                                            |        
|                                                                                       | Time certificates of deposit:                                  |                                            |        
|                                                                                       |                                                                | $100,000 or more                           |        
|                                                                                       |                                                                | Under $100,000                             |        
|                                                                                       |                                                                |                                            |        
|                                                                                       |                                                                | Total deposits                             |        
|Federal funds purchased and securities sold under agreements to repurchase             |                                                                |                                            | 7,500  
|Other borrowings                                                                       |                                                                |                                            | 40,000 
|Accrued interest payable and other liabilities                                         |                                                                |                                            | 2,093  
|                                                                                       |                                                                |                                            |        
|                                                                                       |                                                                | Total liabilities                          |        
|Commitments and contingencies (Note 9)                                                 |                                                                |                                            |        
|Shareholders' equity:                                                                  |                                                                |                                            |        
|Preferred stock, no par value: (10,000 shares undesignated)                            |                                                                |                                            |        
|                                                                                       | Series A non-cumulative convertible perpetual preferred stock: |                                            |        
|                                                                                       | authorized 990,000 shares; outstanding 770,423 shares          |                                            |        
|Common stock, no par value: authorized 10,000,000 shares; outstanding 1,547,429 shares |                                                                |                                            | 29,905 
|Accumulated deficit                                                                    |                                                                |                                            | (14,958
|Accumulated other comprehensive loss                                                   |                                                                |                                            | (536   
|                                                                                       |                                                                |                                            |        
|                                                                                       |                                                                | Total shareholders' equity                 |        
|                                                                                       |                                                                |                                            |        
|                                                                                       |                                                                | Total liabilities and shareholders' equity |        
|                                                                                       |                                                                |                                            |        

See
accompanying notes to consolidated financial statements.

40

---



NATIONAL MERCANTILE BANCORP AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF OPERATIONS

|                            |                                                                            | For The Year Ended
December 31, |                                                       
|--------------------------- | -------------------------------------------------------------------------- | ------------------------------- | ------------------------------------------------------
|
|
|Interest income:            |                                                                            |                                 |                                                       
|                            | Loans, including fees                                                      |                                 | $                                                     
|                            | Securities available-for-sale                                              |                                 |                                                       
|                            | Federal funds sold and securities purchased under agreements to resell     |                                 |                                                       
|                            |                                                                            |                                 |                                                       
|                            |                                                                            | Total interest income           |                                                       
|Interest expense:           |                                                                            |                                 |                                                       
|                            | Interest-bearing demand                                                    |                                 |                                                       
|                            | Money market and savings                                                   |                                 |                                                       
|                            | Time certificates of deposit:                                              |                                 |                                                       
|                            |                                                                            | $100,000 or more                |                                                       
|                            |                                                                            | Under $100,000                  |                                                       
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Total interest expense on deposits                    
|                            | Federal funds purchased and securities sold under agreements to repurchase |                                 |                                                       
|                            | Other borrowings                                                           |                                 |                                                       
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Total interest expense                                
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Net interest income before provision for credit losses
|Provision for credit losses |                                                                            |                                 | (576                                                  
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Net interest income after provision for credit losses 
|Other operating income:     |                                                                            |                                 |                                                       
|                            | Net gain (loss) on sale of securities available-for-sale                   |                                 |                                                       
|                            | International services                                                     |                                 |                                                       
|                            | Investment division                                                        |                                 |                                                       
|                            | Deposit-related and other customer services                                |                                 |                                                       
|                            | Gain on sale of other real estate owned                                    |                                 |                                                       
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Total other operating income                          
|Other operating expenses:   |                                                                            |                                 |                                                       
|                            | Salaries and related benefits                                              |                                 |                                                       
|                            | Net occupancy                                                              |                                 |                                                       
|                            | Furniture and equipment                                                    |                                 |                                                       
|                            | Printing and communications                                                |                                 |                                                       
|                            | Insurance and regulatory assessments                                       |                                 |                                                       
|                            | Client services                                                            |                                 |                                                       
|                            | Computer data processing                                                   |                                 |                                                       
|                            | Legal services                                                             |                                 |                                                       
|                            | Other professional services                                                |                                 |                                                       
|                            | Other real estate owned expenses                                           |                                 |                                                       
|                            | Promotion and other expenses                                               |                                 |                                                       
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Total other operating expenses                        
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Net income before income tax provision                
|Income tax provision        |                                                                            |                                 | 67                                                    
|                            |                                                                            |                                 |                                                       
|                            |                                                                            |                                 | Net income                                            
|                            |                                                                            |                                 |                                                       
|Earnings per share:         |                                                                            |                                 |                                                       
|                            | Basic                                                                      |                                 | $                                                     
|                            |                                                                            |                                 |                                                       
|                            | Diluted                                                                    |                                 | $                                                     
|                            |                                                                            |                                 |                                                       

See accompanying notes to consolidated financial statements.

41

---



NATIONAL MERCANTILE BANCORP AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

|                             |                                                            | Preferred Stock                                                    |          | Common Stock |       |        |           |         |   |        |      
|---------------------------- | ---------------------------------------------------------- | ------------------------------------------------------------------ | -------- | ------------ | ----- | ------ | --------- | ------- | - | ------ | -----
|
|
|
|Balance at January 1, 1999   |                                                            | 900,000                                                            |          | $            | 7,350 |        | 677,048   |         | $ | 24,613 |      
|                             | Stock options exercised                                    |                                                                    |          |              |       |        |           | 147     |   |        | 1    
|                             | Comprehensive loss:                                        |                                                                    |          |              |       |        |           |         |   |        |      
|                             |                                                            | Other comprehensive income:                                        |          |              |       |        |           |         |   |        |      
|                             |                                                            | Unrealized holding loss during the period                          |          |              |       |        |           |         |   |        |      
|                             |                                                            | Add: Reclassification adjustment for losses included in net income |          |              |       |        |           |         |   |        |      
|                             | Net income                                                 |                                                                    |          |              |       |        |           |         |   |        |      
|                             |                                                            |                                                                    |          |              |       |        |           |         |   |        |      
|                             |                                                            | Comprehensive loss                                                 |          |              |       |        |           |         |   |        |      
|                             |                                                            |                                                                    |          |              |       |        |           |         |   |        |      
|Balance at December 31, 1999 |                                                            | 900,000                                                            |          |              | 7,350 |        | 677,195   |         |   | 24,614 |      
|                             | Preferred stock converted into common stock on a 2:1 basis |                                                                    | (129,577 | )            |       | (1,058 | )         | 259,154 |   |        | 1,058
|                             | Issuance of common stock                                   |                                                                    |          |              |       |        |           | 602,081 |   |        | 4,190
|                             | Stock options exercised                                    |                                                                    |          |              |       |        |           | 8,999   |   |        | 43   
|                             | Comprehensive income:                                      |                                                                    |          |              |       |        |           |         |   |        |      
|                             |                                                            | Other comprehensive income:                                        |          |              |       |        |           |         |   |        |      
|                             |                                                            | Unrealized holding gain during the period                          |          |              |       |        |           |         |   |        |      
|                             |                                                            | Less: Reclassification adjustment for gain included in net income  |          |              |       |        |           |         |   |        |      
|                             | Net income                                                 |                                                                    |          |              |       |        |           |         |   |        |      
|                             |                                                            |                                                                    |          |              |       |        |           |         |   |        |      
|                             |                                                            | Comprehensive income                                               |          |              |       |        |           |         |   |        |      
|                             |                                                            |                                                                    |          |              |       |        |           |         |   |        |      
|Balance at December 31, 2000 |                                                            | 770,423                                                            |          | $            | 6,292 |        | 1,547,429 |         | $ | 29,905 |      
|                             |                                                            |                                                                    |          |              |       |        |           |         |   |        |      

See accompanying notes to consolidated financial statements.

42

---



NATIONAL MERCANTILE BANCORP AND SUBSIDIARY        CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                     |                                                                                                       | For The Year Ended December 31,           |       
|---------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ----------------------------------------- | ------
|
|
|Cash flow from operating activities:                 |                                                                                                       |                                           |       
|                                                     | Net income                                                                                            |                                           | $     
|                                                     | Adjustments to reconcile net income to net cash provided by operating activities:                     |                                           |       
|                                                     | Depreciation and amortization                                                                         |                                           |       
|                                                     | Provision for credit losses                                                                           |                                           |       
|                                                     | Gain on sale of other real estate owned                                                               |                                           |       
|                                                     | Provision for other real estate owned                                                                 |                                           |       
|                                                     | Net (gain) loss on sale of securities available-for-sale                                              |                                           |       
|                                                     | Net (accretion) amortization of (discount) premiums on securities                                     |                                           |       
|                                                     | Net accretion of discounts on loans purchased                                                         |                                           |       
|                                                     | Increase in accrued interest receivable and other assets                                              |                                           |       
|                                                     | Increase in accrued interest payable and other liabilities                                            |                                           |       
|                                                     |                                                                                                       |                                           |       
|                                                     |                                                                                                       | Net cash provided by operating activities |       
|Cash flows from investing activities:                |                                                                                                       |                                           |       
|                                                     | Purchase of securities available-for-sale                                                             |                                           |       
|                                                     | Proceeds from sales of securities available-for-sale                                                  |                                           |       
|                                                     | Proceeds from repayments and maturities of securities available-for-sale                              |                                           |       
|                                                     | Loan originations and principal collections, net                                                      |                                           |       
|                                                     | Proceeds from sale of other real estate owned                                                         |                                           |       
|                                                     | Proceeds from sale of other assets  SBA guaranteed loans                                             |                                           |       
|                                                     | Purchases of premises and equipment                                                                   |                                           |       
|                                                     |                                                                                                       |                                           |       
|                                                     |                                                                                                       | Net cash used in investing activities     |       
|Cash flows from financing activities:                |                                                                                                       |                                           |       
|                                                     | Net increase in demand deposits, money market and savings accounts                                    |                                           |       
|                                                     | Net increase (decrease) in time certificates of deposit                                               |                                           |       
|                                                     | Net increase (decrease) in securities sold under agreements to repurchase and federal funds purchased |                                           |       
|                                                     | Net increase in other borrowings                                                                      |                                           |       
|                                                     | Net proceeds from issuance of common stock                                                            |                                           |       
|                                                     | Net proceeds from exercise of stock options                                                           |                                           |       
|                                                     |                                                                                                       |                                           |       
|                                                     |                                                                                                       | Net cash provided by financing activities |       
|                                                     |                                                                                                       |                                           |       
|Net increase (decrease) in cash and cash equivalents |                                                                                                       |                                           | 17,358
|Cash and cash equivalents, January 1                 |                                                                                                       |                                           | 10,239
|                                                     |                                                                                                       |                                           |       
|Cash and cash equivalents, December 31               |                                                                                                       | $                                         | 27,597
|                                                     |                                                                                                       |                                           |       

See
accompanying notes to consolidated financial statements.

43

---



NATIONAL MERCANTILE BANCORP AND SUBSIDIARY        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1Summary of Significant Accounting Policies

The accounting and reporting policies of National Mercantile Bancorp (the "Company") and of its wholly owned subsidiary Mercantile National Bank (the "Bank")
conform to accounting principles generally accepted in the United States and to prevailing practices within the banking industry. The preparation of these consolidated financial statements requires
management to make estimates and assumptions that affect the reported amount of assets and liabilities, and disclosure of contingent assets and liabilities at the date of consolidated financial
statements and the reported amounts of revenues and expenses during reported periods. Actual results could differ from those estimates.

The
Company, through the Bank, engages in commercial banking in the Los Angeles area serving niche markets represented by professional service providers, entertainment, healthcare and
community based nonprofit borrowers, and associated individuals with commercial banking and personal banking needs.



The consolidated financial statements include the accounts of the Company and the Bank. All intercompany transactions and balances have been eliminated. The
Bank is the Company's only subsidiary.



For purposes of reporting cash flows, cash and cash equivalents include cash and due from banks-demand, federal funds sold and securities purchased under
agreements to resell.



Securities available-for-sale are carried at estimated fair value. Unrealized gains or losses on available-for-sale securities are excluded from earnings and
reported as accumulated other comprehensive income in a separate component of shareholders' equity until realized. Because the Company has net operating loss carryforwards, no tax expense (benefit)
has been recorded from unrealized gains (losses). Premiums or discounts on available-for-sale securities are amortized or accreted into income using the effective interest method. Realized gains or
losses on sales of available-for-sale securities are recorded using the specific identification method.



Loans are generally carried at principal amounts outstanding less unearned income. Unearned income includes deferred unamortized fees net of direct incremental
loan origination costs.

Interest
income is accrued as earned. Net deferred fees are accreted into interest income using the effective interest method. Loans are placed on nonaccrual status when a loan
becomes 90 days past due as to interest or principal unless the loan is both well secured and in process of collection. Loans are also placed on nonaccrual status when the full collection of interest
or principal becomes uncertain. When a loan is placed on nonaccrual status, the accrued and unpaid interest receivable is reversed and the accretion of deferred loan fees is ceased. Thereafter,
interest collected on the loan is accounted for on the cash collection or cost recovery method until qualifying for return to accrual status. Generally, a loan may be returned to accrual status when
all delinquent principal and interest are brought current in accordance with the terms of the loan agreement and certain performance criteria have been met.

44

---

The Company considers a loan to be impaired when it is probable that it will be unable to collect all amounts due according to the contractual terms of the loan agreement. Once a loan
is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows discounted at the loan's effective interest rate, except that as a practical
expedient, the impairment is measured by using the loan's observable market price or the fair value of the collateral if the loan is collateral dependent.

When
the measurement of the impaired loan is less than the recorded amount of the loan, an impairment is recognized by creating a valuation allowance with a corresponding charge to
the provision for credit losses or by adjusting an existing valuation allowance for the impaired loan with a corresponding charge or credit to the provision for credit losses.

The
Company's policy is to record cash receipts received on impaired loans first as reductions to principal and then to interest income.



The provisions for credit losses charged to operations reflects management's judgment of the adequacy of the allowance for credit losses and are determined
through periodic analysis of the loan portfolio, problem loans and consideration of such other factors as the Company's loan loss experience, trends in problem loans, concentrations of credit risk,
and economic conditions (particularly Southern California), as well as the results of the Company's ongoing examination process and its regulatory examinations.

The
calculation of the adequacy of the allowance for credit losses is based on a variety of factors, including loan classifications, migration trends and underlying cash flow and
collateral values. On a periodic basis, management engages an outside loan review firm to review the Company's loan portfolio, risk grade accuracy and the reasonableness of loan evaluations. Annually,
this outside loan review team analyzes the Company's methodology for calculating the allowance for credit losses based on the Company's loss histories and policies. The Company uses a migration
analysis as part of its allowance for credit losses evaluation which is a method by which specific charge-offs are related to the prior life of the same loan compared to the total loan pools in which
the loan was graded. This method allows for management to use historical trends that are relative to the Company's portfolio rather than use outside factors that may not take into consideration trends
relative to the specific loan portfolio. In addition, this analysis takes into consideration other trends that are qualitative relative to the Company's marketplace, demographic trends, amount and
trends in nonperforming assets and concentration factors.



Premises and equipment are presented at cost less accumulated amortization and depreciation. Depreciation of furniture, fixtures and equipment is determined
using the straight-line method over the estimated useful lives (3 years to 5 years) of each type of asset. Leasehold improvements are amortized using the straight-line method over the term of the
related leases or the service lives (10 years to 20 years) of the improvements, whichever is shorter. Gains and losses on dispositions are reflected in current operations. Maintenance and repairs are
charged to other operating expenses as incurred.

45

---



Other Real Estate Owned ("OREO") is comprised of real estate acquired in satisfaction of loans. Properties acquired by foreclosure or deed in lieu of
foreclosure are transferred to OREO and are initially recorded at the lower of the loan balance or fair value at the date of transfer of the property, establishing a new cost basis. Subsequently, OREO
is carried at the lower of cost or fair value less costs to sell. The fair value of the OREO property is based upon a current appraisal. Losses that result from the ongoing periodic valuation of these
properties are charged against other operating expenses in the period in which they are identified. Expenses for holding costs are charged to other operating expenses as incurred.



The Company and the Bank file consolidated federal income tax returns and combined state income tax returns.

Deferred
tax assets and liabilities are recognized for the expected future tax consequences of existing differences between financial reporting and tax reporting basis of assets and
liabilities, as well as for operating losses and tax credit carryforwards, using enacted tax laws and rates. Deferred tax assets will be reduced through a valuation allowance whenever it becomes more
likely than not that all, or some portion will not be realized. Deferred income taxes (benefit) represents the net change in deferred tax asset or liability balance during the year. This amount,
together with income taxes currently payable or refundable in the current year, represents the total tax expense (benefit) for the year.



Comprehensive income is defined as the change in equity during a period from transactions and other events and circumstances from nonowner sources. The
accumulated balance of other comprehensive income is required to be displayed separately from retained earnings and additional paid in capital in the consolidated balance sheet.

The
components of other comprehensive income together with total comprehensive income are reported in the consolidated statements of changes in shareholders' equity. The accumulated
balance of other comprehensive income is not reported as a net amount after taxes due to the size and availability of the Company's net operating loss carry forwards.



Basic earnings per share is computed using the weighted average number of common shares outstanding during the period. The weighted average number of common
shares outstanding used in computing basic earnings per share for the years ended December 31, 2000 and 1999 was 1,061,133 and 677,137, respectively. The weighted average number of common shares and
common share equivalents outstanding used in computing diluted earnings per share for the years ended December 31, 2000 and

46

---

1999 was 2,719,949, and 2,477,614, respectively. The following table is a reconciliation of net income and shares used in the computation of basic and diluted earnings per share:

Net Income

Weighted
Average
Shares

Per Share
Amount(in thousands)For the year ended 2000:Basic EPS

$
2,944

1,061,133

$
2.77Effect of dilutive securities:Options and warrants




117,970Convertible preferred stock




1,540,846Diluted EPS

$
2,944

2,719,949

$
1.08For the year ended 1999:Basic EPS

$
1,014

677,137

$
1.50Effect of dilutive securities:Options and warrants




477Convertible preferred stock




1,800,000Diluted EPS

$
1,014

2,477,614

$
0.41




Estimated fair value amounts have been determined using available market information and appropriate valuation methodologies. Considerable judgment is required
to interpret market data and to develop the estimates of fair value. Accordingly, the estimates of fair value in the financial statements are not necessarily indicative of the amounts the Company
could realize in a current market exchange. The use of different market assumptions and estimation methodologies may have a material effect on the estimated fair value amounts.



Compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. Pro forma net
income and pro forma earnings per share disclosures for employee stock option grants are based on recognition as expense, over the vesting period, the fair value on the date of grant of all
stock-based awards made during 2000 and 1999.



The Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities  Deferral of the Effective Date of FASB Statement No.
133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities  an Amendment of SFAS No. 133". SFAS Nos. 133 and 138 establish
accounting and reporting standards requiring that every derivative instrument be recorded in the balance sheet as either an asset or as a liability measured at its fair value

47

---

and that changes in the fair value be recognized currently in the statements of operations. The Company adopted SFAS Nos. 133 and 138 on January 1, 2001. The impact of the adoption did not have a
material effect on the Company's financial position or result of operations.

In
September of 2000, the FASB issued SFAS No. 140, "Accounting for Transfer and Servicing of Financial Assets and Extinguishments of Liabilities  a
replacement of FASB Statement No. 125". As of December 31, 2000, the Company has adopted accounting and disclosure requirements of SFAS No. 140 as set forth in paragraphs 15 and 17 of the Statement,
respectively. The adoption of SFAS No. 140 did not have an impact on the financial condition or the results of operations of the Company.

Note 2Investment Securities

The following is a summary of amortized cost, gross unrealized gains, gross unrealized losses, and estimated fair values of the Company's investment securities
available-for-sale at December 31, 2000:

|                                                               |  | Total
amortized
cost |        | Gross
unrealized
gains |   | Gross
unrealized
loss |  | Estimated
fair
value
|-------------------------------------------------------------- |  | -------------------- | ------ | ---------------------- | - | --------------------- |  | --------------------
|U.S. Treasury securities                                       |  | $                    | 2,008  |                        | $ | 9                     |  | $                   
|GNMA-issued/guaranteed mortgage pass through certificates      |  |                      | 5,288  |                        |   | 118                   |  |                     
|Other U.S. government and federal agency securities            |  |                      | 1,952  |                        |   | 42                    |  |                     
|FHLMC/FNMA-issued mortgage pass through certificates           |  |                      | 15,172 |                        |   | 86                    |  |                     
|CMO's and REMIC's issued by U.S. government-sponsored agencies |  |                      | 36,532 |                        |   | 1                     |  |                     
|Privately issued Corporate bonds, CMO's and REMIC's securities |  |                      | 4,001  |                        |   |                      |  |                     
|FRB and other equity stocks                                    |  |                      | 2,733  |                        |   |                      |  |                     
|                                                               |  |                      |        |                        |   |                       |  |                     
|                                                               |  | $                    | 67,686 |                        | $ | 256                   |  | $                   
|                                                               |  |                      |        |                        |   |                       |  |                     

The
Company had realized gains related to the sale of investment securities of $18,000 for the year ended December 31, 2000.

48

---

The estimated fair value and amortized cost of investment securities at December 31, 2000 by contractual maturity, are shown below:

|                               |                                                                |   |    |    |       | After one but
within five years |   | After five but
within ten years |       |       |       |   |   |   |   |  
|------------------------------ | -------------------------------------------------------------- | - | -- | -- | ----- | ------------------------------- | - | ------------------------------- | ----- | ----- | ----- | - | - | - | - | -
|
|
|
|
|Securities available-for-sale: |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  
|                               | U.S Treasury securities                                        |   | $  |   |       |                                |   | $                               | 2,017 |       | 5.90% |   | $ |  |   | 
|                               | GNMA-issued/guaranteed mortgage pass-through certificates      |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               | Other U.S. government and federal agencies                     |   |    |   |       |                                |   |                                 | 1,994 |       | 7.14% |   |   |  |   | 
|                               | FHLMC/FNMA-issued mortgage pass-through certificates           |   |    | 35 |       | 6.86%                           |   |                                 | 1,290 |       | 6.67% |   |   |  |   | 
|                               | CMO's and REMIC's issued by U.S. government-sponsored agencies |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               | Privately issued Corporate bonds, CMO's and REMIC's securities |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               | FRB and other equity stocks                                    |   |    |   |       |                                |   |                                 |      |       |      |   |   |  |   | 
|                               |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  
|                               |                                                                | $ | 35 |    | 6.86% |                                 | $ | 5,301                           |       | 6.55% |       | $ |  |   |  |  
|                               |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  
|Amortized Cost                 |                                                                | $ | 35 |    |       |                                 | $ | 5,246                           |       |       |       | $ |  |   |   |  
|                               |                                                                |   |    |    |       |                                 |   |                                 |       |       |       |   |   |   |   |  

Actual maturities may differ from contractual maturities to the extent that borrowers have the right to call or prepay obligations with or
without call or repayment penalties.

Investment
securities totaling $4.7 million were pledged to secure government tax deposits, bankruptcy deposits, or for other purposes required or permitted by law at December 31,
2000.

49

---

Note 3Loans Receivable and Allowance for Credit Losses

The following is a summary of the major categories of loans receivable outstanding at December 31, 2000:

(Dollars in thousands)Commercial loans:Secured by one-to-four family residential properties

$
6,578Secured by multifamily residential properties


3,765Secured by commercial real properties


40,540Other, secured and unsecured


53,433Real estate construction and land development


1,890Home equity lines of credit


644Consumer installment and unsecured loans to individuals


3,729110,579Unearned income


(331
)$
110,248Weighted average yield for loans at December 31


10.14%


At
December 31, 2000, the Company had identified impaired loans with recorded investments of $683,000. At December 31, 2000, no related specific allowance for credit losses were
necessary for these loans. During 2000, the average recorded investment of impaired loans was $665,000. During the years ended December 31, 2000 and 1999 interest income recognized on impaired loans
was $2,000 and $81,000, respectively.

In
the normal course of business, the Bank may make loans to officers and directors as well as loans to companies and individuals affiliated with or guaranteed by officers and
directors of the Company and
the Bank. Such loans are made in the ordinary course of business at rates and terms no more favorable than those offered to other customers with a similar credit standing. The outstanding principal
balance of these loans was $29,000 at December 31, 2000 and $9,000 at December 31, 1999. The balance at December 31, 1999 included a loan to one individual who is no longer affiliated with the Bank.
During 2000 there were $31,000 of advances and $2,000 of repayments. Interest income recognized on these loans amounted to $1,000 and $3,000 during 2000 and 1999, respectively. At December 31, 2000,
none of these loans were on nonaccrual status. Based on analysis of information presently known to management about the loans to officers and directors and their affiliates, management believes all
have the ability to comply with the present loan repayment terms.

50

---

The following is a summary of activity in the allowance for credit losses for the year ended December 31, 2000:

2000(Dollars in thousands)Balance, beginning of year

$
1,896Provision for credit losses


(576
)Loans charged-off


(118
)Recoveries of loans previously charged-off


1,395Balance, end of year

$
2,597


The
following is a summary of nonperforming loans at December 31, 2000:

(Dollars in thousands)Nonaccrual loans

$
683Troubled debt restructurings


Loans contractually past due ninety or more days with respect to either principal or interest and still accruing interest


$
683


Interest
foregone on nonperforming loans outstanding at December 31, 2000 and 1999 was $83,000 and $131,000, respectively. Foregone interest on nonperforming loans does not include
interest forgone on loans on nonperforming status that were restored to performing status prior to year end, or subsequent to either being charged off prior to year end or transferred to OREO prior to
year end.

The
ability of the Company's borrowers to honor their contracts is substantially dependent upon economic conditions and real estate market values throughout the Company's market area.
At December 31, 2000, loans aggregating $51.5 million were collateralized by liens on residential and commercial real properties. While the Company's loan portfolio is generally diversified with
regard to the industries represented, at December 31, 2000, the Company's loans to businesses and individuals engaged in entertainment industry related activities amounted to $29.9 million, $2.6
million of which are collateralized by real property.

51

---

Note 4Premises and Equipment and Lease Commitments

The following is a summary of the major components of premises and equipment at December 31, 2000:

(Dollars in thousands)Leasehold improvements

$
1,695Furniture, fixtures and equipment


3,4355,130Less accumulated amortization and depreciation


(4,604
)$
526


Depreciation
and amortization expense was $197,000 in 2000 and $191,000 in 1999. Net rental expense on operating leases included in net occupancy expense in the Consolidated
Statements of Operations was $791,000 in 2000 and $827,000 in 1999.

In
connection with the lease, the Company issued the landlord a warrant to purchase up to 9.9% of the outstanding shares of capital stock of the Company at December 31, 1997. The
exercise price of the warrant is currently $5.00 per share of Common Stock and $10.00 per share of Series A Preferred. The warrant expires on December 31, 2002. The Company also granted the landlord
registration rights with respect to capital stock purchased by the landlord (or its assignee) pursuant to the Warrant.

In
addition, the Bank leases approximately 1,650 square feet in an office building in Encino, California at approximately $1.85 per square feet or $3,053 per month through May 31,
2004.

The
future net minimum annual rental commitments at December 31, 2000 are summarized below.

|                                |  | (Dollars in thousands)
|------------------------------- |  | ----------------------
|For the year ended December 31, |  |                       
|2001                            |  | $                     
|2002                            |  |                       
|2003                            |  |                       
|2004                            |  |                       
|2005                            |  |                       
|                                |  |                       
|                                |  | $                     
|                                |  |                       

52

---

NATIONAL MERCANTILE BANCORP AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Note 5Income Taxes

A current federal and state income tax provision of $67,000 and $47,000 was recognized during 2000 and 1999, respectively, primarily due to alternative minimum
tax ("AMT") that could not be offset by net operating loss carryforwards ("NOL").

A
reconciliation of the amounts computed by applying the federal statutory rate of 34% for 2000 and 1999 to the income and the effective tax rate are as follows:

|                                              |                                           | 2000 |       | 1999 |      
|--------------------------------------------- | ----------------------------------------- | ---- | ----- | ---- | -----
|
|Tax provision at statutory rate               |                                           | $    | 1,024 |      | 34.0%
|Increase (reduction) in taxes resulting from: |                                           |      |       |      |      
|                                              | Valuation allowance on deferred tax asset |      |       | (977 | )    
|                                              | Other, net                                |      |       | 20   |      
|                                              |                                           |      |       |      |      
|                                              |                                           | $    | 67    |      | 2.2% 
|                                              |                                           |      |       |      |      

The
major components of the net deferred tax asset at December 31, 2000 are as follows:

(Dollars in thousands)Deferred tax assets:Net operating losses

$
6,361Accrued expenses


449Alternative minimum tax credits


289Nonaccrual interest


84State taxes


3Loan Fees


117Other


19Total deferred tax assets


7,322Deferred tax liabilities:Bad debt expense


283Depreciation


20Total deferred tax liabilities


303Net deferred tax asset


7,019Valuation allowance


(7,019
)Deferred tax asset, net of valuation allowance

$



A
valuation allowance has been placed against 100% of the net deferred tax asset due to the uncertainty as to its ultimate realization.

For
tax purposes at December 31, 2000, the Company had (i) federal NOL's of $18.4 million, which begin to expire in 2009; (ii) California NOL's of $1.5 million, of which $1.2 million
will expire in 2001 and $300,000 will expire in 2002; and (iii) an AMT credit at December 31, 2000 of $295,000 which may be carried forward indefinitely.

52

---

Note 6Benefit Plans

Stock Incentive Plans.At December 31, 2000, the Company had in effect one stock incentive plan pursuant to which up to
a total of 348,510 shares of common stock may be issued. Under this plan, the Company could grant to directors, officers, employees and consultants stock-based incentive compensation in a variety of
forms, including without limitation nonqualified options, incentive options, sales and bonuses of common stock and stock appreciation rights. Generally, awards under these plans may be granted by the
Board of Directors or a committee of the Board of Directors on such terms and conditions as the Board of Directors or committee determines. However, the exercise price of options granted to
nonemployee directors may not be less than the fair market value of the common stock on the date of grant. At December 31, 2000, the only outstanding awards under this plan were stock options, and at
that date 40,220 shares were available for future awards. At December 31, 2000, there were also outstanding options and tandem stock appreciation rights granted under three prior stock incentive
plans.

The
following summarizes option grants, cancellations and exercises under the stock incentive plans for the periods indicated.

|                               |           |         |         | Option price
range per share
|------------------------------ | --------- | ------- | ------- | ----------------------------
|Outstanding, January 1, 1999   |           | 277,148 |         | $                           
|                               | Granted   |         | 91,350  |                             
|                               | Cancelled |         | (19,600 | )                           
|                               | Exercised |         | (147    | )                           
|                               |           |         |         |                             
|Outstanding, December 31, 1999 |           | 348,751 |         |                             
|                               | Granted   |         | 55,550  |                             
|                               | Cancelled |         | (16,560 | )                           
|                               | Exercised |         | (8,999  | )                           
|                               |           |         |         |                             
|Outstanding, December 31, 2000 |           | 378,742 |         | $                           
|                               |           |         |         |                             

Of
the outstanding options at December 31, 2000: (i) options to purchase 270,032 shares were vested and exercisable; and (ii) the remaining options become exercisable as follows:
2001  77,592 and 2002  31,118.

The
estimated per share weighted average fair value of options granted was $4.36 and $2.48 during 2000 and 1999. The Company applies Accounting Principles Board Opinion No. 25 and
related Interpretations in accounting for the stock incentive plans. Accordingly, no compensation cost has been recognized for the plans. SFAS No. 123, "Accounting for Stock-Based Compensation," which
encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. Had compensation cost for the options granted been determined based
on the fair value at the grant dates for awards under the plans consistent with the method of SFAS No. 123, the Company's net income for 2000 and 1999 would have been decreased by $119,000 and
$105,000, respectively. Basic and diluted earnings per share would have decreased by $.10 and $.04 for 2000, respectively, and $.15 and $.04 for 1999, respectively.

The
fair values of options granted during 2000 and 1999 were estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted-average
assumptions used: 2000- no dividend yield, expected volatility of 88%, risk-free interest rate of 5.11%, and an expected life of 10

53

---

years; 1999  no dividend yield, expected volatility of 74%, risk-free interest rate of 6.44%, and an expected life of 10 years.

Defined Contribution Retirement Plan.The Company maintains a defined contribution retirement plan under section 401(k)
of the Internal Revenue Code. Employees are eligible to participate following six months of continuous employment. Under the plan, employee contributions were partially matched by
the Company through August 31, 1995 and subsequently reinstated May 1, 2000. Such matching contributions becomes fully vested when the employee reaches three years of service. The Company's matching
contributions for 2000 was $46,000.

Note 7Borrowed Funds

The following summarizes borrowed funds and weighted average rates.

2000Year-end

AverageBalance

Rate

Balance

Rate(Dollars in thousands)Federal funds purchased and securities sold under repurchase agreements

$
7,500

6.71%

$
998

6.81%Other borrowings


40,000

6.59%


32,424

6.42%


The
maximum amount of federal funds purchased and securities sold under agreements to repurchase at any month-end was $7.5 million during 2000. The average amount of federal funds
purchased and securities sold under agreement to repurchase was $998,000 during 2000.

Other
borrowings are primarily comprised of Federal Home Loan Bank ("FHLB") advances. At December 31, 2000 FHLB advances included: (i) $24.0 million overnight variable rate
borrowings, with a weighted average rate of 6.57% based on the federal funds rate; (ii) variable rate borrowings of $5.5 million maturing October 2001 and $8.0 million maturing July 2001 with a
weighted average rate of 6.74% based on the London Inter Bank Offering Rate ("LIBOR") index; and (iii) a $2.5 million putable borrowing with a fixed rate of 5.93%, with puts commencing July 2002 and
continues every three months thereafter, through July 2004. The maximum amount of other borrowings outstanding at any month-end was $40.0 million during 2000.

The
Bank had $7.2 million of unused borrowing capacity from the FHLB at December 31, 2000.

Note 8Availability of Funds from Bank; Restrictions on Cash Balances; Capital

The Company is a legal entity separate and distinct from the Bank. At present, substantially all of the Company's revenues come from interest earned on
deposits, investments and loans. Management believes the Company's cash balance plus interest revenues, on a separate-entity basis, are adequate to cover its modest level of operating expenses.

The
prior approval of the OCC is required if the total of all dividends declared by a national bank in any calendar year exceeds the Bank's net income for that year combined with its
retained net income for the preceding two years, less any required transfers to surplus.

54

---

The OCC also has authority to prohibit the Bank from engaging in activities that the OCC regards as unsafe or unsound in conducting its business. It is possible that, depending upon
the financial condition of the Bank and other factors, the OCC could assert that the payment of dividends or other payments is, under some circumstances, considered to be an unsafe or unsound
practice. Further, future cash dividends by the Bank to the Company will depend upon management's assessment of the Bank's future capital requirements.

In
addition, federal law restricts the Bank's extension of credit to, the issuance of a guarantee or letter of credit on behalf of investments in or taking as collateral stock or
other securities of the Company. Restrictions prevent the Company from borrowing from the Bank unless the loans are secured by designated amounts of marketable obligations. Further, secured loans to
and investments in the Company or its affiliates by the Bank are limited to 10% of the Bank's capital stock and surplus (as defined by federal regulations) and are limited, in the aggregate, to 20% of
the Bank's contributed capital (as defined by federal regulations).

Federal
Reserve Board regulations require the Bank to maintain certain minimum reserve balances. Cash balances maintained to meet reserve requirements are not available for use by the
Bank or the Company. During 2000 and 1999 the average reserve balances for the Bank were approximately $2.4 million and $1.3 million, respectively. Neither the Company nor the Bank is required to
maintain compensating balances to assure credit availability under existing borrowing arrangements.

The
Company and the Bank are subject to various capital requirements administered by the federal banking regulatory agencies. Failure to meet minimum capital requirements can initiate
certain
mandatory  and possibly additional discretionary  actions by regulators that, if undertaken, could have a direct material effect on the Company's
financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative
measures of the Company's and the Bank's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's and the Bank's capital amounts and
classification are also subject to qualitative judgment by the regulators about components, risk weightings and other factors.

Quantitative
measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of
total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined). Management believes, as of December 31, 2000, the Company and Bank meet all capital adequacy requirements
to which they are subject.

At
December 31, 2000, the most recent notification from the OCC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized
as well capitalized under the prompt corrective action rules, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. There
are no conditions or events since the most recent notification which management believes have changed the Bank's category.

The
following table presents, at the dates indicated, certain information regarding the regulatory capital of the Company and the Bank and the required amounts of regulatory capital
for the Company

55

---

and the Bank to meet applicable regulatory capital requirements and, in the case of the Bank, to be well capitalized under the prompt corrective action rules.

|                                       |         | Actual |   | For Capital
Adequacy Purposes |  | To be Categorized
as Well
Capitalized under
Prompt Corrective
Action Rules
|-------------------------------------- | ------- | ------ | - | ----------------------------- |  | --------------------------------------------------------------------------
|
|
|As of December 31, 2000:               |         |        |   |                               |  |                                                                           
|Total Capital to Risk Weighted Assets  |         |        |   |                               |  |                                                                           
|                                       | Company |        | $ | 22,814                        |  | 18.26%                                                                    
|                                       | Bank    |        |   | 19,703                        |  | 16.00%                                                                    
|Tier 1 Capital to Risk Weighted Assets |         |        |   |                               |  |                                                                           
|                                       | Company |        |   | 21,239                        |  | 17.00%                                                                    
|                                       | Bank    |        |   | 18,150                        |  | 14.74%                                                                    
|Tier 1 Capital to Average Assets       |         |        |   |                               |  |                                                                           
|                                       | Company |        |   | 21,239                        |  | 10.73%                                                                    
|                                       | Bank    |        |   | 18,150                        |  | 9.31%                                                                     

Note 9Commitments and Contingencies

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments
to extend credit, letters of credit and financial guarantees. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount reflected in the
consolidated balance sheet.

Exposure
to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, letters of credit and financial guarantees
written, is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as is does for on-balance
sheet instruments.

The
Company had outstanding loan commitments aggregating $26.1 million at December 31, 2000, substantially all of which were commercial loans with variable rates. In addition, the
Company had $731,000 outstanding letters of credit at December 31, 2000.

Loan
commitments are agreements to lend to a customer subject to certain conditions. Loan commitments generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since a portion of the commitments are expected to expire without being drawn upon, the total amount of commitments do not necessarily represent future cash requirements.

The
Company is from time to time is party to lawsuits, which arise in the normal course of business. The Company does not believe that any pending lawsuit at December 31, 2000 will
have a material adverse effect on the financial position or results of operations of the Company.

56

---

Note 10Supplemental Cash Flow Information

The following information supplements the statements of cash flows for the years ended December 31, 2000 and 1999:

2000

1999(Dollars in thousands)Interest paid

$
5,004

$
3,491Income tax paid


22


34Non-Cash Investing and Financing Transactions:Unrealized gain (loss) on securities available-for-sale


1,939


(2,686
)Transfers to OREO from loans receivable, net


35





Note 11Disclosures about the Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate that
value.

Cash, cash equivalents and interest bearing deposits:For these short-term investments, the carrying amount is a
reasonable estimation of fair value.

Securities:For securities classified as available-for-sale, fair value equals quoted market prices, if available. If a
quoted market price is not available, fair value is estimated using quoted market prices for similar securities.

Loans:Variable rate loans have carrying amounts that approximate fair value. The fair value of fixed rate loans is
estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. In
establishing the credit risk component of the fair value calculations for loans, the Company concluded the allowance for credit losses represented a reasonable estimate of credit risk component of the
fair value at December 31, 2000.

Deposits:The fair value of demand and interest checking deposits, money market accounts and savings deposits is the
amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar maturities.

Borrowed funds:The carrying value for this relatively short-term debt is a reasonable approximation of its fair value.
Borrowings with maturities greater than one year bear interest at variable rates and approximate fair value.

57

---

The estimated fair values of financial instruments are presented below.

December 31, 2000Carrying
Amount

Fair
Value(Dollars in thousands)Financial Assets:Cash, cash equivalents and deposits with other
financial institutions

$
27,597

$
27,597Securities available-for-sale


67,150


67,150Loans, net of allowance for credit losses


107,651


107,080Financial Liabilities:Demand deposits, money market and savings


102,434


102,434Time certificates of deposit


32,113


32,162Federal funds purchased and securities sold under agreements to repurchase


7,500


7,500Other borrowings


40,000


39,997


58

---

Note 12Parent Company Information

The following financial information presents the condensed balance sheet of the Company on a parent-only basis as of December 31, 2000, and the related
condensed statements of operations and cash flows for each of the years in the two-year period ended December 31, 2000.

Balance Sheet

December 31,
2000(Dollars in thousands)Cash with Bank

$
76Federal Funds


1,700Loan receivable


1,300Investment in the Bank


17,614Other assets


13Total assets

$
20,703Liabilities

$
Shareholders' equity:Preferred stock


6,292Common stock


29,905Accumulated deficit


(14,958
)Accumulated other comprehensive loss


(536
)Total shareholders' equity


20,703Total liabilities and shareholder's equity

$
20,703


Year ended December 31,Statements of Operations

2000

1999(Dollars in thousands)Interest income

$
142

$
195Other income





Total operating income


142


195Other operating expense





1Income before equity in undistributed net income of the Bank


142


194Equity in undistributed net income of the Bank


2,802


820Net income

$
2,944

$
1,014


59

---

Year ended December 31,Statements of Cash Flows

2000

1999(Dollars in thousands)Cash flows from operating activities:Net income

$
2,944

$
1,014Adjustment to reconcile net income to net cash provided by operating activities.:Equity in undistributed net income of the Bank, net


(2,802
)

(820
)Other, net


(10
)

12Net cash provided by operating activities


132


206Cash flows from investing activities:Investment in Bank


(2,400
)

(2,400
)Purchase of loans participated and principal collections, net


(804
)

2,410Net cash (used in) provided by investing activities


(3,204
)

10Cash flows from financing activities:Proceeds from issuance of common stock


4,190


Proceeds from stock options exercised


43


1Net cash provided by financing activities


4,233


1Net increase in cash and cash equivalents


1,161


217Cash and cash equivalents, beginning of the year


615


398Cash and cash equivalents, end of the year

$
1,776

$
615


60

---



INDEX TO EXHIBITS

|Exhibit
No. |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1         |  | Amended and Restated Articles of Incorporation, dated June 20, 1997 (1); Certificate of Amendment of the Articles of Incorporation, filed May 4, 2000 *                                                                                                                                                                                                                                                                                                                          
|3.2         |  | Bylaws of the Company, as amended, restated as of December 18, 1992 (2)                                                                                                                                                                                                                                                                                                                                                                                                          
|10.1        |  | Employment Agreement dated January 1, 2000 between Mercantile National Bank and Scott A. Montgomery (3)                                                                                                                                                                                                                                                                                                                                                                          
|10.2        |  | Form of Indemnity Agreement between the Company and its directors (4)                                                                                                                                                                                                                                                                                                                                                                                                            
|10.3        |  | First Floor Lease at 1840 Century Park East, Los Angeles, California, dated as of December 21, 1982 between Northrop Corporation and Mercantile National Bank (2)                                                                                                                                                                                                                                                                                                                
|10.4        |  | Second Floor Lease at 1840 Century Park East, Los Angeles, California, dated as of December 21, 1982 between Northrop Corporation and Mercantile National Bank for space at 1840 Century Park East, Los Angeles, California, as amended by Amendment to
Second Floor Lease dated as of June 7, 1986, and as amended by Second Amendment to Second Floor Lease dated as of December 18, 1992 between California State Teachers' Retirement System and Mercantile National Bank (2)
|10.5        |  | Lease Restructure Agreement dated December 31, 1995 by and between California State Teachers' Retirement System and Mercantile National Bank (5)                                                                                                                                                                                                                                                                                                                                 
|10.6        |  | Warrant Agreement dated December 31, 1995 by and between the Company and California State Teachers' Retirement System (5)                                                                                                                                                                                                                                                                                                                                                        
|10.7        |  | Registration Rights Agreement dated December 31, 1995 by and between the Company and California State Teachers' Retirement System (5)                                                                                                                                                                                                                                                                                                                                            
|10.8        |  | National Mercantile Bancorp Amended 1996 Stock Incentive Plan (6)                                                                                                                                                                                                                                                                                                                                                                                                                
|10.9        |  | Registration Rights Agreement between the Company and Conrad Company (7)                                                                                                                                                                                                                                                                                                                                                                                                         
|10.10       |  | Registration Rights Agreement between the Company and Wildwood Enterprises Inc. Profit Sharing Plan and Trust (7)                                                                                                                                                                                                                                                                                                                                                                
|11.         |  | Statement regarding computation of per share earnings (see "Note 1  Summary of Significant Accounting Policies  Earnings (Loss) Per Share"  of the "Notes to the Consolidated Financial Statements" in "Item 8. Financial Statements" in
this Annual Report on Form 10-KSB)                                                                                                                                                                                                   
|21.         |  | Subsidiaries of the Registrant*                                                                                                                                                                                                                                                                                                                                                                                                                                                  

---

61

---

QuickLinks