<PAGE>

                      U.S. SECURITIES AND EXCHANGE COMMISSION 

                              WASHINGTON, D.C. 20549 


                                    FORM 10-QSB


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


      For the quarterly period ended September 30, 1998, Commission File
                                   Number: 0-15982


                            NATIONAL MERCANTILE BANCORP 
--------------------------------------------------------------------------------
         (Exact name of small business issuer as specified in its charter) 


               California                             95-3819685
--------------------------------------------------------------------------------
     (State or other jurisdiction of               (I.R.S. Employer
     Incorporation or organization)               Identification No.)
     
          1840 Century Park East, Los Angeles, California   90067
--------------------------------------------------------------------------------
           (Address of principal executive offices)    (Zip Code)

               Issuer's telephone number, including area code (310) 277-2265 

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

                              YES  X    NO
                                 -----    -----

                       APPLICABLE ONLY TO CORPORATE ISSUERS: 

The number of shares outstanding of the issuer's Common Stock, no par value, as
of October 30, 1998 was 677,048.


<PAGE>



                     NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
                            CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                           SEPTEMBER 30,  DECEMBER 31,
                                                                                1998          1997
                                                                           -------------  ------------
                                                                               (DOLLARS IN THOUSANDS)
                                                                             (UNAUDITED)
<S>                                                                        <C>            <C>
ASSETS

Cash and due from banks-demand . . . . . . . . . . . . . . . . . . . . . . $    6,410     $   4,186
Federal funds sold and securities purchased under
  agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . . .      7,000        11,900
                                                                           -------------  ------------
    Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . .     13,410        16,086
Interest-bearing deposits with other financial institutions. . . . . . . .        250           250
Securities available-for-sale, at fair value;
  aggregate amortized cost of $64,808 and $25,794  at
  September 30, 1998 and December 31, 1997, respectively . . . . . . . . .     65,602        25,832
Securities held-to-maturity, at amortized cost; 
  aggregate market value of  $14,010 at
  December 31, 1997  . . . . . . . . . . . . . . . . . . . . . . . . . . .          -        14,000

FRB and other stock. . . . . . . . . . . . . . . . . . . . . . . . . . . .      1,322           646

Loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     61,828        61,252 
  Allowance for credit losses. . . . . . . . . . . . . . . . . . . . . . .    (2,060)        (2,023)
                                                                           -------------  ------------
    Net loans receivable . . . . . . . . . . . . . . . . . . . . . . . . .     59,768        59,229

Premises and equipment, net. . . . . . . . . . . . . . . . . . . . . . . .        787           785
Other real estate owned, net . . . . . . . . . . . . . . . . . . . . . . .        517           777
Accrued interest receivable and other assets . . . . . . . . . . . . . . .      1,924         1,800
                                                                           -------------  ------------
    Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  143,580     $ 119,405
                                                                           -------------  ------------
                                                                           -------------  ------------
LIABILITIES AND SHAREHOLDERS' EQUITY

Deposits:

  Noninterest-bearing demand . . . . . . . . . . . . . . . . . . . . . . . $   42,646     $  35,399 
  Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . .      7,091         7,431 
  Money market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     28,663        19,646 
  Savings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .      3,195         3,524 
  Time certificates of deposit:
     $100,000 or more. . . . . . . . . . . . . . . . . . . . . . . . . . .     16,729        12,402 
     Under $100,000. . . . . . . . . . . . . . . . . . . . . . . . . . . .     18,853        18,986 
                                                                           -------------  ------------
        Total deposits . . . . . . . . . . . . . . . . . . . . . . . . . .    117,177        97,388 

Securities sold under agreements to repurchase . . . . . . . . . . . . . .          -         5,050 
Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . . .     11,500         3,500 
Accrued interest payable and other liabilities . . . . . . . . . . . . . .      1,266         1,027 
                                                                           -------------  ------------
    Total liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . .    129,943       106,965 

Shareholders' equity:

  Preferred stock,  6.5% noncumulative convertible preferred 
     stock; $10.00 stated value, authorized 1,000,000 shares; 
     issued and outstanding 900,000 shares . . . . . . . . . . . . . . . .      7,350         7,350
  Common stock, no par value; authorized 10,000,000
     shares; issued and outstanding 677,048 shares and 677,144 shares
  at September 30, 1998 and December 31, 1997, respectively. . . . . . . .     24,613        24,613 
  Accumulated deficit. . . . . . . . . . . . . . . . . . . . . . . . . . .    (19,120)      (19,561)
  Accumulated other comprehensive income . . . . . . . . . . . . . . . . .        794            38
                                                                           -------------  ------------
    Total shareholders' equity . . . . . . . . . . . . . . . . . . . . . .     13,637        12,440
                                                                           -------------  ------------
    Total liabilities and shareholders' equity . . . . . . . . . . . . . . $  143,580     $ 119,405
                                                                           -------------  ------------
                                                                           -------------  ------------
</TABLE>

See accompanying notes to consolidated financial statements.


                                       2
<PAGE>


                     NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                    (UNAUDITED)

<TABLE>
<CAPTION>
                                                                                     THREE MONTHS ENDED     NINE MONTHS ENDED 
                                                                                        SEPTEMBER 30,         SEPTEMBER 30,

                                                                                   1998        1997        1998       1997
                                                                                ----------   ---------   --------   ---------
                                                                                  (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                                              <C>          <C>         <C>        <C>
Interest income:
  Loans, including fees. . . . . . . . . . . . . . . . . . . . . . . . . .        $  1,461    $  1,485    $  4,399   $  4,435 
  Securities held-to-maturity. . . . . . . . . . . . . . . . . . . . . . .               -         306         134        916 
     Securities available-for-sale . . . . . . . . . . . . . . . . . . . .             918         217       2,169        348 
     Federal funds sold. . . . . . . . . . . . . . . . . . . . . . . . . .             196         220         595        540 
     Interest-bearing deposits with other financial institutions . . . . .               3           -          11        -   
                                                                                ----------   ---------    --------   ---------
       Total interest income . . . . . . . . . . . . . . . . . . . . . . .           2,578       2,228       7,308      6,239 
Interest expense:
  Interest-bearing demand. . . . . . . . . . . . . . . . . . . . . . . . .              26          24          71         70 
  Money market and savings . . . . . . . . . . . . . . . . . . . . . . . .             215         172         627        444 
  Time certificate of deposits:
     $100,000 or more. . . . . . . . . . . . . . . . . . . . . . . . . . .             212         114         570        297 
     Under $100,000. . . . . . . . . . . . . . . . . . . . . . . . . . . .             289         384         861      1,234 
                                                                                ----------   ---------    --------   ---------
       Total interest expense on deposits. . . . . . . . . . . . . . . . .             742         694       2,129      2,045 
  Securities sold under agreements to repurchase . . . . . . . . . . . . .              32          10         135         18 
  Other borrowed funds . . . . . . . . . . . . . . . . . . . . . . . . . .             165           -         276          6 
                                                                                ----------   ---------    --------   ---------
     Total interest expense. . . . . . . . . . . . . . . . . . . . . . . .             939         704       2,540      2,069 
                                                                                ----------   ---------    --------   ---------
     Net interest income before provision for credit losses. . . . . . . .           1,639       1,524       4,768      4,170 
Provision for credit losses. . . . . . . . . . . . . . . . . . . . . . . .               -           -           -          - 
                                                                                ----------   ---------    --------   ---------
  Net interest income after provision for credit losses. . . . . . . . . .           1,639       1,524       4,768      4,170 
Other operating income:
  Net gain (loss) on sale of securities available-for-sale . . . . . . . .               1        (12)          39        (12)
  International services . . . . . . . . . . . . . . . . . . . . . . . . .              19          30          68         82 
  Investment division. . . . . . . . . . . . . . . . . . . . . . . . . . .              12           4          31         14 
  Deposit-related and other customer services. . . . . . . . . . . . . . .             123          85         395        251 
  Gain on sale of other real estate owned and fixed assets . . . . . . . .               -           -          68          - 
                                                                                ----------   ---------    --------   ---------
     Total other operating income. . . . . . . . . . . . . . . . . . . . .             155         107         601        335 
Other operating expenses:
  Salaries and related benefits. . . . . . . . . . . . . . . . . . . . . .             792         723       2,332      2,181 
  Net occupancy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .             211         200         624        615 
  Furniture and equipment. . . . . . . . . . . . . . . . . . . . . . . . .              76          47         210        152 
  Printing and communications. . . . . . . . . . . . . . . . . . . . . . .              57          55         174        173 
  Insurance and regulatory assessments . . . . . . . . . . . . . . . . . .              74         126         230        396 
  Customer services. . . . . . . . . . . . . . . . . . . . . . . . . . . .             213         164         600        394 
  Computer data processing . . . . . . . . . . . . . . . . . . . . . . . .              75          65         213        222 
  Legal services . . . . . . . . . . . . . . . . . . . . . . . . . . . . .              56          34         140        158 
  Other professional services. . . . . . . . . . . . . . . . . . . . . . .              73          53         214        160 
  Other real estate owned expenses . . . . . . . . . . . . . . . . . . . .               6           5          15         16 
  Promotion and other expenses . . . . . . . . . . . . . . . . . . . . . .              53          65         168        156
                                                                                ----------   ---------    --------   ---------
     Total other operating expenses. . . . . . . . . . . . . . . . . . . .           1,686       1,537       4,920      4,623
                                                                                ----------   ---------    --------   ---------
  Net income (loss) before provision for income taxes. . . . . . . . . . .             108          94         449       (118)
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .               6           -           8        -   
                                                                                ----------   ---------    --------   ---------
  Net income (loss). . . . . . . . . . . . . . . . . . . . . . . . . . . .        $    102    $     94    $    441   $   (118)
                                                                                ----------   ---------    --------   ---------
                                                                                ----------   ---------    --------   ---------
  Earnings (loss) per share:
     Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $  0.15    $   0.14    $  0.65    $  (0.17)
                                                                                ----------   ---------   --------   ---------
                                                                                ----------   ---------   --------   ---------
     Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $  0.04     $  0.04    $  0.17    $  (0.17)
                                                                                ----------   ---------   --------   ---------
                                                                                ----------   ---------   --------   ---------

</TABLE>

See accompanying notes to consolidated financial statements.


                                       3
<PAGE>


                    NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
                       CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (UNAUDITED)

<TABLE>
<CAPTION>


                                                                                        FOR THE NINE-MONTHS
                                                                                         ENDED SEPTEMBER 30,
                                                                                       ----------------------
                                                                                          1998        1997
                                                                                       ----------   ---------
                                                                                       (DOLLARS IN THOUSANDS)

<S>                                                                                    <C>          <C>
Net cash flow from operating activities:
   Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .         $  441       $  (118)
   Adjustments to reconcile net income (loss) to net cash used in
     operating activities:
   Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . .            183           134 
   Gain on sale of fixed assets. . . . . . . . . . . . . . . . . . . . . . . . .             (9)          -
   Gain on sale of other real estate owned . . . . . . . . . . . . . . . . . . .            (59)          -
   Net (gain) loss on sale of securities available-for-sale. . . . . . . . . . .            (39)           12 
   Net amortization of premiums (discounts) on securities. . . . . . . . . . . .             66           (30)
   Net accretion of discounts on loans purchased . . . . . . . . . . . . . . . .            (24)          (27)
   Increase in accrued interest receivable and other assets. . . . . . . . . . .           (124)          (88)
   Increase in accrued interest payable and other liabilities. . . . . . . . . .            239           490
                                                                                       ----------   ---------
     Net cash provided by operating activities . . . . . . . . . . . . . . . . .            674           373 
Cash flows from investing activities:
   Increase in interest-bearing deposits . . . . . . . . . . . . . . . . . . . .            -             (19)
   Purchase of securities held-to-maturity . . . . . . . . . . . . . . . . . . .            -          (6,972)
   Purchase of securities available-for-sale . . . . . . . . . . . . . . . . . .        (62,290)      (23,119)
   Proceeds from sales of securities available-for-sale. . . . . . . . . . . . .          6,102         1,865 
   Proceeds from repayments and maturities of securities available-for-sale. . .         16,471           323 
   Proceeds from repayments and maturities of secutiries-held-to-maturity. . . .         14,000         3,475 
   Loan originations and principal collections, net. . . . . . . . . . . . . . .           (515)        5,525 
   Proceeds from sale of other real estate owned . . . . . . . . . . . . . . . .            319           -
   Net purchases of premises and equipment . . . . . . . . . . . . . . . . . . .           (176)           (9)
                                                                                       ----------   ---------
           Net cash used in investing activities . . . . . . . . . . . . . . . .        (26,089)      (18,931)
Cash flows from financing activities:
   Net increase in demand deposits, money market and savings accounts. . . . . .         15,595           674 
   Net increase (decrease) in time certificates of deposit . . . . . . . . . . .          4,194        (8,109)
   Net (decrease) increase  in securities sold under agreements to repurchase. .         (5,050)         5,057 
   Net increase  in other borrowed funds . . . . . . . . . . . . . . . . . . . .          8,000             - 
   Return of fractional shares of common stocks. . . . . . . . . . . . . . . . .            -              (2)
   Net proceeds from issuance of 900,000 shares of preferred stock . . . . . . .            -           7,350
                                                                                       ----------   ---------
           Net cash provided by financing activities . . . . . . . . . . . . . .         22,739         4,970
                                                                                       ----------   ---------
Net decrease in cash and cash equivalents. . . . . . . . . . . . . . . . . . . .         (2,676)      (13,588)
Cash and cash equivalents, January 1 . . . . . . . . . . . . . . . . . . . . . .         16,086        28,113
                                                                                       ----------   ---------
Cash and cash equivalents, September 30. . . . . . . . . . . . . . . . . . . . .       $ 13,410     $  14,525
                                                                                       ----------   ---------
                                                                                       ----------   ---------
Supplemental cash flow information:

   Cash paid for interest. . . . . . . . . . . . . . . . . . . . . . . . . . . .       $  2,416     $   2,048
   Increase in unrealized gain on securities
       available-for-sale. . . . . . . . . . . . . . . . . . . . . . . . . . . .       $    756     $      59

</TABLE>

See accompanying notes to consolidated financial statements.


                                       4
<PAGE>



                     NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
             CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                    FOR THE YEAR ENDED DECEMBER 31, 1997 AND
                    THE NINE MONTHS ENDED SEPTEMBER 30, 1998
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                                          ACCUMULATED
                                                 PREFERRED STOCK          COMMON STOCK                       OTHER
                                                -------------------   ---------------------  ACCUMULATED  COMPREHENSIVE
                                                 SHARES     AMOUNT      SHARES      AMOUNT      DEFICIT       INCOME       TOTAL
                                                ---------  --------   ----------   ---------  ----------  --------------  -------
                                                                        (DOLLARS IN THOUSANDS EXCEPT SHARE DATA)
<S>                                             <C>         <C>       <C>          <C>        <C>             <C>         <C>
Balance at January 1, 1997 . . . . . . . . .        -       $   -      3,078,146   $  24,614  $  (19,693)      $  (76)    $ 4,845
  9.09 to 1 reverse stock split
     effective June 20, 1997 . . . . . . . .                          (2,739,516)
  Return of fractional common
     shares due to reverse stock
     split . . . . . . . . . . . . . . . . .                                 (58)         (1)         (1)
  Issuance of 6.5% noncumulative
     convertible preferred stock,
     $10.00 stated value, net. . . . . . . .     900,000      7,350                                                         7,350
  100 % stock dividend declared on
     January 8, 1998 . . . . . . . . . . . .                             338,572
  Comprehensive income:
     Other comprehensive income:
     Unrealized holding gain during
       the period. . . . . . . . . . . . . .                                                                       77          77
     Add: Reclassification adjustment
       for losses icluded in net income. . .                                                                       37          37
     Net income. . . . . . . . . . . . . . .                                                         132                      132
                                                                                                                          -------
       Comprehensive income. . . . . . . . .                                                                                  246
                                                ---------  --------   ----------   ---------  ----------  --------------  -------
Balance at December 31, 1997 . . . . . . . .     900,000      7,350      677,144      24,613     (19,561)          38      12,440
  Return of fractional common
     shares due to reverse stock
     split . . . . . . . . . . . . . . . . .                                 (96)       -
  Comprehensive income:
     Other comprehensive income:
     Unrealized holding gains during
       the period. . . . . . . . . . . . . .                                                                      795         795
     Less: Reclassification adjustment
       for gains included in net income. . .                                                                      (39)        (39)
     Net income. . . . . . . . . . . . . . .                                                         441                      441
                                                                                                                          -------
       Comprehensive income. . . . . . . . .                                                                                1,197
                                                ---------  --------   ----------   ---------  ----------  --------------  -------
Balance at September 30, 1998. . . . . . . .     900,000   $  7,350      677,048   $  24,613   $ (19,120)      $  794     $13,637
                                                ---------  --------   ----------   ---------  ----------  --------------  -------
                                                ---------  --------   ----------   ---------  ----------  --------------  -------

</TABLE>


  See accompanying notes to consolidated financial statements.


                                       5
<PAGE>


     
     
     
                                          
                     NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
              NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
     
NOTE 1--BASIS OF PRESENTATION AND MANAGEMENT REPRESENTATIONS 
     
     The unaudited consolidated financial statements include the accounts of
National Mercantile Bancorp (the "Company") and its wholly owned subsidiary,
Mercantile National Bank (the "Bank").  The unaudited consolidated financial
statements reflect the interim adjustments, all of which are of a normal
recurring nature and which, in management's opinion, are necessary for the fair
presentation of the Company's consolidated financial position and the results of
its operations and cash flows for such interim periods. The results for the
three and nine months ended September 30, 1998 are not necessarily indicative of
the results expected for any subsequent period or for the full year ending
December 31, 1998. The unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements included
in the Company's Annual Report on Form 10-K for the year ended December 31, 1997
("1997 Form 10-K"). 
     
     
NOTE 2--EARNINGS (LOSS) PER SHARE 
     
     Earnings (loss) per basic common 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 earnings per 
basic common share for the three and nine months ended September 30, 1998, 
and the three months ended September 30, 1997 was 677,048, 677,065, and 
677,144, respectively.  The weighted average number of common shares 
outstanding used in computing and loss per common share for the nine months 
ended September 30, 1997, was 677,221.  The weighted average number of common 
shares and potential common shares outstanding used in computing earnings per 
diluted common share for the three and nine months ended September 30, 1998, 
and the three months ended September 30, 1997 was 2,537,127, 2,553, 863 and  
2,555,172, respectively. Loss per share computations for the nine month 
period ended September 30, 1997 exclude potential common shares, since the 
effect would be to reduce the loss per share amount.  All periods presented 
were restated to reflect the 9.09 to 1 reverse stock split effective 
September 20, 1997 and the 100% common stock dividend declared January 8, 
1998 and paid February 13, 1998.  The 100% stock dividend was accounted for 
as a 2 for 1 stock split.


                                       6
<PAGE>


     The following table is a reconciliation of net income (loss) and shares
used in the computation of earnings per basic and diluted common share:  

<TABLE>
<CAPTION>


                                                                  NET INCOME                     PER SHARE
                                                                    (LOSS)        SHARES           AMOUNT
                                                                -------------   ----------       ----------
                                                                (IN THOUSANDS)
          <S>                                                   <C>             <C>              <C>
          FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998:
               Basic EPS . . . . . . . . . . . . . . . . . .         $  102        677,048           $  0.15
                                                                                                 -----------
                                                                                                 -----------
               Effect of dilutive securities:
                    Options and warrants . . . . . . . . . .                        60,079
                    Convertible preferred stock. . . . . . .                     1,800,000
                                                                -------------   ----------
               Diluted EPS . . . . . . . . . . . . . . . . .         $  102      2,537,127           $  0.04
                                                                -------------   ----------       -----------
                                                                -------------   ----------       -----------

          FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997:

               Basic and diluted EPS . . . . . . . . . . . .         $   94        677,144           $  0.14
                                                                                                 -----------
                                                                                                 -----------
               Effect of dilutive securities:
                    Options and warrants . . . . . . . . . .                        78,028
                    Convertible preferred stock. . . . . . .                     1,800,000
                                                                -------------   ----------
               Diluted EPS . . . . . . . . . . . . . . . . .         $   94      2,555,172           $  0.04
                                                                -------------   ----------       -----------
                                                                -------------   ----------       -----------
          FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998:
               Basic EPS . . . . . . . . . . . . . . . . . .         $  441        677,065           $  0.65
                                                                                                 -----------
                                                                                                 -----------
               Effect of dilutive securities:
                    Options and warrants . . . . . . . . . .                        76,798
                    Convertible preferred stock. . . . . . .                     1,800,000
                                                                -------------   ----------
               Diluted EPS . . . . . . . . . . . . . . . . .         $  441      2,553,863           $  0.17
                                                                -------------   ----------       -----------
                                                                -------------   ----------       -----------
          FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997:
               Basic and diluted EPS . . . . . . . . . . . .         $ (118)       677,221           $ (0.17)
                                                                -------------   ----------       -----------
                                                                -------------   ----------       -----------

</TABLE>


NOTE 3--INVESTMENT SECURITIES 

     Securities held for investment are classified as securities 
held-to-maturity.  Because the Company has the ability and management has the 
intent to hold investment securities until maturity, securities 
held-to-maturity are stated at cost, adjusted for amortization of premiums 
and accretion of discounts.  Investments classified as securities 
available-for-sale are recorded at fair value.  Unrealized holding gains or 
losses for securities available-for-sale are excluded from earnings, and 
reported as a separate component of shareholders' equity, until realized.   
See "Note 5 - Comprehensive Income".


NOTE 4--CASH AND CASH EQUIVALENTS

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


                                       7
<PAGE>


NOTE 5--COMPREHENSIVE INCOME

     In September 1997, the Financial Accounting Standards Board ("FASB") 
issued Statement of Financial Accounting Standards ("SFAS") No. 130, 
"Reporting Comprehensive Income" ("SFAS 130").  SFAS 130 establishes 
standards for the reporting and display of comprehensive income and its 
components in a full set of general purpose financial statements.  All items 
that are required to be recognized under accounting standards as components 
of comprehensive income are to be reported in a financial statement that is 
displayed with the same prominence as other financial statements.  
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 not required to be 
displayed separately from retained earnings and additional paid in capital in 
the consolidated balance sheet.  SFAS No. 130 is effective for fiscal years 
beginning after December 15, 1997.

     The components of other comprehensive income together with total 
comprehensive income are reported in the consolidated statement 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.  See "Note 6 - Income 
Taxes".

NOTE 6--INCOME TAXES

     No income tax provision, other than alternative minimum tax, was recorded
during the three and nine months ended September 30, 1998 and the three months
ended September 30, 1997, due to the utilization of previously unrecognized tax
benefits to offset the current period tax liability.  No income tax benefit was
recorded during the nine month period ended September 30, 1997 due to the
uncertainty with respect to the ultimate realization of such benefit.  

     At December 31, 1997, the Company had federal net operating loss 
carryforwards of $22.3 million, which begin to expire in the year 2007, and 
California net operating loss carryforwards of $11.1 million, of which 
$686,000 expire in 1998, $5.5 million expire in 1999 and the remaining expire 
thereafter. In addition, the Company has an Alternate Minimum Tax credit at 
December 31, 1997 of $218,000, which may be carried forward indefinitely.

NOTE 7--RECLASSIFICATIONS

     Certain prior year data have been reclassified to conform with current year
presentation.


                                       8
<PAGE>


ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION 
          AND RESULTS OF OPERATIONS

     National Mercantile Bancorp (the "Company") is the holding company for
Mercantile National Bank (the "Bank"). Because the Bank constitutes
substantially all of the business of the Company, references to the Company in
this Item 2 reflect the consolidated activities of the Company and the Bank. 

RESULTS OF OPERATIONS

     The Company recorded consolidated net income of $102,000, or $0.04 per
diluted common share, during the third quarter of 1998, compared to $94,000, or
$0.04 per diluted common share, during the third quarter of 1997.   Earnings per
basic common share were $0.15 and $0.14 during the third quarters of 1998 and
1997, respectively.  The improvement between the third quarter of 1998 compared
to the third quarter of 1997 resulted primarily from an increase in net interest
income of $115,000 or 7.5%, and an increase in other operating income of 
$48,000 or 44.9%, offset by a $149,000 or 9.7% increase in other operating
expense. 

     Net income for the first nine months of 1998 was $441,000, or  $0.17 per
diluted common share, compared with a loss of $118,000, or  $0.17 loss per
common share.  Earnings per basic common share was $0.65 during the first nine
months of 1998. The improvement between the first nine months of 1998 compared
to the first nine months of 1997 resulted largely from a $598,000, or 14.3%
increase in net interest income and a $266,000, or 79.4% increase in other
operating income, partially offset by a $297,000, or 6.4% increase in other
operating expense.

     Return on average assets during the third quarter and first nine months of
1998 was 0.28% and 0.45%, respectively, compared with 0.34% during the third
quarter of 1997, and compared with a loss of  0.15% during the first nine months
of 1997.  Return on average equity during the third quarter and first nine
months of 1998 was 3.09% and 4.61%, respectively, compared with 3.07% during the
third quarter of 1997, and compared with a loss of 2.25% during the first nine
months of 1997. 

     The increase in net interest income during the three and nine months ended
September 30, 1998 compared to the corresponding periods during 1997 resulted
primarily from an increase in the net average interest-earning assets (the
difference between average interest-earning assets and average interest-bearing
liabilities) of $9.9 million and $10.9 million, respectively.  Average
interest-earning assets and average interest-bearing liabilities increased as a
result of the Company's plan to grow following its recapitalization in 1997,
which raised net proceeds of $7.35 million. Growth in average interest-earning
assets


                                       9
<PAGE>


occurred primarily through the purchase of securities. The Company funded 
this growth with liquidity provided by the recapitalization and increased 
deposits and other borrowings.

     During the three and nine months ended September 30, 1998 the Company
experienced a compressed net interest margin compared to the same periods during
1997 as a result of a higher proportion of average interest-earning assets
consisting of lower yielding securities and federal funds, and a more rapid
repricing of interest-earning assets than interest-bearing liabilities during
the downward trend of overall interest rates experienced during 1998 compared to
1997.

      During the third quarter of 1998, the Company experienced a decrease in
the weighted average yield on loans receivable which was caused primarily by
refinancings and new fundings at lower interest rates due to a decrease in
market interest rates. The weighted average yield on loans receivable decreased
from 10.24% during the third quarter of 1997 to 9.34% during the third quarter
of 1998, and from 9.98% during the first nine months of 1997 compared to 9.75%
during the first nine months of 1998.

     The weighted average yield on securities decreased during the third 
quarter of 1998 compared to 1997 from 6.55% to 6.30%, and decreased from 
6.51% to 6.43% during the first nine months of 1998 compared to the first 
nine months of 1997. These decreases reflected the overall downward trend in 
market interest rates, which induced the issuers of securities with an 
optional principal redemption feature to exercise such "call" options . The 
Company reinvested the proceeds into lower  yielding securities.  During 
1998, composition of the Company's investment securities portfolio shifted 
from one which was primarily comprised of callable federal agency securities 
to a portfolio primarily comprised of mortgage-backed securities ("MBS") and 
collateral mortgage obligations ("CMO").  As of September 30, 1998 the 
Company no longer holds investment securities with a call option feature 
other than the embedded prepayment option associated with mortgage securities.

     The weighted average cost of interest-bearing liabilities increased during
the third quarter of 1998 compared to 1997 from 4.28% to 4.41% and increased
during the first nine months of 1998 compared to 1997 from 4.35% to 4.41%. 
These increases were due primarily to an increase in higher cost other
borrowings, constituting a greater proportion of interest-bearing liabilities. 

     Average loans receivable increased $4.5 million, or 7.8%, to $62.0 million
during the quarter ended September 30, 1998 compared to $57.5 million during the
quarter ended September 30, 1997.  As a result of declining market interest
rates, the Company continued to experience higher than historical loan payoffs
during the third quarter of 1998 of approximately $4.2 million which, when
combined with principal reductions, substantially offset loan fundings of
approximately $5.2 million during the same period.


                                       10
<PAGE>


     Average securities available-for-sale increased by $44.3 million to 
$57.8 million during the quarter ended September 30, 1998 compared to $13.5 
million during the quarter ended September 30, 1997, while securities 
held-to-maturity decreased from $18.2 million to zero during the same period. 
This increase in the securities portfolio, which consists primarily of MBS 
and CMO securities, was funded by the liquidity provided by the net proceeds 
from the recapitalization along with the growth of deposits and other 
borrowings.

     Average deposits increased $18.1 million (including an $11.7 million 
increase in non-interest-bearing deposits), or 18.8%, to $114.4 million 
during the third quarter of 1998 compared to $96.3 million during the third 
quarter of 1997 due primarily to additional deposits generated by the Bank's 
business banking, entertainment and escrow divisions.  Average securities 
sold under agreements to repurchase and other borrowed funds (collectively 
referred to as other borrowings) increased $12.9 million to $13.6 million 
during the quarter ended September 30, 1998 from  $714,000 during the quarter 
ended September 30, 1997.  This increase in other borrowed funds was 
primarily the result of borrowings from the Federal Home Loan Bank ("FHLB") 
the majority of which bear interest at rates that are adjusted monthly based 
on the London InterBank Offer Rate ("LIBOR") interest rate index.  The 
proceeds from these borrowings were used to purchase investment securities 
that bear interest at rates adjusted monthly based on LIBOR.

     Average loans receivable increased  $901,000, or 1.5%, during the first 
nine months of 1998 compared to the first nine months of 1997, rising to 
$60.3 million compared to $59.4 million.  During these same periods, average 
securities available-for-sale increased $37.6 million to $45.2 million 
compared to $7.6 million, and average securities held-to-maturity decreased 
$15.7 million to $2.7 million compared to $18.4 million.  Average deposits 
during the nine months ended September 30, 1998 increased $11.8, million or 
12.4%, during the comparable periods of 1998 and 1997, rising to $106.9 
million compared to $95.1 million.

     The provision for credit losses was zero for the three and nine months
ended September 30, 1998 and 1997.  Loan charge offs during the third quarter
and first nine months of 1998 were $121,000 and $346,000, respectively, compared
to $45,000 and $695,000 during the third quarter and first nine months of 1997,
respectively.  Recoveries were $92,000 and $383,000 during the third quarter and
first nine months of 1998, respectively, compared to $88,000 and $315,000 during
the third quarter and first nine months of 1997, respectively. 

     Other operating income, excluding gains and losses on the sale of
securities and assets, totaled $154,000 during the third quarter of 1998, up
$35,000, or 29.4%, from $119,000 during the third quarter of 1997. During the
nine months ended September 30, 1998, other operating income, excluding gains
and losses on the sale of securities and assets, totaled $494,000,


                                       11
<PAGE>


an increase of $147,000, or 42.4%, from $347,000 during the comparable period 
of 1997. Service charges on deposit accounts increased $38,000, or 44.7%, and 
$144,000, or 57.4%, during the third quarter and nine months ended September 
30, 1998, respectively, compared to corresponding periods in 1997.  These 
increases were due primarily to adjustments in fee pricing effective December 
1, 1997 and increased volume due to deposit growth.

     The net gain on sale of securities totaled $1,000 and $39,000 during the
third quarter and first nine months of 1998, respectively, compared to a net
loss of $12,000 during each of the corresponding periods in 1997.  Additionally,
the Bank recorded a net gain on the sale of other real estate owned and fixed
assets of $68,000 during the first nine months of 1998, compared to no such
gains during corresponding period of 1997.

     Other operating expense increased $149,000, or 9.7%, to $1.7 million during
the third quarter of 1998 compared to $1.5 million during the third quarter of
1997.  Salaries and related benefits increased $69,000, or 9.5%, during the
quarter ended September 30, 1998 compared to the third quarter of 1997, due
primarily to the personnel added to the business banking and entertainment
divisions.  Other operating expense categories, other than salaries and related
benefits, increased $80,000, or 9.8%, for the quarter ended September 30, 1998
from the comparable period in 1997.  Increases in customer services expense of
$49,000 resulting from increased escrow deposits, along with increases in
furniture and equipment expense of $29,000, were offset by reductions in
insurance and regulatory assessments of $52,000, primarily reduced Federal
Deposit Insurance Corporation ("FDIC") Insurance premiums. 

     Other operating expenses increased $297,000, or 6.4%, to $4.9 million
during the nine months ended September 30, 1998 compared to $4.6 million during
the same period of 1997.  This increase resulted from the same factors which
caused the increases between the third quarters of 1998 compared to 1997,
specifically, increases of $151,000 in salaries and related benefits (due
primarily to an increase in number of personnel) and $206,000 in customer
services, which were offset by reductions of $166,000 in insurance and
regulatory costs.


                                       12
<PAGE>


The following table presents the components of net interest income for the 
quarters ended September 30, 1998 and 1997.














                                       13
<PAGE>


AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME

<TABLE>
<CAPTION>


                                                                                        THREE MONTHS ENDED
                                                        --------------------------------------------------------------------------
                                                                SEPTEMBER 30, 1998                       SEPTEMBER 30, 1997
                                                        ------------------------------------    ----------------------------------
                                                                                  WEIGHTED                                WEIGHTED
                                                                      INTEREST    AVERAGE                    INTEREST     AVERAGE
                                                          AVERAGE      INCOME/     YIELD/       AVERAGE      INCOME/      YIELD/
                                                           AMOUNT      EXPENSE       RATE        AMOUNT      EXPENSE        RATE
                                                        -----------   ---------  -----------   ---------   -----------   ---------
                                                                                  (Dollars in thousands)
<S>                                                      <C>           <C>         <C>         <C>         <C>            <C>
Assets:
Interest-earning assets:
  Federal funds sold and securities purchased under
     agreements to resell. . . . . . . . . . . . . . .  $   13,860     $    196      5.61%     $   15,526    $    220       5.62%
  Interest-bearing deposits with other 
     financial institutions. . . . . . . . . . . . . .         250            3      6.06%              9         -          -
  Securities held-to-maturity. . . . . . . . . . . . .        -                       -            18,213         306       6.67%
  Securities available-for-sale. . . . . . . . . . . .      57,785          918      6.30%         13,464         217       6.39%
  Loans receivable (1) (2) . . . . . . . . . . . . . .      62,039        1,461      9.34%         57,541       1,485      10.24%
                                                        -----------   ---------                 ---------   -----------
  Total interest-earning assets. . . . . . . . . . . .     133,934     $  2,578      7.64%        104,753    $  2,228       8.44%
                                                                      ---------                             -----------
                                                                      ---------                             -----------
Noninterest earning assets:

  Cash and due from banks - demand . . . . . . . . . .       6,904                                  5,419
  Other assets . . . . . . . . . . . . . . . . . . . .       3,332                                  2,934
  Allowance for credit losses. . . . . . . . . . . . .      (2,085)                                (2,604)
                                                        ----------                             ----------
Total assets . . . . . . . . . . . . . . . . . . . . .  $  142,085                             $  110,502
                                                        ----------                             ----------
                                                        ----------                             ----------
Liabilities and shareholders' equity:
          
Interest-bearing deposits:
  Demand   . . . . . . . . . . . . . . . . . . . . . .  $    8,081     $     26      1.28%     $    7,659    $     24       1.24%
  Money market and savings . . . . . . . . . . . . . .      28,215          215      3.02%         22,857         172       2.99%
  Time certificates of deposit:
     $100,000 or more. . . . . . . . . . . . . . . . .      14,909          212      5.64%          8,367         114       5.41%
     Under $100,000. . . . . . . . . . . . . . . . . .      19,679          289      5.83%         25,615         384       5.95%
                                                        -----------   ---------                 ---------   -----------
  Total time certificates of deposit . . . . . . . . .      34,588          501      5.75%         33,982         498       5.81%
                                                        -----------   ---------                 ---------   -----------
  Total interest-bearing deposits. . . . . . . . . . .      70,884          742      4.15%         64,498         694       4.27%
Securities sold under agreements to repurchase . . . .       2,100           32      6.05%            714          10       5.56%
Other borrowed funds . . . . . . . . . . . . . . . . .      11,500          165      5.69%           -            -          -
                                                        -----------   ---------                 ---------   -----------
  Total interest-bearing liabilities . . . . . . . . .      84,484     $    939      4.41%         65,212    $    704       4.28%
                                                                      ---------                             -----------
                                                                      ---------                             -----------
Noninterest-bearing liabilities:
  Noninterest-bearing demand deposits. . . . . . . . .      43,507                                 31,758
  Other liabilities. . . . . . . . . . . . . . . . . .       1,010                                  1,436
Shareholders' equity . . . . . . . . . . . . . . . . .      13,084                                 12,096
                                                        ----------                             ----------
Total liabilities and shareholders' equity . . . . . .  $  142,085                             $  110,502
                                                        ----------                             ----------
                                                        ----------                             ----------
Net interest income (spread) . . . . . . . . . . . . .                 $  1,639      3.23%                   $  1,524       4.16%
                                                                      ---------                             -----------
                                                                      ---------                             -----------

Net yield on earning assets (2). . . . . . . . . . . .                               4.86%                                  5.77%

</TABLE>

-------------------

(1)  Includes average balance of nonperforming loans of $7.8 million and $6.6
     million for 1998 and 1997, respectively.

(2)  Yields and amounts earned on loans receivable include loan fees of $34,000
     and $46,000 for the three months ended September 30, 1998 and 1997,
     respectively.

The following table presents the components of net interest income for the nine
months ended September 30, 1998 and 1997.


                                       14
<PAGE>


AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME

<TABLE>
<CAPTION>


                                                                                    NINE MONTHS ENDED
                                                        --------------------------------------------------------------------------
                                                                SEPTEMBER 30, 1998                       SEPTEMBER 30, 1997
                                                        ------------------------------------    ----------------------------------
                                                                                  WEIGHTED                                WEIGHTED
                                                                      INTEREST    AVERAGE                    INTEREST     AVERAGE
                                                          AVERAGE      INCOME/     YIELD/       AVERAGE      INCOME/      YIELD/
                                                           AMOUNT      EXPENSE       RATE        AMOUNT      EXPENSE        RATE
                                                        -----------   ---------  -----------   ---------   -----------   ---------
                                                                                    (Dollars in thousands)
<S>                                                      <C>           <C>         <C>         <C>         <C>            <C>

Assets:
Interest-earning assets:
   Federal funds sold and securities purchased under
     agreements to resell. . . . . . . . . . . . . . .   $  14,316     $    595      5.56%      $  13,122      $    540       5.50%
   Interest-bearing deposits with other
     financial institutions . . . . . . . . . . .  . .         250           11      5.88%              3           -          -
   Securities held-to-maturity . . . . . . . . . . . .       2,699          134      6.64%         18,365           916       6.67%
   Securities available-for-sale . . . . . . . . . . .      45,209        2,169      6.41%          7,590           348       6.13%
   Loans receivable (1) (2). . . . . . . . . . . . . .      60,340        4,399      9.75%         59,439         4,435       9.98%
                                                        -----------   ---------                 ---------   -----------
   Total interest-earning assets . . . . . . . . . . .     122,814     $  7,308      7.96%         98,519      $  6,239       8.47%
                                                                      ---------                             -----------
                                                                      ---------                             -----------
Noninterest earning assets:
   Cash and due from banks - demand. . . . . . . . . .       6,047                                  4,778
   Other assets. . . . . . . . . . . . . . . . . . . .       3,282                                  3,465
   Allowance for credit losses . . . . . . . . . . . .      (1,994)                                (2,940)
                                                        -----------                             ----------
Total assets . . . . . . . . . . . . . . . . . . . . .   $ 130,149                              $ 103,822
                                                        -----------                             ----------
                                                        -----------                             ----------
Liabilities and shareholders' equity:
Interest-bearing deposits:
   Demand. . . . . . . . . . . . . . . . . . . . . . .   $   7,423     $     71      1.28%      $   7,464         $  70       1.25%
   Money market and savings. . . . . . . . . . . . . .      27,081          627      3.10%         20,245           444       2.93%
   Time certificates of deposit:
     $100,000 or more. . . . . . . . . . . . . . . . .      13,305          570      5.73%          7,258           297       5.47%
     Under $100,000. . . . . . . . . . . . . . . . . .      19,671          861      5.85%         27,906         1,234       5.91%
                                                        -----------   ---------                 ---------   -----------
   Total time certificates of deposit. . . . . . . . .      32,976        1,431      5.80%         35,164         1,531       5.82%
                                                        -----------   ---------                 ---------   -----------
   Total interest-bearing deposits . . . . . . . . . .      67,480        2,129      4.22%         62,873         2,045       4.35%
Securities sold under agreements to repurchase . . . .       3,043          135      5.93%            484            18       4.97%
Other borrowed funds . . . . . . . . . . . . . . . . .       6,427          276      5.74%            173             6       4.64%
                                                        -----------   ---------                 ---------   -----------
   Total interest-bearing liabilities. . . . . . . . .      76,950     $  2,540      4.41%         63,530      $  2,069       4.35%
                                                                      ---------                             -----------
                                                                      ---------                             -----------
Noninterest-bearing liabilities:
   Noninterest-bearing demand deposit. . . . . . . . .      39,441                                 32,236
   Other liabilities . . . . . . . . . . . . . . . . .         977                                  1,039
Shareholders' equity . . . . . . . . . . . . . . . . .      12,781                                  7,017
                                                        -----------                             ----------
Total liabilities and shareholders' equity . . . . . .   $ 130,149                              $ 103,822
                                                        -----------                             ----------
                                                        -----------                             ----------
Net interest income (spread) . . . . . . . . . . . . .                 $  4,768      3.54%                     $  4,170       4.11%
                                                                      ---------                             -----------
                                                                      ---------                             -----------

Net yield on earning assets (2). . . . . . . . . . . .                               5.19%                                     5.66%

</TABLE>

-------------------

(1)  Includes average balance of nonperforming loans of $7.6 million and $6.6
     million for 1998 and 1997, respectively.

(2)  Yields and amounts earned on loans receivable include loan fees of $121,000
     and $88,000 for the nine months ended September 30, 1998 and 1997,
     respectively.


                                       15


<PAGE>

     The following tables set forth, for the periods indicated, the changes 
in interest earned and interest paid resulting from changes in volume and 
changes in rates.  Average balances in all categories in each reported period 
were used in the volume computations.  Average yields and rates in each 
reported period were used in rate computations.

     INCREASE (DECREASE) IN INTEREST INCOME/EXPENSE DUE TO CHANGE IN
     AVERAGE VOLUME AND AVERAGE RATE 

<TABLE>
<CAPTION>
                                                                                  NINE MONTHS ENDED SEPTEMBER 30,
                                                                                           1998 VS 1997
                                                                            -----------------------------------------
                                                                            INCREASE (DECREASE) DUE TO(1)     NET
                                                                            -----------------------------  INCREASE
                                                                              VOLUME           RATE        (DECREASE)
                                                                             --------        -------       ----------
<S>                                                                          <C>            <C>           <C>
          Interest Income:
          Federal funds sold and securities purchased under
            agreements to resell . . . . . . . . . . . . . . . . . . .       $     50        $     5      $      55
          Interest-bearing deposits with other financial institutions.             11              -             11
          Securities held-to-maturity. . . . . . . . . . . . . . . . .           (771)           (11)          (782)
          Securities available-for-sale. . . . . . . . . . . . . . . .          1,803             18          1,821
          Loans receivable (2) . . . . . . . . . . . . . . . . . . . .             66           (102)           (36)
                                                                             --------        -------       --------
            Total interest-earning assets. . . . . . . . . . . . . . .       $  1,159        $   (90)      $  1,069
                                                                             --------        -------       --------
                                                                             --------        -------       --------
          Interest Expense:
          Interest-bearing deposits:
            Demand . . . . . . . . . . . . . . . . . . . . . . . . . .       $      -        $     1       $      1
            Money market and savings . . . . . . . . . . . . . . . . .            170             13            183

            Time certificates of deposit:
               $100,000 or more. . . . . . . . . . . . . . . . . . . .            260             13            273
               Under $100,000. . . . . . . . . . . . . . . . . . . . .           (362)           (11)          (373)
                                                                             --------        -------       --------
            Total time certificates of deposit . . . . . . . . . . . .           (102)             2           (100)
                                                                             --------        -------       --------
            Total interest-bearing deposits. . . . . . . . . . . . . .             68             16             84
            Securities sold under agreements to repurchase 
               and other borrowings. . . . . . . . . . . . . . . . . .            113              4            117
            Other borrowed funds . . . . . . . . . . . . . . . . . . .            268              2            270
                                                                             --------        -------       --------
               Total interest-bearing liabilities. . . . . . . . . . .       $    449        $    22        $   471
                                                                             --------        -------       --------
                                                                             --------        -------       --------
 
            Net interest income. . . . . . . . . . . . . . . . . . . .       $    710        $  (112)       $   598
                                                                             --------        -------       --------
                                                                             --------        -------       --------
</TABLE>
     --------------
     (1)  The change in interest income or interest expense that is attributable
          to both changes in average volume and average rate has been allocated
          to the changes due to (i) average volume and (ii) average rate in
          proportion to the relationship of the absolute amounts of changes in
          each.
     
     (2)  Table does not include interest income that would have been earned on
          nonaccrual loans.
          

                                       16

<PAGE>

BALANCE SHEET ANALYSIS

INVESTMENT SECURITIES

     Comparative period-end  investment securities portfolio balances are
presented below:

<TABLE>
<CAPTION>
                                                                               SEPTEMBER 30, 1998            DECEMBER 31, 1997
                                                                            ------------------------      -----------------------
                                                                                             FAIR                          FAIR
                                                                              COST           VALUE          COST          VALUE
                                                                            ---------      ---------      ---------     ---------
                                                                                     (DOLLARS IN THOUSANDS) 
<S>                                                                           <C>          <C>            <C>           <C>       
            Securities held-to-maturity:
            U.S. government and federal
               agency securities . . . . . . . . . . . . . . . . . . .           $  -           $  -      $  14,000     $  14,010 
                                                                            ---------      ---------      ---------     --------- 
                                                                            ---------      ---------      ---------     --------- 

            Securities available-for-sale:
            U.S. Treasury securities . . . . . . . . . . . . . . . . .       $  1,001       $  1,011       $  1,002      $  1,005 
            FNMA\FHLMC-issued mortgage
               pass through certificates . . . . . . . . . . . . . . .         15,020         15,207          4,327         4,349 
            U.S. government and federal
               agency securities . . . . . . . . . . . . . . . . . . .              -              -         15,488        15,522 
            CMO's and REMIC's issued by U.S.
               government and federal agencies . . . . . . . . . . . .         48,787         49,384          4,977         4,956 
            Equity . . . . . . . . . . . . . . . . . . . . . . . . . .          1,322          1,322            646           646
                                                                            ---------      ---------      ---------     --------- 
                                                                            $  66,130      $  66,924      $  26,440     $  26,478 
                                                                            ---------      ---------      ---------     ---------
                                                                            ---------      ---------      ---------     ---------
</TABLE>

The following tables provide the expected remaining maturities and yields of
debt securities within the investment securities portfolios as of  September 30,
1998.

<TABLE>
<CAPTION>
                                                                   AFTER ONE BUT          AFTER FIVE BUT
                                          WITHIN ONE YEAR        WITHIN FIVE YEARS       WITHIN TEN YEARS        AFTER TEN YEARS
                                       --------------------      ------------------    --------------------   ---------------------
                                        AMOUNT        YIELD      AMOUNT       YIELD     AMOUNT        YIELD    AMOUNT         YIELD 
                                       --------       -----      ------       -----    --------       -----   ---------       ----- 
                                                                        (DOLLARS IN THOUSANDS) 
<S>                                    <C>            <C>       <C>          <C>       <C>           <C>      <C>             <C>   
Securities available-for-sale:
  U.S Treasury . . . . . . . . . .     $  1,011       5.85%      $    -          -     $      -          -    $       -          -  
  FNMA/FHLMC-issued mortgage
     pass-through certificate. . .           21       6.21%         627       6.47%       2,106       6.57%      12,453       6.65% 
  CMO's and REMIC's issued by
     U.S. government-sponsored
       agencies. . . . . . . . . .            -          -            -                       -          -       49,384       6.46% 
                                       --------       -----      ------       -----    --------       -----   ---------       ----- 
                                       $  1,032       5.86%      $  627       6.47%    $  2,106       6.57%   $  61,837       6.50% 
                                       --------       -----      ------       -----    --------       -----   ---------       ----- 
                                       --------       -----      ------       -----    --------       -----   ---------       ----- 


<CAPTION>
                                      
                                      
                                         TOTAL         YIELD
                                       ---------       -----
                                      
<S>                                    <C> 
Securities available-for-sale:
  U.S Treasury . . . . . . . . . .      $  1,011       5.85%
  FNMA/FHLMC-issued mortgage
     pass-through certificate. . .        15,207       6.63%
  CMO's and REMIC's issued by
     U.S. government-sponsored
       agencies. . . . . . . . . .        49,384       6.46%
                                       ---------       -----
                                       $  65,602       6.49%
                                       ---------       -----
                                       ---------       -----
</TABLE>

                                       17

<PAGE>

LOAN PORTFOLIO

     The following comparative period-end table sets forth-certain information
concerning the composition of the loan portfolio. 

     LOAN PORTFOLIO COMPOSITION
     

<TABLE>
<CAPTION>
                                                     SEPTEMBER 30,           DECEMBER 31, 
                                                          1998                    1997
                                                  --------------------   ----------------------
                                                    AMOUNT     PERCENT     AMOUNT      PERCENT
                                                  ---------    -------   ----------    --------  
                                                           (DOLLARS IN THOUSANDS)
<S>                                               <C>          <C>       <C>           <C>
          Real estate construction and land
            development. . . . . . . . . . . . .   $  1,068          2%    $  3,148          5%
          Commercial loans:
            Secured by one to four family
               residential properties. . . . . .      7,289         12%       6,545         11%
            Secured by multifamily
               residential properties. . . . . .      2,454          4%       2,494          4%
            Secured by commercial real
               properties. . . . . . . . . . . .     19,001         31%      22,324         36%
            Other - secured and
               unsecured . . . . . . . . . . . .     27,835         45%      21,264         35%
          Home equity lines of credit. . . . . .         61          0%         252          0%
          Consumer installment and
            unsecured loans to individuals . . .      4,389          7%       5,508          9%
                                                  ---------       ----   ----------      -----  
               Total loans outstanding . . . . .     62,097        100%      61,535        100%

          Deferred net loan origination
            fees and purchased loan discount . .       (269)                   (283)
                                                  ---------              ----------
          Loans receivable, net. . . . . . . . .  $  61,828               $  61,252
                                                  ---------              ----------
</TABLE>

     Total loans outstanding increased by $562,000 to $62.1 million at 
September 30, 1998 compared to $61.5 million at December 31, 1997.  As 
indicated in the table above, the composition of the loan portfolio has 
remained relatively unchanged at September 30, 1998 compared to December 31, 
1997, other than a decrease of $2.1 million in real estate construction and 
land development loans and a $3.3 million decrease in loans secured by 
commercial properties, offset by a $6.6 million increase in other secured and 
unsecured commercial loans.   These changes in the composition of the 
Company's loan portfolio are consistent with efforts to reduce the overall 
level of loans secured by real estate and emphasize the growth of other 
commercial loans generated by the business banking and entertainment 
divisions.

                                       18

<PAGE>

     The following comparative period-end table sets forth certain 
information concerning nonperforming assets.  


          NONPERFORMING ASSETS

<TABLE>
<CAPTION>
                                                                                SEPTEMBER 30,   DECEMBER 31, 
                                                                                    1998            1997
                                                                                -------------   ------------
                                                                                    (DOLLARS IN THOUSANDS)
                                                                                  --------       --------
<S>                                                                              <C>             <C>
          Nonaccrual loans . . . . . . . . . . . . . . . . . . . . . . . . . . .  $  8,006       $  1,201
          Troubled debt restructurings . . . . . . . . . . . . . . . . . . . . .        49          5,422
          Loans contractually past due ninety or more days with respect
             to either principal or interest and still accruing interest . . . .         -              -
                                                                                  --------       --------
          Nonperforming loans. . . . . . . . . . . . . . . . . . . . . . . . . .     8,055          6,623
          Other real estate owned. . . . . . . . . . . . . . . . . . . . . . . .       517            777
                                                                                  --------       --------
          Total nonperforming assets . . . . . . . . . . . . . . . . . . . . . .  $  8,572       $  7,400
                                                                                  --------       --------
                                                                                  --------       --------
          Allowance for credit losses as a percent of nonaccrual loans . . . . .      25.7%         168.4%
          Allowance for credit losses as a percent of
             nonperforming loans . . . . . . . . . . . . . . . . . . . . . . . .      25.6%          30.5%
          Total nonperforming assets as a percent of loans receivable. . . . . .      13.9%          12.1%
          Total nonperforming assets as a percent of total
             shareholders' equity. . . . . . . . . . . . . . . . . . . . . . . .      62.9%          59.5%
</TABLE>

     Nonaccrual loans increased to $8.0 million at September 30, 1998 from 
$1.2 million at December 31, 1997. This increase is primarily represented by 
one loan with an outstanding balance of $5.4 million at September 30, 1998 
which is secured by a first deed of trust on a single family residence which 
as of August 1998, had an appraised value of $10 million.  This loan was 
reported as troubled debt restructuring  ("TDR") loan as of December 31, 1997 
and as a loan contractually past due ninety or more days and still accruing 
as of the quarter ended June 30, 1998.  The Bank commenced foreclosure 
proceedings on this loan, but such proceedings were stayed as a result of a 
Chapter 11 bankruptcy proceeding filed by the borrower in August 1998.  The 
Bank has initiated ann action to obtain relief from the automatic stay which 
would enable it to proceed with the foreclosure.  Increased delinquencies in 
the SBA and commercial loan portfolios represented the remaining increases to 
nonaccrual loans. 

     'TDRs represent loans for which the Company has modified the terms of 
loans to borrowers by reductions in interest rates or extensions of maturity 
dates at below-market rates for loans with similar credit risk 
characteristics. TDRs totaled $49,000 at September 30, 1998 compared with 
$5.4 million at December 31, 1997. The reduction in TDR loans during the 
first nine months of 1998 is due to the reclassification of one loan totaling 
$5.4 million to nonaccrual loans, discussed above. At September 30, 1998, all 
TDR loans were performing in accordance with their modified terms. 

                                       19

<PAGE>


     Loan delinquencies greater than 30 days past due decreased to $85,000 or 
0.14% of loans receivable at September 30, 1998 from $752,000 or 1.2% of 
loans receivable at December 31, 1997.  This decrease in loan delinquencies 
during the first nine months of 1998 was primarily the result of delinquent 
loans becoming nonaccrual loans.

ALLOWANCE FOR CREDIT LOSSES 

     The following table sets forth information concerning the Company's 
allowance for credit losses for the periods indicated. 
     

     ANALYSIS OF CHANGES IN ALLOWANCE FOR CREDIT LOSSES

<TABLE>
<CAPTION>
                                                                              THREE MONTHS ENDED              NINE MONTHS ENDED
                                                                             -----------------------       ----------------------
                                                                                  SEPTEMBER 30,                  SEPTEMBER 30,
                                                                               1998           1997           1998           1997
                                                                             --------       --------       --------      --------
                                                                                      (DOLLARS IN THOUSANDS)
<S>                                                                          <C>            <C>            <C>           <C>
     Balance, beginning of period. . . . . . . . . . . . . . . . . . . . .   $  2,089       $  2,546       $  2,023      $  2,969 
     Loan charged off:
          Commercial loans:
             Secured by one to four family residential properties. . . . .          -              -              4           204 
             Secured by commercial real properties . . . . . . . . . . . .          -              -             31            56 
             Other - secured and unsecured . . . . . . . . . . . . . . . .         94             21            115           365 
          Consumer installment and unsecured loans to individuals. . . . .         27             24            196            70
                                                                             --------       --------       --------      -------- 
          Total loan charge-offs . . . . . . . . . . . . . . . . . . . . .        121             45            346           695 

     Recoveries of loans previously charged off:
          Commercial loans:
             Secured by one to four family residential properties. . . . .          -             71              2            71 
             Other - secured and unsecured . . . . . . . . . . . . . . . .          4             10             81           167 
          Consumer installment and unsecured loans to individuals. . . . .         88              7            300            77
                                                                             --------       --------       --------      -------- 
          Total recoveries of loans previously charged off . . . . . . . .         92             88            383           315
                                                                             --------       --------       --------      -------- 
          Net charge-offs (recoveries) . . . . . . . . . . . . . . . . . .         29           (43)           (37)           380 
          Provision for credit losses. . . . . . . . . . . . . . . . . . .          -              -              -           -  
                                                                             --------       --------       --------      -------- 
          Balance, end of period . . . . . . . . . . . . . . . . . . . . .   $  2,060       $  2,589       $  2,060      $  2,589 
                                                                             --------       --------       --------      --------
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS
 
     In September 1997, the FASB issued SFAS No. 131, "Disclosures about 
Segments of an Enterprise and Related Information" ("SFAS 131").  SFAS 131 
establishes standards for the way that public enterprises report information 
about operating segments in annual financial statements and requires that 
selected information about those operating segments be reported in interim 
financial statements.  This statement supersedes SFAS 14 "Financial Reporting 
for Segments of a Business Enterprise".  SFAS No. 131 requires that all 
public enterprises report financial and descriptive information about its 
reportable operating segments.  Operating segments are defined as components 
regularly evaluated by the chief operating decision-maker in deciding how to 
allocate resources and in assessing performance.  This statement is effective 
for fiscal years beginning after 

                                       20

<PAGE>

December 15, 1997. The Company believes that this Statement will have no 
significant impact on its financial position or results of operations for 
1998.

     In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures 
about Pensions and Other Postretirement Benefits" ("SFAS 132").  This 
Statement standardizes the disclosure requirements for defined benefit plans 
and recommends a parallel format for presenting information about pensions 
and other postretirement benefits.  This Statement is effective for fiscal 
years beginning after December 15, 1997. The Company believes that this 
Statement will have no significant impact on its financial position or 
results of operations for 1998 since it has no defined benefit plans.  
     

CAPITAL ADEQUACY REQUIREMENTS

     At September 30, 1998 the Company and the Bank were in compliance with 
all applicable regulatory capital requirements and the Bank was "well 
capitalized" under the Prompt Corrective Action rules of the Office of the 
Comptroller of the Currency.  On June 30, 1998 the Company contributed $2.0 
million of capital to the Bank to enable it to increase its legal lending 
limit and provide sufficient capital for continued growth. The following 
table sets forth the regulatory capital standards for well capitalized 
institutions, and the capital ratios for the Company and the Bank as of 
September 30, 1998 and December 31, 1997.


          REGULATORY CAPITAL INFORMATION
          OF THE COMPANY AND BANK
<TABLE>
<CAPTION>
                                                                          WELL CAPITALIZED  SEPTEMBER 30,  DECEMBER 31,
                                                                              STANDARDS         1998           1997
                                                                          ----------------  -------------  ------------
<S>                                                                       <C>               <C>            <C>
          COMPANY:
          Tier 1 leverage. . . . . . . . . . . . . . . . . . . . . . . . .        N/A           9.05%         10.43%
          Tier 1 risk-based capital. . . . . . . . . . . . . . . . . . . .        N/A          16.61%         16.98%
          Total risk-based capital . . . . . . . . . . . . . . . . . . . .        N/A          17.88%         18.25%
     
          BANK: 
          Tier 1 leverage. . . . . . . . . . . . . . . . . . . . . . . . .       5.00%          6.91%          6.48%
          Tier 1 risk-based capital. . . . . . . . . . . . . . . . . . . .       6.00%         12.87%         10.36%
          Total risk-based capital . . . . . . . . . . . . . . . . . . . .      10.00%         14.14%         11.63%
</TABLE>

LIQUIDITY

     The Company continues to manage its liquidity through a combination of 
core deposits (total deposits excluding money desk and escrow deposits), 
federal funds purchased, repurchase agreements, collateralized borrowing 
lines at the Federal Home Loan Bank of San Francisco, and a portfolio of 
securities available for sale.  Liquidity is also provided by maturing 
investment securities and loans.  

                                       21

<PAGE>

     Average core deposits (excludes money desk and escrow deposits) and 
shareholders' equity comprised 63.5% and 69.2% of total funding during the 
third quarter and first nine months of 1998, respectively, compared to 64.8% 
and 66.5% during the corresponding periods of 1997.  The following table 
shows that the Company's cumulative one year interest rate sensitivity gap 
indicated a liability sensitive position of $8.6 million at September 30, 
1998, a change from the asset sensitive position of $110,000 at December 31, 
1997.  This change resulted from the Company's effort to lower its exposure 
to decreases in net interest income due to a rapid decline in interest rates. 
During the last nine months, the Company has increased its investment 
securities portfolio that reprice after one year to $48.6 million at 
September 30, 1998 from $38.5 million at December 31, 1997, increased its 
portfolio of loans that reprice after one year to $19.8 million at September 
30, 1998 from $15.5 million at December 31, 1997 and increased its time 
certificates of deposit which reprice within one year to $25.7 million at 
September 30, 1998 from $20.7 million at December 31, 1997. The Company's 
liability sensitive position during a period of slowly rising interest rates 
is not expected to have a significant negative impact on net interest income 
since rates paid on the Company's large base of interest checking, savings 
and money market deposit accounts historically have not increased 
proportionately with increases in interest rates.  

                                       22

<PAGE>

RATE-SENSITIVE ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
                                                                         SEPTEMBER 30, 1998
                                               ----------------------------------------------------------------------
                                                                      MATURING OR REPRICING IN
                                               ----------------------------------------------------------------------
                                                  LESS     AFTER THREE  AFTER ONE
                                                  THAN        MONTHS       YEAR
                                                 THREE      BUT WITHIN  BUT WITHIN    AFTER      NOT RATE
                                                 MONTHS      ONE YEAR    5 YEARS     5 YEARS     SENSITIVE    TOTAL
                                               ----------  -----------  ----------  ---------    ---------   --------
                                                                           (DOLLARS IN THOUSANDS)
<S>                                            <C>         <C>          <C>         <C>          <C>         <C>    
Rate-sensitive assets:   
Interest-bearing deposits with other
   financial institutions. . . . . . . . . .     $      -   $     250    $      -        $  -        $  -    $    250
Federal funds sold and securities purchased 
   under agreements to resell. . . . . . . .        7,000           -           -           -           -       7,000
Securities held-to-maturity. . . . . . . . .            -           -           -           -           -          --
Securities available-for-sale. . . . . . . .       17,300       1,032         627      46,643           -      65,602
Equity investment-FRB, FHLB & PCBB . . . . .            -           -           -       1,322           -       1,322
Loans receivable . . . . . . . . . . . . . .       26,487      15,524      16,673       3,144           -      61,828
                                               ----------   ---------   ---------   ---------     -------    --------
   Total rate-sensitive assets . . . . . . .       50,787      16,806      17,300      51,109           -     136,002

Rate-sensitive liabilities:
Interest bearing deposits (1):
   Interest-bearing demand, money
     market and savings. . . . . . . . . . .       38,949           -           -           -           -      38,949
   Time certificates of deposit. . . . . . .       16,292       9,457       9,833           -           -      35,582
Securities sold under agreements to. . . . . 
   repurchase. . . . . . . . . . . . . . . .            -           -           -           -           -          --
Other borrowed funds . . . . . . . . . . . .       11,500           -           -           -           -      11,500
                                               ----------   ---------   ---------   ---------     -------    --------
   Total rate-sensitive liabilities. . . . .       66,741       9,457       9,833           -           -      86,031
Interest rate-sensitivity gap  . . . . . . .      (15,954)      7,349       7,467      51,109           -      49,971
                                               ----------------------------------------------------------------------
                                               ----------------------------------------------------------------------
Cumulative interest rate-sensitivity gap . .   $  (15,954)  $  (8,605)  $  (1,138)  $  49,971      49,971
                                               ----------   ---------   ---------   ---------     ------- 
                                               ----------   ---------   ---------   ---------     ------- 
Cumulative ratio of rate sensitive assets to
   rate-sensitive liabilities. . . . . . . .           76%         89%         99%        158%
                                               ----------   ---------   ---------   ---------   
                                               ----------   ---------   ---------   ---------   
</TABLE>

(1)  Customer deposits which are subject to immediate withdrawal are presented
     as repricing within three months or less.
     The distribution of other time deposits is based on scheduled maturities.

                                       23

<PAGE>

RATE-SENSITIVE ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
                                                                           DECEMBER 31, 1997
                                                 --------------------------------------------------------------------
                                                                        MATURING OR REPRICING IN
                                                 --------------------------------------------------------------------
                                                  LESS      AFTER THREE AFTER ONE
                                                  THAN        MONTHS      YEAR
                                                  THREE     BUT WITHIN  BUT WITHIN    AFTER       NOT RATE
                                                  MONTHS     ONE YEAR    5 YEARS     5 YEARS     SENSITIVE     TOTAL
                                                 --------   ---------  ----------- ----------    ---------    -------
                                                                     (DOLLARS IN THOUSANDS)
<S>                                              <C>        <C>        <C>         <C>          <C>         <C>
Rate-sensitive assets:
Interest-bearing deposits with other
   financial institutions. . . . . . . . . .     $      -   $     250    $      -   $       -   $       -   $     250
Federal Funds sold . . . . . . . . . . . . .       11,900           -           -           -           -      11,900
Securities held-to-maturity. . . . . . . . .            -       2,000      12,000           -           -      14,000
Securities available-for-sale  . . . . . . .            -           -      13,946      11,886           -      25,832
Equity investment-FRB, FHLB & PCBB . . . . .            -           -           -         646           -         646
Loans receivable . . . . . . . . . . . . . .       26,258      19,520      13,325       2,149           -      61,252
                                                 --------     -------  ----------  ----------     -------     -------
   Total rate-sensitive assets . . . . . . .       38,158      21,770      39,271      14,681           -     113,880

Rate-sensitive liabilities:  (1)
Interest bearing deposits:
   Interest-bearing demand, money
     market and savings. . . . . . . . . . .       30,601           -           -           -           -      30,601
   Time certificates of deposit. . . . . . .        8,112      12,555      10,721           -           -      31,388
Securities sold under agreements to
   repurchase. . . . . . . . . . . . . . . .           50       5,000           -           -           -       5,050
Other borrowed funds.. . . . . . . . . . . .            -       3,500           -           -           -       3,500
                                                 --------     -------  ----------  ----------     -------     -------
   Total rate-sensitive liabilities. . . . .       38,763      21,055      10,721           -           -      70,539
Interest rate-sensitivity gap. . . . . . . .         (605)        715      28,550      14,681           -      43,341
                                                 --------------------------------------------------------------------
                                                 --------------------------------------------------------------------
Cumulative interest rate-sensitivity gap . .     $   (605)    $   110  $   28,660  $   43,341      43,341
                                                 --------     -------  ----------  ----------     -------    
                                                 --------     -------  ----------  ----------     -------    
Cumulative ratio of rate sensitive assets to
   rate-sensitive liabilities. . . . . . . .           98%        100%        141%        161%
                                                 --------     -------  ----------  ----------  
                                                 --------     -------  ----------  ----------  
</TABLE>

(1)  Customer deposits which are subject to immediate withdrawal are presented
     as repricing within three months or less.
     The distribution of other time deposits is based on scheduled maturities.

                                       24

<PAGE>
               
     YEAR 2000 MATTERS

     THE FOLLOWING CONSTITUTES A "YEAR 2000 READINESS" DISCLOSURE UNDER THE 
YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.

     As the Year 2000 approaches, a critical issue has emerged regarding how 
existing application software programs and operating systems can accommodate 
this date value.  In brief, many existing application software products were 
designed to only accommodate a two-digit date position, which represents the 
year (e.g., '95' is stored on the system and represents the year 1995).  As a 
result, the year 1999 (i.e., '99') could be the maximum date value these 
systems will be able to accurately process. Resolution of the Year 2000 
problem is among the Company's highest priorities, and a comprehensive 
program has been established to address its many aspects.  The Company's Year 
2000 program is comprised of numerous individual projects which address the 
following broad areas: data processing systems, telecommunications and data 
networks, physical facilities and security systems, vendor risk, customer 
risk, liquidity risk, contingency planning, testing and communications. The 
goal of the Company's Year 2000 program is to assure that it will be able to 
conduct normal business before, during and after the century date change. 

     During 1997, a Year 2000 team was established, consisting of the senior 
managers from each operational area of the Company. The first task was to 
identify risks posed by the century date change, as the awareness phase of 
the program. Below is a summary of steps taken, in addition to the awareness 
phase, by the Company through September 30, 1998:

     -    Assessment - Systems have been inventoried, evaluated and prioritized
          in importance to client service operations.

     -    Renovation - The Company has determined that internal systems do not
          require renovation.  The plans of vendors are being monitored 
          to assure that their system changes are completed within acceptable
          timeframes.

     -    Validation - The testing and validation phase has commenced.  Each
          critical system provided by external vendors will be tested to ensure
          processing and reporting accuracy.  The plan calls for completion of
          all testing and validation of mission critical systems by June 30, 
          1999.

     The Company has determined to attempt to obtain certification from 19 
external service bureau or software providers, of which four have been 
assessed as mission critical.  Currently eight, or 42%, of these 19 service 
providers have been certified by the service provider as Year 2000 compliant, 
including one that has been determined mission critical.

                                       25

<PAGE>

          The Company has determined to attempt to obtain certification from 
43 vendors or suppliers that require certification of which two have been 
assessed as mission critical. At September 30, 1998, 29, or 68%, of these 43 
vendors or suppliers have been certified by the vendor or supplier as Year 
2000 compliant which do not include any that have been determined to be 
mission critical.

          The Company's approach to evaluating potential Year 2000 issues 
pertaining to its borrowers was first to determine the level of loans 
dependent on borrower cash flow versus collateral such as real estate, and 
second, to make as assessment of loans, over a certain dollar volume, which 
may have exposure to Year 2000 issues.  The Company has determined that 
approximately 43% of the dollar volume of its loan portfolio are not 
collateralized by real estate, and further determined it is not aware of any 
pending issues that would cause the Company not to extend credit to these 
"cash flow dependent" borrowers.  The Company specifically reviewed 
approximately 80% of the dollar volume of its loan portfolio to assess the 
potential Year 2000 issues by first, determining whether the borrower was 
exposed to Year 2000 date changes (e.g. individual versus commercial) and 
second, completing an assessment of those borrowers it determined may have 
potential exposure to Year 2000 issues.  Based on this assessment completed 
on substantially all of its borrowers with potential Year 2000 issues, the 
Company is not aware of any pending issues that would cause it not to extend 
credit to these borrowers.  However, the Company's credit risk associated 
with loans may increase as reliance on third party responses is subject to 
both the borrower's understanding of the potential Year 2000 issues and the 
borrowers determination of the impact on their ability to fulfil contractual 
loan obligations.  As a result, there may be increases in the Company's 
problem loans and credit losses in future years.  It is not, however, 
possible to quantify the complete potential impact of such losses at this 
time.

      The financial impact of making the required systems changes described 
above is expected to be approximately $100,000, of which approximately 50% 
represent capital expenditures, and approximately $15,000 has been expended 
to date.

     The Company is developing contingency plans for implementation in the 
event that mission critical third party vendors or other significant third 
parties fail to adequately address Year 2000 issues.  Such plans principally 
involve identifying alternate vendors.  The Company is also enhancing its 
existing business resumption plans to reflect Year 2000 issues and is 
developing plans designed to coordinate the efforts of its personnel  and 
resources in addressing Year 2000 problems that become evident after December 
31, 1999.  There can be no assurance that any such plans will fully mitigate 
any such failures or problems. Furthermore, there may be certain mission 
critical third parties, such as utilities or telecommunication companies, 
where alternative arrangements or sources are limited or unavailable.

     If Year 2000 issues are not adequately addressed by the Company and 
third parties, the Company's business, results of operations and financial 
position could be materially adversely affected.

                                       26

<PAGE>

     The foregoing Year 2000 discussion contains "forward-looking statements" 
within the meaning of the Private Securities Litigation Reform Act of 1995. 
Such statements, including without limitation, anticipated costs, the dates 
by which the Company expects to substantially complete programming changes, 
remediation and testing of systems and the impact of the redeployment of 
existing staff, are based on management's best current estimates, which were 
derived utilizing numerous assumptions about future events, including 
continued availability of certain resources, representations received from 
third party service providers and other factors.  However, there can be no 
guarantee that these estimates will be achieved, and accrual results could 
differ materially form those anticipated.  Specific factors that might cause 
such material differences include, but are not limited to, the availability 
and cost of personnel trained in this area, the ability to identify and 
convert all relevant computer systems, results of Year 2000 testing, adequate 
resolution of Year 2000 issues by governmental agencies, business or other 
third parties who are service providers, suppliers, borrowers or customers of 
the Company, unanticipated system costs, the need to replace hardware, the 
adequacy of and ability to implement contingency plans and similar 
uncertainties.  The "forward-looking statements made in the foregoing Year 
2000 discussion speak only as of the date on which such statements are made, 
and the Company undertakes no obligation to update any forward-looking 
statement to reflect events or circumstances after the date on which such 
statement is made or to reflect the occurrence of unanticipated events.

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE 
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     The Company wishes to take advantage of the "safe harbor" provisions of 
the Private Securities Litigation Reform Act of 1995 as to "forward looking" 
statements in this Quarterly Report which are not historical facts.  The 
Company cautions readers that the following important factors could affect 
the Company's business and cause actual results to differ materially from 
those expressed in any forward looking statement made by, or on behalf of, 
the Company.  

-    Economic conditions.  The Company's results are strongly influenced by
     general economic conditions in its market area, Southern California, and a
     deterioration in these conditions could have a material adverse impact on
     the quality of the Bank's loan portfolio and the demand for its products
     and services.  In particular, changes in economic conditions in the real
     estate and entertainment industries may affect the Company's performance.  

-    Interest rates.  Management anticipates that short-term interest rate
     levels will remain constant in 1998, but if interest rates vary
     substantially from this expectation, the Company's results could differ
     materially.  

                                       27

<PAGE>

-    Government regulation and monetary policy.  All forward-looking statements
     presume a continuation of the existing regulatory environment and U.S.
     Government monetary policies.  The banking industry is subject to extensive
     federal and state regulations, and significant new laws for changes in, or
     repeal of, existing laws may cause results to differ materially.  Further,
     federal monetary policy, particularly as implemented through the Federal
     Reserve System, significantly affects credit conditions for the Bank,
     primarily through open market operations in U.S. government securities, the
     discount rate for member bank borrowing and bank reserve requirements, and
     a material change in these conditions would be likely to have an impact on
     results.  

-    Competition.  The Bank competes with numerous other financial institutions
     and non-depository financial intermediaries.  Results may differ if
     circumstances affecting the nature or level of competition change, such as
     the merger of competing financial institutions or the acquisition of
     California institutions by out-of-state companies.  

-    Credit quality.  A significant source of risk arises from the possibility
     that losses will be sustained because borrowers, guarantors and related
     parties may fail to perform in accordance with the terms of their loans. 
     The Bank has adopted underwriting and credit monitoring procedures and
     credit policies, including the establishment and review of the allowance
     for credit losses, that management believes are appropriate to minimize
     this risk by assessing the likelihood of nonperformance, tracking loan
     performance and diversifying the Bank's credit portfolio, but such policies
     and procedures may not prevent unexpected losses that could adversely
     affect the Company's results.  

-    Other risks.  From time to time, the Company details other risks to its
     businesses and/or its financial results in its filings with the Securities
     and Exchange Commission.  


While management believes that its assumptions regarding these and other factors
on which forward looking statements are based are reasonable, such assumptions
are necessarily speculative in nature, and actual outcomes can be expected to
differ to some degree.  Consequently, there can be no assurance that the results
described in such forward looking statements will, in fact, be achieved. 

                                       28

<PAGE>

PART II--OTHER INFORMATION 
                                          
ITEM 1.   LEGAL PROCEEDINGS 

     None. 
     
ITEM 2.   CHANGES IN SECURITIES 

     None. 

ITEM 3.   DEFAULTS UPON SENIOR SECURITIES 
     
     None. 
     
ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 
     
     None. 
     
ITEM 5.   OTHER INFORMATION 

     None. 

ITEM 6.   EXHIBITS AND REPORTS ON FORM 8-K 

     (a) EXHIBITS. 
     
     27   Financial Data Schedule
     
     (b) REPORTS ON FORM 8-K. 
     
     On November 6, 1998, the Corporation filed a report on Form 8-K reporting
Item 4.
     "Changes in Registrant's Certifying Accountant".

SIGNATURES 
                                          
     Pursuant to the requirements 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) 
                                          
                                          
                                          
DATE:     November  16, 1998            /s/   SCOTT A. MONTGOMERY          
          -------------------------     -------------------------------
                                        SCOTT A. MONTGOMERY
                                        Chief Executive Officer
                                          
DATE:     November  16, 1998            /s/   JOSEPH W. KILEY III          
          -------------------------     -------------------------------
                                        JOSEPH W. KILEY, III
                                        Chief Financial Officer

                                       29