HUMBOLDT BANCORP - 10-Q Quarterly Report

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 September 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: 12,151,739 shares
outstanding as of November 1, 2003

TABLE OF CONTENTS


		Consolidated Balance Sheets
		Consolidated Statements of Income
		Consolidated Statements of Cash Flows
		Consolidated Statements of Comprehensive Income
		Notes to Consolidated Financial Statements
	Item II. 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 September 30, 2003 and December 31, 2002	3
		Consolidated Statements of Income (unaudited) for the Three Months and Nine Months Ended September 30, 2003 and 2002	4
		Consolidated Statements of Cash Flows (unaudited) for the Nine Months Ended September 30, 2003 and 2002	5
		Consolidated Statements of Other Comprehensive Income (unaudited) for the Three Months and Nine Months Ended September 30, 2003 and 2002	6
		Notes to Unaudited Consolidated Financial Statements	7
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		12
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		28
	Item 4. Controls and Procedures		28
PART II Other Information
	Item 1. Legal Proceedings		29
	Item 2. Changes in Securities		29
	Item 3. Defaults Upon Senior Securities		29
	Item 4. Submission of Matters to a Vote of Security Holders		29
	Item 5. Other Information		29
	Item 6. Exhibits and Reports on Form 8-K		29
Signatures			30

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HUMBOLDT BANCORP AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
As of September 30, 2003 and December 31, 2002
(in thousands)


				September 30,		December 31,
				2003		2002

ASSETS
	Cash and due from banks			$	35,949	$	35,156
	Federal funds sold and interest bearing deposits with banks				34,105		202
	Investment securities available for sale, at fair value				151,226		181,471
	Loans				759,790		760,648
	Less: allowance for loan losses				12,047		11,614

			Net loans		747,743		749,034
	Premises and equipment, net				19,937		16,593
	Accrued interest receivable and other assets				49,354		49,094

			Total assets	$	1,038,314	$	1,031,550

LIABILITIES
	Deposits
		Noninterest-bearing		$	182,296	$	227,406
		Interest-bearing			634,272		613,021

			Total deposits		816,568		840,427
	Accrued interest payable and other liabilities				17,285		23,268
	Borrowed funds				61,942		69,857
	Guaranteed Preferred Beneficial Interests in Company’s Junior Subordinated Debentures (Trust Preferred Securities)				47,150		20,150

			Total liabilities		942,945		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, 12,135,398 shares in 2003 and 12,604,157 shares in 2002 issued and outstanding				58,443		66,345
	Retained earnings				34,370		8,103
	Accumulated other comprehensive income				2,556		3,400

			Total stockholders’ equity		95,369		77,848

			Total liabilities and stockholders’ equity	$	1,038,314	$	1,031,550

See accompanying notes to the consolidated financial statements

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


				Three Months Ended					Nine Months Ended
				September 30,					September 30,
				2003			2002		2003			2002

Interest Income:
	Interest and fees on loans			$	13,734		$	13,952	$	40,973		$	40,875
	Interest and dividends on investment securities
		Taxable			1,183			2,117		4,124			5,668
		Exempt from Federal income tax			357			349		1,072			1,070
	Other interest income				57			4		146			18

		Total interest income			15,331			16,422		46,315			47,631
Interest Expense:
	Interest on deposits				2,379			3,394		7,793			10,552
	Interest on borrowed funds and other				912			1,080		2,875			2,975

		Total interest expense			3,291			4,474		10,668			13,527

			Net interest income		12,040			11,948		35,647			34,104
Provision for loan losses					295			1,103		1,198			2,191

			Net interest income after provision for loan losses		11,745			10,845		34,449			31,913
Non-interest Income:
	Fees and other income				1,224			5,104		7,573			16,552
	Service charges on deposit accounts				1,010			653		2,421			1,823
	Gain on sale of loans				583			583		1,785			1,732
	(Loss) gain on sale of investment securities				(137	)		532		(137	)		828
	Gain on sale of merchant processing unit				—			—		29,768			—

		Total non-interest income			2,680			6,872		41,410			20,935
Non-interest Expense:
	Salaries and employee benefits				5,269			6,115		17,698			19,493
	Net occupancy and equipment expense				1,723			1,578		4,640			4,749
	Other expenses				3,108			5,339		9,840			15,869

		Total non-interest expense			10,100			13,032		32,178			40,111

		Income before income taxes			4,325			4,685		43,681			12,737
	Provision for income taxes				1,638			1,108		16,372			3,485

			Net income from continuing operations		2,687			3,577		27,309			9,252
Discontinued operations:
	(Loss) on wind-down of discontinued operations, net of tax				—			—		—			(276	)

			Net income	$	2,687		$	3,577	$	27,309		$	8,976

Earnings (loss) per common share - basic:
	Continuing operations			$	0.22		$	0.29	$	2.22		$	0.74
	Discontinued operations:				—			—		—			(0.02	)

	Net Income			$	0.22		$	0.29	$	2.22		$	0.72

Earnings (loss) per common share - diluted:
	Continuing operations			$	0.21		$	0.27	$	2.14		$	0.71
	Discontinued operations:				—			—		—			(0.02	)

	Net Income			$	0.21		$	0.27	$	2.14		$	0.69

Average common shares outstanding:
	Basic				12,118			12,543		12,293			12,476
	Diluted				12,587			13,182		12,779			13,026
Cash dividends declared per common share				$	0.030		$	0.025	$	0.085		$	0.046

See accompanying notes to the consolidated financial statements

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


				2003			2002

CASH FLOWS FROM OPERATING ACTIVITIES
Net income				$	27,309		$	8,976
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
		Wind-down of discontinued operations			—			276
		Depreciation and amortization			3,854			4,381
		Provision for loan losses			1,198			2,191
		Net loss (gain) on sale of securities			137			(828	)
		Stock-based compensation, net of tax			279			39
		Net change in other assets			(1,476	)		3,813
		Net change in other liabilities			(5,983	)		(136	)
		Net gain on sale of business unit			(29,768	)		—
		Net gain on sale of loans			(1,785	)		(1,732	)

			Net cash (used in) provided by operating activities		(6,235	)		16,980
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale/maturities of securities available for sale					70,553			94,214
Purchases of securities available for sale					(43,542	)		(89,250	)
Net change in loans					1,878			(89,430	)
Net change in federal funds sold and interest bearing bank deposits					(33,903	)		596
Investing activities related to wind-down of discontinued operations					—			3,795
Proceeds from sale of foreclosed real estate					—			698
Proceeds from disposal of premises and equipment					—			846
Proceeds from sale of business unit					32,000			—
Purchases of premises and equipment					(5,298	)		(901	)

		Net cash provided by (used in) investing activities			21,688			(79,432	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits					(23,859	)		6,152
Net change in borrowed funds					19,085			36,607
Payment of cash dividends on common stock					(1,042	)		(571	)
Repurchase of common stock					(11,037	)		(4,200	)
Proceeds from issuance of stock for exercised options					2,193			1,982

		Net cash provided by (used in) financing activities			(14,660	)		39,970

Net change in cash and cash equivalents					793			(22,482	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD					35,156			54,567

CASH AND CASH EQUIVALENTS AT END OF PERIOD				$	35,949		$	32,085

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
	Interest			$	11,645		$	13,834
	Income taxes				13,050			1,500
Non-cash transactions:
	Unrealized holding (losses) gains on securities and swaps				(1,562	)		5,316
	Deferred income taxes on unrealized holding (losses) gains on securities and swaps				(718	)		1,595
	Loans transferred to foreclosed property				—			620

See accompanying notes to the consolidated financial statements

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


				For the Three Months Ended						For the Nine Months Ended
				September 30,						September 30,

				2003			2002			2003			2002
Net income				$	2,687		$	3,577		$	27,309		$	8,976
Other comprehensive income:
	Unrealized holding (losses) gains on securities available for sale				(1,368	)		2,285			(1,531	)		5,226
	Net unrealized holding (losses) gains in interest rate swaps qualifying as cash flow hedges				(176	)		743			(168	)		918
	Reclassification adjustment for realized losses (gains) on securities transactions				137			(532	)		137			(828	)

			Total other comprehensive (loss) income before income taxes		(1,407	)		2,496			(1,562	)		5,316

Income tax expense (benefit) related to the above items:
	Unrealized holding (losses) gains on securities available for sale				(637	)		701			(664	)		1,568
	Net unrealized holding (losses) gains in interest rate swaps qualifying as cash flow hedges				(75	)		223			(112	)		275
	Reclassification adjustment for realized losses (gains) on securities transactions				58			(161	)		58			(248	)

			Total income tax (benefit) expense		(654	)		763			(718	)		1,595

		Net other comprehensive (loss) income			(753	)		1,733			(844	)		3,721

			Total comprehensive income	$	1,934		$	5,310		$	26,465		$	12,697

See accompanying notes to the consolidated financial statements

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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 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 period. 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. The following table provides a reconciliation of the basic and diluted earnings per share computations for the three- and nine-month periods ended September 30, 2003 and 2002.

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


				For the Three Months Ended				For the Nine Months Ended
				September 30,				September 30,
				2003		2002		2003		2002

Basic earnings per share:
	Weighted average shares outstanding				12,118		12,543		12,293		12,476
	Net income			$	2,687	$	3,577	$	27,309	$	8,976
	Net income from continuing operations			$	2,687	$	3,577	$	27,309	$	9,252
	Basic earnings per share			$	0.22	$	0.29	$	2.22	$	0.72
	Basic earnings per share - continuing operations			$	0.22	$	0.29	$	2.22	$	0.74
Diluted earnings per share:
		Weighted average shares outstanding			12,118		12,543		12,293		12,476
			Net effect of the assumed exercise of stock options based on the treasury stock method using average market price for the period		469		639		486		550

		Total weighted average shares and common stock equivalents outstanding			12,587		13,182		12,779		13,026

	Net income			$	2,687	$	3,577	$	27,309	$	8,976
	Net income from continuing operations			$	2,687	$	3,577	$	27,309	$	9,252
	Diluted earnings per share			$	0.21	$	0.27	$	2.14	$	0.69
	Diluted earnings per share - continuing operations			$	0.21	$	0.27	$	2.14	$	0.71

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Note 3 – Sale of Proprietary Merchant Bankcard Operations

On March 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 a pre-tax gain of $29.8 million ($18.6 million after tax) during the first quarter of 2003.

Note 4 - Segment Information

Through September 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. During the third quarter of 2003, Humboldt discontinued sponsorship processing for Humboldt Merchant Services, LP, and one other ISO. The remaining ISO agreement is expected to terminate by December 31, 2003. Additional information regarding these agreements is included in Humboldt’s 2002 Form 10-K under Part I.

Business Segments
(in thousands)


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

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

Non-interest income	$	2,568		$	112	$	2,680	$	3,456		$	3,416		$	6,872
Interest income		15,238			93		15,331		16,561			(139	)		16,422
Interest expense		3,287			4		3,291		4,569			(95	)		4,474
Interest income/(expense) allocation		(105	)		105		—		(661	)		661			—
Segment profit, before taxes		4,000			325		4,325		2,836			1,849			4,685
Segment assets	$	1,033,692		$	4,622	$	1,038,314	$	936,890		$	74,651		$	1,011,541


	For the nine months ended							For the nine months ended
	September 30, 2003							September 30, 2002

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

Non-interest income	$	7,060		$	34,350	$	41,410	$	8,631		$	12,304	$	20,935
Interest income		46,062			253		46,315		47,631			—		47,631
Interest expense		10,631			37		10,668		13,527			—		13,527
Interest income/(expense) allocation		(589	)		589		—		(1,346	)		1,346		—
Segment profit, before taxes		10,933			32,748		43,681		9,383			3,354		12,737
Segment assets	$	1,033,692		$	4,622	$	1,038,314	$	936,890		$	74,651	$	1,011,541

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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 Nine Months Ended
		September 30,						September 30,
		2003			2002			2003			2002

Net income, as reported		$	2,687		$	3,577		$	27,309		$	8,976
Add: Stock-based employee compensation expense included in reported net income, net of related tax effects			95			8			279			39
Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects			(106	)		(186	)		(408	)		(516	)

Pro forma net income		$	2,676		$	3,399		$	27,180		$	8,499

Earnings per share:
	Basic - as reported	$	0.22		$	0.29		$	2.22		$	0.72
	Basic - pro forma	$	0.22		$	0.27		$	2.21		$	0.68
	Diluted - as reported	$	0.21		$	0.27		$	2.14		$	0.69
	Diluted - pro forma	$	0.21		$	0.26		$	2.13		$	0.65

In April 2002, a stock option grant was made to the new President & Chief Executive Officer of Humboldt. The total number of options granted exceeds 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. Management does not expect the adoption of this Statement to have a material impact on the consolidated financial statements.

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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. 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.

In January 2003, the FASB issued Financial Accounting Interpretation No. 46 (“FIN 46”), which clarifies the application of Accounting Research Bulletin No. 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 31, 2003. In addition, FIN 46 requires public companies to 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. During October 2003, the FASB delayed for another three months the consolidation requirements of FIN 46 for pre-February 2003 variable interest entities (to the fourth quarter of 2003).

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 $835,000 at September 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, consolidation would be required when that portion of FIN 46 becomes effective (currently the fourth quarter of 2003). Additional information regarding Investments in Limited Partnerships is provided in Note 1 to the Notes to the Consolidated Financial Statements in Humboldt’s 2002 Form 10-K. Management does not expect this Interpretation to have a material impact on Humboldt’s financial condition or results of operations.

On 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 would be required to be deconsolidated under FIN 46. Humboldt currently has four such entities, three of which are described more fully in Note 10 to the Consolidated Financial Statements in Humboldt’s 2002 Form 10-K, and the fourth of which was formed during the third quarter of 2003, as described more fully in Note 9. These four entities are currently consolidated and included in the balance sheet as a liability described as “Guaranteed Preferred Beneficial Interests in Company’s Junior Subordinated Debentures (Trust Preferred Securities).” Management does not expect that these entities will be required to be deconsolidated.

Note 7 – Pending Acquisition

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 September 30, 2003, CIB has total assets of $376 million, total loans of $204 million, total deposits of $317 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.

Management believes that this merger will result in improved operating efficiency and earnings per share accretion, and will continue Humboldt’s refocus on its community bank franchise. CIB’s branch locations provide a unique fit within Humboldt’s defined footprint, connecting Humboldt’s branches in Roseville and Chico, California, with minimal overlap.

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 with cash on hand, combined with the $27 million of trust preferred securities issued during the third quarter of 2003. The exchange ratio is

- 10 -

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. The transaction will be accounted for under the purchase method of accounting.

Note 8 – Commitments and Contingent Liabilities

Lease Commitments: Humboldt leases 20 sites under noncancellable operating leases. Four of the leases are renewable for an additional five-year period, five are renewable for two consecutive five-year periods, three are renewable for three consecutive five-year periods, and one of the leases is renewable for four consecutive five-year periods. The leases contain varying requirements for increases including adjustments based on the Consumer Price Index with minimum increases of 2% and maximum increases of 10%. Other leases have scheduled adjustments to the base rent.

As of September 30, 2003, future minimum lease payments under noncancelable operating leases are as follows (dollars in thousands):


2003	$	197
2004		753
2005		929
2006		816
2007		821
Thereafter		2,437

Total minimum lease commitments	$	5,953

Financial Instruments with Off-Balance-Sheet Risk: Humboldt’s financial statements do not reflect various commitments and contingent liabilities which arise in the normal course of business and which involve elements of credit risk, interest rate risk and liquidity risk. These commitments and contingent liabilities are commitments to extend credit, credit card arrangements and standby letters of credit. A summary of Humboldt’s commitments and contingent liabilities at September 30, 2003, is as follows (dollars in thousands):


Commitments to extend credit	$	166,555
Credit card arrangements		15,359
Standby letters of credit		2,248

Commitments to extend credit, credit card arrangements and standby letters of credit all include exposure to some credit loss in the event of nonperformance of the customer. Humboldt’s credit policies and procedures for credit commitments and financial guarantees are the same as those for extension of credit that are recorded on the balance sheet. Because these instruments have fixed maturity dates, and because many of them expire without being drawn upon, they do not generally present any significant liquidity risk to Humboldt.

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Legal Proceedings: 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 has made appropriate post-trial motions to set aside the verdict. A judgment on the matter is expected during the fourth quarter of 2003 that will result in the verdict being upheld, overturned or reduced. The independent service organization has confirmed in writing to Humboldt that it will honor its indemnification of Humboldt for all compensatory and punitive damages and related legal fees. Accordingly, Humboldt does not expect to incur any liability in connection with this matter.

Note 9 – Trust Preferred Securities

In August 2003, Humboldt formed a wholly-owned Connecticut statutory business trust, Humboldt Bancorp Statutory Trust III (“Trust III”), which issued $27 million of guaranteed preferred beneficial interests in Humboldt’s junior subordinated debentures on September 17, 2003. These debentures qualify as regulatory capital under current guidelines, with approximately $10 million qualifying as Tier I capital as of September 30, 2003. All of the common securities issued by Trust III are owned by Humboldt and consolidated on Humboldt’s balance sheet as of September 30, 2003 (see Note 6 above). The proceeds from the issuance of the common securities and trust preferred securities were used by Trust III to purchase $27.8 million of junior subordinated debentures issued by Humboldt which bear a fixed rate of interest of 6.75% per annum for the first five years and thereafter bear interest at a rate equivalent to three month LIBOR plus 2.95%, adjusted quarterly. The debentures represent the sole asset of Trust III.

The proceeds received by Humboldt from the sale of the junior subordinated debentures will be used to provide approximately 85% of the cash consideration for the acquisition of California Independent Bancorp (see Note 7). The trust preferred securities accrue and pay distributions quarterly at a fixed rate of 6.75% for the first five years and thereafter at a rate equal to three-month LIBOR plus 2.95%, adjusted quarterly. Humboldt has entered into contractual agreements which, taken collectively, fully and unconditionally guarantee payment of accrued and unpaid distributions, the redemption price with respect to any trust preferred securities called for redemption by Trust III and payments due upon a voluntary or involuntary dissolution, winding up or liquidation of Trust III.

The trust preferred securities are mandatorily redeemable upon maturity of the debentures in September 2033, or upon earlier redemption as provided for in the indenture. Humboldt has the right to redeem the debentures purchased by Trust III, in whole or in part, on or after September 17, 2008 at par.

Humboldt paid a placement fee of $810,000 in connection with the issuance of the trust preferred securities which is being amortized over the life of the securities.

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

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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 September 30, 2003, Humboldt had total assets of $1.0 billion, total loans of $760 million, total deposits of $817 million and total shareholders’ equity of $95 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 an asset/liability management 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, while limiting 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 nine 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

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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 September 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 September 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, is being recognized as compensation expense ratably over the vesting period of the option.

Results of Operations

For the three months ended September 30, 2003, Humboldt reported net income of $2.7 million, or $0.21 per diluted share, compared with net income of $3.6 million, or $0.27 per diluted share, for the same period in 2002. There was no financial impact related to discontinued operations during the third 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

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above. The results for the third quarter of 2003 produced a return on average assets of 1.02% and a return on average shareholders’ equity of 11.35%.

For the nine months ended September 30, 2003, Humboldt reported net income of $27.3 million, or $2.14 per diluted share, as compared with net income and diluted earnings per share of $9.0 million and $0.69, respectively, for the same period in 2002. Since Humboldt had no activity related to discontinued operations during the first nine 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 (leasing) of $276,000, or $0.02 per diluted share, providing for net income and earnings per share from continuing operations of $9.3 million and $0.71, respectively.

The results of operations for the nine-month period ended September 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 nine-month period ended September 30, 2003 was $0.68 per diluted share, a decrease of 4% compared to the same period in 2002. The financial results for the first nine months of 2003, excluding the non-recurring gain described above, produced a return on average assets and return on average shareholders’ equity of 1.11% and 12.94%, respectively.

The following table summarizes the major components of income and expense for the three and nine-month periods ended September 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 Nine Months								Percent
	Ended September 30,				Change			Increase			Ended September 30,					Change			Increase
	2003		2002		Amount			(Decrease)			2003		2002			Amount			(Decrease)
Summary of Operations
Interest income	$	15,331	$	16,422	$	(1,091	)		-7	%	$	46,315	$	47,631		$	(1,316	)		-3	%
Interest expense		3,291		4,474		(1,183	)		-26	%		10,668		13,527			(2,859	)		-21	%

Net Interest Income		12,040		11,948		92			1	%		35,647		34,104			1,543			5	%
Provision for loan losses		295		1,103		(808	)		-73	%		1,198		2,191			(993	)		-45	%

Net interest income after provision for loan losses		11,745		10,845		900			8	%		34,449		31,913			2,536			8	%
Non-interest income		2,680		6,872		(4,192	)		-61	%		41,410		20,935			20,475			98	%
Non-interest expense		10,100		13,032		(2,932	)		-22	%		32,178		40,111			(7,933	)		-20	%

Income before taxes		4,325		4,685		(360	)		-8	%		43,681		12,737			30,944		nm
Income taxes		1,638		1,108		530			48	%		16,372		3,485			12,887		nm

Net income from continuing operations		2,687		3,577		(890	)		-25	%		27,309		9,252			18,057		nm
(Loss) on discontinued operations, net of tax		—		—		—		nm				—		(276	)		276		nm

Net income	$	2,687	$	3,577	$	(890	)		-25	%	$	27,309	$	8,976		$	18,333		nm

Non-recurring items, net of tax*	$	—	$	—		—		nm			$	18,575	$	—			18,575		nm
Net income, excluding non-recurring items	$	2,687	$	3,577		(890	)		-25	%	$	8,734	$	8,976			(242	)		-3	%

*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 $12.0 million for the three-month period ended September 30, 2003, an increase of $92,000, or 1% over the comparable period in 2002. Net interest income was $35.6 million for the nine months ended September 30, 2003, an increase of $1.5 million, or 5%, 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.

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For the three-month period ended September 30, 2003, the net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 5.12%, a decrease of 4 basis points as compared to the same period in 2002. For the nine months ended September 30, 2003, the tax equivalent net interest margin was 5.07%, 18 basis points lower than the comparable period in 2002. The decreases in the net interest margins for both the three- and nine-month periods ended September 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 74 basis points for the nine months ended September 30, 2003, while the average cost of interest bearing liabilities declined by 71 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 nine-month periods ended September 30, 2003 and 2002:

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


			For the Three Months Ended
			September 30, 2003								September 30, 2002
			Average			Interest		Avg.			Average			Interest		Avg.
			Balance			(1)		Rate			Balance			(1)		Rate

Assets:
Interest-earning assets:
	Loans, net of unearned income (2)		$	756,214		$	13,734		7.21	%	$	729,310		$	13,952		7.59	%
	Investment securities (1)			168,955			1,719		4.04	%		199,730			2,609		5.18	%
	Federal funds sold and other interest income			21,579			57		1.05	%		1,299			4		1.22	%

Total interest-earning assets / interest income				946,748		$	15,510		6.50	%		930,339		$	16,565		7.22	%

Non-interest-earning assets:
	Allowance for loan losses			(11,758	)							(10,892	)
	Cash and due from banks			49,130								36,362
	Premises and equipment			26,158								17,349
	Goodwill and deposit intangibles			7,193								8,913
	Other assets			29,685								24,476

Total assets			$	1,047,156							$	1,006,547

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
	Interest-bearing deposits:
		Transaction accounts	$	87,385		$	29		0.13	%	$	50,653		$	52		0.41	%
		Savings deposits		239,426			460		0.76	%		226,197			808		1.42	%
		Certificates of deposit		326,741			1,890		2.29	%		307,920			2,534		3.26	%

		Total interest-bearing deposits		653,552			2,379		1.44	%		584,770			3,394		2.35	%

Federal Home Loan Bank advances				65,985			382		2.30	%		76,116			526		2.74	%
Other borrowings (3)				20,414			530		10.30	%		26,119			554		8.42	%

	Total borrowed funds			86,399			912		4.19	%		102,235			1,080		4.28	%

Total interest-bearing liabilities / interest expense				739,951		$	3,291		1.76	%		687,005		$	4,474		2.58	%
Non-interest-bearing liabilities:
	Non-interest-bearing deposits			198,782								230,113
	Other liabilities			14,520								12,411

	Total liabilities			953,253								929,529

Stockholders’ equity				93,903								77,018

Total liabilities and stockholders’ equity			$	1,047,156							$	1,006,547

Net interest-rate spread									4.74	%							4.64	%
Impact of non-interest bearing sources and other changes in balance sheet composition									0.38	%							0.52	%

Net interest income / margin on interest-earning assets (4)						$	12,219		5.12	%				$	12,091		5.16	%

(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

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			For the Nine Months Ended
			September 30, 2003								September 30, 2002

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

Assets:
Interest-earning assets:
	Loans, net of unearned income (2)		$	759,132		$	40,973		7.22	%	$	696,433		$	40,875		7.85	%
	Investment securities (1)			177,946			5,732		4.31	%		183,536			7,241		5.27	%
	Federal funds sold and other interest income			17,176			146		1.14	%		1,124			18		2.14	%

Total interest-earning assets / interest income				954,254		$	46,851		6.56	%		881,093		$	48,134		7.30	%

Non-interest-earning assets:
	Allowance for loan losses			(11,963	)							(10,341	)
	Cash and due from banks			47,096								43,777
	Premises and equipment			19,589								18,081
	Goodwill and deposit intangibles			6,009								8,610
	Other assets			40,325								30,823

Total assets			$	1,055,310							$	972,043

Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
	Interest-bearing deposits:
		Transaction accounts	$	67,754		$	67		0.13	%	$	48,705		$	108		0.30	%
		Savings deposits		234,126			1,631		0.93	%		230,108			2,525		1.47	%
		Certificates of deposit		321,569			6,095		2.53	%		302,689			7,919		3.50	%

		Total interest-bearing deposits		623,449			7,793		1.67	%		581,502			10,552		2.43	%

Federal Home Loan Bank advances				61,875			1,182		2.55	%		54,349			1,339		3.29	%
Other borrowings (3)				25,220			1,693		8.98	%		27,951			1,636		7.83	%

	Total borrowed funds			87,095			2,875		4.41	%		82,300			2,975		4.83	%

Total interest-bearing liabilities / interest expense				710,544		$	10,668		2.01	%		663,802		$	13,527		2.72	%
Non-interest-bearing liabilities:
	Non-interest-bearing deposits			227,907								215,269
	Other liabilities			26,632								22,899

	Total liabilities			965,083								901,970

Stockholders’ equity				90,227								70,073

Total liabilities and stockholders’ equity			$	1,055,310							$	972,043

Net interest-rate spread									4.55	%							4.58	%
Impact of non-interest bearing sources and other changes in balance sheet composition									0.52	%							0.67	%

Net interest income / margin on interest-earning assets (4)						$	36,183		5.07	%				$	34,607		5.25	%

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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 nine-month periods ended September 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 September 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		$	489		$	(707	)	$	(218	)
		Investment securities			(313	)		(577	)		(890	)
		Federal funds sold & other interest income			54			(1	)		53

		Total interest-earning assets / interest income			230			(1,285	)		(1,055	)
Interest-bearing liabilities:
		Transactions accounts			12			(35	)		(23	)
		Savings deposits			25			(373	)		(348	)
		Certificates of deposit			109			(753	)		(644	)

			Total interest-bearing deposits		146			(1,161	)		(1,015	)
		FHLB advances			(59	)		(85	)		(144	)
		Other borrowings			(148	)		124			(24	)

			Total borrowed funds		(207	)		39			(168	)

	Total interest-bearing liabilities				(61	)		(1,122	)		(1,183	)

	Increase (decrease) in net interest income			$	291		$	(163	)	$	128

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				Nine Months Ended September 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		$	3,384		$	(3,286	)	$	98
		Investment securities			(180	)		(1,329	)		(1,509	)
		Federal funds sold & other interest income			136			(8	)		128

		Total interest-earning assets / interest income			3,340			(4,623	)		(1,283	)
Interest-bearing liabilities:
		Transactions accounts			19			(60	)		(41	)
		Savings deposits			28			(922	)		(894	)
		Certificates of deposit			358			(2,182	)		(1,824	)

			Total interest-bearing deposits		405			(3,164	)		(2,759	)
		FHLB advances			144			(301	)		(157	)
		Other borrowings			(183	)		240			57

			Total borrowed funds		(39	)		(61	)		(100	)

	Total interest-bearing liabilities				366			(3,225	)		(2,859	)

	Increase (decrease) in net interest income			$	2,974		$	(1,398	)	$	1,576

Provision for Loan Losses

The provision for loan losses was $295,000, or 0.15% of average loans on an annualized basis, for the three-month ended September 30, 2003, compared with $1,103,000, or 0.60% of average loans, for the same period in 2002. Net charge-offs for the three months ended September 30, 2003 were $381,000, or 0.20% of average loans on an annualized basis, compared to $17,000 or 0.01% of average loans for the same period in 2002. For the nine months ended September 30, 2003, the provision for loan losses was $1,198,000, or 0.21% of average loans on an annualized basis, compared with $2,191,000, or 0.42% of average loans, for the same period in 2002. Net charge-offs for the nine months ended September 30, 2003 were $765,000, or 0.13% of average loans on an annualized basis, compared with $402,000, or 0.08% of average loans, for the same period in 2002. The ratio of allowance for loan losses to total loans was 1.59% at September 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 September 30, 2003 was $2.7 million, a decrease of $4.2 million, or 61%, 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 $64,000 for the three months ended September 30, 2003, a decrease of $3.9 million, or 98%, from the same period in 2002. The merchant processing fee revenue recognized by Humboldt during the

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third quarter of 2003 was related to ISO sponsorships. The lower non-interest income level for the three months ended September 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 $1,010,000 for the three-month period ended September 30, 2003, an increase of $357,000, or 55%, 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 in increased overdraft charges.

Total gains on the sale of loans for the three-month period ended September 30, 2003 were $583,000, equal to the same period in 2002. During the three-month period ended September 30, 2003, Humboldt recognized $94,000 in gains related to the sale of $1.8 million of SBA loans, compared with $454,000 in gains related to the sale of $7.2 million in loans for the same period in 2002. For the nine-month period ended September 30, 2003, gains on sales of loans totaled $1,785,000 (including $692,000 related to SBA loans), an increase of $53,000, or 3%, over the $1,732,000 recorded in the first nine months of 2002.

During the third quarter and nine-month periods of 2003, Humboldt recognized $137,000 in losses on the sale of $3.0 million of securities. This compares with gains of $532,000 (on sales of $34.8 million) recorded for the third quarter of 2002 and gains of $828,000 (on sales of $80.1 million) for the first nine months of 2002.

Non-interest income for the nine-month period ended September 30, 2003 was $41.4 million, an increase of $20.5 million, or 98%, 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, partially offset by a reduction in merchant bankcard processing revenues subsequent to the sale, of $8.2 million. ATM fees for the nine-month period ended September 30, 2003 were $496,000, a decrease of $718,000, or 59%, 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.

Table 4 — Non-Interest Income
(In thousands)

For the Three Months Ended September 30, For the Nine Months Ended September 30,

Change Change Change Change

2003 2002 Amount Percent 2003 2002 Amount Percent

Merchant processing fees $ 64 $ 3,966 $ (3,902 ) -98 % $ 4,515 $ 12,679 $ (8,164 ) -64 %

ATM fees 107 239 (132 ) -55 % 496 1,214 (718 ) -59 %

Bank-owned life insurance 182 205 (23 ) -11 % 544 640 (96 ) -15 %

Service charges on deposit accounts 1,010 653 357 55 % 2,421 1,823 598 33 %

Gain on sale of loans 583 583 — 0 % 1,785 1,732 53 3 %

Net gain (loss) on sale of securities (137 ) 532 (669 ) -126 % (137 ) 828 (965 ) -117 %

Gain on sale of business unit — — — nm 29,768 — 29,768 nm

Other 871 694 177 26 % 2,018 2,019 (1 ) 0 %

Total non-interest income $ 2,680 $ 6,872 $ (4,192 ) -61 % $ 41,410 $ 20,935 $ 20,475 98 %

nm — not meaningful

Non-interest Expense

For the three-month period ended September 30, 2003, non-interest expense totaled $10.1 million, a decrease of $2.9 million, or 22%, 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 nine-month period ended September 30, 2003 was $32.2 million, a decrease of $7.9 million, or 20%, 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 September 30, 2003 was $5.3 million, a decrease of $846,000, or 14%, from the same period in 2002. This decrease is principally attributable to reduced payroll costs associated with Humboldt’s proprietary merchant bankcard operations. For the nine-month period ended September 30, 2003, compensation expense totaled $17.7 million, a decrease of $1.8 million, or 9%, 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 nine-month period ended September 30, 2002 related to accruals for certain merchant bankcard employment contracts.

Total occupancy and equipment expense for the three-month period ended September 30, 2003 was $1.7 million, an increase of $145,000, or 9% from the same period in 2002. For the nine-month period ended September 30, 2003, total occupancy and equipment expense was $4.6 million, a decrease of $109,000, or 2% from the same period in 2002. The changes for the three and nine-month periods are principally attributable to the sale or closure of branch facilities, offset by increased depreciation expense associated with Humboldt’s new core branch accounting and processing system which was implemented in June 2003.

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Total other non-interest expense for the three-month period ended September 30, 2003 was $3.1 million, a decrease of $2.2 million, or 42%, from the same period in 2002. This decrease is principally attributable to the sale of Humboldt’s proprietary merchant bankcard business, which incurred $1.8 million of other non-interest expense in 2002 and no expense in the comparable 2003 period. Total other non-interest expense for the nine-month period ended September 30, 2003 was $9.8 million, a decrease of $6.0 million, or 38%, from the same period in 2002. This decrease is principally attributable to a reduction in expense related to the proprietary merchant bankcard operation of $4.8 million.

Income Taxes

Income tax expense for the three months ended September 30, 2003 was $1.6 million, compared with $1.1 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 September 30, 2003 was 37.9%, compared to 23.6% for the same period in 2002. Income tax expense for the nine-month period ended September 30, 2003 was $16.4 million, compared with $3.5 million for the same period in 2002. The effective tax rate for the nine months ended September 30, 2003 was 37.5%, compared to 27.4% for the comparable prior year period. The increase in the effective tax rates for the three and nine-month periods ended September 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 September 30, 2003 were $169 million, a decrease of $31 million, or 15%, compared with the same period in 2002. The average tax-equivalent yield on investment securities for the three-month period ended September 30, 2003 was 4.04%, a decrease of 114 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 nine-month period ended September 30, 2003 were $178 million, a decrease of $6 million, or 3%, compared with the same period in 2002. The average yield on investment securities for the nine-month period ended September 30, 2003 was 4.31%, a decrease of 96 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 September 30, 2003 were $756 million, an increase of $27 million, or 4%, over the same period in 2002. The average yield on loans for the three-month period ended September 30, 2003 was 7.21%, a decrease of 38 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 nine-month period ended September 30, 2003 were $759 million, an increase of $63 million, or 9%, over the same period in 2002. The average yield on loans for the nine-month period ended September 30, 2003 was 7.22%, a decrease of 63 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 nine-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 September 30, 2003 were $760 million, a decrease of $0.9 million, virtually flat 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.

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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 $11.3 million at September 30, 2003, as compared to $3.7 million at December 30, 2002 and $2.0 million at September 30, 2002. Total non-performing loans at September 30, 2003 were $11.3 million, as compared to $3.6 million at December 30, 2002 and $1.9 million at September 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, partially 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 $5.8 million as of September 30, 2003. This project is 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 $2.4 million to an agriculture-related business, of which approximately $2.0 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.

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 September 30, 2003, December 31, 2002 and September 30, 2002:

Table 5-Non-Performing Assets

(in thousands)


		September 30,			December 31,			September 30,
		2003			2002			2002

Non-accrual loans		$	11,052		$	3,054		$	1,230
Loans past due 90 days or more and still accruing			209			561			715

	Total non-performing loans		11,261			3,615			1,945
Other real estate owned			88			88			88

	Total non-performing assets	$	11,349		$	3,703		$	2,033

Total non-performing loans as a percentage of total loans			1.48	%		0.48	%		0.26	%
Total non-performing assets as a percentage of total assets			1.09	%		0.36	%		0.20	%

At September 30, 2003, Humboldt had approximately $12 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.

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The allowance for loan losses (“ALL”) at September 30, 2003 totaled $12.0 million, an increase of $433,000, or 4%, from December 31, 2002. The ratio of ALL to total loans at September 30, 2003 was 1.59%, an increase of six basis points from December 31, 2002 and six basis points from September 30, 2002. At September 30, 2003 and 2002, the ratio of ALL to total non-performing loans was 107% and 594%, respectively.

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

Table 6-Allowance for Loan Losses
(in thousands)


		Three Months Ended						Nine Months Ended
		September 30,						September 30,
		2003			2002			2003			2002

Balance beginning of period		$	12,133		$	10,468		$	11,614		$	9,765
Provision for loan losses			295			1,103			1,198			2,191
Loans charged-off			(423	)		(182	)		(1,061	)		(953	)
Charge-off recoveries			42			165			296			551

Net charge-offs			(381	)		(17	)		(765	)		(402	)

Balance end of period		$	12,047		$	11,554		$	12,047		$	11,554

As a percentage of average loans (annualized):
	Net charge-offs		0.20	%		0.01	%		0.13	%		0.08	%
	Provision for loan losses		0.15	%		0.60	%		0.21	%		0.42	%
Allowance for loan losses as a percentage of:
	Period end loans		1.59	%		1.53	%		1.59	%		1.53	%
	Non-performing loans		107	%		594	%		107	%		594	%

Management believes that the ALL at September 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 September 30, 2003 were $852 million, an increase of $37 million, or 5%, over the same period in 2002. This increase is net of a $31 million decrease in the non-interest bearing deposit category, the result of the loss of approximately $66 million in non-interest bearing deposits in the third quarter of 2003 related to the termination of certain ISO processing agreements. The increase in average interest-bearing deposits of $69 million for the three-month period ended September 30, 2003, as compared to $50 million, or 18%, the prior year period was comprised of an increase in interest-bearing transaction (NOW) accounts of $37 million, or 73%, an increase in savings/money market accounts of $13 million, or 6%, and an increase in certificates of deposit of $19 million, or 6%. The average cost of interest bearing deposits for the three and nine-month periods ended September 30, 2003 were 1.44% and 1.67%, respectively. These average costs represent declines of 91 basis points and 76 basis points, respectively, as compared to the three and nine-month periods in 2002. These reductions are principally due to rate reductions made by Humboldt in response to lower market interest rates.

As of September 30, 2003, Humboldt had $77 million of brokered certificates of deposit at an average cost of 1.51%. Of this total, $67 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

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year. Humboldt, in turn, 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 September 30, 2003 were $86 million, a decrease of $16 million, or 15%, compared with the same period in 2002. The average cost of borrowed funds for the three-month period ended September 30, 2003 was 4.19%, down 9 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 nine-month period ended September 30, 2003 were $87 million, an increase of $5 million, or 6%, over the same period in 2002. The average cost of borrowed funds for the nine-month period ended September 30, 2003 was 4.41%, down 42 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. By utilizing the simulation model, management can project the impact of changes in interest rates on net interest income.

The estimated impact on Humboldt’s net interest income over a one-year time horizon as of September 30, 2003 is presented in Table 7. The interest rate simulation assumes a parallel and sustained shift in market interest rates ratably 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 over the ensuing 12 months.

Table 7


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

	(Dollars in thousands)
Up 200 basis points	$	1,620	3.8%
Up 100 basis points		832	2.0%
Down 100 basis points		(724)	(1.7)%

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 September 30, 2003, Humboldt had four such contracts, all of

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Table 8 - Interest Rate Swap Contracts
As of September 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	$	824
July 2002		25,000		4.00	%(2)		6.30	%	July 2005	Cash Flow	Loans		831
December 2002		10,000		1.21	%(3)		4.70	%	June 2010	Fair Value	Callable CD		7
December 2001		10,000		8.42	%(4)		4.74	%	December 2006	Cash Flow	Trust Preferred		(717	)

	$	70,000										$	945

(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

which are interest rate swap agreements. Table 8 presents information regarding the swap agreements as of September 30, 2003:

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 the 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 September 30, 2003 was $95 million, an increase of $18 million, or 23%, from year-end 2002, and an increase of $2 million, or 2%, from June 30, 2003. Table 9 presents a summary of the changes in stockholders’ equity for the three and nine-month periods ended September 30, 2003:

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Table 9 - Summary of Changes in Stockholders’ Equity

For the three months ended September 30, 2003:


Stockholders’ equity June 30, 2003	$	93,433
Net income		2,687
Dividends paid		(348	)
Stock options exercised		283
Stock-based compensation and related tax benefit		208
Shares repurchased		(140	)
Other comprehensive income		(754	)

Stockholders’ equity September 30, 2003	$	95,369

For the nine months ended September 30, 2003


Stockholders’ equity December 31, 2002	$	77,848
Net income		27,309
Dividends paid		(1,042	)
Stock options exercised, including tax benefits		2,193
Stock-based compensation and related tax benefit		942
Shares repurchased		(11,037	)
Other comprehensive (loss)		(844	)

Stockholders’ equity September 30, 2003	$	95,369

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 September 30, 2003 and December 31, 2002:

Table 10 - Capital Ratios


		September 30,			December 31,
		2003			2002
Leverage ratio			11.37	%		8.73	%
	Regulatory minimum		4.00	%		4.00	%
	Well-capitalized minimum		5.00	%		5.00	%
Tier I risk-based capital			13.05	%		10.18	%
	Regulatory minimum		4.00	%		4.00	%
	Well-capitalized minimum		6.00	%		6.00	%
Total risk-based capital			16.07	%		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 September 30, 2003. The following table presents the number of shares repurchased and average price paid by Humboldt for the three and nine-month periods ended September 30, 2003 and 2002.

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Table 11 - Share Repurchase Summary


	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2003		2002		2003		2002
Shares repurchased		10,000		86,040		873,927		425,160
Average price paid	$	13.94	$	13.37	$	12.63	$	9.86

During the third quarter of 2003 Humboldt issued, through a wholly-owned statutory business trust, $27 million of guaranteed preferred beneficial interests in Humboldt’s junior subordinated debentures. These debentures qualify as regulatory capital under current guidelines, with approximately $10 million qualifying as Tier I capital as of September 30, 2003. The proceeds received by Humboldt from the sale of the junior subordinated debentures will be used to provide approximately 85% of the cash consideration for the acquisition of California Independent Bancorp (see Note 7). The trust preferred securities accrue and pay distributions quarterly at a fixed rate of 6.75% for the first five years and thereafter at a rate equal to three-month LIBOR plus 2.95%, adjusted quarterly. Further information on the trust preferred securities is included in Note 8 to the consolidated financial statements.

The following table presents cash dividends paid by Humboldt for the three and nine-month periods ended September 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						Nine Months Ended
	September 30,						September 30,
	2003			2002			2003			2002
Dividend per share	$	0.030		$	0.025		$	0.085		$	0.046
Payout ratio*		14	%		9	%		12	%		6	%

*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 September 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

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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 the company’s financial condition or results of operations. 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 ISO in 2001. See Note 8 “Commitments and Contingencies” 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

No matters were submitted to a vote of security holders during the period covered by this report.

Item 5 - Other Information - None

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 302 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).

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On August 27, 2003, Humboldt filed a Form 8-K in connection with two trading plans under SEC Rule 10b5-1. A copy of the trading plan for Steven R. Mills was included as Exhibit 99.1 and a copy of the trading plan for Theodore S. Mason was included as Exhibit 99.2 under Item 9.

On September 18, 2003, Humboldt filed a Form 8-K in connection with the issuance of a press release announcing the issuance of $27 million of trust preferred securities. A copy of the press release was included as Exhibit 99.1.

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: November 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

		/s/ Ronald B. Pigeon

		Ronald B. Pigeon
		Controller

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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 302 of the Sarbanes-Oxley act of 2002.

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(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

(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