HUMBOLDT BANCORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarterly Period Ended June 30, 2003

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

For the Transition Period from ___________ to ___________

Commission file number 0-21656

HUMBOLDT BANCORP

(Exact name of registrant as specified in its charter)


California		93-1175466

(State of Incorporation)		(I.R.S. Employer Identification No.)

2998 Douglas Boulevard, Suite 330 Roseville, California		95661

Address of Principal Executive Offices		(Zip Code)

(916)-677-1133

(Telephone Number)

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

YES [X] NO [ ]

Indicate by check mark whether the registrant is an accelerated filer (as defined under Rule 12b-2 of the Exchange Act).

YES [X] NO [ ]

Common stock, no par value: 12,112,110 shares
outstanding as of August 4, 2003

TABLE OF CONTENTS


PART I Financial Information
	Item 1. Financial Statements
		Consolidated Balance Sheets (unaudited) as of June 30, 2003 and December 31, 2002
		Consolidated Statements of Income (unaudited) for the Three Months and Six Months Ended June 30, 2003 and 2002
		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2003 and 2002
		Consolidated Statements of Other Comprehensive Income (unaudited) for the Three Months and Six Months Ended June 30, 2003 and 2002
		Notes to Unaudited Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk.
	Item 4. Controls and Procedures
PART II Other Information
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	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 Reports on Form 8-K
Signatures
EXHIBITS
EXHIBIT 31.1
EXHIBIT 32.1

INDEX


PART I Financial Information
	Item 1. Financial Statements
		Consolidated Balance Sheets (unaudited) as of June 30, 2003 and December 31, 2002
		Consolidated Statements of Income (unaudited) for the Three Months and Six Months Ended June 30, 2003 and 2002
		Consolidated Statements of Cash Flows (unaudited) for the Six Months Ended June 30, 2003 and 2002
		Consolidated Statements of Other Comprehensive Income (unaudited) for the Three Months and Six Months Ended June 30, 2003 and 2002
		Notes to Unaudited Consolidated Financial Statements
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures About Market Risk
	Item 4. Controls and Procedures
PART II Other Information
	Item 1. Legal Proceedings
	Item 2. Changes in Securities
	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 Reports on Form 8-K
Signatures

HUMBOLDT BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
For the Period Ended June 30, 2003 and December 31, 2002
(in thosuands)


				June 30,		December 31,
				2003		2002

ASSETS
	Cash and due from banks			$	65,445	$	$35,156
	Federal funds sold and interest bearing deposits with banks				112		202
	Investment securities available-for-sale, at fair value				184,869		181,471
	Loans and leases				765,317		760,648
	Less: allowance for loan and lease losses				12,133		11,614

			Net loans		753,184		749,034
	Premises and equipment, net				19,240		16,593
	Accrued interest receivable and other assets				46,667		49,094

			Total assets	$	1,069,517	$	1,031,550

LIABILITIES
	Deposits
		Noninterest-bearing		$	235,659	$	227,406
		Interest-bearing			636,275		613,021

			Total deposits		871,934		840,427
	Accrued interest payable and other liabilities				22,028		23,268
	Borrowed funds				61,972		69,857
	Guaranteed Preferred Beneficial Interests in Company’s Junior Subordinated Debentures (Trust Preferred Securities)				20,150		20,150

			Total liabilities		976,084		953,702
STOCKHOLDERS’ EQUITY
	Preferred stock, no par value; 20,000,000 authorized, no shares issued and outstanding in 2003 and 2002				—		—
	Common stock, no par value; 100,000,000 shares authorized, 12,110,302 shares in 2003 and 12,604,157 shares in 2002 issued and outstanding				58,092		66,345
	Retained earnings				32,031		8,103
	Accumulated other comprehensive income				3,310		3,400

			Total stockholders’ equity		93,433		77,848

			Total liabilities and stockholders’ equity	$	1,069,517	$	1,031,550

See accompanying notes to the consolidated financial statements

HUMBOLDT BANCORP AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
(in thousands, except per share data)


					Three Months Ended					Six Months Ended
					June 30,					June 30,

					2003		2002			2003		2002

Interest Income:
	Interest and fees on loans				$	13,593	$	13,593		$	27,239	$	26,923
	Interest and dividends on investment securities
		Taxable				1,441		1,841			2,941		3,551
		Exempt from Federal income tax				361		361			715		721
	Other interest income					55		7			89		14

			Total interest income			15,450		15,802			30,984		31,209
Interest Expense:
	Interest on deposits					2,623		3,445			5,414		7,158
	Interest on borrowed funds and other					965		983			1,963		1,895

			Total interest expense			3,588		4,428			7,377		9,053

				Net interest income		11,862		11,374			23,607		22,156
Provision for loan losses						314		642			903		1,088

				Net interest income after provision for loan losses		11,548		10,732			22,704		21,068
Non-interest Income:
	Fees and other income					1,315		5,650			6,349		11,448
	Service charges on deposit accounts					805		623			1,411		1,170
	Net gain on sale of loans					509		796			1,202		1,149
	Net gain on sale of investment securities					—		296			—		296
	Gain on sale of merchant processing unit					—		—			29,768		—

			Total non-interest income			2,629		7,365			38,730		14,063
Non-interest Expense:
	Salaries and employee benefits					6,123		6,560			12,429		13,378
	Net occupancy and equipment expense					1,449		1,596			2,917		3,171
	Other expenses					2,351		5,523			6,732		10,530

			Total non-interest expense			9,923		13,679			22,078		27,079

			Income before income taxes			4,254		4,418			39,356		8,052
	Provision for income taxes					1,593		1,281			14,734		2,377

				Net income continuing operations		2,661		3,137			24,622		5,675
Discontinued operations:
	(Loss) on wind-down of discontinued operations, net of tax					—		(276	)		—		(276	)

			Net income		$	2,661	$	2,861		$	24,622	$	5,399

Earnings (loss) per common share — basic:
	Continuing Operations				$	0.22	$	0.25		$	1.99	$	0.45
	Discontinued operations				$	—	$	(0.02	)	$	—	$	(0.02	)

	Net Income				$	0.22	$	0.23		$	1.99	$	0.43

Earnings per common share — diluted:
	Continuing Operations				$	0.21	$	0.24		$	1.91	$	0.44
	Discontinued operations				$	—	$	(0.02	)	$	—	$	(0.03	)

	Net Income				$	0.21	$	0.22		$	1.91	$	0.41

Average common shares outstanding:
	Basic					12,193		12,386			12,382		12,448
	Diluted					12,687		13,068			12,890		13,024
Cash dividends declared per common share					$	0.030	$	0.021		$	0.055	$	0.021

See accompanying notes to the consolidated financial statements

HUMBOLDT BANCORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
For the six months ended June 30, 2003 and 2002
(in thousands)


			2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES
Net income			$	24,622		$	5,399
Adjustments to reconcile net income to net cash provided by operating activities:
	Wind-down of discontinued operations			—			276
	Depreciation and amortization			2,948			2,935
	Provision for loan loss			903			1,088
	Net (gain) on sale of securities			—			(296	)
	Net change in other assets			799			2,232
	Net change in other liabilities			(1,240	)		713
	Net gain on sale of business unit			(29,768	)		—
	Net gain on sale of loans			(1,202	)		(1,149	)

		Net cash (used in) provided by operating activities		(2,938	)		11,198
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale/maturities of securities available for sale				26,126			62,126
Purchases of securities available for sale				(30,642	)		(62,743	)
Net change in loans				(3,852	)		(48,982	)
Net change in federal funds sold and interest bearing bank deposits				90			(139	)
Investing activities related to wind-down of discontinued operations				—			3,795
Proceeds from sale of foreclosed real estate				—			503
Proceeds from disposal of premises and equipment				—			846
Proceeds from sale of business unit				32,000			—
Purchases of premises and equipment				(4,455	)		(654	)

		Net cash provided by (used in) investing activities		19,267			(45,248	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits				31,507			(4,288	)
Net change in borrowed funds				(7,885	)		23,148
Payment of cash dividends on common stock				(694	)		(258	)
Repurchase of common stock				(10,897	)		(3,018	)
Proceeds from issuance of stock for exercised options				1,929			1,044

		Net cash provided by financing activities		13,960			16,628

Net change in cash and cash equivalents				30,289			(17,422	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD				35,156			54,567

CASH AND CASH EQUIVALENTS AT END OF PERIOD			$	65,445		$	37,145

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
	Interest		$	8,257		$	9,543
	Income taxes			9,250			—
Non-cash transactions:
	Unrealized holding (losses) gains on securities and swaps			(155	)		2,820
	Deferred income taxes on unrealized holding (losses) gains on securities and swaps			(65	)		832
	Loans transferred to foreclosed property			—			532

See accompanying notes to the consolidated financial statements

HUMBOLDT BANCORP AND SUBSIDIARIES
Consolidated Statements of Other Comprehensive Income (unaudited)
(in thousands)


				For the Three months Ended						For the Six months Ended
				June 30,						June 30,

				2003			2002			2003			2002

Net income				$	2,661		$	2,861		$	24,622		$	5,399
Other comprehensive income:
	Unrealized holding gains (losses) on securities available for sale				175			2,164			(163	)		2,941
	Net unrealized holding (losses) gains in interest rate swaps qualifying as cash flow hedges				(18	)		(218	)		8			175
	Reclassification adjustment for realized gains on securities transactions				—			(296	)		—			(296	)

			Total other comprehensive income (loss) before income taxes		157			1,650			(155	)		2,820

Income tax expense (benefit) related to the above items:
	Unrealized holding gains (losses) on securities available for sale				75			550			(68	)		867
	Net unrealized holding (losses) gains in interest rate swaps qualifying as cash flow hedges				(6	)		(123	)		3			52
	Reclassification adjustment for realized gains on securities transactions				—			(87	)		—			(87	)

			Total income tax expense (benefit)		69			340			(65	)		832

		Net other comprehensive income (loss)			88			1,310			(90	)		1,988

			Total comprehensive income	$	2,749		$	4,171		$	24,532		$	7,387

See accompanying notes to the consolidated financial statements

Humboldt Bancorp and Subsidiaries
Notes to Consolidated Financial Statements

Note 1 — Significant Accounting Policies

The accounting and financial reporting policies of Humboldt and its subsidiaries conform to generally accepted accounting principles and general banking industry practices. The consolidated financial statements have not been audited and all material intercompany balances and transactions have been eliminated. A more detailed description of Humboldt’s accounting policies is included in the 2002 annual report filed on Form 10-K.

In management’s opinion, all accounting adjustments necessary to accurately reflect the financial position and results of operations on the accompanying financial statements have been made. These adjustments are considered normal and recurring accruals considered necessary for a fair and accurate presentation. The results for interim periods are not necessarily indicative of results for the full year or any other interim periods. Certain amounts for the comparative periods of 2002 have been reclassified to conform to the 2003 presentation.

Note 2 – Per Share Data

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number shares of common stock outstanding during the period. Diluted net income per share is computed by dividing net income available to common stockholders and assumed conversions by the weighted average number of shares of common stock plus equivalent shares of common stock outstanding, including dilutive stock options. All per share information contained in this Quarterly Report has been restated to reflect the six-for–five stock split issued in August 2002. The following table provides reconciliation of the basic and diluted earnings per share computations for the three and six-month periods ended June 30, 2003 and 2002.

Earnings Per Share
(In thousands, except per share data)


				For the Three Months Ended				For the Six Months Ended
				June 30,				June 30,

				2003		2002		2003		2002

Basic earnings per share:
	Weighted average shares outstanding				12,193		12,386		12,382		12,448
	Net income			$	2,661	$	2,861	$	24,622	$	5,399
	Basic earnings per share			$	0.22	$	0.23	$	1.99	$	0.43
Diluted earnings per share:
		Weighted average shares outstanding			12,193		12,386		12,382		12,448
			Net effect of the assumed exercise of stock options based on the treasury stock method using average market price for the period		494		682		508		576

		Total weighted average shares and common stock equivalents outstanding			12,687		13,068		12,890		13,024

	Net income			$	2,661	$	2,861	$	24,622	$	5,399
	Net income from continuing operations				2,661		3,137		24,622		5,675
	Diluted earnings per share				0.21		0.22		1.91		0.41
	Diluted earnings per share — continuing operations			$	0.21	$	0.24	$	1.91	$	0.44

Note 3 – Sale of Proprietary Merchant Bankcard Operations

On June 13, 2003, Humboldt completed the sale of Humboldt Bank’s proprietary merchant bankcard operations to Humboldt Merchant Services, LP, an affiliate of First National Bank Holding Company. Humboldt received $32 million in cash in connection with the sale and recognized an after-tax gain of $18.6 million during the first quarter of 2003.

Note 4 - Segment Information

Through June 30, 2003, Humboldt operated in two principal industry segments: retail banking and merchant bankcard services. Humboldt’s core retail banking segment includes commercial, commercial real estate, construction, and permanent residential lending along with all depository activities. Although Humboldt’s proprietary merchant bankcard portfolio was sold to a third party during the first quarter of 2003, Humboldt continued to provide sponsorship processing for three independent sales organizations (“ISOs”) under existing agreements and, in accordance with terms of a transition agreement related to the sale of the proprietary portfolio, for Humboldt Merchant Services, LP for a period of up to six months after March 13, 2003. During the second quarter of 2003, one ISO agreement expired and the related sponsorship discontinued. Subsequent to June 30, 2003, Humboldt discontinued sponsorship processing for Humboldt Merchant Services, LP. The remaining agreements for two ISOs are expected to terminate by March 31, 2004. Additional information regarding these agreements is included in Humboldt’s 2002 Form 10-K under Part I.

Business Segments


	For the three months ended							For the three months ended
	June 30, 2003							June 30, 2002

	Retail			Merchant Bancard				Retail			Merchant Bancard
	Banking			Services		Total		Banking			Services		Total

	(Dollars in thousands)							(Dollars in thousands)
Non-interest income	$	2,191		$	438	$	2,629	$	2,925		$	4,440	$	7,365
Interest income		15,398			52		15,450		15,740			62		15,802
Interest expense		3,571			17		3,588		4,367			61		4,428
Interest income/(expense) allocation		(221	)		221		—		(299	)		299		—
Segment profit, before taxes		3,340			914		4,254		3,464			954		4,418
Segment assets	$	995,387		$	74,130	$	1,069,517	$	895,958		$	87,741	$	983,699


	For the six months ended							For the six months ended
	June 30, 2003							June 30, 2002

	Retail			Merchant Bancard				Retail			Merchant Bancard
	Banking			Services		Total		Banking			Services		Total

	(Dollars in thousands)							(Dollars in thousands)
Non-interest income	$	4,492		$	34,238	$	38,730	$	5,175		$	8,888	$	14,063
Interest income		30,824			160		30,984		31,070			139		31,209
Interest expense		7,344			33		7,377		8,958			95		9,053
Interest income/(expense) allocation		(484	)		484		—		(685	)		685		—
Segment profit, before taxes		6,933			32,423		39,356		6,547			1,505		8,052
Segment assets	$	995,387		$	74,130	$	1,069,517	$	895,958		$	87,741	$	983,699

Note 5 — Stock-Based Compensation

During the first quarter of 2003, Humboldt adopted the fair value recognition provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), for stock-based compensation, effective as of January 1, 2003. Under the prospective method of adoption selected by Humboldt, stock-based employee compensation costs are recognized as awards are granted, modified or settled. The following table presents the effect on net income and earnings per share as if the fair value based method had been applied to all outstanding and unvested awards in each period.

Stock-Based Compensation
(in thousands, except per share data)


		For the Three Months Ended						For the Six Months Ended
		June 30,						June 30,

		2003			2002			2003			2002

Net income, as reported		$	2,661		$	2,861		$	24,622		$	5,399
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			103			31			184			31
Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects			(119	)		(298	)		(302	)		(330	)

Pro forma net income		$	2,645		$	2,594		$	24,504		$	5,100

Earnings per share:
	Basic — as reported	$	0.22		$	0.23		$	1.99		$	0.43
	Basic — pro forma	$	0.22		$	0.21		$	1.98		$	0.41
	Diluted — as reported	$	0.21		$	0.22		$	1.91		$	0.41
	Diluted — pro forma	$	0.21		$	0.20		$	1.90		$	0.39

In April 2002, a stock option grant was made to the new President & Chief Executive Officer of Humboldt. The total number of options granted exceed the annual limit for grants to an individual and, accordingly, the options in excess of the limit were granted subject to shareholder approval of an amendment to the 2001 Humboldt Bancorp & Subsidiaries Equity Incentive Plan increasing the annual grant limit. This amendment was approved at the 2003 Annual Meeting, held in May 2003. Since the market value of Humboldt common stock on the date the amendment was approved exceeded the original option exercise price, Humboldt must recognize compensation expense for the difference times the number of shares that exceeded the annual grant limit. During the second quarter of 2003, Humboldt recognized $80,000 of compensation expense for this grant and will recognize a total of $57,000 in additional compensation expense over the next three quarters.

Note 6 – Recent Accounting Pronouncements

In April 2003, the FASB issued Statement No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, to provide clarification of certain terms and investment characteristics identified in Statement 133. Statement 149 is to be applied prospectively and is effective for contracts entered into or modified after June 30, 2003. Humboldt does not expect the adoption of the Statement will have a material impact on the consolidated financial statements.

In May 2003, the FASB issued Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity. The provisions of this Statement are effective for financial instruments entered into or modified after May 31, 2003, and otherwise are effective at the beginning of the first interim period beginning after June 15, 2003, except for mandatorily redeemable financial instruments of nonpublic entities. Given the nature of Humboldt’s liability and equity instruments, management does not expect this Statement to have a

material impact to the consolidated financial statements upon adoption of the Statement on July 1, 2003.

In January 2003, the FASB issued FIN 46, which clarifies the application of Accounting Research Bulletin (“ARB”) 51, Consolidated Financial Statements, to certain entities (called variable interest entities) in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. The disclosure requirements of this Interpretation are effective for all financial statements issued after January 30, 2003. The consolidation requirements apply to all variable interest entities created after January 30, 2003. In addition, public companies must apply the consolidation requirements to variable interest entities that existed prior to February 1, 2003 and remain in existence as of the beginning of annual or interim periods beginning after June 15, 2003. Management is currently assessing the impact of FIN 46, and does not expect this Interpretation to have a material impact on Humboldt’s financial condition or results of operations. The Bank has investments in two limited partnerships that operate qualified multi-family affordable housing projects and generate tax credits. The Bank’s interest in these partnerships was approximately $870,000 at June 30, 2003. The assets and liabilities of these partnerships consist primarily of apartment complexes and related debt. The Bank accounts for the investments under the equity method, and therefore the carrying value approximates its underlying equity in the net assets of the partnerships. Management believes that these two limited partnerships could be defined as variable interest entities and, therefore, be required to consolidate for all reporting periods beginning after June 15, 2003. Additional information regarding Investments in Limited Partnerships is provided in Note 1 of the Notes to the Consolidated Financial Statements in Humboldt’s 2002 Form 10-K.

During July 2, 2003, the Federal Reserve issued Supervisory Letter SR 03-13 addressing recent accounting interpretation guidance issued by the Financial Accounting Standards Board (“FASB”) regarding the consolidation of special purpose entities formed for the issuance of trust preferred securities. This specific issue raised by the new FASB interpretive guidance is whether or not the special purpose entities formed for the issuance of trust preferred securities qualify for consolidation under FIN 46. Humboldt currently has three such entities, which are described fully in Humboldt’s 2002 Form 10-K (Note 10), that are consolidated and included in the balance sheet as a liability described as “Guaranteed Preferred Beneficial Interests in Company’s Junior Subordinated Debentures.”

One of the concerns raised regarding the potential deconsolidation of trust preferred special purpose entities is whether the current treatment of qualifying amounts of trust preferred securities as Tier I regulatory capital will change. Supervisory Letter SR 03-13 instructs bank holding companies to continue to report trust preferred securities in the same manner on periodic reports to the Federal Reserve (as a minority interest in consolidated subsidiaries) and to continue to include, subject to limitation, trust preferred securities as Tier I capital until otherwise instructed.

Note 7 – Subsequent Events

On August 12, 2003, Humboldt announced the signing of a definitive agreement to acquire California Independent Bancorp (“CIB”), the parent holding company of Feather River State Bank. As of June 30, 2003, CIB has total assets of $378 million, total loans of $205 million, total deposits of $311 million and total shareholders’ equity of $28 million. Feather River State Bank operates 9 branches located in Colusa, Placer, Sutter, Yolo and Yuba counties in Northern California.

Under the terms of the agreement, Humboldt will pay approximately $80 million to acquire all outstanding shares of CIB. The consideration will be comprised of stock and cash, with the cash component fixed at $14.20 per share, or approximately $32 million in the aggregate. Humboldt expects to fund the cash consideration through the issuance of trust preferred securities and cash on hand. The exchange ratio is subject to adjustment based on the average trading price for Humboldt common stock for a defined period prior to closing. If Humboldt’s stock measurement price is between $14.12 and $15.30 per share, the exchange ratio will vary between 1.5085 and 1.3922 so that, when combined with the $14.20 per share cash consideration, the total consideration is $35.50 per CIB share. The exchange ratio will be fixed if the Humboldt measurement price is below $14.12 or above $15.30, at 1.5085 and 1.3922, respectively.

Subject to receipt of regulatory and shareholder approval, Humboldt expects this transaction will be completed during the first quarter of 2004.

Humboldt Bank is a party to a lawsuit brought by a merchant for whom Humboldt Bank’s merchant bankcard division processed credit card transactions through an independent service organization (“ISO”) in 2001. The ISO terminated its arrangements with the merchant. In its pleading, the merchant alleged fraud and breach of contract due to the ISO retaining the merchant’s $165,000 security deposit, which was

established to cover losses or legal fees for which the merchant would be liable under the merchant agreement. On August 8, 2003, following a trial which began on July 10, the jury returned a verdict which, if entered as a judgment by the court, would absolve Humboldt Bank and the ISO of the fraud and breach of contract charges, but would award compensatory damages of $150,000 and punitive damages of $3 million for wrongfully withholding the security deposit, of which $2 million would be assessed against Humboldt Bank. Management believes that this verdict is internally inconsistent and unsupported by either the facts or the trial record, and intends to make appropriate post-trial motions to set aside the verdict. A judgment on the matter is expected during September 2003 that will result in the verdict being upheld, overturned or reduced. As of the date of this Report, Humboldt Bank’s counsel has concluded that no single outcome (including the range of possible awards between the verdict as rendered and zero) was more likely than another. Accordingly, no liability was recorded as of June 30, 2003. In the event of an unfavorable judgment, management would expect to appeal.

Part I. Item II.
Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This discussion contains forward-looking statements under the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. Although Humboldt believes that the assumptions underlying the forward-looking statements contained in the discussion are reasonable, any of the assumptions could be inaccurate, and therefore, no assurance can be made that any of the forward-looking statements included in this discussion will be accurate. Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions (both generally and in the markets where Humboldt operates); competition from other providers of financial services offered by Humboldt; government regulation and legislation; changes in interest rates; material unforeseen changes in the financial stability and liquidity of Humboldt’s credit customers; and other risks detailed in Humboldt’s filings with the Securities and Exchange Commission, all of which are difficult to predict and which may be beyond the control of Humboldt. Humboldt undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.

Overview

Humboldt Bancorp (“Humboldt”) is a bank holding company registered under the Bank Holding Company Act of 1956. Humboldt’s operations are primarily conducted by Humboldt Bank, a wholly-owned subsidiary that is chartered by the State of California. As of June 30, 2003, Humboldt had total assets of $1.1 billion, total loans of $765 million, total deposits of $872 million and total shareholders’ equity of $93 million.

Summary of Critical Accounting Policies

The Securities and Exchange Commission (“SEC”) has issued disclosure guidance for “critical accounting policies.” The SEC defines “critical accounting policies” as those that require application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and may change in future periods.

Humboldt’s significant accounting policies are described in Note 1 in the Notes to the Consolidated Financial Statements for the year ended December 31, 2002 as filed on Form 10-K (the “Notes to the 2002 Consolidated Financial Statements”). Not all of these critical accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management believes that the following policies and those disclosed in the Notes to the 2002 Consolidated Financial Statements could be considered critical within the SEC definition.

Reserves and Contingencies

Humboldt must manage and control certain inherent risks in the normal course of its business. These include credit risk, fraud risk, operations and settlement risk, and interest rate risk. Humboldt has established reserves for risk of losses, including loan losses, tax contingencies and merchant bankcard losses. The allowance for loan losses represents Humboldt’s estimate of the probable losses that have occurred as of the date of the financial statements, as further described in Note 1 in the Notes to the 2002 Consolidated Financial Statements. Management believes that Humboldt has appropriately accrued for tax exposures. The allowance for merchant bankcard losses represents Humboldt’s estimate of probable losses that have occurred as of the date of the financial statements. In connection with the sale of Humboldt’s proprietary merchant bankcard portfolio during the first quarter of 2003, the portion of the reserve related to proprietary merchant processing was reduced to zero and included in the recorded gain on sale. During the second quarter of 2003, the remaining portion of the reserve that

was allocated for ISO processing was reduced to zero based on management’s evaluation of loss risk for remaining ISO sponsorship processing.

Derivative Financial Instruments

Humboldt has a policy that provides for the use of derivative financial instruments to hedge interest rate risk. This policy permits the use of interest rate swaps, cap and floor contracts to hedge specific interest rate risk exposures as part of Humboldt’s asset/liability management process. This policy limits the notional amount of total derivative financial instruments to 15% of total assets. Note 1 in the Notes to the 2002 Consolidated Financial Statements contains additional information on accounting policies related to derivative financial instruments. No new derivative contracts have been entered into during the first six months of 2003.

Discontinued Operations/Off-Balance Sheet Financing

During the first quarter of 2001, Humboldt classified its leasing subsidiary, Bancorp Financial Services, Inc. (“BFS”) as a discontinued operation upon adoption of a plan to sell the subsidiary. During the second quarter of 2001, it was determined that a sale of BFS was unlikely and the plan was modified to wind-down the operations of BFS. Management believes that the wind-down of BFS meets the requirements for classification as a discontinued operation. Note 3 in the Notes to the 2002 Consolidated Financial Statements contains additional information about Discontinued Operations.

Prior to its classification as a discontinued operation, BFS formed three subsidiaries that were not consolidated on the financial statements of BFS or Humboldt. These subsidiaries are commonly referred to as special purpose entities, or SPEs. As of June 30, 2003 and December 30, 2002, only two subsidiaries were not consolidated. Both of the remaining unconsolidated subsidiaries are considered “qualifying” SPEs that were formed for the sole purpose of issuing lease-backed notes to institutional investors. Additional information on these SPEs is provided in Note 3 in the Notes to the 2002 Consolidated Financial Statements.

Revenue recognition

Humboldt’s primary sources of revenue are interest income and, prior to the second quarter of 2003, fees received in connection with providing merchant bankcard processing services. Interest income is recorded on an accrual basis. Note 1 in the Notes to the 2002 Consolidated Financial Statements contains an explanation of the process for determining when the accrual of interest income is discontinued on impaired loans and under what circumstances loans are returned to an accruing status. Merchant bankcard revenue is recorded on a cash basis.

An additional source of revenue for Humboldt is related to the gains recorded in connection with the sale of SBA loans for which Humboldt retains the right to service the loans. Recording of such gains involves the use of estimates and assumptions related to the expected life of the loans and future cash flows. Note 1 in the Notes to the 2002 Consolidated Financial Statements contains additional information regarding Humboldt’s accounting policy for revenue recorded in connection with the sale of SBA loans. Servicing rights resulting from the sale of loans are based upon estimates and are subject to the risk of prepayments.

Stock-based compensation

Effective January 1, 2003, Humboldt elected to prospectively recognize compensation expense for stock options in accordance with the provisions of SFAS No. 123. Any stock options granted prior to this effective date will continue to be accounted for under the provisions of APB No. 25, generally without income statement recognition. Note 4 to the Consolidated Financial Statements for the quarterly periods ended June 30, 2003 and 2002 above presents a pro forma presentation of net income and earnings per share as if compensation expense were recognized for all unvested stock options. The calculation of compensation expense under SFAS No. 123 is determined by using the Black-Scholes option pricing model, which relies upon assumptions for expected future stock price volatility and cash dividends, and the expected life of the options. The ultimate value recognized by option holders may be significantly greater or less than the amount of compensation expense recognized by Humboldt.

During the second quarter of 2003, Humboldt recognized $80,000 of compensation expense for certain stock options that were granted in April 2002 in connection with hiring of a new Chief Executive Officer. The hire-date grant exceeded the maximum number of options that could be granted to an individual in any calendar year in accordance with the 2001 Humboldt Bancorp & Subsidiaries Equity Incentive Plan,

and was subject to shareholder approval of an amendment increasing the annual grant limit. An amendment increasing the limit was approved at Humboldt’s 2003 annual meeting. In accordance with generally accepted accounting principles, the difference between the original exercise price and the market value of Humboldt’s common stock, multiplied by the number of option shares which were subject to shareholder approval, will be recognized as compensation expense ratably over the vesting period of the option.

Results of Operations

For the three months ended June 30, 2003, Humboldt reported net income of $2.7 million, or $0.21 per diluted share, compared with net income of $2.9 million, or $0.22 per diluted share, for the same period in 2002. There was no financial impact related to discontinued operations during the second quarter of 2003 and, accordingly, the net income and earnings per share from continuing operations were the same as the reported net income and earnings per share above. During the second quarter of 2002, Humboldt completed the wind-down of its leasing operations and recognized a loss on discontinued operations of $276,000, or $0.02 per diluted share. The second quarter 2002 net income from continuing operations was $3.1 million, or $0.24 per diluted share. The results for the second quarter of 2003 produced a return on average assets of 0.99% and a return on average shareholders’ equity of 11.54%.

For the six months ended June 30, 2003, Humboldt reported net income of $24.6 million, or $1.91 per diluted share, as compared with net income and diluted earnings per share of $5.4 million and $0.41, respectively, for the same period in 2002. Since Humboldt had no activity related to discontinued operations during the first six months of 2003, the net income and related earnings per share for continuing operations was the same as the reported net income and earnings per share above. For the same period in 2002, Humboldt reported a net loss on discontinued operations of $276,000, or $0.03 per diluted share, providing for net income and earnings per share from continuing operations of $5.7 million and $0.44, respectively.

The results of operations for the six-month period ended June 30, 2003 included a non-recurring after-tax gain of approximately $18.6 million recognized during the first quarter in connection with the sale of Humboldt Bank’s proprietary merchant bankcard operations. Excluding the impact of this gain, net income from continuing operations for the six-month period ended June 30, 2003 was $0.47 per diluted share, an increase of 14% over the same period in 2002. The financial results for the first six months of 2003, excluding the non-recurring gain described above, produced a return on average assets and return on average shareholders’ equity of 1.15% and 13.8%, respectively.

The following table summarizes the major components of income and expense for the three and six-month periods ended June 30, 2003 and 2002 and the changes in those components for the periods presented.

Table 1 — Condensed Consolidated Statements of Income
(in thousands )


	For the Three Months								Percent			For the Six Months								Percent
	Ended June 30,					Change			Increase			Ended June 30,					Change			Increase
	2003		2002			Amount			(Decrease)			2003		2002			Amount			(Decrease)

Summary of Operations
Interest income	$	15,450	$	15,802		$	(352	)		-2	%	$	30,984	$	31,209		$	(225	)		-1	%
Interest expense		3,588		4,428			(840	)		-19	%		7,377		9,053			(1,676	)		-19	%

Net Interest Income		11,862		11,374			488			4	%		23,607		22,156			1,451			7	%
Provision for loan losses		314		642			(328	)		-51	%		903		1,088			(185	)		-17	%

Net interest income after provision for loan losses		11,548		10,732			816			8	%		22,704		21,068			1,636			8	%
Non-interest income		2,629		7,365			(4,736	)		-64	%		38,730		14,063			24,667			175	%
Non-interest expense		9,923		13,679			(3,756	)		-27	%		22,078		27,079			(5,001	)		-18	%

Income before taxes		4,254		4,418			(164	)		-4	%		39,356		8,052			31,304		nm
Income taxes		1,593		1,281			312			24	%		14,734		2,377			12,357		nm

Net income from continuing operations		2,661		3,137			(476	)		-15	%		24,622		5,675			18,947		nm
(Loss) on discontinued operations, net of tax		—		(276	)		276		nm				—		(276	)		276		nm

Net income	$	2,661	$	2,861		$	(200	)		-7	%	$	24,622	$	5,399		$	19,223		nm

Non-recurring items, net of tax*	$	—	$	—			—		nm			$	18,575	$	—			18,575		nm
Net income, excluding non-recurring items	$	2,661	$	2,861			(200	)		-7	%	$	6,047	$	5,399			648			12	%

* Includes gain on sale of proprietary merchant bankcard operation, net of tax.

nm — not meaningful

Net Interest Income

Net interest income is the largest source of Humboldt’s operating income. Net interest income was $11.9 million for the three-month period ended June 30, 2003, an increase of $488,000, or 4% over the comparable period in 2002. Net interest income was $23.6 million for the six months ended June 30, 2003, an increase of $1.5 million, or 7%, over the same period in 2002. These increases are principally attributable to growth in outstanding average interest earning assets over the comparable prior year period, offset by certain reductions in the net interest margin described below.

For the three-month period ended June 30, 2003, the net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 5.06%, a decrease of 31 basis points as compared to the same period in 2002. For the six months ended June 30, 2003, the tax equivalent net interest margin was 5.04%, 26 basis points lower than the comparable period in 2002. The decreases in the net interest margins for both the three and six month periods ended June 30, 2003 are principally attributable the impact of lower market interest rates. Specifically, the yield on Humboldt’s earning assets declined at a greater rate than the cost of interest-bearing liabilities. For example, the average yield on earning assets declined by 84 basis points for the six months ended June 30, 2003, while the average cost of interest bearing liabilities declined by 66 basis points. This disparity is due, in part, to downward adjustments on variable rate loans and increased cash flows from loans and investment securities that were reinvested at lower market rates. Humboldt was unable to lower deposit costs commensurately because, in some instances, the rates paid are approaching 0%.

The following tables show the relative impact of changes in average balances of interest earning assets and interest bearing liabilities, and interest rates earned (on a fully tax-equivalent basis) and paid by Humboldt on those assets and liabilities for the three and six-month periods ended June 30, 2003 and 2002:

Table 2 — Average Consolidated Balance Sheets and Net Interest Analysis
Fully tax-equivalent basis
(in thousands)


			For the Three Months Ended

			June 30, 2003								June 30, 2002

			Average			Interest		Avg.			Average			Interest		Avg.
			Balance			(1)		Rate			Balance			(1)		Rate

Assets:
Interest-earning assets:
	Loans, net of unearned income (2)		$	763,900		$	13,593		7.14	%	$	697,253		$	13,593		7.82	%
	Investment securities (1)			182,625			1,982		4.35	%		175,858			2,382		5.43	%
	Federal funds sold and other interest income			18,713			55		1.18	%		186			7		15.06	%

Total interest-earning assets / interest income				965,238		$	15,630		6.49	%		873,297		$	15,982		7.42	%

Non-interest-earning assets:
	Allowance for loan losses			(12,288	)							(10,298	)
	Cash and due from banks			58,797								48,149
	Premises and equipment			16,121								18,007
	Goodwill and deposit intangibles			4,642								9,385
	Other assets			48,572								22,607

Total assets			$	1,081,084							$	961,147

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
	Interest-bearing deposits:
		Transaction accounts	$	63,644		$	22		0.14	%	$	47,482		$	30		0.25	%
		Savings deposits		237,372			592		1.00	%		227,112			823		1.45	%
		Certificates of deposit		317,623			2,009		2.54	%		303,733			2,592		3.42	%

		Total interest-bearing deposits		618,638			2,623		1.70	%		578,327			3,445		2.42	%

Federal Home Loan Bank advances				60,037			367		2.45	%		45,893			421		3.68	%
Other borrowings (3)				26,044			598		9.21	%		27,606			562		8.17	%

	Total borrowed funds			86,081			965		4.50	%		73,499			983		5.42	%

Total interest-bearing liabilities / interest expense				704,720		$	3,588		2.04	%		651,826		$	4,428		2.72	%
Non-interest-bearing liabilities:
	Non-interest-bearing deposits			244,546								212,028
	Other liabilities			39,332								30,013

	Total liabilities			988,597								893,867

Stockholders’ equity				92,473								67,280

Total liabilities and stockholders’ equity			$	1,081,071							$	961,147

Net interest-rate spread									4.45	%							4.70	%
Impact of non-interest bearing sources and other changes in balance sheet composition									0.61	%							0.67	%

Net interest income / margin on interest-earning assets (4)						$	12,042		5.06	%				$	11,554		5.37	%

(1)		Interest income on tax-exempt securities and loans has been increased by 50% to reflect comparable interest on taxable securities.

(2)		For computational purposes, includes non-accrual loans.

(3)		Includes Trust Preferred Securities.

(4)		Tax equivalent net interest income as a percentage of average earning assets


			For the Six Months Ended

			June 30, 2003								June 30, 2002

			Average			Interest		Avg.			Average			Interest		Avg.
			Balance			(1)		Rate			Balance			(1)		Rate

Assets:
Interest-earning assets:
	Loans, net of unearned income (2)		$	760,615		$	27,239		7.22	%	$	679,722		$	26,923		7.99	%
	Investment securities			182,516			4,013		4.43	%		175,305			4,632		5.33	%
	Federal funds sold and other interest income			14,938			89		1.20	%		1,035			14		2.73	%

Total interest-earning assets / interest income				958,069		$	31,341		6.60	%		856,062		$	31,569		7.44	%

Non-interest-earning assets:
	Allowance for loan losses			(12,067	)							(10,061	)
	Cash and due from banks			46,062								47,546
	Premises and equipment			16,250								18,453
	Goodwill and deposit intangibles			5,407								8,456
	Other assets			45,733								34,049

Total assets			$	1,059,454							$	954,505

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
	Interest-bearing deposits:
		Transaction accounts	$	57,776		$	38		0.13	%	$	47,715		$	56		0.24	%
		Savings deposits		231,432			1,171		1.02	%		232,096			1,717		1.49	%
		Certificates of deposit		318,940			4,205		2.66	%		300,030			5,385		3.62	%

		Total interest-bearing deposits		608,148			5,414		1.80	%		579,841			7,158		2.49	%

Federal Home Loan Bank advances				59,786			800		2.70	%		43,285			813		3.79	%
Other borrowings (3)				27,663			1,163		8.48	%		28,882			1,082		7.55	%

	Total borrowed funds			87,449			1,963		4.53	%		72,167			1,895		5.30	%

Total interest-bearing liabilities / interest expense				695,597		$	7,377		2.14	%		652,008		$	9,053		2.80	%
Non-interest-bearing liabilities:
	Non-interest-bearing deposits			242,711								207,724
	Other liabilities			32,781								28,230

	Total liabilities			971,089								887,962

Stockholders’ equity				88,358								66,543

Total liabilities and stockholders’ equity			$	1,059,447							$	954,505

Net interest-rate spread									4.46	%							4.64	%
Impact of non-interest bearing sources and other changes in balance sheet composition									0.58	%							0.66	%

Net interest income / margin on interest-earning assets (4)						$	23,964		5.04	%				$	22,516		5.30	%

(1)		Interest income on tax-exempt securities and loans has been increased by 50% to reflect comparable interest on taxable securities.

(2)		For computational purposes, includes non-accrual loans.

(3)		Includes Trust Preferred Securities.

(4)		Tax equivalent net interest income as a percentage of average earning assets

The following tables show the relative impact on net interest income of changes in the average outstanding balances (volume) of earning assets and interest bearing liabilities and the rates earned and paid by Humboldt on such assets and liabilities for the three and six-month periods ended June 30, 2003 and 2002. Variances resulting from a combination of changes in rate and volume are allocated in proportion to the absolute dollar amounts of the change in each category.

Table 3- Change in Interest Income and Expense on a Tax Equivalent Basis
(in thousands)


					Three Months Ended June 30, 2003
					Compared to 2002
					Increase (Decrease)
					in interest income and expense
					due to changes in:

					Volume			Rate			Total

Interest-earning assets:
	Loans and leases				$	1,186		$	(1,186	)	$	—
	Investment securities					73			(473	)		(400	)
	Federal funds sold & other interest income					54			(6	)		48

	Total interest-earning assets / interest income					1,313			(1,665	)		(352	)
Interest-bearing liabilities:
		Transactions accounts				6			(14	)		(8	)
		Savings deposits				26			(257	)		(231	)
		Certificates of deposit				88			(671	)		(583	)

			Total interest-bearing deposits			120			(942	)		(822	)
		FHLB advances				86			(140	)		(54	)
		Other borrowings				(36	)		72			36

				Total borrowed funds		50			(68	)		(18	)

	Total interest-bearing liabilities					170			(1,010	)		(840	)

	Increase (decrease) in net interest income				$	1,143		$	(655	)	$	488


					Six Months Ended June 30, 2003
					Compared to 2002
					Increase (Decrease)
					in interest income and expense
					due to changes in:

					Volume			Rate			Total

Interest-earning assets:
	Loans and leases				$	2,897		$	(2,581	)	$	316
	Investment securities					159			(778	)		(619	)
	Federal funds sold & other interest income					83			(8	)		75

	Total interest-earning assets / interest income					3,139			(3,367	)		(228	)
Interest-bearing liabilities:
		Transactions accounts				7			(25	)		(18	)
		Savings deposits				(3	)		(543	)		(546	)
		Certificates of deposit				249			(1,429	)		(1,180	)

			Total interest-bearing deposits			253			(1,997	)		(1,744	)
		FHLB advances				221			(234	)		(13	)
		Other borrowings				(51	)		132			81

				Total borrowed funds		170			(101	)		68

	Total interest-bearing liabilities					423			(2,098	)		(1,676	)

	Increase (decrease) in net interest income				$	2,716		$	(1,269	)	$	1,448

Provision for Loan Losses

The provision for loan losses was $314,000, or 0.16% of average loans on an annualized basis, for the three-month ended June 30, 2003, compared with $642,000, or 0.37% of average loans, for the same period in 2002. Net charge-offs for the three months ended June 30, 2003 were $159,000, or 0.08% of average loans on an annualized basis, compared to $137,000 or 0.08% of average loans for the same period in 2002. For the six months ended June 30, 2003, the provision for loan losses was $903,000, or 0.24% of average loans on an annualized basis, compared with $1.1 million, or 0.32% of average loans, for the same period in 2002. Net charge-offs for the six months ended June 30, 2003 were $383,000, or 0.10% of average loans on an annualized basis, compared with $385,000, or 0.11% of average loans, for the same period in 2002. The ratio of allowance for loan losses to total loans was 1.59% at June 30, 2003, as compared to 1.53% at December 31, 2002.

The provision for loan losses and allowance for loan losses reflect management’s consideration of the various risks in the loan portfolio. Additional discussion of loan quality and the allowance for loan losses is provided in the Asset Quality discussion section of this report.

Non-interest Income

Non-interest income for the three-month period ended June 30, 2003 was $2.6 million, a decrease of $4.7 million, or 64%, from the same period in 2002. This decrease is principally attributable to lower merchant bankcard processing revenues resulting from the sale of Humboldt’s proprietary merchant bankcard business in March 2003. Merchant bankcard processing fees totaled $324,000 for the three months ended June 30, 2003, a decrease of $4.4 million, or 93%, from the same period in 2002. The merchant processing fee revenue recognized by Humboldt during the second quarter of 2003 was related to ISO sponsorships. The lower non-interest income level for the three months ended June 30, 2003 also reflects reduced ATM fees due to Humboldt’s exit from the ATM funding business during the second quarter of 2002.

Service charges on deposit accounts totaled $805,000 for the three-month period ended June 30, 2003, an increase of $182,000, or 29%, over the comparable period in 2002. This increase is principally attributable to Humboldt’s introduction of a new overdraft privilege feature for certain consumer transaction accounts that resulted increased overdraft charges.

Total gains on the sale of loans for the three-month period ended June 30, 2003 were $509,000, a decrease of $287,000, or 36%, from the same period in 2002. This decrease is principally attributable to a decrease in the volume of SBA loans originated and sold. During the three-month period ended June 30, 2003, Humboldt recognized $403,000 in gains related to the sale of $3.6 million of SBA loans, compared with $512,000 in gains related to the sale of $11.5 million in loans for the same period in 2002. For the six-month period ended June 30, 2003, gains on sales of loans totaled $1,209,000 (including $803,000 related to SBA loans), an increase of $53,000, or 5%, over the $1,149,000 recorded in the first half of 2002.

Included in non-interest income for the three-month period ended June 30, 2003 was $100,000 related to the cash recovery of a prior fraud loss and $100,000 related to the collection of certain fees related to Automated Clearinghouse (“ACH”) processing. During the second quarter of 2002, Humboldt recognized $296,000 in gains on the sale of securities in connection with a restructuring of the securities portfolio in light of market interest rates; no gains were recorded for the same period in 2003.

Non-interest income for the six-month period ended June 30, 2003 was $38.7 million, an increase of $24.7 million, or 175%, over the same period in 2002. This increase is principally attributable to a $29.8 gain recognized during the first quarter of 2003 in connection with the sale of Humboldt’s proprietary merchant bankcard operations, offset by a reduction in merchant bankcard processing revenues, subsequent to the sale, of $4.3 million. ATM fees for the six-month period ended June 30, 2003 were $389,000, a decrease of $586,000, or 60%, from the same period in 2002. This decrease is directly attributable to Humboldt’s exit from the ATM funding business during the second quarter of 2002.

Humboldt recognized $296,000 in securities gains during the six-month period ended June 30, 2002. No gains were recognized for the same period in 2003.

Table 4 — Non-Interest Income
(In thousands)


		For the Three Months Ended June 30,										For the Six Months Ended June 30,

						Change			Change							Change			Change
		2003		2002		Amount			Percent			2003		2002		Amount			Percent

Merchant processing fees		$	324	$	4,406	$	(4,082	)		-93	%	$	4,451	$	8,713	$	(4,262	)		-49	%
ATM fees			241		369		(128	)		-35	%		389		975		(586	)		-60	%
Bank-owned life insurance			181		243		(62	)		-26	%		362		435		(73	)		-17	%
Service charges on deposit accounts			805		623		182			29	%		1,411		1,170		241			21	%
Gain on sale of loans			509		796		(287	)		-36	%		1,202		1,149		53			5	%
Gain on sale of securities			—		296		(296	)		-100	%		—		296		(296	)	-	100	%
Gain on sale of business unit			—		—		—		nm				29,768		—		29,768		nm
Other			569		632		(63	)		-10	%		1,147		1,325		(178	)		-13	%

	Total non-interest income	$	2,629	$	7,365	$	(4,736	)		-64	%	$	38,730	$	14,063	$	24,667			175	%

nm — not meaningful

Non-interest Expense

For the three-month period ended June 30, 2003, non-interest expense totaled $9.9 million, a decrease of $3.8 million, or 27%, from the same period in 2002. This decrease is principally attributable to the sale of Humboldt’s proprietary merchant bankcard operations during the first quarter of 2003 and resulting elimination of operating expenses associated with the business subsequent to the completion of the sale on

March 13, 2003. Total non-interest expense for the six-month period ended June 30, 2003 was $22.1 million, a decrease of $5.0 million, or 18%, from the same period in 2002. This decrease is also principally attributable to the sale of Humboldt’s proprietary merchant bankcard business discussed above.

Compensation expense for the three-month period ended June 30, 2003 was $6.1 million, a decrease of $437,000, or 7%, from the same period in 2002. This decrease is principally attributable to reduced payroll costs associated with Humboldt’s proprietary merchant bankcard operations, including the recognition of $574,000 of compensation expense related to accruals for certain employment agreements during the second quarter of 2002. Compensation expense for the three-month period ended June 30, 2003 included $625,000 of compensation expense related to severance agreements for two regional executives who were terminated and $80,000 of expense related to application of variable accounting for stock options granted to Humboldt’s chief executive officer in 2002 that were subject to shareholder approval of an amendment to a stock option plan. Additional information regarding this grant and the related accounting is included in Note 5 of the Notes to the Consolidated Financial Statements. For the six-month period ended June 30, 2003, compensation expense totaled $12.4 million, a decrease of $949,000, or 7%, from the same period in 2002. This decrease is also principally attributable to the reduction in payroll costs resulting from the sale of Humboldt’s proprietary merchant bankcard business. Humboldt recognized $1.2 million of compensation expense for the six-month period ended June 30, 2003 related to the merchant bankcard employment contracts described above.

Total occupancy and equipment expense for the three-month period ended June 30, 2003 was $1.4 million, a decrease of $147,000, or 9% from the same period in 2002. For the six-month period ended June 30, 2003, total occupancy and equipment expense was $2.9 million, a decrease of $254,000, or 8% from the same period in 2002. The decreases for both the three and six-month periods are principally attributable to the sale or closure of branch facilities.

Total other non-interest expense for the three-month period ended June 30, 2003 was $2.4 million, a decrease of $3.2 million, or 57%, from the same period in 2002. This decrease is principally attributable to the sale of Humboldt’s proprietary merchant bankcard business, which incurred $1.9 million of other non-interest expense in 2002 and no expense in the comparable 2003 period, and the reversal of a $576,000 reserve for merchant processing fraud losses associated with Humboldt’s ISO sponsorship processing business, and expenses recognized in 2002 related to the consolidation of Humboldt’s three bank charters. Total other non-interest expense for the six-month period ended June 30, 2003 was $6.7 million, a decrease of $3.8 million, or 36%, from the same period in 2002. This decrease is principally attributable to a reduction in expense related to the proprietary merchant bankcard operation of $2.2 million and the impact of reversing the fraud loss reserve described above during the second quarter of 2003.

Income Taxes

Income tax expense for the three months ended June 30, 2003 was $1.6 million, compared with $1.3 million for the same period in 2002. The effective tax rate (income tax expense as a percentage of pre-tax income) for the three months ended June 30, 2003 was 37.4%, compared to 29.0% for the same period in 2002. Income tax expense for the six-month period ended June 30, 2003 was $14.7 million, compared with $2.4 million for the same period in 2002. The effective tax rate for the six months ended June 30, 2003 was 37.4%, compared to 29.5% for the prior year period. The increase in the effective tax rates for the three and six-month periods ended June 30, 2003 is principally attributable to the additional pre-tax income resulting from the sale of Humboldt’s proprietary merchant bankcard operation.

Investment Securities

The composition of the investment securities portfolio reflects Humboldt’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of income. The investment securities portfolio also provides a balance to interest rate risk and credit risk in other categories of the balance sheet while providing a vehicle for the investment of available funds, furnishing liquidity, and supplying securities to pledge as required collateral for certain deposits. Total average investment securities for the three-month period ended June 30, 2003 were $183 million, an increase of $7 million, or 4%, over the same period in 2002. The average tax-equivalent yield on investment securities for the three-month period ended June 30, 2003 was 4.35%, a decrease of 108 basis points from the same period in 2002. This decrease is principally attributable to a significant increase in the cash flows arising from mortgage-backed securities due to increased

prepayments of underlying mortgage loans resulting from historically low market interest rates, which were reinvested in securities with lower market-based yields.

Total average investment securities for the six-month period ended June 30, 2003 were $183 million, an increase of $7 million, or 4%, over the same period in 2002. The average yield on investment securities for the six-month period ended June 30, 2003 was 4.43%, a decrease of 90 basis points from the comparable period in 2002. The decrease in the average yield is attributed to the same principal factors as described for the quarterly variance above.

Loans

Total average loans for the three-month period ended June 30, 2003 were $764 million, an increase of $67 million, or 10%, over the same period in 2002. The average yield on loans for the three-month period ended June 30, 2003 was 7.14%, a decrease of 68 basis points from the same period in 2002. This decrease is principally attributable the downward re-pricing of Humboldt’s variable rate loans due to lower market interest rates and the reinvestment of cash flows arising from scheduled payments and prepayments of principal at lower market rates. Total average loans for the six-month period ended June 30, 2003 were $761 million, an increase of $81 million, or 12%, over the same period in 2002. The average yield on loans for the six-month period ended June 30, 2003 was 7.22%, a decrease of 77 basis points from the same period in 2002. This decrease is attributed to the same principal factors as noted above for the three-month periods. The loan growth experienced over the past year, for both three and six-month periods, is principally attributable to continued robust economic conditions in Humboldt’s primary market areas, especially in the Redding, Chico and Roseville, California markets.

Total loans at June 30, 2003 were $765 million, an increase of $5 million, or 1% from year-end 2002. Loan growth for 2003 has been adversely impacted by the sale of approximately $15 million of loans during the first quarter in connection with the sale of deposits to an unaffiliated financial institution and by an increased level of payoffs attributed, in part, to long-term fixed rate offerings by competing banks.

Asset Quality

Non-performing assets, which include non-accrual loans, loans past-due 90 days or more and still accruing interest and other real estate owned, totaled $11.4 million at June 30, 2003, as compared to $3.7 million at December 30, 2002 and $3.0 million at June 30, 2002. Total non-performing loans at June 30, 2003 were $11.3 million, as compared to $3.6 million at December 30, 2002 and $2.9 million at June 30, 2002. The increase in non-performing loans since December 31, 2002 is principally attributable to loans to two borrowers totaling $7.6 million being placed on non-accrual status during the first quarter of 2003, offset by one loan for $1.3 million that was classified as non-accrual as of December 31, 2002 that was paid in full during the first quarter of 2003. One of the two loans placed on non-accrual status is for the expansion of a boutique hotel and had a balance of $5.9 million as of June 30, 2003. This project is substantially completed and the loan is well-secured by real estate; no significant loss is expected in connection with the workout. Management expects that post-construction financing will need to be extended in order to provide for a stabilization of the hotel’s operating cash flow and that the loan will remain on non-accrual status until such time as the cash flow from the operation can support the debt service in accordance with Humboldt’s credit policy. The other relationship placed on non-accrual status included various loans totaling $2.6 million to an agriculture-related business, of which $1.6 million is backed by government guarantees. Based on evaluation of the collateral and guarantees, Humboldt recognized a charge-off of $125,000 on this relationship during the second quarter of 2003 and no additional loss is expected.

Management classifies loans as non-accrual when principal or interest is 90 days or more past due and the loan is not sufficiently collateralized and in the process of collection. Once a loan is classified as non-accrual, it cannot be reclassified as an accruing loan until all principal and interest payments are brought current and the prospects for future payments in accordance with the loan agreement appear relatively certain. Foreclosed properties held as other real estate owned are recorded at the lower of Humboldt’s recorded investment in the loan or market value of the property less expected selling costs.

The following table presents information about Humboldt’s non-performing assets, including quality ratios as of June 30, 2003, December 31, 2002 and June 30, 2002:

Table 5- Non-Performing Assets
(in thousands)


			June 30,			December 31,			June 30,
			2003			2002			2002

Non-accrual loans			$	10,963		$	3,054		$	2,243
Loans past due 90 days or more and still accruing				305			561			645

	Total non-performing loans			11,268			3,615			2,888
Other real estate owned				88			88			195

		Total non-performing assets	$	11,356		$	3,703		$	3,083

Total non-performing loans as a percentage of total loans				1.47	%		0.48	%		0.40	%
Total non-performing assets as a percentage of total assets				1.06	%		0.36	%		0.31	%

At June 30, 2003, Humboldt had approximately $13 million ($12 million at December 31, 2002) of outstanding loans that were not included in the non-performing or non-accrual categories, but for which management had knowledge that the borrowers had certain identified weaknesses based on Humboldt’s internal risk rating system. Although these weaknesses are serious enough for management to be uncertain of the borrowers’ ability to comply with the original repayment terms of the loans, no losses are anticipated at this time in connection with these loans based on current market conditions, cash flow generation and collateral values. These loans are subject to routine management review and are considered in determining the adequacy of the allowance for loan losses.

The allowance for loan losses (“ALL”) at June 30, 2003 totaled $12.1 million, an increase of $520,000, or 4%, from December 31, 2002. The ratio of ALL to total loans at June 30, 2003 was 1.59%, an increase of six basis points from December 31, 2002 and 12 basis points from June 30, 2002. At June 30, 2003 and 2002, the ratio of ALL to total non-performing loans was 108% and 362%, respectively.

The following table provides an analysis of the changes in the ALL for the three and six-month periods ended June 30, 2003 and 2002:

Table 6 — Allowance for Loan Losses
(in thousands)


		Three Months Ended						Six Months Ended
		June 30,						June 30,

		2003			2002			2003			2002

Balance beginning of period		$	11,979		$	9,963		$	11,614		$	9,765
Provision for loan losses			314			642			903			1,088
Loans charged-off			(285	)		(307	)		(638	)		(771	)
Charge-off recoveries			125			170			254			386

Net charge-offs			(160	)		(137	)		(384	)		(385	)

Balance end of period		$	12,133		$	10,468		$	12,133		$	10,468

As a percentage of average loans (annualized):
	Net charge-offs		0.08	%		0.08	%		0.10	%		0.11	%
	Provision for loan losses		0.16	%		0.37	%		0.24	%		0.32	%
Allowance for loan losses as a percentage of:
	Period end loans		1.59	%		1.47	%		1.59	%		1.47	%
	Non-performing loans		108	%		362	%		108	%		362	%

Management believes that the ALL at June 30, 2003 is sufficient to absorb losses inherent in the loan portfolio. This assessment is based upon the best available information and does involve uncertainty and matters of judgment. Accordingly, the adequacy of the loan loss reserve cannot be determined with precision and could be susceptible to significant change in future periods.

Deposits and Borrowed Funds

Total average deposits for the three-month period ended June 30, 2003 were $863 million, an increase of $73 million, or 9%, over the same period in 2002. Of this increase, $32 million was in the non-interest bearing deposit category. This increase is principally attributable to changes to Humboldt’s procedures for processing ACH transactions related to ISO merchant processing activity. The increase in average interest-bearing deposits of $41 million for the three-month period ended June 30, 2003 as compared to the prior year period was comprised of an increase in savings/money market accounts of $10 million, or 5%, and an increase in certificates of deposit of $13 million, or 5%. The average cost of interest bearing deposits for the three and six-month periods ended June 30, 2003 were 1.72% and 1.80%, respectively. These average costs represent declines of 70 basis points and 69 basis points, respectively, as compared to the three and six-month periods in 2002. These reductions are principally due to rate reductions made by Humboldt in response to lower market interest rates.

As of June 30, 2003, Humboldt had $79 million of brokered certificates of deposit at an average cost of 1.65%. Of this total, $69 million are fixed-rate instruments that mature prior to December 31, 2003. One brokered issuance, in the amount of $10 million, matures in June 2010. This issuance is callable at Humboldt Bank’s option after one year and bears a fixed interest rate of 4.70%. Humboldt has synthetically converted this issuance to a floating rate based on LIBOR plus 7 basis points using an interest rate swap contract, which is callable by the counterparty after one year. Humboldt’s has the option to call the related brokered certificates. Additional information regarding this swap contract is included in Table 8 below.

Total average borrowed funds for the three months ended June 30, 2003 were $86 million, an increase of $13 million, or 17%, over the same period in 2002. The average cost of borrowed funds for the three-month period ended June 30, 2003 was 4.55%, down 87 basis points as compared to the same period in 2002. This decrease is principally attributable to downward re-pricing of short-term FHLB advances due to lower short-term market interest rates. Total average borrowed funds for the six-month period ended June 30, 2003 were $87 million, an increase of $15 million, or 21%, over the same period in 2002. The average cost of borrowed funds for the six-month period ended June 30, 2003 was 4.53%, down 77 basis points as compared to the same period in 2002. This decrease is principally attributable to the same factors described above for the quarterly variance.

Asset/Liability Management

Humboldt’s financial performance is largely dependent upon its ability to manage market interest rate risk, which can be further defined as the exposure of Humboldt’s net interest income to fluctuations in interest rates. Since net interest income is the largest component of Humboldt’s revenue, management of interest rate risk is a priority. Humboldt’s interest rate risk management program includes a coordinated approach to managing interest rate risk and is governed by policies and Humboldt’s Asset and Liability Management Committee (“ALCO”). The ALCO meets regularly to evaluate the impact of market interest rates on the assets, liabilities, net interest margin, capital and liquidity of Humboldt and to determine the appropriate strategic plans to address the impact of these factors.

Management monitors the sensitivity of net interest income to changes in market interest rates by utilizing a simulation model. This model measures net interest income sensitivity and volatility to interest rate changes based on assumptions which management believes are reasonable. Factors considered in the simulation model include actual maturities, estimated cash flows, repricing characteristics, and the relative sensitivity of assets and liabilities to changes in market interest rates. The simulation model considers other factors that can impact net interest income, including the mix of earning assets and liabilities, yield curve relationships, customer preferences and general market conditions. Utilizing the simulation model, management can project the impact of changes in interest rates on net interest income.

Humboldt utilizes an interest rate simulation model to monitor and evaluate the impact of changing interest rates on net interest income. The estimated impact on Humboldt’s net interest income over a one-year time horizon as of June 30, 2003 is presented in Table 7. The interest rate simulation assumes a parallel and sustained shift in market interest rates ratable over a twelve-month period and no change in the composition or size of Humboldt’s balance sheet. For example, the “up 200 basis points” scenario is based on a theoretical increase in market rates of 16.7 basis points per month for 12 months.


Table 7
	Increase (Decrease) in Net Interest			Percentage
Scenario	Income from Base Scenario			Change

	(Dollars in thousands)
Up 200 basis points	$	2,460			5.4	%
Up 100 basis points		1,254			2.7	%
Down 100 basis points		(1,547	)	-	3.4	%

The preceding interest rate simulation model does not represent a financial forecast and should not be relied upon as being indicative of future results. These hypothetical estimates are based on numerous assumptions and factors, including actual maturities, estimated cash flows, repricing characteristics, the relative sensitivity of assets and liabilities to changes in market interest rates, mix of earning assets and liabilities, yield curve relationships, customer preferences and general economic conditions. While assumptions and estimates are developed based upon current economic and local market conditions, Humboldt cannot make any assurances as to the predictive nature of these assumptions and estimates.

In order to assist with managing interest rate sensitivity, Humboldt has entered into off-balance sheet contracts that are considered derivative financial instruments. As of June 30, 2003, Humboldt had four such contracts, all of which are interest rate swap agreements. Table 8 presents information regarding the swap agreements as of June 30, 2003:

Table 8 — Interest Rate Swap Contracts
As of June 30, 2003
(In thousands)


Issue	Notional		Rate			Rate			Maturity	Hedge	Hedged	Fair
Date	Amount		Paid			Received			Date	Type	Instrument	Value

January 2002		$25,000		4.00	%(1)		6.72	%	January 2005	Cash Flow	Loans	$	988
July 2002		25,000		4.00	%(2)		6.30	%	July 2005	Cash Flow	Loans		1,004
December 2002		10,000		1.13	%(3)		4.70	%	June 2010	Fair Value	Callable CD		91
December 2001		10,000		8.42	%(4)		4.98	%	December 2006	Cash Flow	Trust Preferred		(878	)

		$70,000										$	1,205

(1)		Variable rate based on prime rate

(2)		Variable rate based on prime rate

(3)		Variable rate based on LIBOR + 7 basis points

(4)		Fixed rate

Each of Humboldt’s derivative financial instruments is classified as either a fair value or cash flow hedge. Fair value hedges recognize currently in earnings both the impact of change in the fair value of the derivative financial instrument and the offsetting impact of the change in fair value of the hedged asset or liability. The change in fair value of cash flow hedges is recognized in other comprehensive income, net of associated tax effects.

Humboldt requires all derivative financial instruments to be used only for asset/liability management through the hedging of specific transactions or positions, and not for trading or speculative purposes. Management believes that the risk associated with using derivative financial instruments to mitigate interest rate risk sensitivity is minimal and should not have any material unintended impact on Humboldt’s financial condition or results of operations.

Capital Resources and Liquidity

Stockholders’ equity at June 30, 2003 was $93 million, an increase of $16 million, or 20%, from year-end 2002 and a decrease of $3 million, or 3%, from March 31, 2003. Table 9 presents a summary of the changes in stockholders’ equity for the three and six-month periods ended June 30, 2003:

Table 9 — Summary of Changes in Stockholders’ Equity


For the three months ended June 30, 2003:
Stockholders’ equity March 31, 2003	$	96,326
Net income		2,661
Dividends paid		(381	)
Stock options exercised		695
Stock-based compensation and related tax benefit		580
Shares repurchased		(6,536	)
Other comprehensive income		88

Stockholders’ equity June 30, 2003	$	93,433

For the six months ended June 30, 2003
Stockholders’ equity December 31, 2002	$	77,848
Net income		24,622
Dividends paid		(694	)
Stock options exercised		1,929
Stock-based compensation and related tax benefit		715
Shares repurchased		(10,897	)
Other comprehensive (loss)		(90	)

Stockholders’ equity June 30, 2003	$	93,433

The following table shows Humboldt’s capital ratios, as calculated under regulatory guidelines, compared to the regulatory minimum capital ratio and the regulatory minimum capital ratio needed to qualify as a “well-capitalized” institution at June 30, 2003 and December 31, 2002:

Table 10 — Capital Ratios


		June 30,			December 31,
		2003			2002

Leverage ratio			9.76	%		8.73	%
	Regulatory minimum		4.00	%		4.00	%
	Well-capitalized minimum		5.00	%		5.00	%
Tier I risk-based capital			11.27	%		10.18	%
	Regulatory minimum		4.00	%		4.00	%
	Well-capitalized minimum		6.00	%		6.00	%
Total risk-based capital			12.52	%		11.43	%
	Regulatory minimum		8.00	%		8.00	%
	Well-capitalized minimum		10.00	%		10.00	%

On February 6, 2002, Humboldt announced the authorization of a stock repurchase for up to 600,000 shares. This repurchase was completed during the first quarter of 2003. On July 22, 2002, Humboldt’s Board of Directors authorized a second stock repurchase for up to 1.2 million shares in connection with the planned sale of the Humboldt’s proprietary merchant bankcard operations. Approximately 500,000 shares remained available for repurchase under this authorization as of June 30,2003. The following table presents the number of shares repurchased and average price paid by Humboldt for the three and six-month periods ended June 30, 2003 and 2002.

Table 11 — Share Repurchase Summary


	Three Months Ended				Six Months Ended
	June 30,				June 30,

	2003		2002		2003		2002

Shares repurchased		497,501		84,480		863,927		339,120
Average price paid		$13.14		$10.95		$12.61		$8.97

The following table presents cash dividends paid by Humboldt for the three and six-month periods ended June 30, 2003 and 2002. Dividend amounts shown for 2002 are adjusted to reflect the six-for-five stock split issued in August 2002.

Table 12 — Cash Dividends


	Three Months Ended						Six Months Ended
	June 30,						June 30,

	2003			2002			2003			2002

Dividend per share	$	0.030		$	0.021		$	0.055		$	0.021
Payout ratio*		14	%		8	%		11	%		5	%

Excludes impact of gain on sale of proprietary merchant bancard operations for 2003.

Humboldt did not pay cash dividends prior to the second quarter of 2002. Although it is the intention of Humboldt to pay cash dividends on a quarterly basis, there is no assurance that any future cash dividends will be paid. The payment of cash dividends is subject to Federal regulatory requirements for capital levels and other restrictions. In addition, the cash dividends paid from Humboldt Bank to Humboldt Bancorp (the primary source of cash available for dividends by Humboldt Bancorp) is subject to both Federal and State regulatory requirements.

Liquidity measures the ability to meet current and future cash flow needs as they become due. Maintaining an adequate level of liquid funds, at the most economical cost, is an important component of Humboldt’s asset and liability management program. Humboldt has several sources of available funding to provide the required level of liquidity, including deposits and short and long-term borrowings. Like most banking organizations, Humboldt relies primarily upon cash inflows from financing activities (deposit gathering, short-term borrowing and issuance of long-term debt) in order to fund its investing activities (loan origination and securities purchases). The investing activity cash inflows such as loan payments and securities sales and prepayments are also a significant component of liquidity.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have been no material changes in Humboldt’s quantitative and qualitative disclosures about market risk as of June 30, 2003 from those presented in Humboldt’s Annual Report on Form 10-K for the year ended December 31, 2002.

Item 4. Controls and Procedures

As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company’s President and Chief Executive Officer along with the Company’s Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) required to be included in this Form 10-Q.

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter to which this Form 10-Q relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1 — Legal Proceedings – In the normal course of business, Humboldt and its subsidiaries are involved in litigation. Management does not believe that any litigation in which it is currently involved will have a material impact on financial condition or results of operations. Humboldt Bank is a party to a lawsuit brought by a merchant for whom Humboldt’s Bank merchant bankcard division processed credit card transactions through an ISO in 2001. See Note 7 “Subsequent Events” to the Unaudited Consolidated Financial Statements for more information.

Item 2 — Changes in Securities — None

Item 3 — Defaults Upon Senior Securities — None

Item 4 — Submission of Matters to a Vote of Security Holders

On or about April 10, 2003, a Proxy Statement of Humboldt Bancorp was mailed to shareholders of record as of March 31, 2003 by the Board of Directors soliciting proxies for use at the Annual Meeting of Shareholders to be held on May 15, 2003. At the meeting, the shareholders were asked to elect 13 nominees for Directors; ratify the appointment of KPMG LLP as independent certified accountants; and approve certain amendments to the 2001 Humboldt Bancorp & Subsidiary Equity Incentive Plan as described below.

Proposal #1 – To elect a board of thirteen directors to serve for the ensuing year:


	For		Withheld

Ronald F. Angell		10,625,789		53,836
Richard C. Claussen		10,572,639		53,836
Robert M. Daugherty		10,573,592		53,836
Gary L. Evans		10,536,553		53,836
Garry D. Fish		10,259,243		53,836
Gary C. Katz		9,903,753		53,836
John W. Koeberer		10,130,473		53,836
Theodore S. Mason		10,560,191		53,836
Steven R. Mills		9,905,416		53,836
Kelvin H. Moss		10,418,633		53,836
Gary L. Napier		10,330,154		53,836
Tom Weborg		11,194,440		53,836
John R. Winzler		10,727,233		53,836

Proposal #2 – Ratify the appointment of KPMG LLP as independent certified accountants to audit Humboldt’s financial statements for the year ended December 31, 2003:


For			9,513,768
Against			846,623
Withheld			134,838

Proposal #3 – To approve the Amended and Restated Humboldt Bancorp & Subsidiaries 2001 Equity Incentive Plan:


For			9,300,130
Against			758,866
Withheld			436,233

Item 5 — Other Information

On May 15, 2003, Humboldt notified its executive officers and directors of a blackout period with respect to trading Humboldt common stock due to a change in the third-party administrator for Humboldt’s 401(k) and Stock Bonus Plan. A copy of the notice was attached as Exhibit 99.1 to a Form 8-K, but was not filed but considered furnished pursuant to Regulation FD.

Item 6 — Exhibits and Reports on Form 8-K

(a) Exhibits


31.1		Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley act of 2002.

(b) Reports on Form 8-K

On August 12, 2003, Humboldt filed a Form 8-K in connection with the issuance of a press release announcing that Humboldt entered into a definitive Agreement and Plan of Merger with California Independent Bancorp. A copy of the press release was included as Exhibit 99.1, but was not filed but considered furnished pursuant to Regulation FD.

On July 16, 2003, Humboldt filed a Form 8-K in connection with the issuance of a press release announcing its first quarter 2003 financial results. A copy of the press release was included as Exhibit 99.1 under Item 9 in accordance with interim guidance issued by the SEC in Release No. 33-8216 for reporting Item 12 (Results of Operations and Financial Condition).

On May 16, 2003, Humboldt filed a Form 8-K in connection with a notice issued on May 15, 2003 to its executive officers and directors informing them of the blackout period with respect to trading Humboldt common stock due to a change in the third-party administrator of Humboldt’s 401(k) and Stock Bonus Plan. A copy of the notice was attached as Exhibit 99.1, but was not filed but considered furnished pursuant to Regulation FD.

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


Dated: August 14 , 2003	HUMBOLDT BANCORP

		/s/ Robert M. Daugherty

		Robert M. Daugherty President and Chief Executive Officer

		/s/ Patrick J. Rusnak

		Patrick J. Rusnak Chief Financial Officer

EXHIBITS


31.1		Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certifications by Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley act of 2002.

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Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents