<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, 1999,
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 29, 1999 was 677,195.


<PAGE>



                   NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                              SEPTEMBER 30,
                                                                                  1999           DECEMBER 31,
                                                                              (UNAUDITED)           1998
                                                                              -------------      ------------
                                                                                  (DOLLARS IN THOUSANDS)
<S>                                                                            <C>                <C>
ASSETS
Cash and due from banks-demand .......................................         $   7,031          $   5,405
Federal funds sold and securities purchased under agreements to resell             8,300              6,800
                                                                               ---------          ---------
     Cash and cash equivalents .......................................            15,331             12,205
Securities available-for-sale, at fair value;
  aggregate amortized cost of $69,046 and $70,247
  at September 30, 1999 and December 31, 1998, respectively ..........            67,532             70,458
FRB and other stock, at cost .........................................             1,643              1,391
Loans receivable .....................................................            69,793             56,972
   Allowance for credit losses .......................................            (2,162)            (2,144)
                                                                               ---------          ---------
     Net loans receivable ............................................            67,631             54,828
Premises and equipment, net ..........................................               651                726
Other real estate owned, net .........................................               382                593
Accrued interest receivable and other assets .........................             1,685              1,422
                                                                               ---------          ---------
     Total assets ....................................................         $ 154,855          $ 141,623
                                                                               ---------          ---------
                                                                               ---------          ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
  Noninterest-bearing demand .........................................         $  44,113          $  47,375
  Interest-bearing demand ............................................             7,129              6,835
  Money market .......................................................            31,077             21,652
  Savings ............................................................             1,066              2,063
  Time certificates of deposit:
     $100,000 or more ................................................            27,619             14,966
     Under $100,000 ..................................................             8,673             14,081
                                                                               ---------          ---------
        Total deposits ...............................................           119,677            106,972
Federal funds purchased and securities sold
  under agreements to repurchase .....................................             2,021              1,000
Other borrowings .....................................................            19,500             19,300
Accrued interest payable and other liabilities .......................             1,522              1,093
                                                                               ---------          ---------
        Total liabilities ............................................           142,720            128,365
Shareholders' equity:
  Preferred stock: (10,000 shares undesignated)
     Series A non-cumulative convertible perpetual
      preferred stock; authorized 990,000 shares; issued
      and outstanding 900,000 shares .................................             7,350              7,350
  Common stock, no par value; authorized 10,000,000
    shares; issued and outstanding 677,195 shares and 677,048 shares
    at September 30, 1999 and December 31, 1998, respectively ........            24,614             24,613
  Accumulated deficit ................................................           (18,315)           (18,916)
  Accumulated other comprehensive income .............................            (1,514)               211
                                                                               ---------          ---------
        Total shareholders' equity ...................................            12,135             13,258
                                                                               ---------          ---------
        Total liabilities and shareholders' equity ...................         $ 154,855          $ 141,623
                                                                               ---------          ---------
                                                                               ---------          ---------
</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,
                                                                                   --------------------      ---------------------
                                                                                     1999        1998           1999         1998
                                                                                   -------      -------      -------       -------
                                                                                    (DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S>                                                                                <C>          <C>          <C>           <C>
Interest income:
   Loans, including fees ....................................................      $ 1,465      $ 1,461      $ 4,180       $ 4,399
   Securities held-to-maturity ..............................................          -            -            -             134
   Securities available-for-sale ............................................        1,104          918        3,216         2,169
   Federal funds sold and securities purchased under agreements to resell ...          136          196          282           595
   Interest-bearing deposits with other financial institutions ..............          -              3          -              11
                                                                                   -------      -------      -------       -------
       Total interest income ...............................................         2,705        2,578        7,678         7,308

Interest expense:
   Interest-bearing demand ..................................................           23           26           67            71
   Money market and savings .................................................          237          215          578           627
   Time certificate of deposits:
     $100,000 or more .......................................................          320          212          715           570
     Under $100,000 .........................................................          137          289          483           861
                                                                                   -------      -------      -------       -------
       Total interest expense on deposits ...................................          717          742        1,843         2,129
   Federal funds purchased and securities sold under agreements to repurchase           22           32           35           135
   Other borrowed funds .....................................................          236          165          742           276
                                                                                   -------      -------      -------       -------
       Total interest expense ...............................................          975          939        2,620         2,540
                                                                                   -------      -------      -------       -------
       Net interest income before provision for credit losses ...............        1,730        1,639        5,058         4,768
Provision for credit losses .................................................          -            -            -             -
                                                                                   -------      -------      -------       -------
   Net interest income after provision for credit losses ....................        1,730        1,639        5,058         4,768

Other operating income:
   Net (loss) gain on sale of securities available-for-sale .................          -              1           (1)           39
   International services ...................................................           46           19           72            68
   Investment division ......................................................           15           12           43            31
   Deposit-related and other customer services ..............................          136          123          391           395
   Gain on sale of other real estate owned and fixed assets .................          -            -            -              68
                                                                                   -------      -------      -------       -------
       Total other operating income .........................................          197          155          505           601
Other operating expenses:
   Salaries and related benefits ............................................          786          792        2,406         2,332
   Net occupancy ............................................................          257          211          745           624
   Furniture and equipment ..................................................           51           76          160           210
   Printing and communications ..............................................           79           57          198           174
   Insurance and regulatory assessments .....................................           74           74          223           230
   Customer services ........................................................          148          213          514           600
   Computer data processing .................................................           81           75          234           213
   Legal services ...........................................................           33           56           47           140
   Other professional services ..............................................           76           73          223           214
   Other real estate owned expenses .........................................            5            6           45            15
   Promotion and other expenses .............................................           49           53          147           168
                                                                                   -------      -------      -------       -------
       Total other operating expenses .......................................        1,639        1,686        4,942         4,920
                                                                                   -------      -------      -------       -------
     Net income before provision for income taxes ...........................          288          108          621           449
Provision for income taxes ..................................................            8            6           20             8
                                                                                   -------      -------      -------       -------
     Net income .............................................................      $   280      $   102      $   601       $   441
                                                                                   -------      -------      -------       -------
                                                                                   -------      -------      -------       -------
     Earnings per share:
       Basic ................................................................      $  0.41      $  0.15      $  0.89       $  0.65
                                                                                   -------      -------      -------       -------
                                                                                   -------      -------      -------       -------
       Diluted ..............................................................      $  0.11      $  0.04      $  0.24       $  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>
                                                                                  NINE MONTHS ENDED
                                                                                    SEPTEMBER 30,
                                                                               -----------------------
                                                                                 1999          1998
                                                                               ---------     ---------
                                                                              (DOLLARS IN THOUSANDS)
<S>                                                                            <C>           <C>
Net cash flow from operating activities:
   Net income .............................................................     $    601      $    441
   Adjustments to reconcile net income to net cash provided by
    operating activities:
    Depreciation and amortization .........................................          144           183
    Gain on sale of fixed assets ..........................................          -              (9)
    Gain on sale of other real estate owned ...............................          -             (59)
    Provision for loss on other real estate owned .........................           35           -
    Net loss (gain) on sale of securities available-for-sale ..............            1           (39)
    Net amortization of premiums on securities ............................           63            66
    Net accretion of discounts on loans purchased .........................          (25)          (24)
    Increase in accrued interest receivable and other assets ..............          (87)         (124)
    Increase in accrued interest payable and other liabilities ............          429           239
                                                                                --------      --------
       Net cash provided by operating activities ..........................        1,161           674

Cash flows from investing activities:
   Purchase of securities available-for-sale ..............................      (11,040)      (62,290)
   Proceeds from sales of securities available-for-sale ...................        1,016         6,102
   Proceeds from repayments and maturities of securities available-for-sale       10,909        16,471
   Proceeds from repayments and maturities of securities-held-to-maturity .          -          14,000
   Loan originations and principal collections, net .......................      (12,778)         (515)
   Proceeds from sale of other real estate owned ..........................          -             319
   Net purchases of premises and equipment ................................          (69)         (176)
                                                                                --------      --------
       Net cash used in investing activities ..............................      (11,962)      (26,089)

Cash flows from financing activities:
   Net increase in demand deposits, money market and savings accounts .....        5,460        15,595
   Net increase in time certificates of deposit ...........................        7,245         4,194
   Net increase (decrease) in federal funds purchased and securities
    sold under agreements to repurchase ...................................        1,021        (5,050)
   Net increase in other borrowed funds ...................................          200         8,000
   Net proceeds from exercise of stock options ............................            1           -
                                                                                --------      --------
       Net cash provided by financing activities ..........................       13,927        22,739
                                                                                --------      --------
Net increase (decrease) in cash and cash equivalents ......................        3,126        (2,676)
Cash and cash equivalents, January 1 ......................................       12,205        16,086
                                                                                --------      --------
Cash and cash equivalents, September 30 ...................................     $ 15,331      $ 13,410
                                                                                --------      --------
                                                                                --------      --------
Supplemental cash flow information:

   Cash paid for interest .................................................     $  2,756      $  2,416
   (Decrease) increase in unrealized gain on securities
     available-for-sale ...................................................     $ (1,725)     $    756

</TABLE>

          See accompanying notes to consolidated financial statements.


                                       4
<PAGE>


                   NATIONAL MERCANTILE BANCORP AND SUBSIDIARY
           CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
                                  (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, 1999 ...............    900,000    $  7,350     677,048   $ 24,613   $(18,916)   $    211    $ 13,258
   Stock options exercised ...............                                147          1                                  1
   Comprehensive income:
      Other comprehensive income:
      Unrealized holding losses during
       the period ........................                                                               (1,726)     (1,726)
      Add: Reclassification adjustment for
       losses included in net income .....                                                                    1           1
      Net income .........................                                                      601                     601
                                                                                                                   --------
          Comprehensive income ...........                                                                           (1,124)
                                              -------    --------     -------   --------   --------    --------    --------
Balance at September 30, 1999 ............    900,000    $  7,350     677,195   $ 24,614   $(18,315)   $ (1,514)   $ 12,135
                                              -------    --------     -------   --------   --------    --------    --------
                                              -------    --------     -------   --------   --------    --------    --------
</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 consolidated
results of operations and cash flows for such interim periods. The results for
the three and nine months ended September 30, 1999 are not necessarily
indicative of the results expected for any subsequent period or for the full
year ending December 31, 1999. 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-KSB for the year ended
December 31, 1998 ("1998 Form 10-KSB").

NOTE 2--EARNINGS PER SHARE

     Earnings 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, 1999 and 1998 was
677,195, 677,117, 677,048 and 677,065, respectively. The weighted average number
of common shares and common share equivalents outstanding used in computing
earnings per diluted common share for the three and nine months ended September
30, 1999 and 1998 was 2,478,897, 2,477,753, 2,537,127 and 2,553,863,
respectively. All periods presented were restated to reflect the 100% common
stock dividend in February 1998, which 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>
                                                                                   PER SHARE
                                                           NET INCOME     SHARES     AMOUNT
                                                         --------------   ------   ---------
                                                         (IN THOUSANDS)
        <S>                                               <C>            <C>        <C>
        FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999:
                 Basic EPS ...........................    $      280       677,195    $0.41
                                                                                      -----
                                                                                      -----
                 Effect of dilutive securities:
                     Options and warrants ............                       1,702
                     Convertible preferred stock .....                   1,800,000
                                                          ----------     ---------
                 Diluted EPS .........................    $      280     2,478,897    $0.11
                                                          ----------     ---------    -----
                                                          ----------     ---------    -----

        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 NINE MONTHS ENDED SEPTEMBER 30, 1999:
                 Basic EPS ...........................    $      601       677,117    $0.89
                                                                                      -----
                                                                                      -----
                 Effect of dilutive securities:
                       Options and warrants ..........                         636
                       Convertible preferred stock ...                   1,800,000
                                                          ----------     ---------
                 Diluted EPS .........................    $      601     2,477,753    $0.24
                                                          ----------     ---------    -----
                                                          ----------     ---------    -----
        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
                                                          ----------     ---------    -----
                                                          ----------     ---------    -----
</TABLE>

NOTE 3--INVESTMENT SECURITIES

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


                                       7
<PAGE>

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.

NOTE 5--INCOME TAXES

     No income tax provision was recorded during the third quarters of 1999 and
1998 (other than alternative minimum tax) due to the utilization of previously
unrecognized tax benefits to offset the current period tax liability.

     For tax purposes at December 31, 1998, the Company had: (i) federal net
operating loss carryforwards of $21.2 million, which begin to expire in the year
2007; (ii) California net operating loss carryforwards of $9.8 million, of which
$5.0 million will expire in 1999, $3.2 million will expire in 2000, $1.3 million
will expire in 2001, and $300,000 will expire in 2002; and (iii) an Alternative
Minimum Tax credit of $230,000 which may be carried forward indefinitely.


NOTE 6--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"). In light of the fact that 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 net income of $280,000, or $0.11 diluted earnings per
share, during the third quarter of 1999, compared to $102,000, or $0.04 diluted
earnings per share, during the third quarter of 1998. Net income per basic share
was $0.41 and $0.15 during the third quarters of 1999 and 1998, respectively.
The improvement between the third quarter of 1999 compared to the third quarter
of 1998 resulted primarily from an increase in net interest income of $91,000 or
5.6% and an increase in other operating income of $42,000 or 27.1%, complemented
by a $47,000 or 2.8% decrease in other operating expenses.

     Net income during the first nine months of 1999 was $601,000, or $0.24
diluted earnings per share, compared to $441,000, or $0.17 diluted earnings per
share, during the first nine months of 1998. Net income per basic share was
$0.89 and $0.65 during the first nine months of 1999 and 1998, respectively. The
improvement between the first nine months of 1999 compared to the first nine
months of 1998 resulted largely from a $290,000, or 6.1% increase in net
interest income, offset by a decrease of $96,000 or 16.0% in other operating
income and a $22,000 or 0.4% increase in other operating expenses.

     Return on average assets during the third quarter and first nine months of
1999 was 0.74% and 0.56%, respectively, compared with 0.28% and 0.45% during the
third quarter and first nine months of 1998, respectively. Return on average
equity during the third quarter and first nine months of 1999 was 9.44% and
6.31%, respectively, compared with 3.09% and 4.61% during the third quarter and
first nine months of 1998, respectively.

     The increase in net interest income during the three and nine months ended
September 30, 1999 compared to the corresponding periods in 1998 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 $968,000 and $5.2 million, respectively. Growth in average
interest-earning assets occurred primarily through the purchase of securities.
The Company funded this growth with liquidity provided by increased deposits and
other borrowings.

     During the three and nine months ended September 30, 1999 and 1998 the
Company experienced a compressed net interest margin as a result of a higher
proportion of average interest-earning assets consisting of lower yielding
securities and


                                       9
<PAGE>

federal funds sold and a decline in the market interest rates, which had a
greater impact on the Company's interest-earning assets than on its
interest-bearing liabilities. During the latter part of 1998, the composition of
the Company's investment securities portfolio shifted from one which was
primarily comprised of fixed rate callable federal agency securities to a
portfolio comprised of fixed rate mortgage-backed securities ("MBS"),
collateralized mortgage obligations ("CMO") and real estate mortgage investment
conduits ("REMIC"). In addition, during the latter part of 1998 through the
first quarter of 1999, the Company invested approximately $19.5 million in
securities that bear interest at rates which adjust monthly and quarterly based
on London Inter-Bank Offer Rate ("LIBOR") interest rate index, which were funded
primarily by variable rate borrowings totaling $14.5 million which adjust
monthly based on LIBOR. At September 30, 1999, the Company did not hold
investment securities with a call option feature other than the embedded
prepayment option associated with mortgage securities.

     During the third quarter and first nine months of 1999, the Company
experienced a decrease in the weighted average yield on loans receivable
compared to the same periods in 1998, primarily due to repricing, refinancing
and new funding of loans at lower interest rates as a result of lower market
interest rates in 1999 compared to 1998. The weighted average yield on loans
receivable decreased from 9.34% and 9.75% during the third quarter and first
nine months of 1998, respectively, to 9.04% and 9.42% during the third quarter
and first nine months of 1999, respectively.

     The weighted average yield on securities decreased during the third quarter
and first nine months of 1999 to 6.26% and 6.18%, respectively, compared from
6.32% and 6.43% during the third quarter and first nine months of 1998,
respectively. These decreases reflected the overall downward trend in market
interest rates, which had a greater impact on securities yielding variable
rates. Additionally, lower market rates, particularly during the fourth quarter
of 1998, induced the issuers of securities with an optional principal redemption
feature to exercise such "call" options, the proceeds of which was reinvested
into lower yielding securities.

     The weighted average cost of interest-bearing liabilities decreased during
the third quarter and first nine months of 1999 to 4.09% and 4.10%,
respectively, from 4.41% during both the third quarter and first nine months of
1998. These decreases were due primarily to a decrease in cost of borrowings
with variable rates resulting from a decrease in market interest rates, and a
decrease in cost of certificate of deposits as result of Company's continued
effort to replace the maturing high yielding wholesale deposits with lower
yielding retail deposits.

     Average loans receivable increased $2.2 million, or 3.6%, to $64.3 million
during the quarter ended September 30, 1999 compared to $62.0 million during the
quarter ended September 30, 1998. Average securities available-for-sale
increased by


                                       10
<PAGE>

$12.4 million to $70.0 million during the quarter ended September 30, 1999
compared to $57.6 million during the quarter ended September 30, 1998. These
increases in the loan and securities portfolios were funded by the liquidity
provided by the growth in deposits and other borrowings.

     Average deposits increased $3.6 million, or 3.1%, to $118.0 million during
the third quarter of 1999 compared to $114.4 million during the third quarter of
1998, due primarily to additional deposits generated by the Bank's business
banking and entertainment divisions. Average securities sold under agreements to
repurchase and other borrowed funds (collectively referred to as other
borrowings) increased $5.9 million to $19.5 million during the quarter ended
September 30, 1999 from $13.6 million during the quarter ended September 30,
1998. 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 decreased $1.0 million, or 1.7%, during the first
nine months of 1999 to $59.3 million compared to $60.3 million during the first
nine months of 1998. During these same periods, average securities
available-for-sale increased $24.4 million to $69.6 million compared to $45.2
million, and average securities held-to-maturity decreased $2.7 million to zero.
Average deposits during the nine months ended September 30, 1999 increased $2.3
million, or 2.1%, rising to $109.2 million compared to $106.9 million during the
comparable period of 1998.

     The Company made no provision for credit losses during the nine months
ended September 30, 1999 and 1998. Loans charged off during the third quarter
and first nine months of 1999 were $11,000 and $211,000, respectively, compared
to $121,000 and $346,000 during the third quarter and first nine months of 1998,
respectively. Recoveries were $117,000 and $229,000 during the third quarter and
first nine months of 1999, respectively, compared to $92,000 and $383,000 during
the third quarter and first nine months of 1998, respectively.

     Other operating income, excluding gains and losses on the sale of
securities and assets, totaled $197,000 during the third quarter of 1999, up
27.9%, from $154,000 during the third quarter of 1998, due primarily to an
increase of $27,000 in foreign exchange income. During the nine months ended
September 30, 1999, other operating income, excluding gains and losses on the
sale of securities and assets, totaled $506,000, an increase of 2.4%, from
$494,000 during the comparable period in 1998.

     The Company recorded no net gain or loss on sale of securities during the
third quarter of 1999 compared to a net gain of $1,000 during same period in
1998. During the first nine months of 1999, the Company recorded a net loss of
$1,000 on sale of securities compared to net gain of $39,000 during
corresponding period of 1998. The Company incurred neither gain nor


                                       11
<PAGE>

loss on sale of other real estate owned and fixed assets during the third
quarter and first nine months of 1999 compared to zero and a gain of $68,000
during the third quarter and first nine months of 1998, respectively.

     Other operating expenses decreased to $1.6 million during the third quarter
of 1999 compared to $1.7 million during the third quarter of 1998. Customer
services expense decreased $65,000 during the quarter ended September 30, 1999
compared to the corresponding quarter in 1998 as a result of decreased volume of
escrow deposits. Net occupancy expense increased $46,000 during the quarter
ended September 30, 1999 compared to the third quarter of 1998, due primarily to
increased escalation and operating cost associated with the Company's corporate
and retail premises lease.

     Other operating expenses increased to $4.94 million during the nine months
ended September 30, 1999 compared to $4.92 million during the same period of
1998. Salaries and related benefits increased $74,000 during the first nine
months of 1999 compared to the same period in 1998 due to Company's continued
expansion of the business banking and entertainment loan production staff to
facilitate growth. Net occupancy expense increased $121,000 during the first
nine months of 1999 compared to the same period in 1998 due to same factor that
caused the increase between the third quarters of 1999 compared to 1998
discussed above. Customer service related expense decreased $86,000 during the
first nine months of 1999 compared to the same period in 1998 due to decreased
volume of escrow deposits. Legal expense decreased $93,000 during the first nine
months of 1999 compared to the same period in 1998, primarily as a result of
expense recoveries associated with the collection of nonperforming loans.

                                       12
<PAGE>

     The following table presents the components of net interest income for the
quarters ended September 30, 1999 and 1998.

AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME

<TABLE>
<CAPTION>
                                                                                       THREE MONTHS ENDED
                                                              -------------------------------------------------------------------
                                                                     SEPTEMBER 30, 1999                SEPTEMBER 30, 1998
                                                              --------------------------------  ---------------------------------
                                                                                      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:
Federal funds sold and securities purchased under
  agreements to resell .....................................  $ 10,503    $     136     5.14%   $ 13,860     $     196     5.61%
Interest-bearing deposits with other financial institutions.       -            -          -         250             3     6.06%
Securities held-to-maturity ................................       -            -          -           -             -       -
Securities available-for-sale ..............................    69,996        1,104     6.26%     57,590           918     6.32%
Loans receivable (1) (2) ...................................    64,271        1,465     9.04%     62,039         1,461     9.34%
                                                               -------    ---------            ---------     ---------
    Total interest earning assets ..........................   144,770    $   2,705     7.41%    133,739     $   2,578     7.65%
                                                                          ---------                          ---------
                                                                          ---------                          ---------
Noninterest earning assets:
    Cash and due from banks - demand .......................     6,634                             6,904
    Other assets ...........................................     2,857                             3,332
    Allowance for credit losses and net unrealized
      (loss) gain on securities available-for-sale .........    (3,903)                           (1,890)
                                                             ---------                         ---------
    Total assets ........................................... $ 150,358                         $ 142,085
                                                             ---------                         ---------
                                                             ---------                         ---------
Liabilities and shareholders' equity:
Interest-bearing deposits:
    Demand .................................................  $  6,798    $      23     1.34%  $   8,081     $      26     1.28%
    Money market and savings ...............................    32,344          237     2.91%     28,215           215     3.02%
    Time certificates of deposit:
      $100,000 or more .....................................    25,899          320     4.90%     14,909           212     5.64%
      Under $100,000 .......................................    10,026          137     5.42%     19,679           289     5.83%
                                                               -------    ---------              -------      ---------
    Total time certificates of deposit .....................    35,925          457     5.05%     34,588           501     5.75%
                                                               -------    ---------              -------      ---------
    Total interest-bearing deposits ........................    75,067          717     3.79%     70,884           742     4.15%
Federal funds purchased and securities sold
  under agreements to repurchase ...........................     2,013           22     4.34%      2,100            32     6.05%
Other borrowings ...........................................    17,467          236     5.36%     11,500           165     5.69%
                                                               -------    ---------              -------      ---------
    Total interest-bearing liabilities .....................    94,547    $     975     4.09%     84,484      $    939     4.41%
                                                                          ---------                           ---------
                                                                          ---------                           ---------
Noninterest-bearing liabilities:
    Noninterest-bearing demand deposits ....................    42,907                            43,507
    Other liabilities ......................................     1,134                             1,010
Shareholders' equity .......................................    11,770                            13,084
                                                             ---------                         ---------
Total liabilities and shareholders' equity ................. $ 150,358                         $ 142,085
                                                             ---------                         ---------
                                                             ---------                         ---------
Net interest income (spread) ...............................              $   1,730     3.32%                 $  1,639     3.24%
                                                                          ---------                          ---------
                                                                          ---------                          ---------
    Net yield on earning assets (2) ........................                            4.74%                              4.86%

</TABLE>

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

(1) Includes average balance of nonperforming loans of $900,000 and $7.8 million
    for 1999 and 1998, respectively.
(2) Yields and amounts earned on loans receivable include loan fees of $14,000
    and $34,000 for the three months ended September 30, 1999 and 1998,
    respectively.

                                       13
<PAGE>

     The following table presents the components of net interest income for the
nine months ended September 30, 1999 and 1998.


AVERAGE BALANCE SHEET AND
ANALYSIS OF NET INTEREST INCOME

<TABLE>
<CAPTION>

                                                                                      NINE MONTHS ENDED
                                                       ----------------------------------------------------------------------------
                                                                  SEPTEMBER 30, 1999                      SEPTEMBER 30, 1998
                                                       --------------------------------------    ----------------------------------
                                                                                     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:
Federal funds sold and securities purchased
 under agreements to resell ......................     $  7,600       $    282            4.96%  $ 14,316      $    595       5.56%
Interest-bearing deposits with other financial
 institutions ....................................          -              -                -         250            11       5.88%
Securities held-to-maturity ......................          -              -                -       2,699           134       6.64%
Securities available-for-sale ....................       69,569          3,216            6.18%    45,174         2,169       6.42%
Loans receivable (1) (2) .........................       59,306          4,180            9.42%    60,340         4,399       9.75%
                                                        -------       --------                    -------      --------
    Total interest earning assets ................      136,475       $  7,678            7.52%   122,779      $  7,308       7.96%
                                                                      --------                                 --------
                                                                      --------                                 --------
Noninterest earning assets:
    Cash and due from banks - demand .............        6,939                                     6,047
    Other assets .................................        2,817                                     3,282
    Allowance for credit losses and net unrealized
      (loss) gain on securities available-for-sale       (2,720)                                   (1,959)
                                                       --------                                  --------
    Total assets .................................     $143,511                                  $130,149
                                                       --------                                  --------
                                                       --------                                  --------
Liabilities and shareholders' equity:
Interest-bearing deposits:
    Demand .......................................     $  6,776       $     67            1.32%  $  7,423      $     71       1.28%
    Money market and savings .....................       27,648            578            2.80%    27,081           627       3.10%
    Time certificates of deposit:
      $100,000 or more ...........................       18,749            715            5.10%    13,305           570       5.73%
      Under $100,000 .............................       11,767            483            5.49%    19,671           861       5.85%
                                                         ------       --------                     ------      --------
    Total time certificates of deposit ...........       30,516          1,198            5.25%    32,976         1,431       5.80%
                                                         ------       --------                     ------      --------
    Total interest-bearing deposits ..............       64,940          1,843            3.79%    67,480         2,129       4.22%
Federal funds purchased and securities sold
  under agreements to repurchase .................        1,076             35            4.35%     3,043           135       5.93%
Other borrowings .................................       19,468            742            5.10%     6,427           276       5.74%
                                                         ------       --------                     ------      --------
    Total interest-bearing liabilities ...........       85,484       $  2,620            4.10%    76,950      $  2,540       4.41%
                                                                      --------                                 --------
                                                                      --------                                 --------
Noninterest-bearing liabilities:
    Noninterest-bearing demand deposits ..........       44,253                                    39,441
    Other liabilities ............................        1,041                                       977
Shareholders' equity .............................       12,733                                    12,781
                                                       --------                                  --------
Total liabilities and shareholders' equity .......     $143,511                                  $130,149
                                                       --------                                  --------
                                                       --------                                  --------
Net interest income (spread) .....................                    $  5,058            3.42%                $  4,768       3.54%
                                                                      --------                                 --------
                                                                      --------                                 --------
    Net yield on earning assets (2) ..............                                        4.96%                               5.19%

</TABLE>

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

(1) Includes average balance of nonperforming loans of $1.1 million and $7.6
    million for 1999 and 1998, respectively.

(2) Yields and amounts earned on loans receivable include loan fees of $116,000
    and $121,000 for the nine months ended September 30, 1999 and 1998,
    respectively.

                                       14
<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,
                                                                                          1999 VS 1998
                                                                           ----------------------------------------
                                                                            INCREASE (DECREASE) DUE TO(1)   NET
                                                                           ------------------------------ INCREASE
                                                                                VOLUME         RATE      (DECREASE)
                                                                           -------------  --------------- ---------
                                                                                         (IN THOUSANDS)
<S>                                                                        <C>            <C>             <C>
Interest Income:
Federal funds sold and securities purchased under agreements to resell ...     $  (254)     $   (59)      $  (313)
Interest-bearing deposits with other financial institutions ..............         (11)         -             (11)
Securities held-to-maturity ..............................................        (134)         -            (134)
Securities available-for-sale ............................................       1,132          (85)        1,047
Loans receivable (2) .....................................................         (75)        (144)         (219)
                                                                               -------      -------       -------
        Total interest-earning assets ....................................     $   658      $  (288)      $   370
                                                                               -------      -------       -------
                                                                               -------      -------       -------
Interest Expense:
Interest-bearing deposits:
    Demand ...............................................................     $    (6)     $     2       $    (4)
    Money market and savings .............................................          31          (80)          (49)
    Time certificates of deposit:
        $100,000 or more .................................................         214          (69)          145
        Under $100,000 ...................................................        (327)         (51)         (378)
                                                                               -------      -------       -------
    Total time certificates of deposit ...................................        (113)        (120)         (233)
                                                                               -------      -------       -------
    Total interest-bearing deposits ......................................         (88)        (198)         (286)
Federal funds purchased and securities sold under agreements to repurchase         (70)         (30)         (100)
Other borrowings .........................................................         500          (34)          466
                                                                               -------      -------       -------
        Total interest-bearing liabilities ...............................     $   342      $  (262)      $    80
                                                                               -------      -------       -------
                                                                               -------      -------       -------
Net interest income ......................................................     $   316      $   (26)      $   290
                                                                               -------      -------       -------
                                                                               -------      -------       -------
</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.


                                       15
<PAGE>


BALANCE SHEET ANALYSIS

INVESTMENT SECURITIES

     The following comparative period-end table sets forth certain information
concerning the estimated fair values and unrealized gains and losses of
investment securities portfolio, consisting of available-for-sale securities:

ESTIMATED FAIR VALUES OF AND UNREALIZED
GAINS AND LOSSES ON INVESTMENT SECURITIES

<TABLE>
<CAPTION>
                                                  SEPTEMBER 30, 1999                       DECEMBER 31, 1998
                                     -----------------------------------------  -----------------------------------------
                                       TOTAL     GROSS       GROSS   ESTIMATED   TOTAL     GROSS      GROSS     ESTIMATED
                                     AMORTIZED UNREALIZED UNREALIZED   FAIR    AMORTIZED UNREALIZED UNREALIZED    FAIR
                                       COST      GAINS       LOSS      VALUE     COST      GAINS       LOSS       VALUE
                                     --------- ---------- ---------- --------- --------- ---------- ----------  ---------
                                                    (IN THOUSANDS)                              (IN THOUSANDS)
<S>                                  <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
U.S.  Treasury securities ........   $ 1,008    $     4    $   -      $ 1,012    $ 1,001    $     7    $   -      $ 1,008
GNMA-issued mortgage
 pass through certificates ......      5,844         46         29      5,861        -          -          -          -
FHLMC/FNMA-issued mortgage
 pass through certificates ......     15,809        -          294     15,515     16,933        100          3     17,030
CMO's and REMIC's issued by U.S.
 government and federal agencies      41,377        -        1,156     40,221     48,278        146         41     48,383
Privately issued Corporate bonds,
 CMO's and REMIC's securities ...      5,008        -           85      4,923      4,035          2        -        4,037
                                     -------    -------    -------    -------    -------    -------    -------    -------
                                     $69,046    $    50    $ 1,564    $67,532    $70,247    $   255    $    44    $70,458
                                     -------    -------    -------    -------    -------    -------    -------    -------
                                     -------    -------    -------    -------    -------    -------    -------    -------
</TABLE>

     Total amortized cost of investment securities decreased $1.2 million to
$69.0 million at September 30, 1999 from $70.2 million at December 31, 1998. As
indicated in the table above, GNMA-issued mortgage pass through certificates
increased $5.8 million and privately issued corporate bonds, CMO's and REMIC's
increased $1.0 million while CMO's and REMIC's issued by U.S. government and
federal agencies decreased $6.9 million due to principal paydowns, during the
period ended September 30, 1999 compared to December 31, 1998. The Company
incurred net unrealized loss of $1.5 million at September 30, 1999 compared from
net unrealized gain of $211,000 at December 31, 1998 primarily due to rising
market rates during the third quarter of 1999.


                                       16
<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,
                                                         1999                        1998
                                               -------------------------   ------------------------
                                                AMOUNT          PERCENT      AMOUNT         PERCENT
                                               --------        ---------   ---------       --------
                                                               (DOLLARS IN THOUSANDS)
<S>                                            <C>              <C>         <C>             <C>
Commercial loans:
     Secured by one to four family
      residential properties ...............   $  4,610             7%      $  5,005            9%
     Secured by multifamily
      residential properties ...............      3,067             4          3,111            5
     Secured by commercial real properties..     25,946            37         20,839           36
     Other - secured and unsecured .........     33,642            48         24,337           43
     Real estate construction and land
      development ..........................          6           -              -            -
     Home equity lines of credit ...........        350           -              271          -
     Consumer installment and
      unsecured loans to individuals .......      2,410             4          3,707            7
                                                 ------           ---         ------          ---
         Total loans outstanding ...........     70,031           100%        57,270          100%
                                                                  ---                         ---
                                                                  ---                         ---
     Deferred net loan origination
      fees and purchased loan discount .....       (238)                        (298)
                                               --------                     --------
     Loans receivable, net .................   $ 69,793                     $ 56,972
                                               --------                     --------
                                               --------                     --------
</TABLE>

     Net loans receivable increased $12.8 million to $69.8 million at September
30, 1999 compared to $57.0 million at December 31, 1998. As indicated in the
table above, commercial loans secured by commercial real estate increased $5.1
million and other commercial loans-secured and unsecured increased $9.3 million,
while consumer installment and unsecured loans to individuals decreased $1.3
million during the period ended September 30, 1999 compared to December 31,
1998. These changes in the composition of the Company's loan portfolio are
consistent with efforts to emphasize the growth of commercial loans generated by
the business banking and entertainment divisions.


                                       17
<PAGE>

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

     NONPERFORMING ASSETS
<TABLE>
<CAPTION>
                                                                       SEPTEMBER 30,  DECEMBER 31,
                                                                            1999          1998
                                                                       ------------- -------------
                                                                          (DOLLARS IN THOUSANDS)
     <S>                                                               <C>            <C>
     Nonaccrual loans .................................................     $   967      $1,505
     Troubled debt restructurings .....................................         -           -
     Loans contractually past due ninety or more days with respect
       to either principal or interest and still accruing interest.....         -           -
                                                                             ------      ------
     Nonperforming loans ..............................................         967       1,505
     Other real estate owned ..........................................         382         417
     Other assets-SBA guaranteed loan .................................         176         176
                                                                             ------      ------
     Total nonperforming assets .......................................      $1,525      $2,098
                                                                             ------      ------
                                                                             ------      ------
     Allowance for credit losses as a percent of nonaccrual loans .....       223.6%      142.5%
     Allowance for credit losses as a percent of nonperforming loans ..       223.6%      142.5%
     Total nonperforming assets as a percent of loans receivable ......         2.2%        3.7%
     Total nonperforming assets as a percent of total shareholders'
       equity .........................................................        12.6%       15.8%
</TABLE>

     Nonaccrual loans decreased $538,000 at September 30, 1999 to $967,000
compared to $1.5 million at December 31, 1998, due to loans charged off of
$211,000 and full collection of a $616,000 loan during 1999.

     Other real estate owned ("OREO"), which included two undeveloped
commercially zoned parcels and one undeveloped multi-family zoned parcel,
decreased $35,000 to $382,000 at September 30, 1999 compared to $417,000 at
December 31, 1998 as a result of an additional valuation reserve recorded during
the second quarter of 1999. Other assets - SBA guaranteed loan is one developed
commercial retail property.

     As a result of these changes, the amount of nonperforming assets at
September 30, 1999 decreased 27.3% or $573,000 from the level at December 31,
1998.

     Loan delinquencies greater than 30 days past due decreased to $44,000 or
0.06% of loans outstanding at September 30, 1999 from $570,000 or 1.0% of loans
outstanding at December 31, 1998.

                                       18
<PAGE>

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,
                                                                    ---------------------    --------------------
                                                                      1999         1998        1999         1998
                                                                    --------     -------     -------      -------
                                                                                (DOLLARS IN THOUSANDS)

     <S>                                                            <C>          <C>         <C>          <C>
     Balance, beginning of period .............................     $ 2,056      $ 2,089     $ 2,144      $ 2,023
     Loans charged off:
        Commercial loans:
           Secured by one to four family residential properties         -            -           -              4
           Secured by commercial real properties ..............         -            -           128           31
           Other - secured and unsecured ......................         -             94          42          115
        Consumer installment and unsecured loans to individuals          11           27          41          196
                                                                    -------      -------     -------      -------
        Total loans charged-off ...............................          11          121         211          346

     Recoveries of loans previously charged off:
        Commercial loans:
           Secured by one to four family residential properties         -            -            31            2
           Secured by commercial real properties ..............          87          -            96          -
           Other - secured and unsecured ......................          13            4          69           81
        Consumer installment and unsecured loans to individuals          17           88          33          300
                                                                    -------      -------     -------      -------
        Total recoveries of loans previously charged off ......         117           92         229          383
                                                                    -------      -------     -------      -------
        Net charge-offs (recoveries) ..........................        (106)          29         (18)         (37)
        Provision for credit losses ...........................         -            -           -            -
                                                                    -------      -------     -------      -------
        Balance, end of period ................................     $ 2,162      $ 2,060     $ 2,162      $ 2,060
                                                                    -------      -------     -------      -------
                                                                    -------      -------     -------      -------
</TABLE>

RECENT ACCOUNTING PRONOUNCEMENTS

     In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes accounting and
reporting standards for derivative instruments and for hedging activities. This
statement is effective for fiscal years beginning after June 15, 1999.
Subsequently, the FASB issued SFAS No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133". This statement is an amendment to SFAS No. 133 and modifies
the effective date of the statement to fiscal years beginning after June 15,
2000 and miscellaneous initial application procedures. The Company currently
does not own any derivative instruments. Therefore, management does not believe
that these statements will have a significant impact on the Company.

                                       19
<PAGE>

CAPITAL ADEQUACY REQUIREMENTS

     At September 30, 1999 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 July 30, 1999 the Company contributed $2.4 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, 1999 and December 31, 1998.

     REGULATORY CAPITAL INFORMATION
     OF THE COMPANY AND BANK

<TABLE>
<CAPTION>

                                   WELL CAPITALIZED  SEPTEMBER 30, DECEMBER 31,
                                      STANDARDS         1999          1998
                                   ----------------  ------------- -------------
     <S>                           <C>               <C>           <C>
     COMPANY:

     Tier 1 leverage .............        N/A           8.97%         8.78%
     Tier 1 risk-based capital ...        N/A          16.23%        17.38%
     Total risk-based capital ....        N/A          17.50%        18.65%

     BANK:

     Tier 1 leverage .............        5.00%         8.35%         6.69%
     Tier 1 risk-based capital ...        6.00%        15.07%        13.48%
     Total risk-based capital ....       10.00%        16.34%        14.75%

</TABLE>

LIQUIDITY

The Company continues to manage its liquidity through a combination of core
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. Average core deposits (excludes money desk and
escrow deposits) and shareholders' equity comprised 76.7% of total funding in
the third quarter of 1999, compared to 72.2% in the fourth quarter of 1998.

ASSET LIABILITY MANAGEMENT

     The following table shows that the Company's cumulative one year interest
rate sensitivity gap indicated a liability sensitive position of $10.2 million
at September 30, 1999, an increase from a liability sensitive position of $7.6
million at December 31, 1998, as a result of increased deposits and other
borrowings that mature or reprice within one year. During the last nine months,
the Company has decreased its available-for-sale investment securities portfolio
that reprices after one year to

                                       20
<PAGE>

$44.2 million at September 30, 1999 from $53.2 million at December 31, 1998,
increased its portfolio of loans that reprice after one year to $21.3 million at
September 30, 1999 from $17.0 million at December 31, 1998, and increased its
interest bearing transaction deposit accounts and borrowed funds that reprice
within one year to $58.3 million from $50.9 million during this same period. The
Company's liability sensitive position during a period of slowly rising or
declining 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-bearing demand, savings and money market deposit accounts historically
have not increased proportionately with changes in interest rates.

RATE-SENSITIVE ASSETS AND LIABILITIES

<TABLE>
<CAPTION>

                                                                          SEPTEMBER 30, 1999
                                                      ------------------------------------------------------------------
                                                                       MATURING OR REPRICING IN
                                                      ------------------------------------------------------------------
                                                        LESS        AFTER THREE    AFTER ONE
                                                        THAN          MONTHS         YEAR
                                                        THREE       BUT WITHIN     BUT WITHIN       AFTER
                                                        MONTHS       ONE YEAR       5 YEARS        5 YEARS       TOTAL
                                                      ---------     -----------    -----------    ---------   ----------
                                                                        (DOLLARS IN THOUSANDS)
     <S>                                              <C>           <C>            <C>            <C>         <C>
     Rate-Sensitive Assets:
     Federal funds sold and securities
        purchased under agreements to resell ....     $  8,300        $   -          $   -        $    -       $  8,300
     Securities available-for-sale ..............       16,809          6,571         33,958        10,194       67,532
     FRB and other stock, at cost ...............          -              -              -           1,643        1,643
     Loans receivable ...........................       31,657         16,842         11,538         9,756       69,793
                                                        ------         ------         ------        ------      -------
        Total rate-sensitive assets .............       56,766         23,413         45,496        21,593      147,268

     Rate-Sensitive Liabilities: (1)
     Interest bearing deposits:
        Demand, money market and savings ........       39,272            -              -             -         39,272
        Time certificates of deposit ............       18,920         13,190          3,635           547       36,292
     Federal funds purchased and securities
      sold under agreements to repurchase .......        2,021            -              -             -          2,021
     Other borrowings ...........................       17,000            -            2,500           -         19,500
                                                        ------         ------         ------        ------      -------
        Total rate-sensitive liabilities ........       77,213         13,190          6,135           547       97,085
     Interest rate-sensitivity gap ..............      (20,447)        10,223         39,361        21,046       50,183
                                                       ----------------------------------------------------------------
                                                       ----------------------------------------------------------------
     Cumulative interest rate-sensitivity gap ...     $(20,447)      $(10,224)      $ 29,137      $ 50,183
                                                        ------         ------         ------        ------
                                                        ------         ------         ------        ------
     Cumulative ratio of rate sensitive assets to
        rate-sensitive liabilities ..............           74%            89%           130%          152%
                                                        ------         ------         ------        ------
                                                        ------         ------         ------        ------
</TABLE>

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

(1)      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.


                                      21
<PAGE>

RATE-SENSITIVE ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
                                                                               DECEMBER 31, 1998
                                                      ------------------------------------------------------------------
                                                                            MATURING OR REPRICING IN
                                                      ------------------------------------------------------------------
                                                        LESS        AFTER THREE    AFTER ONE
                                                        THAN          MONTHS         YEAR
                                                        THREE       BUT WITHIN     BUT WITHIN       AFTER
                                                        MONTHS       ONE YEAR       5 YEARS        5 YEARS       TOTAL
                                                      ---------     -----------    -----------    ---------   ----------
                                                                        (DOLLARS IN THOUSANDS)
     <S>                                              <C>           <C>            <C>            <C>         <C>
     Rate-Sensitive Assets:
     Interest-bearing deposits with other
       financial institutions ...................     $    -          $   -          $   -         $    -        $    -
     Federal funds sold and securities
       purchased under agreements to resell .....        6,800            -              -              -           6,800
     Securities held-to-maturity ................          -              -              -              -             -
     Securities available-for-sale ..............       15,881          1,414          2,183         50,980        70,458
     FRB and other stock, at cost ...............          -              -              -            1,391         1,391
     Loans receivable ...........................       23,562         16,391         11,738          5,281        56,972
                                                        ------         ------         ------         ------       -------
           Total rate-sensitive assets ..........       46,243         17,805         13,921         57,652       135,621

     Rate-Sensitive Liabilities: (1)
     Interest bearing deposits:
        Demand, money market and savings ........       30,550            -              -              -          30,550
        Time certificates of deposit ............        9,743         11,089          7,668            547        29,047
     Federal funds purchased and securities
       sold under agreements to repurchase ......        1,000            -              -              -           1,000
     Other borrowings ...........................       15,800          3,500            -              -          19,300
                                                        ------         ------         ------         ------       -------
        Total rate-sensitive liabilities ........       57,093         14,589          7,668            547        79,897

     Interest rate-sensitivity gap ..............      (10,850)         3,216          6,253         57,105        55,724
                                                      -------------------------------------------------------------------
                                                      -------------------------------------------------------------------
     Cumulative interest rate-sensitivity gap ...     $(10,850)      $ (7,634)      $ (1,381)      $ 55,724
                                                        ------         ------         ------         ------
                                                        ------         ------         ------         ------
     Cumulative ratio of rate sensitive assets to
       rate-sensitive liabilities ...............           81%            89%            98%           170%
                                                        ------         ------         ------         ------
                                                        ------         ------         ------         ------
</TABLE>

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

(1)      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.


                                       22
<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.

     Addressing the risks posed by the Year 2000 problem is among the Company's
highest priorities. The Company has established a comprehensive program
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 the Company will be able to conduct normal
business before, during and after the century date change.

     During 1997, the Company formed a Year 2000 team, consisting of the senior
managers from each operational area of the Company. The team first evaluated the
overall issue and identified risks posed by the century date change and
established a plan to address these risks.

     By June 30, 1999, the Company's plan on assessment, renovation, validation
and contingency planning to address the Year 2000 issue was complete. The
Company has obtained Year 2000 certifications from all mission critical service
bureaus, software providers and vendors or suppliers. Testing with non-mission
critical service bureaus, software providers, vendors or suppliers and/or other
significant third parties was substantially completed during the third quarter
of 1999. An alternative vendor contingency plan has been completed for
non-mission critical vendors who have not yet certified compliance and vendors
with priority ranking as to catastrophic, severe and sustainable.

     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 an
assessment of loans, over a certain dollar volume, which may have exposure to
Year 2000 issues. The Company has determined that loans representing
approximately 43% of the dollar volume of its loan portfolio are not
collateralized by real estate. Further, the Company is not aware of any pending
Year 2000 issues that would have caused the Company not to extend credit to the
borrowers where loan repayment is more dependent on cash flows than on possibly
sale of collateral. The Company

                                       23
<PAGE>


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 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 borrowers' understanding of the potential Year 2000 issues
and the borrowers' determination of the impact on its ability to fulfill
contractual loan obligations. As a result, there may be increases in the
Company's problem loans and credit losses in future years. Although it is not
possible to quantify the complete potential impact of such losses at this time,
management has no current information which would lead it to believe that these
potential losses would be material.

     The financial impact of making the required systems testing and enhancement
described above is expected to be approximately $85,000. Approximately $65,000
has been expended as of September 30, 1999.

     The Company has developed contingency plans for implementation in the event
that mission critical service bureaus, software providers, vendors, suppliers or
other significant third parties fail to adequately address Year 2000 issues.
While these plans have been tested and validated, 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.

     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 actual results could differ materially from 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,

                                       24
<PAGE>

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.

FACTORS WHICH MAY AFFECT FUTURE OPERATING RESULTS

     The Company's results of operations and financial condition are affected by
many factors, including the following.

CHANGING ECONOMIC CONDITIONS

     The Company's results of operation and financial condition are strongly
influenced by economic conditions in its market area (principally the Los
Angeles metropolitan area) as well as regional and national economic conditions
and in its niche markets, including the entertainment industry in Southern
California. During the past several years economic conditions in these areas
have been favorable. A deterioration in these economic conditions could affect
the financial condition and cash flows of its borrowers, which could lead to
higher levels of loan defaults, a decline in the value of collateral for the
loans. In addition, an unfavorable economy could reduce the demand for the
Company's loans and other products and services.

INTEREST RATE RISK

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

     --   The Company's ability to originate loans;

     --   The ability of borrowers to make payments on loans;

     --   The value of its interest-earning assets and its ability to realize
          gains from the sale of these assets;

     --   The average life of its interest-earning assets; and

     --   The Company's ability to obtain deposits instead of other available
          investment alternatives.

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

                                       25
<PAGE>

RISK OF DECLINES IN ASSET QUALITY

     The Company's results of operations depend significantly on the quality of
its assets. While the Company has developed and implemented underwriting
policies and procedures in connection with the making of loans, compliance with
these policies and procedures in making loans does not guarantee repayment of
the loans. High levels of non-performing assets will adversely affect the
Company's results of operations and financial condition. A borrower's ability to
pay its loan in accordance with its terms can be adversely affected by a number
of factors, such as a decrease in the borrower's revenues and cash flows due to
adverse changes in economic conditions or a decline in the demand for the
borrower's products and/or services. The Company has devoted and continues to
devote substantial time and resources to the identification, collection and
workout of non-performing assets, which has resulted in a significant decrease
in its nonperforming assets from $12.0 million, or 5.2%, of total assets at
December 31, 1994 to $1.5 million, or 1%, of total assets at September 30, 1999.
However, no assurance can be given that the Company will not have material
additional non-performing assets in the future.

ADEQUACY OF ALLOWANCES FOR LOSSES

     The Company establishes allowances for credit losses against each segment
of its loan portfolio. At September 30, 1999, its allowance for credit losses
equaled 3.1% of loans receivable and 223.6% of nonperforming loans. Although the
Company believes that it had established adequate allowances for credit losses
as of September 30, 1999, credit quality is affected by many factors beyond the
control of the Company, including local and national economies, and facts may
exist which are not known to the Company which adversely affect the likelihood
of repayment of various loans in the loan portfolio and realization of the
collateral upon a default. Accordingly, no assurance can be given that the
Company will not sustain loan losses materially in excess of the allowance for
credit losses. In addition, the OCC, as an integral part of its examination
process, periodically reviews its allowance for credit losses and could require
additional provisions for credit losses. Material future additions to the
allowance for loan losses may also be necessary due to increases in the size of
the loan portfolio. Increases in the provisions for credit losses would
adversely affect its results of operations.

COMPETITION

     The banking business is highly competitive. The Company's primary service
area is dominated by a relatively small number of major banks which have many
offices over a wide geographic area and much greater name recognition.
Increasing competition in the markets for the Company's products and services
can reduce the demand for the Company's products and services and require the
Company to originate those products and services on less favorable terms.

                                       26
<PAGE>

REGULATION

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

                                       27
<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.

          None

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  15, 1999       /s/   SCOTT A. MONTGOMERY
         --------------------     -------------------------------------
                                        SCOTT A. MONTGOMERY
                                        Chief Executive Officer

DATE:    NOVEMBER  15, 1999       /s/   JOSEPH W. KILEY III
         --------------------     --------------------------------------
                                        JOSEPH W. KILEY, III
                                        Chief Financial Officer




                                       28