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December 5, 2005

Angela Connell

Senior Accountant

United States Securities and Exchange Commission

450 Fifth Street, N.W.

Washington, D.C. 20549

Dear Ms. Connell:

This letter is written in response to your letter dated November 17,
2005 in which you requested information regarding National Mercantile Bancorp’s
accounting for derivative instruments and hedging activities, specifically, the
$15 million interest rate swaption (the “Swaption”) designated as a fair value hedge of $15 million
of our junior subordinated deferrable interest debentures (the “Debentures”).

The detailed terms of the Debentures and Swaption
follows:

  Debentures

  Swaption

  Maturity/expiration

  July 25, 2031

  July 25, 2031

  Interest rate

  10.25% fixed

  Fixed rate payor

  Salomon Smith Barney

  Fixed rate

  10.25%

  Floating rate payor

  National Mercantile Bancorp

  Floating rate

  6-month LIBOR + 458 bp

  Payment dates

  Each January 25 and July 25

  Each January 25 and July 25

  Floating rate reset date

  Each January 25 and July 25

  Interest rate caps/floors

  None

  None

  Optional early termination

  Redemption Price*:

  Optional Early Termination

  Fee**:

  July 25, 2006

  107.6875

  %

  July 25, 2006

  7.6875

  %

  July 25, 2007

  106.1500

  %

  July 25, 2007

  6.1500

  %

  July 25, 2008

  104.6125

  %

  July 25, 2008

  4.6125

  %

  July 25, 2009

  103.0750

  %

  July 25, 2009

  3.0750

  %

  July 25, 2010

  101.5375

  %

  July 25, 2010

  1.5375

  %

  July 25, 2011 and after

  100

  %

  July 25, 2011 and after

  0

  %

  *Redemption Price is the price set forth for any redemption that
  occurs within the 12-month period beginning in the date shown, expressed as a
  percentage of principal.

  **Salomon holds an option of early termination with payment of the
  product of (i) Swap notional amount and
  (ii) Optional Early Termination Fee.

We structured the derivative (an interest rate swap with an early
termination option) so that the terms of the Swaption
would mirror the terms of the Debentures, including the early

termination
option at matching option premiums, in order to increase hedge
effectiveness.  We want to clarify that
the Swaption is an interest rate swap with an option
for early termination by the counterparty on terms that mirror our early
redemption option on our Debentures rather than an agreement that provides us
an option to enter into an interest rate swap.

Regarding the assessment of hedge effectiveness, the prepayment option
in the Debentures results in not all of the conditions required under paragraph
68 of SFAS 133 being present for the assumption of
no ineffectiveness.   Accordingly, we
determine the fair value of the Debentures and the Swaption.  There is no observable market for our
Debentures; accordingly, the pricing model utilized for the Swaption
is used to determine the fair value of our Debentures.  The terms of the Swaption,
including the early termination option, exactly match without exception the
terms of the Debentures, consequently, we are not making an assumption of no ineffectiveness but rather the Swap has de facto no hedge ineffectiveness.

Please contact me at 310-282-6703 if you require any additional
information.

Sincerely,

David R. Brown

Executive Vice President

Chief Financial Officer