10-Q

SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q

Quarterly Report Under Section 13 of the
Securities Exchange Act of 1934

For the quarterly period
Ended March 31, 2002 File Number
000-33361

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

3715 Sunnyside Drive, P.O. Box 20109, Riverside, California
(Address of principal executive offices)
92506
(Zip Code)

California
(State of Incorporation) 91-2155043
(I.R.S. Employer Identification No.)

(909) 784-5771
Registrant’s telephone number, including area code:

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Common Stock

     Indicate by check mark whether the Company: (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Company was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

     At May 14, 2002, the registrant had 806,170 shares of common stock outstanding.

TABLE OF CONTENTS

		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF OPERATIONS
		CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
		CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
	PART I — ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PART II — OTHER INFORMATION
	ITEM 1 – Legal Proceedings
	ITEM 2 – Changes to Securities and Use of Proceeds
	ITEM 3 – Defaults upon Senior Securities
	ITEM 4 – Submission of Matters to a Vote of Security Holders
	ITEM 5 – Other Information
	ITEM 6 – Exhibits and Report on Form 8-K
SIGNATURES
EXHIBIT 10.1
EXHIBIT 10.2

HEMET BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

MARCH 31, 2002 AND DECEMBER 31, 2001

ASSETS

					Mar 31, 2002			Dec 31, 2001
					(unaudited)
CASH AND DUE FROM BANKS					$	8,221,000		$	8,792,000
FEDERAL FUNDS SOLD						16,022,000			15,001,000
				Total Cash and Cash Equivalents		24,243,000			23,793,000
INVESTMENT SECURITIES HELD TO MATURITY, net
				Market values of $17,220,000 at March 31, 2002 and $16,417,000 at December 31, 2001, respectively		17,216,000			16,370,000
LOANS						262,461,000			261,519,000
ALLOWANCE FOR LOAN LOSSES						(2,949,000	)		(2,950,000	)
				Loans, net		259,512,000			258,569,000
PREMISES AND EQUIPMENT, net						1,170,000			1,215,000
ACCRUED INTEREST RECEIVABLE						1,195,000			1,110,000
OTHER REAL ESTATE OWNED						—			2,000
OTHER ASSETS						2,644,000			2,525,000
					$	305,980,000		$	303,584,000
LIABILITIES AND STOCKHOLDERS’ EQUITY
DEPOSITS
		Noninterest bearing demand deposits			$	44,937,000		$	37,811,000
		Savings and interest-bearing demand deposits				80,464,000			71,078,000
		Money market deposits				8,923,000			7,329,000
		Time deposits of $100,000 or more				23,101,000			24,013,000
		Time deposits less than $100,000				116,456,000			131,691,000
				Total Deposits		273,881,000			271,922,000
ACCRUED INTEREST PAYABLE AND OTHER LIABILITIES						1,894,000			1,731,000
SUBORDINATED DEBT						3,000,000			3,000,000
				Total Liabilities		278,775,000			276,653,000
COMMITMENTS AND CONTINGENCIES
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN COMPANY DEBENTURES, net						6,306,000			6,305,000
STOCKHOLDERS’ EQUITY
	Common stock, no par value -
			Authorized - 20,000,000 shares
			Issued and outstanding - 806,170 at March 31, 2002 and 805,120 at December 31, 2001			1,058,000			1,045,000
	Retained earnings					19,841,000			19,581,000
				Total Stockholders’ Equity		20,899,000			20,626,000
					$	305,980,000		$	303,584,000

The accompanying notes are an integral part of these consolidated balance sheets.

1

HEMET BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND MARCH 31, 2001

			Mar 31, 2002			Mar 31, 2001
			(unaudited)			(unaudited)
INTEREST INCOME
	Loans, including fees		$	4,502,000		$	5,296,000
	Investment securities			112,000			300,000
	Federal funds sold			85,000			265,000
		Total Interest Income		4,699,000			5,861,000
INTEREST EXPENSE
	Transaction and savings deposits			374,000			501,000
	Time deposits of $100,000 or more			222,000			342,000
	Time deposits less than $100,000			1,128,000			2,237,000
	Other borrowings			35,000			—
		Total Interest Expense		1,759,000			3,080,000
		Net Interest Income		2,940,000			2,781,000
PROVISION FOR LOAN LOSSES				—			—
		Net Interest Income after Provision for Loan Losses		2,940,000			2,781,000
NONINTEREST INCOME
	Fees and service charges on deposits			116,000			110,000
	Other charges and fees			20,000			22,000
	Other income			204,000			257,000
		Total Noninterest Income		340,000			389,000
NONINTEREST EXPENSE
	Salaries and employee benefits			1,090,000			1,056,000
	Premises and equipment			223,000			276,000
	Other real estate owned, net			(1,000	)		—
	Other expenses			612,000			510,000
		Total Noninterest Expense		1,924,000			1,842,000
		Income before Minority Interest in Income of Subsidiary and Provision for Income Taxes		1,356,000			1,328,000
MINORITY INTEREST IN INCOME OF SUBSIDIARY				(91,000	)		—
		Income before Provision for Income Taxes		1,265,000			1,328,000
PROVISION FOR INCOME TAXES				521,000			548,000
		Net Income	$	744,000		$	780,000
EARNINGS PER SHARE
		Basic Earnings Per Share	$	0.92		$	0.90
		Diluted Earnings Per Share	$	0.91		$	0.89

The accompanying notes are an integral part of these consolidated financial statements.

2

HEMET BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

	COMMON STOCK				RETAINED
	SHARES		AMOUNT		EARNINGS			TOTAL
BALANCE, December 31, 2000		866,820	$	4,014,000	$	18,710,000		$	22,724,000
Stock options exercised		350		6,000		—			6,000
Common stock cash dividend at $0.60 per share		—		—		(520,000	)		(520,000	)
Net income		—		—		780,000			780,000
BALANCE, March 31, 2001, (unaudited)		867,170	$	4,020,000	$	18,970,000		$	22,990,000
BALANCE, December 31, 2001		805,120	$	1,045,000	$	19,581,000		$	20,626,000
Stock options exercised		1,050		13,000		—			13,000
Common stock cash dividend at $0.60 per share		—		—		(484,000	)		(484,000	)
Net income		—		—		744,000			744,000
BALANCE, March 31, 2002, (unaudited)		806,170	$	1,058,000	$	19,841,000		$	20,899,000

The accompanying notes are an integral part of these consolidated financial statements.

3

HEMET BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001

				March 31, 2002			March 31, 2001
				(unaudited)			(unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net income			$	744,000		$	780,000
	Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities:
		Depreciation and amortization			62,000			78,000
		Deferred income tax provision			40,000			142,000
		Tax benefit on stock options exercised			—			2,000
		Net amortization (accretion) of discount and premium on investment securities			35,000			(119,000	)
		Amortization of issuance costs on guaranteed preferred beneficial interests in company debentures, net			1,000			—
	Changes in Operating Assets and Liabilities:
		Decrease (increase) in accrued interest receivable			(85,000	)		271,000
		Decrease (increase) in other assets			(159,000	)		56,000
		Increase (decrease) in accrued interest payable and other liabilities			163,000			140,000
			Net Cash Provided by Operating Activities		801,000			1,350,000
CASH FLOWS FROM INVESTING ACTIVITIES:
	Proceeds from maturities of investment securities				7,000,000			13,973,000
	Purchases of investment securities				(7,881,000	)		(15,559,000	)
	Net increase in loans				(943,000	)		(1,700,000	)
	Purchases of premises and equipment				(17,000	)		(19,000	)
	Proceeds from sale of other real estate owned				2,000			—
			Net Cash Used in Investing Activities		(1,839,000	)		(3,305,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Net increase (decrease) in demand, savings, and money market deposits				18,106,000			(294,000	)
	Net increase (decrease) in time deposits				(16,147,000	)		2,429,000
	Proceeds from the exercise of stock options				13,000			4,000
	Cash dividends paid				(484,000	)		(520,000	)
			Net Cash Provided by Financing Activities		1,488,000			1,619,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS					450,000			(336,000	)
CASH AND CASH EQUIVALENTS, Beginning of Period					23,793,000			28,186,000
CASH AND CASH EQUIVALENTS, End of Period				$	24,243,000		$	27,850,000
Supplemental information
		Interest paid		$	1,850,000		$	3,113,000
		Income taxes paid		$	132,000		$	40,000

The accompanying notes are an integral part of these consolidated financial statements.

4

HEMET BANCORP AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.	Basis of Presentation
	The accompanying unaudited consolidated financial statements include the accounts of Hemet Bancorp and its wholly owned subsidiaries (the Company), The Bank of Hemet, including its wholly-owned subsidiary, BankLink Corporation (the Bank), and Hemet Statutory Trust I (the Trust) and gives effect to all adjustments (which are normal recurring accruals) necessary in the opinion of management to present fairly the financial statements for the interim periods presented. All significant inter-company balances and transactions have been eliminated. The unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission and do not include all the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all normal recurring adjustments necessary for a fair statement of the interim period results have been made. Certain prior period amounts have been reclassified to conform to current period classifications. The results of operations for the periods presented are not necessarily indicative of the results of operations for the entire year.
2.	Earnings per Share
	Basic earnings per share excludes dilution and is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company. The actual number of shares outstanding at March 31, 2002 was 806,170. The number of shares used in the calculation of basic earnings per share was 805,626 for the three months ended March 31, 2002, and 866,995 for the three months ended March 31, 2001. The number of shares used in the calculation of diluted earnings per share was 818,374 for the three months ended March 31, 2002 and 874,481 for the three months ended March 31, 2001.
3.	Guaranteed Preferred Beneficial Interests in Company Debentures
	The Company has a wholly-owned trust subsidiary, Hemet Statutory Trust, which issued $6,500,000 of Trust Preferred Securities. The Trust Preferred Securities bear a floating rate of interest of 3.60% over the three-month LIBOR, payable quarterly, with the current quarterly rate set at 5.6%. Following the issuance of the Trust Preferred Securities, the Trust used the proceeds from the Trust Preferred Securities offering to purchase $6,500,000 of Junior Subordinated Debt Securities (the Debt Securities) of the Company. The Debt Securities bear the same terms and interest rates as the related Trust Preferred Securities. The Debt Securities are the sole assets of the Trust and are eliminated, along with the related income statement effects, in the consolidated financial statements. The Company has fully and unconditionally guaranteed all of the obligations of the Trust including the Trust Preferred Securities. The Trust Preferred Securities mature on December 18, 2031 and can be redeemed commencing on December 18, 2006 without a prepayment penalty.
	The costs associated with the Trust Preferred Securities issuance have netted from the proceeds and are being accreted to interest using a method which approximates the effective interest method over the life of the Trust Preferred Securities. The distributions payable on the Trust Preferred Securities are reflected as “Minority Interest in Income of Subsidiary” in the Consolidated Statements of Operations. The Trust Preferred Securities are reflected on the Consolidated Balance Sheets as “Guaranteed Preferred Beneficial Interests in Company Debentures.”

5

HEMET BANCORP AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

4.	Proposed Restructure
	During March and April 2002, Hemet Bancorp announced its intention to qualify itself as a Subchapter S corporation. For Hemet Bancorp to meet the Internal Revenue Service eligibility requirements to become an S corporation, it will need to reduce its shareholder base to no more than 75 eligible shareholders. Hemet Bancorp has proposed to engage in a merger transaction that would involve the merger of a new Nevada corporation, Hemet Financial Group, with and into Hemet Bancorp. It is anticipated that there would be approximately 75 shareholders of Hemet Financial Group at the time of the merger and the shareholders of Hemet Financial Group would consist primarily of current shareholders of Hemet Bancorp. In the merger, all of the shareholders of Hemet Financial Group would receive newly issued shares of common stock of Hemet Bancorp, and all of the shareholders of Hemet Bancorp would receive the right to receive cash for each share of Hemet Bancorp stock that they hold.
	It is expected that the merger would occur during 2002. The consummation of the merger is contingent on required approvals from bank and securities regulatory agencies.

6

PART I — ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following information presents management’s discussion and analysis of the consolidated financial condition of the Company and its wholly owned subsidiaries as of March 31, 2002 and December 31, 2001. Operating results are presented for the three months ended March 31, 2002 and March 31, 2001. This discussion and analysis of financial condition and results of operations is intended to provide a better understanding of the significant changes in trends relating to the Company’s financial condition and results of operations. The following discussion and analysis should be read in conjunction with the consolidated financial statements of the Company contained elsewhere in this report and Form 10-K for the year ended December 31, 2001 previously filed.

This report on Form 10-Q contains forward-looking statements which are subject to risks and uncertainties that could cause actual results to differ materially from those reflected in such forward-looking statements, which are representative only on the date hereof. Readers of the Company’s Form 10-Q should not rely solely on the forward-looking statements and should consider all uncertainties and risks discussed throughout this report as well as those discussed in the Company’s most recent Annual Report on Form 10-K. Except as required by applicable securities laws, the Company undertakes no obligation to update any forward-looking statements made.

RESULTS OF OPERATIONS

The Company reported net income of $744,000 for the three months ended March 31, 2002 compared to $780,000 for the same period in 2001. The return on average assets and return on average equity were 0.96% and 14.49%, respectively, at March 31, 2002, compared to 1.06% and 13.60% at March 31, 2001, respectively. While net income for the three month period decreased, the return on equity increased due to total stockholders’ equity decreasing by $3.2 million resulting from the repurchase of 70,000 shares of common stock in October 2001 by the Bank.

Basic earnings per share equaled $0.92 at March 31, 2002 compared to $0.90 at March 31, 2001. Diluted earnings per share equaled $0.91 at March 31, 2002 compared to $0.89 at March 31, 2001. Cash dividends were declared at $0.60 per share for both the three months ended March 31, 2002 and March 31, 2001, respectively. While net income for the three month period decreased, the earnings per share increased due to the decrease in the number of shares outstanding resulting from the repurchase of 70,000 shares of common stock in October 2001 by the Bank.

Net Interest Income

Net interest income is the primary source of operating income of the Company. Net interest income for the three months ended March 31, 2002 increased $159,000, or 5.7%, to $2.9 million when compared to the same period in 2001. The increase in net interest income was primarily attributable to an increase in the volume of average interest earning assets (principally loan volume) of $14.7 million, coupled with a decrease in the yield on interest earning assets of 1.99% resulting in a net increase to interest income of $1.2 million. The Company’s average interest bearing liabilities (principally time deposits) increased by $2.2 million, coupled with a general decrease in the interest rates and the Company’s cost of funds of 2.32% resulting in a net decrease in interest expense of $1.3 million. The net interest spread, which represents the average yield earned on interest earning assets less the average yield paid on interest bearing liabilities, increased to 3.36% for the three months ended March 31, 2002 from 3.04% for the same period in 2001.

Provision for Loan Losses

For the first quarter of 2002 and 2001, the Company recorded no provision for loan losses. The lack of a provision in the first quarter of 2002 and 2001 was the result of management’s determination, in accordance with its policy, that the allowance was adequate at March 31, 2002 and March 31, 2001, respectively.

Noninterest Income

Noninterest income for the three months ended March 31, 2002 decreased $49,000, or 12.6%, to $340,000, compared to $389,000 for the same period in 2001. The decrease was principally attributable to decreased data processing fees of $69,000 generated by BankLink, the Bank’s data processing subsidiary.

7

Noninterest Expense

Noninterest expense for the three months ended March 31, 2002 was $1.9 million compared to $1.8 million for the same period in 2001, an increase of $82,000, or 4.5%. The principal components of the increase for the first quarter of 2002 compared to the first quarter of 2001 were:

• Salaries and employee benefits. Salaries and employee benefits increased by $34,000, or 3.2%, for the three months ended March 31, 2002 when compared to the same period in 2001. The primary reason for the increase relates to increases in expense related to future bonus payments and deferred compensation totaling $59,000 and an increase in workers compensation insurance of $11,000, offset by a decrease in salary expense of $44,000 primarily related to BankLink’s staffing levels declining in June of 2001 related to the assignment of item processing contracts to Financial Data Solutions, Inc. At March 31, 2002, the Company employed 74 full time equivalent employees compared to 90 at March 31, 2001.

• Premises and equipment expenses. Premise and equipment expense decreased by $53,000, or 19.2%, for the three months ended March 31, 2002 when compared to the same period in 2001. The primary reason for the decrease relates to decreased equipment depreciation and maintenance expense as well as decreased rent expense for BankLink related to the assignment of item processing contracts to Financial Data Solutions, Inc. in June 2001.

• Other expenses. Other expenses increased by $102,000, or 20.0%, for the three months ended March 31, 2002 when compared to the same period in 2001. This category of expense includes costs for outside processing services, FDIC and other insurance expense, professional fees and other miscellaneous expense. Data processing and other outside services increased by $64,000 primarily due to expenses related to the Bank’s item processing being performed outside the Bank instead of at the Bank’s subsidiary, BankLink.

The Company’s efficiency ratio, which is the ratio of noninterest expenses to the sum of net interest income before provision for loan losses and total noninterest income, was 58.7% for the first three months ended March 31, 2002 compared to 58.1% for the same period in 2001.

The Company’s provision for income taxes decreased by $27,000, or 4.9%, for the three months ended March 31, 2002 when compared to the same period in 2001. The change corresponds directly to changes in pre-tax income. The effective income tax rate was 41.2% for the three months ended March 31, 2002 compared to 41.3% for the same period in 2001.

Financial Condition

Assets

Total assets at March 31, 2002 equaled $306.0 million, an increase of $2.4 million, or 0.8% when compared to year-end 2001.

Loans

The loan portfolio totaled $262.5 million at March 31, 2002, an increase of $1 million, or 0.4%, over total loans of $261.5 million at December 31, 2001. The loan to deposit ratio decreased to 95.8% at March 31, 2002, from 96.2% at December 31, 2001.

At March 31, 2002, $252.8 million, or approximately 96.3% of the Company’s loans were secured by first deeds of trust on real estate. The concentration in loans secured by real estate is monitored on a quarterly basis and taken into account in the computation of the adequacy of the allowance for loan losses.

8

The three largest categories of loans secured by real estate at March 31, 2002 are shown in the following table:

		Amount		Percentage of
Type of Real Estate Loan		(Dollars in thousands)		Loans in Portfolio
Commercial mortgage loans		$	235,595		89.8	%
Residential mortgage loans			12,302		4.7
Construction loans			5,015		1.9
	Total real estate loans	$	252,912		96.4	%

Allowance for Loan Losses

The allowance for loan losses decreased $1,000 from December 31, 2001 to March 31, 2002. The allowance at March 31, 2002 represented 1.12% of total loans, compared with 1.13% at December 31, 2001. Net chargeoffs were $1,000 during the first quarter of 2002, while net recoveries were $71,000 during the first quarter of 2001.

Nonperforming Loans and Other Real Estate Owned (“OREO”)

The Company experienced a slight increase in nonperforming loans during the first quarter of 2002. At March 31, 2002, nonperforming loans equaled $44,000, or 0.02% of total loans, an increase of $44,000 from nonperforming loans of $0, or 0.00% of total loans at December 31, 2001.

Nonperforming loans of $44,000 at March 31, 2002 represent one loan on a single family residential property.

Total OREO assets were $2,000 at December 31, 2001. There were no OREO assets at March 31, 2002.

Except as disclosed above, there were no assets as of March 31, 2002 where known information about possible credit problems of borrowers caused management to have serious doubts as to the ability of the borrower to comply with the present loan repayment terms. However, it is always possible that current credit problems may exist that may not have been discovered by management. Given the high percentage of the Company’s loans that are secured by real estate, the real estate market in Southern California and the overall economy in the Company’s market area are likely to continue to have a significant effect on the quality of the Company’s assets in the future.

Investment Portfolio

Investment securities increased by $0.8 million or 5.2% to $17.2 million at March 31, 2002. Investment securities with a book value of $13.1 million at March 31, 2002 and $12.2 million at December 31, 2001, respectively, were pledged to secure public funds deposited and for other purposes as required or permitted by law.

Liquidity

Liquid assets include cash and deposits in other banks, and federal funds sold. The Company’s liquid assets totaled $24.2 million, or 7.9% of total assets at March 31, 2002, compared to $23.8 million, or 7.8% of total assets at December 31, 2001.

Management believes that the Company maintains adequate amounts of liquid assets and has adequate borrowing lines of credit with the Federal Home Loan Bank and others to meet its liquidity needs. The Company’s liquidity might be insufficient if deposit withdrawals were to exceed anticipated levels. Deposit withdrawals can increase if an insured depository financial institution experiences financial difficulties or receives adverse publicity for other reasons, or if its pricing, products or services are not competitive with those offered by other institutions.

The Company’s primary sources of liquidity include liquid assets and a stable deposit base. To supplement these, the Company maintains a borrowing line of credit with the Federal Home Loan Bank of San Francisco in the amount of $20.1 million as of March 31, 2002. This line is secured by previously approved residential and commercial real estate mortgage loans totaling $34.0 million as of March 31, 2002. There were no advances outstanding under this line of credit as of March 31, 2002 and December 31, 2001, respectively. The line of credit was not utilized during the first quarter of 2002.

9

The Company has approval to borrow under the Discount Window Program of the Federal Reserve Bank of San Francisco collateralized by investment securities. There were no amounts outstanding as of March 31, 2002 and December 31, 2001, respectively. The line of credit was not utilized during the first quarter of 2002.

At March 31, 2002, the Company has available repurchase agreement lines of credit with two broker-dealers. These lines are subject to normal terms for such arrangements. There was no utilization of these lines during the first quarter of 2002. At March 31, 2002, investment securities with a market value of approximately $3.9 million were available for the repurchase agreement lines of credit.

Other Assets

Other assets at March 31, 2002 equaled $2.6 million, an increase of $119,000, or 4.7% when compared to year-end 2001. Other assets at March 31, 2002 were principally composed of a deferred tax asset of $928,000 and cash surrender value life insurance of $705,000, compared to a deferred tax asset of $968,000 and cash surrender value life insurance of $695,000 at December 31, 2001.

Liabilities

Total deposits equaled $273.9 million at March 31, 2002, an increase of $2.0 million, or 0.7%, over total deposits of primarily $271.9 million at December 31, 2001. The mix of deposits for March 31, 2002 compared to December 31, 2001 represents an increase in noninterest bearing demand deposits of $7.1 million, an increase in savings and interest-bearing demand deposits of $9.4 million, offset by a decrease in time certificates of deposit totaling $16.1 million.

Noninterest-bearing demand deposits enhance the Company’s net interest income by lowering its cost of funds. The Company is committed to continuing its recent efforts to increase core deposits through increased business development efforts, diversification of its customer base, product line enhancements, and superior customer service.

Accrued interest payable and other liabilities were $1.9 million at March 31, 2002, an increase of $163,000, or 9.4%, when compared to December 31, 2001. The increase is primarily due to an increase in current income tax payable totaling $417,000, partially offset by a decrease in accrued liabilities totaling $315,000 due to the payment during the first quarter of 2002 for bonuses accrued at December 31, 2001.

Capital

The Company’s shareholders’ equity increased $273,000, or 1.3%, to $20.9 million at March 31, 2002 from $20.6 million at December 31, 2001. The increase resulted from net income of $744,000, proceeds from the exercise of stock options of $13,000, partially offset by dividends declared of $484,000.

The Company’s policy is not to declare any dividends that would cause its leverage capital ratio to be below 7.0% or its total risk-based capital ratio to be below 10.0%. In April 2002, the Board of Directors declared a cash dividend of $0.60 per share of common stock. The dividend will be paid May 15, 2002 to shareholders of record as of May 8, 2002.

The following table summarizes the minimum capital ratios required by current FDIC regulations, the ratios at which a bank is considered well-capitalized by the FDIC, and the capital ratios of the Company and the Bank at March 31, 2002 and December 31, 2001.

	Hemet Bancorp
	Regulatory Capital
	Requirements
						Actual			Actual
	Minimum			Well-capitalized		March 31, 2002			December 31, 2001
Tier-1 risk-based capital		4.0	%		N/A		10.06	%		10.02	%
Total risk-based capital		8.0	%		N/A		12.26	%		12.24	%
Leverage capital ratio(1)		4.0	%		N/A		8.81	%		8.94	%

10

	The Bank of Hemet
	Regulatory Capital
	Requirements
							Actual			Actual
	Minimum			Well-capitalized			March 31, 2002			December 31, 2001
Tier-1 risk-based capital		4.0	%		6.0	%		8.86	%		8.77	%
Total risk-based capital		8.0	%		10.0	%		11.07	%		10.99	%
Leverage capital ratio(1)		4.0	%		5.0	%		7.75	%		7.80	%

(1) Tier 1 capital to total quarterly average assets.

Failure to meet minimum capital requirements can trigger mandatory actions by the regulators that, if undertaken, could have a material effect on the Company’s and the Bank’s financial statements and operations.

PART II — OTHER INFORMATION

ITEM 1 – Legal Proceedings

From time to time, the Company is a defendant in various legal proceedings resulting from normal banking business. In the opinion of management, and the Company’s legal counsel, the disposition of such litigation will not have a material effect on the Company’s consolidated financial condition or results of operations.

ITEM 2 – Changes to Securities and Use of Proceeds

Inapplicable

ITEM 3 – Defaults upon Senior Securities

Inapplicable

ITEM 4 – Submission of Matters to a Vote of Security Holders

Inapplicable

ITEM 5 – Other Information

Inapplicable

ITEM 6 – Exhibits and Report on Form 8-K

a)	Exhibits
	The following exhibits are listed by numbers corresponding to “Exhibit Table” of Item 601 of Regulation S-K.

3.1	Articles of Incorporation (incorporated by reference to Form S-4 File No. 333-71540 filed October 12, 2001)
3.2	By-Laws (incorporated by reference to Form S-4 File No. 333-71540 filed October 12, 2001)
10.1	Stock Option Plan effective June 15, 1994
10.2	Form of Indemnification Agreement

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10.3	Employment Agreement of James B. Jaqua dated January 1, 2001 (incorporated by reference to registrant’s Form 10-K filed March 29, 2001)
10.4	Executive Salary Continuation Agreement of James B. Jaqua dated March 22, 1995 (incorporated by reference to registrant’s Form 10-K filed March 29, 2001)
10.5	Amendment No. 1 to Executive Salary Continuation Agreement of James B. Jaqua dated July 16, 1998 (incorporated by reference to registrant’s Form 10-K filed March 29, 2001)
10.6	Amendment No. 2 to Executive Salary Continuation Agreement of James B. Jaqua dated July 29, 1998 (incorporated by reference to registrant’s Form 10-K filed March 29, 2001)
10.7	Amendment No. 3 to Executive Salary Continuation Agreement dated May 26, 1999 (incorporated by reference to registrant’s Form 10-K filed March 29, 2001)

b)	Reports on Form 8-K
	During the calendar quarter ended March 31, 2002, the Company filed a report on Form 8-K on February 5, 2002 reporting the financial results of the Registrant for the year ended December 31, 2001 and declaration of a cash dividend. The Company filed a report on Form 8-K on March 1, 2002 announcing its intention to qualify Hemet Bancorp as an S corporation.

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SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	HEMET BANCORP
Dated: May 15, 2002	/s/ James B. Jaqua
	James B. Jaqua President and Chief Executive Officer
Dated: May 15, 2002	/s/ Catherine A. Frei
	Catherine A. Frei Executive Vice President and Chief Financial Officer

13 EX-10.1 3 a81663ex10-1.txt EXHIBIT 10.1 EXHIBIT 10.1 THE BANK OF HEMET 1994 STOCK OPTION PLAN 1. PURPOSE The purpose of The Bank of Hemet 1994 Stock Option Plan (the "Plan") is to strengthen The Bank of Hemet (the "Bank") and those corporations which are or hereafter become subsidiary corporations of the Bank by providing an additional means of attracting and retaining competent directors, officers and key employees and by providing to participating directors, officers and key employees added incentive for high levels of performance. The Plan seeks to accomplish these purposes and achieve these results by providing a means whereby such directors, officers and key employees may purchase shares of the common stock of the Bank pursuant to options granted in accordance with this Plan. Options granted pursuant to this Plan are intended to be either "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"), or "nonqualified stock options", as shall be determined and designated upon the grant of each option hereunder. 2. ADMINISTRATION This Plan shall be administered by the Board of Directors (the "Board"). The Board in its sole discretion may from time to time appoint a committee (the "Stock Option Committee") to administer the Plan and exercise all of the powers, authority and discretion of the Board under this Plan. The Board may from time to time remove members from, or add members to, the Stock Option Committee, and vacancies on the Stock Option Committee shall be filled by the Board. The Board may abolish the Stock Option Committee at any time and/or revest in the Board the administration of the Plan. Any action of the Board, or the Stock Option Committee, if applicable, with respect to the administration of the Plan shall be taken pursuant to a majority vote, or the unanimous written consent, of its members. Subject to the express provisions of the Plan, the Board, or the Stock Option Committee, if applicable, shall have the authority to construe and interpret the Plan, define the terms used therein, prescribe, amend and rescind, the rules and regulations relating to administration of the Plan, and make all other determinations necessary or advisable for administration of the Plan. All decisions, determinations, interpretations or other actions by the Board, or the Stock Option Committee, if applicable, shall be final, conclusive and binding on all persons, optionees, grantees, subsidiary corporations of the Bank and any successors-in-interest to such parties. With regard to the granting of a stock option to a member of the Board, or the Stock Option Committee, if applicable, such member must abstain from voting. 3. INCENTIVE STOCK OPTIONS All options granted which are designated at the time of grant as an "incentive stock option" shall be deemed an incentive stock option. (a) Incentive stock options granted under this Plan are intended to be qualified under Section 422 of the Code. (b) Full-time salaried officers and key employees of the Bank or a subsidiary corporation (as that term is defined in Section 424(f) of the Code), shall be eligible for selection to participate in the incentive stock option portion of the Plan. No director of the Bank who is not also a full-time salaried officer or employee of the Bank or a subsidiary corporation, may be granted an incentive stock option hereunder. Subject to the express provisions of the Plan, the Board, or the Stock Option Committee, if applicable, shall (i) select from the eligible class of employees to whom incentive stock options shall be granted and make recommendations to the Board concerning the individuals to whom incentive stock options shall be granted, (ii) determine the terms and provisions of the respective incentive stock option agreements (which need not be identical), (iii) determine the times at which such incentive stock options shall be 2 granted, and (iv) determine the number of shares subject to each incentive stock option. An individual who has been granted an incentive stock option may, if he or she is otherwise eligible under the Plan, be granted additional incentive stock options if the Board shall so determine. (c) The Board shall determine the individuals who shall receive incentive stock options and the terms and provisions of the incentive stock options, and shall grant such incentive stock options to such individuals. Notwithstanding the above sentence, however, the Board may delegate to the Stock Option Committee the power to determine the individuals who shall receive incentive stock options and the terms and provisions of such incentive stock options, and the power to grant incentive stock options to such individuals. (d) Except as described in subsection (f) below, the Board or the Stock Option Committee, if applicable, shall not grant an incentive stock option to purchase shares of the Bank's common stock to any individual who, at the time of the grant, owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Bank or a subsidiary corporation. The attribution rules of Section 424(d) of the Code shall apply in the determination of ownership of stock for these purposes. (e) The aggregate fair market value (determined as of the time the incentive stock option is granted) of stock with respect to which incentive stock options are exercisable for the first time by an individual during any calendar year (under all plans of the Bank and its subsidiary corporations, if any) shall not exceed $100,000, plus any greater amount as may be permitted under subsequent amendments to the Code. (f) The purchase price of stock subject to each incentive stock option shall be determined by the Board, or the Stock Option Committee, if applicable, but shall not be less than one hundred percent (100%) of the fair market value of such stock at the time such option is granted, except, in the case of optionees who at the time of the grant own more than ten percent (10%) of the total combined voting power of all classes of stock of the Bank or a subsidiary corporation (as defined in Section 422 of the Code), in which 3 case the purchase price of the stock shall not be less than one hundred ten percent (110%) of the fair market value of such stock at the time such option is granted and the term of such option shall be for no more than five (5) years. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation Section 20.2031-2. (g) No incentive stock option pursuant to this Plan shall be granted to any eligible individual, if such option grant along with all other outstanding stock options of such individual would result in such individual having options to acquire a number of shares of the Bank that would be in excess of ten percent (10%) of the total outstanding shares of the same class and series of the Bank. 4. NONQUALIFIED STOCK OPTIONS (a) All options granted which are (i) in excess of the aggregate fair market value limitations set forth in Section 3(e) hereof, (ii) designated at the time of the grant as "nonqualified", or (iii) intended to be incentive stock options but do not meet the requirements of incentive stock options, shall be deemed nonqualified stock options. Nonqualified stock options granted hereunder shall be so designated in the nonqualified stock option agreement entered into between the Bank and the optionee. (b) Directors, full-time salaried officers (including full-time salaried officers who are also directors) and key employees of the Bank or a subsidiary corporation shall be eligible for selection to participate in the nonqualified stock option portion of the Plan. Subject to the express provisions of the Plan, the Board, or the Stock Option Committee, if applicable, shall (i) select from the eligible class of individuals to whom nonqualified stock options shall be granted and make recommendations to the Board concerning the individuals to whom nonqualified stock options shall be granted, (ii) determine the discretionary terms and provisions of the respective nonqualified stock option agreements (which need not be identical), (iii) determine the times at which such nonqualified stock options shall be granted, and (iv) determine the number of shares 4 subject to each nonqualified stock option. An individual who has been granted a nonqualified stock option may, if he or she is otherwise eligible under the Plan, be granted additional nonqualified stock options if the Board shall so determine. (c) The Board shall determine the individuals who shall receive nonqualified stock options and the terms and provisions of the nonqualified stock options, and shall grant such nonqualified stock options to such individuals. Notwithstanding the above sentence, however, the Board may delegate to the Stock Option Committee the power to determine the individuals who shall receive nonqualified stock options and the terms and provisions of such nonqualified stock options, and the power to grant nonqualified stock options to such individuals. (d) The purchase price of stock subject to each nonqualified stock option shall be determined by the Board, or the Stock Option Committee, if applicable, but shall not be less than one hundred percent (100%) of the fair market value of such stock at the time such option is granted. The fair market value of such stock shall be determined in accordance with any reasonable valuation method, including the valuation methods described in Treasury Regulation 20.2031-2. (e) No nonqualified stock option pursuant to this Plan shall be granted to any eligible individual, if such option grant along with all other outstanding stock options of such individual would result in such individual having options to acquire a number of shares of the Bank that would be in excess of ten percent (10%) of the total outstanding shares of the same series and class of the Bank. 5. STOCK SUBJECT TO THE PLAN Subject to adjustments as provided in Section 12, hereof, the stock to be offered under the Plan shall be shares of the Bank's authorized but unissued common stock (hereinafter called "stock") and the aggregate amount of stock to be delivered upon exercise of all options granted under this Plan shall not exceed 75,000 shares. If any option shall be cancelled, surrendered or expire for any reason without having been 5 exercised in full, the underlying shares subject thereto shall again be available for purposes of this Plan. 6. CONTINUATION OF EMPLOYMENT Nothing contained in the Plan (or in any option agreement) shall obligate the Bank or any subsidiary corporation to employ any optionee for any period or interfere in any way with the right of the Bank or a subsidiary corporation to reduce the optionee's compensation. However, the Bank may not reduce the terms of any option without the approval of the optionee. 7. EXERCISE OF OPTIONS No option shall be exercisable until all necessary regulatory and shareholder approvals for this Plan are obtained. Except as otherwise provided in this section, each option shall be exercisable in such installments, which need not be equal, and upon such contingencies as the Board, or the Stock Option Committee, if applicable, shall determine; provided, however, that if an optionee shall not in any given installment period purchase all of the shares which the optionee is entitled to purchase in such installment period, the optionee's right to purchase any shares not purchased in such installment period shall continue until expiration or termination of such option. Fractional share interests shall be disregarded, except that they may be accumulated. Not less than ten (10) shares may be purchased at any one time unless the number of shares purchased is the total number of shares which is exercisable at such time. Options may be exercised by written notice delivered to the Bank stating the number of shares with respect to which the option is being exercised, together with the full purchase price for such shares. Payment of the option price in full, for the number of shares to be delivered, must be made in cash. If the option is being exercised by any person other than the optionee, said notice shall be accompanied by proof, satisfactory to counsel for the Bank, of the right of such person to exercise the option. Optionees 6 will have no rights as shareholders with respect to stock of the Bank subject to their stock option agreements until the date of issuance of the stock certificate to them. 8. NONTRANSFERABILITY OF OPTIONS Each option shall, by its terms, be nontransferable by the optionee other than by will or the laws of descent and distribution, and shall be exercisable during his or her lifetime only by the optionee. 9. CESSATION OF DIRECTORSHIP OR EMPLOYMENT Except as provided in Sections 10 and 20 hereof, if an optionee ceases to be a director or an employee of the Bank or a subsidiary corporation for any reason other than his or her disability (as defined in Section 22(e)(3) of the Code) or death, the optionee's option shall expire three (3) months after the date of termination of such directorship or employment. During the period after cessation of directorship or employment, such option shall be exercisable only as to those installments, if any, which have accrued and/or vested as of the date on which the optionee ceased to be a director or employee of the Bank or a subsidiary corporation. 10. TERMINATION OF EMPLOYMENT FOR CAUSE If the stock option agreement so provides and if an optionee's employment by the Bank or a subsidiary corporation is terminated for cause, the optionee's option shall expire immediately, provided, however, the Board may, in its sole discretion, within thirty (30) days of such termination, reinstate the option by giving written notice of such reinstatement to the optionee at the optionee's last known address. In the event of reinstatement, the optionee may exercise the option only to such extent, for such time, and upon such terms and conditions as if he or she had ceased to be employed by the Bank or a subsidiary corporation upon the date of such termination for a reason other than cause, disability or death. Termination for cause shall include, but not be limited 7 to, termination for malfeasance or gross misfeasance in the performance of duties or conviction of illegal activity in connection therewith or any conduct detrimental to the interests of the Bank or a subsidiary corporation, and, in any event, the determination of the Board with respect thereto shall be final and conclusive. 11. DISABILITY OR DEATH OF OPTIONEE If any optionee dies while serving as a director or employee of the Bank or a subsidiary corporation, the option shall expire one (1) year after the date of such death, except as provided in Section 20 hereof. After such death but before such expiration, the persons to whom the optionee's rights under the option shall have passed by will or by the applicable laws of descent and distribution or the executor or administrator of optionee's estate shall have the right to exercise such option to the extent that installments, if any, had accrued and/or vested as of the date on which the optionee ceased to be director or employee of the Bank or a subsidiary corporation. If the optionee shall terminate his or her directorship or employment because of disability (as defined in Section 22(e)(3) of the Code), the optionee may exercise this option to the extent he or she is entitled to do so at the date of termination, at any time within one (1) year of the date of termination, except as provided in Section 20 hereof. If any optionee dies during the three (3) month period referred to in Section 9 hereof, the option shall expire one (1) year after the date of such death, except as provided in Section 20 hereof. 12. ADJUSTMENT UPON CHANGES IN CAPITALIZATION If the outstanding shares of the stock of the Bank are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Bank through reorganization, merger, recapitalization, reclassification, stock split, stock dividend, stock consolidation or otherwise, without consideration to the Bank, an 8 appropriate and proportionate adjustment shall be made in the number and kind of shares as to which options may be granted. A corresponding adjustment changing the number or kind of shares and the exercise price per share allocated to unexercised options or portions thereof, which shall have been granted prior to any such change shall likewise be made. Any such adjustment, however, in an outstanding option shall be made without change in the total price applicable to the unexercised portion of the option, but with a corresponding adjustment in the price for each share subject to the option. Any adjustment under this Section 12 shall be made by the Board, whose determination as to what adjustments shall be made, and the extent thereof, shall be final and conclusive. No fractional shares of stock shall be issued or made available under the Plan on account of any such adjustment, and fractional share-interests shall be disregarded, except that they may be accumulated. 13. TERMINATING EVENTS A Terminating Event shall be defined as any one of the following events: (i) a dissolution or liquidation of the Bank; (ii) a reorganization, merger or consolidation of the Bank with one or more corporations, the result of which (A) the Bank is not the surviving corporation, or (B) the Bank becomes a subsidiary of another corporation (which shall be deemed to have occurred if another corporation shall own directly or indirectly, over 80% of the aggregate voting power of all outstanding equity securities of the Bank); (iii) a sale of substantially all the assets of the Bank to another corporation; or (iv) a sale of the equity securities of the Bank representing more than 80% of the aggregate voting power of all outstanding equity securities of the Bank to any person or entity, or any group of persons and/or entities acting in concert. When the Bank knows that a Terminating Event will occur (i) the Bank shall deliver to each optionee no less than thirty (30) days prior to the Terminating Event, written notification of the Terminating Event and the optionee's right to exercise all options granted pursuant to this Plan, whether or not vested under this Plan or applicable stock option agreement, and (ii) all 9 outstanding options granted pursuant to this Plan shall completely vest and become immediately exercisable as to all shares granted pursuant to the option immediately prior to such Terminating Event. This right of exercise shall be conditional upon execution of a final plan of dissolution or liquidation or a definitive agreement of consolidation or merger. Upon the occurrence of the Terminating Event all outstanding options and the Plan shall terminate; provided, however, that any outstanding options not exercised as of the occurrence of the Terminating Event shall not terminate if there is a successor corporation which assumes the outstanding options or substitutes for such options, new options covering the stock of the successor corporation with appropriate adjustments as to the number and kind of shares and prices. 14. AMENDMENT AND TERMINATION The Board may at any time suspend, amend or terminate the Plan and may, with the consent of the optionee, make such modification of the terms and conditions of the option as it shall deem advisable; provided that, except as permitted under the provisions of Sections 12 and 13 hereof, no amendment or modification which would: (a) increase the maximum number of shares which may be purchased pursuant to options granted under the Plan either in the aggregate or by an individual; (b) change the minimum option price; (c) increase the maximum term of options provided for herein; or (d) permit options to be granted to anyone other than directors, full-time salaried officers (including a full-time salaried officer who is also a director) or key employees of the Bank or a subsidiary corporation; may be adopted without the Bank having first obtained any necessary regulatory and shareholder approvals required by law. No option may be granted during any suspension or after termination of the Plan. Amendment, suspension or termination of the Plan shall not (except as otherwise provided in Section 12 hereof), without the 10 consent of the optionee, alter or impair any rights or obligations under any option theretofore granted. 15. TIME OF GRANTING OPTIONS The time an option is granted, sometimes referred to as the date of grant, shall be the day of the action of the Board, or the Stock Option Committee, if applicable, described in Sections 3(c) and 4(c) hereof; provided, however, that if appropriate resolutions of the Board, or the Stock Option Committee, if applicable, indicate that an option is granted as of and on some future date, the time such option is granted shall be such future date. If action by the Board, or the Stock Option Committee, if applicable, is taken by unanimous written consent of its members, the action of the Board, or the Stock Option Committee, if applicable shall be deemed to be at the time the last Board, or Stock Option Committee, if applicable, member signs the consent. 16. PRIVILEGES OF STOCK OWNERSHIP; SECURITIES LAW COMPLIANCE; NOTICE OF SALE No optionee shall be entitled to the privileges of stock ownership as to any shares of stock not actually issued. No shares shall be purchased upon the exercise of any option unless and until the Bank has fully complied with all applicable requirements of any regulatory agency having jurisdiction over the Bank and all applicable requirements of any exchange upon which stock of the Bank may be listed. The optionee shall give the Bank notice of any sale or disposition of any such shares not more than five (5) days after such sale or disposition. 17. EFFECTIVE DATE OF THE PLAN The Plan shall be deemed adopted by the Board as of April 20, 1994 and shall be effective immediately subject to approval by the shareholders of the Bank by vote of a majority of the outstanding shares represented and voting at a meeting of 11 shareholders and by a majority of the disinterested shares represented and voting at the meeting of shareholders, and the approval of the California State Banking Department. 18. TERMINATION Unless previously terminated by the Board, the Plan shall terminate at the close of business on a date ten (10) years from the earlier of the date of approval by the Bank's outstanding shares or the date of adoption of this Plan by the Board. No options shall be granted under the Plan thereafter, but such termination shall not affect any option theretofore granted. 19. OPTION AGREEMENT Each option shall be evidenced by a written stock option agreement executed by the Bank and the optionee and shall contain each of the provisions and agreements herein specifically required to be contained therein, and such other terms and conditions as are deemed desirable and are not inconsistent with the Plan. Each incentive stock option agreement shall contain such terms and provisions as the Board, or the Stock Option Committee, if applicable, may determine to be necessary in order to qualify such option as an incentive stock option within the meaning of Section 422 of the Code. 20. OPTION PERIOD Each option and all rights and obligations thereunder shall expire on such date as the Board, or the Stock Option Committee, if applicable, may determine, but not later than ten (10) years from the date such option is granted, and shall be subject to earlier termination as provided elsewhere in the Plan. 21. EXCULPATION AND INDEMNIFICATION 12 To the extent permitted by applicable law in effect from time to time, no member of the Board or the Stock Option Committee shall be liable for any act or omission of any other member of the Board or the Stock Option Committee nor for any act or omission on the member's own part, except the member's own willful misconduct or gross negligence. The Bank and its subsidiary corporations shall pay expenses incurred by, and satisfy a judgment or fine rendered or levied against, a present or former member of the Board or the Stock Option Committee in any action brought by a third party against such person (whether or not the Bank is joined as a party defendant) to impose a liability or penalty on such person while a member of the Board or the Stock Option Committee arising with respect to the Plan or administration thereof or out of membership on the Board or the Stock Option Committee, or all or any combination of the preceding; provided, the Board determines in good faith that such member of the Board or the Stock Option Committee was acting in good faith, within what such member of the Board or the Stock Option Committee reasonably believed to be the scope of his or her employment or authority, and for a purpose which he or she reasonably believed to be in the best interests of the Bank or its shareholders. Payments authorized hereunder include amounts paid and expenses incurred in settling any such action or threatened action. This Section 21 does not apply to any action instituted or maintained in the right of the Bank by a shareholder or holder of a voting trust certificate representing shares of the Bank or any subsidiary corporation thereof. The provisions of this Section 21 shall apply to the estate, executor, administrator, heirs, legatees or devisees of a member of the Board or the Stock Option Committee, and the term "person" as used in this Section 21 shall include the estate, executor, administrator, heirs, legatees or devisees of such person. THE BANK OF HEMET By ---------------------------------- By ---------------------------------- 13 EX-10.2 4 a81663ex10-2.txt EXHIBIT 10.2 EXHIBIT 10.2 HEMET BANCORP INDEMNIFICATION AGREEMENT This Indemnification Agreement ("Agreement") is made and entered into as of the 24th day of April, 2002, by and between Hemet Bancorp, a California corporation ("Bancorp"), and _________________, (the "Indemnitee"), a director (and/or officer) of Bancorp. RECITALS A. Bancorp and the Indemnitee recognize that statutes, regulations, court opinions and Bancorp's Articles of Incorporation and Bylaws are indefinite in providing Bancorp's directors and officers with adequate protection from liabilities to which they may become personally exposed as a result of performing their duties in good faith for Bancorp; B. Bancorp and the Indemnitee are aware of the large number of lawsuits filed against corporate directors and officers; C. Bancorp and the Indemnitee recognize that the cost of defending against such lawsuits may be beyond the financial resources of most directors and officers of Bancorp; D. Bancorp and the Indemnitee recognize that the potential risks and liabilities of being a director and/or officer pose a significant deterrent and increased reluctance on the part of experienced and capable individuals to serve as a director and/or officer of Bancorp; E. Bancorp has investigated the availability and sufficiency of liability insurance for its directors and officers with adequate protection against potential liabilities and has determined that such insurance provides inadequate protection to its directors and officers, and, thus, it would be in the best interests of Bancorp and its shareholders to contract with the Indemnitee, to indemnify him/her to the fullest extent permitted by law against personal liability for actions taken in the good faith performance of his/her duties to Bancorp; F. Section 317 of the California Corporations Code ("Section 317") sets forth certain provisions relating to the mandatory and permissive indemnification of directors and officers (among others) of a California corporation by such corporation; G. As inducement and encouragement for experienced and capable persons such as the Indemnitee to continue to serve as a director and/or officer of Bancorp, the Board of Directors of Bancorp has determined, after due consideration and investigation, that this Agreement is a reasonable and prudent means to promote and ensure the best interests of Bancorp and its shareholders; and H. Bancorp desires to have the Indemnitee continue to serve as a director or officer of Bancorp free from undue concern for unpredictable, inappropriate or unreasonable legal risks and personal liabilities by reason of his/her acting in good faith in the performance of his/her duty to Bancorp; and the Indemnitee desires to continue to serve as a director or officer of Bancorp; provided, and on the express condition, that the Indemnitee is furnished with the indemnity set forth hereinafter. AGREEMENT NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth below and based on the premises set forth above, Bancorp and the Indemnitee do hereby agree as follows: 1. AGREEMENT TO SERVE. The Indemnitee will serve or continue to serve as a director or officer of Bancorp to the best of his/her abilities at the will of Bancorp for so long as the Indemnitee is duly elected or appointed or until such time as the Indemnitee tenders his/her resignation in writing. 2. DEFINITIONS. As used in this Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the right of Bancorp or otherwise and whether of a civil, criminal, administrative or investigative nature, including, but not limited to, actions, suits or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts, and/or any rule or regulation promulgated thereunder, in which the Indemnitee may be or may have been involved as a party or otherwise, by reason of the fact that the Indemnitee is or was a director or officer of Bancorp, by reason of any action taken by him/her or of any inaction on his/her part while acting as such director or officer or by reason of the fact that he/she is or was serving at the request of Bancorp as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he/she is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, of judicial or administrative proceedings or appeals, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, settlements, fines or penalties actually levied against the Indemnitee. 3. INDEMNITY IN THIRD PARTY PROCEEDINGS. Bancorp shall indemnify the Indemnitee in accordance with the provisions of this section if the Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of Bancorp to procure a judgment in its favor), by reason of the fact that the Indemnitee is or was a director, officer, employee or agent of Bancorp or is or was serving at the request of Bancorp as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines, settlements and other amounts actually and reasonably incurred by the Indemnitee in connection with such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought or 2 by the shareholders of Bancorp in the manner prescribed by Section 317, that the Indemnitee acted in good faith and in a manner which he/she reasonably believed to be in the best interests of Bancorp and, in the case of a criminal proceeding, in addition, had no reasonable cause to believe that his/her conduct was unlawful. The termination of any such Proceeding by judgment, order of court, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that the Indemnitee did not act in good faith and in a manner which he/she reasonably believed to be in the best interests of Bancorp, and with respect to any criminal proceeding, that such person had reasonable cause to believe that his/her conduct was unlawful. 4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF BANCORP. Bancorp shall indemnify the Indemnitee in accordance with the provisions of this section if the Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of Bancorp to procure a judgment in its favor by reason of the fact that the Indemnitee is or was a director, officer, employee or agent of Bancorp or is or was serving at the request of Bancorp as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by the Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought or by the shareholders of Bancorp in the manner prescribed by Section 317, that the Indemnitee acted in good faith and in a manner which he/she believed to be in the best interests of Bancorp and its shareholders. Notwithstanding the foregoing, no indemnification shall be made under this Paragraph 4: (a) in respect of any claim, issue or matter as to which the Indemnitee shall have been adjudged to be liable to Bancorp, unless and only to the extent that the court in which such Proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses as such court shall determine; (b) of amounts paid in settling or otherwise disposing of a pending action without court approval; (c) of Expenses incurred in defending a pending action which is settled or otherwise disposed of without court approval; or (d) in respect of any act, omission or transaction set forth in Section 204(a)(10)(A)(i)-(vii) of the California Corporations Code. 5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any other provision of this Agreement, to the extent that the Indemnitee has been successful on the merits in defense of any Proceeding or in defense of any claim, issue or matter therein, the Indemnitee shall be indemnified against all Expenses actually and reasonably incurred in connection therewith. 6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee pursuant to Paragraphs 3 and 4 in defending any Proceeding shall be paid by Bancorp in advance of the final disposition of such Proceeding at the written request of the Indemnitee, if the Indemnitee shall provide an undertaking in the form attached hereto as Exhibit "A" to Bancorp to repay such amount 3 unless it is ultimately determined that the Indemnitee is entitled to the payment of Expenses. The written request to Bancorp shall include a description of the nature of the Proceeding and be accompanied by copies of any documents filed with a court relating to the Proceeding. Notwithstanding the foregoing or any other provision of this Agreement, no advance shall be made by Bancorp if a determination is reasonably and promptly made by the Board of Directors by a majority vote of a quorum of disinterested directors, or (if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested directors so directs) by independent legal counsel, that, based upon the facts known to the Board of Directors or counsel at the time such determination is made, (a) the Indemnitee acted in bad faith or deliberately breached his/her duty to Bancorp or its shareholders, and (b) as a result of such actions by the Indemnitee, it is more likely than not that it will ultimately be determined that the Indemnitee is not entitled to indemnification under the terms of this Agreement. 7. RIGHTS OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION; PROCEDURE UPON APPLICATION. To the extent a quorum of the Board of Directors of Bancorp consisting of directors who were or are not parties to a Proceeding is obtainable, the Board of Directors shall determine within 45 days after receipt of the written request of the Indemnitee for indemnification whether the Indemnitee has met the relevant standards for indemnification set forth in Paragraphs 3 and 4 and, if it determines that such standards have been met, it shall provide indemnification to the Indemnitee. Notwithstanding the foregoing, the Indemnitee may request independent counsel or may bring suit in the court in which such Proceeding is or was pending to determine whether the Indemnitee is entitled to indemnification as provided by this Agreement. The Indemnitee's expenses incurred in connection with successfully establishing his/her right to indemnification, in whole or in part, shall also be indemnified by Bancorp. 8. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any provision of this Agreement to indemnification by Bancorp for some or a portion of the Expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by him/her in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, Bancorp shall nevertheless indemnify the Indemnitee for the portion of such Expenses, judgments, fines, settlements or other amounts to which the Indemnitee is entitled. 9. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The obtaining of directors' and officers' liability insurance ("D&O Coverage") at the expense of and by Bancorp shall in no way limit or diminish the obligation of Bancorp to indemnify the Indemnitee as provided in this Agreement; provided, however, that any amounts actually recovered by the Indemnitee from the insurer providing D&O Coverage shall be applied in reduction of amounts otherwise owing by Bancorp by reason of its indemnification under this Agreement and if Bancorp pays any amounts to the Indemnitee pursuant to this Agreement, Bancorp shall be subrogated to the Indemnitee's rights and claims against the insurer providing D&O Coverage and the Indemnitee shall execute such documents as Bancorp shall deem necessary to reflect such subrogation. 10. SETTLEMENT OF CLAIMS. 4 (a) If Bancorp has not obtained D&O Coverage, the Indemnitee shall not settle any Proceeding for which he/she intends to seek indemnification hereunder without first attempting to obtain the approval of Bancorp. If the Indemnitee seeks such approval and such approval is not granted by Bancorp, the Indemnitee shall be free to settle the Proceeding and pursue any procedures to establish his/her right to indemnification as provided under this Agreement. If the Indemnitee seeks such approval and such approval is not granted by Bancorp, but Bancorp agrees to indemnify the Indemnitee, subject to Paragraph 4 herein, against any Expenses, judgments, fines, settlements or other amounts actually and reasonably incurred by the Indemnitee in connection with such Proceeding, the Indemnitee shall not settle such Proceeding. If, however, under such circumstances the Indemnitee does settle such Proceeding, the Indemnitee shall forfeit his/her rights to indemnification under this Agreement. (b) If Bancorp has obtained D&O Coverage, the Indemnitee shall not settle any Proceeding for which he/she intends to seek indemnification without first attempting to obtain any approval required with respect to such settlement by the insurance carrier of any applicable D&O Coverage. If the Indemnitee seeks such approval and such approval is not granted by the insurance carrier of any applicable D&O Coverage, the Indemnitee shall not settle such Proceeding without then attempting to obtain the approval of Bancorp. In the event the Indemnitee seeks such approval from Bancorp, Bancorp and the Indemnitee shall have the same rights and obligations as set forth in Paragraph 10(a). If the Indemnitee seeks such approval from Bancorp and such approval is granted, Bancorp shall be subrogated to the Indemnitee's rights and claims against the insurance carrier of any applicable D&O Coverage and the Indemnitee shall execute such documents as Bancorp shall deem necessary to effect such subrogation. 11. MUTUAL ACKNOWLEDGMENT. Both Bancorp and the Indemnitee acknowledge that in certain instances, Federal law or applicable public policy may prohibit Bancorp from indemnifying the Indemnitee under this Agreement or otherwise. 12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Bancorp and its successors and assigns and shall inure to the benefit of the Indemnitee and the Indemnitee's spouse, heirs, executors and administrators. 13. SAVINGS CLAUSE. If this Agreement or any portion thereof be invalidated on any ground by any court of competent jurisdiction, then Bancorp shall nevertheless indemnify the Indemnitee as to Expenses, judgments, fines, settlements or other amounts with respect to any Proceeding to the fullest extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 14. GOVERNING LAW. This Agreement shall be governed by and construed in accordance with the laws of the State of California. 15. NOTICES. The Indemnitee shall, as a condition precedent to his/her right to be indemnified under this Agreement, give to Bancorp notice in writing as soon as practicable of any claim made against him/her for which indemnification will or could be sought under this Agreement. Notice to Bancorp shall be directed to Hemet Bancorp, 3715 Sunnyside Drive, Riverside, California 92506, Attention: President (or such other address as Bancorp shall designate in writing to the Indemnitee). 5 16. MODIFICATION AND AMENDMENT. No amendment, modification, termination or cancellation of this Agreement, except as permitted pursuant to Section 11 above, shall be effected unless in writing signed by both parties hereto. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year set forth above. INDEMNITEE HEMET BANCORP By By: --------------------------- --------------------------------- Its: -------------------------------- 6 EXHIBIT A HEMET BANCORP UNDERTAKING TO: James B. Jaqua, President Hemet Bancorp 3715 Sunnyside Drive Riverside, California 92506 I, ______________, a director or officer of Hemet Bancorp, a California corporation, pursuant to Section 317(f) of the California Corporations Code and the terms of my Indemnification Agreement with Hemet Bancorp agree to repay Hemet Bancorp for all Expenses advanced on my behalf in defense of any Proceeding or in defense of any claim, issue or matter therein, prior to the disposition of such Proceeding, unless it shall be ultimately determined that I am entitled to indemnification under Section 317 of the California Corporations Code or Hemet Bancorp's Articles of Incorporation, Bylaws or my Indemnification Agreement. Dated: --------------------- INDEMNITEE By ---------------------------------- 7 -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

                                                                    EXHIBIT 10.1

                               THE BANK OF HEMET
                             1994 STOCK OPTION PLAN

1.      PURPOSE

        The purpose of The Bank of Hemet 1994 Stock Option Plan (the "Plan") is
to strengthen The Bank of Hemet (the "Bank") and those corporations which are or
hereafter become subsidiary corporations of the Bank by providing an additional
means of attracting and retaining competent directors, officers and key
employees and by providing to participating directors, officers and key
employees added incentive for high levels of performance. The Plan seeks to
accomplish these purposes and achieve these results by providing a means whereby
such directors, officers and key employees may purchase shares of the common
stock of the Bank pursuant to options granted in accordance with this Plan.

        Options granted pursuant to this Plan are intended to be either
"incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"), or
"nonqualified stock options", as shall be determined and designated upon the
grant of each option hereunder.

2.      ADMINISTRATION

        This Plan shall be administered by the Board of Directors (the "Board").
The Board in its sole discretion may from time to time appoint a committee (the
"Stock Option Committee") to administer the Plan and exercise all of the powers,
authority and discretion of the Board under this Plan. The Board may from time
to time remove members from, or add members to, the Stock Option Committee, and
vacancies on the Stock Option Committee shall be filled by the Board. The Board
may abolish the Stock Option Committee at any time and/or revest in the Board
the administration of the Plan.

        Any action of the Board, or the Stock Option Committee, if applicable,
with respect to the administration of the Plan shall be taken pursuant to a
majority vote, or



the unanimous written consent, of its members. Subject to the express provisions
of the Plan, the Board, or the Stock Option Committee, if applicable, shall have
the authority to construe and interpret the Plan, define the terms used therein,
prescribe, amend and rescind, the rules and regulations relating to
administration of the Plan, and make all other determinations necessary or
advisable for administration of the Plan.

        All decisions, determinations, interpretations or other actions by the
Board, or the Stock Option Committee, if applicable, shall be final, conclusive
and binding on all persons, optionees, grantees, subsidiary corporations of the
Bank and any successors-in-interest to such parties.

        With regard to the granting of a stock option to a member of the Board,
or the Stock Option Committee, if applicable, such member must abstain from
voting.

3.      INCENTIVE STOCK OPTIONS

        All options granted which are designated at the time of grant as an
"incentive stock option" shall be deemed an incentive stock option.

        (a) Incentive stock options granted under this Plan are intended to be
qualified under Section 422 of the Code.

        (b) Full-time salaried officers and key employees of the Bank or a
subsidiary corporation (as that term is defined in Section 424(f) of the Code),
shall be eligible for selection to participate in the incentive stock option
portion of the Plan. No director of the Bank who is not also a full-time
salaried officer or employee of the Bank or a subsidiary corporation, may be
granted an incentive stock option hereunder. Subject to the express provisions
of the Plan, the Board, or the Stock Option Committee, if applicable, shall (i)
select from the eligible class of employees to whom incentive stock options
shall be granted and make recommendations to the Board concerning the
individuals to whom incentive stock options shall be granted, (ii) determine the
terms and provisions of the respective incentive stock option agreements (which
need not be identical), (iii) determine the times at which such incentive stock
options shall be


                                       2


granted, and (iv) determine the number of shares subject to each incentive stock
option. An individual who has been granted an incentive stock option may, if he
or she is otherwise eligible under the Plan, be granted additional incentive
stock options if the Board shall so determine.

        (c) The Board shall determine the individuals who shall receive
incentive stock options and the terms and provisions of the incentive stock
options, and shall grant such incentive stock options to such individuals.
Notwithstanding the above sentence, however, the Board may delegate to the Stock
Option Committee the power to determine the individuals who shall receive
incentive stock options and the terms and provisions of such incentive stock
options, and the power to grant incentive stock options to such individuals.

        (d) Except as described in subsection (f) below, the Board or the Stock
Option Committee, if applicable, shall not grant an incentive stock option to
purchase shares of the Bank's common stock to any individual who, at the time of
the grant, owns stock possessing more than 10% of the total combined voting
power of all classes of stock of the Bank or a subsidiary corporation. The
attribution rules of Section 424(d) of the Code shall apply in the determination
of ownership of stock for these purposes.

        (e) The aggregate fair market value (determined as of the time the
incentive stock option is granted) of stock with respect to which incentive
stock options are exercisable for the first time by an individual during any
calendar year (under all plans of the Bank and its subsidiary corporations, if
any) shall not exceed $100,000, plus any greater amount as may be permitted
under subsequent amendments to the Code.

        (f) The purchase price of stock subject to each incentive stock option
shall be determined by the Board, or the Stock Option Committee, if applicable,
but shall not be less than one hundred percent (100%) of the fair market value
of such stock at the time such option is granted, except, in the case of
optionees who at the time of the grant own more than ten percent (10%) of the
total combined voting power of all classes of stock of the Bank or a subsidiary
corporation (as defined in Section 422 of the Code), in which


                                       3


case the purchase price of the stock shall not be less than one hundred ten
percent (110%) of the fair market value of such stock at the time such option is
granted and the term of such option shall be for no more than five (5) years.
The fair market value of such stock shall be determined in accordance with any
reasonable valuation method, including the valuation methods described in
Treasury Regulation Section 20.2031-2.

        (g) No incentive stock option pursuant to this Plan shall be granted to
any eligible individual, if such option grant along with all other outstanding
stock options of such individual would result in such individual having options
to acquire a number of shares of the Bank that would be in excess of ten percent
(10%) of the total outstanding shares of the same class and series of the Bank.

4.      NONQUALIFIED STOCK OPTIONS

        (a) All options granted which are (i) in excess of the aggregate fair
market value limitations set forth in Section 3(e) hereof, (ii) designated at
the time of the grant as "nonqualified", or (iii) intended to be incentive stock
options but do not meet the requirements of incentive stock options, shall be
deemed nonqualified stock options. Nonqualified stock options granted hereunder
shall be so designated in the nonqualified stock option agreement entered into
between the Bank and the optionee.

        (b) Directors, full-time salaried officers (including full-time salaried
officers who are also directors) and key employees of the Bank or a subsidiary
corporation shall be eligible for selection to participate in the nonqualified
stock option portion of the Plan. Subject to the express provisions of the Plan,
the Board, or the Stock Option Committee, if applicable, shall (i) select from
the eligible class of individuals to whom nonqualified stock options shall be
granted and make recommendations to the Board concerning the individuals to whom
nonqualified stock options shall be granted, (ii) determine the discretionary
terms and provisions of the respective nonqualified stock option agreements
(which need not be identical), (iii) determine the times at which such
nonqualified stock options shall be granted, and (iv) determine the number of
shares


                                       4


subject to each nonqualified stock option. An individual who has been granted a
nonqualified stock option may, if he or she is otherwise eligible under the
Plan, be granted additional nonqualified stock options if the Board shall so
determine.

        (c) The Board shall determine the individuals who shall receive
nonqualified stock options and the terms and provisions of the nonqualified
stock options, and shall grant such nonqualified stock options to such
individuals. Notwithstanding the above sentence, however, the Board may delegate
to the Stock Option Committee the power to determine the individuals who shall
receive nonqualified stock options and the terms and provisions of such
nonqualified stock options, and the power to grant nonqualified stock options to
such individuals.

        (d) The purchase price of stock subject to each nonqualified stock
option shall be determined by the Board, or the Stock Option Committee, if
applicable, but shall not be less than one hundred percent (100%) of the fair
market value of such stock at the time such option is granted. The fair market
value of such stock shall be determined in accordance with any reasonable
valuation method, including the valuation methods described in Treasury
Regulation 20.2031-2.

        (e) No nonqualified stock option pursuant to this Plan shall be granted
to any eligible individual, if such option grant along with all other
outstanding stock options of such individual would result in such individual
having options to acquire a number of shares of the Bank that would be in excess
of ten percent (10%) of the total outstanding shares of the same series and
class of the Bank.

5.      STOCK SUBJECT TO THE PLAN

        Subject to adjustments as provided in Section 12, hereof, the stock to
be offered under the Plan shall be shares of the Bank's authorized but unissued
common stock (hereinafter called "stock") and the aggregate amount of stock to
be delivered upon exercise of all options granted under this Plan shall not
exceed 75,000 shares. If any option shall be cancelled, surrendered or expire
for any reason without having been


                                       5


exercised in full, the underlying shares subject thereto shall again be
available for purposes of this Plan.

6.      CONTINUATION OF EMPLOYMENT

        Nothing contained in the Plan (or in any option agreement) shall
obligate the Bank or any subsidiary corporation to employ any optionee for any
period or interfere in any way with the right of the Bank or a subsidiary
corporation to reduce the optionee's compensation. However, the Bank may not
reduce the terms of any option without the approval of the optionee.

7.      EXERCISE OF OPTIONS

        No option shall be exercisable until all necessary regulatory and
shareholder approvals for this Plan are obtained. Except as otherwise provided
in this section, each option shall be exercisable in such installments, which
need not be equal, and upon such contingencies as the Board, or the Stock Option
Committee, if applicable, shall determine; provided, however, that if an
optionee shall not in any given installment period purchase all of the shares
which the optionee is entitled to purchase in such installment period, the
optionee's right to purchase any shares not purchased in such installment period
shall continue until expiration or termination of such option. Fractional share
interests shall be disregarded, except that they may be accumulated. Not less
than ten (10) shares may be purchased at any one time unless the number of
shares purchased is the total number of shares which is exercisable at such
time. Options may be exercised by written notice delivered to the Bank stating
the number of shares with respect to which the option is being exercised,
together with the full purchase price for such shares. Payment of the option
price in full, for the number of shares to be delivered, must be made in cash.
If the option is being exercised by any person other than the optionee, said
notice shall be accompanied by proof, satisfactory to counsel for the Bank, of
the right of such person to exercise the option. Optionees


                                       6


will have no rights as shareholders with respect to stock of the Bank subject to
their stock option agreements until the date of issuance of the stock
certificate to them.

8.      NONTRANSFERABILITY OF OPTIONS

        Each option shall, by its terms, be nontransferable by the optionee
other than by will or the laws of descent and distribution, and shall be
exercisable during his or her lifetime only by the optionee.

9.      CESSATION OF DIRECTORSHIP OR EMPLOYMENT

        Except as provided in Sections 10 and 20 hereof, if an optionee ceases
to be a director or an employee of the Bank or a subsidiary corporation for any
reason other than his or her disability (as defined in Section 22(e)(3) of the
Code) or death, the optionee's option shall expire three (3) months after the
date of termination of such directorship or employment. During the period after
cessation of directorship or employment, such option shall be exercisable only
as to those installments, if any, which have accrued and/or vested as of the
date on which the optionee ceased to be a director or employee of the Bank or a
subsidiary corporation.

10.     TERMINATION OF EMPLOYMENT FOR CAUSE

        If the stock option agreement so provides and if an optionee's
employment by the Bank or a subsidiary corporation is terminated for cause, the
optionee's option shall expire immediately, provided, however, the Board may, in
its sole discretion, within thirty (30) days of such termination, reinstate the
option by giving written notice of such reinstatement to the optionee at the
optionee's last known address. In the event of reinstatement, the optionee may
exercise the option only to such extent, for such time, and upon such terms and
conditions as if he or she had ceased to be employed by the Bank or a subsidiary
corporation upon the date of such termination for a reason other than cause,
disability or death. Termination for cause shall include, but not be limited


                                       7


to, termination for malfeasance or gross misfeasance in the performance of
duties or conviction of illegal activity in connection therewith or any conduct
detrimental to the interests of the Bank or a subsidiary corporation, and, in
any event, the determination of the Board with respect thereto shall be final
and conclusive.

11.     DISABILITY OR DEATH OF OPTIONEE

        If any optionee dies while serving as a director or employee of the Bank
or a subsidiary corporation, the option shall expire one (1) year after the date
of such death, except as provided in Section 20 hereof. After such death but
before such expiration, the persons to whom the optionee's rights under the
option shall have passed by will or by the applicable laws of descent and
distribution or the executor or administrator of optionee's estate shall have
the right to exercise such option to the extent that installments, if any, had
accrued and/or vested as of the date on which the optionee ceased to be director
or employee of the Bank or a subsidiary corporation.

        If the optionee shall terminate his or her directorship or employment
because of disability (as defined in Section 22(e)(3) of the Code), the optionee
may exercise this option to the extent he or she is entitled to do so at the
date of termination, at any time within one (1) year of the date of termination,
except as provided in Section 20 hereof.

        If any optionee dies during the three (3) month period referred to in
Section 9 hereof, the option shall expire one (1) year after the date of such
death, except as provided in Section 20 hereof.

12.     ADJUSTMENT UPON CHANGES IN CAPITALIZATION

        If the outstanding shares of the stock of the Bank are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Bank through reorganization, merger, recapitalization,
reclassification, stock split, stock dividend, stock consolidation or otherwise,
without consideration to the Bank, an


                                       8


appropriate and proportionate adjustment shall be made in the number and kind of
shares as to which options may be granted. A corresponding adjustment changing
the number or kind of shares and the exercise price per share allocated to
unexercised options or portions thereof, which shall have been granted prior to
any such change shall likewise be made. Any such adjustment, however, in an
outstanding option shall be made without change in the total price applicable to
the unexercised portion of the option, but with a corresponding adjustment in
the price for each share subject to the option. Any adjustment under this
Section 12 shall be made by the Board, whose determination as to what
adjustments shall be made, and the extent thereof, shall be final and
conclusive. No fractional shares of stock shall be issued or made available
under the Plan on account of any such adjustment, and fractional share-interests
shall be disregarded, except that they may be accumulated.

13.     TERMINATING EVENTS

        A Terminating Event shall be defined as any one of the following events:
(i) a dissolution or liquidation of the Bank; (ii) a reorganization, merger or
consolidation of the Bank with one or more corporations, the result of which (A)
the Bank is not the surviving corporation, or (B) the Bank becomes a subsidiary
of another corporation (which shall be deemed to have occurred if another
corporation shall own directly or indirectly, over 80% of the aggregate voting
power of all outstanding equity securities of the Bank); (iii) a sale of
substantially all the assets of the Bank to another corporation; or (iv) a sale
of the equity securities of the Bank representing more than 80% of the aggregate
voting power of all outstanding equity securities of the Bank to any person or
entity, or any group of persons and/or entities acting in concert. When the Bank
knows that a Terminating Event will occur (i) the Bank shall deliver to each
optionee no less than thirty (30) days prior to the Terminating Event, written
notification of the Terminating Event and the optionee's right to exercise all
options granted pursuant to this Plan, whether or not vested under this Plan or
applicable stock option agreement, and (ii) all


                                       9


outstanding options granted pursuant to this Plan shall completely vest and
become immediately exercisable as to all shares granted pursuant to the option
immediately prior to such Terminating Event. This right of exercise shall be
conditional upon execution of a final plan of dissolution or liquidation or a
definitive agreement of consolidation or merger. Upon the occurrence of the
Terminating Event all outstanding options and the Plan shall terminate;
provided, however, that any outstanding options not exercised as of the
occurrence of the Terminating Event shall not terminate if there is a successor
corporation which assumes the outstanding options or substitutes for such
options, new options covering the stock of the successor corporation with
appropriate adjustments as to the number and kind of shares and prices.

14.     AMENDMENT AND TERMINATION

        The Board may at any time suspend, amend or terminate the Plan and may,
with the consent of the optionee, make such modification of the terms and
conditions of the option as it shall deem advisable; provided that, except as
permitted under the provisions of Sections 12 and 13 hereof, no amendment or
modification which would:

        (a)    increase the maximum number of shares which may be purchased
               pursuant to options granted under the Plan either in the
               aggregate or by an individual;

        (b)    change the minimum option price;

        (c)    increase the maximum term of options provided for
               herein; or

        (d)    permit options to be granted to anyone other than directors,
               full-time salaried officers (including a full-time salaried
               officer who is also a director) or key employees of the Bank or a
               subsidiary corporation;

may be adopted without the Bank having first obtained any necessary regulatory
and shareholder approvals required by law. No option may be granted during any
suspension or after termination of the Plan. Amendment, suspension or
termination of the Plan shall not (except as otherwise provided in Section 12
hereof), without the


                                       10


consent of the optionee, alter or impair any rights or obligations under any
option theretofore granted.

15.     TIME OF GRANTING OPTIONS

        The time an option is granted, sometimes referred to as the date of
grant, shall be the day of the action of the Board, or the Stock Option
Committee, if applicable, described in Sections 3(c) and 4(c) hereof; provided,
however, that if appropriate resolutions of the Board, or the Stock Option
Committee, if applicable, indicate that an option is granted as of and on some
future date, the time such option is granted shall be such future date. If
action by the Board, or the Stock Option Committee, if applicable, is taken by
unanimous written consent of its members, the action of the Board, or the Stock
Option Committee, if applicable shall be deemed to be at the time the last
Board, or Stock Option Committee, if applicable, member signs the consent.

16.     PRIVILEGES OF STOCK OWNERSHIP;
        SECURITIES LAW COMPLIANCE; NOTICE OF SALE

        No optionee shall be entitled to the privileges of stock ownership as to
any shares of stock not actually issued. No shares shall be purchased upon the
exercise of any option unless and until the Bank has fully complied with all
applicable requirements of any regulatory agency having jurisdiction over the
Bank and all applicable requirements of any exchange upon which stock of the
Bank may be listed. The optionee shall give the Bank notice of any sale or
disposition of any such shares not more than five (5) days after such sale or
disposition.

17.     EFFECTIVE DATE OF THE PLAN

        The Plan shall be deemed adopted by the Board as of April 20, 1994 and
shall be effective immediately subject to approval by the shareholders of the
Bank by vote of a majority of the outstanding shares represented and voting at a
meeting of


                                       11


shareholders and by a majority of the disinterested shares represented and
voting at the meeting of shareholders, and the approval of the California State
Banking Department.

18.     TERMINATION

        Unless previously terminated by the Board, the Plan shall terminate at
the close of business on a date ten (10) years from the earlier of the date of
approval by the Bank's outstanding shares or the date of adoption of this Plan
by the Board. No options shall be granted under the Plan thereafter, but such
termination shall not affect any option theretofore granted.

19.     OPTION AGREEMENT

        Each option shall be evidenced by a written stock option agreement
executed by the Bank and the optionee and shall contain each of the provisions
and agreements herein specifically required to be contained therein, and such
other terms and conditions as are deemed desirable and are not inconsistent with
the Plan. Each incentive stock option agreement shall contain such terms and
provisions as the Board, or the Stock Option Committee, if applicable, may
determine to be necessary in order to qualify such option as an incentive stock
option within the meaning of Section 422 of the Code.

20.     OPTION PERIOD

        Each option and all rights and obligations thereunder shall expire on
such date as the Board, or the Stock Option Committee, if applicable, may
determine, but not later than ten (10) years from the date such option is
granted, and shall be subject to earlier termination as provided elsewhere in
the Plan.

21.     EXCULPATION AND INDEMNIFICATION


                                       12


        To the extent permitted by applicable law in effect from time to time,
no member of the Board or the Stock Option Committee shall be liable for any act
or omission of any other member of the Board or the Stock Option Committee nor
for any act or omission on the member's own part, except the member's own
willful misconduct or gross negligence. The Bank and its subsidiary corporations
shall pay expenses incurred by, and satisfy a judgment or fine rendered or
levied against, a present or former member of the Board or the Stock Option
Committee in any action brought by a third party against such person (whether or
not the Bank is joined as a party defendant) to impose a liability or penalty on
such person while a member of the Board or the Stock Option Committee arising
with respect to the Plan or administration thereof or out of membership on the
Board or the Stock Option Committee, or all or any combination of the preceding;
provided, the Board determines in good faith that such member of the Board or
the Stock Option Committee was acting in good faith, within what such member of
the Board or the Stock Option Committee reasonably believed to be the scope of
his or her employment or authority, and for a purpose which he or she reasonably
believed to be in the best interests of the Bank or its shareholders. Payments
authorized hereunder include amounts paid and expenses incurred in settling any
such action or threatened action. This Section 21 does not apply to any action
instituted or maintained in the right of the Bank by a shareholder or holder of
a voting trust certificate representing shares of the Bank or any subsidiary
corporation thereof. The provisions of this Section 21 shall apply to the
estate, executor, administrator, heirs, legatees or devisees of a member of the
Board or the Stock Option Committee, and the term "person" as used in this
Section 21 shall include the estate, executor, administrator, heirs, legatees or
devisees of such person.
                                            THE BANK OF HEMET


                                            By
                                              ----------------------------------



                                            By
                                              ----------------------------------


                                       13

EX-10.2

                                                                    EXHIBIT 10.2

                                  HEMET BANCORP

                            INDEMNIFICATION AGREEMENT

        This Indemnification Agreement ("Agreement") is made and entered into as
of the 24th day of April, 2002, by and between Hemet Bancorp, a California
corporation ("Bancorp"), and _________________, (the "Indemnitee"), a director
(and/or officer) of Bancorp.

                                    RECITALS

        A. Bancorp and the Indemnitee recognize that statutes, regulations,
court opinions and Bancorp's Articles of Incorporation and Bylaws are indefinite
in providing Bancorp's directors and officers with adequate protection from
liabilities to which they may become personally exposed as a result of
performing their duties in good faith for Bancorp;

        B. Bancorp and the Indemnitee are aware of the large number of lawsuits
filed against corporate directors and officers;

        C. Bancorp and the Indemnitee recognize that the cost of defending
against such lawsuits may be beyond the financial resources of most directors
and officers of Bancorp;

        D. Bancorp and the Indemnitee recognize that the potential risks and
liabilities of being a director and/or officer pose a significant deterrent and
increased reluctance on the part of experienced and capable individuals to serve
as a director and/or officer of Bancorp;

        E. Bancorp has investigated the availability and sufficiency of
liability insurance for its directors and officers with adequate protection
against potential liabilities and has determined that such insurance provides
inadequate protection to its directors and officers, and, thus, it would be in
the best interests of Bancorp and its shareholders to contract with the
Indemnitee, to indemnify him/her to the fullest extent permitted by law against
personal liability for actions taken in the good faith performance of his/her
duties to Bancorp;

        F. Section 317 of the California Corporations Code ("Section 317") sets
forth certain provisions relating to the mandatory and permissive
indemnification of directors and officers (among others) of a California
corporation by such corporation;

        G. As inducement and encouragement for experienced and capable persons
such as the Indemnitee to continue to serve as a director and/or officer of
Bancorp, the Board of Directors of Bancorp has determined, after due
consideration and investigation, that this Agreement is a reasonable and prudent
means to promote and ensure the best interests of Bancorp and its shareholders;
and

        H. Bancorp desires to have the Indemnitee continue to serve as a
director or officer of Bancorp free from undue concern for unpredictable,
inappropriate or unreasonable legal risks and personal liabilities by reason of
his/her acting in good faith in the performance of his/her duty to




Bancorp; and the Indemnitee desires to continue to serve as a director or
officer of Bancorp; provided, and on the express condition, that the Indemnitee
is furnished with the indemnity set forth hereinafter.

                                    AGREEMENT

        NOW, THEREFORE, in consideration of the mutual covenants and agreements
set forth below and based on the premises set forth above, Bancorp and the
Indemnitee do hereby agree as follows:

        1. AGREEMENT TO SERVE. The Indemnitee will serve or continue to serve as
a director or officer of Bancorp to the best of his/her abilities at the will of
Bancorp for so long as the Indemnitee is duly elected or appointed or until such
time as the Indemnitee tenders his/her resignation in writing.

        2. DEFINITIONS. As used in this Agreement:

                (a) The term "Proceeding" shall include any threatened, pending
or completed action, suit or proceeding, whether brought in the right of Bancorp
or otherwise and whether of a civil, criminal, administrative or investigative
nature, including, but not limited to, actions, suits or proceedings brought
under and/or predicated upon the Securities Act of 1933, as amended, and/or the
Securities Exchange Act of 1934, as amended, and/or their respective state
counterparts, and/or any rule or regulation promulgated thereunder, in which the
Indemnitee may be or may have been involved as a party or otherwise, by reason
of the fact that the Indemnitee is or was a director or officer of Bancorp, by
reason of any action taken by him/her or of any inaction on his/her part while
acting as such director or officer or by reason of the fact that he/she is or
was serving at the request of Bancorp as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other enterprise,
whether or not he/she is serving in such capacity at the time any liability or
expense is incurred for which indemnification or reimbursement can be provided
under this Agreement.

                (b) The term "Expenses" includes, without limitation thereto,
expenses of investigations, of judicial or administrative proceedings or
appeals, attorneys' fees and disbursements and any expenses of establishing a
right to indemnification under Paragraph 7 of this Agreement, but shall not
include the amount of judgments, settlements, fines or penalties actually levied
against the Indemnitee.

        3. INDEMNITY IN THIRD PARTY PROCEEDINGS. Bancorp shall indemnify the
Indemnitee in accordance with the provisions of this section if the Indemnitee
is a party to or threatened to be made a party to or otherwise involved in any
Proceeding (other than a Proceeding by or in the right of Bancorp to procure a
judgment in its favor), by reason of the fact that the Indemnitee is or was a
director, officer, employee or agent of Bancorp or is or was serving at the
request of Bancorp as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against all
Expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred by the Indemnitee in connection with such Proceeding,
provided it is determined pursuant to Paragraph 7 of this Agreement or by the
court before which such action was brought or



                                       2


by the shareholders of Bancorp in the manner prescribed by Section 317, that the
Indemnitee acted in good faith and in a manner which he/she reasonably believed
to be in the best interests of Bancorp and, in the case of a criminal
proceeding, in addition, had no reasonable cause to believe that his/her conduct
was unlawful. The termination of any such Proceeding by judgment, order of
court, settlement, conviction, or upon a plea of nolo contendere, or its
equivalent, shall not, of itself, create a presumption that the Indemnitee did
not act in good faith and in a manner which he/she reasonably believed to be in
the best interests of Bancorp, and with respect to any criminal proceeding, that
such person had reasonable cause to believe that his/her conduct was unlawful.

        4. INDEMNITY IN PROCEEDINGS BY OR IN THE RIGHT OF BANCORP. Bancorp shall
indemnify the Indemnitee in accordance with the provisions of this section if
the Indemnitee is a party to or threatened to be made a party to or otherwise
involved in any Proceeding by or in the right of Bancorp to procure a judgment
in its favor by reason of the fact that the Indemnitee is or was a director,
officer, employee or agent of Bancorp or is or was serving at the request of
Bancorp as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise against all Expenses
actually and reasonably incurred by the Indemnitee in connection with the
defense or settlement of such Proceeding, provided it is determined pursuant to
Paragraph 7 of this Agreement or by the court before which such action was
brought or by the shareholders of Bancorp in the manner prescribed by Section
317, that the Indemnitee acted in good faith and in a manner which he/she
believed to be in the best interests of Bancorp and its shareholders.
Notwithstanding the foregoing, no indemnification shall be made under this
Paragraph 4:

                (a) in respect of any claim, issue or matter as to which the
Indemnitee shall have been adjudged to be liable to Bancorp, unless and only to
the extent that the court in which such Proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
the Indemnitee is fairly and reasonably entitled to indemnity for such Expenses
as such court shall determine;

                (b) of amounts paid in settling or otherwise disposing of a
pending action without court approval;

                (c) of Expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval; or

                (d) in respect of any act, omission or transaction set forth in
Section 204(a)(10)(A)(i)-(vii) of the California Corporations Code.

        5. INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY. Notwithstanding any
other provision of this Agreement, to the extent that the Indemnitee has been
successful on the merits in defense of any Proceeding or in defense of any
claim, issue or matter therein, the Indemnitee shall be indemnified against all
Expenses actually and reasonably incurred in connection therewith.

        6. ADVANCES OF EXPENSES. The Expenses incurred by the Indemnitee
pursuant to Paragraphs 3 and 4 in defending any Proceeding shall be paid by
Bancorp in advance of the final disposition of such Proceeding at the written
request of the Indemnitee, if the Indemnitee shall provide an undertaking in the
form attached hereto as Exhibit "A" to Bancorp to repay such amount


                                       3


unless it is ultimately determined that the Indemnitee is entitled to the
payment of Expenses. The written request to Bancorp shall include a description
of the nature of the Proceeding and be accompanied by copies of any documents
filed with a court relating to the Proceeding.

        Notwithstanding the foregoing or any other provision of this Agreement,
no advance shall be made by Bancorp if a determination is reasonably and
promptly made by the Board of Directors by a majority vote of a quorum of
disinterested directors, or (if such a quorum is not obtainable or, even if
obtainable, a quorum of disinterested directors so directs) by independent legal
counsel, that, based upon the facts known to the Board of Directors or counsel
at the time such determination is made, (a) the Indemnitee acted in bad faith or
deliberately breached his/her duty to Bancorp or its shareholders, and (b) as a
result of such actions by the Indemnitee, it is more likely than not that it
will ultimately be determined that the Indemnitee is not entitled to
indemnification under the terms of this Agreement.

        7. RIGHTS OF THE INDEMNITEE TO INDEMNIFICATION UPON APPLICATION;
PROCEDURE UPON APPLICATION. To the extent a quorum of the Board of Directors of
Bancorp consisting of directors who were or are not parties to a Proceeding is
obtainable, the Board of Directors shall determine within 45 days after receipt
of the written request of the Indemnitee for indemnification whether the
Indemnitee has met the relevant standards for indemnification set forth in
Paragraphs 3 and 4 and, if it determines that such standards have been met, it
shall provide indemnification to the Indemnitee.

        Notwithstanding the foregoing, the Indemnitee may request independent
counsel or may bring suit in the court in which such Proceeding is or was
pending to determine whether the Indemnitee is entitled to indemnification as
provided by this Agreement. The Indemnitee's expenses incurred in connection
with successfully establishing his/her right to indemnification, in whole or in
part, shall also be indemnified by Bancorp.

        8. PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by Bancorp for some or a portion
of the Expenses, judgments, fines, settlements or other amounts actually and
reasonably incurred by him/her in the investigation, defense, appeal or
settlement of any Proceeding but not, however, for the total amount thereof,
Bancorp shall nevertheless indemnify the Indemnitee for the portion of such
Expenses, judgments, fines, settlements or other amounts to which the Indemnitee
is entitled.

        9. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The obtaining of
directors' and officers' liability insurance ("D&O Coverage") at the expense of
and by Bancorp shall in no way limit or diminish the obligation of Bancorp to
indemnify the Indemnitee as provided in this Agreement; provided, however, that
any amounts actually recovered by the Indemnitee from the insurer providing D&O
Coverage shall be applied in reduction of amounts otherwise owing by Bancorp by
reason of its indemnification under this Agreement and if Bancorp pays any
amounts to the Indemnitee pursuant to this Agreement, Bancorp shall be
subrogated to the Indemnitee's rights and claims against the insurer providing
D&O Coverage and the Indemnitee shall execute such documents as Bancorp shall
deem necessary to reflect such subrogation.

        10. SETTLEMENT OF CLAIMS.


                                        4


                (a) If Bancorp has not obtained D&O Coverage, the Indemnitee
shall not settle any Proceeding for which he/she intends to seek indemnification
hereunder without first attempting to obtain the approval of Bancorp. If the
Indemnitee seeks such approval and such approval is not granted by Bancorp, the
Indemnitee shall be free to settle the Proceeding and pursue any procedures to
establish his/her right to indemnification as provided under this Agreement. If
the Indemnitee seeks such approval and such approval is not granted by Bancorp,
but Bancorp agrees to indemnify the Indemnitee, subject to Paragraph 4 herein,
against any Expenses, judgments, fines, settlements or other amounts actually
and reasonably incurred by the Indemnitee in connection with such Proceeding,
the Indemnitee shall not settle such Proceeding. If, however, under such
circumstances the Indemnitee does settle such Proceeding, the Indemnitee shall
forfeit his/her rights to indemnification under this Agreement.

                (b) If Bancorp has obtained D&O Coverage, the Indemnitee shall
not settle any Proceeding for which he/she intends to seek indemnification
without first attempting to obtain any approval required with respect to such
settlement by the insurance carrier of any applicable D&O Coverage. If the
Indemnitee seeks such approval and such approval is not granted by the insurance
carrier of any applicable D&O Coverage, the Indemnitee shall not settle such
Proceeding without then attempting to obtain the approval of Bancorp. In the
event the Indemnitee seeks such approval from Bancorp, Bancorp and the
Indemnitee shall have the same rights and obligations as set forth in Paragraph
10(a). If the Indemnitee seeks such approval from Bancorp and such approval is
granted, Bancorp shall be subrogated to the Indemnitee's rights and claims
against the insurance carrier of any applicable D&O Coverage and the Indemnitee
shall execute such documents as Bancorp shall deem necessary to effect such
subrogation.

        11. MUTUAL ACKNOWLEDGMENT. Both Bancorp and the Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
Bancorp from indemnifying the Indemnitee under this Agreement or otherwise.

        12. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon Bancorp
and its successors and assigns and shall inure to the benefit of the Indemnitee
and the Indemnitee's spouse, heirs, executors and administrators.

        13. SAVINGS CLAUSE. If this Agreement or any portion thereof be
invalidated on any ground by any court of competent jurisdiction, then Bancorp
shall nevertheless indemnify the Indemnitee as to Expenses, judgments, fines,
settlements or other amounts with respect to any Proceeding to the fullest
extent permitted by any applicable portion of this Agreement that shall not have
been invalidated or by any other applicable law.

        14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.

        15. NOTICES. The Indemnitee shall, as a condition precedent to his/her
right to be indemnified under this Agreement, give to Bancorp notice in writing
as soon as practicable of any claim made against him/her for which
indemnification will or could be sought under this Agreement. Notice to Bancorp
shall be directed to Hemet Bancorp, 3715 Sunnyside Drive, Riverside, California
92506, Attention: President (or such other address as Bancorp shall designate in
writing to the Indemnitee).



                                       5


        16. MODIFICATION AND AMENDMENT. No amendment, modification, termination
or cancellation of this Agreement, except as permitted pursuant to Section 11
above, shall be effected unless in writing signed by both parties hereto.

        IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date and year set forth above.

INDEMNITEE                                  HEMET BANCORP



By                                          By:
  ---------------------------                  ---------------------------------
                                            Its:
                                                --------------------------------


                                       6


                                    EXHIBIT A


                                  HEMET BANCORP

                                   UNDERTAKING




TO:     James B. Jaqua, President
        Hemet Bancorp
        3715 Sunnyside Drive
        Riverside, California 92506



        I, ______________, a director or officer of Hemet Bancorp, a California
corporation, pursuant to Section 317(f) of the California Corporations Code and
the terms of my Indemnification Agreement with Hemet Bancorp agree to repay
Hemet Bancorp for all Expenses advanced on my behalf in defense of any
Proceeding or in defense of any claim, issue or matter therein, prior to the
disposition of such Proceeding, unless it shall be ultimately determined that I
am entitled to indemnification under Section 317 of the California Corporations
Code or Hemet Bancorp's Articles of Incorporation, Bylaws or my Indemnification
Agreement.

Dated:
      ---------------------
                                            INDEMNITEE



                                            By
                                              ----------------------------------



                                       7