COMBANCORP, PRER14A, 1996-07-26

COMBANCORP
PRER14A, 1996-07-26
STATE COMMERCIAL BANKS

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[COMBANCORP STATIONERY]
August 2, 1996

Dear Fellow Shareholder:

A Special Meeting of Shareholders of COMBANCORP will be held at the
Wyndham Garden Hotel (Salon A, Main Floor), 5757 Telegraph Road, City of
Commerce, California on August 29, 1996, at 10:00 a.m., Pacific Time.

At the Special Meeting, you will be asked to consider and vote on the
approval and adoption of an Agreement and Plan of Merger, dated as of May 22,
1996, which provides for the acquisition of COMBANCORP by BanPonce Corporation
("BanPonce") through a merger of a wholly-owned indirect subsidiary of BanPonce
with and into COMBANCORP. In addition, you will be asked to consider and vote
on the approval and adoption of a related Agreement of Merger which will be
executed and filed with the Secretary of State of the State of California to
effect the merger. In the proposed merger, each outstanding share of COMBANCORP
Common Stock (other than dissenters' shares) will be converted into the right to
receive $17.31 in cash.

YOUR BOARD OF DIRECTORS HAS APPROVED THE MERGER PROPOSAL DESCRIBED IN THE
ATTACHED PROXY STATEMENT AND HAS DETERMINED THAT IT IS FAIR TO, AND IN THE BEST
INTERESTS OF, COMBANCORP AND ITS SHAREHOLDERS. AFTER CAREFUL CONSIDERATION,
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSED MERGER. THE
EXECUTIVE OFFICERS AND DIRECTORS OF COMBANCORP HAVE CONFLICTS OF INTEREST WITH
RESPECT TO THE TRANSACTION. SEE "THE MERGER -- CONFLICTS OF INTEREST OF CERTAIN
PERSONS IN THE MERGER" IN THE ENCLOSED PROXY STATEMENT.

Accompanying this letter, you will find a Notice of Special Meeting of
Shareholders, a Proxy Statement relating to the actions to be taken by
COMBANCORP shareholders at the Special Meeting and a proxy card. The Proxy
Statement more fully describes the proposed merger and includes additional
information about COMBANCORP.

All shareholders are cordially invited to attend the Special Meeting in
person. However, whether or not you plan to attend the Special Meeting, please
complete, sign, date and return your proxy card in the enclosed envelope. If
you attend the Special Meeting, you may vote in person if you wish, even though
you have previously returned your proxy card. It is important that your shares
be represented and voted at the Special Meeting.

Sincerely,

RICHARD F. DEMERJIAN
Chairman of the Board and President

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Your vote is important. Even if you have sold shares since the July 19,
1996 Record Date, only you are entitled to vote such shares. If your COMBANCORP
shares were held by your broker on the Record Date, you must instruct your
broker how to vote the shares. Please complete, sign and date the enclosed
proxy card and mail it promptly in the enclosed return envelope.
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COMBANCORP
6001 East Washington Boulevard
City of Commerce, California 90040
-----------------------------------------

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 29, 1996
-----------------------------------------

NOTICE IS HEREBY GIVEN of a Special Meeting of Shareholders of COMBANCORP,
a California corporation, to be held on Thursday, August 29, 1996 at the Wyndam
Garden Hotel (Salon A, Main Floor), 5757 Telegraph Road, City of Commerce,
California, at 10:00 a.m., Pacific Time (the "Special Meeting"), to consider
and vote upon the following matter:

The approval and adoption of an Agreement and Plan of Merger, dated as of
May 22, 1996 (the "Reorganization Agreement"), by and among BanPonce
Corporation, a Puerto Rico corporation ("BanPonce"), BanPonce Merger Corp., a
California corporation and a wholly-owned indirect subsidiary of BanPonce
("Merger Sub"), and COMBANCORP, and a related Agreement of Merger to be executed
by COMBANCORP and Merger Sub and filed with the Secretary of State of the State
of California (the "Merger Agreement") (the Reorganization Agreement and the
Merger Agreement together being referred to as the "Acquisition Agreement")
pursuant to which Merger Sub will merge with and into COMBANCORP and each share
of COMBANCORP Common Stock then outstanding (other than dissenters' shares) will
be converted without any action on the part of the holder thereof into the right
to receive $17.31 in cash. A copy of the Reorganization Agreement is attached
as Appendix A to the accompanying Proxy Statement and a copy of the Merger
Agreement is attached as Exhibit 8.1 to the Reorganization Agreement.

The Board of Directors of COMBANCORP has approved the Acquisition Agreement
and the transactions contemplated thereby and recommends that shareholders vote
"FOR" approval and adoption of the Acquisition Agreement and such transactions.
The directors and officers of COMBANCORP have certain conflicts of interest with
respect to the transactions. See "THE MERGER -- Conflicts of Interest of
Certain Persons in the Merger" in the accompanying Proxy Statement.

Only holders of record of shares of COMBANCORP Common Stock at the close of
business on July 19, 1996 are entitled to notice of and to vote at the Special
Meeting and any adjournment thereof. Under California law, the affirmative vote
of the holders of a majority of the outstanding shares of COMBANCORP Common
Stock is necessary to approve and adopt the Acquisition Agreement.

Shareholders of COMBANCORP who vote against the Acquisition Agreement or
who abstain from voting and who comply with the requirements of Chapter 13 of
the California General Corporation Law have the right to seek appraisal of the
fair value of their shares of

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COMBANCORP Common Stock. See "DISSENTERS' RIGHTS" in the accompanying Proxy
Statement.

BY ORDER OF THE BOARD OF DIRECTORS,

Esther G. Wilson
Corporate Secretary

City of Commerce, California
AUGUST 2, 1996

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PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING. YOUR PROXY WILL BE
REVOCABLE, EITHER IN WRITING OR BY VOTING IN PERSON AT THE SPECIAL MEETING, AT
ANY TIME PRIOR TO ITS EXERCISE AT THE MEETING. A RETURN ENVELOPE IS ENCLOSED
FOR YOUR CONVENIENCE AND REQUIRES NO POSTAGE FOR MAILING IN THE UNITED STATES.
SHAREHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
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<PAGE>

PROXY STATEMENT
OF
COMBANCORP

This Proxy Statement is furnished by COMBANCORP, a California corporation,
to be used in soliciting proxies of holders of Common Stock of COMBANCORP
("COMBANCORP Common Stock") in connection with the proposed merger (the
"Merger") of COMBANCORP and BanPonce Merger Corp., a California corporation and
a wholly-owned indirect subsidiary ("Merger Sub") of BanPonce Corporation, a
Puerto Rico Corporation ("BanPonce"), pursuant to an Agreement and Plan of
Merger, dated as of May 22, 1996, by and among BanPonce, COMBANCORP and Merger
Sub and a related Agreement of Merger by and between COMBANCORP and Merger Sub
to be filed with the Secretary of State of the State of California to effect the
Merger.

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AVAILABLE INFORMATION

COMBANCORP is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files periodic and other reports, proxy statements and other
information with the Securities and Exchange Commission (the "SEC") relating to
its business, financial affairs and other matters.

The periodic and other reports, proxy statements and other information
filed with the SEC by COMBANCORP pursuant to the Exchange Act may be inspected
and copied at prescribed rates at the public reference facilities maintained by
the SEC at Room 1024, 450 Fifth Street, Washington, D.C. 20549, and should be
available for inspection and copying at the regional offices of the SEC located
at 7 World Trade Center, 13th floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661.

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

No person is authorized to give any information or to make any
representation not contained in this Proxy Statement, and if given or made, such
information or representation should not be relied upon as having been
authorized by COMBANCORP. This Proxy Statement does not constitute the
solicitation of a proxy in any jurisdiction in which, or from any person from
whom in any jurisdiction, it is unlawful to make such proxy solicitation. The
delivery of this Proxy Statement shall not, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of COMBANCORP since the date of this Proxy Statement.

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

This Proxy Statement is dated, and the approximate date the proxy materials
were first mailed to COMBANCORP shareholders was, August 2, 1996.

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TABLE OF CONTENTS

Page

SUMMARY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 1
Date, Time and Place of the Special Meeting . . . . . . . . . . . . . . 2
Purpose of the Special Meeting. . . . . . . . . . . . . . . . . . . . . 2
Record Date; Shares Entitled to Vote; Vote Required . . . . . . . . . . 2
Market Price of COMBANCORP Common Stock Prior
to Announcement of Merger . . . . . . . . . . . . . . . . . . . . . . 2
Dissenters' Rights. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Description of the Merger; Merger Consideration . . . . . . . . . . . . 3
Surrender of COMBANCORP Certificates. . . . . . . . . . . . . . . . . . 3
Recommendation of the COMBANCORP Board of Directors;
Opinion of COMBANCORP's Financial Advisor . . . . . . . . . . . . . . . 4
Conflicts of Interest of Certain Persons in the Merger. . . . . . . . . 4
COMBANCORP 1993 Stock Option Plan . . . . . . . . . . . . . . . . . . . 5
Conditions of the Merger; Waiver; Amendment . . . . . . . . . . . . . . 5
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Governmental and Regulatory Approvals . . . . . . . . . . . . . . . . . 6
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 6
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . 6

SELECTED FINANCIAL DATA. . . . . . . . . . . . . . . . . . . . . . . . . . . 7

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING. . . . . . . . . . . . . . . . 9

VOTING AND PROXIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Record Date; Vote Required; Proxies . . . . . . . . . . . . . . . . . . 10
Solicitation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Stock Ownership of Management and Certain Beneficial Owners . . . . . . 11

THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Background. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Reasons for the Merger. . . . . . . . . . . . . . . . . . . . . . . . . 14
Merger Consideration; Description of the Merger . . . . . . . . . . . . 16
Recommendation of the COMBANCORP Board of Directors . . . . . . . . . . 16
Opinion of COMBANCORP's Financial Advisor . . . . . . . . . . . . . . . 16
Operations of COMBANCORP After the Merger . . . . . . . . . . . . . . . 22
Conflicts of Interest of Certain Persons in the Merger. . . . . . . . . 22

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Page

Severance Agreements. . . . . . . . . . . . . . . . . . . . . . . . . . 22
COMBANCORP 1993 Stock Option Plan . . . . . . . . . . . . . . . . . . . 23
Surrender of Certificates Representing COMBANCORP Common Stock. . . . . 23
Conditions of the Merger; Waiver; Amendment . . . . . . . . . . . . . . 24
Conduct of Business; Certain Covenants. . . . . . . . . . . . . . . . . 24
Deregistration of COMBANCORP Common Stock After the Merger. . . . . . . 26
Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Accounting Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . 27

CERTAIN FEDERAL INCOME TAX CONSEQUENCES. . . . . . . . . . . . . . . . . . . 27

DISSENTERS' RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

INFORMATION CONCERNING COMBANCORP. . . . . . . . . . . . . . . . . . . . . . 31
Business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Market Price of Common Stock and Dividend Information . . . . . . . . . 59

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993 . . . . . . . . . . . . . . . . . . 60
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 63
Liquidity and Interest Rate Sensitivity . . . . . . . . . . . . . . . . 66
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Risk Elements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Effects of Inflation. . . . . . . . . . . . . . . . . . . . . . . . . . 68
Recent Accounting Developments. . . . . . . . . . . . . . . . . . . . . 69

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995 . . . . . . . . . . . . 70
Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . 72
Liquidity and Interest Rate Sensitivity . . . . . . . . . . . . . . . . 73
Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

INDEPENDENT PUBLIC ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . 75

OTHER MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

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SUMMARY

THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN
ITS ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT AND IN THE APPENDICES HERETO AND THE DOCUMENTS REFERRED TO AND
INCORPORATED BY REFERENCE HEREIN. SHAREHOLDERS ARE URGED TO READ THIS PROXY
STATEMENT AND THE APPENDICES HERETO IN THEIR ENTIRETY.

PARTIES TO THE MERGER

COMBANCORP AND COMMERCE NATIONAL BANK

COMBANCORP, a California corporation, is a registered bank holding company
that was incorporated in 1982 to acquire all of the outstanding shares of
Commerce National Bank, a national banking association (the "Bank"). At March
31, 1996, COMBANCORP had total consolidated assets of approximately $69.0
million and shareholders' equity of approximately $6.2 million. The Bank is a
full-service commercial bank providing a full range of deposit, investment and
credit services for business and individual customers. The primary service area
of the Bank includes the City of Commerce, Downey, Montebello, Bell Gardens,
Whittier, Lynwood, South Gate, Pico Rivera, Santa Fe Springs, Los Angeles and
portions of Vernon, all located in California. At March 31, 1996, the Bank had
total assets of approximately $69.0 million and total deposits of approximately
$62.5 million. COMBANCORP has no operations other than those of the Bank and
has no other subsidiaries. The mailing address and telephone number of the
principal executive offices of COMBANCORP and the Bank are 6001 E. Washington
Boulevard, City of Commerce, California 90004, (213)724-8800.

BANPONCE CORPORATION AND BANPONCE MERGER CORP.

BanPonce Corporation, a Puerto Rico corporation organized in 1984
("BanPonce"), is a bank holding company which provides full-service commercial
banking and other financial services through four subsidiaries in Puerto Rico
and the continental United States. At March 31, 1996, BanPonce had total
consolidated assets of approximately $15.8 billion and stockholders' equity of
approximately $1.2 billion.

BanPonce Merger Corp., a California corporation ("Merger Sub"), is a
corporation recently organized by BanPonce for the purpose of effecting the
acquisition of COMBANCORP. It has no material assets and has not engaged in any
activities except in connection with such proposed acquisition. The mailing
address and telephone number of the principal executive offices of BanPonce and
Merger Sub are 209 Munoz Rivera Avenue, Hato Rey, Puerto Rico 00918, (809)765-
9800.

<PAGE>

DATE, TIME AND PLACE OF THE SPECIAL MEETING

The Special Meeting of Shareholders of COMBANCORP, including any
adjournment thereof (the "Special Meeting"), will be held on Thursday, August
29, 1996, at 10:00 a.m., Pacific Time, at the Wyndam Garden Hotel (Salon A,
Main Floor), 5757 Telegraph Road, City of Commerce, California. See
"INTRODUCTION."

PURPOSE OF THE SPECIAL MEETING

The purpose of the Special Meeting is to consider and vote upon a proposal
(the "Merger Proposal") to approve and adopt an Agreement and Plan of Merger,
dated as of May 22, 1996 (the "Reorganization Agreement"), by and among
BanPonce, COMBANCORP and Merger Sub and a related Agreement of Merger to be
executed by and between COMBANCORP and Merger Sub and filed with the Secretary
of State of the State of California (the "Merger Agreement") (the Reorganization
Agreement and the Merger Agreement together shall be referred to as the
"Acquisition Agreement"), pursuant to which Merger Sub will merge with and into
COMBANCORP (the "Merger"), with COMBANCORP as the surviving corporation (the
"Surviving Corporation") and each share of common stock of COMBANCORP (the
"COMBANCORP Common Stock") then outstanding (other than dissenters' shares) will
be converted without any action on the part of the holder thereof into the right
to receive $17.31 in cash (the "Merger Consideration"). A copy of the
Reorganization Agreement is attached to this Proxy Statement as Appendix A and a
copy of the Merger Agreement is attached as Exhibit 8.1 to the Reorganization
Agreement and each is incorporated herein by reference.

RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED

Only holders of record of shares of COMBANCORP Common Stock at the close of
business on July 19, 1996 (the "Record Date") will be entitled to notice of and
to vote at the Special Meeting. At the close of business on the Record Date,
there were 565,789 shares of COMBANCORP Common Stock outstanding, held by
approximately 346 holders of record.

The affirmative vote of the holders of a majority of the shares of
COMBANCORP Common Stock outstanding on the Record Date is required to approve
the Merger Proposal. As of the Record Date, COMBANCORP executive officers and
directors owned an aggregate of 163,782 shares of COMBANCORP Common Stock,
representing approximately 29.0% of the outstanding shares of COMBANCORP Common
Stock. Such persons intend to vote their shares in favor of the Merger
Proposal. See "VOTING and PROXIES."

MARKET PRICE OF COMBANCORP COMMON STOCK PRIOR TO ANNOUNCEMENT OF MERGER

On April 25, 1996, the last full trading day prior to the joint public
announcement by COMBANCORP and BanPonce of the proposed Merger, the reported bid
price for COMBANCORP Common Stock was $9.125 per share.

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DISSENTERS' RIGHTS

Holders of shares of COMBANCORP Common Stock who comply with the specific
legal requirements of Chapter 13 of the General Corporation Law of the State of
California (the "California GCL") are entitled to rights of appraisal with
respect to such shares. Shareholders electing to exercise their appraisal
rights under Chapter 13 must vote against the Merger Proposal or specify a
direction to abstain. If a shareholder returns a signed proxy but does not
specify a vote against the Merger Proposal or a direction to abstain, the proxy
will be voted for the Merger Proposal, which will have the effect of waiving
that shareholder's appraisal rights. In addition, in order for any shareholder
to perfect appraisal rights, the shareholder, after receipt of notice of
approval of the Merger Proposal by COMBANCORP, must make written demand upon
COMBANCORP, Attention Secretary, at 6001 E. Washington Blvd., City of Commerce,
California 90004 for the purchase of his or her shares and submit certificates
representing his or her shares to COMBANCORP or its transfer agent. See
"DISSENTERS' RIGHTS" and Appendix C.

DESCRIPTION OF THE MERGER; MERGER CONSIDERATION

The Acquisition Agreement provides that, if the Merger Proposal is approved
by the shareholders of COMBANCORP and all other conditions to the consummation
of the Merger have been satisfied or waived, (a) Merger Sub will be merged with
and into COMBANCORP, (b) COMBANCORP will become a wholly-owned indirect
subsidiary of BanPonce and (c) each share of COMBANCORP Common Stock then
outstanding (other than dissenters' shares) will be converted without any action
on the part of the holder thereof into the right to receive the Merger
Consideration.

The Merger will be effective upon the filing of the Merger Agreement,
together with required officers' certificates, with the Secretary of State of
the State of California in accordance with the California GCL, which filing will
be made as promptly as practicable after the Merger Proposal is approved at the
Special Meeting and after all other conditions to the consummation of the Merger
have been satisfied or waived (the date of such filing being the "Effective
Date" and the time of such filing being the "Effective Time"). It is presently
anticipated that, subject to the satisfaction or waiver of the other conditions
to the consummation of the Merger, such filing will be made on the date of the
Special Meeting. See "THE MERGER -- Conditions of the Merger; Waiver;
Amendment."

SURRENDER OF COMBANCORP CERTIFICATES

Promptly after consummation of the Merger, COMBANCORP's transfer agent,
Wells Fargo Bank, N.A., will mail a letter of transmittal with instructions to
all holders of record of COMBANCORP Common Stock as of the Effective Time for
use in exchanging their COMBANCORP stock certificates for the Merger
Consideration. STOCK CERTIFICATES SHOULD NOT BE SURRENDERED UNTIL THE LETTER OF
TRANSMITTAL IS

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RECEIVED. See "THE MERGER -- Surrender of Certificates Representing COMBANCORP
Common Stock."

RECOMMENDATION OF THE COMBANCORP BOARD OF DIRECTORS;
OPINION OF COMBANCORP'S FINANCIAL ADVISOR

The Board of Directors of COMBANCORP believes that the terms of the Merger
are fair to, and in the best interests of, COMBANCORP and its shareholders and
recommends to shareholders of COMBANCORP that they vote "FOR" the Merger
Proposal. Certain executive officers and directors of COMBANCORP have conflicts
of interest with respect to the transaction. See "THE MERGER -- Conflicts of
Interest of Certain Persons in the Merger."

COMBANCORP has retained The Secura Group ("Secura") to act as its financial
advisor in connection with the Merger. Secura has delivered to the COMBANCORP
Board of Directors its written opinion, dated as of July __, 1996, to the effect
that, as of such date and based upon the matters described therein, the Merger
Consideration to be received by the holders of COMBANCORP Common Stock was fair,
from a financial point of view, to such shareholders (the "Fairness Opinion").
The opinion of Secura is directed to the fairness of the Merger Consideration
and does not constitute a recommendation to any shareholder as to how to vote at
the Special Meeting. Reference is made to the full text of the Fairness
Opinion, a copy of which is attached as Appendix B, for the specific assumptions
made and matters considered by Secura. This opinion should be read in its
entirety by COMBANCORP shareholders. See "THE MERGER -- Background,"
"-- Recommendation of the COMBANCORP Board of Directors" and "-- Opinion of
COMBANCORP's Financial Advisor."

CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER

On the Effective Date, the Bank will enter into severance agreements (the
"Severance Agreements") with each of Richard F. Demerjian and Esther G. Wilson,
each of whom is an executive officer and director of COMBANCORP and the Bank.
The Severance Agreements provide that if the Merger Agreement is consummated and
either of Mr. Demerjian's or Mr. Wilson's employment with the Bank is terminated
(except under certain circumstances) within one year of the Effective Date of
the Merger, the Bank will pay to such person, in addition to accrued salary and
benefits, an amount in cash equal to the sum of his or her annual salary in
effect immediately prior to the date of termination (currently $151,505, in the
case of Mr. Demerjian, and $98,817, in the case of Ms. Wilson) and $25,000 (in
the case of Mr. Demerjian) or $12,500 (in the case of Ms. Wilson), plus the
annualized amount of other employee benefits paid or accrued during the
preceding year. See "THE MERGER -- Severance Agreements."

Pursuant to the Reorganization Agreement, all outstanding stock options to
acquire COMBANCORP Common Stock, including those held by executive officers and
directors of COMBANCORP, will be cancelled and converted into the right to
receive $10.31 per share. The directors and executive officers of COMBANCORP
will receive the following amounts, less

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applicable withholding taxes, attributable to the cancellation of their Stock
Options: Mr. Demerjian, $193,313; Mr. Glover, $51,550; Mr. Minasian, $51,550;
Mr. Oppenheim, $51,550; Mr. Pace, $51,550; Mr. Strayer, $51,550 and Ms. Wilson,
$128,875. See "THE MERGER -- COMBANCORP 1993 Stock Option Plan."

COMBANCORP 1993 STOCK OPTION PLAN

The Reorganization Agreement provides that each outstanding option to
purchase COMBANCORP Common Stock ("Stock Option") granted under the COMBANCORP
1993 Stock Option Plan, as amended (the "Option Plan"), whether or not
exercisable, shall be cancelled by COMBANCORP and converted into the right to
receive $10.31 per share of COMBANCORP Common Stock subject to such Stock
Options. See "THE MERGER -- COMBANCORP 1993 Stock Option Plan.

CONDITIONS OF THE MERGER; WAIVER; AMENDMENT

In addition to approval by the shareholders of COMBANCORP, the consummation
of the Merger is conditioned upon (a) receipt of required regulatory approvals
by the Federal Reserve Board and other governmental regulatory agencies; (b) the
absence of any order, decree or injunction of, or litigation or proceeding
before, any court or agency enjoining or prohibiting, or seeking to enjoin or
prohibit, the consummation of the Merger; (c) the absence of any statute, rule,
regulation, order, injunction or decree enacted, entered or promulgated by any
governmental authority seeking to prevent consummation of the transactions
contemplated by the Reorganization Agreement; (d) the Bank having entered into
the Severance Agreements with Mr. Demerjian and Ms. Wilson; and (e) certain
other conditions applicable to the various parties. The Reorganization
Agreement also provides that prior to the Effective Time, any provisions of the
Reorganization Agreement may be waived by the party benefitted by the provision,
or amended or modified at any time (including a change to the structure of the
transaction) by an agreement in writing between the parties to the
Reorganization Agreement approved by their respective Boards of Directors,
except that, after the vote by the shareholders of COMBANCORP, no amendment may
be made that would contravene California law. See "THE MERGER -- Conditions of
the Merger; Waiver; Amendment."

TERMINATION

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<PAGE>

or not curable within 30 days after written notice of such breach to the
breaching party; (c) by either BanPonce or COMBANCORP by written notice to the
other party of either (y) any approval, covenant or waiver required by a
governmental authority for consummation of the Merger having been denied or (z)
any governmental authority of competent jurisdiction having issued a final,
unappealable order enjoining or otherwise prohibiting consummation of the
Merger; or (d) by BanPonce or COMBANCORP, if its Board of Directors so
determines by vote of a majority of the members of its entire Board of
Directors, in the event that the Merger is not consummated by January 6, 1997,
unless the failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in the Reorganization Agreement
by the party seeking to terminate. See "THE MERGER -- Termination."

GOVERNMENTAL AND REGULATORY APPROVALS

COMBANCORP and BanPonce are registered bank holding companies and as such
are regulated by the Federal Reserve Board. The approval of the Federal Reserve
Board of the Merger is required in order to consummate the Merger.

When the approval of the Federal Reserve Board has been obtained,
COMBANCORP and BanPonce must wait at least 30 days prior to consummating the
Merger. During this 30-day period, the Department of Justice may object to the
Merger on antitrust grounds.

The regulatory approval sought in connection with the Merger may be
obtained or denied prior to or after the Special Meeting. The vote on the
Merger Proposal at the Special Meeting is not dependent or conditioned upon
receipt of any such approval prior to the Special Meeting. Even if the Merger
Proposal is approved at the Special Meeting, the Merger, nevertheless, may not
be consummated thereafter. Failure to receive the requisite regulatory
approvals will result in termination of the Acquisition Agreement.

ACCOUNTING TREATMENT

The Merger will be accounted for as a "purchase" for financial accounting
purposes in accordance with generally accepted accounting principles. See "THE
MERGER -- Accounting Treatment."

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The exchange of shares of COMBANCORP Common Stock in the Merger for the
Merger Consideration will be a taxable transaction to COMBANCORP shareholders
and gain or loss will be recognized by such shareholders measured by the
difference between the amount of cash received in the Merger and the tax basis
of the shares of COMBANCORP Common Stock surrendered in exchange therefor.
Shareholders who perfect their statutory appraisal rights will recognize gain or
loss with respect to the receipt of cash pursuant to the exercise of appraisal
rights. See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."

-6-
<PAGE>

SELECTED FINANCIAL DATA

The following selected financial data should be read in conjunction with
the consolidated financial statements and the notes thereto included elsewhere
in this Proxy Statement. The statement of operations data set forth below with
respect to each of the three years in the period ended December 31, 1995 and the
balance sheet data at December 31, 1995 and 1994 are derived from the audited
consolidated financial statements included elsewhere in this Proxy Statement.
The statement of operations data for the years ended December 31, 1992 and 1991
and the balance sheet data at December 31, 1993, 1992 and 1991 are derived from
audited financial statements not included herein. The statement of operations
data for the three months ended March 31, 1996 and 1995 and the balance sheet
data at March 31, 1996 are derived from unaudited consolidated financial
statements included in this Proxy Statement. The balance sheet data at
March 31, 1995 is derived from unaudited consolidated financial statements not
included herein. The unaudited financial statements include all adjustments
(consisting only of normal recurring accruals) that COMBANCORP considers
necessary for a fair presentation of the financial information set forth
therein. The results of operations for the three months ended March 31, 1996
are not necessarily indicative of results to be expected for the entire year.

-7-
<PAGE>

Three Months Ended
March 31, Year Ended December 31,
----------------------- ---------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest Income $1,210,511 $1,326,959 $5,200,048 $4,193,219 $2,877,264 $3,369,831 $3,882,298

Interest Expense 305,080 280,460 1,199,411 884,421 640,741 924,485 1,555,078
Net Interest Income 905,431 1,046,499 4,000,637 3,308,798 2,236,523 2,445,346 2,327,220

Provision for Loan Losses (130,000) (30,000) (649,000) (292,800) (651,314) (85,000) (107,000)
Net Interest Income After
Provision for Loan Losses 775,431 1,016,499 3,351,637 3,015,998 1,585,209 2,360,346 2,220,220

Other Income 150,949 177,311 609,522 619,498 558,814 517,673 416,088
Other Operating Expenses 782,117 902,074 (3,399,064) (2,814,859) (2,420,863) (2,465,206 (2,403,478)
Net Income (Loss) Before Income
Taxes & Cumulative Effect of
a Change in Accounting
Principle 144,263 291,736 562,095 820,637 (276,840) 412,813 232,830
Provision for Income Taxes (60,400) (121,100) (233,000) (352,000) 87,500 (170,400) (99,500)
Income (Loss) Before
Cumulative Effect of a Change
in Accounting Principle 83,863 170,636 329,095 468,637 (189,340) 242,413 133,330
Cumulative Effect of a Change
in Accounting Principle -- -- -- -- 55,582 -- --
Net Income (Loss) $ 83,863 $ 170,636 $329,095 $468,637 $(133,758) $242,413 $133,330

BALANCE SHEET DATA:
Interest-bearing Deposits in
Other Banks $9,690,000 $8,699,000 $11,755,000 $8,102,000 $7,974,874 $6,692,734 $6,219,035

Securities 25,158,203 18,476,764 21,166,565 16,950,404 13,030,912 3,038,206 3,342,335

Net Loans 23,188,103 23,982,223 23,188,851 24,965,076 21,633,656 24,074,047 27,508,185

Total Assets 68,969,617 70,298,160 68,830,029 71,188,448 51,350,657 39,888,021 42,828,966

Total Deposits 62,524,042 63,800,994 62,023,797 64,899,298 45,539,681 33,863,116 36,910,549

Shareholders' Equity 6,221,627 6,086,838 6,384,910 5,946,627 5,666,825 5,778,344 5,581,194

PER SHARE DATA:
Earnings (Loss) Per Common
Share:
Earnings (Loss) Before
Cumulative Effect of a
Change in Accounting Principle $ 0.15 $ 0.30 $0.58 $0.83 $(0.34) $0.43 $0.24
Cumulative Effect of a Change
in Accounting Principle -- -- -- -- $0.10 -- --
Earnings (Loss) Per
Common Share $ 0.15 $ 0.30 $0.58 $0.83 $(0.24) $0.43 $0.24
Dividends Per Common Share $ -- $ 0.25 $0.25 -- $0.09 $0.08 $0.07
Book Value Per Share $ 11.00 $ 10.76 $11.28 $10.51 $10.02 $10.21 $9.86

KEY RATIOS:
Non-performing Loans $ 284,300 $ 577,500 $269,688 $397,100 $1,774,712 $733,768 $817,875
As a Percent of Gross Loans 1.2% 2.3% 1.1% 1.5% 8.0% 3.0% 3.0%
As a Percent of Total Assets 0.4% 0.8% 0.4% 0.6% 3.5% 1.8% 1.9%
Risk-based Capital Ratios:(1)
Tier 1 18.2% 17.7% 17.6% 16.7% 19.6% 19.5% 17.1%
Total 19.4% 18.9% 18.3% 17.9% 20.8% 20.9% 18.1%
Leverage Ratio 8.6% 7.9% 8.4% 7.7% 10.0% 13.7% 12.9%
</TABLE>

(1) The Company is currently exempt from the Federal Reserve Board's risk-based
guidelines because consolidated assets are under
$150 million.
These ratios apply to the Bank only.

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<PAGE>

INTRODUCTION

THIS PROXY STATEMENT AND THE ACCOMPANYING LETTER TO SHAREHOLDERS, NOTICE OF
SPECIAL MEETING AND PROXY CARD ARE BEING FURNISHED ON OR ABOUT AUGUST 2, 1996
TO THE SHAREHOLDERS OF COMBANCORP, A CALIFORNIA CORPORATION, IN CONNECTION WITH
THE SOLICITATION OF PROXIES BY THE BOARD OF DIRECTORS OF COMBANCORP FROM HOLDERS
OF OUTSTANDING SHARES OF COMBANCORP COMMON STOCK TO BE VOTED AT A SPECIAL
MEETING OF SHAREHOLDERS OF COMBANCORP TO BE HELD ON THURSDAY, AUGUST 29, 1996,
AT 10:00 A.M., PACIFIC TIME, AND AT ANY ADJOURNMENT THEREOF.

At the Special Meeting, the holders of the outstanding shares of COMBANCORP
Common Stock will be asked to consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger, dated as of May 22, 1996, by and among
BanPonce Corporation, a PUERTO RICO corporation, COMBANCORP and BanPonce Merger
Sub, a California corporation and a wholly-owned indirect subsidiary of
BanPonce, and a related Agreement of Merger to be executed by COMBANCORP and
Merger Sub and filed with the Secretary of State of the State of California
pursuant to which Merger Sub will be merged with and into COMBANCORP and each
share of COMBANCORP Common Stock then outstanding (other than dissenters'
shares) will be converted without any action on the part of the holder thereof
into the right to receive $17.31 in cash. The Board of Directors of COMBANCORP
does not know of any other matters to be presented for consideration at the
Special Meeting.

This Proxy Statement contains certain information set forth more fully in
the Reorganization Agreement attached hereto as Appendix A and the Merger
Agreement attached as Exhibit 8.1 to the Reorganization Agreement, and is
qualified in its entirety by reference to such agreements. The Reorganization
Agreement and the Merger Agreement are incorporated herein by reference and
should be read carefully by each COMBANCORP shareholder in formulating his or
her decision with respect to the Merger Proposal.

The Board of Directors of COMBANCORP has approved the Acquisition Agreement
and determined that the Acquisition Agreement and the transactions contemplated
thereby are fair to, and in the best interests of, COMBANCORP and its
shareholders. THE BOARD OF DIRECTORS OF COMBANCORP RECOMMENDS THAT SHAREHOLDERS
OF COMBANCORP VOTE "FOR" THE MERGER PROPOSAL. CERTAIN EXECUTIVE OFFICERS AND
DIRECTORS OF COMBANCORP HAVE CONFLICTS OF INTEREST WITH RESPECT TO THE
TRANSACTIONS. SEE "THE MERGER -- CONFLICTS OF INTEREST OF CERTAIN PERSONS IN
THE MERGER."

SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING

As described in COMBANCORP's proxy statement relating to its 1995 Annual
Meeting of Shareholders, proposals to be presented by shareholders of COMBANCORP
at the 1996 Annual Meeting of Shareholders (to be held only if the Merger is not
consummated) must have been received by COMBANCORP not later than December 18,
1995 in order that they be

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<PAGE>

considered for inclusion in the proxy statement and form of proxy relating to
that meeting. No such proposals were received by COMBANCORP's Secretary by such
date.

VOTING AND PROXIES

RECORD DATE; VOTE REQUIRED; PROXIES

Only holders of record of shares of COMBANCORP Common Stock at the close of
business on July 19, 1996 (the "Record Date") will be entitled to notice of and
to vote at the Special Meeting. At the close of business on the Record Date,
there were 565,789 shares of COMBANCORP Common Stock issued and outstanding,
held by approximately 346 holders of record.

Holders of record of shares of COMBANCORP Common Stock on the Record Date
are entitled to one vote per share on the Merger Proposal and any other matters
that properly come before the Special Meeting. The presence, either in person
or by proxy, of the holders of a majority of the shares of COMBANCORP Common
Stock outstanding on the Record Date is necessary to constitute a quorum at the
Special Meeting. The affirmative vote of the holders of a majority of the
shares of COMBANCORP Common Stock outstanding on the Record Date is required to
approve the Merger Proposal. Any shareholder present, in person or by proxy
(including broker non-votes), at the Special Meeting, but who abstains from
voting, will be counted for purposes of determining whether a quorum exists.
With respect to the Merger Proposal and any other matters considered at the
Special Meeting, abstentions (or broker non-votes) will have the same effect as
a vote against the proposal.

As of the Record Date, COMBANCORP executive officers and directors owned an
aggregate of 163,782 shares of COMBANCORP Common Stock, representing
approximately 29.0% of the outstanding shares of COMBANCORP Common Stock. All
of such persons intend to vote "FOR" the Merger Proposal.

Shares of COMBANCORP Common Stock represented by properly executed proxies
will be voted in accordance with the instructions indicated thereon, unless such
proxies have been revoked. If no contrary instructions are indicated, such
shares will be voted FOR the Merger Proposal. COMBANCORP is not aware of any
other business to be transacted at the Special Meeting. A shareholder who has
given a proxy may revoke it at any time prior to its exercise at the Special
Meeting by delivering a written notice of revocation or a duly executed proxy
bearing a later date to Esther G. Wilson, Corporate Secretary, COMBANCORP, 6001
E. Washington Blvd., City of Commerce, California 90040.

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<PAGE>

SOLICITATION

COMBANCORP will bear the costs of the solicitation of proxies from its
shareholders. In addition to soliciting proxies by mail, directors, officers
and employees of COMBANCORP, without receiving additional compensation therefor,
may solicit proxies by telephone, by facsimile, by written correspondence or in
person. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries to forward solicitation material to the
beneficial owners of shares of COMBANCORP Common Stock held of record by such
persons, and COMBANCORP will reimburse such brokerage firms, custodians,
nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them
in connection therewith. COMBANCORP has retained The Herman Group to aid in the
solicitation of proxies. The fees of such firm are $2,000, plus reimbursement
of out-of-pocket expenses.

STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS

The following table sets forth certain information with respect to the
beneficial ownership of COMBANCORP Common Stock as of July 25, 1996 by (a) each
person known by COMBANCORP to be the beneficial owner of 5% or more of the
outstanding COMBANCORP Common Stock, (b) each director and (c) all directors and
executive officers as a group:

Number of Shares Percent
Name of Beneficial Owner Beneficially Owned(1) of Class

Adelle N. Soffa (2) 45,936 8.1%
Edith Sugden (3) 44,503 7.9%
Richard F. Demerjian (4) 60,219 10.3%
Robert L. Glover (5) 43,175 7.6%
Jack Minasian (6) 21,500 3.8%
James C. Oppenheim (7) 22,291 3.9%
Phillip J. Pace (8) 48,546 8.5%
Richard J. Strayer (6) 8,850 1.6%
Esther G. Wilson (9) 15,451 2.7%
All directors and executive officers
as a group (8 persons) (10) 220,032 35.4%

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

(1) Unless otherwise indicated, the named individual has sole voting and
investment power with respect to all shares. For each beneficial owner,
the number of shares outstanding

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<PAGE>

and the percentage of stock ownership includes the number of shares
issuable upon exercise of stock options exercisable within 60 days.

(2) The business address of Mrs. Soffa, a 5% or more shareholder, is 5901
Corvette Street, City of Commerce, California 90040.

(3) The business address of Mrs. Sugden, a 5% or more shareholder, is 6832
Foster Bridge Road, Bell Gardens, California 90201.

(4) Includes 625 shares owned by Mr. Demerjian's wife, 4,216 shares allocated
to Mr. Demerjian's account and held in trust under COMBANCORP's Employee
Stock Ownership Plan (the "ESOP") and 18,750 shares which may be acquired
within 60 days through the exercise of outstanding options. Mr. Demerjian
disclaims any beneficial interest in the shares owned by his wife. Mr.
Demerjian's business address is the same as that of COMBANCORP.

(5) Includes 5,000 shares which may be acquired within 60 days through the
exercise of outstanding options. Mr. Glover's business address is
Bettermade Plastics, 730 South Epperson Drive, City of Industry, California
91748.

(6) Includes 5,000 shares which may be acquired within 60 days through the
exercise of outstanding options.

(7) Includes 125 shares owned by Oppenheim Insurance Agency, Inc., of which
Mr. Oppenheim is President, a director and principal shareholder, and 5,000
shares which may be acquired within 60 days through the exercise of
outstanding options.

(8) Includes 5,000 shares which may be acquired within 60 days through the
exercise of outstanding options. Mr. Pace's business address is Pace Land
& Development, 4000 North Montebello Blvd., Montebello, California 90640.

(9) Includes 2,826 shares allocated to Ms. Wilson's account and held in trust
under the ESOP, and 12,500 shares which may be acquired within 60 days
through the exercise of outstanding options.

(10) Includes an aggregate of 7,042 shares held in trust under the ESOP and
56,250 shares which may be acquired within 60 days through the exercise of
outstanding options.

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<PAGE>

THE MERGER

BACKGROUND

In November 1995, COMBANCORP was approached by Secura regarding BanPonce's
interest in acquiring a community bank in the Bank's market area. The interest
expressed by BanPonce was unsolicited by COMBANCORP. On November 15, 1995, the
Board of Directors (the "Board") of COMBANCORP considered preliminary
information provided by Secura relating to a possible acquisition of COMBANCORP
by BanPonce. The Board authorized COMBANCORP to engage Secura to evaluate
COMBANCORP's strategic alternatives and to assist in evaluating and negotiating
the sale of COMBANCORP to BanPonce. BanPonce commenced its review of
COMBANCORP's and the Bank's books and records in January 1996.

On February 28, 1996, the Board met to consider an initial acquisition
proposal submitted by BanPonce. At the meeting, Secura advised the Board
regarding COMBANCORP's strategic alternatives, the structure of the BanPonce
proposal and the merger environment in the Southern California market,
including, without limitation, multiples paid by acquirors in comparable
transactions. Based upon the foregoing and its analysis of the BanPonce
proposal, the Board determined that the BanPonce proposal was inadequate
primarily because of the amount of consideration offered. The Board authorized
its Chairman to continue discussions with BanPonce, including, without
limitation, discussions regarding the amount and type of consideration to be
paid with respect to shares of COMBANCORP Common Stock, and to report to the
Board on the progress of the negotiations.

During March 1996, representatives of BanPonce and COMBANCORP continued
discussions. On March 21, 1996, the Chairman met with representatives of
BanPonce in Chicago to discuss the terms of a proposed letter of intent
outlining BanPonce's revised acquisition proposal. The Board met again on March
26, 1996 for a report on the status of negotiations and to reconsider the
BanPonce acquisition proposal. The Board carefully reviewed and reconsidered
the BanPonce proposal, the financial condition of COMBANCORP and the merger
environment in the Southern California market. Based upon the foregoing, the
Board determined a range of values for COMBANCORP and authorized the Chairman to
continue negotiations with BanPonce within the range of values estimated by the
Board.

The Board met again on April 17, 1996 for a briefing on the status of
negotiations with BanPonce and BanPonce's revised proposal to acquire COMBANCORP
in either an all cash or an all stock transaction. The Board determined that a
stock for stock transaction was not in the best interest of the shareholders due
to the significant increase in the price of BanPonce's stock during the period
of negotiations and the lack of a minimum number of shares of BanPonce's stock
to be received pursuant to BanPonce's revised acquisition proposal. The Board
thereafter determined to continue negotiations with BanPonce and to authorize
the Chairman to execute a letter of intent substantially upon terms approved by
the Board at the meeting. On April 24, 1996, the Chairman and representatives
of BanPonce agreed upon general terms for the sale of COMBANCORP to BanPonce,
including the amount of consideration to be paid to shareholders

-13-
<PAGE>

of COMBANCORP, and executed a letter of intent, subject to approval by
COMBANCORP's and BanPonce's respective boards of directors and execution of a
definitive agreement between the parties. COMBANCORP and BanPonce issued a
joint press release on April 26, 1996 announcing the signing of an agreement in
principle for BanPonce to acquire all of the COMBANCORP Common Stock for $10.375
million in cash, subject, among other things, to execution of a definitive
merger agreement and approval of COMBANCORP's shareholders. Thereafter, the
Chairman and representatives of BanPonce, along with their respective counsels,
negotiated the terms of an Acquisition Agreement and related documents, subject
to approval by each party's Board of Directors. Since announcement of the
execution of the letter of intent COMBANCORP has not been approached by any
other party regarding any interest by another party in acquiring all or a part
of COMBANCORP.

The terms and form of the Acquisition Agreement and related documents were
then considered at a Special Meeting of the Board held on May 22, 1996. At the
meeting, a representative of Secura advised the Board regarding the Acquisition
Agreement and the transactions contemplated thereby, and delivered a written
opinion that the consideration to be received by the shareholders of COMBANCORP
was fair from a financial point of view. Based upon the fairness opinion of
Secura, including, without limitation, the Board's analysis of the methodology
and assumptions used by Secura in rendering its fairness opinion, and its
analysis of the Acquisition Agreement and the transactions contemplated thereby,
and the factors listed below, the Board determined that the Merger was fair to,
and in the best interests of, COMBANCORP and its shareholders, and authorized
the execution and delivery of the Acquisition Agreement, subject to such changes
therein and additions thereto as the Chairman, with the advice of counsel, shall
deem necessary or advisable. The Acquisition Agreement was executed and
delivered on behalf of COMBANCORP, BanPonce and Merger Sub later that day.

REASONS FOR THE MERGER

COMBANCORP

In reaching its decision that the Merger is in the best interests of
COMBANCORP and its shareholders, COMBANCORP's Board consulted with its financial
and other advisors, as well as with COMBANCORP'S management, and considered a
number of factors, including, without limitation, the following:

(a) The financial condition and results of operations of, and prospects
for, each of COMBANCORP and the Bank;

(b) The market for the Bank's services and the competitive pressures
existing in the Bank's market area;

(c) The additional capital available to the Bank as a result of being a
subsidiary of a large, diversified financial institution, which would
enable the Bank to expand more aggressively to serve better both its
existing and potential customers in its market area;

-14-
<PAGE>

(d) The status of the current merger environment in the Southern
California market;

(e) The terms of comparable transactions;

(f) The illiquidity in the market for COMBANCORP Common Stock;

(g) The amount and type of consideration to be received by COMBANCORP's
shareholders pursuant to the Acquisition Agreement, including, without
limitation, the tax consequences to shareholders of receiving cash for
their shares of COMBANCORP Common Stock; and

(h) The opinion received from Secura that the consideration to be received
by the shareholders of COMBANCORP pursuant to the Merger is fair from a
financial point of view and the Board's analysis of the methodology and
assumptions used by Secura in rendering its fairness opinion. See
"Opinion of Financial Advisor".

COMBANCORP's Board did not assign any specific or relative weight to the
foregoing factors in its deliberations.

The Board also considered the requirement in the Acquisition Agreement that
one-year Severance Agreements be entered into by and between the Bank and each
of Mr. Demerjian and Ms. Wilson upon the Effective Date in reaching its decision
that the Merger is in the best interest of the shareholders of COMBANCORP. The
Board did not consider such Severance Agreements to have a material effect on
the amount of consideration to be paid to shareholders for COMBANCORP Common
Stock in the Merger. See "Severance Agreements."

BASED UPON THE FOREGOING, COMBANCORP'S BOARD OF DIRECTORS HAS APPROVED THE
ACQUISITION AGREEMENT AND THE RELATED MERGER, BELIEVES THAT THE ACQUISITION
AGREEMENT AND THE RELATED MERGER ARE IN THE BEST INTERESTS OF ITS SHAREHOLDERS,
AND RECOMMENDS THAT ALL SHAREHOLDERS VOTE "FOR" THE MERGER PROPOSAL.

BANPONCE

In reaching its decision to effect the Merger, BanPonce consulted with its
financial and other advisors, and considered a number of factors, including,
without limitation, the following:

(a) that the Merger would allow BanPonce to expand its current banking
activities in California and serve a greater number of California
customers; and

(b) the opportunity for further growth of its banking activities in
California that the Merger would provide.

BanPonce did not assign any specific or relative weight to the foregoing
factors in its deliberations.

-15-
<PAGE>

MERGER CONSIDERATION; DESCRIPTION OF THE MERGER

If the Merger Proposal is approved by the shareholders of COMBANCORP and
all other conditions to the consummation of the Merger have been satisfied or
waived, (a) Merger Sub will be merged with and into COMBANCORP, with COMBANCORP
as the surviving corporation, (b) the Surviving Corporation will be a wholly-
owned indirect subsidiary of BanPonce, (c) each share of COMBANCORP Common Stock
outstanding immediately prior to the Effective Time will be converted without
any action on the part of the holder thereof into the right to receive $17.31 in
cash, except that shares as to which dissenters' rights are perfected in
accordance with the California GCL will be entitled only to the rights granted
to dissenters by the California GCL (see "DISSENTERS' RIGHTS"), and
(d) immediately prior to the Effective Time, each outstanding Stock Option
granted under the Option Plan, whether or not then exercisable, shall be
cancelled by COMBANCORP and each holder of a cancelled Stock Option shall
receive in cancellation and full satisfaction of all rights of such holder under
the Stock Option, cash in the amount of $10.31 per share subject to such Stock
Option.

As promptly as practicable after the Merger Proposal has been approved by
the shareholders of COMBANCORP and after all other conditions to the
consummation of the Merger have been satisfied or waived, the Merger will be
effected by filing the Merger Agreement together with required officers'
certificates with the Secretary of State of the State of California in
accordance with Chapter 11 of the California GCL. It is presently anticipated
that, subject to the satisfaction or waiver of the other conditions to the
consummation of the Merger, such filing will be made on the date of the Special
Meeting.

RECOMMENDATION OF THE COMBANCORP BOARD OF DIRECTORS

The COMBANCORP Board carefully considered the Acquisition Agreement and the
transactions contemplated thereby, including a review of financial, legal and
market considerations with the assistance of outside financial and legal
advisors, and determined that the terms of the acquisition of COMBANCORP by
BanPonce pursuant to the Acquisition Agreement are fair to, and in the best
interests of, COMBANCORP and its shareholders. Accordingly, the Board approved
the Acquisition Agreement and related transactions, including the Merger
Consideration, and recommended that all COMBANCORP shareholders vote "FOR" the
Merger Proposal. Certain executive officers of COMBANCORP have conflicts of
interest with respect to the transaction. See "THE MERGER -- Conflicts of
Interest of Certain Persons in the Merger."

OPINION OF COMBANCORP'S FINANCIAL ADVISOR

Secura has acted as financial advisor to COMBANCORP in connection with the
Merger, as described under "Background." As part of its role as financial
advisor to COMBANCORP, Secura was engaged to render to the Board of COMBANCORP
an opinion as to the fairness, from a financial point of view, of the
consideration to be offered to COMBANCORP's shareholders in the Merger.

-16-
<PAGE>

On May 22, 1996, in connection with the evaluation of the Reorganization
Agreement by the Board of COMBANCORP, Secura made a presentation to the Board
with respect to the Merger and rendered a written opinion dated May 22, 1996
that, as of the date of such opinion, and subject to certain assumptions,
factors and limitations set forth in such written opinion as described below,
the consideration to be offered to COMBANCORP's shareholders in the Merger was
fair, from a financial point of view, to such shareholders. Secura's opinion
was reconfirmed in its written opinion dated July __, 1996.

THE FULL TEXT OF THE WRITTEN OPINION OF SECURA, DATED JULY __, 1996, WHICH
SETS FORTH ASSUMPTIONS MADE, FACTORS CONSIDERED AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY SECURA, IS ATTACHED AS APPENDIX B TO THIS PROXY STATEMENT.
COMBANCORP SHAREHOLDERS ARE URGED TO READ SUCH OPINION CAREFULLY IN ITS
ENTIRETY.

No limitations were imposed by COMBANCORP on the scope of Secura's
investigation or the procedures to be followed by Secura in rendering its
opinion. Secura was not requested to and did not make any recommendation to the
Board of COMBANCORP with respect to the form or amount of consideration to be
offered to COMBANCORP's shareholders in the Merger, which was determined through
arms-length negotiations between COMBANCORP and its financial and legal advisors
and BanPonce and its financial and legal advisors. In arriving at this opinion,
Secura did not ascribe a specific range of values to COMBANCORP, but made its
determination as to the fairness, from a financial point of view, of the
consideration to be offered to COMBANCORP's shareholders on the basis of the
financial and comparative analyses described below. Secura's opinion is
directed solely to the Board of COMBANCORP and does not constitute a
recommendation to any COMBANCORP shareholder as to how such shareholder should
vote with respect to the Merger Proposal at the Special Meeting. The summary of
the fairness opinion of Secura set forth in this Proxy Statement is qualified in
its entirety by reference to the full text of the fairness opinion, a copy of
which is attached as Appendix B. Secura was not requested to opine as to, and
its opinion does not in any manner address, COMBANCORP's underlying business
decision to proceed with or effect the Merger.

OPINION OF FINANCIAL ADVISOR

In connection with rendering its opinion, Secura reviewed and analyzed
material bearing upon the financial condition and operating performance of
COMBANCORP and BanPonce and material prepared in connection with the proposed
Merger. Among other things, Secura: (a) reviewed COMBANCORP's Annual Reports on
Form 10-K and related financial information for the five fiscal years ended
December 31, 1995, and COMBANCORP's Quarterly Report on Form 10-Q and the
related unaudited financial information for the quarterly period ended March 31,
1996; (b) reviewed BanPonce's Annual Reports on Form 10-K and related financial
information for the five fiscal years ended December 31, 1995, and BanPonce's
Quarterly Report on Form 10-Q and the related unaudited financial information
for the quarterly period ended March 31, 1996; (c) reviewed certain other
internal information prepared by COMBANCORP including, but not limited to,
nonperforming asset reports, interest rate risk exposure reports and financial
forecasts, relating to the business, earnings, assets and future

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prospects of COMBANCORP, furnished to Secura by COMBANCORP; (d) conducted
discussions with members of senior management of COMBANCORP and BanPonce
concerning their respective businesses, operations, regulatory condition and
future prospects; (e) reviewed the historical market prices and trading activity
for COMBANCORP Common Stock and compared them with those of certain publicly
traded companies Secura deemed to be relevant; (f) compared the results of
operation of COMBANCORP and BanPonce with those of certain companies which
Secura deemed to be relevant; (g) compared the proposed financial terms of the
Merger contemplated by the Acquisition Agreement with the financial terms of
certain other mergers and acquisitions which Secura deemed to be relevant; (h)
analyzed the pro forma impact of the transaction on BanPonce's earnings and book
value per share, consolidated capitalization and certain balance sheet and
profitability ratios; (i) reviewed the Acquisition Agreement; and (j) reviewed
such other financial information, studies and analyses and performed such other
investigations and took into account such other matters as Secura deemed
necessary to the rendering of its opinion.

Secura also met with certain officers and representatives of COMBANCORP and
BanPonce to discuss the foregoing as well as other matters that Secura believed
relevant to its inquiry. Secura also considered such financial conditions and
its experience in other transactions, as well as its experience in securities
valuations and knowledge of the financial services industries generally.
Secura's opinion was necessarily based upon conditions as they existed and could
be evaluated on the dates thereof and the information made available to Secura
through the dates thereof.

In conducting its review and arriving at its opinions, Secura relied upon
and assumed the accuracy and completeness of the financial and other information
provided to it or publicly available and did not attempt independently to verify
the same. Secura has relied upon the management of COMBANCORP as to the
reasonableness and achievability of the financial forecasts provided to Secura,
and the assumptions and bases therefor, and assumed that such forecasts
reflected the best currently available estimates and judgments of COMBANCORP
management and that such forecasts would be realized in the amounts and time
periods estimated by COMBANCORP management. Secura also assumed, without
independent verification, that the aggregate allowance for loan losses for
COMBANCORP is reasonable, in current economic conditions, to cover potential
losses in the loan portfolio. Secura did not make or obtain any evaluation or
appraisals of the assets or liabilities of COMBANCORP.

In connection with rendering its opinions to COMBANCORP's Board, Secura
performed a variety of financial analyses. All material valuation methodologies
considered by Secura in connection with the preparation of its opinion are
summarized below. The summary of the analyses and the summary set forth herein
must be considered as a whole. Selecting portions of such analyses, could
create an incomplete view of the analysis and processes underlying Secura's
opinions. The preparation of a fairness opinion is a complex process involving
subjective judgments and is not necessarily susceptible to partial analysis or
summary descriptions.

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<PAGE>

In performing its analyses, Secura made numerous assumptions with respect
to industry performance, business and economic conditions, and other matters,
many of which are beyond the control of COMBANCORP, BanPonce or Secura. Such
analyses were prepared solely as part of Secura's analysis of the fairness of
the Merger Consideration to COMBANCORP shareholders. No company or transaction
utilized in Secura's analyses was identical to COMBANCORP or BanPonce or the
Merger. Accordingly, such analyses are not based solely on arithmetic
calculations; rather, they involve complex considerations and judgments
concerning differences in financial and operating characteristics of the
relevant companies, the timing of the relevant transactions, and prospective
buyer and seller interest, as well as other factors that could affect the values
of the company or companies to which they are being compared. Any estimates
contained in Secura's analyses are not necessarily indicative of actual values
or actual future results, which may be significantly more or less favorable than
suggested by such analyses. In addition, estimates of values of companies do
not purport to be appraisals or necessarily reflect the prices at which
companies or their securities actually may be sold. Furthermore, as described
previously, Secura's opinion is just one of many factors taken into
consideration by COMBANCORP's Board.

The following is a brief summary of the analyses performed by Secura in
connection with its opinion:

FINANCIAL PEER GROUP ANALYSIS. In rendering its opinion, Secura examined
the operating performance of COMBANCORP in comparison to peer group institutions
having assets of between $65 million and $75 million that Secura deemed to be
comparable to COMBANCORP. These groups of companies were comprised of 23
banking institutions based in the state of California (the "California Peer
Group"), 37 banking institutions based in eight western states (the "West Peer
Group") and 539 banking institutions located throughout the United States (the
"National Peer Group"). Secura analyzed the relative performance and outlook
for COMBANCORP by comparing certain financial performance information of
COMBANCORP with the three peer groups. Secura compared COMBANCORP with the peer
groups based on selected operating ratios, including profitability, capital
adequacy and asset quality. Using the latest available financial data as of
December 31, 1995, the median Return on Average Assets for the California Peer
Group, West Peer Group, and National Peer Group were 1.11%, 1.11%, and 1.21%,
respectively, compared to 0.51% for COMBANCORP. The median Equity to Assets
ratios for the California Peer Group, West Peer Group, and National Peer Group
were 9.17%, 8.92%, and 9.43%, respectively, compared to 8.92% for COMBANCORP.
The median Nonperforming Assets to Total Assets ratios for the California Peer
Group, West Peer Group, and National Peer Group were 1.19%, 0.99%, and 0.44%,
respectively, compared to 0.55% for COMBANCORP. Return on Average Assets for
December 31, 1995 was significantly below that of the peers while Equity to
Assets and Nonperforming Assets to Total Assets for COMBANCORP were in line with
the peers.

COMPARABLE TRANSACTIONS. Secura performed an analysis of certain comparable
California Peer Group, West Peer Group and National Peer Group acquisition
transactions with a aggregate purchase price of the target bank of between $5
and $20 million. Secura reviewed the

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<PAGE>

acquisition prices relative to stated book value, tangible book value, latest
twelve months earnings and the tangible book value premium relative to core
deposits. The analysis included all transactions announced or closed from
October 1, 1995 through May 10, 1996. Secura also segregated the information by
cash transactions and compared similar information. The analysis includes a
total of six transactions in California, seven in the West and 56 Nationwide.

The results of this analysis revealed that the median acquisition price to
stated book value of 126%, 122% and 188% for California Peer Group, West Peer
Group and National Peer Group acquisitions, respectively, compared to 167% for
BanPonce's offer to purchase COMBANCORP. The median acquisition price to latest
twelve months earnings were 15.4 times, 15.8 times, and 16.0 times,
respectively, compared to 42.8 times for BanPonce's offer to purchase
COMBANCORP. Finally, the tangible book value premium over core deposits was
4.32%, 3.30%, and 10.56%, respectively, compared to 7.47% for BanPonce's offer
to purchase COMBANCORP. In comparing these results to the California and West
Peer Groups, the BanPonce offer to purchase COMBANCORP exceeds purchase price
medians for these peer groups. Consistent with the lower earnings of
COMBANCORP, the National Peer Group medians exceed the BanPonce offer except as
it relates to the ratio of purchase price to latest twelve months earnings.

CASH FLOW ANALYSIS. Secura prepared a discounted dividend analysis for
COMBANCORP using projections internally prepared by COMBANCORP management
through the year 2000 and assumed an asset growth rate of 5% with projected
equity to assets being maintained at a constant level of 10.17% while return on
average assets grew gradually to 1.30% in year 2006. Discount rates of 12%, 13%
and 14% were used in this analysis. This analysis showed a range of present
values of COMBANCORP from $9.22 to $12.02 per share or 84% to 111% of book value
as of December 31, 1995 compared to BanPonce's offer to purchase COMBANCORP of
$17.31 per share or 167% of March 31, 1996 book value. These results have not
given effect to additional leveraging of excess capital.

Secura also prepared a discounted dividend analysis based upon a range of
terminal price to book values at the end of the year 2000. This analysis
assumed that at the end of the year 2000, COMBANCORP could be sold for a premium
price of 140% to 190% of book value. Discount rates of 12%, 13% and 14% were
also used in this analysis. Based on this analysis, and including the assumed
dividends in the preceding paragraph, a projected range of present values for a
theoretical value of COMBANCORP could be between $13.12 to $18.25 per share
compared to BanPonce's offer to purchase COMBANCORP for $17.31 per share.

These analyses do not purport to be indicative of actual values or expected
values of the shares of COMBANCORP before or after the Merger. Secura noted
that the discounted cash flow analysis were included because they are widely
used valuation methodology, but these methodology are highly dependent upon the
numerous assumptions that must be made.

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<PAGE>

PRO FORMA FINANCIAL ANALYSIS. Secura analyzed the relative contribution of
COMBANCORP to certain balance sheet and income statement items of BanPonce,
including total assets, deposits and net income, of the combined company on a
pro forma basis. In addition, Secura considered the impact of the Merger on the
financial condition of the combined company as well as the evaluation of other
financial data available at the time. On a pro forma basis, COMBANCORP
represents less that 0.5% of the total assets of the combined company and less
than 0.25% of the pro forma combined income of the company. The COMBANCORP
acquisition by BanPonce had a negligible effect on the combined company.
Accordingly, this valuation methodology had a minimal impact on our analysis.

COMPARATIVE STOCK PERFORMANCE. COMBANCORP Common Stock is traded on a work
out basis on the Electronic Bulletin Board. Because of the lack of consistent
information between COMBANCORP and other bank stocks traded on the Electronic
Bulletin Board, Secura has selected a group of listed banks stocks that are
traded on the New York Stock Exchange, American Stock Exchange or NASDAQ to
provide a benchmark for stock prices of banks in California. As reported by
COMBANCORP, the bid price reported prior to announcing the transaction with
BanPonce was $9.125 per share, or 83% of March 31, 1996 book value, and 21.3
times the latest twelve months earnings. This compares to the median price to
book value of 120% and 12.30 times reported twelve months earnings for the
California listed banks. The BanPonce offer to purchase COMBANCORP represents a
90% premium over reported market value.

Pursuant to the Acquisition Agreement, the Merger Consideration will
consist of the right to receive $17.31 in cash for each issued and outstanding
share of COMBANCORP Common Stock with each option holder having the right to
receive $10.31 as consideration for the cancellation of each issued and
outstanding Stock Option. This Merger Consideration equates to 167% of March
31, 1996 book value and 42.8 times earnings for the twelve months ended March
31, 1996.

ENGAGEMENT OF SECURA

Secura is a nationally recognized financial advisory and consulting firm
that specializes in the financial services industry. As part of its financial
advisory and consulting services, it is engaged in the valuation of securities
and companies in connection with mergers and acquisitions and other corporate
transactions. The Board of COMBANCORP selected Secura because of its expertise,
reputation and familiarity with the banking industry in general and COMBANCORP'S
business and market area.

Pursuant to an engagement letter between COMBANCORP and Secura, COMBANCORP
paid to Secura a general advisory fee of $10,000 upon the execution of its
engagement letter and an additional $15,000 upon the signing of the letter of
intent between COMBANCORP and BanPonce. Following the delivery of Secura's
Fairness Opinion in conjunction with the execution of the Reorganization
Agreement, COMBANCORP paid Secura an advisory fee of $51,875. In addition, upon
the Effective Date of the Merger, COMBANCORP will pay Secura

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<PAGE>

an additional advisory fee of $51,875. COMBANCORP has also agreed to reimburse
Secura for reasonable expenses incurred by Secura and to indemnify Secura
against any losses, claims, damages, liabilities or expenses that may arise out
of the rendering of services under such engagement letter unless such losses,
claims, damages, liabilities or expenses arise out of what is determined to be
bad faith or gross negligence by Secura. Secura has not provided any investment
banking services for COMBANCORP in the past.

OPERATIONS OF COMBANCORP AFTER THE MERGER

It is presently contemplated that, after the Effective Date, the business
currently operated by COMBANCORP will be operated by the Surviving Corporation
as an indirect subsidiary of BanPonce. The Bank will continue its operations as
a wholly-owned subsidiary of the Surviving Corporation. The officers of
COMBANCORP will be the officers of the Surviving Corporation in their present
positions and the directors of Merger Sub will become the directors of the
Surviving Corporation. BanPonce and the Surviving Corporation will continue to
review the business, operation and management of the Bank and will make such
changes as they deem appropriate, subject to any limitations under the
Reorganization Agreement.

CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER

The Bank and each of Mr. Demerjian and Ms. Wilson will enter into Severance
Agreements on the Effective Date. For a discussion of the terms of the
Severance Agreements, see "THE MERGER -- Severance Agreements."

Pursuant to the Reorganization Agreement, all Stock Options held by
executive officers and directors of COMBANCORP under the Option Plan, whether or
not exercisable, will be cancelled and converted into the right to receive
$10.31 per share. See "THE MERGER -- COMBANCORP 1993 Stock Option Plan."

SEVERANCE AGREEMENTS

Pursuant to the Reorganization Agreement, the Bank and each of Mr.
Demerjian and Ms. Wilson will enter into Severance Agreements which provide for
certain severance benefits from the Bank if his or her employment with the Bank
is terminated within one year following the Effective Date, unless such
termination is (a) because of death or retirement; (b) by the Bank for Cause or,
in the case of Ms. Wilson only, Disability; or (c) by such person without Good
Reason (each of "Cause," "Disability" and "Good Reason" being defined in the
Severance Agreements). Accordingly, if the Merger is consummated and either of
Mr. Demerjian's or Ms. Wilson's employment with the Bank is terminated (except
as provided above) within one year of the Effective Date of the Merger, the Bank
will pay to such person, in addition to accrued salary and benefits, an amount
in cash equal to the sum of his or her annual salary in effect immediately prior
to the date of termination (currently $151,505, in the case of Mr. Demerjian,
and $98,817, in the case of Ms. Wilson) and $25,000 (in the case of Mr.
Demerjian) or $12,500

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<PAGE>

(in the case of Ms. Wilson), plus the annualized amount of other employee
benefits paid or accrued during the preceding year.

COMBANCORP 1993 STOCK OPTION PLAN

The Reorganization Agreement provides that at the Effective Time, each
outstanding Stock Option to purchase COMBANCORP Common Stock granted under the
Option Plan, whether or not exercisable, shall be cancelled by COMBANCORP and
converted into the right to receive $10.31 per share of COMBANCORP Common Stock
subject to such Stock Options (the "Option Consideration"). Such payment of the
Option Consideration will not be made to a holder of Stock Options unless such
payment is in full satisfaction of all rights of such holder under the Stock
Options. The holders of Stock Options will not be entitled to receive interest
on any amounts paid with respect to such Stock Options.

The directors and executive officers of COMBANCORP will receive the
following amounts, less applicable withholding taxes, attributable to the
cancellation of their Stock Options: Mr. Demerjian, $193,313; Mr. Glover,
$51,550; Mr. Minasian, $51,550; Mr. Oppenheim, $51,550; Mr. Pace, $51,550; Mr.
Strayer, $51,550 and Ms. Wilson, $128,875.

SURRENDER OF CERTIFICATES REPRESENTING COMBANCORP COMMON STOCK

As soon as practicable after the Effective Date, Wells Fargo Bank, N.A.,
acting as paying agent (the "Paying Agent"), will mail to each holder of record
of outstanding shares of COMBANCORP Common Stock immediately prior to the
Effective Time a letter of transmittal for return to the Paying Agent (which
will specify that delivery will be effected, and risk of loss and title to the
certificates that immediately prior to the Effective Time represented shares of
COMBANCORP Common Stock (the "Certificates") will pass, only upon receipt of the
Certificates by the Paying Agent) and instructions for the use thereof in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. SHAREHOLDERS OF COMBANCORP SHOULD NOT SUBMIT THEIR STOCK
CERTIFICATES TO COMBANCORP FOR PAYMENT OF THE MERGER CONSIDERATION UNTIL THEY
HAVE BEEN NOTIFIED THAT THE MERGER HAS BEEN CONSUMMATED AND HAVE RECEIVED A
LETTER OF TRANSMITTAL FROM THE PAYING AGENT. Upon surrender of a Certificate
for payment to the Paying Agent, together with such letter of transmittal duly
executed and properly completed, the holder of such Certificate will be entitled
to receive in exchange therefor a check representing the cash such holder is
entitled to receive pursuant to the Reorganization Agreement. All Certificates
so surrendered will be cancelled as of the Effective Date.

After the Effective Time, there will be no further registration of
transfers on the stock transfer books of COMBANCORP (the stock transfer books of
which will be closed) of the

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<PAGE>

shares of COMBANCORP Common Stock that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Paying Agent or the Surviving Corporation, they will be cancelled and exchanged
for the Merger Consideration.

CONDITIONS OF THE MERGER; WAIVER; AMENDMENT

In addition to approval by the shareholders of COMBANCORP, the consummation
of the Merger is conditioned upon (a) receipt of required regulatory approvals
by the Federal Reserve Board and other governmental regulatory agencies without
any materially burdensome conditions; (b) the absence of any order, decree or
injunction of, or litigation or proceeding before, any court or agency enjoining
or prohibiting, or seeking to enjoin or prohibit, the consummation of the
Merger; (c) the absence of any statute, rule, regulation, order, injunction or
decree enacted, entered or promulgated by any governmental authority seeking to
prevent consummation of the transactions contemplated by the Reorganization
Agreement; and (d) the Bank having entered into the Severance Agreements with
Mr. Demerjian and Ms. Wilson. See "THE MERGER --Conflicts of Interest of
Certain Persons in the Merger."

In addition, the obligations of BanPonce and Merger Sub to consummate the
Merger are conditioned upon, among other things, (a) the accuracy of the
representations and warranties of COMBANCORP set forth in the Reorganization
Agreement as of the Effective Date; (b) the performance by COMBANCORP of its
covenants and agreements as set forth in the Reorganization Agreement; (c) the
absence of any event or circumstances since December 31, 1995 that has resulted
in or is likely to result in a material adverse effect on COMBANCORP or the
Bank; and (d) the receipt of certain opinions of counsel for COMBANCORP.

The obligations of COMBANCORP to consummate the Merger also are conditioned
upon, among other things, the accuracy of the representations and warranties of
BanPonce and Merger Sub set forth in the Reorganization Agreement as of the
Effective Date and the performance by BanPonce and Merger Sub of their covenants
and agreements as set forth in the Reorganization Agreement.

The Reorganization Agreement also provides that prior to the Effective
Time, any provisions of the Reorganization Agreement may be waived by the party
benefitted by the provision, or amended or modified at any time (including a
change to the structure of the transaction) by an agreement in writing between
the parties to the Reorganization Agreement approved by their respective Boards
of Directors, except that, after the vote by the shareholders of COMBANCORP, no
amendment may be made that would contravene California law.

CONDUCT OF BUSINESS; CERTAIN COVENANTS

Pursuant to the Reorganization Agreement, COMBANCORP has agreed that, prior
to the Effective Date, it will, and will cause the Bank, to conduct its business
only in the ordinary course and that, without the prior written consent of
BanPonce and except as otherwise provided

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<PAGE>

in the Reorganization Agreement, will not and will not agree to or make any
commitment to, among other things:

(a) Incur any indebtedness other than in the ordinary course of business
consistent with past practice;

(b) Declare or pay any dividend or change the number of outstanding shares
of its capital stock;

(c) Sell, encumber or dispose of any of its material properties or assets
to any person other than the Bank except in the ordinary course of business
consistent with past practice pursuant to policies in effect on May 22,
1996 and except pursuant to contracts or agreements in force on May 22,
1996;

(d) Acquire another business or entity without BanPonce's prior written
consent or make any investment in securities or purchase property or assets
of another person other than in the ordinary course of business consistent
with past practice;

(e) Execute, modify or terminate any lease or contract other than in the
ordinary course of business consistent with past practice;

(f) Increase in any manner the compensation or fringe benefits of any of
its employees, pay any pension or retirement allowance not required under
an existing plan, or amend or commit itself to any employee benefit plan or
agreement for the benefit of any employee other than general increases in
compensation in the ordinary course of business consistent with past
practice not in excess of 4% in any 12-month period, or voluntarily
accelerate vesting of any compensation or benefit, except to the extent
required by law;

(g) Settle any claim, action or proceeding if any such settlement would
have a material adverse effect on COMBANCORP, materially restrict the
business of COMBANCORP or the Bank or materially change the terms of the
Reorganization Agreement, the Merger or the transactions contemplated by
the Reorganization Agreement;

(h) Modify in any material respect the manner in which COMBANCORP and the
Bank have heretofore conducted their business except as otherwise
contemplated by the Acquisition Agreement;

(i) Amend its articles of incorporation or its by-laws;

(j) Waive or release any material right or collateral or cancel or
compromise any extension of credit or other debt or claim except in the
ordinary course of business; or

(k) Make, extend or renegotiate any loan or other extension of credit or
make any commitment of the foregoing except loans or advances as to which
COMBANCORP or

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<PAGE>

the Bank has a legally binding obligation as of the date of the
Reorganization Agreement other than in the ordinary course of business
consistent with past practice and in conformity with all applicable
policies and procedures.

In addition, COMBANCORP has agreed that none of it, the Bank or any of
their respective officers, directors or employees will initiate, solicit or
encourage inquiries or proposals with respect to, or except to the extent
required in the opinion of their counsel to discharge properly their fiduciary
duties to COMBANCORP's shareholders, engage in any negotiations concerning a
merger, consolidation or similar transaction involving, or any purchase of all
or any significant portion of the assets or equity securities of, COMBANCORP or
the Bank. COMBANCORP has agreed to instruct their officers, directors,
employees, agents and representatives to refrain from doing any of the above and
to notify BanPonce immediately if any such inquiries or proposals are received
by, any such information is requested from, or any negotiations or discussions
are sought to be initiated or continued with it.

DEREGISTRATION OF COMBANCORP COMMON STOCK AFTER THE MERGER

If the Merger is consummated, COMBANCORP Common Stock will cease to be
traded in the over-the-counter market. Upon consummation of the Merger,
COMBANCORP intends to make an appropriate filing with the SEC, so that it will
no longer be subject to the periodic reporting requirements of the Exchange Act,
and the registration of the COMBANCORP Common Stock under the Exchange Act will
terminate.

TERMINATION

The Reorganization Agreement provides that it may be terminated and the
Merger abandoned, prior to the Effective Time, either before or after approval
by the shareholders of COMBANCORP and Merger Sub: (a) by mutual consent of
BanPonce and COMBANCORP duly authorized by the vote of a majority of the members
of each of the entire Boards of Directors of BanPonce and COMBANCORP; (b) by
either BanPonce or COMBANCORP if its Board of Directors so determines by vote of
a majority of the members of its entire board, in the event of (i) the failure
of the shareholders of COMBANCORP to approve the Merger Proposal at the Special
Meeting or (ii) a material breach by the other party thereto of any
representation, warranty, covenant or agreement contained in the Reorganization
Agreement which is not cured or not curable within 30 days after written notice
of such breach to the breaching party; (c) by either BanPonce or COMBANCORP by
written notice to the other party of either (y) any approval, covenant or waiver
required by a governmental authority for consummation of the Merger having been
denied or (z) any governmental authority of competent jurisdiction having issued
a final, unappealable order enjoining or otherwise prohibiting consummation of
the Merger; or (d) by BanPonce or COMBANCORP, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event that the Merger is not consummated by January 6, 1997, unless the failure
to so consummate by such time is due to the breach of any representation,
warranty or covenant contained in the Reorganization Agreement by the party
seeking to terminate. In the event of termination, the Acquisition

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<PAGE>

Agreement becomes void, except that certain provisions relating to expenses
survive any such termination.

ACCOUNTING TREATMENT

The Merger will be accounted for as a "purchase" as such term is used under
generally accepted accounting principles. For purposes of preparing the
consolidated financial statements of BanPonce, BanPonce will establish a new
accounting basis for COMBANCORP's assets and liabilities based upon the fair
values thereof and the purchase price paid by BanPonce, including the costs of
the acquisition. A final determination of required purchase accounting
adjustments and of the fair value of the assets and liabilities of COMBANCORP
has not yet been made. BanPonce will undertake a study to determine the fair
value of certain of COMBANCORP's assets and liabilities and will make
appropriate purchase accounting adjustments upon completion of that study. For
financial reporting purposes, commencing on the Effective Date, the results of
operations of COMBANCORP will be included in the BanPonce consolidated
statements of income. The financial statements of BanPonce for prior periods
will not be restated as a result of the Merger.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion summarizes the material federal income tax
consequences under the Internal Revenue Code of 1986, as amended (the "Code"),
of the Merger to holders of COMBANCORP Common Stock who are citizens or
residents of the United States. This discussion does not deal with all the
federal income tax consequences that may be relevant to particular COMBANCORP
shareholders in light of their particular circumstances, such as shareholders
who are insurance companies, dealers in securities, tax exempt organizations or
foreign persons or to COMBANCORP shareholders who acquired their shares of
COMBANCORP Common Stock pursuant to the exercise of employee stock options or in
other compensatory transactions.

For federal income tax purposes: (a) the exchange of COMBANCORP Common
Stock by a COMBANCORP shareholder for cash will be a taxable transaction; (b)
gain or loss will be recognized by a COMBANCORP shareholder measured by the
difference between the Merger Consideration received by such shareholder and the
shareholder's tax basis in the shares of COMBANCORP Common Stock exchanged
therefor (however, a COMBANCORP shareholder may be required to compute gain or
loss separately with respect to each block of shares); (c) such gain or loss
will be capital gain or loss if such shares of COMBANCORP Common Stock are held
as capital assets at the Effective Time; and (d) such gain or loss will be long-
term gain or loss if the COMBANCORP shareholder held such shares for more than
one year.

A shareholder who perfects his or her appraisal rights under Chapter 13 of
the California GCL and who receives payment in cash in respect of the exercise
of appraisal rights will be treated as having received such payment as a
distribution in redemption of his or her

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<PAGE>

COMBANCORP Common Stock subject to the provisions of Section 302 of the Code.
After such distribution, if the shareholder does not actually or constructively
own any COMBANCORP Common Stock, the redemption will constitute a complete
termination of interest and he or she will recognize capital gain or loss
measured by the difference between the amount of cash received by such
shareholder in payment for his or her shares and the basis of such shareholder's
COMBANCORP Common Stock.

Amounts received in cancellation and settlement of Stock Options will be
treated as ordinary income and will be subject to withholding.

To prevent backup federal income tax withholding equal to 31% of the cash
portion of the Merger Consideration, a COMBANCORP shareholder generally must
provide his or her correct taxpayer identification number and certain other
information by completing a substitute Form W-9 which will be mailed to
shareholders separately after the Effective Date.

THE DISCUSSION SET FORTH ABOVE PROVIDES INFORMATION AS TO THE FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER BUT DOES NOT DISCUSS THE TAX CONSEQUENCES,
IF ANY, OF THE MERGER UNDER APPLICABLE FOREIGN, STATE AND LOCAL LAWS OR WITH
RESPECT TO TAXPAYERS WHO QUALIFY FOR SPECIAL TREATMENT UNDER THE CODE.
COMBANCORP SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE MERGER.

DISSENTERS' RIGHTS

THE FOLLOWING IS A SUMMARY OF THE PROVISIONS OF CHAPTER 13 OF THE
CALIFORNIA GCL, WHICH PROVIDES SHAREHOLDERS OF COMBANCORP WITH CERTAIN
DISSENTERS' RIGHTS. ALL REFERENCES TO AND SUMMARIES OF THE RIGHTS OF DISSENTING
SHAREHOLDERS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE TEXT OF CHAPTER
13 OF THE CALIFORNIA GCL, WHICH IS ATTACHED TO THIS PROXY STATEMENT AS APPENDIX
C.

Subject to certain conditions, Chapter 13 of the California GCL grants
shareholders of COMBANCORP who are entitled to vote, and who vote some or all of
their shares against the Merger or specify a direction to abstain from such
vote, the right to require COMBANCORP to purchase for cash at fair market value
on the day before the terms of the Merger were first announced (excluding any
appreciation or depreciation because of the proposed Merger) the shares of
COMBANCORP Common Stock which qualify as Dissenting Shares (as defined below).
Shareholders who do not follow the statutory procedures of Chapter 13 of the
California GCL, however, will lose their rights to dissent from the Merger.
Dissenting shareholders will have no interest in COMBANCORP after they surrender
their certificates representing the Dissenting Shares and receive payment
therefor. Surrendered shares will resume the status of authorized but unissued
shares. Under the California GCL, no shareholder who is entitled to exercise
dissenters' rights has any right at law or in equity to attack the validity of
the Merger

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or to have the Merger set aside or rescinded, except in an action to test
whether the number of shares required to authorize or approve the Merger had
been legally voted in favor of the Merger.

All issued and outstanding shares of COMBANCORP Common Stock may qualify as
"dissenting shares" within the meaning of Section 1300(b) of the California GCL
("Dissenting Shares"). Any shareholder entitled to vote at the COMBANCORP
Special Meeting who desires to exercise dissenters' rights must vote his shares
against the adoption of the Merger Proposal or specify a direction to abstain
from such vote. The shareholder may vote part of his or her shares for the
Merger without losing the right to have purchased those shares which were voted
against the Merger or as to which the shareholder has abstained from voting.
Any such shareholder who voted against the Merger or abstained from voting and
who wishes to have purchased his or her shares that were voted against the
Merger or shares as to which he or she abstained from voting must demand in
writing that COMBANCORP purchase such shares and pay the shareholder the fair
market value of such shares in cash. The demand for payment must state the
number and class of the shares held of record by the shareholder that the
shareholder wants COMBANCORP to purchase, and shall also state what the
shareholder claims to be the fair market value of the shares as of the day
before the announcement of the definitive terms of the Merger. The statement of
fair market value will constitute an offer by the shareholder to sell such
shares at such price. Such demand must be received by COMBANCORP at its
principal executive offices at 6001 E. Washington Blvd., City of Commerce,
California 90040 or by the Paying Agent, no later than 30 days after the date on
which the Notice of Approval (as defined below) is mailed by COMBANCORP. A
shareholder may not withdraw a demand for payment unless COMBANCORP consents
thereto.

Within ten days after the date of the Special Meeting, COMBANCORP must mail
to any shareholder who could qualify as possessing Dissenting Shares a notice of
the approval of the Merger by the requisite number of outstanding shares, along
with a statement of the price determined by COMBANCORP to represent the fair
market value of Dissenting Shares on the day before the terms of the Merger were
first announced, excluding any appreciation or depreciation because of the
proposed Merger, and a brief description of the procedure to be followed if the
shareholder desires to exercise dissenters' rights (the "Notice of Approval").
COMBANCORP's statement of price will constitute an offer by COMBANCORP to
purchase the shareholder's shares at the price stated in the Notice of Approval,
provided that such shares qualify as Dissenting Shares and do not lose their
status as Dissenting Shares, as outlined below.

MERELY VOTING OR DELIVERING A PROXY DIRECTING A VOTE AGAINST THE APPROVAL
OF THE MERGER, OR FAILING TO DELIVER A PROXY OR VOTE AS TO APPROVAL OF THE
MERGER DOES NOT CONSTITUTE A DEMAND FOR PURCHASE. A WRITTEN DEMAND MEETING THE
REQUIREMENTS OF THE CALIFORNIA GCL IS ESSENTIAL. A SHAREHOLDER'S WRITTEN DEMAND
MUST BE DELIVERED TO COMBANCORP WITHIN 30 DAYS AFTER THE DATE ON WHICH THE
NOTICE OF APPROVAL WAS MAILED TO THE SHAREHOLDER.

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Within 30 days after the date on which the Notice of Approval was mailed,
the shareholder must submit to COMBANCORP or the Paying Agent the certificates
representing any shares which the shareholder demands that COMBANCORP purchase.
Such shares will be stamped or endorsed with a statement that the shares are
Dissenting Shares or will be exchanged for share certificates so stamped or
endorsed. Upon subsequent transfer of these shares, the new certificates will
be similarly stamped, and marked with the name of the original dissenting
shareholder.

If a dissenting shareholder and COMBANCORP agree that the shares are
Dissenting Shares and agree upon the price of the shares, COMBANCORP will pay
the dissenting shareholder the agreed price with interest at the legal rate on
judgments from the date of such agreement, within 30 days after the date of the
agreement or within 30 days after any statutory or contractual conditions to the
Merger are satisfied, whichever is later, and in the case of certificated
securities, subject to surrender of the certificates therefor, unless provided
otherwise by agreement. Any agreement fixing the fair market value of
Dissenting Shares as between COMBANCORP and the holders thereof must be filed
with the Secretary of COMBANCORP at the address set forth below. If COMBANCORP
denies that the shares are Dissenting Shares, or COMBANCORP and the shareholder
fail to agree upon the fair market value of the Dissenting Shares, then the
shareholder or COMBANCORP may seek a court determination of whether the shares
are Dissenting Shares, the fair market value of the Dissenting Shares, or both.
The shareholder may intervene in any action pending on such a complaint. The
shareholder or COMBANCORP must file a complaint or intervene in a pending action
in the Superior Court of the proper county within six months after the date on
which the Notice of Approval was mailed. In determining the fair market value
of the Dissenting Shares, the court may, but is not required to, appoint one or
more appraisers. If the court appoints appraisers, it may accept the
appraisers' valuation or make its own determination of the fair market value of
the Dissenting Shares and enter judgment accordingly. Any party may appeal from
the judgment. The costs of the action, including reasonable compensation for
the appraisers, shall be assessed as the court considers equitable, but if the
judgment exceeds the amount offered by COMBANCORP, COMBANCORP shall pay such
costs (including, in the court's discretion, attorneys' fees, fees of expert
witnesses, and interest at the legal rate on judgments from the date of the
shareholder's compliance with the foregoing procedures for demanding payment of
Dissenting Shares if the value awarded by the court is more than 125% of the
amount COMBANCORP states as the fair market value in the Notice of Approval).
The shareholder may recover the amount the court determines to be the fair
market value of each Dissenting Share multiplied by the number of Dissenting
Shares COMBANCORP must purchase, with interest thereon at the legal rate from
the date of judgment. The judgment is payable only upon endorsement and
delivery to COMBANCORP of the certificates for the shares described in the
judgment.

Dissenting Shares may lose their status as Dissenting Shares and the
dissenting shareholder will cease to be entitled to require COMBANCORP to
purchase such shares if (a) the parties abandon the Merger; (b) the shareholder
transfers the shares before submitting them to COMBANCORP or the designated
transfer agent; (c) the shareholder withdraws the

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<PAGE>

demand that COMBANCORP purchase the Dissenting Shares; or (d) if COMBANCORP and
the shareholder do not agree on the status of the shares as Dissenting Shares or
upon the fair market value of such shares and neither has filed a court petition
as set forth above within six months after the mailing of the Notice of
Approval.

A vote in favor of the Merger Proposal constitutes a waiver of dissenters'
rights under Chapter 13 of the California GCL. Furthermore, a vote against
approval of the Merger Proposal does not satisfy the requirement of a written
demand for payment or the other actions required by Chapter 13 to perfect
dissenters' rights. Such written demand for payment must be in addition to and
separate from any proxy regarding the Merger Proposal. FAILURE TO FOLLOW THE
PROVISIONS OF CHAPTER 13 OF THE CALIFORNIA GCL WILL RESULT IN A LOSS OF ALL
DISSENTERS' RIGHTS.

THE BOARD OF DIRECTORS OF COMBANCORP RECOMMENDS THAT SHAREHOLDERS VOTE
"FOR" THE MERGER PROPOSAL. SEE "THE MERGER - RECOMMENDATION OF THE BOARD OF
DIRECTORS OF COMBANCORP" ABOVE. THE DIRECTORS AND OFFICERS OF COMBANCORP HAVE
CERTAIN CONFLICTS OF INTEREST WITH RESPECT TO THE TRANSACTION. SEE "THE MERGER -
CONFLICTS OF INTEREST OF CERTAIN PERSONS IN THE MERGER."

INFORMATION CONCERNING COMBANCORP

BUSINESS

GENERAL

COMBANCORP was incorporated under the laws of the State of California on
May 25, 1982 to operate as a bank holding company for the Bank. On June 16,
1983, the Bank completed its organization and COMBANCORP acquired all of the
Bank's issued and outstanding shares of common stock. The Bank is the sole
subsidiary of COMBANCORP and its principal asset. At March 31, 1996, COMBANCORP
had total consolidated assets of approximately $69.0 million and shareholders'
equity of approximately $6.2 million. COMBANCORP's principal executive office
is located at 6001 E. Washington Blvd., City of Commerce, California 90040, and
its telephone number is (213) 724-8800

The Bank was incorporated on May 26, 1982 as a national banking
association. On June 16, 1983, the Bank received its Charter from the Office
of the Comptroller of the Currency (the "OCC") and commenced operations.

The Bank's main office is located at 6001 East Washington Boulevard, City
of Commerce, California. The Bank also has a branch office located at 420 N.
Montebello Boulevard, Montebello, California, which opened on June 12, 1989, and
a branch office located at 11101 La Reina Avenue, Downey, California, which was
acquired on August 26, 1994. The bank's principal market area includes the City
of Commerce, Downey, Montebello, Bell Gardens, Pico Rivera, Whittier, Lynwood,
South Gate, Santa Fe Springs, Los Angeles and

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<PAGE>

portions of Vernon, all located in California. The area is estimated to contain
in excess of 15,000 businesses engaged in various phases of commerce, including
industrial production and sales, service businesses and retail and wholesale
establishments. The area also includes residential developments and regional
and neighborhood shopping centers. At March 31, 1996, the Bank had total assets
of approximately $69.0 million and total deposits of approximately
$62.5 million.

On December 3, 1993, the Bank acquired all the branch deposits of the
Commerce, California branch of Community Bank, at a premium of $138,222. In
conjunction with this transaction, the Bank assumed $12,454,049 of deposit
liabilities. The Bank did not retain the premises or management of the Commerce
Branch of Community Bank or the majority of its employees.

On August 26, 1994, the Bank, as part of a consortium with Landmark Bank,
entered into an Insured Deposit Purchase and Assumption Agreement with the
Federal Deposit Insurance Corporation ("FDIC") for the purchase and assumption
of certain assets and liabilities of Capital Bank. The Bank purchase $674,000
of cash assets and assumed $22,536,000 of deposit liabilities of the Downey
Branch of Capital Bank for a premium of $185,000, including expenses. In
addition, the Bank obtained a lease on the Downey branch facility of Capital
Bank through May 1995, when an option to purchase the building for $650,000 was
exercised. The Bank hired 12 former employees of Capital Bank, none of which
were members of senior management, to staff the existing facility. See Note 3
to Notes to the Consolidated Financial Statements.

LOCAL ECONOMY AND TRENDS

The Bank's primary market encompasses a mixture of manufacturing, service
industries, and retail shops, as well as residential development. The area has
experienced a reduction in the sizes of businesses which has had a negative
effect on employment. In general, the market mirrors that of the entire Los
Angeles basin which has suffered a substantial decline in real estate values, as
well as employment. Recent increases in employment have occurred but have been
primarily in segments of business not represented in the Bank's primary market.
Real estate values continue to reflect some decline or, at best, stabilization.

BANK SERVICES

The Bank is engaged primarily in the business of providing commercial
banking service to the wholesale market. The Bank offers personal and business
checking accounts and savings accounts (including interest-bearing negotiable
order of withdrawal ("NOW") accounts and/or accounts combining checking and
savings accounts with automatic transfers), and time certificates of deposit.
The Bank also offers night depository, bank-by-mail services and MasterCard and
VISA credit cards, sells travelers' checks (issued by an independent entity) and
cashier's checks, and acts as a merchant depository for cardholder drafts under
both MasterCard and VISA. In addition, it provides note and collection
services, an automatic teller machine network and direct deposit of social
security and other government checks.

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The following table sets forth the type and amount of deposits outstanding
as of the dates indicated:

December 31, December 31,
1995 1994
----------- -----------
Demand Deposits $21,805,536 $23,439,082
NOW Accounts 8,934,606 8,136,486
Money Market 8,553,950 10,902,747
Savings 9,203,336 9,831,453
Time Deposits of $100,000 or 5,381,974 4,329,934
greater
Time Deposits of less than $100,000 8,144,395 8,259,595
----------- -----------
Total Deposits $62,023,797 $64,899,297
----------- -----------
----------- -----------

DEPOSITS. At December 31, 1995, approximately 35% of the total deposits
were non-interest bearing demand deposits, with an average account balance of
approximately $12,000. Approximately 14% of total deposits were interest-
bearing demand deposits, or "NOW" accounts. The average interest-bearing demand
account balance was approximately $6,000.

At December 31, 1995, approximately 14% of total deposits were held in
money market accounts, with an average account balance of approximately $26,000;
approximately 15% of the total deposits were held in savings accounts, with an
average account balance of approximately $5,000; and approximately 22% of total
deposits were held in time deposits, 83% of which were certificates of deposit
and 17% were individual retirement accounts ("IRA"). Approximately 9% of total
deposits were held in time deposits of $100,000 or greater.

LENDING ACTIVITIES. The Bank's lending activities consist primarily of
commercial loans, real estate loans and consumer/installment loans. Commercial
lending activities are directed toward small retail and wholesale
establishments, professional organizations and light industrial and
manufacturing companies. Real estate loans, which consist of interim
construction loans and medium-term mortgages, are directed toward local
developers and other wholesale banking customers. Consumer/installment lending
is targeted to the Bank's principal market area and the Bank's commercial
accounts.

The lending activities of the Bank are guided by the basic lending policy
established by the Bank's Board of Directors. Each loan must meet various
lending criteria, including character of the borrower, leverage capacity of the
borrower, capital, collateral provided for the loan and prevailing economic
conditions. The lending officer, the Loan Committee or the Board of Directors,
depending on the amount of the loan, must consider all criteria and determine
that the risks are appropriate in light of such evaluation.

A fundamental principle of sound banking is avoiding a loan concentration
in any particular industry or market segment, which would increase exposure to
downturns in the business of such borrowers. Other than as set forth herein, as
of December 31, 1995, the Bank had no loan concentrations in any industry.

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The following table sets forth the type and amount of loans outstanding as
of the dates indicated:

December 31, December 31,
1995 1994
----------- -----------
Commercial $10,474,719 $11,210,049
Real Estate:
Construction 2,338,979 2,998,619
Other 8,062,827 8,541,865
Mortgage loans acquired 1,216,165 1,242,636
Consumer/Installment 1,679,274 1,815,841
----------- -----------
Total loans $23,771,964 $25,809,010
----------- -----------
Allowance for possible loan losses 432,559 498,827
Deferred loan fees 65,731 59,280

Unearned discount on acquired loans 84,823 285,827
----------- -----------
Total net loans $23,188,851 $24,965,076
----------- -----------
----------- -----------

COMMERCIAL LOANS. At December 31, 1995, approximately 45% of the Bank's
loan portfolio was comprised of commercial loans. Loans in this category, which
amounts averaged approximately $77,000, included loans made to small businesses
and professionals for working capital purposes and equipment acquisitions.
Although the Bank typically looks to the borrower's cash flow as the principal
source of repayment for such loans, some of the loans within this category were
secured by real estate.

Commercial loans may present a higher level of risk than traditional
mortgage loans. This greater risk is due to several factors, including the
possible concentration of principal in a limited number of loans and borrowers,
the increased difficulty of evaluating and monitoring these types of loans, and
dependence upon the successful operation of and cash flows generated by the
borrower's business. If the cash flow from the business is reduced, the
borrower's ability to repay the loan may be impaired.

CONSTRUCTION LOANS. At December 31, 1995, approximately 10% of the Bank's
loan portfolio was comprised of construction loans. The following table sets
forth the composition of such construction loans by type of project as of the
dates indicated:

DECEMBER 31, DECEMBER 31,
1995 1994
----------- -----------
Residential:
1-4 family units $ 2,093,989 $ 1,418,048
Commercial and industrial 244,990 1,580,571
----------- -----------
Total $ 2,338,979 $ 2,998,619
----------- -----------
----------- -----------

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The Bank's loans for construction of residential 1-4 family units, which
amounts averaged approximately $162,000, bear a floating rate of interest and
mature in one year or less. They are typically underwritten at no greater than
a 75% loan-to-value ratio.

As of December 31, 1995, the Bank had one commercial construction loan for
$244,990 for the construction of a multi-family unit. The Bank will ordinarily
advance up to a maximum of 65% of the value of the underlying property on these
types of loans. All loans of this type bear a floating rate of interest.

Construction lending may involve risks associated with possible failure to
complete the construction of properties and availability of permanent financing
for such projects. Because of the relatively short (typically one year or less)
term of the Bank's construction loans, such loans are subject to less risk than
longer term construction loans where monitoring of the progress of the project
may be particularly difficult.

OTHER REAL ESTATE LOANS. Approximately 35% of the Bank's loan portfolio
consisted of real estate loans involving commercial and industrial properties.
Such loans, which ranged in unpaid principal amount from approximately $23 to
$803,283, and averaged approximately $169,000, are primarily secured by small
office buildings and industrial buildings that are either owner-occupied or
built for rental purposes. The Bank's commercial and industrial real estate
loans generally have a maturity of three to five years with a 20-25 year
amortization schedule, and bear a floating rate of interest. The Bank generally
applies a maximum loan-to-value ratio of 65% to these loans.

Real estate loans secured by commercial properties may involve risks
similar to those associated with commercial loans for working capital and
equipment acquisitions, including the dependence in many cases upon cash flows
generated by the commercial real estate or other business conducted thereon for
repayment of loans, as well as the effect of general economic conditions on
commercial properties securing such loans.

MORTGAGE LOANS. Approximately 5% of the Bank's loan portfolio consisted of
13 mortgage loans secured by 1-4 family units, which were acquired as part of
the Bank's acquisition of Liberty Federal Savings Bank in June 1991. These
loans averaged approximately $94,000 and ranged in amount from $61,112 to
$146,349 at December 31, 1995. The majority of these loans have a 30-year
amortization schedule and bear a fixed rate of interest.

The Bank's acquired residential real estate mortgage loans have risks
involving both the borrower's ability to make monthly payments and the value of
the property securing the loan, each of which may be affected by general
economic conditions, the personal circumstances of the borrower and other
factors beyond the Bank's control. The Bank is not currently pursuing the
origination or acquisition of additional mortgage loans of this type.

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CONSUMER/INSTALLMENT LOANS. Approximately 7% of the Bank's loan portfolio
consisted of consumer/installment loans. Excluding credit card receivables,
these loans ranged in amounts from $49 to $106,366, and averaged approximately
$10,000. These loans consist principally of automobile loans and other personal
loans and credit card receivables. Except for the credit card receivables,
which represented 16.7% of the total consumer/installment portfolio at December
31, 1995, these loans typically are secured by liens on real or personal
property.

Consumer loans may entail greater credit risk than do residential mortgage
loans, particularly in the case of consumer loans which are unsecured or are
secured by rapidly depreciating assets such as automobiles. In such cases, any
repossessed collateral for a defaulted consumer loan may not provide an adequate
source of repayment of the outstanding loan balance as a result of the greater
likelihood of damage or loss or as a result of depreciation. In addition,
consumer loan collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be affected by adverse personal
circumstances. Furthermore, the application of various federal and state laws,
including bankruptcy and insolvency laws, may limit the amount which can be
recovered on such loans.

SOURCE OF BUSINESS

The Bank has undertaken an aggressive marketing program which includes
advertising and direct mail to attract business in its market area. In
addition, Business Development and Lending Officers of the Bank are responsible
for making regular calls on existing and potential new customers to solicit
business and client referrals. Promotional efforts are designed to attract
personal banking relationships, small businesses, professional organizations,
and all types of consumer loans in the market area served by the Bank.

In order to expedite decisions on lending transactions, the Bank's Loan
Committee meets on a regular basis and is available for daily telephonic
meetings when immediate lending authorization is needed.

ASSET MANAGEMENT

Consistent with the need to maintain adequate liquidity for anticipated
clearings and other cash requirements, management of the Bank seeks to invest
the largest portion of the Bank's assets in loans of the types described above
under "Business -- Bank Services." Because of low loan demand in 1995, total
loans have been less than 50% of deposits and capital. The balance of the
Bank's funds are invested in government and other investment grade securities,
short-term certificates of deposit, municipal securities and Federal funds sold
to other financial institutions. In order to maximize yields, the Bank's
investment policy provides for investment in taxable securities only until such
time as the Bank's overall profitability indicates a higher yield by investing
in tax-exempt instruments, after taking into account the effects of taxes.

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The Bank's investment policy provides for a portfolio divided among issues
purchased to meet one or more of the following goals: (a) to maintain a solid
liquidity base in order to manage deposit fluctuations; (b) to maintain credit
quality in order to reduce exposure to low-rated issues; (c) to achieve maximum
yields commensurate with relatively low risk and appropriate maturities; and (d)
to achieve maximum tax benefits. To assure liquidity and a reasonable income,
the Bank's portfolio consists of investments which are subject to minimal credit
risk. Most of the investments will be in government securities, "A" rated or
better corporate bonds and municipal bonds "A" rated or better. The maturity
composition of the investment portfolio, including investment securities,
Federal funds sold and interest bearing deposits with other financial
institutions, as of December 31, 1995, was as follows: 50.6% short term (under
one year), 39.1% medium term (one to five years), and 10.3% long term. On
December 31, 1995, all of the Bank's securities, with the exception of Federal
Reserve Bank stock, were classified as "available for sale."

COMPETITION

The banking and financial services business in California generally, and in
the Bank's market areas specifically, is highly competitive. The increasingly
competitive environment is a result primarily of changes in regulation, changes
in technology and product delivery systems, and the accelerating pace of
consolidation among financial services providers. The Bank competes for loans
and deposits and customers for financial services with other commercial banks,
savings and loan associations, securities and brokerage companies, mortgage
companies, insurance companies, finance companies, money market funds, credit
unions and other nonbank financial service providers. Many of these competitors
are much larger in total assets and capitalization, have greater access to
capital markets and offer a broader array of financial services than the Bank.
In order to compete with the other financial services providers, the Bank offers
a broad range of products meeting the needs of its customers and principally
relies upon local promotional activities, personal relationships established by
officers, directors and employees with its customers, and specialized services
tailored to meet its customers' needs. In those instances where the Bank is
unable to accommodate a customer's needs, the Bank will arrange for those
services to be provided by its correspondents. The Bank has neither a
concentration in the mix of its business nor a significant market share.

EFFECT OF GOVERNMENTAL POLICIES AND RECENT LEGISLATION

Banking is a business that depends on rate differentials. In general, the
difference between the interest rate paid by the Bank on its deposits and its
other borrowings and the interest rate received by the Bank on loans extended to
its customers and securities held in the Bank's portfolio comprise the major
portion of COMBANCORP's earnings. These rates are highly sensitive to many
factors that are beyond the control of the Bank. Accordingly, the earnings and
growth of COMBANCORP are subject to the influence of domestic and foreign
economic conditions, including inflation, recession and unemployment.

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<PAGE>

The commercial banking business is not only affected by general economic
conditions but is also influenced by the monetary and fiscal policies of the
federal government and the policies of regulatory agencies, particularly the
Federal Reserve Board. The Federal Reserve Board implements national monetary
policies (with objectives such as curbing inflation and combating recession) by
its open-market operations in United States Government securities, by adjusting
the required level of reserves for financial institutions subject to its reserve
requirements and by varying the discount rates applicable to borrowing by
depository institutions. The actions of the Federal Reserve Board in these
areas influence the growth of bank loans, investments and deposits and also
affect interest rates charged on loans and paid on deposits. The nature and
impact of any future changes in monetary policies cannot be predicted.

From time-to-time, legislation is enacted which has the effect of
increasing the cost of doing business, limiting or expanding permissible
activities or affecting the competitive balance between banks and other
financial institutions. Proposals to change the laws and regulations governing
the operations and taxation of banks, bank holding companies and other financial
institutions are frequently made in Congress, in the California legislature and
before various bank regulatory and other professional agencies. The Financial
Services Competiveness and Regulatory Relief Act of 1996 recently proposed in
the House of Representatives would generally reduce the regulatory and paperwork
burden that currently affects banks. In addition, legislation has been
introduced in Congress and may be revived that would merge the deposit insurance
funds applicable to commercial banks and savings associations and impose a one-
time assessment on savings associations to recapitalize the deposit insurance
fund applicable to savings associations. The likelihood of any major
legislative changes and the impact such changes might have on the COMBANCORP are
impossible to predict. See "Business - Supervision and Regulation."

SUPERVISION AND REGULATION

Bank holding companies and banks are extensively regulated under both
federal and state law. Set forth below is a summary description of certain laws
which relate to the regulation of COMBANCORP and the Bank. The description
does not purport to be complete and is qualified in its entirety by reference to
the applicable laws and regulations.

COMBANCORP. COMBANCORP, as a registered bank holding company, is subject
to regulation under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). COMBANCORP is required to file with the Federal Reserve Board
quarterly and annual reports and such additional information as the Federal
Reserve Board may require pursuant to the BHCA. The Federal Reserve Board may
conduct examinations of COMBANCORP and its subsidiaries.

The Federal Reserve Board may require that COMBANCORP terminate an activity
or terminate control of or liquidate or divest certain subsidiaries or
affiliates when the Federal Reserve Board believes the activity or the control
of the subsidiary or affiliate constitutes a significant risk to the financial
safety, soundness or stability of any of its banking subsidiaries.

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<PAGE>

The Federal Reserve Board also has the authority to regulate provisions of
certain bank holding company debt, including authority to impose interest
ceilings and reserve requirements on such debt. Under certain circumstances,
COMBANCORP must file written notice and obtain approval from the Federal Reserve
Board prior to purchasing or redeeming its equity securities.

Under the BHCA and regulations adopted by the Federal Reserve Board, a bank
holding company and its nonbanking subsidiaries are prohibited from requiring
certain tie-in arrangements in connection with any extension of credit, lease or
sale of property or furnishing of services. Further, COMBANCORP is required by
the Federal Reserve Board to maintain certain levels of capital. See " Business
- - Supervision and Regulation - Capital Standards."

COMBANCORP is required to obtain the prior approval of the Federal Reserve
Board for the acquisition of more than 5% of the outstanding shares of any class
of voting securities or substantially all of the assets of any bank or bank
holding company. Prior approval of the Federal Reserve Board is also required
for the merger or consolidation of COMBANCORP and another bank holding company.

COMBANCORP is prohibited by the BHCA, except in certain statutorily
prescribed instances, from acquiring direct or indirect ownership or control of
more than 5% of the outstanding voting shares of any company not a bank or bank
holding company and from engaging directly or indirectly in activities other
than those of banking, managing or controlling banks or furnishing services to
its subsidiaries. However, COMBANCORP, subject to the prior approval of the
Federal Reserve Board, may engage in any, or acquire shares of companies engaged
in, activities that are deemed by the Federal Reserve Board to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. In making any such determination, the Federal Reserve Board is
required to consider whether the performance of such activities by COMBANCORP or
an affiliate can reasonably be expected to produce benefits to the public, such
as greater convenience, increased competition or gains in efficiency, that
outweigh possible adverse effects, such as undue concentration of resources,
decreased or unfair competition, conflicts of interest or unsound banking
practices. The Federal Reserve Board is also empowered to differentiate between
activities commenced DE NOVO and activities commenced by acquisition, in whole
or in part, of a going concern.

Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board's
regulations, or both. This doctrine has become known as the "source of
strength" doctrine. Although the United States

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<PAGE>

Court of Appeals for the Fifth Circuit found the Federal Reserve Board's source
of strength doctrine invalid in 1990, stating that the Federal Reserve Board had
no authority to assert the doctrine under the BHCA, the decision, which is not
binding on federal courts outside the Fifth Circuit, was recently reversed by
the United States Supreme Court on procedural grounds. The validity of the
source of strength doctrine is likely to continue to be the subject of
litigation until definitively resolved by the courts or by Congress.

COMBANCORP is also a bank holding company within the meaning of Section
3700 of the California Financial Code. As such, COMBANCORP and its
subsidiaries are subject to examination by, and may be required to file reports
with, the California State Banking Department.

THE BANK. The Bank, as a national banking association, is subject to
primary supervision, examination and regulation by the OCC. If, as result of an
examination of a Bank, the OCC should determine that the financial condition,
capital resources, asset quality, earnings prospects, management, liquidity or
other aspects of the Bank's operations are unsatisfactory or that the Bank or
its management is violating or has violated any law or regulation, various
remedies are available to the OCC. Such remedies include the power to enjoin
"unsafe or unsound practices," to require affirmative action to correct any
conditions resulting from any violation or practice, to issue an administrative
order that can be judicially enforced, to direct an increase in capital, to
restrict the growth of the Bank, to assess civil monetary penalties, and to
remove officers and directors. The FDIC has similar enforcement authority, in
addition to its authority to terminate a Bank's deposit insurance in the absence
of action by the OCC and upon a finding that a Bank is in an unsafe or unsound
condition, is engaging in unsafe or unsound activities, or that its conduct
poses a risk to the deposit insurance fund or may prejudice the interest of its
depositors.

The deposits of the Bank are insured by the FDIC in the manner and to the
extent provided by law. For this protection, the Bank pays a semiannual
statutory assessment. See "Business - Supervision and Regulation - Premiums for
Deposit Insurance." The Bank is also subject to certain regulations of the
Federal Reserve Board and applicable provisions of California law, insofar as
they do not conflict with or are not preempted by federal banking law.

Various other requirements and restrictions under the laws of the United
States and State of California affect operations of the Bank. Federal and
California statutes and regulations relate to many aspects of the Bank's
operations, including reserves against deposits, interest rates payable on
deposits, loans, investments, mergers and acquisitions, borrowings, dividends,
locations of branch offices, capital requirements and disclosure obligations to
depositors and borrowers. Further, the Bank is required to maintain certain
levels of capital. See "Business - Supervision and Regulation - Capital
Standards."

RESTRICTIONS ON TRANSFERS OF FUNDS TO COMBANCORP BY THE BANK. COMBANCORP
is a legal entity separate and distinct from the Bank. COMBANCORP's ability to
pay cash dividends is limited by state law.

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<PAGE>

There are statutory and regulatory limitations on the amount of dividends
which may be paid to COMBANCORP by the Bank. The prior approval of the OCC is
required if the total of all dividends declared by a national bank in any
calendar year exceeds the bank's net profits (as defined) for that year combined
with its retained net profits (as defined) for the preceding two years, less any
transfers to surplus.

The OCC also has authority to prohibit the Bank from engaging in activities
that, in the OCC's opinion, constitute unsafe or unsound practices in conducting
its business. It is possible, depending upon the financial condition of the
bank in question and other factors, that the OCC could assert that the payment
of dividends or other payments might, under some circumstances, be such an
unsafe or unsound practice. Further, the OCC and the Federal Reserve Board have
established guidelines with respect to the maintenance of appropriate levels of
capital by banks or bank holding companies under their jurisdiction. Compliance
with the standards set forth in such guidelines and the restrictions that are or
may be imposed under the prompt corrective action provisions of federal law
could limit the amount of dividends which the Bank or COMBANCORP may pay. The
superintendent may impose similar limitations on the conduct of California-
chartered banks. See "Business - Supervision and Regulation - Prompt Corrective
Regulatory Action and Other Enforcement Mechanisms" and - "Capital Standards"
for a discussion of these additional restrictionsyyy on capital distributions.
At present, substantially all of COMBANCORP's revenues, including funds
available for the payment of dividends and other operating expenses, is, and
will continue to be, primarily dividends paid by the Bank. At December 31,
1995, the Bank had $2,002,105 legally available for the payment of cash
dividends, subject to regulatory approval.

The Bank is subject to certain restrictions imposed by federal law on any
extensions of credit to, or the issuance of a guarantee or letter of credit on
behalf of, COMBANCORP or other affiliates, the purchase of or investment in
stock or other securities thereof, the taking of such securities as collateral
for loans and the purchase of assets of COMBANCORP or other affiliates. Such
restrictions prevent COMBANCORP and such other affiliates from borrowing from
the Bank unless the loans are secured by marketable obligations of designated
amounts. Further, such secured loans and investments by the Bank to or in
COMBANCORP or to or in any other affiliate is limited to 10% of the Bank's
capital and surplus (as defined by federal regulations) and such secured loans
and investments are limited, in the aggregate, to 20% of the Bank's capital and
surplus (as defined by federal regulations). Additional restrictions on
transactions with affiliates may be imposed on the Bank under the prompt
corrective action provisions of federal law. See "Business - Supervision and
Regulation - Prompt Corrective Action and Other Enforcement Mechanisms."

CAPITAL STANDARDS. The Federal Reserve Board and the OCC have adopted
risk-based minimum capital guidelines intended to provide a measure of capital
that reflects the degree of risk associated with a banking organization's
operations for both transactions reported on the balance sheet as assets and
transactions, such as letters of credit and recourse arrangements, which are
recorded as off balance sheet items. Under these guidelines, nominal dollar
amounts of assets and credit equivalent amounts of off balance sheet items are
multiplied by one of

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<PAGE>

several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S. Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.

A banking organization's risk-based capital ratios are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators
measure risk-adjusted assets, which includes off balance sheet items, against
both total qualifying capital (the sum of Tier 1 capital and limited amounts of
Tier 2 capital) and Tier 1 capital. Tier 1 capital consists primarily of common
stock, retained earnings, noncumulative perpetual preferred stock (cumulative
perpetual preferred stock for bank holding companies) and minority interests in
certain subsidiaries, less most intangible assets. Tier 2 capital may consist
of a limited amount of the allowance for possible loan and lease losses,
cumulative preferred stock, long term preferred stock, eligible term
subordinated debt and certain other instruments with some characteristics of
equity. The inclusion of elements of Tier 2 capital is subject to certain other
requirements and limitations of the federal banking agencies. The federal
banking agencies require a minimum ratio of qualifying total capital to risk
adjusted assets of 8% and a minimum ratio of Tier 1 capital to risk adjusted
assets of 4%. COMBANCORP is currently exempt from the application of the
Federal Reserve Board's capital guidelines under an exemption for bank holding
companies with less than $150 million in consolidated assets.

In addition to the risk-based guidelines, federal banking regulators
require banking organizations to maintain a minimum amount of Tier 1 capital to
total assets, referred to as the leverage ratio. For a banking organization
rated in the highest of the five categories used by regulators to rate banking
organizations, the minimum leverage ratio is 3%. For all banking organizations
not rated in the highest category, the minimum leverage ratio must be at least
100 to 200 basis points above the 3% minimum, or 4% to 5%. In addition to these
uniform risk-based capital guidelines and leverage ratios that apply across the
industry, the regulators have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly above the minimum
guidelines and ratios.

In August 1995, the federal banking agencies adopted final regulations
specifying that the agencies will include, in their evaluations of a bank's
capital adequacy, an assessment of the exposure to declines in the economic
value of the bank's capital due to changes in interest rates. The final
regulations, however, do not include a measurement framework for assessing the
level of a bank's exposure to interest rate risk, which is the subject of a
proposed policy statement issued by the federal banking agencies concurrently
with the final regulations. The proposal would measure interest rate risk in
relation to the effect of a 200 basis point change in market interest rates on
the economic value of a bank. Banks with high levels of measured exposure or
weak management systems generally will be required to hold additional capital
for interest rate risk. The specific amount of capital that may be needed would
be determined on a case-by-case basis by the examiner and the appropriate
federal banking agency. Because this proposal has only recently been issued,
the Bank currently is unable to predict the impact of the proposal on the Bank
if the policy statement is adopted as proposed.

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<PAGE>

In January 1995, the federal banking agencies issued a final rule relating
to capital standards and the risks arising from the concentration of credit and
nontraditional activities. Institutions which have significant amounts of their
assets concentrated in high risk loans or nontraditional banking activities and
who fail to adequately manage these risks will be required to set aside capital
in excess of the regulatory minimums. The federal banking agencies have not
imposed any quantitative assessment for determining when these risks are
significant, but have identified these issues as important factors they will
review in assessing an individual bank's capital adequacy.

In December 1993, the federal banking agencies issued an interagency policy
statement on the allowance for loan and lease losses which, among other things,
establishes certain benchmark ratios of loan loss reserves to classified assets.
The benchmark set forth by such policy statement is the sum of (a) assets
classified loss; (b) 50 percent of assets classified doubtful; (c) 15 percent of
assets classified substandard; and (d) estimated credit losses on other assets
over the upcoming 12 months.

Federally supervised banks and savings associations are currently required
to report deferred tax assets in accordance with SFAS No. 109. The federal
banking agencies recently issued final rules, effective April 1, 1995, which
limit the amount of deferred tax assets that are allowable in computing an
institution's regulatory capital. The standard has been in effect on an interim
basis since March 1993. Deferred tax assets that can be realized for taxes paid
in prior carryback years and from future reversals of existing taxable temporary
differences are generally not limited. Deferred tax assets that can only be
realized through future taxable earnings are limited for regulatory capital
purposes to the lesser of (a) the amount that can be realized within one year of
the quarter-end report date or (b) 10% of Tier 1 Capital. The amount of any
deferred tax in excess of this limit would be excluded from Tier 1 Capital and
total assets and regulatory capital calculations.

Future changes in regulations or practices could further reduce the amount
of capital recognized for purposes of capital adequacy. Such a change could
affect the ability of the Bank to grow and could restrict the amount of profits,
if any, available for the payment of dividends.

The following table presents the amount of regulatory capital and the
capital ratios for the Bank, compared to its minimum regulatory capital
requirements as of December 31, 1995.

At December 31, 1995
---------------------------
Minimum
Capital
Actual Requirement
---------- --------------
Leverage ratio . . . . . . . . 8.4% 4.0%
Tier 1 risk-based ratio . . . . 17.6 4.0
Total risk-based ratio . . . . 18.3 8.0

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<PAGE>

PROMPT CORRECTIVE ACTION AND OTHER ENFORCEMENT MECHANISMS. Federal law
requires each federal banking agency to take prompt corrective action to resolve
the problems of insured depository institutions, including but not limited to
those that fall below one or more prescribed minimum capital ratios. The law
requires each federal banking agency to promulgate regulations defining the
following five categories in which an insured depository institution will be
placed, based on the level of its capital ratios: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized.

In September 1992, the federal banking agencies issued uniform final
regulations implementing the prompt corrective action provisions of federal law.
An insured depository institution generally will be classified in the following
categories based on capital measures indicated below:

"Well capitalized" "Adequately capitalized"
------------------ ------------------------
Total risk-based capital of 10%; Total risk-based capital of 8%;

Tier 1 risk-based capital of 6%; and Tier 1 risk-based capital of 4%;
and

Leverage ratio of 5%. Leverage ratio of 4% (3% if the
institution receives the highest
rating from its primary regulator).

"Undercapitalized" "Significantly undercapitalized"
------------------ --------------------------------
Total risk-based capital less than 8% Total risk-based capital less than
6%;

Tier 1 risk-based capital less than Tier 1 risk-based capital less than
4%; or 3%; or

Leverage ratio less than 4% (3% if Leverage ratio less than 3%.
the institution receives the highest
rating from its primary regulator).

"Critically undercapitalized"
-----------------------------
Tangible equity to total assets less
than 2%.

An institution that, based upon its capital levels, is classified as "well
capitalized," "adequately capitalized" or "undercapitalized" may be treated as
though it were in the next lower capital category if the appropriate federal
banking agency, after notice and opportunity for hearing, determines that an
unsafe or unsound condition or an unsafe or unsound practice warrants such
treatment. At each successive lower capital category, an insured depository
institution is subject to more restrictions. The federal banking agencies,
however, may not treat an institution as "critically undercapitalized" unless
its capital ratio actually warrants such treatment.

The law prohibits insured depository institutions from paying management
fees to any controlling person or, with certain limited exceptions, making
capital distributions if after such

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<PAGE>

transaction the institution would be undercapitalized. If an insured depository
institution is undercapitalized, it will be closely monitored by the appropriate
federal banking agency, subject to asset growth restrictions and required to
obtain prior regulatory approval for acquisitions, branching and engaging in
new lines of business. Any undercapitalized depository institution must submit
an acceptable capital restoration plan to the appropriate federal banking agency
45 days after becoming undercapitalized. The appropriate federal banking agency
cannot accept a capital plan unless, among other things, it determines that the
plan (a) specifies the steps the institution will take to become adequately
capitalized; (b) is based on realistic assumptions; and (c) is likely to succeed
in restoring the depository institution's capital. In addition, each company
controlling an undercapitalized depository institution must guarantee that the
institution will comply with the capital plan until the depository institution
has been adequately capitalized on an average basis during each of four
consecutive calendar quarters and must otherwise provide adequate assurances of
performance. The aggregate liability of such guarantee is limited to the lesser
of (i) an amount equal to 5% of the depository institutions's total assets at
the time the institution became undercapitalized or (ii) the amount which is
necessary to bring the institution into compliance with all capital standards
applicable to such institution as of the time the institution fails to comply
with its capital restoration plan. Finally, the appropriate federal banking
agency may impose any of the additional restrictions or sanctions that it may
impose on significantly undercapitalized institutions if it determines that such
action will further the purpose of the prompt correction action provisions.

An insured depository institution that is significantly undercapitalized,
or is undercapitalized and fails to submit, or in a material respect to
implement, an acceptable capital restoration plan, is subject to additional
restrictions and sanctions. These include, among other things: (a) a forced
sale of voting shares to raise capital or, if grounds exist for appointment of a
receiver or conservator, a forced merger; (b) restrictions on transactions with
affiliates; (c) further limitations on interest rates paid on deposits; (d)
further restrictions on growth or required shrinkage; (e) modification or
termination of specified activities; (f) replacement of directors or senior
executive officers; (g) prohibitions on the receipt of deposits from
correspondent institutions; (h) restrictions on capital distributions by the
holding companies of such institutions; (i) required divestiture of subsidiaries
by the institution; and (j) other restrictions as determined by the appropriate
federal banking agency. Although the appropriate federal banking agency has
discretion to determine which of the foregoing restrictions or sanctions it will
seek to impose, it is required to force a sale of voting shares or merger,
impose restrictions on affiliate transactions and impose restrictions on rates
paid on deposits unless it determines that such actions would not further the
purpose of the prompt corrective action provisions. In addition, without the
prior written approval of the appropriate federal banking agency, a
significantly undercapitalized institution may not pay any bonus to its senior
executive officers or provide compensation to any of them at a rate that exceeds
such officer's average rate of base compensation during the 12 calendar months
preceding the month in which the institution became undercapitalized.

Further restrictions and sanctions are required to be imposed on insured
depository institutions that are critically undercapitalized. For example, a
critically undercapitalized

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<PAGE>

institution generally would be prohibited from engaging in any material
transaction other than in the ordinary course of business without prior
regulatory approval and could not, with certain exceptions, make any payment of
principal or interest on its subordinated debt beginning 60 days after becoming
critically undercapitalized. Most importantly, however, except under limited
circumstances, the appropriate federal banking agency, not later than 90 days
after an insured depository institution becomes critically undercapitalized, is
required to appoint a conservator or receiver for the institution. The Board of
Directors of an insured depository institution would not be liable to the
institution's shareholders or creditors for consenting in good faith to the
appointment of a receiver or conservator or to an acquisition or merger as
required by the regulator.

In addition to measures taken under the prompt corrective action
provisions, commercial banking organizations may be subject to potential
enforcement actions by the federal regulators for unsafe or unsound practices in
conducting their businesses or for violations of any law, rule, regulation or
any condition imposed in writing by the agency or any written agreement with the
agency. Enforcement actions may include the imposition of a conservator or
receiver, the issuance of a cease and desist order that can be judicially
enforced, the termination of insurance of deposits (in the case of a depository
institution), the imposition of civil money penalties, the issuance of
directives to increase capital, the issuance of formal and informal agreements,
the issuance of removal and prohibition orders against institution-affiliated
parties and the enforcement of such actions through injunctions or restraining
orders based upon a judicial determination that the agency would be harmed if
such equitable relief was not granted.

SAFETY AND SOUNDNESS STANDARDS. In July 1995, the federal banking agencies
adopted final guidelines establishing standards for safety and soundness, as
required by the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"). The guidelines set forth operational and managerial standards
relating to internal controls, information systems and internal audit systems,
loan documentation credit underwriting, interest rate exposure, asset growth and
compensation, fees and benefits. Guidelines for asset quality and earnings
standards will be adopted in the future. The guidelines establish the safety
and soundness standards that the agencies will use to identify and address
problems at insured depository institutions before capital becomes impaired. If
an institution fails to comply with a safety and soundness standard, the
appropriate federal banking agency may require the institution to submit a
compliance plan. Failure to submit a compliance plan or to implement an
accepted plan may result in enforcement action.

In December 1992, the federal banking agencies issued final regulations
prescribing uniform guidelines for real estate lending. The regulations, which
became effective on March 19, 1993, require insured depository institutions to
adopt written policies establishing standards, consistent with such guidelines,
for extensions of credit secured by real estate. The policies must address loan
portfolio management, underwriting standards and loan to value limits that do
not exceed the supervisory limits prescribed by the regulations.

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<PAGE>

Appraisals for "real estate related financial transactions" must be
conducted by either state certified or state licensed appraisers for
transactions in excess of certain amounts. State certified appraisers are
required for all transactions with a transaction value of $1,000,000 or more;
for all nonresidential transactions valued at $250,000 or more; and for
"complex" 1-4 family residential properties of $250,000 or more. A state
licensed appraiser is required for all other appraisals. However, appraisals
performed in connection with "federally related transactions" must now comply
with the agencies' appraisal standards. Federally related transactions include
the sale, lease, purchase, investment in, or exchange of, real property or
interests in real property, the financing or refinancing of real property, and
the use of real property or interests in real property as security for a loan or
investment, including mortgage-backed securities.

PREMIUMS FOR DEPOSIT INSURANCE. Federal law has established several
mechanisms to increase funds to protect deposits insured by the Bank Insurance
Fund ("BIF") administered by the FDIC. The FDIC is authorized to borrow up to
$30 billion from the United States Treasury; up to 90% of the fair market value
of assets of institutions acquired by the FDIC as receiver from the Federal
Financing Bank; and from depository institutions that are members of the BIF.
Any borrowings not repaid by asset sales are to be repaid through insurance
premiums assessed to member institutions. Such premiums must be sufficient to
repay any borrowed funds within 15 years and provide insurance fund reserves of
$1.25 for each $100 of insured deposits. The result of these provisions is that
the assessment rate on deposits of BIF members could increase in the future.
The FDIC also has authority to impose special assessments against insured
deposits.

The FDIC implemented a final risk-based assessment system, as required by
FDICIA, effective January 1, 1994, under which an institution's premium
assessment is based on the probability that the deposit insurance fund will
incur a loss with respect to the institution, the likely amount of any such
loss, and the revenue needs of the deposit insurance fund. As long as BIF's
reserve ratio is less than a specified "designated reserve ratio," 1.25%, the
total amount raised from BIF members by the risk-based assessment system may not
be less than the amount that would be raised if the assessment rate for all BIF
members were .023% of deposits. On August 8, 1995, the FDIC announced that the
designated reserve ratio had been achieved and, accordingly, issued final
regulations adopting an assessment rate schedule for BIF members of 4 to 31
basis points effective on June 1, 1995. On November 14, 1995, the FDIC further
reduced deposit insurance premiums to a range of 0 to 27 basis points effective
for the semi-annual period beginning January 1, 1996.

Under the risk-based assessment system, a BIF member institution such as
the Bank is categorized into one of three capital categories (well capitalized,
adequately capitalized, and undercapitalized) and one of three categories based
on supervisory evaluations by its primary federal regulator (in the Bank's case,
the FDIC). The three supervisory categories are: financially sound with only a
few minor weaknesses (Group A), demonstrates weaknesses that could result in
significant deterioration (Group B), and poses a substantial probability of loss
(Group C). The

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<PAGE>

capital ratios used by the FDIC to define well-capitalized, adequately
capitalized and undercapitalized are the same in the FDIC's prompt corrective
action regulations. The BIF assessment rates are summarized below; assessment
figures are expressed in terms of cents per $100 in deposits.

Assessment Rate Effective Through the First Half of 1996
Group A Group B Group C
------- ------- -------
Well Capitalized . . . . . . 0* 3 17
Adequately Capitalized . . . 3 10 24
Undercapitalized . . . . . . 10 24 27

Assessment Rates Effective the Second Half of 1996
Group A Group B Group C
------- ------- -------
Well Capitalized . . . . . . 0* 3 17
Adequately Capitalized . . . 3 10 24
Undercapitalized . . . . . . 10 24 27
* Subject to a statutory minimum assessment of $1,000 per semi-annual
period (which also applies to all other assessment risk classifications).

At December 31, 1995, the Bank's assessment rate was 0 cents per $100 of
deposits, subject to a statutory minimum assessment of $1,000 per semi-annual
period.

A number of proposals have recently been introduced in Congress to address
the disparity in bank and thrift deposit insurance premiums by, among other
things, providing for a special assessment to recapitalize the Savings
Association Insurance Fund. In light of ongoing debate over the content and
fate of the different proposals currently under consideration and the
uncertainty of the Congressional budget and legislative processes in general,
management cannot predict whether any or all of the proposed legislation will be
passed, or in what form. Accordingly, the effect of any such legislation on the
Bank cannot be determined.

INTERSTATE BANKING AND BRANCHING. In September 1994, the Riegel-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate Act")
became law. Under the Interstate Act, beginning one year after the date of
enactment, a bank holding company that is adequately capitalized and managed may
obtain approval under the BHCA to acquire an existing bank located in another
state without regard to state law. A bank holding company would not be
permitted to make such an acquisition if, upon consummation, it would control
(a) more than 10% of the total amount of deposits of insured depository
institutions in the United States or (b) 30% or more of the deposits in the
state in which the bank is located. A state may limit the percentage of total
deposits that may be held in that state by any one bank or bank holding company
if application of such limitation does not discriminate against out-of-state
banks. An out-of-state bank holding company may not acquire a state bank in
existence for less than a minimum length of time that may be prescribed by state
law except that a state may not impose more than a five year existence
requirement.

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<PAGE>

The Interstate Act also permits, beginning June 1, 1997, mergers of insured
banks located in different states and conversion of the branches of the acquired
bank into branches of the resulting bank. Each state may permit such
combinations earlier than June 1, 1997, and may adopt legislation to prohibit
interstate mergers after that date in that state or in other states by that
state's banks. The same concentration limits discussed in the preceding
paragraph apply. The Interstate Act also permits a national or state bank to
establish branches in a state other than its home state if permitted by the laws
of that state, subject to the same requirements and conditions as for a merger
transaction.

In October 1995, California adopted "opt in" legislation under the
Interstate Act that permits out-of-state banks to acquire California banks that
satisfy a five-year minimum age requirement (subject to exceptions for
supervisory transactions) by means of merger or purchases of assets, although
entry through acquisition of individual branches of California institutions and
DE NOVO branching into California are not permitted. The Interstate Act and the
California branching statute will likely increase competition from out-of-state
banks in the markets in which the Company operates, although it is difficult to
assess the impact that such increased competition may have on COMBANCORP's
operations.

COMMUNITY REINVESTMENT ACT AND FAIR LENDING DEVELOPMENTS. The Bank is
subject to certain fair lending requirements and reporting obligations involving
home mortgage lending operations and Community Reinvestment Act ("CRA")
activities. The CRA generally requires the federal banking agencies to evaluate
the record of a financial institution in meeting the credit needs of their local
communities, including low and moderate income neighborhoods. In addition to
substantial penalties and corrective measures that may be required for a
violation of certain fair lending laws, the federal banking agencies may take
compliance with such laws and CRA into account when regulating and supervising
other activities.

In May 1995, the federal banking agencies issued final regulations which
change the manner in which they measure a bank's compliance with its CRA
obligations. The final regulations adopt a performance-based evaluation system
which bases CRA ratings on an institution's actual lending service and
investment performance rather than the extent to which the institution conducts
needs assessments, documents community outreach or complies with other
procedural requirements. In March 1994, the Federal Interagency Task Force on
Fair Lending issued a policy statement on discrimination in lending. The policy
statement describes the three methods that federal agencies will use to prove
discrimination: overt evidence of discrimination, evidence of disparate
treatment and evidence of disparate impact. In December 1995, the Bank received
a satisfactory CRA rating.

EMPLOYEES

As of December 31, 1995, COMBANCORP employed 26 full-time employees and 16
part-time employees. Management believes that COMBANCORP's and the Bank's
relations with its employees are good.

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<PAGE>

STATISTICAL DISCLOSURE

I. DISTRIBUTION OF ASSETS, LIABILITIES AND SHAREHOLDERS' EQUITY;
INTEREST RATES AND INTEREST DIFFERENTIAL

A. AVERAGE BALANCES

The following table sets forth COMBANCORP's consolidated condensed
daily average balances of each major category of assets, liabilities and
shareholders' equity for the periods indicated.

Year Ended Year Ended
December 31, 1995 December 31, 1994
-------------------- --------------------
Assets:
-------
Cash and due from banks $ 5,305,762 7.48% $ 5,628,006 9.08%
Interest-bearing deposits
with financial institutions 9,913,452 13.98% 7,714,864 12.45%
Federal Reserve Bank stock 120,000 0.17% 120,000 0.19%
Investment available for sale 17,729,951 25.01% 14,224,555 22.96%
Federal funds sold 9,821,823 13.85% 9,043,958 14.60%
Loans (net of allowance for loan 23,927,123 33.74% 22,657,720 36.57%
losses)
Other assets 4,092,477 5.77% 2,569,986 4.15%
----------- ------- ----------- -------

Total assets $70,910,588 100.00% $61,959,089 100.00%
----------- ------- ----------- -------
----------- ------- ----------- -------
Liabilities and Shareholders'
----------------------------
Equity:
-------
Demand deposits $23,878,416 33.67% $20,274,807 32.72%
Interest-bearing deposits 40,444,174 57.04% 35,712,238 57.64%
Other liabilities 438,038 0.62% 182,650 0.30%
----------- ------- ----------- -------
Total liabilities 64,760,628 91.33% 56,169,695 90.66%

-50-
<PAGE>

Year Ended Year Ended
December 31, 1995 December 31, 1994
--------------------- --------------------
Shareholders' equity 6,149,960 8.67% 5,789,394 9.34%
----------- ------- ----------- -------

Total liabilities and $70,910,588 100.00% $61,959,089 100.00%
shareholders' equity ----------- ------- ----------- -------
----------- ------- ----------- -------

B. ANALYSIS OF NET INTEREST INCOME

The following table sets forth the average amounts outstanding for
each category of interest-bearing assets and interest-bearing liabilities, the
average interest rates earned and paid thereon and the net interest margin for
the periods indicated.

<TABLE>
<CAPTION>
Year Ended December 31, 1995 Year Ended December 31, 1994
------------------------------------------- --------------------------------------------
Interest Interest
Average Income/ Average Average Income/ Average
Balance Expense Yield Balance Expense Yield
------------ ----------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
------------------------
Loans $ 24,691,646 $ 2,904,107 11.76% $ 23,370,301 $ 2,750,210 11.77%
Interest-bearing deposits
with financial institutions 9,913,452 610,821 6.16% 7,714,864 334,074 4.33%
Federal Reserve Bank stock 120,000 7,200 6.00% 120,000 7,200 6.00%
Securities available for sale 17,729,951 1,111,063 6.27% 14,224,555 699,344 4.92%
Federal funds sold 9,821,823 566,857 5.77% 9,043,958 402,391 4.45%
------------ ----------- ------- ------------ ----------- ------
Total interest-bearing assets $ 62,276,872 $ 5,200,048 $ 8.35% $ 54,473,678 $ 4,193,219 7.70%
------------ ----------- ------- ------------ ----------- ------
------------ ----------- ------- ------------ ----------- ------
Interest-Bearing Liabilities:
-----------------------------
Deposits:
Money market demand $ 9,669,341 $ 272,090 2.81% $ 8,820,983 $ 220,407 2.50%
Savings and other interest-
bearing demand 18,090,611 356,992 1.97% 15,802,130 294,018 1.86%
Time deposits 12,684,221 570,329 4.50% 11,089,125 369,996 3.34%
------------ ----------- ------- ------------ ----------- ------
Total interest-bearing
liabilities $ 40,444,173 $ 1,199,411 2.97% $ 35,712,238 $ 884,421 2.48%
------------ ----------- ------- ------------ ----------- ------
------------ ----------- ------- ------------ ----------- ------
Net interest income 4,000,637 3,308,798
----------- -----------
----------- -----------
Net interest margin 6.42% 6.07%
------ -----
------ -----
</TABLE>

-51-
<PAGE>

C. NET INTEREST INCOME

Information as to the impact of changes in average rates and average
balances on interest-earning assets and interest-bearing liabilities is set
forth in the following table. The variances attributable to simultaneous
balance and rate changes have been allocated to volume.

<TABLE>
<CAPTION>
----------------------------------------- -----------------------------------------
1995 over 1994 1994 over 1993
----------------------------------------- -----------------------------------------
Increase (Decrease) Increase (Decrease)
due to changes in: due to changes in:
Volume Net Rate Change Volume Net Rate Change
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Loans $ 155,495 $ (1,598) $ 153,897 $ 34,014 $ 486,848 $ 520,862
Interest-bearing deposits
with financial institutions 95,205 181,542 276,747 (3,007) 37,974 34,967
Securities available for sale 172,341 239,378 411,719 635,072 (179,542) 455,530
Federal funds sold 34,609 129,857 164,466 157,504 147,092 304,596
----------- ----------- ----------- ----------- ----------- -----------
Total $ 457,650 $ 549,179 $ 1,006,829 $ 823,583 $ 492,372 $ 1,315,955
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
Interest-Bearing Liabilities:
Money market demand $ 21,198 $ 30,485 $ 51,683 $ 48,866 $ 8,152 $ 57,018
Savings and other interest-
bearing demand 42,580 20,394 62,974 136,009 (22,939) 113,070
Time deposits 53,221 147,112 200,333 61,613 11,979 73,592
----------- ----------- ----------- ----------- ----------- -----------
Total $ 116,999 $ 197,991 $ 314,990 $ 246,488 $ (2,808) $ 243,680
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------

Interest Differential $ 340,651 $ 351,188 $ 691,839 $ 577,095 $ 495,180 $ 1,072,275
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>

II. INVESTMENT PORTFOLIO

Effective December 31, 1993, the Bank adopted FASB Statement No. 115,
Accounting for Certain Investments in Debt and Equity Securities. The Bank
classified substantially all of its investment portfolio as available for sale
on December 31, 1995.

At December 31, 1995, the Bank recorded an increase to shareholders' equity
of $134,960 net of income of $97,200 to adjust the portfolio classified as
available for sale to its market value.

The following table sets forth the Bank's investment securities as of the
dates indicated:

-52-
<PAGE>

December 31, December 31,
1995 1994
------------ ------------
Federal Reserve Bank stock $ 120,000 $ 120,000
------------ ------------
Securities available for sale:
U.S. Treasury securities $ 7,988,578 14,024,459
U.S. Government agencies 11,842,739 2,105,067
Corporate notes 317,098 495,020
Municipal securities $ 898,150 $ 205,858
------------ ------------
$ 21,046,565 $ 16,830,404
------------ ------------
TOTAL $ 21,166,565 $ 16,950,404
------------ ------------
------------ ------------

The following table sets forth the amounts, term, distribution and weighted
average yields of the Bank's investment securities as of December 31, 1995.

<TABLE>
<CAPTION>
After one Year
One Year or Less Through Five Years After Five Years
-------------------------- --------------------------- ---------------------------
Amount Yield Amount Yield Amount Yield
----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal Reserve Bank stock -- -- -- -- $ 120,000 6.00%
----------- ----------- -----------

Securities available for sale:

U.S. Treasury securities $ 2,968,497 6.41% $ 5,020,080 6.87% $ -- --
U.S. Government agencies 453,140 6.46% 8,227,779 6.78% 3,161,823 8.17%
Corporate notes -- -- 208,799 6.94% 108,298 7.75%
Municipal securities 100,017 3.40% 515,502 4.17% 282,630 5.03%
----------- ----------- -----------
$ 3,521,654 $13,972,160 $ 3,552,751
----------- ----------- -----------

TOTAL $ 3,521,654 $13,972,160 $ 3,672,751
----------- ----------- -----------
----------- ----------- -----------

</TABLE>

-53-
<PAGE>

III. LOAN PORTFOLIO

A. TYPES OF LOANS

The composition of COMBANCORP's loan portfolio (all domestic) at the
dates indicated was as follows:

December 31, December 31,
1995 1994
------------- -------------

Commercial $ 10,474,719 $ 11,210,049
Real Estate:
Construction 2,338,979 2,998,619
Other 8,062,827 8,541,865
Mortgage loans acquired 1,216,165 1,242,636
Consumer/Installment 1,679,274 1,815,841
------------- -------------

Total loans $ 23,771,964 $ 25,809,010
------------- -------------
------------- -------------

B. MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES

The following table sets forth the amount of total loans outstanding
(excluding consumer/installment loans) at December 31, 1995, which are based on
remaining scheduled principal repayments due in one year or less, after one year
through five years and after five years. The amounts outstanding which are due
after one year are classified according to their sensitivity to changes in
interest rates.

One year or less $ 7,719,471
After one year through five years:
Floating interest rate 7,846,631
Fixed interest rate 3,775,596
After five years:
Floating interest rate 862,517
Fixed interest rate 1,888,475
--------------

Total $ 22,092,690
--------------
--------------

C. RISK ELEMENTS

The following table sets forth the Bank's loans accounted for on a
non-accrual basis and loans accruing which are contractually past due 90 days or
more, as to principal or interest payments. The Bank does not have any loans
which are considered "troubled debt restructurings" as defined in Statement of
Financial Accounting Standards No. 15 ("FASB 15"), "Accounting by Debtors and
Creditors for Troubled Debt Restructuring."

-54-
<PAGE>

Loans past
due over 90 Loans
and still non-accrual
accruing status
----------- -----------

Commercial $ -- $ --
Real Estate:
Construction -- --
Other -- 102,575
Mortgage loans acquired 146,349 --
Consumer/Installment 20,764 --
----------- -----------

Total $ 167,113 $ 102,575
----------- -----------
----------- -----------

The gross interest income included in net income on the impaired loans
outstanding at December 31, 1995 and the gross interest income that would have
been reported in the period ending December 31, 1995 if non-accrual loans had
been current in accordance with their original terms are as follows:

Interest income included in net income on
impaired loans $ 21,732
Interest income excluded from net income
on non-accrual loans $ 8,065

COMBANCORP's current policy is to cease accruing interest on loans which
are 90 days or more past due as to principal or interest, except in instances
where management believes that the loan is fully collectible. Each such loan
that is 90 days or more past due is evaluated individually to determine its
collectibility and the adequacy of its collateral.

The loan on non-accrual status is secured by a first trust deed on
commercial property; the borrower has been contacted but the Bank was unable to
obtain a promise to pay. The Bank is currently consulting with counsel
regarding a resolution. The other real estate single family dwelling secured
loan in the amount of $146,349 made a payment on January 5, 1996, and is no
longer 90 days past due. These two loans account for 92.3% of the Bank's non-
performing loans. The other three represent a credit card receivable and two
loans secured by commercial vehicles; these loans total $20,763, or 7.7% of non-
performing loans, of which $1,600 was charged off in February 1996. The Bank
received payoffs on the two remaining loans in February 1996. Management
believes that it has adequately reserved for those loans representing an above
normal degree of risk.

On February 16, 1996, the Bank was made aware of the Chapter 7 bankruptcy
filing on two unsecured commercial loans totaling $163,333. These loans are not
included in the non performing asset totals as of December 31, 1995. The Bank
has contacted counsel and will prepare a charge off to remove the loans from its
performing assets.

-55-
<PAGE>

On January 1, 1995, the Bank adopted FASB Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by FASB Statement No. 118,
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosures." There was no effect on the Bank's financial statements from this
change. At January 1, 1995, the Bank classified $244,000 of its loans as
impaired with a specific loss reserve of $56,000.

Impairment of loans having recorded investments of $103,000 at December 31,
1995 has been recognized. The total allowance for loan losses related to these
loans was $5,200 on December 31, 1995. The average recorded investment for all
impaired loans during 1995 was $276,000. Interest income of $57,000 was
recognized on impaired loans in 1995 and was recognized using a cash basis
method of accounting during the time within that period that the loans were
impaired.

Other than the loan categories disclosed herein, the Bank does not have any
material concentration of loans. Management believes that the loan portfolio is
diversified sufficiently to avoid the impact of significant adverse changes in
economic or other conditions related to any single industry.

IV. SUMMARY OF LOAN LOSS EXPERIENCE

Year Ended Year Ended
December 31, December 31,
1995 1994
------------- -------------
Average net loans outstanding $ 23,927,123 $ 22,657,720

Balance of allowance for loan losses
at beginning of period 498,827 534,625
Charge-offs:
Commercial loans (768,475) (199,700)
Real Estate loans -- (73,924)
Consumer loans (16,775) (59,549)

Recoveries 69,982 4,575
------------- -------------
Net charge-offs (715,268) (328,598)
------------- -------------
Provisions charged to expense 649,000 292,800
------------- -------------
Balance of allowance for loan losses
at end of period $ 432,559 $ 498,827
------------- -------------
Ratio of net charge-offs to average
net loans outstanding 2.99% 1.45%
------------- -------------

-56-
<PAGE>

The allowance for loan losses is established through charges to operations
in the form of provisions for loan losses. Loan losses are charged, and
recoveries credited, directly to the allowance.

COMBANCORP determines its allowance for loan losses on the basis of a
qualitative and quantitative review of all loans on a quarterly basis. In
determining the adequacy of the allowance for loan losses, management considers
such factors as known problem loans, evaluations made by bank regulatory
authorities and/or independent firms retained to perform loan reviews,
assessment of economic conditions and other appropriate data in order to
identify the risks in the portfolio. The adequacy of the allowance is evaluated
by assessing the risks inherent in each category of loans. If, following a
review of the allowance, the allowance is determined to be inadequate or
supererogatory, the amount of the allowance is adjusted accordingly. Management
believes that the allowance for loan losses was adequate at December 31, 1995.

At December 31, 1995, the allowance was 1.8% of total outstanding loans
receivables. The allowance for loan losses should not be interpreted as an
indication of future charge-off trends.

ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES

Year Ended Year Ended
December 31, 1995 December 31, 1994
---------------------- --------------------

Commercial $ 266,487 44.06% $ 275,028 43.43%
Real Estate $ 139,001 48.87% $ 185,863 49.53%
Installment $ 27,071 7.06% $ 37,936 7.04%
----------- --------- ---------- --------

$ 432,559 100.00% $ 498,827 100.00%
----------- --------- ---------- --------
----------- --------- ---------- --------

V. DEPOSITS

The average deposit balances are summarized for the periods indicated:

Year Ended December 31,
1995 1994
----------- -----------

Demand deposits, non-interest bearing $23,878,416 $20,274,807
Money market demand 9,669,341 8,820,983
Savings and other interest-bearing demand 18,090,612 15,802,130
Time deposits 12,684,221 11,089,125
----------- -----------

Total $64,322,590 $55,987,045
----------- -----------
----------- -----------

-57-
<PAGE>

The following table sets forth the maturities of COMBANCORP's time
certificates of $100,000 or more at December 31, 1995.

Maturing within:

Three months or less $ 3,112,000
Over three months to six months 707,000
Over six months to twelve months 1,436,000
Over twelve months 127,000
-----------

Total $ 5,382,000
-----------
-----------

VI. RETURN ON EQUITY AND ASSETS

Year Ended December 31,
1995 1994
---------- ----------

Return on average assets 0.46% 0.76%
Return on average equity 5.35% 8.09%
Average equity to average 8.67% 9.34%
assets
Dividend pay-out ratio 42.98% --%

PROPERTIES

COMBANCORP's executive offices and the Bank's Main Office are located at
6001 E. Washington Boulevard, City of Commerce, California, in a structure
which was completed in August 1994. This Bank-owned structure consists of
approximately 15,000 square feet of space and is located on approximately 36,000
square feet of underlying land. The Montebello Office is located on the first
floor of a three story structure at 420 N. Montebello Boulevard, Montebello,
California. This office consists of approximately 4,000 square feet and is
subject to a three year lease expiring in April, 1998. The Bank's Downey Branch
is located at 11101 La Reina Blvd., Downey, California. This Bank-owned
structure consists of a two-story building of approximately 10,816 square feet
on approximately 28,990 square feet of land. The Bank has recently received
approval from the City of Downey to upgrade this facility.

LEGAL PROCEEDINGS

During the ordinary course of its business, COMBANCORP and the Bank may
be involved in various routine legal proceedings and litigation. While no
assurance can be given as to the likelihood of an unfavorable outcome of any
such litigation or the estimated amount of potential loss, if any, based upon
currently available information, management does not believe that the outcome of
any such litigation will have a material adverse effect upon the operations or
financial condition of COMBANCORP.

-58-
<PAGE>

MARKET PRICE OF COMMON STOCK AND DIVIDEND INFORMATION

COMBANCORP'S Common Stock has been traded in the over-the-courter market
since COMBANCORP commenced operations in 1983. The table below sets forth, on
a per share basis for the periods indicated, the range of high and low bid
quotations for the COMBANCORP Common Stock as reported by the National
Quotations Bureau. The bid quotations represent inter-dealer prices, without
retail mark-up, mark-down or commissions and may not necessarily represent
actual transactions.

Year High Low
----------------- ------- -------
1994
First Quarter $ 5.50 $ 5.50
Second Quarter 6.75 5.50
Third Quarter 6.75 6.00
Fourth Quarter 7.00 6.50
1995
First Quarter $ 7.00 $ 6.50
Second Quarter 7.38 7.00
Third Quarter 8.50 7.00

Fourth Quarter 9.50 7.00
1996
First Quarter $ 9.00 $ 8.625
Second Quarter 15.25 9.75

As of June 30, 1996, there were approximately 346 shareholders of record of
COMBANCORP's Common Stock. COMBANCORP paid a cash dividend of $0.25 per share
in 1995 (including a special dividend of $0.14 per share), and did not declare a
dividend in 1994. It is not anticipated that a cash dividend will be declared
in 1996.

Under Federal banking law, dividends declared by the Bank (and payable to
COMBANCORP) in any calendar year may not, without the approval of the OCC,
exceed its net income, as defined, for that year combined with its retained net
income for the preceding two years.

-59-
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS FOR THE YEARS
ENDED DECEMBER 31, 1995, 1994 AND 1993
FINANCIAL CONDITION

COMBANCORP's principal source of growth in recent years has been a series
of deposit and loan acquisitions beginning with the acquisition of all of the
deposits of a branch of Liberty Federal Savings Bank in Montebello, California,
in 1991. In 1993, the Bank acquired all of the branch deposits of the Commerce,
California branch of Community Bank at a premium of approximately $138,000 and
assumed approximately $12.5 million in deposit liabilities. On August 26, 1994,
the Bank, as part of a consortium, entered into an Insured Deposit Purchase and
Assumption Agreement with the FDIC for the purchase and assumption of certain
assets and liabilities of the Downey Branch of Capital Bank (the "Downey
Branch"). In that transaction, the Bank purchased $674,000 of cash assets and
approximately $7,784,000 in face value loans, net of participations sold of
$2,035,000, from various pools of loans at a discount of $203,000. The deposits
purchased totaled approximately $22.5 million.

COMBANCORP's total assets at December 31, 1995 decreased by 3.3% from
December 31, 1994, due primarily to the 4.4% decrease in deposits. Gross loans
decreased 7.9%, primarily due to the continued moderate economic growth and the
resulting lack of loan demand during 1995. The Bank will continue to maintain a
conservative approach to new loan generation until the California and local
economies demonstrate definitive signs of improvement.
The components of the decrease in loans as of December 31, 1995 are as
follows:

Total Change from
December 31, 1994
-------------------------
Commercial loans (6.6)%
Real estate - construction loans (22.0)%
Real estate - primarily loans for
acquisition or improvement of
owner occupied offices and
industrial property (5.6)%
Real estate - mortgage loans acquired (2.1)%
Installment loans (7.5)%

As of December 31, 1995, the Bank had approximately $4.5 million in net
loans outstanding which were initially acquired as part of the Downey Branch
acquisition. Although COMBANCORP does not regularly calculate net earnings of
each branch or department utilizing strict cost accounting methods, an analysis
of the net interest income of the Bank in the amount of $4,000,637 at
December 31,1995 indicates that 23.6% of that total is attributable to the
Downey Branch acquisition. The average loans to deposits and demand deposits to
total deposits for the Downey Branch were 32.6% and 42.8%, respectively,
compared to 38.4% and 37.1%, respectively, for COMBANCORP as a whole.

-60-
<PAGE>

The components of the outstanding loans attributable to the Downey Branch
acquisition are as follows:

August 26, December 31, December 31,
1994 1994 1995
----------- ------------ ------------
Commercial loans $ 3,222,676 $ 3,406,718 $ 2,421,277
Real estate - primarily loans
for acquisition or
improvement of owner
occupied officers and
industrial property 2,124,541 1,702,456 1,729,700
Installment loans 401,599 457,363 389,483
----------- ------------ ------------
Total $ 5,748,816 $ 5,566,537 $ 4,540,460

The components of the changes in deposits of COMBANCORP as of December 31,
1995 are as follows:

Total Change from
December 31, 1994
-------------------------

Demand deposits (7.0)%
Money market demand (21.5)%
NOW accounts 9.8%
Savings (6.4)%
Time deposits of $100,000 or 24.3%
Time deposits of less than 100,000 (1.4)%

As part of the Downey Branch acquisition, the Bank assumed approximately
$22.5 million of deposits, including approximately $2.0 million of uninsured
deposits payable to the FDIC for a premium of $185,000, including expenses. The
Bank put back such uninsured deposits to the FDIC on June 29, 1995. As of
December 31, 1995, the Bank had approximately $13.0 million in deposits
attributable to the acquisition. Management believes that the run-off in
deposits acquired through this transaction was primarily due to the normal
deposit attrition caused by the change in bank ownership and that the Bank will
be able to maintain the current level of deposits without significant loss of
deposits.

-61-
<PAGE>

The components of the outstanding deposits attributable to the Downey
Branch acquisition are as follows:

August 26, December 31, December 31,
1994 1994 1995
------------ ------------ ------------
Demand deposits $ 8,200,638 $ 6,783,201 $ 5,288,941
Interest-bearing deposits 4,915,937 4,286,138 3,664,874
Time certificates of deposit 5,667,724 2,721,154 2,378,134
Savings deposits 3,697,787 2,034,327 1,803,390
Accrued interest payable 53,476 29,327 23,302
------------ ------------ ------------
Total $ 22,535,562 $ 15,854,147 $ 13,158,641

COMBANCORP's loan to deposit ratio at December 31, 1995, was 38.4%,
compared to 39.8% at December 31, 1994. Total non-performing assets as of
December 31, 1995 amounted to $377,000, or 0.5% of total assets, consisting of
loans of $270,000 and other real estate owned of $107,000. This compares
favorably with total non-performing assets as of December 31, 1994, of $768,000,
or 1.1% of total assets, consisting of $397,000 of loans and other real estate
owned of $371,000. Total non-performing loans (i.e., those past due 90 days
and/or on non-accrual status) at December 31, 1995 amounted to approximately
$270,000, a 32% decrease compared to December 31, 1994. Of the five non-
performing loans, one loan in the amount of $102,575, or 38% of the non-
performing loans, is secured by commercial property. Based on the appraisal and
estimated costs associated upon an eventual sale, management does not expect a
loss to be incurred. Foreclosure proceedings will be initiated after the Bank
is granted relief from a "stay" imposed by the court in this matter. The Bank
received a payment in January on a second loan in the amount of $146,349, which
is secured by a single family dwelling. Payments are expected to continue and
no loss is anticipated. This loan represents 54.3% of the non-performing loans.
The remaining three loans total $20,763, or 7.7% of non-performing loans, and
consist of a credit card receivable and two loans secured by commercial
vehicles. The Bank will charge off $1,600 of this amount, and anticipates
payoffs on the remaining amount.

At December 31, 1995, only one loan in the amount of $102,575 was
impaired. The total allowance for loan loss related to this loan was $5,200 on
December 31, 1995. The average recorded investment for all impaired loans during
1995 was $276,000. Interest income of $57,000 was recognized on impaired loans
in 1995 and was recognized using a cash basis method of accounting during the
time within that period that the loans were impaired.

As of December 31, 1995 and 1994, the allowance for loan losses as a
percentage of non-performing loans was 160.4% and 125.6%, respectively. The
allowance for loan losses was $432,559, or 1.8% of total outstanding loans, at
December 31, 1995, as compared to $498,827, or 1.9% of total outstanding loans,
at December 31, 1994. Management believes that the allowance for loan losses
was adequate at December 31, 1995.

-62-
<PAGE>

On January 1, 1995, the Bank adopted FASB Statement No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by FASB Statement No. 118,
"Accounting by Creditors for Impairment of a Loan Income Recognition and
Disclosures." There was no effect on the Bank's financial statements from this
change. At January 1, 1995, the Bank classified $244,000 of its loans as
impaired with a specific loss reserve of $56,000.

COMBANCORP maintains a portfolio of securities which provides income and
serves as a source of liquidity for its operations. Changes in liquidity needs
and changes in the economic climate and loan demand may necessitate
restructuring the portfolio from time to time. On December 31, 1993, the Bank
adopted FASB Statement No.115 and classified all securities except the Federal
Reserve Stock as available for sale. The types of securities held in
COMBANCORP's portfolio are influenced by several factors among which are rate of
return, maturity and risk. Under the risk based capital guidelines, the nature
of the securities held in the portfolio can affect the amount of COMBANCORP's
risk-based assets and, consequently, the amount of required capital COMBANCORP
must maintain. From time to time, COMBANCORP may alter the composition of its
investment portfolio to change its capital position under the risk-based
guidelines. At December 31, 1995, COMBANCORP's excess funds were invested in
Federal funds sold, U. S. Treasury and Agency securities, investment grade
corporate notes, municipal bonds, and interest-bearing deposits with other
financial institutions. Note 4 to the consolidated financial statements sets
forth the distribution of, as well as unrealized gains and losses in, the
investment portfolio at December 31, 1995 and 1994.

Cash, unrestricted interest-bearing deposits, Federal funds sold and
investment securities totalled $41,361,328 at December 31, 1995, compared to
$42,402,760 at December 31, 1994, a 2.5% decrease, due primarily to a decrease
of $2,875,500, or 4.4%, in deposit liabilities. Federal funds decreased 75.9%
from $11,605,000 in 1994 to $2,800,000 in 1995, offset by increases of
$3,653,000, or 45.1%, and $4,216,161, or 25.1%, in interest bearing deposits
with other financial institutions and securities available for sale,
respectively, compared to 1994. Due to the Downey Branch acquisition in August
1994, management sought to maintain excess funds in Federal funds to provide
liquidity for anticipated run-off of some deposits. As such deposit levels
stabilized, excess funds were shifted to higher yielding securities with longer
maturities.

RESULTS OF OPERATIONS

1995 VERSUS 1994

Interest income increased by 24.0% during 1995, due to a 14.3% increase in
average interest bearing assets with an increase in average yield of 0.7% during
1995 compared to 1994. Average loans increased by only 5.7% during 1995, with
the balance of the increase in average interest bearing assets in securities,
which typically have lower yields than loans. The yield on average earning
assets reflects an increase from 7.7% in 1994 to 8.4% in 1995. The yield on
average earning assets at the Downey Branch was 9.1% at December 31, 1995,
reflecting the higher reference rate utilized on the loan portfolio purchased.
Interest expense increased by 35.6% during 1995, due to a 13.3% increase in
interest-bearing liabilities during the year and

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<PAGE>

an increase in the average cost of funds to 3.0% in 1995 from 2.5% in 1994. The
cost of funds at the Downey Branch was 2.8% compared to 3.0% for the entire
Bank. Net interest income increased by $691,800, or 20.9%. COMBANCORP's net
interest margin increased slightly to 6.4% during 1995 from 6.1% during 1994.
The improved totals for 1995 reflect the 7.3% interest margin attributable to
the Downey Branch acquisition in August 1994.

The provision for loan losses which is charged to operations increased by
$356,200, or 121.7%, in 1995, compared to 1994. During 1995, management
instigated a rigorous program of corrective actions to enhance loan quality. As
a result, COMBANCORP charged off three unsecured loans totaling approximately
$721,000, which management considered uncollectible. On February 16, 1996, the
Bank was made aware of the Chapter 7 bankruptcy filing on two unsecured
commercial loans totaling approximately $163,000. These loans were not included
in the non-performing asset totals as of December 31, 1995; accordingly, no
specific reserves were provided at December 31, 1995. The Bank will increase
its provision to keep the allowance constant. Management has contacted counsel
and will take appropriate action to charge off and remove these loans from its
performing assets. Asset quality will continue to receive priority attention
from management. Management believes that COMBANCORP has adequately provided an
allowance for loan losses as of December 31, 1995 to cover any potential and
unanticipated loan losses within the existing loan portfolio. At December 31,
1995, the allowance for loan losses was 1.8% of outstanding loans as compared to
1.9% at December 31, 1994.

Other income decreased approximately 1.6% during 1995, while other
operating expenses increased by 20.8%. The following is a discussion of certain
other expense items which have had significant fluctuations during the year.
Salaries and employee benefits increased $241,832, or 19.7%, over 1994,
reflecting the salaries for 12 months in 1995 compared to only four months in
1994 of the additional employees acquired in the assumption of the Downey Branch
in August 1994. Equipment expense increased $91,111, or 66.8%, over 1994,
reflecting the growth of COMBANCORP and equipping the Bank with computers and
installing a wide-area network. Professional fees increased $106,399, or
101.4%, over 1994, attributable to litigation involving the Bank's other real
estate owned and other problem assets, and professionals utilized in the Bank's
marketing and sales training. Stationery and supplies increased $43,043, or
33.6%, over 1994, reflecting additional supplies necessary for the Downey Branch
for the entire year, compared to only four months in 1994. Amortization of
deposit premium associated with the various acquisitions increased to
approximately $57,000 in 1995 from approximately $39,000 in 1994, and is
included in other operating expenses. Total other operating expenses as a
percentage of total interest income decreased to 65.4% in 1995 from 67.1% in
1994.

Net income for 1995 was $329,095, or $.58 per share, compared to $468,637,
or $.83 per share, in 1994.

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<PAGE>

1994 VERSUS 1993

Interest income reflects an increase of 45.7% during 1994, primarily due to
an increase of 42.1% in average interest bearing assets at December 31, 1994
over December 31, 1993, principally as a result of the Downey Branch acquisition
in August 1994. Average loans increased 1.5% during 1994. The balance of the
increase in average interest bearing assets is in securities which typically
have lower yields than loans. The yield on average earning assets reflects an
increase from 7.5% in 1993 to 7.7% in 1994. Interest expense also reflects an
increase of approximately 38% during 1994, due primarily to a 42.9% increase in
interest-bearing liabilities during the year, principally as a result of the
Downey Branch acquisition in August 1994. Cost of funds decreased nominally
from 2.6% in 1993 to 2.5% in 1994. Net interest income reflects an increase of
approximately $1,072,275, or 47.9%. COMBANCORP's net interest margin increased
slightly from 5.8% during 1993 to 6.1% during 1994. The industry-wide increase
in prime rate of interest during 1994 resulted in the increase of the yield on
average earning assets. However, the average cost of funds for COMBANCORP
decreased slightly because the depository rates continued to decline in 1994,
lagging behind the increasing prime rate of interest.

The provision for loan losses which is charged to operations decreased by
$358,514, or 55%, in 1994 compared to 1993. At December 31, 1994, the allowance
for loan losses was 1.9% of outstanding loans as compared to 2.4% at December
31, 1993. The 1993 provision for loan losses was higher than the Bank's
experience in recent years due in part to management's action to clean up the
loan portfolio and effects of the California economy. The provision for loan
losses in 1994 declined compared to 1993 because of the improved economy and
improvements in the loan portfolio.

Other income increased approximately 10.9% during 1994 while other
operating expenses increased approximately 16.3%. The following is a discussion
of certain other income and expense items which have had significant
fluctuations during the year. Gain on the sale of securities decreased $62,529,
or 100%, over 1993. Equipment expense increased $38,357, or 39.1%, over 1993
reflecting the growth of COMBANCORP and equipping of the new permanent structure
housing the Bank's headquarters built on the City of Commerce property which was
completed in August 1994. Data processing expenses increased $33,313, or 30.1%,
over 1993, reflecting the additional processing needs due to the deposit
acquisition of the Commerce Branch of Community Bank in December 1993 and the
acquisition of the Downey Branch in August 1994. Other expenses increased
$188,121, or 57.7%, over 1993, due primarily to the increase in correspondent
bank fees related to increased activity because of the acquisitions, and due to
the fact that the Bank elected to outsource the proof processing function in
December 1993, which resulted in significant additional expense but improved
efficiency. Total other operating expenses as a percentage of total interest
income decreased to 67.1% in 1994 from 84.1% in 1993.

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<PAGE>

LIQUIDITY AND INTEREST RATE SENSITIVITY

COMBANCORP manages its liquidity position to ensure that sufficient funds
are available to meet customers' needs for borrowing and deposit withdrawals.
Liquidity is derived from both the asset and liability sides of the balance
sheet. Asset liquidity arises from the ability to convert assets to cash and
self-liquidation or maturity of assets. Liquid asset balances include cash,
investment securities maturing within one year, Federal funds sold and other
short-term assets. Liability liquidity arises from a diversity of funding
sources, as well as from the ability of COMBANCORP to attract deposits of
varying maturities. If COMBANCORP were limited to one source of funding or all
its deposits had the same maturity, its liquidity position would be adversely
impacted.

As of December 31, 1995, COMBANCORP had cash, unrestricted interest-
bearing deposits, Federal funds sold and investment securities of approximately
$41.4 million, or 60.1% of total assets. As of December 31, 1995, COMBANCORP
had $22.6 million in liquid assets and its liquidity ratio (i.e., liquid assets
to total deposits) was 36.5%, compared to 56.2% at December 31, 1994. This
decrease reflects the movement from the lower yielding securities which mature
within one year to the higher yielding, longer maturity securities. Except for
commitments to extend credit in the amount of $6.6 million, COMBANCORP had no
material unrecorded commitments at December 31, 1995. Since many of the
commitments are expected to expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements.

Interest-bearing deposits with financial institutions at December 31, 1995
consisted exclusively of time certificates of deposit, all of which mature
within one year. COMBANCORP's available for sale securities consisted primarily
of U. S. Treasury and Agency obligations, corporate bonds, and bank qualified
municipal bonds, which were readily marketable. Securities totaling $1,100,000
were pledged as collateral to secure Treasury Tax and Loan deposits and public
funds. COMBANCORP's loan portfolio also was relatively liquid with
approximately 70.2% of the outstanding loans maturing within one year and/or
sensitive to changes in interest rates.

To cushion unanticipated fluctuations in its liquidity position, the Bank,
as all member commercial banks, may borrow from the regional Federal Reserve
Bank, subject to compliance with regulatory requirements. In addition, the Bank
has available a Federal funds facility with one of its correspondent banks for
$1 million. This facility is subject to customary terms for such arrangements.
As of December 31, 1995, COMBANCORP, on an unconsolidated basis, held liquid
assets of approximately $248,000. See Note 15 to Consolidated Financial
Statements of COMBANCORP for COMBANCORP's Condensed Unconsolidated Financial
Statements.

Interest rate sensitivity management, the management of the risk associated
with fluctuations in interest rates, seeks to stabilize net interest income
during periods of changing interest rates. A change in interest rates may not
affect all interest-earning assets (generally, loans that bear interest at
floating or adjustable rates, interest-bearing deposits and Federal funds

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<PAGE>

sold) and interest-bearing liabilities (generally, money market savings,
interest-bearing transaction accounts and time certificates of deposit) at the
same time because of differences in the terms and maturities of such assets and
liabilities. COMBANCORP believes that its position with respect to interest rate
fluctuations is favorable, in that substantially all of COMBANCORP's loans bear
a floating rate of interest and many of its investments have short maturities.

At December 31, 1995, COMBANCORP was in an asset sensitive position and its
90 day gap, (i.e., the difference between assets and liabilities that reprice in
that period as a percentage of total assets) was (16)% and its cumulative gap
was 28%. Generally, an asset sensitive position will result in enhanced
earnings in a rising interest rate environment and declining earnings in a
falling interest rate environment because larger volumes of assets than
liabilities will reprice in the short term. Conversely, a liability sensitive
position will be detrimental to earnings in a rising interest rate environment
and will enhance earnings in a falling interest rate environment.

The Asset and Liability Maturity Repricing Schedule below sets forth the
distribution of repricing opportunities for COMBANCORP's interest earning assets
and liabilities, the interest sensitivity gap and the ratio of cumulative gap to
total assets.

<TABLE>
<CAPTION>
Interest Sensitivity Period
(in thousands)
over over over
3 months 6 months 1 year
3 months through through through over
or less 6 months 1 year 5 years 5 years Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal fund sold $ 2,800 $ -- $ -- $ -- $ -- $ 2,800
Securities 749 601 2,172 13,972 3,673 21,167
Deposits with other 3,945 3,550 4,260 -- -- 11,755
institutions 15,051 1,259 385 5,002 2,075 23,772
----------- ----------- ----------- ----------- ----------- -----------
Loans $ 22,545 $ 5,410 $ 6,817 $ 18,974 $ 5,748 $ 59,494
Total
Interest Bearing Liabilities:
Time Deposits:
a) TCD's less than $100M $ 3,419 $ 2,107 $ 1,872 $ 745 $ 1 $ 8,144
b) TCD's $100M and over 3,112 707 1,437 126 -- 5,382
Savings 9,203 -- -- -- -- 9,203
Money market 8,554 -- -- -- -- 8,554
NOW accounts 8,935 -- -- -- -- 8,935
----------- ----------- ----------- ----------- ----------- -----------
Total $ 33,223 $ 2,814 $ 3,309 $ 871 $ 1 $ 40,218

Interest Sensitivity Gap:
Interval $ (10,678) $ 2,596 $ 3,508 $ 18,103 $ 5,747
Cumulative $ (10,678) $ (8,082) $ (4,574) $ 13,529 $ 19,976 $ 19,276
Ratio of cumulative gap
to total assets (16)% (12)% (7)% 20% 28% 28%
</TABLE>

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<PAGE>

CAPITAL RESOURCES

Management seeks to maintain capital adequate to support anticipated asset
growth and credit risks, and to ensure that COMBANCORP is within established
regulatory guidelines and industry standards. COMBANCORP is currently exempt
from the Federal Reserve Board's risk-based guidelines because consolidated
assets are under $150 million. However, the Bank is subject to the risk-based
capital guidelines adopted by the OCC. These guidelines require the Bank to
maintain a minimum ratio of total capital-to-risk-weighted assets of 8%, of
which at least 4% must consist of Tier 1 capital. At December 31, 1995, the
Bank had a total capital-to-risk-weighted assets ratio of 18.3%, with a Tier 1
capital ratio of 17.6%. The Bank's leverage ratio at December 31, 1995 was
8.4%.

During the last two years, capital has been generated primarily through the
retention of earnings. Management believes that it can meet its present
regulatory capital requirements through earnings for at least the next two
years.

RISK ELEMENTS

Management believes that the California economy has continued to improve
slowly in 1995, but continues to lag behind the country, particularly in
unemployment rates. Southern California continues to feel the economic
pressures of reductions in government defense spending, overbuilt commercial
real estate, unaffordable housing and high unemployment. Many of these economic
factors are the result of long-term structural adjustments resulting from major
changes in many of the State's basic industries. However, the index of leading
economic indicators has shown signs of improvement as well as an increase in
housing starts. In addition, California's unemployment rate is expected to
improve in 1996. Management anticipates that the California economy will
continue to improve in 1996.

COMBANCORP has been able to maintain a positive interest margin even with
the decreases in loan yields through tight controls on operating expenses.
Management believes the results reflect favorably in 1995 and will continue to
focus on conservative management policies.

EFFECTS OF INFLATION

The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation.

Virtually all of the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation.

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<PAGE>

In the current interest rate environment where the Federal Reserve has
actively used the discount rate as a tool to stimulate the economy, COMBANCORP
recognizes the importance of maintaining adequate liquidity and effectively
managing the maturity structure of COMBANCORP's interest bearing assets and
liabilities.

RECENT ACCOUNTING DEVELOPMENTS

In March 1995, the FASB issued Statement No. 121, "Accounting for the
Impairment of Long-lived Assets and for Long-lived Assets to be Disposed of."
Statement No. 121 establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. Statement No. 121 will first be required for the
Bank's year ending December 31, 1996. Based on its preliminary analysis, the
Bank does not anticipate that the adoption of Statement No. 121 will have a
material impact on the financial condition or results of operations of
COMBANCORP as of the date of adoption.

In 1995 the FASB issued Statement No. 123, "Accounting for Stock-based
Compensation." Statement No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans such as a purchase plan.
The Statement generally suggests stock-based compensation transactions be
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measurable.
An enterprise may continue to follow the requirements of Accounting Principles
Board (APB) Opinion No. 25, which does not require compensation to be recorded
if the consideration to be received is at least equal to the fair value at the
measurement date. If an enterprise elects to follow APB Opinion No. 25, it must
disclose the pro forma effects on net income as if compensation were measured in
accordance with the suggestions of Statement No. 123. COMBANCORP has not
determined if it will continue to follow APB Opinion No. 25 or follow the
guidance of Statement No. 123. However, adoption of this pronouncement in 1996
is not expected to have a material impact on the financial condition or results
of operations of COMBANCORP.

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<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995

FINANCIAL CONDITION

COMBANCORP's consolidated balance sheet at March 31, 1996 reflected a
modest increase of .2% in total assets and .8% in deposits from December 31,
1995. As a result of continued slow loan demand, the Bank experienced a
decrease of .2% in gross loans during this period.

The components of the changes in loans are as follows:

Increase (Decrease)
over December 31, 1995
----------------------
Commercial loans 0.0%
Real estate - construction 8.9%
Real estate - primarily loans for
acquisition or improvement of owner
occupied offices and industrial property (3.1)%
Real estate - mortgage loans acquired (0.5)%
Installment loans 0.3%

The loan to deposit ratio at March 31, 1996 was 37.9%, compared to
38.3% at December 31, 1995. Non-performing loans (i.e., those past due 90 days
and/or on non-accrual) at March 31, 1996 amounted to approximately $284,300 as
compared to approximately $269,700 at December 31, 1995, a 5.4% increase.
Impairment of loans having recorded investments of approximately $103,000 at
March 31, 1996 has been recognized. The total allowance for loan losses related
to this loan was $5,200 on March 31, 1996. The average recorded investment for
all impaired loans during the first quarter of 1996 was $103,000. No interest
income was recognized on this loan during this period.

Non-Performing Loans Loans past due
as of over 90 days Loans on non-
March 31, 1996 and still accruing accrual status
- -------------------- ------------------ --------------
Commercial $ 1,916 $ --
Real Estate:
Construction -- --
Other -- 102,575
Mortgage loans acquired 144,266 --
Consumer/Installment 35,497 --
Total $ 181,679 $ 102,575

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<PAGE>

Non-performing loans at March 31, 1996 consisted of the following:

- A loan on non-accrual status in the amount of $102,575 which is
secured by a first trust deed on commercial property. The Bank has
filed for relief from a "stay" with the Bankruptcy courts so that it
can proceed with the sale of the property.

- A mortgage loan on a secured single family dwelling loan in the
amount of $144,266, on which the Bank has not received a payment since
January 5, 1996. A demand was sent to the borrower, who has not
responded, and a notice of default is to be filed in April. This loan
has been habitually past due.

- A loan in the amount of $29,531 secured by a second trust deed on a
single family residence. It appears that this loan will be a probable
loss.

- The balance of the non-performing loans totals $7,881, all of which
are still accruing interest, consists of one commercial loan, two
credit card loans, and a reserve line of credit.

Other Real Estate Owned ("OREO") at March 31, 1996 remained at $106,926 as
compared to December 31, 1995. Management believes that it has adequately
reserved for those loans representing an above normal degree of risk.

Asset quality ratios: March 31, 1996 December 31, 1995
-------------- -----------------
Non-performing loans to gross loans 1.2% 1.1%
Non-performing loans and OREO to
total assets 0.6% 0.5%

The allowance and provision for loan losses is a general reserve
established by management to absorb potential losses inherent in the entire loan
portfolio. The level and rate of additions to the allowance for loan losses are
based on a continuing analysis of the loan portfolio and at March 31, 1996,
reflected an amount which in management's judgment was adequate for known and
inherent losses. In evaluating the adequacy of the allowance, management gives
consideration to economic prospects and net worth of the individual borrowers
and guarantors, collateral evaluation, the nature and amount of loans subject to
adverse classification, the total size and mix of the loan portfolio and such
other factors that deserve recognition. The allowance for loan losses
aggregated $402,433 at March 31, 1996, or 1.7% of outstanding loans, as compared
to $432,559, or 1.8% of outstanding loans, at December 31, 1995. During the
same period, the allowance for loan losses as a percentage of non-performing
loans was 141.6% and 160.4%, respectively.

Funds not required for lending activities at March 31, 1996 were invested
in U. S. Treasury and Agency securities, investment grade corporate notes,
municipal bonds, interest-bearing deposits with other financial institutions and
Federal funds sold. At March 31, 1996,

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<PAGE>

Federal funds sold and interest bearing deposits with financial institutions
decreased by approximately $1.1 million and $2.1 million, respectively, when
compared to December 31, 1995, while securities available for sale increased by
approximately $4.0 million during the same period. Maturing securities have
been reinvested in the higher yielding callable U.S. Treasury and Agency
securities maturing between 1 year and 10 years to protect against loss of
income due to interest rate risk. The net unrealized gain or loss on securities
available for sale, net of deferred taxes, included in shareholders' equity
decreased from an unrealized gain of $134,960 at December 31, 1995 to an
unrealized loss of $112,186 at March 31, 1996, reflecting the decrease in market
value due to the increase in yields in the market during the first quarter of
1996.

RESULTS OF OPERATIONS

Net income for the quarter ended March 31, 1996 was $83,863, or $.15 per
share, compared to $270,636, or $.30 per share, for the quarter ended March 31,
1995.

Net interest income for the quarter ended March 31, 1996 decreased
approximately 13.5% over the comparable period in 1995 primarily due to the
decrease in yield on average interest bearing assets from 8.7% during the first
quarter of 1995 to 8.1% during the first quarter of 1996, as well as the 2.0%
decrease in average interest earning assets. Interest expense increased
approximately 8.8% over the comparable period in 1995 due to the increase in
cost of funds from 2.8% in 1995 to 3.1% in 1996 which was somewhat offset by the
3.2% decrease in average interest-bearing liabilities. The annualized net
interest margin on average earning assets decreased to 6.0% during the first
quarter of 1996, compared to 6.8% during the comparable period in 1995.

The provision for loan loss expense increased $100,000, or 333%, during the
first quarter 1996, compared to the same period in 1995, which primarily
reflects management's recognition and charge off of certain credits that arose
in the first quarter of 1996 and management's assessment of the potential risks
in the loan portfolio.

Other income decreased approximately $26,000, or 14.9%, during the first
quarter of 1996 as compared to the same period in 1995. No individual component
is primarily responsible. Other operating expenses decreased approximately
$120,000, or 13.3%, during the first quarter of 1996 over the comparable period
of 1995. Occupancy expense decreased $34,112, or 34.2%, due to the fact that the
Bank exercised its option to purchase the Downey Branch facility from the FDIC
and was able to significantly decrease the monthly expense on the lease by
substituting it with an asset which will be depreciated over the life of that
asset. Professional expenses increased $35,987, or 76.8%, due to the
utilization of a marketing consultant to train the Bank's employees on the
various products and a sales consultant to train the employees on how to sell
those products. Other expenses decreased $105,972, or 51.5%, due primarily to
the decrease of $91,868, or 99.5%, in FDIC fees. Total other operating expenses
as a percentage of total interest income decreased from 68.0% during the first
quarter of 1995 to 64.6% during the first quarter of 1996.

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<PAGE>

LIQUIDITY AND INTEREST RATE SENSITIVITY

At March 31, 1996, total earning assets were $60.3 million, or 87.4% of
total assets. COMBANCORP's liquid assets were approximately $19 million and
consisted of cash and due from banks, interest-bearing deposits with financial
institutions, unpledged securities maturing within one year and Federal funds
sold. The liquidity ratio (i.e., liquid assets to total deposits) was 30.4%
compared to 55.2% at December 31, 1995. This reflects the longer term
securities in the Bank's available-for-sale portfolio as well as the $1.4
million in pledged securities. The Bank has outstanding commitments to lend in
the amount of approximately $8.2 million at March 31, 1996 compared to $6.6
million at December 31, 1995. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. COMBANCORP has no other material unrecorded
commitments for funds.

Interest-bearing deposits with financial institutions at March 31, 1996
consisted exclusively of time certificates of deposit, all of which mature
within one year. COMBANCORP's securities available for sale consisted
primarily of U.S. Treasury and Agency obligations, corporate bonds, and bank
qualified municipal bonds, which were readily marketable. At March 31, 1996,
the cost of these securities exceeded their market value by approximately
$193,000. Securities totaling $1,400,000 were pledged to secure Treasury Tax
and Loan deposits and public funds. COMBANCORP's loan portfolio was also
relatively liquid with approximately 69% of the outstanding loans maturing
within one year or sensitive to changes in interest rates.

COMBANCORP believes that its position with respect to interest rate
fluctuations is favorable, in that the majority of COMBANCORP's loans bear a
floating rate of interest and the majority of its investments have short
maturities.

At March 31, 1996, COMBANCORP was in a liability sensitive position through
its one year gap and an asset sensitive position in its over one year gap. The
90 day gap, (i.e., the difference between assets and liabilities that reprice in
that period as a percentage of total assets) was negative, or liability
sensitive, at 13%, and its cumulative gap was asset sensitive at 30%.
Generally, an asset sensitive position will result in enhanced earnings in a
rising interest rate environment and declining earnings in a falling interest
rate environment because larger volumes of assets than liabilities will reprice.
Conversely, a liability sensitive position will be detrimental to earnings in a
rising interest rate environment and will enhance earnings in a falling interest
rate environment.

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<PAGE>

<TABLE>
<CAPTION>
Interest Sensitivity Period
(in thousands)
3 months 6 months 1 year
3 months through through through over
or less 6 months 1 year 5 years 5 years Total
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Earning Assets:
Federal fund sold $ 1,700 $ -- $ -- $ -- $ -- $ 1,700
Securities 1,100 202 2,672 15,891 5,293 25,158
Deposits with other institutions 3,946 1,982 3,762 -- -- 9,690
Loans 15,980 81 329 5,628 1,709 23,727
----------- ----------- ----------- ----------- ----------- -----------
Total $ 22,726 $ 2,265 $ 6,763 $ 21,519 $ 7,002 $ 60,275
Interest Bearing Liabilities:
Time Deposits:
a) TCD's less than $100M $ 3,791 $ 1,912 $ 1,720 $ 862 $ 1 $ 8,286
b) TCD's $100M and over 2,421 1,810 1,050 371 -- 5,652
Savings 9,212 -- -- -- -- 9,212
Money market 8,723 -- -- -- -- 8,723
NOW accounts 7,749 -- -- -- -- 7,749
----------- ----------- ----------- ----------- ----------- -----------
Total $ 31,896 $ 3,722 $ 2,770 $ 1,233 $ 1 $ 39,622

Interest Sensitivity Gap:
Interval $ (9,170) $ (1,457) $ 3,993 $ 20,286 $ 7,001
Cumulative $ (9,170) $ (10,627) $ (6,634) $ 13,652 $ 20,653 $ 20,653
Ratio of cumulative gap
to total assets (13)% (15)% (10)% 20% 30% 30%
</TABLE>

At March 31, 1996, COMBANCORP was entitled to borrow on a collateralized
basis at the discount window at the Federal Reserve Bank of San Francisco. In
addition, the Bank has available a Federal funds line of credit in the amount of
$1.0 million with one of its correspondent banks.

CAPITAL RESOURCES

COMBANCORP is currently exempt from the Federal Reserve Board's risk-based
capital guidelines because consolidated assets are under $150 million. However,
the Bank is subject to the risk-based capital guidelines adopted by the OCC.
These guidelines require the Bank to maintain a minimum ratio of total capital-
to-risk-weighted assets of 8% (of which at least 4% must consist of Tier 1
capital), and a leverage ratio of at least 3%. At March 31, 1996, the Bank had
a total capital-to-risk-weighted assets ratio of 19.4% , with a Tier 1 capital
ratio of 18.2%, and a leverage ratio of 8.6%.

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<PAGE>

INDEPENDENT PUBLIC ACCOUNTANTS

McGladrey & Pullen, LLP have served as COMBANCORP's independent certified
public accountants since 1991. A representative of McGladrey & Pullen, LLP is
expected to be present at the Special Meeting and will have an opportunity to
make a statement if he or she so desires and to respond to appropriate
questions.

OTHER MATTERS

Management knows of no other matters to be voted upon at the Special
Meeting.

YOU ARE URGED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE
PROVIDED. No postage is required if the envelope is mailed from within the
United States. If you subsequently decide to attend the Special Meeting and to
vote your shares in person, you may do so. You cooperation in giving this
matter your prompt attention is appreciated.

By Order of the Board of Directors,

Esther G. Wilson
Corporate Secretary

City of Commerce, California
August 2, 1996

DDD09ABC

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<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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

Independent Auditor's Report F-2

Consolidated Balance Sheets at December 31, 1994 and 1995, and
March 31, 1996 (unaudited) F-3

Consolidated Statements of Operations for the years ended December
31, 1993, 1994 and 1995, and the three months ended March 31, 1995
and 1996 (unaudited) F-5

Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995, and the three months ended March
31, 1996 (unaudited) F-7

Consolidated Statements of Cash Flows for the years ended December
31, 1993, 1994 and 1995, and the three months ended March 31, 1995
and 1996 (unaudited) F-8

Notes to Consolidated Financial Statements F-10

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

F-1

<PAGE>

[LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors
COMBANCORP
City of Commerce, California

We have audited the accompanying consolidated balance sheets of COMBANCORP
and subsidiary as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.

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

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
COMBANCORP and subsidiary at December 31, 1995 and 1994, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1995, in conformity with generally accepted
accounting principles.

Pasadena, California McGladrey & Pullen, LLP
January 26, 1996

F-2

<PAGE>

COMBANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

December 31,
March 31, ------------------------
ASSETS 1996 1995 1994
- -------------------------------------------------------------------------------
(Unaudited)

Cash and due from banks (Note 2) $ 5,010,455 $ 5,639,763 $ 5,745,356
Federal funds sold 1,700,000 2,800,000 11,605,000
----------------------------------------

CASH AND CASH EQUIVALENTS (Note 1) 6,710,455 8,439,763 17,350,356
----------------------------------------

Interest bearing deposits in other
financial institutions 9,690,000 11,755,000 8,102,000
----------------------------------------

Federal Reserve Bank stock (Note 4) 120,000 120,000 120,000
----------------------------------------

Securities available for sale (Note 4) 25,038,203 21,046,565 16,830,404
----------------------------------------

Loans (Notes 5 and 13) 23,726,665 23,771,964 25,809,010
Less:
Deferred loan fees and costs 64,752 65,731 59,280
Unearned discount on acquired loans 71,377 84,823 285,827
Allowance for loan losses (Note 6) 402,433 432,559 498,827
----------------------------------------

NET LOANS 23,188,103 23,188,851 24,965,076
----------------------------------------

Bank premises and equipment, net
(Note 7) 3,230,626 3,291,753 2,526,677
----------------------------------------

Accrued income receivable and other
assets (Notes 3 and 9) 885,304 881,171 922,922
----------------------------------------

Other real estate owned 106,926 106,926 371,013
----------------------------------------

$68,969,617 $68,830,029 $71,188,448
----------------------------------------
----------------------------------------

See Notes to Consolidated Financial Statements.

F-3

<PAGE>
December 31,
March 31, ------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1995 1994
- --------------------------------------------------------------------------------
Liabilities (Unaudited)
Deposits (Notes 3, 8 and 13):

Demand noninterest bearing $22,901,300 $21,805,536 $23,439,082
Savings and other interest bearing
accounts 25,684,349 26,691,892 28,870,686
Time 13,938,393 13,526,369 12,589,529
-------------------------------------
62,524,042 62,023,797 64,899,297

Accrued interest payable and other
liabilities (Note 9) 223,948 421,322 342,524
-------------------------------------

TOTAL LIABILITIES 62,747,990 62,445,119 65,241,821
-------------------------------------

Commitments and Contingencies (Note 11)

Shareholders' Equity (Notes 4, 10, 12
and 14)
Preferred stock, no par value,
5,000,000 shares authorized; no
shares issued -- -- --
Common stock, no par value,
20,000,000 shares authorized;
565,789 issued and outstanding 4,453,300 4,453,300 4,453,300
Retained earnings 1,880,513 1,796,650 1,609,002
Unrealized gain (loss) on securities
available for sale, net (112,186) 134,960 (115,675)
-------------------------------------

TOTAL SHAREHOLDERS' EQUITY 6,221,627 6,384,910 5,946,627
-------------------------------------

$68,969,617 $68,830,029 $71,188,448
-------------------------------------
-------------------------------------

F-4

<PAGE>

COMBANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

Three Months Ended March 31, Years Ended December 31,
----------------------------------------------------------------------------------
1996 1995 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans $ 650,258 $ 791,817 $ 2,904,107 $ 2,750,210 $ 2,229,348
Deposits in other financial
institutions 167,092 123,172 610,821 334,074 299,107
Securities 352,429 255,150 1,118,263 706,544 251,014
Federal funds sold 40,732 156,820 566,857 402,391 97,795
----------------------------------------------------------------------------------
1,210,511 1,326,959 5,200,048 4,193,219 2,877,264
Interest expense on deposits 305,080 280,460 1,199,411 884,421 640,741
----------------------------------------------------------------------------------
Net interest income 905,431 1,046,499 4,000,637 3,308,798 2,236,523

Provision for loan losses
(Note 6) 130,000 30,000 649,000 292,800 651,314
----------------------------------------------------------------------------------

NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 775,431 1,016,499 3,351,637 3,015,998 1,585,209
----------------------------------------------------------------------------------

Other income:
Gross gain on call or sale
of investment securities 3,317 - - - 62,529
Other, principally service
charges on deposit accounts 147,632 177,311 609,522 619,498 496,285
----------------------------------------------------------------------------------
150,949 177,311 609,522 619,498 558,814
----------------------------------------------------------------------------------

Other expenses:
Salaries and employee
benefits 341,039 365,902 1,469,449 1,227,617 1,142,288
Occupancy (Note 11) 57,998 93,259 316,599 282,353 249,715
Equipment 53,839 39,084 227,548 136,437 98,080
Professional fees (Note 13) 82,818 46,831 211,304 104,905 123,701
Advertising 5,815 19,005 54,447 48,959 45,287
Business promotion 16,948 14,906 69,834 78,465 68,019
Supplies and office 40,629 35,906 171,246 128,203 109,406
Insurance 49,309 48,541 167,583 149,961 147,842
Data processing 40,741 40,389 146,924 144,046 110,733
Other 92,981 198,251 564,130 513,913 325,792
----------------------------------------------------------------------------------
782,117 902,074 3,399,064 2,814,859 2,420,863
----------------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-5

<PAGE>

COMBANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS, CONTINUED

<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Income (loss) before
income taxes (benefits) $ 144,263 $ 291,736 $ 562,095 $ 820,637 $ (276,840)

Provision for income taxes
(benefits) (Note 9) 60,400 121,100 233,000 352,000 (87,500)
----------------------------------------------------------------------------

Income (loss) before
cumulative effect of a
change in accounting
principle 83,863 170,636 329,095 468,637 (189,340)

Cumulative effect of a change
in accounting principle
(Note 9) - - - - (55,582)
----------------------------------------------------------------------------

NET INCOME (LOSS) $ 83,863 $ 170,636 $ 329,095 $ 468,637 $ (133,758)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Earnings (loss) per common
share:
Income (loss) before
cumulative effect of a
change in accounting
principle $ 0.15 $ 0.30 $ 0.58 $ 0.83 $ (0.34)

Effect of a change in
accounting principle on
net income - - - - 0.10
----------------------------------------------------------------------------

Earnings (loss) per common
share $ 0.15 $ 0.30 $ 0.58 $ 0.83 $ (0.24)
----------------------------------------------------------------------------
----------------------------------------------------------------------------

Dividends per common share $ - $ 0.25 $ 0.25 $ - $ 0.09
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-6

<PAGE>

COMBANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED FOR THE THREE MONTHS ENDED MARCH 31, 1996)

<TABLE>
<CAPTION>
Unrealized
Gain (Loss) on
Number of Securities
Shares Common Retaining Available for
Outstanding Stock Earnings Sale, Net Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 565,789 $ 4,453,300 $ 1,325,044 $ - $ 5,778,344
Cash dividend ($.09 per
common share) - - (50,921) - (50,921)
Cumulative change in
unrealized gain on
securities available for
sale, net - - - 73,160 73,160
Net (loss) - - (133,758) - (133,758)
----------------------------------------------------------------------------

Balance, December 31, 1993 565,789 4,453,300 1,140,365 73,160 5,666,825
Change in unrealized (loss)
on securities available for
sale, net - - - (188,835) (188,835)
Net income - - 468,637 - 468,637
----------------------------------------------------------------------------

Balance, December 31, 1994 565,789 4,453,300 1,609,002 (115,675) 5,946,627
Cash dividend ($.25 per
common share) - - (141,447) - (141,447)
Change in unrealized gain
(loss) on securities available
for sale, net - - - 250,635 250,635
Net income - - 329,095 - 329,095
----------------------------------------------------------------------------

Balance, December 31, 1995 565,789 4,453,300 1,796,650 134,960 6,384,910
Change in unrealized (loss)
on securities available for
sale, net - - - (247,146) (247,146)
Net income - - 83,863 - 83,863
----------------------------------------------------------------------------

Balance, March 31, 1996 565,789 $ 4,453,300 $ 1,880,513 $ (112,186) $ 6,221,627
----------------------------------------------------------------------------
----------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-7

<PAGE>

COMBANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
-----------------------------------------------------------------
1996 1995 1995 1994 1993
- -------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income (loss) $ 83,863 $170,637 $ 329,095 $ 468,637 $(133,758)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Cumulative effect on prior
years of a change in
accounting principle for
computing deferred taxes - - - - (55,582)
Loss (gain) on sale of
premises and equipment
and other real estate
owned - - 3,924 (24,253) 17,914
Valuation write-down of
other real estate owned - - 20,000 48,836 30,000
Gain on securities (3,317) - - - (62,529)
Provision for loan losses 130,000 30,000 649,000 292,800 651,314
Depreciation and
amortization 78,651 51,718 247,372 136,472 136,031
Amortization of deferred
loan fees (14,855) (20,563) (68,468) (87,478) (41,027)
Net accretion of discount
on securities (14,502) (93,015) (229,474) (337,461) (5,129)
Accretion of unearned
discount on acquired
loans (13,446) (53,866) (169,611) (341,311) (181,076)
Net (increase) decrease in
accrued income receiv-
able and other assets (18,373) 40,320 (15,209) (65,910) (122,318)
Net increase (decrease) in
accrued interest payable
and other liabilities (19,421) 67,804 (99,655) 334,429 (101,168)
--------------------------------------------------------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 208,600 193,035 666,974 424,761 132,672
--------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-8

<PAGE>

COMBANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
--------------------------------------------------------------------------
1996 1995 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from Investing
Activities
Net (increase) decrease in
interest bearing deposits
with other financial
institutions $ 2,065,000 $ (597,000) $ (3,653,000) $ (127,126) $(1,282,140)
Proceeds from sales of
securities available for sale - - - - 462,064
Proceeds from maturities
and calls of securities
available for sale 3,600,106 200,400 14,500,851 23,759,907 996,587
Purchases of securities
available for sale (7,999,024) (1,444,768) (18,058,450) (27,662,866) (11,259,699)
Net (increase) decrease in
loans (100,951) 1,081,282 1,219,383 (3,566,444) 1,726,455
Purchases of premises and
equipment (3,284) (29,980) (956,782) (2,013,119) (123,188)
Proceeds from sale of other
real estate owned and
equipment - - 387,378 36,254 352,616
-------------------------------------------------------------------------
NET CASH USED IN
INVESTING ACTIVITIES (2,438,153) (790,066) (6,560,620) (9,573,394) (9,127,305)
-------------------------------------------------------------------------
Cash Flows from Financing
Activities
Net increase (decrease) in
deposits 500,245 (1,098,303) (2,875,500) 19,174,616 11,538,343
Dividends paid - (141,447) (141,447) - (50,921)
-------------------------------------------------------------------------
NET CASH PROVIDED BY
(USED IN) FINANCING
ACTIVITIES 500,245 (1,239,750) (3,016,947) 19,174,616 11,487,422
-------------------------------------------------------------------------
INCREASE (DECREASE) IN
CASH AND CASH
EQUIVALENTS (1,729,308) (1,836,781) (8,910,593) 10,025,983 2,492,789
Cash and Cash Equivalents
Beginning 8,439,763 17,350,356 17,350,356 7,324,373 4,831,584
-------------------------------------------------------------------------
End $ 6,710,455 $15,513,575 $ 8,439,763 $ 17,350,356 $ 7,324,373
-------------------------------------------------------------------------
-------------------------------------------------------------------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-9

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS ACTIVITIES

COMBANCORP (the Company) is a bank holding company located in the City of
Commerce, California, which provides a full range of banking services to its
commercial and consumer customers through three branches located in the
cities of Commerce, Montebello, and Downey, California.

The Bank grants commercial, residential and consumer loans to customers,
substantially all of whom are middle market businesses or residents. The
Bank's business is concentrated in the cities of Commerce, Montebello, Downey
and the surrounding areas and the loan portfolio includes a significant
credit exposure to the real estate industry of this area. As of December 31,
1995, real estate related loans accounted for approximately 49% of total
loans. Substantially all of these loans are secured by first liens with an
initial loan-to-value ratio of generally no more than 75%.

The loans are expected to be repaid from cash flows or proceeds from the sale
of selected assets of the borrowers. The Bank's policy requires that
collateral be obtained on substantially all loans. Such collateral is
primarily first trust deeds on real estate and business assets.

A SUMMARY OF THE SIGNIFICANT ACCOUNTING POLICIES UTILIZED BY
THE COMPANY IS AS FOLLOWS:

INTERIM FINANCIAL STATEMENTS

The accounting and reporting policies of COMBANCORP and Subsidiary (the
Company) are in accordance with generally accepted accounting principles and
conform to general practices within the banking industry. The consolidated
balance sheet at March 31, 1996 and the consolidated statements of operations
and of cash flows for the three months ended March 31, 1996 and 1995, and the
statement of shareholders' equity for the three months ended March 31, 1996
are unaudited. In management's opinion, these statements reflect all material
adjustments (consisting only of normal recurring accruals) necessary for a
fair statement of the results for the interim periods presented. Operating
results for the interim periods presented are not necessarily indicative of
the results that may be expected for any other interim period or for the year
as a whole.

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include all the accounts of COMBANCORP
and its wholly owned subsidiary, Commerce National Bank (the Bank). All
material intercompany accounts and transactions have been eliminated in
consolidation.

F-10

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents includes cash
on hand, amounts due from banks and federal funds sold. Cash flows from loans
originated by the Bank, interest bearing deposits in other financial
institutions and deposits are reported net.

The Bank, subject to policy guidelines, maintains amounts due from banks
which, at times, may exceed federally insured limits.

SECURITIES AVAILABLE FOR SALE

Securities classified as available for sale are those debt securities that
the Company intends to hold for an indefinite period of time but not
necessarily to maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of the Company's
assets and liabilities, liquidity needs, regulatory capital considerations
and other similar factors. Securities available for sale are carried at fair
value. Unrealized gains or losses are reported as increases or decreases in
shareholders' equity, net of the related deferred tax effect. Realized gains
or losses, determined on the basis of the cost of specific securities sold,
are included in earnings.

LOANS

Loans are stated at the amount of unpaid principal, reduced by unearned
discounts and fees and the allowance for loan losses.

The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that collectibility of the principal is
unlikely. The allowance is an amount that management believes will be
adequate to absorb estimated losses on existing loans that may become
uncollectible based on evaluation of the collectibility of loans and prior
loan loss experience.

F-11

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED

This evaluation also takes into consideration such factors as changes in the
nature and volume of the loan portfolio, overall portfolio quality, review of
specific problem loans and current economic conditions that may affect the
borrower's ability to pay. While management uses the best information
available to make its evaluation, future adjustments to the allowance may be
necessary if there are significant changes in economic or other conditions.
In addition, the Office of the Comptroller of the Currency (OCC), as an
integral part of their examination process, periodically reviews the Bank's
allowance for loan losses and may require the Bank to make additions to the
allowance based on their judgment about information available to them at the
time of their examinations.

Impaired loans are measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or, as a
practical expedient, at the loan's observable market price or the fair value
of the collateral if the loan is collateral dependent. A loan is impaired
when it is probable the creditor will be unable to collect all contractual
principal and interest payments due in accordance with the terms of the loan
agreement.

INTEREST AND FEES ON LOANS

Interest on loans is recognized over the terms of the loans and is calculated
using the simple-interest method on principal amounts outstanding. Interest
is accrued daily on the outstanding balances. Accrual of interest is
discontinued on a loan when management believes, after considering collection
efforts and other factors, that the borrower's financial condition is such
that collection of interest is doubtful. When the accrual of interest is
discontinued, all unpaid accrued interest is reversed. Interest income is
subsequently recognized only to the extent cash payments are received.

Unearned discounts on acquired loans are amortized to income over the
contractual life of the loans unless certain homogeneous loans have been
grouped as a pool, in which case the discount is amortized to income over the
estimated life of the loans. Management periodically reevaluates the
prepayment assumptions based upon actual payment experience. Any changes in
these estimates are accounted for prospectively.

Loan origination and commitment fees and certain direct loan origination
costs are being deferred and the net amount amortized as an adjustment of the
related loan's yield. The Bank is amortizing these amounts over the
contractual life of the loan.

BANK PREMISES AND EQUIPMENT

Bank premises and equipment are stated at cost less accumulated depreciation
and amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the related assets,
which range from three to 30 years.

F-12

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED

OTHER REAL ESTATE OWNED

Other real estate owned (OREO), consisting of properties acquired as a result
of foreclosure of loans, are carried at the lower of the loan balance or
appraised value of collateral, net of selling costs. Any write-down to
estimated fair value less cost to sell at the time of transfer to OREO is
charged to the allowance for loan losses. Property is evaluated regularly by
management and reductions of the carrying amount to estimated fair value less
estimated costs to dispose are recorded as necessary.

INTANGIBLES

The premiums paid for the deposits purchased are amortized over a period of
seven years on a straight-line method. At December 31, 1995 and 1994, the
unamortized balances of $215,385 and $330,998, respectively, are included in
other assets in the accompanying consolidated balance sheets.

The Bank periodically reviews the value of its intangibles to determine if
impairment has occurred. The Bank does not believe that an impairment of its
intangibles has occurred based on an evaluation of deposit balances and
operating results.

INCOME TAXES

Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and
tax credit carryforwards. Deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the
deferred tax assets will not be realized. Deferred tax assets and liabilities
are adjusted for the effects of changes in tax laws and rates on the date of
enactment.

FINANCIAL INSTRUMENTS

In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commercial letters of credit and standby letters of credit. Such
financial instruments are recorded in the financial statements when they are
funded.

F-13

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED

EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share are computed by dividing applicable amounts
by the weighted average number of shares of common stock outstanding. Stock
options are considered common stock equivalents but were not included in the
earnings per share computation because the effect is immaterial or
antidilutive. The number of shares used in computing earnings per share was
565,789 for 1996, 1995, 1994 and 1993.

STATEMENT OF CASH FLOWS

The Bank paid interest and income taxes as follows:

<TABLE>
<CAPTION>
Three Months Ended March 31, Years Ended December 31,
------------------------------------------------------------------
1996 1995 1995 1994 1993
------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>

Interest $299,597 $280,085 $1,210,204 $862,071 $636,967
Income taxes - - 250,408 115,000 162,012
</TABLE>

During the years ended December 31, 1995, 1994 and 1993, $145,921, $444,937
and $284,725, respectively, of other real estate owned was acquired in
settlement of loans.

In 1993 the Bank acquired deposit liabilities of $12,454,049 for a premium of
$138,222. This transaction is reflected in the consolidated statement of cash
flows in the net change in deposits.

RECLASSIFICATIONS

Certain reclassifications have been made to conform prior year financial data
to current reporting policies of the Bank. Such reclassifications do not
affect net income.

FAIR VALUE OF FINANCIAL INSTRUMENTS

Effective January 1, 1995, the Company adopted FASB Statement No. 107,
DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS, which requires
disclosure of fair value information about financial instruments, whether or
not recognized in the balance sheet, for which it is practicable to estimate
that value.

F-14

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED

Management uses its best judgment in estimating the fair
value of the Bank's financial instruments; however, there
are inherent weaknesses in any estimation technique.
Therefore, for substantially all financial instruments, the
fair value estimates presented herein are not necessarily
indicative of the amounts the Bank could have realized in a
sales transaction at December 31, 1995. The estimated fair
value amounts for 1995 have been measured as of December 31,
1995 and have not been reevaluated or updated for purposes
of these consolidated financial statements subsequent to
that date. As such, the estimated fair values of these
financial instruments subsequent to the respective reporting
dates may be different than the amounts reported at December
31, 1995.

This disclosure of fair value amounts does not include the
fair values of any intangibles, including core deposit
intangibles, purchased.

Due to the wide range of valuation techniques and the degree
of subjectivity used in making the estimate, comparisons
between the Bank's disclosures and those of other banks may
not be meaningful.

The following methods and assumptions were used by the Bank
in estimating the fair value of its financial instruments:

CASH AND SHORT-TERM INSTRUMENTS

The carrying amounts reported in the consolidated balance
sheet for cash and due from banks and federal funds sold
approximate their fair values.

SECURITIES

Carrying amounts approximate fair values for securities
available for sale.

INTEREST BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS

The carrying amount reported in the consolidated balance
sheet for interest bearing deposits in other financial
institutions approximates the fair value.

LOANS

For variable rate loans that reprice frequently and that
have experienced no significant change in credit risk, fair
values are based on carrying values. At December 31, 1995,
variable rate loans comprised approximately 63% of the loan
portfolio. Fair values for all other loans are estimated
based on discounted cash flows using interest rates
currently being offered for loans with similar terms to
borrowers with similar credit quality. Prepayments prior to
the repricing date are not expected to be significant.
Loans are expected to be held to maturity and any unrealized
gains or losses are not expected to be realized.

F-15

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED

OFF-BALANCE-SHEET INSTRUMENTS

Fair values for off-balance-sheet instruments (guarantees,
letters of credit and lending commitments) are based on
quoted fees currently charged to enter into similar
agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standing.

DEPOSIT LIABILITIES

Fair values disclosed for demand deposits equal their
carrying amounts, which represent the amounts payable on
demand. The carrying amounts for variable rate money market
accounts and certificates of deposit approximate their fair
values at the reporting date. Fair values for fixed rate
certificates of deposit are estimated using a discounted
cash flow calculation that applies interest rates currently
being offered on certificates to a schedule of aggregate
expected monthly maturities on time deposits. Early
withdrawals of fixed rate certificates of deposit are not
expected to be significant.

ACCRUED INTEREST RECEIVABLE AND PAYABLE

The fair values of both accrued interest receivable and
payable approximate their carrying amounts.

ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR
LONG-LIVED ASSETS TO BE DISPOSED OF

In March 1995, the FASB issued Statement No. 121, ACCOUNTING
FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. Statement No. 121 establishes
accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-
lived assets and certain identifiable intangibles to be
disposed of. Statement No. 121 will first be required for
the Bank's year ending December 31, 1996. Based on its
preliminary analysis, the Bank does not anticipate that the
adoption of Statement No. 121 will have a material impact on
the financial statements as of the date of adoption.

F-16

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------

NOTE 1. NATURE OF BUSINESS ACTIVITIES AND SIGNIFICANT
ACCOUNTING POLICIES, CONTINUED

ACCOUNTING FOR STOCK-BASED COMPENSATION

In 1995 the FASB issued Statement No. 123, ACCOUNTING FOR
STOCK-BASED COMPENSATION. Statement No. 123 establishes
financial accounting and reporting standards for stock-based
employee compensation plans such as a purchase plan. The
Statement generally suggests stock-based compensation
transactions be accounted for based on the fair value of the
consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
An enterprise may continue to follow the requirements of
Accounting Principles Board (APB) Opinion No. 25, which does
not require compensation to be recorded if the consideration
to be received is at least equal to the fair value at the
measurement date. If an enterprise elects to follow APB
Opinion No. 25, it must disclose the pro forma effects on
net income as if compensation were measured in accordance
with the suggestions of Statement No. 123. The Company has
not determined if it will continue to follow APB Opinion
No. 25 or follow the guidance of Statement No. 123.
However, adoption of this pronouncement in 1996 is not
expected to have a material impact on the financial
statements.

NOTE 2. RESTRICTIONS ON CASH AND DUE FROM BANKS

The Bank is required to maintain reserve balances in cash or
on deposit with Federal Reserve Banks. The total of those
reserve balances was approximately $380,000 and $329,000 as
of December 31, 1995 and 1994, respectively.

NOTE 3. ACQUISITION OF ASSETS AND ASSUMPTION OF DEPOSITS

On August 26, 1994, the Bank, as part of a consortium with
Landmark Bank, entered into an Insured Deposit Purchase and
Assumption Agreement (Agreement) with the Federal Deposit
Insurance Corporation (FDIC) for the purchase and assumption
of certain assets and liabilities of Capital Bank. The Bank
purchased $674,000 of assets consisting of cash and assumed
$22,536,000 of deposit liabilities, principally insured and
accrued interest, of the Downey branch for a premium of
$185,000, including expenses. In addition, the Bank
obtained a lease on the Downey branch facility of Capital
Bank through May 1995 when an option to purchase the
building for $650,000 was exercised. The Bank hired 12
former employees of Capital Bank, none of which were members
of senior management, to staff the existing facility. The
initial transaction is reflected in the consolidated
statement of cash flows in the net change in deposits in
1994. The purchase of the building is reflected in the
consolidated statement of cash flows in the purchases of
premises and equipment in 1995.

The Bank purchased approximately $5,352,000 of net loans
from the FDIC. The purchase of these loans is reflected in
the consolidated statement of cash flows in the net increase
in loans.

F-17

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------

NOTE 3. ACQUISITION OF ASSETS AND ASSUMPTIONS OF DEPOSITS,
CONTINUED

Because it views the Agreement previously described as one
in which the Bank assumed the insured deposit liabilities of
the Downey branch of Capital Bank and acquired certain of
the Downey branch assets, management believes that a
continuity of business is substantially lacking and, as a
consequence, historical and pro forma financial information
regarding this branch of Capital Bank would not be
meaningful.

NOTE 4. SECURITIES AVAILABLE FOR SALE

Effective December 31, 1993, the Bank adopted FASB Statement
No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES. The Bank classified substantially all of
its investment portfolio as available for sale on December
31, 1993.

Securities available for sale as of December 31, 1995 and
1994 are summarized as follows:

<TABLE>
<CAPTION>
1995
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS LOSSES FAIR VALUE
-------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 7,827,599 $161,197 $ 218 $ 7,988,578
U.S. Government and
agency obligations 11,795,751 53,493 6,505 11,842,739
Other 1,191,055 24,702 509 1,215,248
-------------------------------------------------------

$20,814,405 $239,392 $ 7,232 $21,046,565
-------------------------------------------------------
-------------------------------------------------------

1994
-------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED
COST GAINS Losses FAIR VALUE
-------------------------------------------------------

U.S. Treasury securities $14,170,967 $122,057 $268,565 $14,024,459
U.S. Government and
agency obligations 2,140,402 1,087 36,422 2,105,067
Other 715,963 52 15,137 700,878
-------------------------------------------------------

$17,027,332 $123,196 $320,124 $16,830,404
-------------------------------------------------------
-------------------------------------------------------
</TABLE>

F-18

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------

NOTE 4. SECURITIES AVAILABLE FOR SALE, CONTINUED

Securities available for sale as of December 31, 1995 by
contractual maturity are shown below.

Amortized
Cost Fair Value
----------------------------------

Due in one year or less $ 3,494,342 $ 3,521,654
Due after one through five years 13,793,414 13,972,160
Due after five through ten years 3,474,767 3,497,029
Due after ten years 51,882 55,722
----------------------------------

$20,814,405 $21,046,565
----------------------------------
----------------------------------

Securities available for sale with a carrying amount of
$1,100,000 and $400,000 at December 31, 1995 and 1994,
respectively, were pledged as collateral on public deposits
and for other purposes as required or permitted by law.

There were no realized gains or losses from the sales of
securities classified as available for sale for the years
ended December 31, 1995 and 1994.

Federal Reserve Bank stock is carried at cost which
approximates fair value.

NOTE 5. LOANS

Major classifications of loans at December 31 are as follows:

1995 1994
----------------------------
Commercial $10,474,719 $11,210,049
Real estate - construction 2,338,979 2,998,619
Real estate - other 8,062,827 8,541,865
Real estate mortgage loans acquired 1,216,165 1,242,636
Installment 1,679,274 1,815,841
----------------------------
$23,771,964 $25,809,010
----------------------------
----------------------------

The majority of loans have variable interest rates based on
the Bank's reference rate.

F-19

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- ---------------------------------------------------------------------

NOTE 5. LOANS, CONTINUED

On January 1, 1995, the Bank adopted FASB Statement No. 114,
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN, as amended
by FASB Statement No. 118, ACCOUNTING BY CREDITORS FOR
IMPAIRMENT OF A LOAN - INCOME RECOGNITION AND DISCLOSURES.
There was no effect on the Bank's financial statements from
this change. At January 1, 1995, the Bank classified
$244,000 of its loans as impaired with a specific loss
reserve of $56,000.

Impairment of loans having recorded investments of $103,000
at December 31, 1995 has been recognized. The total
allowance for loan losses related to these loans was $5,200
on December 31, 1995. The average recorded investment for
all impaired loans during 1995 was $276,000. Interest
income of $57,000 was recognized on impaired loans in 1995
using a cash-basis method of accounting during the time
within that period that the loans were impaired.

NOTE 6. ALLOWANCE FOR LOAN LOSSES AND RESERVE FOR OTHER
REAL ESTATE OWNED

Changes in the allowance for loan losses during each of the
three years in the period ended December 31, 1995 are
summarized as follows:

1995 1994 1993
--------------------------------------

Balance, beginning $ 498,827 $ 534,625 $ 451,827
Provision charged to operating
expense 649,000 292,800 651,314
Loans charged off (785,250) (333,173) (629,986)
Recoveries on loans previously
charged off 69,982 4,575 61,470
--------------------------------------

$ 432,559 $ 498,827 $ 534,625
--------------------------------------
--------------------------------------

Changes in the reserve for other real estate owned are as
follows:

Years Ended December 31,
--------------------------------------
1995 1994 1993
--------------------------------------

Balance, beginning $ 73,924 $ 30,000 $ --
Provision charged to other real
estate expense 20,000 73,924 30,000
Disposal of other real estate owned (73,924) (30,000) --
--------------------------------------

Balance, ending $ 20,000 $ 73,924 $ 30,000
--------------------------------------
--------------------------------------

F-20

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 7. BANK PREMISES AND EQUIPMENT

The major classes of bank premises and equipment and the total accumulated
depreciation and amortization are as follows:

December 31,
-----------------------
1995 1994
-----------------------
Land $ 907,143 $ 417,143
Buildings 2,060,222 1,729,986
Building improvements 290,751 407,306
Furniture, fixtures and equipment 842,202 637,590
Construction in progress 24,042 -
-----------------------
4,124,360 3,192,025
Less accumulated depreciation and amortization 832,607 665,348
-----------------------
$3,291,753 $2,526,677
-----------------------
-----------------------

NOTE 8. DEPOSITS

The aggregate amount of short-term jumbo certificates of deposit, each with a
minimum denomination of $100,000 were $5,381,974 and $4,329,934 in 1995 and
1994, respectively. At December 31, 1995, the scheduled maturities of
certificates of deposits are as follows:

Year Ending December 31, Amount
- ------------------------ -----------
1996 $12,654,400
1997 672,779
1998 and thereafter 199,190
-----------
$13,526,369
-----------
-----------

NOTE 9. INCOME TAXES

On January 1, 1993, the Company changed its method of accounting for income
taxes as a result of the adoption of FASB Statement No. 109, ACCOUNTING FOR
INCOME TAXES, with a cumulative effect of a benefit of $55,582 to 1993 net
income.

F-21

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 9. INCOME TAXES, CONTINUED

The components of income tax expenses (benefits) are as follows:

1995 1994 1993
------------------------------
Currently paid or payable (refundable):
Federal $ 84,000 $193,000 $(35,682)
State 17,000 40,000 1,600
------------------------------
101,000 233,000 (34,082)
------------------------------
Deferred:
Federal 83,000 62,000 (22,818)
State 49,000 57,000 (30,600)
------------------------------
132,000 119,000 (53,418)
------------------------------
$233,000 $352,000 $(87,500)
------------------------------
------------------------------

The Company's income tax expenses (benefits) differed from the statutory
federal rate of 35% as follows:

1995 1994 1993
------------------------------
Computed "expected" tax expenses
(benefits) $197,000 $287,000 $(97,000)
State income tax expenses (benefits),
net of federal income tax benefit 43,000 64,000 (20,000)
Other (7,000) 1,000 29,500
------------------------------
$233,000 $352,000 $(87,500)
------------------------------
------------------------------

Net deferred tax assets (liabilities) consist of the following components as
of December 31:

1995 1994
---------------------
Deferred tax assets:
Property and equipment $ 18,000 $ 27,000
Allowance for loan losses 51,000 118,000
Valuation allowance for other real estate owned 8,000 36,000
Unrealized loss on securities available for sale - 81,000
State taxes 7,000 16,000
Other 32,000 -
---------------------
116,000 278,000
---------------------
---------------------

F-22

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 9. INCOME TAXES, CONTINUED

Net deferred tax assets (liabilities) consist of the following components as
of December 31:

1995 1994
---------------------
Deferred tax liabilities:
Accrual to cash basis $ 217,000 $135,000
Unrealized gain on securities available for sale 96,000 -
Accumulated discount on loans purchased 56,000 54,000
Other - 5,000
---------------------
369,000 194,000
---------------------
$(253,000) $ 84,000
---------------------
---------------------

NOTE 10. STOCK OPTIONS

The Company's 1993 Stock Option Plan (the Plan) provides for the issuance of
up to 93,501 shares of common stock. The Plan provides for the granting of
nonqualified and incentive stock options to directors, officers and other key
full-time salaried employees of the Company and its subsidiary. Purchase
prices are based on the fair market value of the Company's stock at the time
the option is granted. Options are granted for a term of ten years and are
exercisable in cumulative annual increments as the Board of Directors may
determine, commencing one year after date of grant. All outstanding options
are exercisable at $7.00 per share. Unless terminated at an earlier date, the
Plan shall terminate ten years from the effective date of March 17, 1993.

Other pertinent information related to the Plan is as follows:

1995 1994 1993
------------------------------
Under option, beginning of year 56,250 57,500 60,000
Granted - 5,000 57,500
Terminated and canceled - (6,250) (60,000)
------------------------------
Under option, end of year 56,250 56,250 57,500
------------------------------
------------------------------
Options exercisable, end of year 56,250 56,250 57,500
------------------------------
------------------------------
Available for grant, end of year 37,251 37,251 36,001
------------------------------
------------------------------

F-23

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 11. COMMITMENTS AND CONTINGENCIES

CONTINGENCIES

In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The Bank is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the consolidated balance
sheets.

The Bank's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments. A
summary of the Bank's commitments at December 31 is as follows:

1995 1994
-------------------------
Commitments to extend credit $5,861,829 $3,330,071
Standby letters of credit 210,000 212,000
Credit card commitments 573,886 630,732
-------------------------
$6,645,715 $4,172,803
-------------------------
-------------------------

Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of
collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the party. Collateral
held varies, but may include accounts receivable, inventory, property and
equipment, residential real estate and income producing commercial properties.

F-24

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 11. COMMITMENTS AND CONTINGENCIES, CONTINUED

Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements.
The credit risk involved in issuing letters of credit is essentially the same
as that involved in extending loan facilities to customers. They are issued
primarily to support real estate construction projects and other business
related ventures. Collateral held varies as specified above and is required
in instances which the Bank deems necessary. At December 31, 1995, all of the
standby letters of credit were collateralized.

CREDIT CARD COMMITMENTS

Credit card commitments are commitments on credit cards and are unsecured.

LEASES AND RELATED PARTY TRANSACTIONS

The Bank leases the Montebello branch facility from a company owned by a
director of the Company under a lease agreement expiring April 1, 1998. The
lease agreement requires monthly rent of $5,191 plus normal repairs and
maintenance, property taxes and insurance. Future minimum annual lease
payments as of December 31, 1995 are as follows:

Year Ending December 31, Amount
- ------------------------ --------
1996 $ 62,000
1997 62,000
1998 16,000
--------
$140,000
--------
--------

Lease expense for all operating leases was $73,000, $164,000 and $147,000 in
1995, 1994 and 1993, respectively, substantially all of which was paid to the
related party.

NOTE 12. EMPLOYEE STOCK OWNERSHIP PLAN

The Company has an employee stock ownership plan, established in 1987, which
covers substantially all employees. The Company accrued or paid a cash
contribution of $25,000 and $50,000 in 1995 and 1994, respectively. No
contribution was made for 1993. The contribution is at the discretion of the
Board of Directors.

F-25

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------

NOTE 12. EMPLOYEE STOCK OWNERSHIP PLAN, CONTINUED

In the event terminated plan participants desire to sell their shares of the
Company's stock, the Company may be required to purchase the shares from the
participants at their fair market value established at the last valuation
date. At December 31, 1995, the Plan owns approximately 22,571 shares of the
Company's common stock, and the Company has a maximum contingent liability of
$208,782 to repurchase all the shares from plan participants. The Company did
not purchase any stock in 1995, 1994 or 1993.

NOTE 13. RELATED PARTY TRANSACTIONS

Shareholders of the Company and officers and directors, including their
families and companies of which they are principal owners, are considered to
be related parties. As part of its normal banking activity, the Bank has
extended credit to various executive officers, directors and companies in
which they have an interest. Loans to related parties are made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with unrelated
persons, and do not involve more than normal risk of collectibility.

The approximate aggregate dollar amounts and activity of these loans were as
follows:

1995 1994
--------------------------
Balance, beginning $1,066,000 $1,247,000
Advances 345,000 101,000
Repayments (519,000) (282,000)
--------------------------
Balance, ending $ 892,000 $1,066,000
--------------------------
--------------------------

These persons and companies had deposits at the Bank of approximately
$1,480,000 and $1,075,000 at December 31, 1995 and 1994, respectively.

During the years ended December 31, 1995, 1994 and 1993, the Company paid to
a company controlled by one of the directors approximately $60,000, $60,000
and $46,000, respectively, for insurance premiums.

It is the opinion of management that such insurance premiums were no less
favorable to the Company than those which could have been obtained from
persons not affiliated with the Company.

F-26
<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14. REGULATORY MATTERS

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

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1995,
the Bank meets all capital adequacy requirements to which it is subject.

Under federal banking law, dividends declared by the Bank in any calendar
year may not, without the approval of the Comptroller of the Currency, exceed
its net income (as defined) for that year combined with its retained net
income for the preceding two years.

The Bank's actual capital amounts and ratios as of December 31, 1995 and 1994
are presented in the following table:

<TABLE>
To be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ---------------------------------- -----------------------------------
Amount Ratio Amount Ratio Amount Ratio
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1995:
Greater Greater Greater Greater
Total capital (to risk-weighted assets) $6,196,282 18.3% Than or $2,633,996 Than or 8.0% Than or $3,292,495 Than or 10.0%
Equal to Equal to Equal to Equal to

Greater Greater Greater Greater
Tier I capital (to risk-weighted assets) 5,786,720 17.6 Than or 1,316,998 Than or 4.0 Than or 1,975,497 Than or 6.0
Equal to Equal to Equal to Equal to

Greater Greater Greater Greater
Tier I capital (to average assets) 5,786,720 8.4 Than or 2,753,319 Than or 4.0 Than or 3,441,649 Than or 5.0
Equal to Equal to Equal to Equal to

As of December 31, 1994:

Greater Greater Greater Greater
Total capital (to risk-weighted assets) 5,868,020 17.9 Than or 2,621,893 Than or 8.0 Than or 3,277,366 Than or 10.0
Equal to Equal to Equal to Equal to

Greater Greater Greater Greater
Tier I capital (to risk-weighted assets) 5,458,350 16.7 Than or 1,310,964 Than or 4.0 Than or 1,966,419 Than or 6.0
Equal to Equal to Equal to Equal to

Greater Greater Greater Greater
Tier I capital (to average assets) 5,458,350 7.7 Than or 2,847,538 Than or 4.0 Than or 3,559,422 Than or 5.0
Equal to Equal to Equal to Equal to
</TABLE>

Federal banking law also restricts the Bank from extending credit to the
Company in excess of 10% of the Bank's capital stock and surplus, as defined.
Any such extensions of credit are subject to strict collateral requirements.

F-27

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. PARENT COMPANY ONLY FINANCIAL INFORMATION

The following are condensed unconsolidated financial statements of COMBANCORP:

CONDENSED BALANCE SHEETS

<TABLE>
December 31,
March 31, -----------------------
1996 1995 1994
- -------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 241,025 $ 247,844 $ 272,956
Investment in Commerce National Bank 5,980,602 6,137,066 5,673,671
------------------------------------
$6,221,627 $6,384,910 $5,946,627
------------------------------------
------------------------------------
LIABILITIES
Shareholders' equity:
Common stock $4,453,300 $4,453,300 $4,453,300
Retained earnings 1,880,513 1,796,650 1,609,002
Unrealized gain (loss) on securities
available for sale, net (112,186) 134,960 (115,675)
------------------------------------
TOTAL SHAREHOLDERS' EQUITY 6,221,627 6,384,910 5,946,627
------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $6,221,627 $6,384,910 $5,946,627
------------------------------------
------------------------------------
</TABLE>

CONDENSED STATEMENTS OF OPERATIONS

Three Months Ended
March 31, Year Ended December 31,
----------------------------------------------------
1996 1995 1995 1994 1993
- ------------------------------------------------------------------------------
(Unaudited)
Equity in earnings
(loss) of subsidiary $90,682 $180,866 $354,759 $496,192 $(143,149)
Other income 1,610 2,024 7,365 6,893 57,892
Other expense (8,429) (12,254) (33,029) (34,448) (48,501)
----------------------------------------------------
NET INCOME (LOSS) $83,863 $170,636 $329,095 $468,637 $(133,758)
----------------------------------------------------
----------------------------------------------------

F-28

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 15. PARENT COMPANY ONLY FINANCIAL INFORMATION, CONTINUED

CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
Three Months Ended
March 31, Year Ended December 31,
--------------------------------------------------------
1996 1995 1995 1994 1993
- ----------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash Flows from
Operating Activities
Net income (loss) $ 83,863 $ 170,636 $ 329,095 $ 468,637 $(133,758)
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Equity in (income)
loss of subsidiary (90,682) (180,866) (354,759) (496,192) 143,149
--------------------------------------------------------

NET CASH PROVIDED
BY (USED IN)
OPERATING ACTIVITIES (6,819) (10,230) (25,664) (27,555) 9,391
--------------------------------------------------------

Cash Flows from
Investing Activities
Interest bearing deposits
in banks - - - - 99,000
Dividends received
from subsidiary - 141,999 141,999 - -
--------------------------------------------------------

NET CASH PROVIDED
BY INVESTING
ACTIVITIES - 141,999 141,999 - 99,000
--------------------------------------------------------

NET CASH (USED IN)
ACTIVITIES --
DIVIDENDS PAID - (141,447) (141,447) - (50,921)
--------------------------------------------------------

NET INCREASE
(DECREASE) IN CASH
AND DUE FROM BANK (6,819) (9,678) (25,112) (27,555) 57,470

Cash and Due from Bank
Beginning of year 247,844 272,956 272,956 300,511 243,041
--------------------------------------------------------

End of year $241,025 $ 263,278 $ 247,844 $ 272,956 $ 300,511
--------------------------------------------------------
--------------------------------------------------------
</TABLE>

F-29

<PAGE>

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair values of the Bank's financial instruments are as follows:

December 31, 1995
---------------------------
Carrying
Amount Fair Value
---------------------------
Financial assets:
Cash and short-term investments $ 8,439,763 $ 8,439,763
Interest bearing deposits in
other financial institutions 11,755,000 11,785,000
Federal Reserve Bank stock 120,000 120,000
Securities available for sale 21,046,565 21,046,565
Loans, net 23,188,851 22,598,606
Accrued interest receivable 526,998 526,998

Financial liabilities:
Deposits 62,023,797 61,965,572
Accrued interest payable 71,469 71,469

FAIR VALUE OF COMMITMENTS

The estimated fair value of fee income on letters of credit at December 31,
1995 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31,
1995.

NOTE 17. EVENT SUBSEQUENT TO THE DATE OF THE AUDITOR'S REPORT (UNAUDITED)

On May 22, 1996, the Company entered into a definitive agreement to sell 100%
of its outstanding common stock to BanPonce Corporation for cash subject to
shareholder and regulatory approval.

F-30

<PAGE>

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

CONFORMED COPY

AGREEMENT AND PLAN OF MERGER

DATED AS OF THE 22nd DAY OF MAY, 1996

BY AND AMONG

BANPONCE CORPORATION,

BANPONCE MERGER CORP.

AND

COMBANCORP

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

<PAGE>

AGREEMENT AND PLAN OF MERGER, dated as of the 22nd day of May, 1996
(this "Plan"), by and among BanPonce Corporation, a Puerto Rico corporation (the
"Acquiror"), BanPonce Merger Corp., a California corporation ("Merger Sub"), and
COMBANCORP, a California corporation (the "Company").

RECITALS:

A. THE ACQUIROR. The Acquiror has been duly incorporated and is an
existing corporation in good standing under the laws of the Commonwealth of
Puerto Rico, with its principal executive offices located in San Juan, Puerto
Rico. The Acquiror is a bank holding company duly registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") under the
Bank Holding Company Act of 1956, as amended (the "BHC Act").

B. MERGER SUB. Merger Sub has been duly incorporated and is an
existing corporation in good standing under the laws of the State of California.
All the outstanding shares of capital stock of Merger Sub are owned indirectly
by the Acquiror through its wholly owned subsidiary, BanPonce Financial Corp., a
Delaware corporation.

C. THE COMPANY. The Company has been duly incorporated and is an
existing corporation in good standing under the laws of the State of California,
with its principal executive offices located in City of Commerce, California.
As of the date hereof, the Company has 25,000,000 authorized shares of Common
Stock, no par value ("Common Stock"), 565,789 shares of which were outstanding
as of the date hereof and 93,501 shares of which are reserved for issuance under
the Company's 1993 Stock Option Plan (the "1993 Plan"); and 5,000,000 authorized
shares of Preferred Stock, none of which have been issued or are outstanding.
As of the date hereof, the Company has outstanding options to acquire 56,250
shares of Common Stock under the 1993 Plan (each such option, a "Company
Option"). The Company is a bank holding company duly registered with the
Federal Reserve Board under the BHC Act.

D. BOARD APPROVALS. The respective Boards of Directors of the
Acquiror, Merger Sub and the Company have duly approved this Plan and have duly
authorized its execution, delivery and performance by the respective parties
hereto.

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NOW, THEREFORE, in consideration of their mutual promises and
obligations hereunder, the parties hereto adopt and make this Plan and prescribe
the terms and conditions hereof and the manner and basis of carrying it into
effect, which shall be as follows:

ARTICLE I. THE MERGER

SECTION 1.1. STRUCTURE OF THE MERGER. On the Effective Date (as
defined in Section 8.1), Merger Sub will merge (the "Merger") with and into the
Company, with the Company being the surviving corporation (the "Surviving
Corporation"), pursuant to the provisions of, and with the effects provided in,
the California General Corporation Law ("CGCL"). At the Effective Time (as
defined in Section 8.1), the articles of incorporation and by-laws of Merger Sub
in effect immediately prior to the Effective Time shall be the articles of
incorporation and by-laws of the Surviving Corporation.

SECTION 1.2. EFFECT ON OUTSTANDING SHARES. By virtue of the Merger,
automatically and without any action on the part of the holders thereof:

(i) each share of Common Stock issued and outstanding immediately
prior to the Effective Time (the "Outstanding Shares") (other than shares
the holder of which, pursuant to any applicable law providing for
dissenters' or appraisal rights is entitled to receive payment in
accordance with the provisions of any such law, such holder to have only
the rights provided in any such law (the "Dissenters' Shares")), shall
become and be converted into the right to receive an amount in cash,
without interest, equal to $17.31 per share (the "Merger Consideration"),
whereupon all shares of Common Stock shall be cancelled; and

(ii) each share of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall remain outstanding and
unchanged after the Merger and shall become one share of common stock of
the Surviving Corporation, and all of such shares shall thereafter
constitute all of the issued and outstanding shares of the capital stock of
the Surviving Corporation.

SECTION 1.3. EXCHANGE PROCEDURES. (a) At and after the Effective
Time, each certificate (each a "Certificate") representing Outstanding Shares
other than Dissenters' Shares shall represent the right to receive the

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Merger Consideration owed in respect of such Common Stock, without interest.

(b) As of the Effective Time, the Acquiror shall deposit, or shall
cause to be deposited, with such bank or trust company as the Acquiror shall
elect (which may be a subsidiary or other affiliate of the Acquiror) (the
"Exchange Agent"), for the benefit of the holders of Outstanding Shares other
than Dissenters' Shares, for exchange in accordance with this Section 1.3, the
Merger Consideration pursuant to an escrow agreement in form satisfactory to the
Acquiror and the Company.

(c) Promptly after the Effective Time, the Acquiror shall cause the
Exchange Agent to mail to each holder of record of a Certificate or Certificates
the following: (i) a letter of transmittal specifying that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent, which shall be in a form and
contain any other provisions as the Acquiror may determine; and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon the proper surrender of a
Certificate to the Exchange Agent, together with a properly completed and duly
executed letter of transmittal, the holder of such Certificate shall be entitled
to receive in exchange therefor a check representing the Merger Consideration,
and the Certificate so surrendered shall forthwith be cancelled. No interest
will be paid or accrued on the Merger Consideration payable to holders of
Certificates. In the event of a transfer of ownership of any Certificate, which
transfer is not registered in the transfer records of the Company, a check for
the Merger Consideration may be issued to the transferee if the Certificate is
presented to the Exchange Agent, accompanied by documents sufficient, in the
discretion of the Acquiror, (i) to evidence and effect such transfer and (ii) to
evidence that all applicable stock transfer taxes have been paid.

(d) From and after the Effective Time, there shall be no transfers on
the stock transfer records of the Company of any shares of Common Stock that
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Acquiror or the Surviving
Corporation, they shall be cancelled and exchanged for the Merger Consideration
pursuant to and in accordance with the procedures set forth in this Section 1.3.

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(e) Any portion of the Merger Consideration that remains unclaimed
for twelve months after the Effective Time shall be repaid by the Exchange Agent
to the Acquiror. Any holders of Certificates who have not theretofore complied
with this Section 1.3 shall thereafter look only to the Acquiror for payment of
their Merger Consideration in respect of each Certificate held, in each case,
without any interest thereon. If outstanding Certificates are not surrendered
or the payment for them not claimed prior to the date on which such payments
would otherwise escheat to or become the property of any governmental unit or
agency, the unclaimed items shall, to the extent permitted by abandoned property
and any other applicable law, become the property of the Acquiror (and to the
extent not in its possession shall be paid over to it), free and clear of all
claims or interest of any person previously entitled to such claims.
Notwithstanding the foregoing, none of the Acquiror, the Surviving Corporation,
Merger Sub, the Exchange Agent or any other person shall be liable to any former
holder of Common Stock for any amount delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.

(f) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Acquiror, the posting by such person of a bond in such amount as the Acquiror
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration.

SECTION 1.4. COMPANY OPTIONS. Immediately prior to the Effective
Time, automatically and without any action on the part of the holder thereof,
each Company Option which shall have been granted prior to the date hereof and
shall be outstanding immediately prior to the Effective Time, whether or not
then exercisable, shall be cancelled and converted into the right to receive
from the Company, subject to applicable withholding taxes, an amount in cash
equal to $10.31 for each share of Common Stock subject to such Company Option
(the "Option Consideration"); PROVIDED, HOWEVER, that such payment shall not be
made to a holder of Company Options unless such payment shall be in full
satisfaction of all rights of such holder under such Company Options. The
holders of Company Options shall not be entitled to receive interest on any
amounts to be paid with respect thereto.

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ARTICLE II. REPRESENTATIONS AND
WARRANTIES OF THE COMPANY

SECTION 2.1. REPRESENTATIONS AND WARRANTIES. The Company represents
and warrants to the Acquiror and Merger Sub that, except as specifically set
forth in the disclosure letter of the Company dated as of the date of this Plan
and that is attached hereto as Schedule 2.1 (the "Company Disclosure Letter"),
and which makes specific reference to the Section of this Plan for which an
exception is taken:

(a) RECITALS TRUE. The facts set forth in the Recitals of this Plan
with respect to the Company are true and correct.

(b) CAPITAL STOCK. All outstanding shares of capital stock of the
Company are duly authorized, validly issued and outstanding, fully paid and non-
assessable, and subject to no preemptive rights. The Company has no shares of
its capital stock reserved for issuance, any outstanding option, call or
commitment relating to shares of its capital stock or any outstanding
securities, obligations or agreements exercisable for, convertible into or
exchangeable for, or giving any person any right (including, without limitation,
preemptive rights) to subscribe for or acquire from it, any shares of its
capital stock, except as described in the Recitals of this Plan.

(c) SUBSIDIARIES. The Company owns, directly or indirectly, no
subsidiaries other than Commerce National Bank, a national banking association
("Commerce"). The Company owns all of the issued and outstanding shares of
capital stock of Commerce (except for directors' qualifying shares), free and
clear of all liens, claims, encumbrances and restrictions on transfer. Commerce
is a national banking association duly organized, validly existing and in good
standing under the laws of the United States, the deposits of which are insured
by the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance Corporation
(the "FDIC"). The authorized capital stock of Commerce consists of
500,000 shares of common stock, par value $5.00 per share, 400,000 of which
shares are issued and outstanding as of the date hereof. The shares of capital
stock of Commerce are duly authorized, validly issued, fully paid and (subject
to 12 U.S.C. Section 55) non-assessable and have not been issued in violation of
any preemptive rights of shareholders. No rights, options, warrants or other
rights have been granted by the Company or Commerce or any other person to
acquire any shares of capital stock of, or any security or other right that is
exercisable for, convertible into or exchangeable for any shares of capital
stock of, Commerce

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(whether or not any such security or right currently is so exercisable,
convertible or exchangeable).

(d) AUTHORITY. Each of the Company and Commerce has full power and
authority, and is duly qualified in all jurisdictions where such qualification
is required, to carry on its business as it is now being conducted and to own or
lease all its properties and assets, and it has all federal, state, local and
foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now being conducted.

(e) SHAREHOLDER APPROVALS. (i) Subject to the receipt of the
required shareholder approval of this Plan that is set forth in (ii) of this
paragraph (e), this Plan has been authorized by all necessary corporate action
of the Company. Subject to receipt of (A) such shareholder approval and (B) the
required approvals, consents or waivers of governmental authorities referred to
in Section 6.1(b), this Plan is a valid and binding agreement of the Company
enforceable against it in accordance with its terms, subject as to enforcement
to bankruptcy, insolvency, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights and to general
equity principles.

(ii) The affirmative vote of a majority of the outstanding shares of
Common Stock is the only shareholder vote required for approval of this Plan and
consummation of the Merger and the other transactions contemplated hereby.

(f) NO VIOLATIONS. The execution, delivery and performance of this
Plan by the Company do not, and the consummation of the transactions
contemplated hereby by the Company will not, constitute (i) a breach or
violation of, or a default under, any law, rule or regulation or any judgment,
decree, order, governmental permit or license of the Company or Commerce or to
which the Company or Commerce (or any of their respective properties) is
subject, (ii) a breach or violation of, or a default under, the charter or
certificate or articles of association or incorporation, or by-laws, of the
Company or Commerce, or (iii) a breach or violation of, or a default under (or
an event which with due notice or lapse of time or both would constitute a
breach or violation of, or a default under), or result in the termination of,
accelerate the performance required by or result in the creation of any lien,
pledge, security interest, charge or other encumbrance upon any of the
properties or assets of the Company or Commerce under, any of the terms,
conditions or provisions of any note, bond, indenture, deed of trust, loan
agreement or other agreement,

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<PAGE>

instrument or obligation to which the Company or Commerce is a party, or to
which any of their respective properties or assets may be bound or affected;
and the consummation of the transactions contemplated hereby will not require
any approval, consent or waiver under any such law, rule, regulation,
judgment, decree, order, governmental permit or license or the approval,
consent or waiver of any other party to any such agreement, indenture or
instrument, other than (i) the required approvals, consents and waivers of
governmental authorities referred to in Section 6.1(b) and (ii) the approval
of the shareholders of the Company referred to in Section 2.1(e).

(g) REPORTS. (i) As of their respective dates, neither the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994
(the "1994 10-K"), nor any other document filed subsequent to December 31, 1994
under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934,
as amended (the "Securities Exchange Act"), each in the form (including
exhibits) filed with the Securities and Exchange Commission (the "SEC"), or any
of the call reports or other statements filed by the Company or Commerce
subsequent to December 31, 1994 with the Office of the Comptroller of the
Currency (the "OCC") (collectively with the above-referenced reports filed under
the Securities Exchange Act, the "Reports"), contained or will contain any
untrue statement of a material fact or omitted or will omit to state a material
fact required to be stated therein, or necessary to make the statements made
therein, in light of the circumstances under which they were made, not
misleading. Each of the balance sheets contained or incorporated by reference
in the Reports (including in each case any related notes and schedules) fairly
presented or will fairly present, as the case may be, the financial position of
the entity or entities to which it relates as of its date and each of the
statements of operations, statements of cash flows and statements of
shareholders' equity, contained or incorporated by reference in its Reports
(including in each case any related notes and schedules), fairly presented or
will fairly present, as the case may be, the results of operations,
shareholders' equity and cash flows, as the case may be, of the entity or
entities to which it relates for the periods set forth therein (subject, in the
case of unaudited interim statements, to normal year-end audit adjustments that
are not material in amount or effect), in each case in accordance with generally
accepted accounting principles consistently applied during the periods involved,
except as may be noted therein.

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<PAGE>

(ii) The Company and Commerce have each timely filed all reports,
registrations and statements, together with any amendments required to be made
with respect thereto, that they were required to file since December 31, 1991
with (i) the SEC, (ii) the Federal Reserve Board, (iii) the OCC, (iv) the FDIC,
(v) BIF, (vi) any state regulatory authority ("State Regulator") (collectively,
the "Regulatory Agencies") and (vii) the National Association of Securities
Dealers, Inc. and any other self-regulatory organization ("SRO"), and all other
material reports and statements required to be filed by them since December 31,
1991, including, without limitation, any report or statement required to be
filed pursuant to the laws, rules or regulations of the United States, the
Federal Reserve Board, the OCC, the FDIC, BIF, any State Regulator or any SRO,
and have paid all fees and assessments due and payable in connection therewith.
As of their respective dates, such reports, registrations and statements
complied in all material respects with all the laws, rules and regulations of
the applicable Regulatory Agency or SRO, as the case may be, with which they
were filed.

(h) TAXES. (i) For the purposes of this Plan, (A) the term "Tax" or
"Taxes" shall mean any tax or governmental charge, withholding obligation,
assessment, impost or levy (including, without limitation, any income, gross
receipts, deposit, license, payroll, employee withholding, foreign or domestic
withholding, backup withholding, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of the
Internal Revenue Code of 1986, as amended (the "Code")), capital stock,
franchise, disability, real or personal property, sales, use, transfer,
registration, ad valorem, alternative or add-on minimum, estimated or other
taxes of any kind, any customs duty, unemployment insurance, social security (or
similar tax) and workers' compensation), together with any related liabilities,
penalties, fines, additions to tax or interest (including any penalties, fines
or similar amounts related to any information return or reporting obligations,
notwithstanding that no Tax is payable if such obligations are properly
discharged) whether disputed or not, imposed by the United States or any state,
territory or other possession, county, provincial, local or foreign government
or subdivision or agency thereof, and (B) the term "Return" shall mean all
reports, returns, estimates, declarations, claims for refund, information
returns and statements of any nature with respect to Taxes, including all
schedules and attachments thereto, and including any amendment thereof.

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<PAGE>

(ii) All Returns required to be filed by or on behalf of the Company
or of Commerce have been timely filed (taking into account all extensions) and
neither the Company nor Commerce is currently the beneficiary of any extension
of time within which to file any Return (other than automatic extensions) and no
application for any such extension is currently pending. All such filed Returns
are complete in all material respects and accurate in accordance with the
governing jurisdictions' tax laws. None of the Returns have been examined by
the Internal Revenue Service (the "IRS") or the appropriate state, local or
foreign taxing authority. There are no unresolved questions, claims or disputes
asserted by any relevant taxing authority concerning the liability for Taxes of
either the Company or Commerce. All Taxes of the Company and of Commerce with
respect to the periods up to the date of this Plan have been paid in full or
adequate provision has been made for any such Taxes on its balance sheet (in
accordance with generally accepted accounting principles) and neither the
Company nor Commerce is delinquent (taking into account all extensions) in the
payment of any such Taxes.

(iii) Neither the Company nor Commerce has waived any statute of
limitations with respect to Taxes or agreed to any extension of time with
respect to an assessment or deficiency for Taxes. Neither the Company nor
Commerce has filed a consent under Section 341(f) of the Code concerning
collapsible corporations or is subject to any closing agreement, irrevocable
election or similar agreement or decision that would restrict any of them from
claiming an otherwise permissible treatment for any item of income, deduction,
credit or allowance for a taxable period ending after the Effective Date.
Neither the Company nor Commerce has been a "United States real property holding
corporation" within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. Neither
the Company nor Commerce is a party to any Tax sharing agreement or similar
contract or arrangement, other than a Tax Sharing Agreement between the Company
and Commerce, a copy of which has been furnished to the Acquiror. Neither the
Company nor Commerce has been a member of any affiliated group within the
meaning of Section 1504(a) of the Code or any similar group defined under a
similar provision of state, local or foreign law (other than a group the common
parent of which was the Company) or has any liability for the Taxes of any
person under Section 1.1502-6 of the Treasury Regulations issued pursuant to the
Code (or any similar provision of state, local or foreign law), as a transferee
or successor, by contract or otherwise, and no material demand or claim has been
made against the Company or Commerce with respect to any Taxes

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arising out of membership or participation in any consolidated, affiliated,
combined or unitary group of which the Company or Commerce was at any time a
member. There are no liens or other encumbrances for any Taxes upon any
property of the Company or Commerce.

(iv) Each of the Company and Commerce has paid or will pay in a timely
manner (taking into account all extensions) and as required by law all Taxes due
and payable by it or which it is obligated to withhold from amounts owing to any
employee or third party. All Taxes which will be due and payable (taking into
account all extensions), whether now or hereafter, for any period ending on,
prior to or including the Effective Time shall have been paid by or on behalf of
the Company and Commerce or shall be reflected on the books of the Company and
Commerce as an accrued Tax liability (in accordance with generally accepted
accounting principles).

(i) ABSENCE OF CLAIMS. No litigation, proceeding or controversy
before any court or governmental agency is pending, and there is no pending
claim, action or proceeding, against the Company or Commerce, which is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect or to hinder or delay consummation of the transactions contemplated
hereby, and, to the best of its knowledge after reasonable inquiry, no such
litigation, proceeding, controversy, claim or action has been threatened or is
contemplated.

(j) ABSENCE OF REGULATORY ACTIONS. Neither the Company nor Commerce
is a party to any cease and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board resolutions at
the request of, federal or state governmental authorities charged with the
supervision or regulation of banks or savings institutions or bank holding
companies or savings institution holding companies or engaged in the insurance
of deposits of banks or savings institutions (including without limitation the
Regulatory Agencies).

(k) AGREEMENTS. (i) Except for arrangements made in the ordinary
course of business, neither the Company nor Commerce is bound by any material
contract to be performed after the date hereof that has not been disclosed to
the Acquiror in the Company Disclosure Letter. Neither the Company nor Commerce
is a party to an oral or written (i) consulting agreement not terminable on 30
days or less

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notice, (ii) agreement with any executive officer or other key employee of
the Company or Commerce the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
the Company or Commerce of the nature contemplated by this Plan, (iii)
agreement with respect to any executive officer of the Company or Commerce
providing any term of employment or compensation guarantee extending for a
period longer than one year, (iv) agreement or plan, including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting
of the benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Plan or the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated
by this Plan or (v) agreement containing covenants that limit the ability of
the Company or Commerce to compete in any line of business or with any
person, or that involve any restriction on the geographic area in which, or
method by which, the Company or Commerce may carry on its business (other
than as may be required by law or any regulatory agency).

(ii) Neither the Company nor Commerce is in default under or in
violation of any provision of any note, bond, indenture, mortgage, deed of
trust, loan agreement or other agreement to which it is a party or by which it
is bound or to which any of its respective properties or assets is subject,
other than such defaults or violations as could not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.

(l) LABOR MATTERS. Neither the Company nor Commerce is a party to,
or is bound by, any collective bargaining agreement, contract or other agreement
or understanding with a labor union or labor organization, nor is the Company or
Commerce the subject of any proceeding asserting that the Company or Commerce
has committed an unfair labor practice or seeking to compel the Company or
Commerce to bargain with any labor organization as to wages and conditions of
employment, nor is there any strike, other labor dispute or organizational
effort involving the Company or Commerce pending or threatened.

(m) EMPLOYEE BENEFIT PLANS. The Company Disclosure Letter contains a
complete and accurate list of all existing bonus, deferred compensation, pension
retirement, profit-sharing, thrift, savings, employee stock ownership, stock
bonus, stock purchase, restricted stock, stock option, severance and welfare
benefit plans, employment or severance agreements and all similar

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arrangements that are maintained or contributed to by the Company or Commerce
or to which the Company or Commerce are obligated to contribute for the
benefit of any employee or former employee or director or former director of
the Company or Commerce (the "Plans"). All "employee benefit plans", as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") maintained by the Company or Commerce or to which
the Company or Commerce are obligated to contribute that cover any of the
current or former employees of the Company or Commerce (hereinafter referred
to collectively as the "Employee Plans"), comply in all material respects
with all applicable requirements of ERISA, the Code and other applicable
laws; no Employee Plan is a "multiemployer plan" as defined in Section 3(37)
of ERISA; neither the Company nor Commerce has engaged in a "prohibited
transaction" (as defined in Section 406 of ERISA or Section 4975 of the Code)
with respect to any Employee Plan for which no exemptions were available that
resulted in a material liability taken as a whole; no liability to the
Pension Benefit Guaranty Corporation other than the payment of premiums
pursuant to Sections 4006 and 4007 of ERISA has been or is expected by it or
them to be incurred with respect to any Employee Plan which is subject to
Title IV of ERISA ("Pension Plan"), or with respect to any "single-employer
plan" (as defined in Section 4001(a)(15) of ERISA) currently or formerly
maintained by it, them or any entity which is considered one employer with it
under Section 4001 of ERISA or Section 414 of the Code (an "ERISA
Affiliate"); no Pension Plan had an "accumulated funding deficiency" (as
defined in Section 302 of ERISA (whether or not waived)) as of the last day
of the end of the most recent plan year ending prior to the date hereof; the
actuarial present value of the "benefit liabilities" (as defined in Section
4001(a)(16) of ERISA) of each Pension Plan does not exceed the fair market
value of the assets of such Pension Plan by a material amount as of the end
of the most recent plan year with respect to the respective Pension Plan
ending prior to the date hereof, calculated on the basis of the actuarial
assumptions and methods used in the most recent actuarial valuation for such
Pension Plan as of the date hereof; no notice of a "reportable event" (as
defined in Section 4043 of ERISA) for which the 30-day reporting requirement
has not been waived has been required to be filed for any Pension Plan within
the 12-month period ending on the date hereof; neither the Company nor
Commerce has provided, or is required to provide, security to any Pension
Plan or to any single-employer plan of an ERISA Affiliate pursuant to Section
401(a)(29) of the Code; and neither the Company nor Commerce have contributed
to any "multiemployer plan", as defined in Section 3(37) of ERISA, on or
after September 26,

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1980. Each Employee Plan which is an "employee pension benefit plan" (as
defined in Section 3(2) of ERISA) and which is intended to be qualified under
Section 401(a) of the Code (a "Qualified Plan") has received a favorable
determination letter from the IRS, and the Company and Commerce are not aware
of any circumstances likely to result in revocation of any such favorable
determination letter; each Qualified Plan which is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the Code) has satisfied
all of the applicable requirements of Sections 409 and 4975(e)(7) of the Code
and the regulations thereunder; there is no pending or threatened litigation,
administrative action or proceeding relating to any Employee Plan other than
routine claims for benefits; there has been no announcement or legally
binding commitment by the Company or Commerce to create an additional
Employee Plan, or to amend an Employee Plan except for amendments required by
applicable law which do not materially increase the cost of such Employee
Plan; and the Company and Commerce do not have any obligations for retiree
health and life benefits under any Employee Plan other than continuation
coverage pursuant to Sections 601 et seq. of ERISA, that cannot be amended or
terminated without incurring any liability thereunder. The execution and
delivery of this Plan and the consummation of the transactions contemplated
hereby will not result in any payment or series of payments by the Company or
Commerce to any person which is an "excess parachute payment" (as defined in
Section 280G of the Code) under any Plan, increase any benefits payable under
any Plan or accelerate the time of payment or vesting of any such benefit.
With respect to each Employee Plan, the Company has made available to the
Acquiror and Merger Sub a true and correct copy of (i) the most recent annual
report on the applicable form of the Form 5500 series filed with the IRS,
(ii) such Employee Plan, including amendments thereto, (iii) each trust
agreement and insurance contract relating to such Plan, including amendments
thereto, (iv) the most recent summary plan description for such Employee Plan,
including amendments thereto, if the Employee Plan is subject to Title I of
ERISA, (v) the most recent actuarial report or valuation if such Employee Plan
is a Pension Plan and (vi) the most recent determination letter issued by the
IRS if such Employee Plan is a Qualified Plan for which such letters are issued.

(n) TITLE TO ASSETS. Each of the Company and Commerce has good and
marketable title to its properties and assets (other than (i) property as to
which it is lessee, as to which either the Company or Commerce, as the case may
be, has a valid and enforceable lease for such property enforceable against the
landlord in accordance with its

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terms, and (ii) real estate owned as a result of foreclosure, transfer in
lieu of foreclosure or other transfer in satisfaction of a debtor's
obligation previously contracted), except for such defects in title which
would not, individually or in the aggregate, have a Material Adverse Effect.

(o) KNOWLEDGE AS TO CONDITIONS. None of the Company, Commerce or any
of their respective directors and officers knows of any reason why the
approvals, consents and waivers of governmental authorities referred to in
Section 6.1(b) should not be obtained without the imposition of any condition of
the type referred to in the proviso thereto.

(p) COMPLIANCE WITH LAWS. The Company and Commerce have all permits,
licenses, certificates of authority, orders and approvals of, and have made all
filings, applications and registrations with, federal, state, local and foreign
governmental or regulatory bodies (including without limitation the Regulatory
Agencies) that are required in order to permit the Company and Commerce to carry
on their respective businesses as they are presently conducted or the absence of
which could, individually or in the aggregate, have a Material Adverse Effect;
all such permits, licenses, certificates of authority, orders and approvals are
in full force and effect, and, to the best knowledge of the Company, no
suspension or cancellation of any of them is threatened.

(q) FEES. Other than services performed for the Company by The
Secura Group pursuant to agreements disclosed to the Acquiror in the Company
Disclosure Letter, neither the Company nor Commerce, nor any of their respective
officers, directors, employees or agents, has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted directly or
indirectly for the Company or Commerce, in connection with the Plan or the
transactions contemplated hereby. The Acquiror shall not be liable for any
financial services advisory fees incurred by the Company, which shall be paid by
the Company on or before the Effective Date.

(r) ENVIRONMENTAL MATTERS. (1) The Company and Commerce, the
Participation Facilities and the Loan/Fiduciary Properties (each as defined
below) are, and have been, in substantial compliance with all Environmental Laws
(as defined below) and neither the Company nor Commerce has any knowledge of any
circumstances that with the passage

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of time or the giving of notice would be reasonably likely to result in
noncompliance.

(2) There is no proceeding pending or, to the knowledge of the
Company, threatened before any court, governmental agency or board or other
forum in which the Company, Commerce or any Participation Facility has been, or
with respect to threatened proceedings, reasonably would be expected to be,
named as a defendant or potentially responsible party (i) for alleged
noncompliance (including by any predecessor) with any applicable Environmental
Law, or (ii) relating to the presence, release or threatened release into the
environment of any Hazardous Material (as defined below), whether or not
occurring at or on a site owned, leased or operated by the Company, Commerce or
any Participation Facility.

(3) There is no proceeding pending or, to the Company's knowledge,
threatened before any court, governmental agency or board or other forum in
which any Loan/Fiduciary Property (or the Company or Commerce in respect of any
Loan/Fiduciary Property) has been, or with respect to threatened proceedings,
reasonably would be expected to be, named as a defendant or potentially
responsible party (i) for alleged noncompliance (including by any predecessor)
with any applicable Environmental Law, or (ii) relating to the release or
threatened release into the environment of any Hazardous Material, whether or
not occurring at or on a Loan/Fiduciary Property.

(4) To the Company's knowledge, there is no reasonable basis for any
proceeding of a type described in Section 2.1(r)(2) or (3).

(5) During the period of (i) the Company's or Commerce's ownership or
operation of any of their respective current properties, (ii) the Company's or
Commerce's participation in the management of any Participation Facility or
(iii) the Company's or Commerce's holding of a security or other interest in a
Loan/Fiduciary Property, there have been no releases or threatened releases of
any unlawful level of any Hazardous Material in, on, from, under or affecting
any such property, Participation Facility or Loan/Fiduciary Property.

(6) To the Company's knowledge, prior to the period of (i) the
Company's or Commerce's ownership or operation of any of their respective
current properties, (ii) the Company's or Commerce's participation in the
management of any Participation Facility or (iii) the Company's or Commerce's
holding of a security or other

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interest in a Loan/Fiduciary Property, there were no releases or threatened
releases of any unlawful level of any Hazardous Material in, on, under or
affecting any such property, Participation Facility or Loan/Fiduciary
Property.

(7) The following definitions apply for purposes of this Section
2.1(r): "Loan/Fiduciary Property" means any property owned or operated by the
Company or Commerce or in which the Company or Commerce holds a security or
other interest (including, without limitation, a fiduciary interest), and, where
required by the context, includes any such property where the Company or
Commerce constitutes the owner or operator of such property; "Participation
Facility" means any facility in which the Company or Commerce participates in
the management and, where required by the context, includes the owner or
operator of such property; "Environmental Law" means any law, regulation, order,
decree, opinion, common law doctrine, requirement or agency policy relating to
Hazardous Material or the protection of the environment or human health and
safety; and "Hazardous Material" means any material, waste or mixture containing
any substance that is listed, classified or regulated under any Environmental
Law, including petroleum products and regulated levels of asbestos and
polychlorinated biphenyls.

(s) ALLOWANCES. The allowance for loan losses shown on the Company's
latest audited balance sheet was, and the allowance for possible loan losses
shown on each of the unaudited balance sheets in the Company's Reports for
periods ending after the date of the latest audited balance sheet will be, in
the opinion of management, adequate as of the date thereof, under generally
accepted accounting principles applicable to banks and bank holding companies.
The Company has disclosed to the Acquiror in writing prior to the date hereof
the amounts of all loans, leases, advances, credit enhancements, other
extensions of credit, commitments and interest-bearing assets of the Company or
Commerce that have been classified by the Company, Commerce or otherwise as
"Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful",
"Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or
words of similar import, and the Company shall promptly after the end of any
month inform the Acquiror of any such classification arrived at any time after
the date hereof. There are no such loans, leases, advances, credit
enhancements, other extensions of credit, commitments or interest-bearing assets
which have been so classified by any Regulatory Agency that have not also been
classified in the same manner by the Company and Commerce. The Other Real
Estate Owned ("OREO") included in any non-performing assets of the Company or
Commerce is carried net of reserves at the

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lower of cost or market value based on current independent appraisals.

(t) MATERIAL INTERESTS OF CERTAIN PERSONS. No officer or director of
the Company, or any "associate" (as such term is defined in Rule 12b-2 under the
Securities Exchange Act) of any such officer or director, has any material
interest in any material contract or property (real or personal), tangible or
intangible, used in or pertaining to the business of the Company or Commerce.

(u) INSURANCE. The Company and Commerce are currently insured and,
since December 31, 1991, have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. Each of the insurance policies and bonds
maintained by the Company or Commerce is in full force and effect, neither the
Company nor Commerce is in default thereunder and all material claims thereunder
have been filed in due and timely fashion. In the best judgment of the
Company's management, such insurance coverage is adequate.

(v) INVESTMENT SECURITIES. Except for pledges to secure public and
trust deposits, and reverse repurchase agreements entered into in arm's-length
transactions pursuant to normal commercial terms and conditions and other
pledges required by law, none of the investments reflected in the Company's
latest audited balance sheet and none of the material investments made by the
Company or Commerce since the date of such balance sheet is subject to any
restriction (contractual, statutory or otherwise) that would materially impair
the ability of the entity holding such investment freely to dispose of such
investment at any time.

(w) DERIVATIVE TRANSACTIONS. Since December 31, 1991, neither the
Company nor Commerce has engaged in transactions in or involving forwards,
futures, options on futures, swaps or other derivative instruments except (i) as
agent on the order and for the account of others or (ii) as principal for
purposes of hedging interest rate risk on U.S. dollar-denominated securities and
other financial instruments. None of the counterparties to any contract or
agreement with respect to any such instrument is in default with respect to such
contract or agreement and no such contract or agreement, were it to be a loan or
other extension of credit by the Company or Commerce, would be classified as
"Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful",
"Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or

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words of similar import. The financial position of the Company and Commerce on
a consolidated basis under or with respect to each such instrument has been
reflected in the books and records of the Company in accordance with generally
accepted accounting principles consistently applied, and no open exposure of the
Company or Commerce with respect to any such instrument (or with respect to
multiple instruments with respect to any single counterparty) exceeds $25,000.

(x) INTELLECTUAL PROPERTY. Each of the Company and Commerce owns or
possesses valid and binding licenses and other rights to use (without payment)
all material trade secrets, trade names, trademarks, service marks, inventions
and processes used in its businesses; and neither the Company nor Commerce has
received any notice of conflict with respect thereto that asserts the right of
others. The Company and Commerce have in all material respects performed all
the obligations required to be performed by them and are not in default in any
material respect under any contract, agreement, arrangement or commitment
relating to any of the foregoing.

(y) REGISTRATION OBLIGATIONS. Neither the Company nor Commerce is
under any obligation, contingent or otherwise, that will survive the Merger by
reason of any agreement to register any of its securities under the Securities
Act of 1933, as amended, or any other applicable securities laws.

(z) BOOKS AND RECORDS. The books and records of the Company and
Commerce have been, and are being, maintained in accordance with applicable
legal and accounting requirements (including generally accepted accounting
principles, consistently applied) and reflect in all material respects the
substance of events and transactions that should be included therein.

ARTICLE III. REPRESENTATIONS AND
WARRANTIES OF THE ACQUIROR AND MERGER SUB

SECTION 3.1. REPRESENTATIONS AND WARRANTIES. Each of the Acquiror and
the Merger Sub represents and warrants to the Company that:

(a) RECITALS TRUE. The facts set forth in the Recitals of this Plan
with respect to it are true and correct.

(b) NO VIOLATIONS. The execution, delivery and performance of this
Plan by each of the Acquiror and Merger

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Sub do not, and the consummation of the transactions contemplated hereby by
each of the Acquiror and Merger Sub will not, constitute (i) a breach or
violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license of it or to which it
is subject, (ii) a breach or violation of, or a default under, the
certificate or articles of incorporation or by-laws of it or (iii) a breach
or violation of, or a default under (or an event which with due notice or
lapse of time or both would constitute a breach or violation of, or a default
under), or result in the termination of, accelerate the performance required
by, or result in the creation of any lien, pledge, security interest, charge
or other encumbrance upon any of the properties or assets of it under, any of
the terms, conditions or provisions of any note, bond, indenture, deed of
trust, loan agreement or other agreement, instrument or obligation to which
it is a party, or to which any of its respective properties or assets may be
bound or affected, except for any of the foregoing in this clause (iii) that,
neither individually or in the aggregate, would have a Materially Adverse
Effect; and the consummation of the transactions contemplated hereby will not
require any approval, consent or waiver under any such law, rule, regulation,
judgment, decree, order, governmental permit or license or the approval,
consent or waiver of any other party to any such agreement, indenture or
instrument, other than (i) the required approvals, consents and waivers of
governmental authorities referred to in Section 6.1(b) and (ii) the approval
of BanPonce Financial Corp., a wholly owned indirect subsidiary of the
Acquiror, as sole shareholder of Merger Sub.

(c) ABSENCE OF CLAIMS. No litigation, proceeding or controversy
before any court or governmental agency is pending, and there is no pending
claim, action or proceeding against the Acquiror or the Merger Sub, which is
reasonably likely, individually or in the aggregate, to materially and adversely
hinder or delay consummation of the transactions contemplated hereby, and, to
the best of their knowledge after reasonable inquiry, no such litigation,
proceeding, controversy, claim or action has been threatened or is contemplated.

(d) ABSENCE OF REGULATORY ACTIONS. Neither the Acquiror nor Merger
Sub is a party to any cease and desist order, written agreement or memorandum of
understanding with, or a party to any commitment letter or similar undertaking
to, or is subject to any order or directive by, or is a recipient of any
extraordinary supervisory letter from, or has adopted any board resolutions at
the request of, federal or state governmental authorities charged with

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the supervision or regulation of banks or savings institutions or bank
holding companies or engaged in the insurance of bank or saving institution
deposits (including without limitation the Regulatory Agencies).

(e) KNOWLEDGE AS TO CONDITIONS. Neither the Acquiror nor Merger Sub
knows of any reason why the approvals, consents and waivers of governmental
authorities referred to in Section 6.1(b) should not be obtained without the
imposition of any condition of the type referred to in the proviso thereto.

(f) OWNERSHIP OF COMPANY STOCK. Neither the Acquiror nor Merger Sub
is directly or indirectly the beneficial owner of more than 20 percent of the
outstanding shares of Common Stock.

ARTICLE IV. CONDUCT PENDING THE MERGER

SECTION 4.1. CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE EFFECTIVE
TIME. Except as expressly provided in this Plan, during the period from the date
of this Plan to the Effective Time, the Company shall, and shall cause Commerce
to, (i) conduct its business in the usual, regular and ordinary course
consistent with past practice, (ii) use its best efforts to maintain and
preserve intact its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees, (iii)
maintain insurance coverage of customary risks and in customary amounts in
respect of its business and properties, (iv) perform all of its obligations
under all material contracts, leases and other commitments to which it is a
party or by which it or any of its properties or assets may be bound, (v) comply
with and perform all obligations and duties imposed upon it by applicable
federal, state and local laws, rules, regulations and ordinances, and (vi) take
no action which would adversely affect or delay the ability of the Company, the
Acquiror or Merger Sub to obtain any necessary approvals, consents or waivers of
any governmental authority required for the transactions contemplated hereby or
to perform its covenants and agreements on a timely basis under this Plan.

SECTION 4.2. COVENANTS OF THE COMPANY. During the period from the
date of this Plan to the Effective Time, the Company shall not, and shall not
permit Commerce, without the prior written consent of the Acquiror, to:

(a) other than in the ordinary course of business consistent with
past practice, incur any indebtedness

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for borrowed money, assume, guarantee, endorse or otherwise as an
accommodation become responsible for the obligations of any person, or
make any loan or advance;

(b) adjust, split, combine or reclassify any capital stock; make,
declare or pay any dividend or make any other distribution on, or directly
or indirectly redeem, purchase or otherwise acquire, any shares of its
capital stock or any securities or obligations convertible into or
exchangeable for any shares of its capital stock, or grant any stock
appreciation rights or grant any person any right to acquire any shares of
its capital stock, except for dividends paid by Commerce to the Company; or
issue any additional shares of its capital stock or any securities or
obligations convertible into or exchangeable for shares of its capital
stock;

(c) other than in the ordinary course of business consistent with
past practice and pursuant to policies in effect on the date hereof, sell,
transfer, mortgage, encumber or otherwise dispose of any of its material
properties or assets to any person other than Commerce, or cancel, release
or assign any indebtedness of any such person or any claims held by any
such person, except pursuant to contracts or agreements in force at the
date of this Plan;

(d) other than in the ordinary course of business consistent with
past practice, make any investment either by purchase of stock or
securities, contributions to capital, property transfers or purchase of any
property or assets of any person; PROVIDED that the Company shall make no
acquisition of equity securities or business operations without the
Acquiror's prior consent;

(e) other than in the ordinary course of business consistent with
past practice, enter into or terminate any lease, contract or agreement, or
make any change in any of its leases, contracts or agreements;

(f) except to the extent required by law, increase in any manner the
compensation or fringe benefits of any of its employees or pay any pension
or retirement allowance not required by any existing plan or agreement to
any such employees, or become a party to, amend or commit itself to any
pension, retirement, profit-sharing or welfare benefit plan or agreement or
employment agreement with or for the benefit of any

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employee, other than general increases in compensation in the ordinary
course of business consistent with past practice not in excess of 4% in
any 12-month period, or voluntarily accelerate the vesting of any
compensation or benefit;

(g) settle any claim, action or proceeding involving any liability of
the Company or Commerce if any such settlement, individually or in the
aggregate with other such settlements, either (i) could have a Material
Adverse Effect on the Company, (ii) result in material restrictions upon
the operations of the Company or Commerce or (iii) would be reasonably
likely to change materially the terms of the Plan, the Merger or the other
transactions contemplated hereby;

(h) except as contemplated by Section 5.2, modify in any material
respect the manner in which the Company and Commerce have heretofore
conducted or accounted for their business;

(i) amend its articles of incorporation or its by-laws;

(j) except in the ordinary course of business, waive or release any
material right or collateral or cancel or compromise any extension of
credit or other debt or claim;

(k) other than in the ordinary course of business consistent with
past practice and in conformity with all applicable policies and
procedures, make, renegotiate, renew, increase, extend the term of or
purchase any loan, lease, advance, credit enhancement or other extension of
credit, or make any commitment in respect of any of the foregoing, except
loans or advances as to which the Company or Commerce has a legally binding
obligation to make such loan or advance as of the date hereof and a
description of which has been provided by the Company in writing to the
Acquiror prior to the execution of this Plan; or

(l) agree to, or make any commitment to, take any of the actions
prohibited by this Section 4.2.

ARTICLE V. COVENANTS

SECTION 5.1. ACQUISITION PROPOSALS. The Company agrees that neither
it nor Commerce nor any of the respective officers, directors and employees of
the Company

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or Commerce shall, and the Company shall direct and use its best efforts to
cause its employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or
Commerce) not to, initiate, solicit or encourage, directly or indirectly, any
inquiries or the making of any proposal or offer (including, without
limitation, any proposal or offer to shareholders of the Company) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company or Commerce (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or, except to the
extent legally required for the discharge by the board of directors of its
fiduciary duties as advised by such board's outside counsel, engage in any
negotiations concerning, or provide any confidential information or data to,
or have any discussions with, any person relating to an Acquisition Proposal,
or otherwise facilitate any effort or attempt to make or implement an
Acquisition Proposal. The Company will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. The
Company will take the necessary steps to inform the appropriate individuals
or entities referred to in the first sentence hereof of the obligations
undertaken in this Section 5.1. The Company will notify the Acquiror
immediately if any such inquiries or proposals are received by, any such
information is requested from, or any such negotiations or discussions are
sought to be initiated or continued with the Company.

SECTION 5.2. CERTAIN POLICIES OF THE COMPANY. At the request of the
Acquiror, the Company shall modify and change its loan, litigation and real
estate valuation policies and practices (including loan classifications and
levels of reserves including allowances for loan losses) after the date on which
the last required approval of a Regulatory Agency is received for the Merger and
prior to the Effective Time so as to be consistent on a mutually satisfactory
basis with those of the Acquiror. The Company's representations, warranties and
covenants contained in this Plan shall not be deemed to be untrue or breached in
any respect for any purpose as a consequence of any modifications or changes
undertaken solely on account of this Section 5.2.

SECTION 5.3. EMPLOYEES. Subject to Section 6.1(e) and prior notice
to the Chief Executive Officer of the Company, the Acquiror shall have the right
(but not the obligation) to offer employment, as officers and employees

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of the Surviving Corporation or other subsidiaries of Acquiror immediately
following the Effective Time, to any and all persons who are officers and
employees of the Company or Commerce immediately before the Effective Time.

SECTION 5.4. ACCESS AND INFORMATION. Upon reasonable notice, the
Company shall (and shall cause Commerce to) afford to the Acquiror and its
representatives (including, without limitation, directors, officers and
employees of the Acquiror and its affiliates, and counsel, accountants and other
professionals retained) such access during normal business hours throughout the
period prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties and
personnel and to such other information as the Acquiror may reasonably request;
PROVIDED, HOWEVER, that no investigation pursuant to this Section 5.4 shall
affect or be deemed to modify any representation or warranty made herein. The
Acquiror will not, and will cause its representatives not to, use any
information obtained pursuant to this Section 5.4 for any purpose unrelated to
this Plan or the consummation of the transactions contemplated by this Plan.

SECTION 5.5. CERTAIN FILINGS, CONSENTS AND ARRANGEMENTS. The
Acquiror, Merger Sub and the Company shall (a) promptly make any filings and
applications required to be made in order to obtain all approvals, consents and
waivers of governmental authorities necessary or appropriate for the
consummation of the transactions contemplated hereby and (b) cooperate with one
another (i) in promptly determining the filings that are required to be made or
the approvals, consents or waivers that are required to be obtained under any
relevant federal, state or foreign law or regulation and (ii) in promptly making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such approvals, consents or waivers. The Acquiror
or Merger Sub shall deliver to the Company, and the Company shall deliver to the
Acquiror, copies of the publicly available portions of all such filings and
applications made by them or it, as the case may be, promptly after such filings
are made.

SECTION 5.6. ADDITIONAL AGREEMENTS. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take promptly, or cause to be taken promptly, all actions
and to do promptly, or cause to be done promptly, all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Plan as promptly as

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practicable, including to use efforts to obtain all necessary actions or
non-actions, extensions, waivers, consents and approvals from all applicable
governmental entities, to effect all necessary registrations, applications
and filings (including, without limitation, filings under any applicable
state securities laws) and to obtain any required contractual consents and
regulatory approvals.

SECTION 5.7. PUBLICITY. The initial press release announcing this
Plan shall be a joint press release and thereafter the Company and the Acquiror
shall consult with each other in issuing any press releases or otherwise making
public statements with respect to the other or the transactions contemplated
hereby and in making any filings with any governmental authority or with any
national securities organization with respect thereto.

SECTION 5.8. COMPANY SHAREHOLDERS' MEETING. The Company shall take
all action necessary, in accordance with applicable law and its articles of
incorporation and by-laws, to convene as promptly as practicable a meeting (the
"Company Meeting") of the holders of Common Stock for the purpose of considering
the Merger and this Plan and taking action required by this Plan. Except to the
extent legally required for the discharge by the board of directors of its
fiduciary duties as advised in writing by such board's outside counsel, the
board of directors of the Company shall recommend that the holders of Common
Stock vote in favor of and approve the Merger and adopt this Plan at the Company
Meeting, and the Company shall use its reasonable efforts to solicit from
shareholders of the Company proxies to vote their shares in favor of the Merger
and this Plan and shall take all other action in its judgment necessary or
appropriate to obtain the approval of shareholders required to effect the
Merger.

SECTION 5.9. PROXY STATEMENT. As soon as practicable after the date
hereof, the Company shall prepare a proxy statement to take shareholder action
on the Merger and this Plan (the "Proxy Statement"), file the Proxy Statement
with the SEC, respond to comments of the staff of the SEC and promptly
thereafter mail the Proxy Statement to all holders of record (as of the
applicable record date) of shares of Common Stock. The Company represents and
covenants that the Proxy Statement and any amendment or supplement thereto, at
the date of mailing to shareholders of the Company and the date of the meeting
of the Company's shareholders to be held in connection with the Merger, will be
in compliance with all relevant rules and regulations of the SEC and will not
contain any untrue statement of a

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material fact or omit to state any material fact required to be stated or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; PROVIDED, HOWEVER,
that the Company makes no representations or covenants with respect to
information provided to the Company in writing by the Acquiror specifically
for inclusion in the Proxy Statement. The Acquiror and the Company shall
cooperate with each other in the preparation of the Proxy Statement.

SECTION 5.10. COMPANY OPTIONS. Prior to the Effective Time, the
Company shall either (a) obtain, from each holder of Company Options, such
holder's consent to receive in the Merger, for each Company Option held by such
holder, the Option Consideration or (b) duly amend the 1993 Plan and the
agreements entered into pursuant thereto to provide that at the Effective Time
each outstanding Company Option granted prior to the date hereof shall be
converted into the right to receive the Option Consideration, in each case in
full satisfaction of the rights of such holder and subject to federal and state
tax withholding obligations.

SECTION 5.11. MERGER SUB SHAREHOLDER ACTION. The Acquiror shall
cause its indirect subsidiary, BanPonce Financial Corp., as sole shareholder of
Merger Sub, to vote in favor of the Merger and this Plan.

SECTION 5.12. BOARD OF DIRECTORS; OFFICERS. The directors and
officers of Merger Sub immediately prior to the Effective Time shall become the
directors and officers of the Surviving Corporation.

SECTION 5.13. NOTIFICATION OF CERTAIN MATTERS. (a) The Company shall
give prompt notice to the Acquiror of any notice of, or other communication
relating to, a default or event that, with notice or lapse of time or both,
would become a default, received by the Company or Commerce subsequent to the
date of this Plan and prior to the Effective Time, under any contract material
to the financial condition, properties, businesses or results of operations of
the Company and Commerce taken as a whole to which the Company or Commerce is a
party or is subject.

(b) The Company shall give prompt notice to the Acquiror of any
change, or any series of changes, in the financial condition, properties,
business or results of operations of the Company and Commerce taken as a whole
which would have a Material Adverse Effect or the occurrence of any event which,
so far as reasonably can be foreseen at the time of its occurrence, is
reasonably likely to result in any such change.

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(c) Each of the Company, the Acquiror and Merger Sub shall give
prompt notice to the other party of any notice or other communication from any
third party challenging the legality of this Plan or any of the transactions
contemplated hereby or alleging that the consent of such third party is or may
be required in connection with the transactions contemplated by this Plan.

ARTICLE VI. CONDITIONS TO CONSUMMATION

SECTION 6.1. CONDITIONS TO ALL PARTIES' OBLIGATIONS. The respective
obligations of the Acquiror, Merger Sub and the Company to effect the Merger
shall be subject to the satisfaction or waiver prior to the Effective Time of
the following conditions:

(a) The Plan and the transactions contemplated hereby shall have been
approved by the requisite vote of the shareholders of the Company and by
BanPonce Financial Corp. as the sole shareholder of Merger Sub in accordance
with applicable law.

(b) The Acquiror shall have procured the required approvals, consents
or waivers with respect to the Plan and the transactions contemplated hereby by
the Federal Reserve Board and all other Regulatory Agencies the approval,
consent or waiver of which is required with respect to the Plan and the
transactions contemplated hereby, and all applicable statutory waiting periods
shall have expired; and the parties shall have procured any other regulatory
approvals, consents or waivers of governmental authorities or other persons that
are necessary or appropriate to the consummation of the transactions
contemplated by the Plan; PROVIDED, HOWEVER, that no approval, consent or waiver
referred to in this Section 6.1(b) shall be deemed to have been received if it
shall include any condition or requirement that, individually or in the
aggregate, (i) would result in a Material Adverse Effect on the Company, the
Surviving Corporation or any of its subsidiaries (on a combined basis giving
effect to the Merger and the other transactions contemplated by this Plan),
(ii) would not permit the Acquiror to retain the Surviving Corporation as a
direct or indirect subsidiary or (iii) would, in the reasonable determination of
the Acquiror, materially reduce the benefits of the transactions contemplated by
the Plan to the Acquiror.

(c) No party hereto shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits the

-27-

<PAGE>

consummation of the Merger or any other transaction contemplated by this
Plan, and no litigation or proceeding shall be pending against the Acquiror
or the Company or any of their respective subsidiaries brought by any
governmental agency seeking to prevent consummation of the transactions
contemplated hereby.

(d) No statute, rule, regulation, order, injunction or decree shall
have been enacted, entered or promulgated by any governmental authority which
prohibits, restricts or makes illegal the consummation of the Merger or any
other transaction contemplated by this Plan.

(e) Merger Sub shall have entered into severance agreements with
Richard F. Demerjian and Esther G. Wilson in the form attached hereto as Exhibit
6.1(e).

SECTION 6.2. CONDITIONS TO OBLIGATIONS OF THE ACQUIROR AND MERGER
SUB. The obligations of the Acquiror and Merger Sub to effect the Merger shall
be subject to the satisfaction or waiver prior to the Effective Time of the
following additional conditions:

(a) Each of the representations and warranties of the Company
contained in this Plan shall, in all material respects, be true on the Effective
Date as if made on such date (or on the date when made in the case of any
representation or warranty which specifically relates to an earlier date); the
Company shall have performed, in all material respects, each of its covenants
and agreements contained in this Plan; and the Acquiror shall have received a
certificate signed by the Chief Executive Officer and the Chief Financial
Officer of the Company, dated the Effective Date, to the foregoing effect.

(b) There shall have been no event or circumstances since
December 31, 1995 that has resulted in, or is reasonably likely to result in, a
Material Adverse Effect on the Company or Commerce.

(c) The Acquiror and Merger Sub shall have received from McGlinchey
Stafford Lang, A Professional Limited Liability Company, as counsel for the
Company, a letter in form and substance satisfactory to the Acquiror, dated as
of the Effective Date (as defined in Section 8.1), advising the Acquiror and
Merger Sub that such counsel reviewed the Proxy Statement and participated in
conferences with the Company, its accountants and financial advisor at which the
contents of the Proxy Statement were discussed and that, on the basis of such
participation, the Proxy Statement and any amendment or supplement thereto, at
the

-28-

<PAGE>

date of mailing to shareholders of the Company and the date of the meeting of
the Company's shareholders to be held in connection with the Merger, complied
as to form in all material respects with all relevant rules and regulations
of the SEC and no facts came to its attention which caused it to believe that
the Proxy Statement contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading (it being understood that such counsel
expresses no opinion with respect to the financial statements and other
financial data relating to the Company and the information provided to the
Company in writing by the Acquiror specifically for inclusion in the Proxy
Statement).

SECTION 6.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following additional
conditions:

(a) Each of the representations and warranties of the Acquiror and
the Merger Sub contained in this Plan shall, in all material respects, be true
on the Effective Date as if made on such date (or on the date when made in the
case of any representation or warranty which specifically relates to an earlier
date); each of the Acquiror and the Merger Sub shall have performed, in all
material respects, each of its covenants and agreements contained in this Plan;
and the Company shall have received a certificate signed by an authorized
officer of the Acquiror, dated the Effective Date, to the foregoing effect.

(b) The Company shall have received a letter from its financial
advisor referred to in Section 2.1(q), dated on or within 5 days prior to the
date the Proxy Statement is first mailed to shareholders of the Company, in form
satisfactory to the Company, confirming such financial advisor's prior written
opinion to the Board of Directors of the Company to the effect that the Merger
Consideration is fair to the shareholders of the Company from a financial point
of view.

ARTICLE VII. TERMINATION

SECTION 7.1. TERMINATION. This Plan may be terminated, and the
Merger abandoned, prior to the Effective Time, either before or after its
approval by the shareholders of the Company and Merger Sub:

-29-

<PAGE>

(a) by the mutual consent of the Acquiror and the Company, if the
board of directors of each so determines by vote of a majority of the
members of its entire board; or

(b) by the Acquiror or the Company, if its board of directors so
determines by vote of a majority of the members of its entire board, in the
event of (i) the failure of the shareholders of the Company to approve the
Plan at the Company Meeting called to consider such approval or (ii) a
material breach by the other party hereto of any representation, warranty,
covenant or agreement contained herein which is not cured or not curable
within 30 days after written notice of such breach is given to the party
committing such breach by the other party; or

(c) by the Acquiror or the Company by written notice to the other
party if either (i) any approval, consent or waiver of a governmental
authority required to permit consummation of the transactions contemplated
hereby shall have been denied or (ii) any governmental authority of
competent jurisdiction shall have issued a final, unappealable order
enjoining or otherwise prohibiting consummation of the transactions
contemplated by this Plan; or

(d) by the Acquiror or the Company, if its board of directors so
determines by vote of a majority of the members of its entire board, in the
event that the Merger is not consummated by January 6, 1997, unless the
failure to so consummate by such time is due to the breach of any
representation, warranty or covenant contained in this Plan by the party
seeking to terminate.

SECTION 7.2. EFFECT OF TERMINATION. In the event of the termination
of this Plan by either the Acquiror or the Company, as provided above, this Plan
shall thereafter become void and, subject to the provisions of Section 9.2,
there shall be no liability on the part of any party hereto or their respective
officers or directors, except that any such termination shall be without
prejudice to the rights of any party hereto arising out of willful
misrepresentation by any other party or the willful breach by any other party
of any covenant contained in this Plan, and except that the agreements of the
parties in Section 9.6 shall survive such termination.

-30-

<PAGE>

ARTICLE VIII. EFFECTIVE DATE AND
EFFECTIVE TIME

SECTION 8.1. EFFECTIVE DATE AND EFFECTIVE TIME. On the last business
day of the month during which the expiration of all applicable waiting periods
in connection with approvals of governmental authorities shall occur and all
conditions to the consummation of this Plan are satisfied or waived, or on such
earlier or later date as may be agreed by the parties, an agreement of merger
substantially in the form attached hereto as Exhibit 8.1 shall be executed in
accordance with all appropriate legal requirements and shall be filed as
required by law, and the Merger provided for herein shall become effective upon
such filing or, if the parties shall so agree, on such date as may be specified
in such articles of merger. The date of such filing or such later effective
date is herein called the "Effective Date". The "Effective Time" of the Merger
shall be as set forth in such agreement of merger.

ARTICLE IX. OTHER MATTERS

SECTION 9.1. CERTAIN DEFINITIONS; INTERPRETATION. As used in this
Plan, the following terms shall have the meanings indicated:

(a) "material" means material to the Acquiror or the Company (as the
case may be) and its respective subsidiaries, taken as a whole.

(b) "Material Adverse Effect", with respect to a person, means any
condition, event, change or occurrence that is reasonably likely to have a
material adverse effect upon (1) the financial condition, properties,
business, results of operations or prospects of such person and its
subsidiaries, taken as a whole, without regard to costs and expenses
incurred by the Company in connection with this Plan and the consummation
of the transactions contemplated hereby, or (2) the ability of such person
to perform its obligations under, and to consummate the transactions
contemplated by, this Plan.

(c) "person" includes an individual, corporation, partnership,
association, trust, limited liability company or unincorporated
organization.

(d) "subsidiary", with respect to a person, means any other person
controlled by such person.

-31-

<PAGE>

When a reference is made in this Plan to Sections, Annexes or
Schedules, such reference shall be to a Section of, or Annex or Schedule to,
this Plan unless otherwise indicated. The headings contained in this Plan are
for ease of reference only and shall not affect the meaning or interpretation of
this Plan. Whenever the words "include", "includes", or "including" are used in
this Plan, they shall be deemed followed by the words "without limitation". Any
singular term in this Plan shall be deemed to include the plural, and any plural
term shall be deemed to include the singular.

SECTION 9.2. SURVIVAL. Only those agreements and covenants of the
parties that are by their terms applicable in whole or in part after the
Effective Time shall survive the Effective Time. All other representations,
warranties, agreements and covenants shall be deemed to be conditions of the
Plan and shall not survive the Effective Time.

SECTION 9.3. WAIVER. Prior to the Effective Time, any provision of
this Plan may be: (i) waived by the party benefitted by the provision; or
(ii) amended or modified at any time (including a change to the structure of the
transaction) by an agreement in writing between the parties hereto approved by
their respective boards of directors, except that, after the vote by the
shareholders of the Company, no amendment may be made that would contravene
California law.

SECTION 9.4. COUNTERPARTS. This Plan may be executed in counterparts
each of which shall be deemed to constitute an original, but all of which
together shall constitute one and the same instrument.

SECTION 9.5. GOVERNING LAW. THIS PLAN SHALL BE GOVERNED BY, AND
INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA.

SECTION 9.6. EXPENSES. Each party hereto will bear all expenses
incurred by it in connection with this Plan and the transactions contemplated
hereby.

SECTION 9.7. NOTICES. All notices, requests, acknowledgements and
other communications hereunder to a party shall be in writing and shall be
deemed to have been duly given when delivered by hand, telecopy, telegram or
telex (confirmed in writing) to such party at its address set forth below or
such other address as such party may specify by notice to the other party
hereto.

-32-

<PAGE>

If to the Company, to:

COMBANCORP
6001 East Washington Boulevard
City of Commerce, California 90040
Telecopy: (213) 724-8818

Attention: Richard F. Demerjian
Chairman of the Board, President
and Chief Executive Officer

With a copy to:

Alan Jacobs, Esq.
McGlinchey Stafford Lang,
A Professional Limited Liability Company
2777 Stemmons Freeway, Suite 925
Dallas, Texas 75207
Telecopy: (214) 638-4354

If to the Acquiror or Merger Sub, to:

BanPonce Corporation
P.O. Box 362708
San Juan, Puerto Rico 00936-2708
Telecopy: (809) 751-8645

Attention: Richard L. Carrion
Chairman of the Board, President
and Chief Executive Officer

With a copy to:

Stanley F. Farrar, Esq.
Sullivan & Cromwell
444 South Flower Street
Los Angeles, California 90071
Telecopy: (213) 683-0457

SECTION 9.8. ENTIRE AGREEMENT; ETC. This Plan represents the entire
understanding of the parties hereto with reference to the transactions
contemplated hereby and supersedes any and all other oral or written agreements
heretofore made. All terms and provisions of the Plan shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Nothing in this Plan is intended to confer upon any other person
any rights or remedies of any nature whatsoever under or by reason of this Plan.

-33-

<PAGE>

SECTION 9.9. ASSIGNMENT. This Plan may not be assigned by any party
hereto without the written consent of the other parties and any purported
assignment shall be void; PROVIDED, HOWEVER, that without the prior consent of
the Company, the Acquiror may assign its rights hereunder to any of its
subsidiaries, which assignment shall not relieve the Acquiror of any of its
obligations hereunder.

-34-

<PAGE>

IN WITNESS WHEREOF, the parties have caused this Plan to be executed
by their duly authorized officers as of the day and year first above written.

BANPONCE CORPORATION

By: /s/ Jorge A. Junquera
-----------------------------------
Name: Jorge A. Junquera
Title: Senior Executive Vice
President

BANPONCE MERGER CORP.

By: /s/ Jorge A. Junquera
-----------------------------------
Name: Jorge A. Junquera
Title: Vice President

COMBANCORP

By: /s/ Richard F. Demerjian
-----------------------------------
Name: Richard F. Demerjian
Title: Chairman, President and
Chief Executive Officer

-35-

<PAGE>

Exhibit 6.1(e)
[Commerce National Bank letterhead]

__________, 1996

[Richard F. Demerjian
1812 Paseo del Mar
Palos Verdes Estates, CA 90274
[or]
Esther G. Wilson
23035 Rolling Meadows Drive
Pervis, CA 92590]

Dear [Mr. Demerjian or Ms. Wilson]:

This letter agreement sets forth the severance benefits which
Commerce National Bank (the "Bank") agrees will be provided to you in the
event your employment with the Bank is terminated under the circumstances
described below.

1. RIGHT TO TERMINATE. Except as otherwise provided below, the
Bank or you may terminate your employment at any time.

2. TERM OF AGREEMENT. This Agreement shall commence on the
Effective Date, as defined in the Agreement and Plan of Merger (the "Plan of
Merger"), dated May 22, 1996, among BanPonce Corporation, BanPonce Merger
Corp. and COMBANCORP, and shall continue in effect for one year following the
Effective Date.

3. TERMINATION. You shall be entitled to the benefits provided
in Section 4 hereof upon the termination of your employment with the Bank at
any time during the term of this Agreement, unless such termination is (a)
because of your death or Retirement, (b) by the Bank for Cause
[DELETE FOR DEMERJIAN --or Disability] or (c) by you other than for Good
Reason (as all such capitalized terms are defined below).

(a) RETIREMENT. Termination by you or by the Bank of your employment
based on "Retirement" shall mean termination on or after your attainment of
age sixty-five (65).

(b) CAUSE. Termination by the Bank of your employment for "Cause"
shall mean termination upon

<PAGE>

(i) the willful and continued failure by you to perform substantially
your duties with the Bank (other than any such failure resulting from
your Disability) after (x) a written demand for substantial performance
is delivered to you by any authorized officer of the Bank, and (y) the
expiration of a 30 day period following the receipt of such notice in
which to cure such failure, (ii) your willful commission of an act of
fraud, embezzlement or theft, or your breach of fiduciary duty involving
personal profit in connection with your duties or in the course of your
employment with the Bank, or (iii) a material breach by you of any
provision of this Agreement and continuance of such material breach
after (x) the Bank has delivered to you written notice specifying such
material breach and (y) the expiration of a 30 day period following the
receipt of such notice in which to cure such material breach.

(c) DISABILITY. Termination by the Bank of your employment based on
"Disability" shall mean termination because of your absence from your
duties with the Bank on a full time basis for thirty (30) consecutive days
as a result of your incapacity due to physical or mental illness.

(d) GOOD REASON. Termination by you of your employment for "Good
Reason" shall mean termination based on:

(i) a substantial and adverse change in your position as
[President or Chief Financial Officer] of the Bank, including, without
limitation, any substantial diminution in your duties or
responsibilities or the assignment to you of any duties or
responsibilities which are substantially inconsistent with such
position (except in connection with the termination of your employment
for Cause, Disability or Retirement or as a result of your death or by
you other than for Good Reason);

(ii) a material breach by the Bank of any provision of this
Agreement and continuance of such material breach after (x) you shall
have provided the Bank with written notice specifying such material
breach and (y) the expiration of a 30 day period following the receipt
of such notice in which to cure such material breach;

(iii) a reduction by the Bank in your base salary or the level of
employee benefits as in effect immediately prior to the Effective
Date; or

<PAGE>

(iv) a change in the principal location of your work to any
location which is in excess of 25 miles from the location thereof
immediately prior to the Effective Date, or the Bank shall require you
to travel away from your office in the course of discharging your
responsibilities or duties significantly more (in terms or either
consecutive days or aggregate days in any calendar year) than is
required immediately prior to the Effective Date without, in either
case, your prior consent.

4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. (a) During
any period that you fail to perform your duties as a result of Disability, you
shall continue to receive your salary at the rate then in effect and any
benefits under any Plans shall continue to accrue during such period, to the
extent not inconsistent with such Plans, until your employment is terminated
pursuant to and in accordance with paragraph 3(c) hereof. [FOR DEMERJIAN --
Upon such termination, you shall be entitled to receive the payment provided in
Section 4(c)(2) below.] [FOR WILSON --Thereafter, your benefits shall be
determined in accordance with the Plans then in effect.]

(b) If your employment shall be terminated for Cause, the Bank shall
pay you your salary through the date of termination at the rate in effect just
prior to the termination plus any benefits which pursuant to the terms of any
Plans have been earned and are otherwise payable, but which have not yet been
paid to you. Thereupon, the Bank shall have no further obligations to you under
this Agreement.

(c) Subject to Sections 6 and 7 hereof, if your employment by the
Bank shall be terminated (i) by the Bank other than for Cause [DELETE FOR
DEMERJIAN --, Disability] or Retirement or (ii) by you for Good Reason, then the
Bank shall pay to you, without regard to any contrary provisions of any Plan,
the following:

(1) your salary through the date of termination at the rate in effect
just prior to the time a notice of termination is given plus any benefits
which pursuant to the terms of any Plans have been earned and are otherwise
payable, but which have not yet been paid to you; and

(2) as severance pay and in lieu of any further salary for periods
subsequent to the date of termination, an amount in cash equal to your
annual base salary in effect immediately prior to the date of termination,
plus [FOR DEMERJIAN -- $25,000 OR, FOR WILSON -- $12,500], plus the
annualized amount of other

<PAGE>

employee benefits paid or accrued during the preceding year.

(d) The amount of any payment provided for in this Section 4 shall
not be reduced, offset or subject to recovery by the Bank by reason of any
compensation earned by you as the result of employment by another employer after
the date of termination, or otherwise.

(e) For purposes of this Section 4, "Plan" shall mean any employee
benefit plan such as a thrift, pension, profit sharing, medical, disability,
accident, life insurance plan or a relocation plan or policy or any other plan,
program or policy of the Bank intended to benefit employees.

5. SUCCESSORS; BINDING AGREEMENT. (a) For purposes of this
Agreement, the "Bank" shall include any corporation or other entity which is the
surviving or continuing entity in respect of any merger, consolidation or form
of business combination in which the Bank ceases to exist.

(b) This Agreement shall inure to the benefit of and be enforceable
by your personal or legal representatives, executors, administrators, guardians,
successors, heirs, distributees, devisees and legatees. If you should die while
any amount would still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to your devisee, legatee or other designee or,
if there be no such designee, to your estate.

6. TAXES. All payments to be made to you under this Agreement will
be subject to required withholding of federal, state and local income and
employment taxes.

7. OTHER LIMITATIONS ON PAYMENTS. Any payments made to you pursuant
to this Agreement, or otherwise, are subject to and conditioned upon their
compliance with 12 U.S.C. Section 1828(k) and any regulations promulgated
thereunder.

8. SURVIVAL. The respective obligations of, and benefits afforded
to, the Bank and you as provided in Sections 4, 5(b), 6, 7, 12 and 13 of this
Agreement shall survive termination of this Agreement.

9. NOTICE. For the purposes of this Agreement, notices and all other
communications shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid and addressed, in the case of the

<PAGE>

Bank, to 6001 E. Washington Blvd., City of Commerce, CA 90040 or, in the
case of the undersigned employee, to the address first set forth above, or to
such other address as either party may have furnished to the other in writing
in accordance herewith, except that notice of change of address shall be
effective only upon receipt.

10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived or discharged unless such modification, waiver or discharge is agreed to
in a writing signed by you and an authorized officer of the Bank. No waiver by
either party hereto at any time of any breach by the other party hereto of, or
of compliance with, any condition or provision of this Agreement to be performed
by such other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same or at any prior or subsequent time. No agreements or
representations, oral or otherwise, express or implied, with respect to the
subject matter hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California applied without regard to conflict of laws principles.

11. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.

12. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
the County of Los Angeles, State of California by one mutually agreed upon
arbitrator in accordance with the rules of the American Arbitration Association
then in effect. Judgment may be entered on the arbitrators' award in any court
having jurisdiction.

13. EMPLOYEE'S COMMITMENT. You agree that subsequent to your period
of employment with the Bank, you will not at any time communicate or disclose to
any unauthorized person, without the written consent of the Bank, any
confidential information concerning COMBANCORP or the Bank or their businesses,
affairs, products, suppliers or customers which, if disclosed, would have a
material adverse effect upon the business or operations of COMBANCORP or the
Bank; it being understood, however, that the obligations of this Section 13
shall not apply to the extent that the aforesaid matters (a) are disclosed in
circumstances where you are legally required to do so or (b) become generally
known to and available for use by the public otherwise than by your wrongful act
or omission.

<PAGE>

14. RELATED AGREEMENTS. To the extent that any provision of any
other agreement between the Bank and you shall limit, qualify or be inconsistent
with any provision of this Agreement, then for purposes of this Agreement, while
the same shall remain in force, the provision of this Agreement shall control
and such provision of such other agreement shall be deemed to have been
superseded, and to be of no force or effect, as if such other agreement had been
formally amended to the extent necessary to accomplish such purpose.

15. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.

If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Bank the enclosed copy of this
letter which will then constitute our agreement on this subject.

Sincerely,

COMMERCE NATIONAL BANK

By
-------------------------------------
Name:
Title:

Agreed to this day
of , 1996.

- -------------------------
[Richard F. Demerjian or
Esther G. Wilson]

<PAGE>

EXHIBIT 8.1
AGREEMENT OF MERGER

This Agreement of Merger is entered into between COMBANCORP, a
California corporation, and BanPonce Merger Corp., a California corporation.

1. BanPonce Merger Corp. shall be merged into COMBANCORP, with
COMBANCORP being the surviving corporation.

2. Each share of common stock of BanPonce Merger Corp. issued and
outstanding immediately prior to the Effective Time (as defined below) of the
merger shall remain outstanding and unchanged after the merger and shall become
one share of common stock of COMBANCORP, and all of such shares shall thereafter
constitute all of the issued and outstanding shares of the capital stock of the
COMBANCORP.

3. Each share of common stock of COMBANCORP issued and outstanding
immediately prior to the Effective Time of the merger shall be canceled and
shall become and be converted into the right to receive an amount in cash,
without interest, equal to $17.31 per share; no shares of COMBANCORP shall be
issued in exchange for the shares of common stock of BanPonce Merger Corp.

4. The "Effective Time" shall mean the time this Agreement of Merger
is filed with the Secretary of State pursuant to Section 1103 of the California
Corporations Code.

<PAGE>

IN WITNESS WHEREOF the parties have executed this Agreement this ___
day of ________, 1996.

COMBANCORP

By:
-----------------------------------
[Chairman, President or Vice
President]

By:
-----------------------------------
[Secretary or Assistant
Secretary]

BANPONCE MERGER CORP.

By:
-----------------------------------
[Chairman, President or Vice
President]

By:
-----------------------------------
[Secretary or Assistant
Secretary]

<PAGE>

APPENDIX B

[LETTERHEAD]

May 22, 1996

Board of Directors
COMBANCORP
6001 E. Washington Blvd.
City of Commerce, California 90040

Members of the Board:

You have requested our opinion as to the fairness, from a financial point of
view, to COMBANCORP ("CNB") and its shareholders of the financial terms of
the proposed merger ("Proposed Merger") between CNB and BanPonce Corporation
("BanPonce").

The terms of the agreement and plan of merger dated as of May 22, 1996 ("the
Agreement"), by and between CNB and BanPonce indicate that the consummation
of the Proposed Merger is subject to receipt of approvals from the
shareholders of CNB and various regulatory agencies, and is further subject
to the satisfaction of certain other conditions. As provided for in the
Agreement, BanPonce Merger Corp, a wholly owned subsidiary of BanPonce (the
"Merger Corp"), will merge with and into CNB, with CNB being the surviving
corporation. Under the terms of the Agreement, each outstanding share of
common stock, no par value, of CNB will have the right to receive cash equal
to $17.31. Each issued and outstanding option to purchase shares of CNB
common stock will be canceled for a cash payment equal to $10.31.

The Secura Group ("Secura") is a financial advisory and consulting firm that
specializes in the financial services industry. As part of our financial
advisory and consulting services, we are engaged in the valuation of
securities and companies in connection with mergers, acquisitions and other
corporate transactions. Secura is familiar with CNB, having acted as
financial advisor to CNB's Board of Directors in connection with and having
participated in, the negotiations leading to the Agreement.

In arriving at our opinion described herein, we have, among other things:

a) Reviewed CNB's Annual Reports on Form 10-K and related financial
information for the five fiscal years ended December 31, 1995, and CNB's
Quarterly Report on Form 10-Q and the related unaudited financial
information for the quarterly period ended March 31, 1996;
b) Reviewed BanPonce's Annual Reports on Form 10-K and related financial
information for the five fiscal years ended December 31, 1995, and

<PAGE>

Board of Directors
COMBANCORP
May 22, 1996
Page 2 of 3

BanPonce's Quarterly Report on Form 10-Q and the related unaudited
financial information for the quarterly period ended March 31, 1996;
c) Reviewed certain other internal information prepared by CNB including,
but not limited to, nonperforming asset reports, interest rate risk
exposure reports and financial forecasts, relating to the business,
earnings, assets and future prospects of CNB, furnished to us by CNB;
d) Conducted discussions with members of senior management of CNB and
BanPonce concerning their respective businesses, operations, regulatory
condition and future prospects;
e) Reviewed the historical market prices and trading activity for CNB
common stock and compared them with that of certain publicly traded
companies which we deemed to be relevant;
f) Compared the results of operation of CNB and BanPonce with that of
certain companies which we deemed to be relevant;
g) Compared the proposed financial terms of the Proposed Merger
contemplated by the Agreement with the financial terms of certain other
mergers and acquisitions which we deemed to be relevant;
h) Analyzed the pro forma impact of the transaction on BanPonce's earnings
and book value per share, consolidated capitalization and certain
balance sheet and profitability ratios;
i) Reviewed the Agreement; and
j) Reviewed such other financial information, studies and analyses and
performed such other investigations and took into account such other
matters as we deemed necessary to the rendering of this opinion.

In preparing our opinion, we have relied on the accuracy and completeness of
all information supplied or otherwise made available to us by CNB and
BanPonce, and we have not assumed any responsibility for independently
verifying such information or undertaking an independent evaluation or
appraisal of the assets or liabilities of CNB or BanPonce or any of their
subsidiaries, nor have we been furnished any such evaluation or appraisal.
We have also assumed that there has been no material change in CNB's or
BanPonce's assets, financial condition, results of operations, business or
prospects since the date of the last financial statements made available to
us by CNB and BanPonce, respectively. We have relied on advice of counsel to
CNB as to all legal matters with respect to CNB, CNB's Board of Directors,
the Proposed Merger, and the Agreement.

We have also relied upon the management of CNB as to the reasonableness and
achievability of the financial and operating forecasts (and the assumptions
and bases therefor) provided to us. In that regard, we have assumed with
your consent that such forecasts, including, without limitations, financial
forecasts, underperforming and nonperforming assets, net charge-offs and the
adequacy of reserves, projections regarding future economic conditions and
results of operations reflect the best currently available

<PAGE>

Board of Directors
COMBANCORP
May 22, 1996
Page 3 of 3

estimates and judgments of CNB management and that such projections and
forecasts will be realized in the amounts and the time periods currently
estimated by CNB management. Our opinion is necessarily based on economic,
market and other conditions as in effect on, and the information made
available to us as of, the date hereof. We have not assumed any
responsibility for making an independent evaluation of the adequacy of the
allowance for loan and lease losses of CNB or BanPonce, nor have we reviewed
any individual credit files. We have also assumed that the conditions to the
Proposed Merger as set forth in the Agreement would be satisfied and that the
Proposed Merger would be consummated on a timely basis in the manner
contemplated by the Agreement.

We have been retained by the Board of Directors of CNB as an independent
contractor to act as financial advisor to CNB with respect to the Proposed
Merger and will receive a fee for our services, including providing this
opinion.

Our opinion is directed to the Board of Directors of CNB and does not
constitute a recommendation to any shareholder of CNB as to how such
shareholder should vote at any shareholder meeting of CNB held in connection
with the Proposed Merger. It is understood that this opinion may be included
by CNB's Board of Directors in the proxy statement or registration statement
to the shareholders of CNB in connection with the Proposed Merger so long as
the opinion is quoted in full.

Based upon and subject to the foregoing, and based upon such other matters as
we consider relevant, we are of the opinion on the date hereof, that the
consideration to be paid by BanPonce pursuant to the terms of the Agreement
is fair, from a financial point of view, to the shareholders of CNB.

Very truly yours,

/s/ THE SECURA GROUP

The Secura Group

<PAGE>
APPENDIX C

CALIFORNIA GENERAL CORPORATION LAW

CHAPTER 13. DISSENTERS' RIGHTS

Section 1300. REORGANIZATION OR SHORT-FORM MERGER, DISSENTING SHARES; CORPORATE
PURCHASE AT FAIR MARKET VALUE; DEFINITIONS

(a) If the approval of the outstanding shares (Section 152) of a
corporation is required for a reorganization under subdivisions (a) and (b)
or subdivision (e) or (f) of Section 1201, each shareholder of the
corporation is entitled to vote on the transaction and each shareholder of a
subsidiary corporation in a short-form merger may, by complying with this
chapter, require the corporation in which the shareholder holds shares to
purchase for cash at their fair market value the shares owned by the
shareholder which are dissenting shares as defined in subdivision (b). The
fair market value shall be determined as of the day before the first
announcement of the terms of the proposed reorganization or short-form
merger, excluding any appreciation or depreciation in consequence of the
proposed action, but adjusted for any stock split, reverse stock split, or
share dividend which becomes effective thereafter.

(b) As used in this chapter, "dissenting shares" means shares which
come within all of the following descriptions:

(1) Which were not immediately prior to the reorganization or
short-form merger either (A) listed on any national securities
exchange certified by the Commissioner of Corporations under
subdivision (o) of Section 25100 or (B) listed on the list of OTC
margin stocks issued by the Board of Governors of the Federal Reserve
System, and the notice of meeting of shareholders to act upon the
reorganization summarizes this section and Sections 1301, 1302, 1303
and 1304; provided, however, that this provision does not apply to any
shares with respect to which there exists any restriction on transfer
imposed by the corporation or by any law or regulation; and provided,
further, that this provision does not apply to any class of shares
described in subparagraph (A) or (B) if demands for payment are filed
with respect to 5 percent or more of the outstanding shares of that
class.

(2) Which were outstanding on the date for the determination of
shareholders entitled to vote on the reorganization and (A) were not
voted in favor of the reorganization or, (B) if described in
subparagraph (A) or (B) of paragraph (1) (without regard to the
provisos in that paragraph); were voted against the reorganization, or
which were held of record on the effective date of a short-form
merger, provided, however, that subparagraph (A) rather than
subparagraph (B) of this paragraph applies in any case where the
approval required by Section 1201 is sought by written consent rather
than at a meeting.

<PAGE>

(3) Which the dissenting shareholder has demanded that the
corporation purchase at their fair market value, in accordance with
Section 1301.

(4) Which the dissenting shareholder has submitted for
endorsement, in accordance with Section 1302.

(c) As used in this chapter, "dissenting shareholder" means the record
holder of dissenting shares and includes a transferee of record.

Section 1301. NOTICE OF HOLDERS OF DISSENTING SHARES IN REORGANIZATIONS; DEMAND
FOR PURCHASE; TIME; CONTENTS

(a) If, in the case of reorganization, any shareholders of a
corporation have a right under Section 1300, subject to compliance with
paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation
to purchase their shares for cash, such corporation shall mail to each such
shareholder a notice of the approval of the reorganization by its outstanding
shares (Section 152) within 10 days after the date of such approval,
accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a
statement of the price determined by the corporation to represent the fair
market value of the dissenting shares, and a brief description of the
procedure to be followed if the shareholder desires to exercise the
shareholder's right under such sections. The statement of price constitutes
an offer by the corporation to purchase at the price stated any dissenting
shares as defined in subdivision (b) of Section 1300, unless they lose their
status as dissenting shares under Section 1309.

(b) Any shareholder who has a right to acquire the corporation to
purchase the shareholder's shares for cash under Section 1300, subject to
compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who
desires the corporation to purchase such shares shall make written demand
upon the corporation for the purchase of such shares and payment to the
shareholder in cash of their fair market value. The demand is not effective
for any purpose unless it is received by the corporation or any transfer
agent thereof (1) in the case of shares described in clause (i) or (ii) of
paragraph (1) of subdivision (b) of Section 1300 (without regard to the
provisos in that paragraph), not later than the date of the shareholders'
meeting to vote upon the reorganization, or (2) in any other cases within 30
days after the date on which the notice of the approval by the outstanding
shares pursuant to subdivision (a) or the notice pursuant to subdivision (i)
of Section 1110 was mailed to the shareholder.

(c) The demand shall state the number and class of the shares held of
record by the shareholder which the shareholder demands that the corporation
purchase and shall contain a statement of which such shareholder claims to be
the fair market value of those shares as of the day before the announcement
of the proposed reorganization or short-form merger. The statement of the
fair market value constitutes an offer by the shareholder to sell the shares
at such price.

<PAGE>

Section 1302. SUBMISSION OF SHARE CERTIFICATES FOR ENDORSEMENT; UNCERTIFIED
SECURITIES

Within 30 days after the date on which notice of the approval by the
outstanding shares or the notice pursuant to subdivision (i) of Section 1110
was mailed to the shareholder, the shareholder shall submit to the
corporation at its principal office or at the office of any transfer agent
thereof, (a) if the shares are certificated securities, the shareholder's
certificates representing any shares which the shareholder demands that the
corporation purchase, to be stamped or endorsed with a statement that the
shares are dissenting shares or to be exchanged for certificates of
appropriate denomination so stamped or endorsed or (b) if the shares are
uncertificated securities, written notice of the number of shares which the
shareholder demands that the corporation purchase. Upon subsequent transfers
of the dissenting shares on the books of the corporation, the new
certificates, initial transaction statement, and other written statements
issued therefor shall bear a like statement, together with the name of the
original dissenting holder of the shares.

Section 1303. PAYMENT OF AGREED PRICE WITH INTEREST; AGREEMENT FIXING FAIR
MARKET VALUE; FILING; TIME OF PAYMENT

(a) If the corporation and the shareholder agree that the shares are
dissenting shares and agree upon the price of the shares, the dissenting
shareholder is entitled to the agreed price with interest thereon at the
legal rate on judgments from the date of the agreement. Any agreements
fixing the fair market value of any dissenting shares as between the
corporation and the holders thereof shall be filed with the secretary of the
corporation.

(b) Subject to the provisions of Section 1306, payment of the fair
market value of dissenting shares shall be made within 30 days after the
amount thereof has been agreed or within 30 days after any statutory or
contractual conditions to the reorganization are satisfied, whichever is
later, and in the case of certificated securities, subject to surrender of
the certificates therefor, unless provided otherwise by agreement.

Section 1304. ACTION TO DETERMINE WHETHER SHARES ARE DISSENTING SHARES OR FAIR
MARKET VALUE; LIMITATION JOINDER; CONSOLIDATION; DETERMINATION OF
ISSUES; APPOINTMENT OF APPRAISERS

(a) If the corporation denies that the shares are dissenting shares, or
the corporation and the shareholder fail to agree upon the fair market value
of the shares, then the shareholder demanding purchase of such shares as
dissenting shares or any interested corporation, within six months after the
date on which notice of the approval by the outstanding shares (Section 152)
or notice pursuant to subdivision (i) of Section 1110 was mailed to the
shareholder, but not thereafter, may file a complaint in the superior court
of the proper county praying the court to determine whether the shares are
dissenting shares or the fair market value of the dissenting shares or both
or may intervene in any action pending on such a complaint.

(b) Two or more dissenting shareholders may join as plaintiffs or be
joined as defendants in any such action and two or more such actions may be
consolidated.

<PAGE>

(c) On the trial of the action, the court shall determine the issues.
If the status of the shares as dissenting shares is in issue, the court shall
first determine that issue. If the fair market value of the dissenting
shares is in issue, the court shall determine, or shall appoint one or more
impartial appraisers to determine, the fair market value of the shares.

Section 1305. REPORT OF APPRAISERS; CONFIRMATIONS; DETERMINATION BY COURT;
JUDGMENT; PAYMENT; APPEAL; COSTS

(a) If the court appoints an appraiser or appraisers, they shall
proceed forthwith to determine the fair market value per share. Within the
time fixed by the court, the appraisers, or a majority of them, shall make
and file a report in the office of the clerk of the court. Thereupon, on the
motion of any party, the report shall be submitted to the court and
considered on such evidence as the court considers relevant. If the court
finds the report reasonable, the court may confirm it.

(b) If a majority of the appraisers appointed fail to make and file a
report within 10 days from the date of their appointment or within such
further time as may be allowed by the court or the report is not confirmed by
the court, the court shall determine the fair market value of the dissenting
shares.

(c) Subject to the provisions of Section 1306, judgment shall be
rendered against the corporation for payment of an amount equal to the fair
market value of each dissenting share multiplied by the number of dissenting
shares which any dissenting shareholder who is a party, or who has
intervened, is entitled to require the corporation to purchase, with interest
thereon, at the legal rate from the date on which judgment was entered.

(d) Any such judgment shall be payable forthwith with respect to
uncertificated securities and, with respect to certificated securities, only
upon the endorsement and delivery to the corporation of the certificates for
the shares described in the judgment. Any party may appeal from the judgment.

(e) The costs of the action, including reasonable compensation to the
appraisers to be fixed by the court, shall be assessed or apportioned as the
court considers equitable, but, if the appraisal exceeds the price offered by
the corporation, the corporation shall pay the costs (including in the
discretion of the court attorneys' fees, fees of expert witnesses and
interest at the legal rate on judgments from the date of compliance with
Sections 1300, 1301 and 1302 if the value awarded by the court for the shares
is more than 125 percent of the price offered by the corporation under
subdivision (a) of Section 1301).

Section 1306. PREVENTION OF IMMEDIATE PAYMENT; STATUS AS CREDITORS; INTEREST

To the extent that the provisions of Chapter 5 prevent the payment to
any holders of dissenting shares of their fair market value, they shall
become creditors of the corporation for the amount thereof together with
interest at the legal rate on judgments until the date of payment, but
subordinate to all other creditors in any liquidation proceeding, such debt
to be payable when permissible under the provisions of Chapter 5.

<PAGE>

Section 1307. DIVIDENDS ON DISSENTING SHARES

Cash dividends declared and paid by the corporation upon the dissenting
shares after the date of approval of the reorganization by the outstanding
shares (Section 152) and prior to payment for the shares by the corporation
shall be credited against the total amount to be paid by the corporation
therefor.

Section 1308. RIGHTS OF DISSENTING SHAREHOLDERS PENDING VALUATION; WITHDRAWAL
OF DEMAND FOR PAYMENT

Except as expressly limited in this chapter, holders of dissenting
shares continue to have all the rights and privileges incident to their
shares, until the fair market value of their shares is agreed upon or
determined. A dissenting shareholder may not withdraw demand for payment
unless the corporation consents thereto.

Section 1309. TERMINATION OF DISSENTING SHARE AND SHAREHOLDER STATUS

Dissenting shares lose their status as dissenting shares and the holders
thereof cease to be dissenting shareholders and cease to be entitled to
require the corporation to purchase their shares upon the happening of any of
the following:

(a) The corporation abandons the reorganization. Upon
abandonment of the reorganization, the corporation shall pay on demand
to any dissenting shareholder who has initiated proceedings in good
faith under this chapter all necessary expenses incurred in such
proceedings and reasonable attorneys' fees.

(b) The shares are transferred prior to their submission for
endorsement in accordance with Section 1302 or are surrendered for
conversion into shares of another class in accordance with the
articles.

(c) The dissenting shareholder and the corporation do not agree
upon the status of the shares as dissenting shares or upon the
purchase price of the shares, and neither files a complaint or
intervenes in a pending action as provided in Section 1304, within six
months after the date on which notice of the approval by the
outstanding shares or notice pursuant to subdivision (i) of Section
1110 was mailed to the shareholder.

(d) The dissenting shareholder, with the consent of the
corporation, withdraws the shareholder's demand for purchase of the
dissenting shares.

Section 1310. SUSPENSION OF RIGHT TO COMPENSATION OR VALUATION PROCEEDINGS;
LITIGATION OF SHAREHOLDERS' APPROVAL

If litigation is instituted to test the sufficiency or regularity of the
votes of the shareholders in authorizing a reorganization, any proceedings
under Sections 1304 and 1305 shall be suspended until final determination of
such litigation.

<PAGE>

Section 1311. EXEMPT SHARES

This chapter, except 1312, does not apply to classes of shares whose
terms and provisions specifically set forth the amount to be paid in respect
to such shares in the event of a reorganization or merger.

Section 1312. RIGHT OF DISSENTING SHAREHOLDER TO ATTACK, SET ASIDE OR RESCIND
MERGER OR REORGANIZATION; RESTRAINING ORDER OR INJUNCTION;
CONDITIONS

(a) No shareholder of a corporation who has right under this chapter to
demand payment of cash for the shares held by the shareholder shall have any
right at law or in equity to attack the validity of the reorganization or
short-form merger, or to have the reorganization or short-form merger set
aside or rescinded, except in an action to test whether the number of shares
required to authorize or approve the reorganization have been legally voted
in favor thereof; but any holder of shares of a class whose terms and
provisions specifically set forth the amount to be paid in respect to them in
the event of a reorganization or short-form merger is entitled to payment in
accordance with those terms and provisions or, if the principal terms of the
reorganization are approved pursuant to subdivision (b) of Section 1302, is
entitled to payment in accordance with the terms and provisions of the
approved reorganization.

(b) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with another
party to the reorganization or short-form merger, subdivision (a) shall not
apply to any shareholder of such party who has not demanded payment of cash
for such shareholder's shares pursuant to this chapter, but if the
shareholder institutes any action to attack the validity of the
reorganization or short-form merger or to have the reorganization or
short-form merger set aside or rescinded, the shareholder shall not
thereafter have any right to demand payment of cash for the shareholders'
shares pursuant to this chapter. The court in any action attacking the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded shall not restrain
or enjoin the consummation of the transaction except upon 10 days prior
notice to the corporation and upon a determination by the court that clearly
no other remedy will adequately protect the complaining shareholder or the
class of shareholders of which such shareholder is a member.

(c) If one of the parties to a reorganization or short-form merger is
directly or indirectly controlled by, or under common control with, another
party to the reorganization or short-form merger, in any action to attack the
validity of the reorganization or short-form merger or to have the
reorganization or short-form merger set aside or rescinded, (1) a party to a
reorganization or short-form merger which controls another party to the
reorganization or short-form merger shall have the burden of proving that the
transaction is just and reasonable as to the shareholders of the controlled
party, and (2) a person who controls two or more parties to a reorganization
shall have the burden of proving that the transaction is just and reasonable
as to the shareholders of any party so controlled.

DDD09760

<PAGE>

PROXY
COMBANCORP
SPECIAL MEETING OF SHAREHOLDERS
AUGUST 29, 1996

THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The undersigned hereby constitutes and appoints Richard F. Demerjian and Jack
Minasian, or either of them, as proxies of the undersigned, with full power
of substitution, to represent the undersigned and to vote, as designated
below, all the shares of common stock of COMBANCORP held of record by the
undersigned on July 19, 1996, at the Special Meeting of Shareholders (the
"Special Meeting") to be held on August 29, 1996, or at any adjournments
thereof.

PLEASE SIGN AND DATE ON REVERSE SIDE.

<PAGE>

Please mark
your votes as /X/
indicated in
this example

1. A proposal to approve and adopt an Agreement FOR AGAINST ABSTAIN
and Plan of Merger, dated as of May 22, 1996, / / / / / /
by and among BanPonce Corporation, a Puerto
Rico corporation, BanPonce Merger Corp., a
California corporation and a wholly-owned
indirect subsidiary of BanPonce ("Merger Sub"),
and COMBANCORP, a California corporation, and
related Agreement of Merger between COMBANCORP
and Merger Sub.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 1. THIS PROXY, WHEN
PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTIONS ARE
GIVEN, THIS PROXY WILL BE VOTED "FOR" PROPOSAL 1 SET FORTH HEREIN.

The undersigned hereby ratifies and confirms all that said proxies, or any of
them, or their substitutes, shall lawfully do or cause to be done by virtue
hereof, and hereby revokes any and all proxies heretofore given by the
undersigned to vote at the Special Meeting. The undersigned acknowledges
receipt of the notice of the Special Meeting and the proxy statement
accompanying said notice.

I (we) expect to attend / /
the Special Meeting.

Number of Persons: ________

Signature(s)_________________________________________ Dated___________, 1996

Please sign exactly as name appears hereon. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, give full title as such. If a corporation, please sign
in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.

<PAGE>

August 2, 1996

TO PARTICIPANTS IN THE COMBANCORP EMPLOYEE STOCK OWNERSHIP PLAN

The COMBANCORP Employee Stock Ownership Plan (the "Plan") provides that each
participant shall be entitled to vote the shares of common stock of COMBANCORP
allocated to his or her account on any matter submitted to a vote of the
shareholders of COMBANCORP. Accordingly, at any meeting of shareholders, the
Trustee for the COMBANCORP Employee Stock Ownership Trust, which holds all
shares acquired pursuant to the plan, will vote all shares held in your account
as you instruct. Any shares for which the Trustee receives no instructions, and
all unallocated shares, will be voted by the Trustee as directed by the
Administrative Committee for the Plan (the "Committee").

The Board of Directors of COMBANCORP has fixed August 29, 1996 as the date
for a Special Meeting of Shareholders (the "Special Meeting"). At the Special
Meeting, shareholders will be asked to consider and vote on a proposal to
approve and adopt an Agreement and Plan of Merger, dated as of May 22, 1996,
which provides for the acquisition of COMBANCORP by BanPonce Corporation
("BanPonce") through a merger of a wholly-owned indirect subsidiary of BanPonce
with and into COMBANCORP, and a related Agreement of Merger. Pursuant to the
terms of the proposed merger, each outstanding share of COMBANCORP Common Stock
(other than dissenters' shares) will be converted into the right to receive
$17.31 in cash. All shareholders of record on July 19, 1996 are entitled to
notice of, and to vote at, the Special Meeting. On such date, the Trustee held
a total of 24,788 shares of COMBANCORP Common Stock. In order for the Trustee
to vote such shares in accordance with the terms of the Plan, the Committee has
enclosed herewith a Participant Voting Instruction Card and a Notice and Proxy
Statement for the Special Meeting. The Proxy Statement includes important
information regarding the matters to be acted upon at the Special Meeting. YOU
SHOULD REVIEW THE PROXY STATEMENT CAREFULLY BEFORE COMPLETING THE ENCLOSED CARD.

In order to instruct the Trustee how to vote your allocated shares of
COMBANCORP Common Stock at the Special Meeting, you must complete, date and
sign the enclosed card and return it to the Committee in the enclosed pre-
addressed envelope. Current employees may use the internal Company mail. The
complete card must be received by the Committee at the Company's executive
office in the City of Commerce, California by no later than the close of
business on August 24, 1996. The enclosed card indicates the number of
allocated shares (including, as a single number, both vested and non-vested
shares) of COMBANCORP Common Stock with respect to which you have the right to
give voting instructions. IF YOU DO NOT GIVE ANY VOTING INSTRUCTIONS, YOUR
SHARES WILL BE VOTED BY THE TRUSTEE AS DIRECTED BY THE COMMITTEE, WHICH INTENDS
TO DIRECT THE TRUSTEE TO VOTE "FOR" THE PROPOSED MERGER.

<PAGE>

PARTICIPANTS
August 2, 1996
Page 2

At any time prior to the foregoing deadline, voting instructions given in
respect to the proposal to be acted upon at the Special Meeting may be revoked
by a subsequently dated and properly signed and completed card, which gives new
instructions as to the voting of the applicable shares on the proposal to be
acted upon at the meeting. Revocations received after the foregoing deadline
will not be effective. Additional cards are available upon request from the
Committee at the executive offices of COMBANCORP.

Your vote is important. Please complete, sign and return the enclosed
Participant Voting Instruction Card as soon as possible.

If you desire any additional information concerning the above voting
procedures, the Special Meeting, or the matter proposed for action at the
meeting, please feel free to contact me at (213) 724-7271.

Sincerely,

Richard F. Demerjian, Chairman
Administrative Committee
<PAGE>
COMBANCORP EMPLOYEE STOCK OWNERSHIP PLAN
PARTICIPANT VOTING INSTRUCTION CARD

FOR USE IN CONNECTION WITH THE VOTING OF ALLOCATED SHARES OF COMBANCORP AT THE
SPECIAL MEETING OF SHAREHOLDERS

This card is furnished by the Plan's Administrative Committee. It is not
being furnished by or on behalf of the Board of Directors of COMBANCORP and is
not intended to constitute the solicitation of a proxy.

The undersigned participant in the COMBANCORP Employee Stock Ownership Plan
(the "ESOP") hereby directs the ESOP's Administrative Committee (the
"Committee") to instruct the ESOP's Trustee that all of those shares of the
Common Stock, no par value, of COMBANCORP allocated to the ESOP account(s) of
the undersigned (the aggregate number of which shares is set forth below the
undersigned's name on the reverse hereof) be voted at the Special Meeting of
Shareholders of COMBANCORP to be held on August 29, 1996 (the "Special
Meeting"), and at any adjournment thereof, as indicated on the reverse hereof
with respect to the proposal therein set forth. In giving this direction, the
undersigned hereby acknowledges (i) receipt of the letter, dated August 2, 1996,
from the Committee to participants in the ESOP and the Proxy Statement referred
to therein, and (ii) that more complete information with respect to the proposal
set forth on the reverse hereof is contained in such documents.

Please complete, date, sign and promptly return this card to the Committee.
IF THE COMMITTEE DOES NOT RECEIVE TIMELY A PROPERLY COMPLETED, DATED AND SIGNED
CARD, ALL OF THE SHARES REFERRED TO ABOVE WILL BE VOTED FOR OR AGAINST THE
PROPOSAL BY THE TRUSTEE AS DIRECTED BY THE COMMITTEE. THE COMMITTEE CURRENTLY
INTENDS TO INSTRUCT THE TRUSTEE TO VOTE "FOR" SUCH PROPOSAL. The direction set
forth on the reverse hereof with respect to such proposal may be revoked by a
subsequently dated and properly completed and signed card that is RECEIVED
TIMELY BY THE COMMITTEE, giving direction as to such proposal.

Please specify your choice on the proposal, date and sign (all on the
reverse hereof) and return in the enclosed envelope.

(Continued on reverse side)
<PAGE>
(Continued from other side, which contains important information)

1. A proposal to approve and adopt an Agreement and Plan of Merger, dated as of
May 22, 1996, by and among BanPonce Corporation, a Puerto Rico corporation
("BanPonce"), BanPonce Merger Corp., a California corporation and a
wholly-owned indirect subsidiary of BanPonce ("Merger Sub"), and COMBANCORP,
a California corporation, and related Agreement of Merger between COMBANCORP
and Merger Sub, pursuant to which Merger Sub will be merged with and into
COMBANCORP and each share of COMBANCORP common stock then outstanding (other
than dissenters' share) will be converted into the right to receive $17.31 in
cash.

FOR [ ] AGAINST [ ] ABSTAIN [ ]

Dated: ____________, 1996

_______________________________________
(Signature)

Please sign EXACTLY as your name
appears on this card.