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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION

Washington, D.C. 20549


Form 10-K

|   |  |                                                                                             
|-- |  | --------------------------------------------------------------------------------------------
|þ  |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR
    15(d) OF THE SECURITIES EXCHANGE ACT OF 1934    
|   |  | For the Fiscal Year Ended December 31,
    2003                                             
|  
|or
|  
|o  |  | 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, CA 95661


(Address and Zip Code of Principal Executive
Offices)


916.783.2812

(Telephone Number)


Securities Registered Pursuant to
Section 12(b) of the Act:

None

Securities Registered Pursuant to
Section 12(g) of the Act:

Common Stock, without par value

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 þ          No o

Indicate by check
mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and
will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K or
any amendment to this
Form 10-K.     o

Indicate by check
mark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the
Act)     Yes þ          No o

The aggregate
market value of the voting stock held by non-affiliates of the
registrant as of June 30,2003, based on the closing price
on that date of $14.94 per share was $180,928,000. The
number of shares outstanding of Registrants common stock
outstanding as of June 30, 2003 and February 27, 2004
were 12,110,302 and 15,176,242, respectively.



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TABLE OF CONTENTS



|              |                                                                                               |  |  |  |  |  |  | 
|------------- | --------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I       
|              | Item 1. Business                                                                             
|              | Item 2. Properties                                                                           
|              | Item 3. Legal Proceedings                                                                    
|              | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II      
|              | Item 5. Market for Registrants Common Equity and Related Stockholder Matters                
|              | Item 6. Selected Consolidated Financial Data.                                                
|              | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|              | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                          
|              | Item 8. Financial Statements and Supplementary Data                                          
|              | Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure 
|              | Item 9A. Controls and Procedures                                                             
|PART III     
|PART IV      
|              | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES   
|EXHIBIT 10.33
|EXHIBIT 23.1 
|EXHIBIT 31.1 
|EXHIBIT 32.2 



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PART I

This Annual Report on Form 10-K contains
certain forward-looking statements, which are made pursuant to
the safe harbor provisions of the Private Securities Litigation
Act of 1995. Statements that expressly or implicitly predict
future results, performance or events are forward-looking. In
addition, the words expect, believe,
anticipate and similar expressions identify
forward-looking statements. Forward-looking statements are
subject to certain risks and uncertainties that could cause
actual results to differ materially from those expected. Factors
that could cause or contribute to such differences include, but
are not limited to, the following:



| |   |                                                                               
| | - | ------------------------------------------------------------------------------
| |  | The ability to attract new deposits and
    loans                             
|
| |  | Competitive pricing factors                                                   
|
| |  | Deterioration in economic factors that result
    in increased loan losses    
|
| |  | Market interest rate fluctuations                                             
|
| |  | Operational difficulties related to execution
    of Humboldts strategic plan
|
| |  | Changes in the legal or regulatory
    requirements                           
|
| |  | New technological developments                                                
|
| |  | The ability to recruit and retain top-level
    management and staff          
|
| |  | The successful integration of California
    Independent Bancorp              

Readers are advised not to place undue
reliance on any forward-looking statements contained in this
report, which speak only as of the date hereof. Humboldt Bancorp
undertakes no obligation to revise any forward-looking
statements to reflect subsequent events or
circumstances.






|        |         
|------- | --------
|Item 1. | Business

Humboldt Bancorp (Humboldt) files its
annual reports on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K, proxy
statements and other information with the Securities and
Exchange Commission. You may obtain these filings from the
SECs web site at http://www.sec.gov. You may also obtain,
free of charge, copies of our annual report, quarterly reports,
current reports, and amendments to these reports, through our
website at http://www.humboldtbancorp.com. These reports
are available through our website as soon as reasonably
practicable after they are electronically filed with the SEC. In
addition, all of our SEC filings since November 14, 2002
were made available on our website within two days of filing
with the SEC.

Risk Factors

An investment in Humboldt Bancorps
common stock involves a degree of risk. In addition to the other
information included in this annual report, including the
matters addressed in Forward-Looking Statements above, you
should carefully consider the matters described below.

Humboldt Bancorp recently acquired
California Independent Bancorp. If Humboldt Bancorp is unable to
integrate its operations successfully, Humboldts business
and earnings may be negatively affected.

The acquisition of California Independent Bancorp
(CIB) involves the integration of companies that
have previously operated independently and no assurance can be
given that Humboldt will be able to integrate our operations
without encountering difficulties including, without limitation,
the loss of key employees and customers, the disruption of our
respective ongoing businesses or possible inconsistencies in
standards, controls, procedures and policies. Successful
integration of CIBs operations will depend primarily on
Humboldts ability to consolidate operations, systems and
procedures and to eliminate redundancies and costs. Estimated
cost savings and revenue enhancements are projected to come from
various areas that management has identified through the due
diligence and integration planning process. The elimination and
consolidation of

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duplicate tasks are projected to result in
significant annual cost savings. If we have difficulties with
the integration, we might not achieve the economic benefits we
expect to result from the acquisition, and this would likely
hurt our business and our earnings. In addition, Humboldt may
experience greater than expected costs or difficulties relating
to the integration of the business of CIB, and/or may not
realize expected cost savings from the acquisition within the
expected time frame.


The sale of Humboldts proprietary
merchant bankcard operation will reduce net income in the
short-term and strategic initiatives to replace the lost income
may be inadequate.

The sale of the proprietary merchant bankcard
business, which was completed on March 13, 2003, will
result in a decrease in net income of approximately
$4 million annually on a pre-tax basis. Humboldt has
identified several key initiatives, including residential
mortgage lending and new service charge structures that are
expected to provide for a replacement of the lost revenue over a
period of 12 to 24 months. There is no assurance that these
initiatives will, individually or collectively, provide for the
replacement of the lost revenue within the expected time horizon.

Changes in the method of accounting for
stock options will reduce our net income and earnings per
share.

In December 2002, the Financial Accounting
Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based
Compensation, an Amendment of SFAS No. 123 in an
effort to encourage the recognition of compensation expense for
the issuance of stock options. Humboldt adopted
SFAS No. 148 effective January 1, 2003 using the
prospective application method. Under this method, the
compensation expense and related tax benefit associated with
stock option grants issued on or after January 1, 2003 will
be recognized in the income statement. The unvested portion of
stock option grants issued before January 1, 2003 will
continue to be accounted for under APB No. 25.
SFAS No. 148 also requires new pro forma disclosures
regarding the cost of stock options not accounted for under APB
No. 25.

The adoption of SFAS No. 148 will
reduce Humboldts net income and earnings per share. The
future amount of this reduction is dependent upon a number of
factors, including the number of options granted and certain
variables used in determining the fair value of each
option granted under the Black-Scholes model. These
variables include the volatility of Humboldts stock price,
Humboldts dividend yield, market interest rates and the
expected life of the options. The actual compensation ultimately
realized by option holders is determined at the time of exercise
based on the differential between the option exercise price and
the current market value of Humboldt stock.

The historical cost of options granted, although
not recognized in our income statement for the year ending
December 31, 2002, is presented in Note 1 of the Notes
to the Consolidated Financial Statements incorporated by
reference in this document and is calculated in the same manner
as if such expense were recognized in the income statement in
accordance with SFAS No. 148.

Shares eligible for future sale could have
a dilutive effect.

Shares of Humboldt common stock eligible for
future sale could have a dilutive effect on the market for
Humboldt common stock and could adversely affect market prices.
As of February 27, 2004, there were 100,000,000 shares
of Humboldt common stock authorized, of which
15,176,242 shares were outstanding.

Potential deterioration of local economic
conditions could hurt our profitability.

The Banks operations are located in
California, and substantially all of the outstanding loans and
commitments are to businesses and individuals located in
Northern California. As a result of this geographic
concentration, the Banks financial results depend largely
upon economic conditions in these areas. Adverse local economic
conditions in California, and, in particular, Northern
California, including lower than forecast volumes of
construction and residential real estate activity, may have a
greater adverse effect on our financial condition through
reduced growth prospects and potentially higher credit losses
than if the Banks operations were more geographically
diverse.

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Our effective tax rate may
increase.

In December 2001, the Bank formed a Real Estate
Investment Trust (REIT) subsidiary, HB Investment
Trust (HBIT). The Bank owns 100% of the voting stock
of HBIT and is the sole contributor of assets, which consist
entirely of real estate secured loans originated and serviced by
the Bank. Although HBIT was formed to provide flexibility in
raising capital through the issuance of preferred stock, no
preferred stock was issued as of December 31, 2003 for the
purposes of raising capital. The Bank also benefited from a
reduction in state income tax expense in 2002, because the Bank,
acting upon advice from professional tax advisors, took the
position that any consent dividends paid by HBIT to the Bank
were not subject to state income tax.

In 2003 the California Franchise Tax Board
(FTB) announced that it will not recognize such
state tax benefits. As a result, Humboldt did not record any
state tax benefits associated with the REIT for 2003 and does
not expect to record any REIT state tax benefits for 2004.
Humboldt expects to defend its use of the REIT structure.
However, in the event the FTB prevails in its interpretation of
the California State Tax Code and that interpretation is made
retroactive to 2002, Humboldt would be liable for state income
taxes relative to the REIT for that year. Humboldt believes that
it is adequately reserved for the tax benefit recognized during
2002.

The Bank faces strong
competition.

In recent years, competition for bank customers,
the source of deposits and loans, has greatly intensified. This
competition includes:



| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Large national and super-regional banks, which
    have well-established branches and significant market share in
    many of the communities we serve;                                 
|
| |  | Finance companies, investment banking and
    brokerage firms, and insurance companies that offer bank-like
    products;                                                               
|
| |  | Credit unions, which can offer highly competitive
    rates on loans and deposits because they receive tax advantages
    not available to commercial banks;                            
|
| |  | Government-assisted farm credit programs that
    offer competitive agricultural loans;                                                                                                 
|
| |  | Other community banks, including start-up banks,
    which can compete with us for customers who desire a high degree
    of personal service; and                                      
|
| |  | Technology-oriented financial institutions
    including large national and super-regional banks offering
    on-line deposit, bill payment, and mortgage loan application
    services.

Other existing single or multi-branch community
banks, or new community bank start-ups, have marketing
strategies similar to Humboldts. These other community
banks can open new branches in the communities in which we serve
and compete directly for customers who want the high level of
service community banks offer. Other community banks also
compete for the same management personnel and the same potential
acquisition and merger candidates in Northern California.

Historically, insurance companies, brokerage
firms, credit unions and other non-bank competitors have less
regulation than banks and can be more flexible in the products
and services they offer. Under the Financial Services
Modernization Act of 1999, most separations between banks,
brokerage firms and insurance companies were eliminated, which
has increased competition.

General  Humboldt Bancorp and
Humboldt Bank

Humboldt Bancorp is a California corporation
incorporated in January 1995. Humboldt is registered as a bank
holding company under the Bank Holding Company Act of 1956, as
amended. As of December 31, 2003, Humboldt had total assets
of $1.045 billion, total loans of $765 million, total
deposits of $823 million and total shareholders
equity of $97 million. For the year ended December 31,
2003, Humboldt reported net income of

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$29.1 million, or $2.28 per diluted
share. Humboldts principal operating subsidiary is
Humboldt Bank (Bank), which was founded in 1989 and
operates under a charter issued by the State of California. As
of December 31, 2003, the Bank had two divisions operating
under the names Capitol Valley Bank and Tehama Bank. On
March 5, 2004, Feather River State Bank merged into the
Bank, and began operating as a division of Humboldt Bank.


During the first quarter of 2003, Humboldt
completed the sale of its proprietary merchant bankcard
operations and, over the remaining course of the year,
substantially completed the wind down of its Independent Service
Organization (ISO) sponsorship processing business.
Effective with the fourth quarter of 2003, the results of
operations for these businesses (collectively, Merchant
Bankcard) were classified as a discontinued operation and
are presented as such for all periods presented in this Annual
Report. Additional information on Merchant Bankcard is contained
in the Discontinued Operations sections of
Parts I and II (Items 7 and 8) of this Annual Report.

Bancorp Financial Services, Inc.
(BFS) is a subsidiary of Humboldt that was founded
jointly by Humboldt and Tehama Bancorp in 1996. Upon the
completion of the merger with Tehama Bancorp in March 2001, BFS
became a wholly-owned subsidiary of Humboldt. BFS was classified
as a discontinued operation during 2001 and the final wind-down
of its operations was completed during the second quarter of
2002. Additional information on BFS is contained in the
Discontinued Operations sections of Parts I and
II (Items 7 and 8) of this Annual Report.

Humboldt also has four subsidiaries formed for
the sole purpose of issuing Trust Preferred Securities. Further
information regarding Trust Preferred Securities is included in
Note 10 to the Financial Statements.

Humboldt Bank has one subsidiary, HB Investment
Trust, which was formed in December 2001 as a Real Estate
Investment Trust (REIT) organized under the laws of
the State of Maryland. Humboldt Bank owns all of the outstanding
common stock of HB Investment Trust and is the sole contributor
of real estate assets. HB Investment Trust is included in the
consolidated financial statements.

All of Humboldts subsidiaries are listed in
Exhibit 21 of this Annual Report.

Recent Developments

On March 13, 2004, Humboldt and Humboldt
Bank entered into a definitive Agreement and Plan of
Reorganization (Agreement) with Umpqua Holdings
Corporation (Umpqua) and Umpqua Bank. Under the
terms of the Agreement, Humboldt will merge with and into
Umpqua, with Umpqua the surviving corporation. The Agreement
also provides for Humboldt Bank to be merged with and into
Umpqua Bank, with Umpqua Bank the surviving entity.

The Agreement provides for each outstanding
Humboldt common share to be exchanged for one share of Umpqua
common stock and for Humboldts outstanding stock options
to be converted into Umpqua options on a one-for-one basis.
Approximately 15.2 million Umpqua common shares are
expected to be issued in connection with the merger, which is
expected to qualify as a tax-free reorganization. In addition,
Humboldt granted to Umpqua an option which, under certain
circumstances, would permit Umpqua to acquire
3,022,666 shares of Humboldts common stock at an
exercise price of $18.00 per share.

The transaction is expected to be completed
during the third quarter of 2004, subject to the satisfaction of
customary conditions, including the favorable vote of Humboldt
and Umpqua shareholders and the receipt of either regulatory
approvals or waivers, as the case may be.

On January 6, 2004, Humboldt completed its
acquisition of California Independent Bancorp (CIB),
the holding company for Feather River State Bank (Feather
River). As of December 31, 2003, Feather River State
Bank had total assets of $401 million, total loans of
$202 million and total deposits of $342 million.
Effective March 5, 2004, Feather River was merged with and
into the Bank. However, the Bank will still operate certain
branches under the name Feather State Bank, a division of
Humboldt Bank.

In accordance with the terms of the Agreement and
Plan of Merger, Humboldt issued approximately 2.9 million
shares of common stock and paid approximately $29.8 million
in cash in exchange for all

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outstanding CIB shares. In addition, Humboldt
issued approximately 199,000 stock options in exchange for all
outstanding CIB options.


Market Area and Competition

The market for banking and bank-related services
is highly competitive. The Bank actively competes in its various
market areas, which are principally in non-metropolitan areas of
Northern California, with other providers of deposit and credit
services. These competitors include other commercial banks,
savings banks, savings and loan associations, credit unions,
mortgage companies, and brokerage firms. The following table
displays the market share percentage and rank for total deposits
in each county where the Bank has operations. The table also
indicates the ranking by deposit size in each of the local
markets. All information in the table was obtained from the
Federal Deposit Insurance Corporation (FDIC) Summary
of Deposits as of June 30, 2003 (the most recent available
information). Markets where the Bank has ceased operations since
June 30, 2003 are not shown.

|          |  |        |       |        |  |  |    | 
|--------- |  | ------ | ----- | ------ |  |  | -- | 
|          |  | Market |       | Market
|County    |  | Share  |       | Rank  
|          |  |        |       |       
|Butte     |  |        | 2.1%  |        |  |  | 9  | 
|Glenn     |  |        | 20.4% |        |  |  | 3  | 
|Humboldt  |  |        | 37.0% |        |  |  | 1  | 
|Mendocino |  |        | 3.0%  |        |  |  | 8  | 
|Napa      |  |        | 0.6%  |        |  |  | 15 | 
|Placer    |  |        | 1.9%  |        |  |  | 13 | 
|Shasta    |  |        | 1.7%  |        |  |  | 10 | 
|Tehama    |  |        | 22.7% |        |  |  | 2  | 
|Trinity   |  |        | 22.0% |        |  |  | 2  | 

In California, major banks and large regional
banks generally dominate the commercial banking industry. By
virtue of their larger capital bases, such institutions have
substantially greater lending limits than those of Humboldt, as
well as more locations, more products and services, greater
economies of scale and greater ability to make investments in
technology for the delivery of financial services.

Lending and Credit Functions

The Bank makes both secured and unsecured loans
to individuals, firms, and corporations. Secured loans include
first and second real estate mortgage loans. The Bank also makes
direct and indirect installment loans to consumers. At
December 31, 2003, consumer, real estate construction, real
estate mortgage, and commercial & industrial loans
represented approximately 7%, 17%, 58%, and 18% respectively, of
the total loan portfolio. Specific risk elements associated with
each of the lending categories include, but are not limited to:



| |                                                                                                                                                                                                                                                                                                                                                                
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Commercial &
    Industrial Industry
    concentrations; inability to monitor the condition of collateral
    (inventory, accounts receivable and vehicles); lack of borrower
    management expertise, increased competition; use of specialized
    or obsolete equipment as collateral; insufficient cash flow from
    operations to service debt payment:
|
| | Real Estate -
    Construction Inadequate
    collateral and long-term financing agreements                                                                                                                                                                                                                                                                   
|
| | Real Estate
    Mortgage Changes in local
    economy affecting borrowers financial condition;
    insufficient collateral value due to decline in property value.                                                                                                                                                                                           
|
| | Consumer
    Loss of borrowers employment; changes in local economy;
    the inability to monitor collateral (vehicles, boats, and mobile
    homes)                                                                                                                                                                                                         

Inter-agency guidelines adopted by federal bank
regulators mandate that financial institutions establish real
estate lending policies with maximum allowable real estate
loan-to-value limits, subject to an allowable

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amount of non-conforming loans as a percentage of
capital. The Bank has adopted the federal guidelines as the
maximum allowable limits; however, policy exceptions are
permitted for real estate loan customers with strong financial
credentials.




| |              
| | -------------
| | Credit Policy

The current lending policy of the Bank is to make
loans primarily to persons who reside, work, or own property in
its primary market areas. Unsecured loans are generally made
only to persons who maintain depository relationships with the
Bank. Secured loans are made to persons who are well established
and have net worth, collateral, and cash flow to support the
loan. Exceptions to the policy are permitted on a case-by-case
basis and require the approving officer to document in writing
the reason for the exception. Policy exceptions made for
borrowers whose total aggregate loans exceed the approving
officers credit limit must be submitted to the Chief
Credit Officer or the Bank Board of Directors for approval,
depending upon the size of the loan. The Bank provides each
lending officer with written guidelines for lending activities.
Lending authority is delegated by the Board of Directors of the
Bank to the Chief Credit Officer who, in turn, delegates limited
lending authority levels to other loan officers. Loans in excess
of individual officer credit authority must either be approved
by a senior officer with sufficient approval authority
(including the Chief Credit Officer) or be approved by the
Loan Committee of the Banks Board of Directors.



| |                                                        
| | -------------------------------------------------------
| | Loan Review and Allowance for Loan Loss
    Methodology

The Credit Administration Department of the Bank
reviews, or engages an independent third party to review, the
Banks loan portfolio on a periodic basis to determine any
weaknesses in the portfolio and to assess the general quality of
credit underwriting. The results of the reviews are presented to
the Chief Credit Officer and the Audit Committee. If an
individual loan or credit relationship has a weakness identified
during the review process, the risk rating of the loan, or all
loans comprising a credit relationship, will be downgraded to a
classification that most closely matches the current risk level.
Since each loan in a credit relationship may have a different
credit structure, collateral, and other secondary source of
repayment, different loans in a relationship can be assigned
different risk ratings. The review process also provides for the
upgrade of loans that show improvement since the last review.

During 2002, the Banks risk rating system
was expanded from 8 grades to 9 grades in order to provide for a
more efficient detection of deterioration in a borrowers
financial condition. Grades 1 through 5 are considered
pass, or very acceptable credit quality that does
not require special monitoring. Grades 6 through 9 are
indicative of higher risk loans that require a greater level of
managements attention. The entire 9-grade rating scale
provides for a higher numeric rating for increased risk. For
example, a risk rating of 1 is the least risky of all credits
and would be typical of a loan that is 100% secured by a deposit
account(s) at the Bank. The four credit ratings that require
special management attention are:



| |                                                                                                                                                                                                                                                                                                                                                
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 6 (Special
    Mention) A loan that
    exhibits potential credit weaknesses or adverse trends in
    borrower financial condition that requires additional close
    monitoring by management. Operational cash flow may be
    insufficient to service the debt, collateral values may have
    narrow, but sufficient, liquidation margins.
|
| | 7
    (Substandard)  A loan that
    is inadequately protected by borrower net worth, cash flow
    capacity or collateral value. Substandard loans typically have
    one or more well-defined weaknesses.                                                                                                                                   
|
| | 8
    (Doubtful) A specific
    weakness characterized by the Substandard grade where there is
    no strong secondary source of repayment and collection or
    liquidation in full is unlikely. Insufficient information exists
    to determine the amount of potential loss.                                                              
|
| | 9 (Loss)
    Same characteristics as Doubtful; however, probability of either
    partial or full loss is certain and can be reasonably estimated.
    Loans classified as such are generally recommended for
    charge-off immediately even though there is some potential for
    future recovery.                                         

The Bank performs a quarterly analysis to
determine the adequacy of the Allowance for Loan Losses
(ALL). The ALL analysis segregates the loan
portfolio into categories based on type of loan. These

6



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categories include various types of commercial,
construction, agricultural, government guaranteed, commercial
real estate and consumer loans. First, all loans in each
category are assigned a reserve factor of between 0% and 4.0%
based on the inherent risk level of the category and the
Banks loss experience. Next, loans graded 7 or higher in
each category are assigned reserve factors based on the inherent
risk level of the category and the Banks loan loss
experience:


|           |  |                          |             | 
|---------- |  | ------------------------ | ----------- | 
|Loan Grade |  | Range of Reserve Factors
|           |  |                         
|7          |  |                          | 11% to 15%  | 
|8          |  |                          | 44% to 49%  | 
|9          |  |                          | 96% to 100% | 

All loans graded 7 and above and loans past due
30 days or more are assigned additional reserve factors
based on managements judgement. The aggregation of each of
the components above provides for the analytical required
reserve for each category. Combining the results of the
analytical required reserve calculation for all loan categories
provides the total required ALL.

Humboldts ALL methodology provides for the
establishment of specific reserves, based upon the present value
of future cash flows discounted at the loans effective
rate, the loans observable market price, or the fair value
of collateral if the loan is collateral dependent.

There is no current process used to measure or
adjust for differences between the loss factors for adversely
classified loans used in the ALL analysis and actual losses
charged to the ALL because Humboldts actual loss
experience over the past several years has been favorable. The
difference between the actual ALL (as presented in the
consolidated financial statements) and the allocated ALL
represents the unallocated ALL. The unallocated ALL provides for
coverage of credit losses inherent in the loan portfolio but not
provided for in the ALL analysis and acknowledges the inherent
imprecision of all loss prediction models. The unallocated ALL
as of December 31, 2003 was approximately $500,000, or 4%
of the total ALL.

The ALL 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 Consolidated Financial Statements. Management
believes that the ALL was adequate as of December 31, 2003.
There is, however, no assurance that future loan losses will not
exceed the levels provided for in the ALL which could result in
additional charges to the provision for loan losses. In
addition, bank regulatory authorities, as part of their periodic
examination of the Bank, may require additional charges to the
provision for loan losses in future periods if the results of
their review warrant.

The Securities and Exchange Commission Staff
Accounting Bulletin No. 102 Selected Loan Loss
Allowance Methodology and Documentation Issues (SAB
No. 102) was released in July, 2001. It expresses the
staffs views on the development, documentation, and
application of a systematic methodology as required by Financial
Reporting Release No. 28, Accounting for Loan Losses
by Registrants Engaged in Lending Activities, for
determining the ALL in accordance with general accepted
accounting principles. In particular, SAB No. 102 focuses
on the documentation the Securities and Exchange Commission
staff would normally expect registrants to prepare and maintain
in support of the ALL. Management believes that Humboldts
process for determining the adequacy of the ALL is consistently
followed and supported by written documentation, policies and
procedures.

Discontinued Operations



| |                             
| | ----------------------------
| | Merchant Bankcard Processing

In 1993, Humboldt established a merchant credit
and debit card processing operation (Merchant Bankcard
Services). From 1993 through 2002, the operation had grown
steadily both in volume and scope of activities. In general,
Merchant Bankcard Services operations involve collecting funds
for, and crediting the accounts of, merchants for sales of
merchandise and services to credit and debit card customers.
Merchant Bankcard Services specializes in providing processing
for first time merchants and small-to medium-sized merchants in
the retail, telephone, mail order and Internet commerce
industries. Merchant Bankcard Services

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included processing for merchant accounts owned
by Humboldt (the Proprietary Portfolio) and
sponsorship processing for merchant accounts owned by
Independent Sales Organizations (ISO Portfolio).


During the second quarter of 2002, Humboldt
conducted a strategic review of its Merchant Bankcard Services
and the risks and rewards associated with the business in
general. The review concluded that Humboldts long-term
shareholder value would be maximized by reducing the
Companys overall risk profile through the strategic sale
its Merchant Bankcard Services and refocusing efforts on
community banking. On March 13, 2003, the Bank completed
the sale of the Proprietary Portfolio to an affiliate of First
National Bank Holding Company called Humboldt Merchant Services,
LP for $32 million in cash. In addition, on the sale date,
Humboldt Merchant Services, LP assumed all liability for
transactions processed on or before the closing date.
Accordingly, the Bank no longer has an exposure to losses
related to the Proprietary Portfolio.

Humboldt continued to provide sponsorship
processing under several existing ISO agreements during the
remainder of 2003. As of December 31, 2003, substantially
all of Humboldts processing under ISO agreements had
ceased and, as a result, the Merchant Bankcard Processing
results for 2003 (including the gain recognized in connection
with the sale of the Proprietary Portfolio) and all prior
periods shown in this Report were reclassified as a discontinued
operation in accordance generally accepted accounting principles.

Humboldts final ISO processing agreement
terminated on January 28, 2004. All of Humboldts ISO
agreements provide for full indemnification of Humboldts
for any and all losses, damages or liabilities arising from
ISO merchants (including legal defense costs).



| |                                     
| | ------------------------------------
| | Bancorp Financial Services,
    Inc.

Bancorp Financial Services, Inc.
(BFS) was originally capitalized in 1996 with
$2,000,000 contributions from both Humboldt Bancorp and Tehama
Bancorp. Upon the completion of the Tehama Bancorp merger in
March 2001, Humboldt became the sole shareholder of BFS. During
the first quarter of 2001, Humboldts Board of Directors
completed a strategic review of BFS, which principally acquired
and serviced small ticket leases on a nationwide basis. This
review was initiated in response to a number of factors,
including the increased regulatory burden associated with BFS
being a wholly owned subsidiary after completion of the Tehama
Bancorp merger, future capital needs of BFS to support its
growth and reliance upon the lease-backed securities market for
liquidity. As a result of this review, Humboldt adopted a plan
to discontinue the operations of BFS by sale and engaged an
investment banking firm to facilitate the sale during the first
quarter of 2001. A write-down of $700,000, net of tax, was
recorded during the first quarter of 2001 based on an estimate
of the value of BFS as a going concern.

During the second quarter of 2001, Humboldt was
notified by the investment banker that the prospects for the
sale of BFS as a going concern were unlikely. In response,
Humboldt adopted a plan to wind-down the operations of BFS in an
orderly manner. This plan included the immediate termination of
all lease and loan acquisition activities. In connection with
the wind-down plan, Humboldt recognized a loss on discontinued
operations, net of tax, of $13.5 million during the second
quarter of 2001. For the year ended December 31, 2001,
Humboldt recognized a total net loss on discontinued operations
related to BFS of $14.0 million.

During the first and second quarters of 2002, the
wind-down of the BFS operations was completed, including the
sale of all remaining financial assets. A loss on discontinued
operations of $276,000 was recognized during the second quarter
of 2002.

The operating results of BFS are included, net of
tax, in the income statement as income (loss) from discontinued
operations. Additional information on BFS is contained in
Note 3 in the Notes to the Consolidated Financial
Statements.

Asset/ Liability Management

Humboldts Asset/ Liability Management
Committee (ALCO) is composed of the Chief Financial
Officer, Treasurer, Chief Credit Officer, President and one
board member. The ALCO meets periodically and is charged with
managing the assets and liabilities of the Bank. ALCO attempts
to manage asset growth, liquidity, and capital to maximize
income and manage interest rate risk, and directs
Humboldts acquisition

8



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##### Table of Contents



and allocation of funds. A more comprehensive
discussion of Humboldts Asset/ Liability Management and
interest rate risk is contained in the Managements
Discussion and Analysis (Part II, Item 7A) section of
this report under the heading Quantitative and Qualitative
Disclosures About Market Risk.


Investment Policy

Humboldts investment policy is to maximize
income consistent with liquidity, asset quality and regulatory
constraints and is reviewed annually by the Board of Directors.
Individual transactions, portfolio composition, and performance
are also reviewed and on a regular basis by the Board of
Directors. Humboldts Chief Financial Officer administers
the policy and reports information to the Board of Directors on
a quarterly basis concerning sales, purchases, maturities and
calls, resultant gains or losses, average maturity, and market
appreciation or depreciation by major investment type.

Economic Conditions

Humboldts profitability is primarily
dependent on interest rate differentials. In general, the
difference between the interest rates paid on interest-bearing
liabilities, such as deposits and other borrowings, and the
interest rates received on interest-earning assets, such as
loans and investment securities, comprise the major portion of
Humboldts earnings. These rates are highly sensitive to
many factors that are beyond the control of Humboldt, such as
inflation, recession and unemployment. The impact which future
changes in domestic and foreign economic conditions might have
on Humboldt cannot be predicted.

The results of operations of Humboldt are
affected by credit policies of monetary authorities,
particularly the Federal Reserve. The instruments of monetary
policy employed by the Federal Reserve to control inflation and
combat economic recession include open market operations in
U.S. government securities, changes in the discount rate on
bank borrowings and changes in reserve requirements against bank
deposits. In view of changing conditions in the national economy
and in the money markets, as well as the effect of actions by
monetary and fiscal authorities, including the Federal Reserve,
no prediction can be made as to possible future changes in
interest rates, deposit levels, loan demand, or the business and
income of Humboldt. Changes in monetary policy could have an
adverse effect on loan demand, the ability of borrowers to repay
outstanding loans, the value of real estate and other collateral
securing loans, and Humboldts financial condition and
results of operations in general and, as a result, on the market
value of the Humboldts common stock.

In late 2000 and continuing into 2001, the State
of California was subject to a deterioration in the ability of
major utilities to provide energy for the States needs.
These shortages resulted in increased costs and, during the
summer of 2001, rolling blackouts during which
electric service was interrupted in some areas for short
periods. Although conservation efforts and increased generation
capacity have alleviated electricity shortages, there is no
assurance that future energy shortages will not have a
significant adverse impact on the California economy. In early
2003, the State of California also announced a budget deficit of
approximately $35 billion and plans to curtail spending in
order to close the budget gap. On March 2, 2004, California
voters approved certain ballot measures, including an economic
recovery bond issue of up to $15 billion to pay off the
States accumulated general fund deficit. The State
continues to face fiscal challenges, of which the long-term
impact on the States economy cannot be predicted with
certainty. Although Humboldt is not directly dependent upon
funding from the State of California, deterioration in the
States financial condition could have an adverse impact on
the prospects for continued economic growth and development.

Supervision and Regulation

Humboldt and the Bank are extensively regulated
under both federal and state laws and regulations. These laws
and regulations are primarily intended to protect depositors,
not shareholders. The following information describes statutory
or regulatory provisions affecting Humboldt and the Bank.

The regulations of the Federal Reserve Board, the
FDIC, and the California Department of Financial Institutions
govern most aspects of Humboldts and the Banks
business and operations, including, but not limited to, the
scope of its business, investments, reserves against deposits,
the nature and amount of any collateral for loans, the time of
availability of deposited funds, the issuance of securities, the
payment of

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##### Table of Contents



dividends, bank expansion and bank activities,
including real estate development and insurance activities, and
the making of periodic reports. Various consumer laws and
regulations also apply to the Bank. The Federal Reserve, the
FDIC, and the California Department of Financial Institutions
have broad enforcement powers over depository institutions,
including the power to prohibit a bank from engaging in business
practices which are considered to be unsafe or unsound, to
impose substantial fines and other civil and criminal penalties,
to terminate deposit insurance, and to appoint a conservator or
receiver under a variety of circumstances. The Federal Reserve
Board also has broad enforcement powers over bank holding
companies, including the power to impose substantial fines and
other civil and criminal penalties.




| |                                         
| | ----------------------------------------
| | Regulation of Bank Holding
    Companies

Humboldt is a registered bank holding company
subject to regulation by the Board of Governors of the Federal
Reserve System under the BHCA. Humboldt is required to file
financial information with the Federal Reserve periodically and
is subject to periodic examination by the Federal Reserve. The
BHCA requires every bank holding company to obtain the Federal
Reserves prior approval before (1) it may acquire
direct or indirect ownership or control of more than 5% of the
voting shares of any bank that it does not already control;
(2) it or any of its non-bank subsidiaries may acquire all
or substantially all of the assets of a bank; and (3) it
may merge or consolidate with any other bank holding company. In
addition, a bank holding company is generally prohibited from
engaging in, or acquiring, direct or indirect control of the
voting shares of any company engaged in non-banking activities.
This prohibition does not apply to activities listed in the BHCA
or found by the Federal Reserve, by order or regulation, to be
closely related to banking or managing or controlling banks as
to be incidental to banking.



| |                  
| | -----------------
| | Change in Control

The BHC, and the Change in Bank Control Act of
1978, as amended, together with regulations of the FRB, require
that, depending on the particular circumstances, either FRB
approval must be obtained or notice must be furnished to the FRB
and not disapproved prior to any person or entity acquiring
control of a state member bank, such as the bank,
subject to exemptions for some transactions. Control is
conclusively presumed to exist if an individual or entity
acquires 25% or more of any class of voting securities of the
bank. Control is rebuttably presumed to exist if an entity
acquires 10% or more but less than 25% of any class of voting
securities and either the entity has registered securities under
Section 12 of the Securities Exchange Act of 1934, as
amended, or the Exchange Act, or no other person will own a
greater percentage of that class of voting securities
immediately after the transaction.



| |                          
| | -------------------------
| | Federal Deposit Insurance

The Federal Deposit Insurance Corporation insures
deposits of federally insured banks, savings banks, savings
associations and thrifts and safeguards the safety and soundness
of the banking industry. Two separate insurance funds are
maintained and administered by the FDIC. In general, bank
deposits are insured through the Bank Insurance Fund
(BIF). Deposits in savings associations are insured
through the Savings Association Insurance Fund
(SAIF). A SAIF member may merge with a bank as long
as the acquiring bank continues to pay the SAIF insurance
assessments on the deposits acquired. The Bank pays SAIF
insurance assessments on deposits acquired in branch
acquisitions.

The amount of FDIC assessments paid by each
member institution is based on its relative risk of default as
measured by regulatory capital ratios and other factors. The
assessment rate currently ranges from $0.00 to $0.27 per
$100.00 of deposits. At December 31, 2003, the Bank was
classified in a manner that the assessment rate was zero.

The FDIC may increase or decrease the assessment
rate schedule on a semi-annual basis in order to manage the BIF
and SAIF to prescribed statutory target levels. An increase in
the assessment rate could have material adverse effect
Humboldts earnings, depending upon the amount of the
increase.

All FDIC-insured depository institutions must pay
an annual assessment to provide funds for the payment of
interest on bonds issued by the Financing Corporation, a federal
corporation chartered under the

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##### Table of Contents



authority of the Federal Housing Finance Board.
The bonds, commonly referred to as FICO bonds, were issued to
capitalize the Federal Savings and Loan Insurance Corporation.
The FDIC established the FICO assessment rates effective for the
fourth quarter of 2001 at approximately $.0184 per $100
annually for assessable deposits. The FICO assessments are
adjusted quarterly to reflect changes in the assessment bases of
the FDICs insurance funds and do not vary depending on a
depository institutions capitalization or supervisory
evaluations.


The FDIC may terminate the deposit insurance of
any insured depository institution if it determines that the
institution has engaged or is engaging in unsafe or unsound
practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, order
or any condition imposed in writing by, or pursuant to written
agreement with, the FDIC. The FDIC may also suspend deposit
insurance temporarily during the hearing process for a permanent
termination of insurance if the institution has no tangible
capital. The termination of deposit insurance for the Bank could
have a material adverse effect on Humboldts results of
operations and liquidity due to the likelihood that substantial
deposit withdrawal activity would occur.



| |                            
| | ---------------------------
| | Capital Adequacy Guidelines

The FRB and the FDIC have risk-based capital
adequacy guidelines intended to provide a measure of capital
adequacy that reflects the degree of risk associated with a
banking organizations operations for both transactions
reported on the balance sheet as assets, and transactions, such
as letters of credit and recourse arrangements, which are
reported as off-balance-sheet items. Under these guidelines,
nominal dollar amounts of assets and credit equivalent amounts
of off-balance-sheet items are multiplied by one of several risk
adjustment percentages, which range from 0.0% for assets with
low credit risk, such as certain U.S. government
securities, to 100.0% for assets with relatively higher credit
risk, such as business loans.

A banking organizations risk-based capital
ratios are obtained by dividing its qualifying capital by its
total risk-adjusted assets and off-balance-sheet items. The
regulators measure risk-adjusted assets and off-balance-sheet
items against both total qualifying capital (the sum of
Tier 1 capital and limited amounts of Tier 2 capital)
and Tier 1 capital. Tier 1 capital consists of common
stock, retained earnings, noncumulative perpetual preferred
stock and minority interests in certain subsidiaries, less most
other intangible assets. Tier 2 capital may consist of a
limited amount of the allowance for loan and lease losses and
certain other instruments with some characteristics of equity.
The inclusion of elements of Tier 2 capital is subject to
certain other requirements and limitations of the federal
banking agencies. Since December 31, 1992, the FRB and the
FDIC have required a minimum ratio of qualifying total capital
to risk-adjusted assets and off-balance-sheet items of 8.0%, and
a minimum ratio of Tier 1 capital to risk-adjusted assets
and off-balance-sheet items of 4.0%.

In addition to the risk-based guidelines, the FRB
and FDIC require banking organizations to maintain a minimum
amount of Tier 1 capital to average total assets, referred
to as the leverage ratio. For a banking organization rated in
the highest of the five categories used by regulators to rate
banking organizations, the minimum leverage ratio of Tier 1
capital to total assets is 3.0%. It is unlikely, however, that
an institution with a 3.0% leverage ratio would receive the
highest rating by the regulators since a strong capital position
is a significant part of the regulators ratings. For all
banking organizations not rated in the highest category, the
minimum leverage ratio is at least 100 to 200 basis points
above the 3.0% minimum. Thus, the effective minimum leverage
ratio, for all practical purposes, is at least 4.0% or 5.0%. In
addition to these uniform risk-based capital guidelines and
leverage ratios that apply across the industry, the FRB and FDIC
have the discretion to set individual minimum capital
requirements for specific institutions at rates significantly
above the minimum guidelines and ratios.

A bank that does not achieve and maintain the
required capital levels may be issued a capital directive by the
FDIC to ensure the maintenance of required capital levels. As
discussed above, we are required to

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maintain certain levels of capital, as is the
bank. The regulatory capital guidelines as well as our actual
capitalization on a consolidated basis and for the Bank as of
December 31, 2003 follow:


|                                |  |             |      |             |  |          |       |          |  |  |       |  |  |  |       | 
|------------------------------- |  | ----------- | ---- | ----------- |  | -------- | ----- | -------- |  |  | ----- |  |  |  | ----- | 
|                                |  |             |      |             |  |         
|                                |  | Requirement |      |             |  |         
|                                |  |             |      |             |  |         
|                                |  | Adequately  |      | Well        |  | Humboldt |       | Humboldt
|                                |  | Capitalized |      | Capitalized |  | Bank     |       | Bancorp 
|                                |  |             |      |             |  |          |       |         
|Total risk-based capital ratio  |  |             | 8.0% |             |  |          | 10.0% |          |  |  | 12.8% |  |  |  | 16.2% | 
|Tier 1 risk-based capital ratio |  |             | 4.0% |             |  |          | 6.0%  |          |  |  | 11.5% |  |  |  | 13.1% | 
|Tier 1 leverage capital ratio   |  |             | 4.0% |             |  |          | 5.0%  |          |  |  | 10.1% |  |  |  | 11.4% | 

Proposed accounting rules regarding special
purpose entities (FIN 46) could disqualify trust preferred
securities from Tier 1 capital status. In the event these
capital instruments are no longer allowed to be included as
Tier 1 capital, the capital position of Humboldt could be
adversely affected. Since the net proceeds of these securities
have been contributed to the bank in the form of equity capital,
the banks regulatory capital ratios would not be affected.
Junior subordinated debentures, representing Humboldts
obligations to the Trusts relative to the issuance of trust
preferred securities, made up 25% of Humboldts Tier 1
capital at December 31, 2003. Further detail on regulatory
capital ratios is included in Note 20 of the Notes to the
Consolidated Financial Statements.



| |                                           
| | ------------------------------------------
| | Limits on Dividends and Other
    Payments

Humboldt initiated the payment of a quarterly
cash dividend during the second quarter of 2002 of
$0.021 per share, increasing to $0.025 per share
effective the third quarter of 2002. Effective with the second
quarter of 2003, the quarterly cash dividend was increased to
$0.03 per share. Humboldts ability to obtain funds
for the payment of cash dividends, if any, and for other cash
requirements is dependent on the amount of dividends that may be
declared by the Bank. California bank law provides that
dividends may be paid from the lesser of retained earnings or
net income of the bank for its last three years. Further, a
California-chartered bank may not declare a dividend without the
approval of the California Department of Financial Institutions
if the total of dividends and distributions declared in a
calendar year exceeds the greater of the banks retained
earnings or net income for its last fiscal year or its current
fiscal year. The Banks ability to pay dividends may also
be limited by capital adequacy guidelines of the FDIC. Moreover,
regulatory authorities are authorized to prohibit banks and bank
holding companies from paying dividends if payment of dividends
would constitute an unsafe and unsound banking practice. As of
December 31, 2003, $27,800,000 was available for cash
dividend distributions from the Bank to Humboldt without prior
regulatory approval.

The Federal Reserve Boards policy statement
governing payment of cash dividends provides that Humboldt
should not pay cash dividends on common stock unless
(i) net income for the past year is sufficient to fully
fund the proposed dividends and (ii) the prospective rate
of earnings retention is consistent with capital needs, asset
quality and overall financial condition.



| |                           
| | --------------------------
| | Community Reinvestment Act

Under the Community Reinvestment Act of 1977
(CRA) and implementing regulations of the banking
agencies, a financial institution has a continuing and
affirmative obligation (consistent with safe and sound
operation) to meet the credit needs of its entire community,
including low- and moderate-income neighborhoods. The CRA does
not establish specific lending requirements or programs for
financial institutions, nor does it limit an institutions
discretion to develop the types of products and services that
the institution believes are best suited to its particular
community. The CRA requires that bank regulatory agencies
conduct regular CRA examinations and provide written evaluations
of institutions CRA performance. The CRA also requires
that an institutions CRA performance rating be made public.

Although CRA examinations occur on a regular
basis, CRA performance evaluations are used principally in the
evaluation of regulatory applications submitted by an
institution. CRA performance evaluations are considered in
evaluating applications for such events as mergers, acquisitions
and applications to open new branches. As of the last CRA exam
in October 2003, the Bank had a rating of
satisfactory.

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| |                 
| | ----------------
| | State Regulation

As California-chartered institutions, the Bank is
subject to regular examination by the California Department of
Financial Institutions. State regulation affects the operation
of the Bank with regard to deposits, mortgage lending,
investments and other activities. State regulation may contain
limitations on an institutions activities that are in
addition to limitations imposed under federal law. State
regulation also contains many provisions that are consistent
with federal law.

The California Department of Financial
Institutions may initiate supervisory measures or formal
enforcement actions, and if the grounds provided by law exist,
may place a California-chartered financial institution in
conservatorship or receivership. Whenever the Commissioner of
Financial Institutions considers it necessary or appropriate, he
may also examine the affairs of any holding company or any
affiliate of a California-chartered financial institution.



| |                                    
| | -----------------------------------
| | Recent and Proposed
    Legislation

From time to time, legislative acts, as well as
regulations, are enacted which have the effect of increasing the
cost of doing business, limiting or expanding permissible
activities, or affecting the competitive balance between banks
and other financial services providers. Proposals to change the
laws and regulations governing the operations and taxation of
banks, bank holding companies, and other financial institutions
and financial services providers are frequently made in the
U.S. Congress, in the state legislatures, and before
various regulatory agencies.



| |                                                 
| | ------------------------------------------------
| | Financial Services Modernization
    Legislation

On November 12, 1999, President Clinton
signed into law the Gramm-Leach-Bliley Act of 1999, also
referred to as Financial Services Modernization Act. The
Financial Services Modernization Act repeals the two affiliation
provisions of the Glass-Steagall Act: Section 20, which
restricted the affiliation of Federal Reserve member banks with
firms engaged principally in specified securities
activities; and Section 32, which restricts officer,
director or employee interlocks between a member bank and any
company or person primarily engaged in specified
securities activities. In addition, the Financial Services
Modernization Act also contains provisions that expressly
preempt any state law restricting the establishment of financial
affiliations, primarily related to insurance. The general effect
of the law is to establish a comprehensive framework to permit
affiliations among commercial banks, insurance companies,
securities firms, and other financial services providers by
revising and expanding the Bank Holding Company Act of 1956
(BHCA) framework to permit a holding company system
to engage in a full range of financial activities through a new
entity known as a Financial Holding Company. Financial
activities is broadly defined to include not only banking,
insurance and securities activities, but also merchant banking
and additional activities that the Federal Reserve Board, in
consultation with the Secretary of the Treasury, determines to
be financial in nature, incidental to such financial activities
or complementary activities that do not pose a substantial risk
to the safety and soundness of depository institutions or the
financial system generally. Generally, the Financial Services
Modernization Act:



| |   |                                                                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Repeals historical restrictions on, and
    eliminates many federal and state law barriers to, affiliations
    among banks, securities firms, insurance companies, and other
    financial services providers;
|
| |  | Provides a uniform framework for the functional
    regulation of the activities of banks, savings institutions and
    their holding companies;                                                               
|
| |  | Broadens the activities that may be conducted by
    national banks, banking subsidiaries of bank holding companies
    and their financial subsidiaries;                                                      
|
| |  | Provides an enhanced framework for protecting the
    privacy of consumer information;                                                                                                                         
|
| |  | Adopts a number of provisions related to the
    capitalization, membership, corporate governance, and other
    measures designed to modernize the Federal Home Loan Bank
    system;                         

13



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| |   |                                                                                                                                                          
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Modifies the laws governing the implementation of
    the Community Reinvestment Act, sometimes referred to as
    CRA; and                              
|
| |  | Addresses a variety of other legal and regulatory
    issues affecting both day-to-day operations and long-term
    activities of financial institutions.

In order for a company to take advantage of the
ability to affiliate with other financial services providers, it
must become a Financial Holding Company as permitted
under an amendment to the BHCA. To become a Financial Holding
Company, a company would file a declaration with the Federal
Reserve Board, electing to engage in activities permissible for
Financial Holding Companies and certifying that the company is
eligible to do so because all of its insured depository
institution subsidiaries are well-capitalized and well-managed.
In addition, the Federal Reserve Board must also determine that
each of a holding companys insured depository institution
subsidiaries has at least a satisfactory CRA rating.
Humboldt does not have any current plans to apply for Financial
Holding Company status.

Under the Financial Services Modernization Act,
federal banking regulators adopted rules that limit the ability
of financial institutions to disclose non-public information
about customers to third parties not affiliated with the
financial institution. Under the privacy rules, which became
effective in July 2001, financial institutions must provide
notices to customers about their privacy policy (describing the
conditions under which nonpublic personal information is
disclosed), annual notices of their privacy policy to current
customers and a reasonable means for customers to opt
out of having their personal information disclosed to
third parties. These privacy provisions will affect how consumer
information is transmitted through financial institutions and
conveyed to outside vendors. Management does not believe that
compliance with privacy rules will have a material impact on
Humboldts results of operations.



| |                
| | ---------------
| | USA Patriot Act

President Bush signed the USA Patriot Act of 2001
(Patriot Act) on October 26, 2001. This
legislation was enacted in response to the terrorist attacks in
New York, Pennsylvania and Washington, D.C. on
September 11, 2001. The Patriot Act is intended to
strengthen U.S. law enforcement and the intelligence
communities ability to work together to combat terrorism
on a variety of levels. The potential impact of the Patriot Act
on financial institutions is significant and wide ranging. The
Patriot Act contains sweeping anti-money laundering and
financial transparency laws and requires various regulations,
including:



| |   |                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Due diligence requirements for financial
    institutions that administer, maintain, or manage private bank
    accounts or correspondent accounts for non-U.S. persons.                                         
|
| |  | Standards for verifying customer identification
    at account opening.                                                                                                                                          
|
| |  | Rules to promote cooperation among financial
    institutions, regulators, and law enforcement entities to assist
    in the identification of parties that may be involved in
    terrorism or money laundering.
|
| |  | Reports to be filed by nonfinancial trades and
    business with the Treasury Departments Financial Crimes
    Enforcement Network for transactions exceeding $10,000.                                          
|
| |  | The filing of suspicious activities reports by
    securities brokers and dealers if they believe a customer may be
    violating U.S. laws and regulations.                                                     



| |                   
| | ------------------
| | Sarbanes-Oxley Act

On July 30, 2002, the President signed into
law the Sarbanes-Oxley Act (Sarbanes-Oxley) of 2002
implementing legislative reforms intended to address corporate
and accounting fraud. Sarbanes-Oxley applies to publicly
reporting companies. In addition to the establishment of a new
accounting oversight board which will enforce auditing, quality
control and independence standards and will be funded by fees
from all publicly traded companies, the bill restricts provision
of both auditing and consulting services by accounting firms. To
maintain auditor independence, any non-audit services being
provided to an audit client will require pre-approval by the
Humboldts audit committee members. In addition, the audit
partners must be rotated.

14



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##### Table of Contents



Sarbanes-Oxley also requires chief executive
officers and chief financial officers, or their equivalent, to
certify to the accuracy of periodic reports filed with the SEC,
subject to civil and criminal penalties if they knowingly or
willfully violate this certification requirement. In addition,
under Sarbanes-Oxley, legal counsel will be required to report
evidence of a material violation of the securities laws or a
breach of fiduciary duty by a company to its chief executive
officer or its chief legal officer, and, if such officer does
not appropriately respond, to report such evidence to the audit
committee or other similar committee of the board of directors
or the board itself.

Longer prison terms and increased penalties will
also be applied to corporate executives who violate federal
securities laws, the period during which certain types of suits
can be brought against a company or its officers has been
extended, and bonuses issued to top executives prior to
restatement of a companys financial statements are now
subject to disgorgement if such restatement was due to corporate
misconduct. Executives are also prohibited from insider trading
during retirement plan blackout periods, and loans
to company executives are restricted. Sarbanes-Oxley accelerates
the time frame for disclosures by public companies, as they must
immediately disclose any material changes in their financial
condition or operations. Directors and executive officers must
also provide information for most changes in ownership in a
companys securities within two business days of the change.

Sarbanes-Oxley also prohibits any officer or
director of a company or any other person acting under their
direction from taking any action to fraudulently influence,
coerce, manipulate or mislead any independent public or
certified accountant engaged in the audit of the companys
financial statements for the purpose of rendering the financial
statements materially misleading. Sarbanes-Oxley also requires
the SEC to prescribe rules requiring inclusion of an internal
control report and assessment by management in the annual report
to shareholders. In addition, Sarbanes-Oxley requires that each
financial report required to be prepared in accordance with (or
reconciled to) accounting principles generally accepted in the
United States of America and filed with the SEC reflect all
material correcting adjustments that are identified by a
registered public accounting firm in accordance with
accounting principles generally accepted in the United States of
America and the rules and regulations of the SEC.

Until all new regulations, rules or standards
have been developed, Humboldt is not able to predict the impact
of such law on its financial condition or results of operations
at this time.

Employees

At December 31, 2003, Humboldt employed a
total of 377 full-time equivalent employees. None of
Humboldts employees are represented by a collective
bargaining group, and management considers its relations with
its employees to be good. Information regarding employment
contracts for Humboldts executive officers is contained in
the Proxy Statement for the 2004 Annual Meeting.






|        |           
|------- | ----------
|Item 2. | Properties

The executive offices of Humboldt are located at
2998 Douglas Boulevard, Suite 330, Roseville, California.
Humboldt leases this office space. As of December 31, 2003,
the Bank conducted business at 19 facilities, 9 of which are
leased. All facilities are in a good state of repair and
appropriately designed for use as banking facilities. The Bank
also performs operational functions at three locations, one
which is owned and two which are leased. Note 6 of the
Notes to the Consolidated Financial Statements contains
additional information about properties.






|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

In the ordinary course of business, various
claims and lawsuits are brought by and against Humboldt and the
Bank. In the opinion of management, there is no pending or
threatened proceeding in which an adverse decision could result
in a material adverse change in the consolidated financial
condition or results of operations of Humboldt.

As previously disclosed in its Form 10-Q for
the quarter ended September 30, 2003, the Bank is a party
to a lawsuit brought by a merchant for whom the Banks
merchant bankcard division processed credit card

15



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##### Table of Contents



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 the 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 the Bank. During the fourth quarter, the
jury judgment against the Bank was overturned. Further, the ISO
has confirmed in writing to the Bank that it will honor its
indemnification of the Bank for all compensatory and punitive
damages and related legal fees. Accordingly, the Bank does not
expect to incur any liability in connection with this matter.







|        |                                                        
|------- | -------------------------------------------------------
|Item 4. | Submission of Matters to a Vote of Security
    Holders

On or about October 24, 2003, a Proxy
Statement of Humboldt Bancorp was mailed to shareholders of
record as of October 20, 2003 by the Board of Directors
soliciting proxies for use at a Special Meeting of Shareholders
held on December 15, 2003. At the meeting, shareholders
were asked to approve the principal terms of the Agreement and
Plan of Merger between Humboldt and California Independent
Bancorp (CIB) pursuant to which CIB would merge with
and into Humboldt (including the issuance of Humboldt common
stock in connection with the merger) and to approve certain
amendments to the Amended and Restated 2001 Humboldt
Bancorp & Subsidiaries Equity Incentive Plan to expand
eligibility for awards under the plan to all employees and
officers.

Proposal 1  To approve the
principal terms of the Agreement and Plan of Merger with CIB:

|                 |  |  |           | 
|---------------- |  |  | --------- | 
|For              |  |  | 7,736,506 | 
|Against          |  |  | 109,777   | 
|Withheld         |  |  | 145,638   | 
|Broker non-votes |  |  | 708       | 

Proposal 2  To approve an
amendment to the Amended and Restated 2001 Humboldt
Bancorp & Subsidiaries Equity Incentive Plan:

|                 |  |  |           | 
|---------------- |  |  | --------- | 
|For              |  |  | 7,122,374 | 
|Against          |  |  | 605,362   | 
|Withheld         |  |  | 264,185   | 
|Broker non-votes |  |  | 708       | 






PART II







|        |                                                                          
|------- | -------------------------------------------------------------------------
|Item 5. | Market for Registrants Common Equity
    and Related Stockholder Matters

Humboldts common stock is traded on the
Nasdaq National Market System (NASDAQ) under the
symbol HBEK. The table below reflects the high and
low closing sales prices for Humboldts common stock as
reported by NASDAQ. As of December 31, 2003, there were
100,000,000 and 20,000,000 shares, respectively, of
Humboldt common stock and preferred stock authorized for
issuance. As of December 31, 2003, there were
12,194,646 shares of common stock outstanding; Humboldt has
never issued preferred stock.

16



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##### Table of Contents



The stock prices below for the first, second and
third quarters of 2002 have been adjusted to reflect the 6-for-5
stock split issued in August 2002. The following quotes reflect
inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.

|                   |  |      |       |     |  |           |       |  |  |   |       | 
|------------------ |  | ---- | ----- | --- |  | --------- | ----- |  |  | - | ----- | 
|                   |  |      |       |     |  | Cash     
|                   |  |      |       |     |  | Dividend 
|Quarter Ended      |  | High |       | Low |  | Per Share
|                   |  |      |       |     |  |          
|December 31, 2003  |  | $    | 18.50 |     |  | $         | 15.35 |  |  | $ | 0.030 | 
|September 30, 2003 |  | $    | 15.95 |     |  | $         | 13.13 |  |  | $ | 0.030 | 
|June 30, 2003      |  | $    | 15.00 |     |  | $         | 12.72 |  |  | $ | 0.030 | 
|March 31, 2003     |  | $    | 13.09 |     |  | $         | 10.14 |  |  | $ | 0.025 | 
|December 31, 2002  |  | $    | 12.22 |     |  | $         | 9.23  |  |  | $ | 0.025 | 
|September 30, 2002 |  | $    | 15.75 |     |  | $         | 11.20 |  |  | $ | 0.025 | 
|June 30, 2002      |  | $    | 14.18 |     |  | $         | 8.33  |  |  | $ | 0.021 | 
|March 31, 2002     |  | $    | 8.83  |     |  | $         | 6.54  |  |  | $ | 0.000 | 

As of February 27, 2003 there were
approximately 2,102 shareholders, not including those held
in street name by brokerage firms. As of December 31, 2003,
a total of 1,100,642 options and 95,398 warrants for Humboldt
Bancorp common stock were outstanding. Additional information on
Humboldts options is available in Note 17 of the
Notes to the Consolidated Financial Statements.

The payment of future dividends is at the
discretion of the board of directors and subject to a number of
factors, including results of operations, general business
conditions, capital requirements, general financial condition,
and other factors deemed relevant by the board of directors.
Further, our ability to issue cash dividends is subject to
meeting certain regulatory requirements. See Supervision
and Regulation.

On February 6, 2002, as amended on
July 17, 2002, the Board of Directors authorized the
repurchase of up to 1.7 million shares of Humboldt common
stock. No shares were repurchased during the fourth quarter of
2003.

17



---



##### Table of Contents








|        |                                          
|------- | -----------------------------------------
|Item 6. | Selected Consolidated Financial
    Data.

|                                                                          |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |         |  
|------------------------------------------------------------------------- | ---------------------------------------- | ----------------------------------- | ------ | --------- | - | ---- | ------ | --------- | - | ---- | ------- | ------- | - |  | ------ | ------- | - |  | ------ | ------- | -
|                                                                          |                                          | 2003                                |        | 2002      |   | 2001 |        | 2000      |   | 1999
|                                                                          |                                          |                                     |        |           |   |      |        |           |   |     
|                                                                          |                                          |                                    
|                                                                          |                                          | In thousands, except per share data
|Interest income                                                           |                                          |                                     | 61,347 |           |   |      | 64,345 |           |   |      | 66,165  |         |   |  | 59,069 |         |   |  | 38,623 |        
|Interest expense                                                          |                                          |                                     | 14,088 |           |   |      | 17,637 |           |   |      | 28,341  |         |   |  | 24,508 |         |   |  | 13,273 |        
|                                                                          |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Net interest income                      |                                     |        | 47,259    |   |      |        | 46,708    |   |      |         | 37,824  |   |  |        | 34,561  |   |  |        | 25,350  |  
|Provision for loan losses                                                 |                                          |                                     | 1,523  |           |   |      | 3,321  |           |   |      | 2,903   |         |   |  | 2,378  |         |   |  | 2,129  |        
|Non-interest income                                                       |                                          |                                     | 9,048  |           |   |      | 9,611  |           |   |      | 12,785  |         |   |  | 6,682  |         |   |  | 2,597  |        
|Non-interest expense                                                      |                                          |                                     | 40,365 |           |   |      | 39,826 |           |   |      | 38,663  |         |   |  | 29,245 |         |   |  | 22,403 |        
|Merger-related expense                                                    |                                          |                                     | 195    |           |   |      |       |           |   |      | 3,531   |         |   |  |       |         |   |  |       |        
|                                                                          |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Income before income taxes               |                                     |        | 14,224    |   |      |        | 13,172    |   |      |         | 5,512   |   |  |        | 9,620   |   |  |        | 3,415   |  
|Income taxes                                                              |                                          |                                     | 3,992  |           |   |      | 2,838  |           |   |      | 1,577   |         |   |  | 3,175  |         |   |  | 1,161  |        
|                                                                          |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|Net income from continuing operations                                     |                                          |                                     | 10,232 |           |   |      | 10,334 |           |   |      | 3,935   |         |   |  | 6,445  |         |   |  | 2,254  |        
|Gain(loss) on sale or winddown of discontinued
    operations, net of tax |                                          |                                     | 17,252 |           |   |      | (276   | )         |   |      | (13,994 | )       |   |  |       |         |   |  |       |        
|Income (loss) from discontinued operations, net
    of tax                |                                          |                                     | 1,608  |           |   |      | 2,205  |           |   |      | 3,050   |         |   |  | 2,575  |         |   |  | 3,966  |        
|                                                                          |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Net income (loss)                        |                                     | $      | 29,092    |   |      | $      | 12,263    |   |      | $       | (7,009  | ) |  | $      | 9,020   |   |  | $      | 6,220   |  
|                                                                          |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|Year End                                                                  |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Assets                                   |                                     | $      | 1,044,561 |   |      | $      | 1,031,550 |   |      | $       | 957,774 |   |  | $      | 852,289 |   |  | $      | 635,443 |  
|                                                                          | Earning assets                           |                                     |        | 955,179   |   |      |        | 942,321   |   |      |         | 842,514 |   |  |        | 738,466 |   |  |        | 548,919 |  
|                                                                          | Loans, net of allowance for losses       |                                     |        | 753,248   |   |      |        | 749,034   |   |      |         | 654,567 |   |  |        | 575,142 |   |  |        | 368,148 |  
|                                                                          | Deposits                                 |                                     |        | 822,700   |   |      |        | 840,427   |   |      |         | 807,086 |   |  |        | 712,807 |   |  |        | 567,097 |  
|                                                                          | Stockholders equity                     |                                     | $      | 96,896    |   |      | $      | 77,848    |   |      | $       | 66,826  |   |  | $      | 73,048  |   |  | $      | 52,777  |  
|                                                                          | Shares outstanding                       |                                     |        | 12,195    |   |      |        | 12,604    |   |      |         | 12,553  |   |  |        | 12,346  |   |  |        | 10,661  |  
|Average                                                                   |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Assets                                   |                                     | $      | 1,054,386 |   |      | $      | 983,510   |   |      | $       | 916,067 |   |  | $      | 767,760 |   |  | $      | 565,064 |  
|                                                                          | Earning assets                           |                                     |        | 955,764   |   |      |        | 893,263   |   |      |         | 801,462 |   |  |        | 673,760 |   |  |        | 495,498 |  
|                                                                          | Loans                                    |                                     |        | 758,730   |   |      |        | 711,842   |   |      |         | 616,159 |   |  |        | 503,739 |   |  |        | 331,551 |  
|                                                                          | Deposits                                 |                                     |        | 845,152   |   |      |        | 805,958   |   |      |         | 778,219 |   |  |        | 672,865 |   |  |        | 507,894 |  
|                                                                          | Stockholders equity                     |                                     | $      | 91,895    |   |      | $      | 70,329    |   |      | $       | 68,040  |   |  | $      | 63,472  |   |  | $      | 48,467  |  
|                                                                          | Basic shares outstanding                 |                                     |        | 12,261    |   |      |        | 12,503    |   |      |         | 12,464  |   |  |        | 12,037  |   |  |        | 11,049  |  
|                                                                          | Diluted shares outstanding               |                                     |        | 12,777    |   |      |        | 13,049    |   |      |         | 12,996  |   |  |        | 12,739  |   |  |        | 11,736  |  
|Per Share Data**                                                          |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Basic earnings (loss)                    |                                     | $      | 2.37      |   |      | $      | 0.98      |   |      | $       | (0.56   | ) |  | $      | 0.75    |   |  | $      | 0.56    |  
|                                                                          | Diluted earnings (loss)                  |                                     |        | 2.28      |   |      |        | 0.94      |   |      |         | (0.54   | ) |  |        | 0.71    |   |  |        | 0.53    |  
|                                                                          | Basic earnings  continuing operations   |                                     |        | 0.83      |   |      |        | 0.83      |   |      |         | 0.32    |   |  |        | 0.54    |   |  |        | 0.20    |  
|                                                                          | Diluted earnings  continuing operations |                                     |        | 0.80      |   |      |        | 0.79      |   |      |         | 0.30    |   |  |        | 0.51    |   |  |        | 0.19    |  
|                                                                          | Book value                               |                                     |        | 7.95      |   |      |        | 6.18      |   |      |         | 5.32    |   |  |        | 5.92    |   |  |        | 4.95    |  
|                                                                          | Cash dividends declared                  |                                     | $      | 0.115     |   |      | $      | 0.071     |   |      | $       |        |   |  | $      |        |   |  | $      |        |  
|Performance Ratios                                                        |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Return on average assets *               |                                     |        | 0.98      | % |      |        | 0.99      | % |      |         | 0.64    | % |  |        | 1.18    | % |  |        | 0.94    | %
|                                                                          | Return on average shareholders equity * |                                     |        | 11.29     | % |      |        | 13.78     | % |      |         | 8.62    | % |  |        | 14.22   | % |  |        | 10.99   | %
|                                                                          | Average equity to average assets         |                                     |        | 8.72      | % |      |        | 7.15      | % |      |         | 7.43    | % |  |        | 8.27    | % |  |        | 8.58    | %
|                                                                          | Efficiency ratio *                       |                                     |        | 71.51     | % |      |        | 71.85     | % |      |         | 74.53   | % |  |        | 72.00   | % |  |        | 76.11   | %
|                                                                          | Leverage ratio                           |                                     |        | 11.40     | % |      |        | 8.73      | % |      |         | 8.38    | % |  |        | 8.83    | % |  |        | 8.02    | %
|                                                                          | Net interest margin (non-tax-equivalent) |                                     |        | 4.94      | % |      |        | 5.23      | % |      |         | 4.72    | % |  |        | 5.14    | % |  |        | 5.21    | %
|                                                                          | Non-interest revenue to total revenue    |                                     |        | 16.07     | % |      |        | 17.07     | % |      |         | 25.26   | % |  |        | 39.76   | % |  |        | 41.98   | %
|Asset Quality                                                             |                                          |                                     |        |           |   |      |        |           |   |      |         |         |   |  |        |         |   |  |        |        
|                                                                          | Non-performing assets                    |                                     | $      | 9,457     |   |      | $      | 3,703     |   |      | $       | 4,641   |   |  | $      | 4,657   |   |  | $      | 2,573   |  
|                                                                          | Allowance for loan losses                |                                     |        | 12,206    |   |      |        | 11,614    |   |      |         | 9,765   |   |  |        | 8,367   |   |  |        | 5,502   |  
|                                                                          | Net charge-offs                          |                                     |        | 931       |   |      |        | 1,472     |   |      |         | 1,505   |   |  |        | 1,670   |   |  |        | 2,005   |  
|                                                                          | Non-performing assets to total assets    |                                     |        | 0.91      | % |      |        | 0.36      | % |      |         | 0.48    | % |  |        | 0.55    | % |  |        | 0.40    | %
|                                                                          | Allowance for loan losses to loans       |                                     |        | 1.59      | % |      |        | 1.53      | % |      |         | 1.47    | % |  |        | 1.43    | % |  |        | 1.47    | %
|                                                                          | Net charge-offs to average loans         |                                     |        | 0.12      | % |      |        | 0.21      | % |      |         | 0.24    | % |  |        | 0.33    | % |  |        | 0.60    | %



---



|  |                                                                                
|- | -------------------------------------------------------------------------------
|* | Excludes the impact of discontinued operations
    and merger-related expenses.



|   |                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|** | All per-share data has been adjusted for the
    6-for-5 stock split in 2002 and the 10% stock dividends in 2001
    and 2000, and the 5-for-2 stock split in 1999.

18



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##### Table of Contents








|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 7. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Executive Summary

At December 31, 2003, Humboldt had total
consolidated assets of $1.045 billion, total net loans of
$753 million, total deposits of $823 million and
stockholders equity of $97 million. For the year
ended December 31, 2003, Humboldt reported net income of
$29.1 million, or $2.28 per diluted share, and net
income from continuing operations of $10.2 million, or
$0.80 per diluted share. The gain on discontinued
operations of $18.9 million after tax, or $1.48 per
diluted share, resulted from the sale of the merchant bankcard
operation during the first quarter of 2003 and its operations
prior to the sale. The merchant bankcard processing business is
discussed in detail below under the heading Discontinued
Operations and in Note 3 of the Notes to the
Consolidated Financial Statements.

All outstanding and weighted average share
amounts presented in this report have been restated to reflect
the six-for-five stock split in 2002, the 10% stock dividends in
2001 and 2000, and a five-for-two stock split in 1999.

2003 was a year of substantive change for
Humboldt Bancorp. During the year Humboldt:



| |   |                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | completed the exit from the merchant bankcard
    processing business, realizing a $30 million pre-tax gain
    on the sale, while preserving the employment for over 70
    individuals
|
| |  | completed the sale or closure of several branches
    outside of Northern California                                                                                                    
|
| |  | completed the conversion of our core processing
    systems to a platform that can support future growth and
    acquisitions, and                                                      
|
| |  | entered into a definitive agreement to acquire
    California Independent Bancorp, parent of Feather River State
    Bank, closing the transaction on January 6, 2004.                  

With the California Independent Bancorp
transaction closed, Humboldts management is in a position
to focus and execute on one business  community
banking.

Ongoing profitability has been negatively
impacted by the exit from the merchant bankcard business.
However, management believes that the companys risk
profile is substantially improved.

At the beginning of 2003, liquidity was a
management concern due to the pending loss of merchant bankcard
deposits. In light of this and concerns about prospects for
deterioration in local economic conditions, management took
certain actions to reduce potential credit risk. These steps
included lowering the Banks hold position on
larger credits and no longer originating loans that were
transactional in nature (that is, loans that did not provide for
at least some depository relationship). Humboldt also
experienced an unprecedented level of payoffs during 2003, as
management maintained pricing discipline on long-term fixed rate
lending in the face of intense competitive pressures. The net
impact was essentially no loan growth for the entire year. The
positive side of this is that the net interest margin held up
better than expected, at just over 5% for the year on a
fully-tax-equivalent basis.

Credit quality remains a top priority for
Humboldts management as it focuses on community banking.
Non-performing asset levels spiked during the first quarter of
2003 as two large loans  one for expansion of a
boutique hotel and the other agriculture-related 
were placed on non-accrual. The hotel loan, representing
$5.5 million, or 59% of the year-end non-performing loans,
was paid off subsequent to December 31, 2003, resulting in
a $0.1 million charge-off that will be reported for 2004.
Tight controls were maintained on credit quality during 2003.
Net charge-offs for 2003 were 12 basis points, down from
21 basis points in 2003. Management believes this is a
direct reflection of Humboldts focus on credit quality and
the continued economic vitality of its market areas.

Core deposit growth for 2003 exceeded
managements expectations and is a result of actions taken
when the decision was made to exit the merchant processing
business during the summer of 2002. During 2003, Humboldt lost
about $70 million of deposits  mostly
non-interest-bearing demand accounts  with the sale
of the proprietary bankcard processing operation and termination
of ISO sponsorships. Through sales efforts,

19



---



##### Table of Contents



however, core deposits (non-interest-bearing
deposits, savings and money market deposit accounts) grew
23%  nearly $100 million  during the
year. This allowed the merchant processing deposits to be
replaced in the most economical manner and year-end brokered
deposit and borrowing levels to be lower than at year-end 2002.
Growth in core deposits will remain a key management focus for
2004.


The net interest margin, on a
fully-tax-equivalent basis, for 2003 was 5.02%, down
29 basis points from 2002. Humboldt remains asset
sensitive, although the merger with California Independent
Bancorp will dampen slightly that asset sensitivity. With about
50% of the combined loan portfolio tied to the prime rate, and
an average cost of deposits of about 1%, management does not
expect any margin expansion until the Federal Reserve starts to
raise short-term interest rates again.

Non-interest income for 2003 totaled
$9.0 million, a decrease of $0.6 million from 2002.
Management has begun replacing the lost merchant bankcard
revenue with increased service charge income, principally
related to an overdraft protection privilege
product, and increased revenue related to the sale or brokering
of SBA loans. In 2004, management expects significantly
increased SBA and mortgage banking revenues. On the mortgage
side, the focus will be on leveraging relationships with
builders, offering niche products, taking advantage of the
strong new housing markets such as Placer County, California,
and exploring new delivery channels. Refinancing of residential
mortgages is not expected to be a priority.

The financial results for 2003 do not reflect any
recognition of state tax benefits related to the companys
real estate investment trust (REIT), due to the
recent California Franchise Tax Board announcement on REIT tax
strategies. The combined federal and state effective tax rate
for continuing and discontinued operations in 2003 was 37.8%.
This rate is significantly higher than 2002 due to the change in
the REIT benefit and the fact that pretax income was
significantly higher as a result of the merchant bankcard gain.
Management is currently evaluating options with respect to the
voluntary compliance programs available for banks that have
claimed a state tax benefit arising from a REIT consent dividend
and will make a decision by the compliance deadline of
April 15, 2004. Management believes that the benefit taken
in 2002 is adequately reserved.

Summary of 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. Not all of these accounting policies require
management to make difficult, subjective or complex judgments or
estimates. However, management believes that the following
policies could be considered critical within the SECs
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 and tax contingencies. 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 Consolidated Financial Statements. Management
believes that Humboldt has appropriately accrued for tax
exposures.

If Humboldt prevails in a matter for which an
accrual has been established or is required to pay an amount
exceeding recorded reserves, the financial impact will be
reflected in the period in which the matter is resolved.



| |                                     
| | ------------------------------------
| | Derivative Financial
    Instruments

Humboldt has a policy that provides for the use
of derivative financial instruments to hedge interest rate risk.
This policy permits the use of interest rate swap, cap and floor
contracts to hedge specific interest rate risk

20



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exposures as part of Humboldts
asset/liability management process. This policy limits the
notional amount of total derivative financial instruments to 15%
of total assets. Notes 1 and 11 in the Notes to the
Consolidated Financial Statements contains additional
information on accounting policies related to derivative
financial instruments.




| |                            
| | ---------------------------
| | Off-Balance Sheet Financing

During the first quarter of 2001, Humboldt
classified its leasing subsidiary, BFS, as a discontinued
operation upon adoption of a plan to sell the subsidiary. During
the second quarter of 2001, it was determined that a sale of BFS
was unlikely and the plan was modified to wind-down the
operations of BFS. Management believes that the wind-down of BFS
meets the requirements for classification as a discontinued
operation. Note 3 in the Notes to the 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 in the financial statements of BFS or Humboldt.
These subsidiaries are commonly referred to as special purpose
entities, or SPEs. As of December 31, 2003, 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 Consolidated Financial
Statements.



| |                    
| | -------------------
| | Revenue Recognition

Humboldts primary sources of revenue are
interest income from loans and investment securities and, prior
to the sale of the merchant bankcard operation in 2003, fees
received in connection with providing merchant bankcard
processing services. (Merchant bankcard revenue and expenses are
classified as discontinued operationsin this annual
report.) Interest income is recorded on an accrual basis.
Note 1 in the Notes to the 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 was
recorded on a cash basis.

An additional source of revenue for Humboldt is
related to the gains recorded in connection with the sale of the
guaranteed portion of certain 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. Notes 1
and 7 in the Notes to the Consolidated Financial Statements
contain additional information regarding Humboldts
accounting policy for revenue recorded in connection with the
sale of loans. SBA loan servicing rights are based upon
estimates and are subject to the risk of prepayments and market
value fluctuation.

Summary of Recent Accounting
Pronouncements

In January 2003, the Financial Accounting
Standards Board (FASB) issued Interpretation No. 46
(FIN 46), Consolidation of Variable Interest
Entities and, in December 2003, issued Revised
Interpretation No. 46 (FIN 46R), Consolidation of
Variable Interest Entities, which replaced FIN 46.
Variable interest entities are 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. We adopted
the disclosure provisions of FIN 46 effective
December 31, 2002. On December 31, 2003, Humboldt
adopted FIN 46R for all existing VIEs. The adoption of
FIN 46 and FIN 46R did not have a material effect on
our financial statements.

Historically, issuer trusts that issued trust
preferred securities have been consolidated by their parent
companies and trust preferred securities have been treated as
eligible for Tier 1 capital treatment by bank holding
companies under Federal Reserve rules and regulations relating
to minority interests in equity accounts of consolidated
subsidiaries. Applying the provisions of FIN 46R, Humboldt
is no longer permitted to consolidate the issuer trusts,
beginning on December 31, 2003. Although the Federal
Reserve has stated in its July 2, 2003 Supervisory Letter
that trust preferred securities will be treated as Tier 1
capital until notice is

21



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##### Table of Contents



given to the contrary, the Supervisory Letter
also indicates that the Federal Reserve will review the
regulatory implications of any accounting treatment changes and
will provide further guidance if necessary or warranted.


The Bank has investments in two limited
partnerships that operate qualified multi-family affordable
housing projects and generate tax credits for the Bank. The
Banks interest in these partnerships was approximately
$800,000 at December 31, 2003 and $945,000 at
December 31, 2002. The assets and liabilities of these
partnerships consist primarily of apartment complexes and
related debt. Because the partnership agreements dictate that
the properties revert to the general partners at the end of each
partnership, among other factors, the Bank continues to account
for the investments under the equity method, and therefore the
carrying value approximates its underlying equity in the net
assets of the partnerships. Additional information regarding
investments in limited partnerships is provided in Note 1
of the Notes to the Consolidated Financial Statements.

In November 2002, the FASB issued FIN 45,
which elaborates on the disclosures to be made by a guarantor in
its interim and annual financial statements about its
obligations under certain guarantees that it has issued. It also
clarifies that a guarantor is required to recognize, at the
inception of the guarantee, a liability for the fair value of
the obligation undertaken in issuing the guarantee. The initial
recognition and initial measurement provisions of this
Interpretation are applied prospectively to guarantees issued or
modified after December 31, 2002. The adoption of these
recognition provisions will result in recording liabilities
associated with certain guarantees provided by the Bank. The
disclosure requirements of this Interpretation are effective for
financial statements of interim or annual periods ending after
December 15, 2002. The effect of this Statement on
Humboldts financial condition and results of operations
was not material.

In July 2002, the FASB issued
SFAS No. 146, which requires companies to recognize
costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or
disposal plan. This Statement is effective prospectively for
exit or disposal activities initiated after December 31,
2002. The effect of this Statement on Humboldts financial
condition and results of operations was not material.

Income Statement Summary

For the year ended December 31, 2003, net
income was $29.1 million, or $2.28 per diluted share,
and net income from continuing operations was
$10.2 million, or $0.80 per diluted share. The results
of continuing operations produced a return on average assets of
0.97% and a return on average shareholders equity of 11.1%.

For 2002, net income was $12.3 million, or
$0.94 per diluted share, and net income from continuing
operations was $10.3 million, or $0.79 per diluted
share. Humboldt recognized a net loss in 2001 of
$7.0 million, or $0.54 per diluted share, and net
income from continuing operations of $3.9 million, or
$0.30 per diluted share. The loss from discontinued
operations for 2001 was related to the wind-down of
Humboldts leasing subsidiary, and totaled
$14.0 million, or $1.07 per diluted share, partially
offset by income of $3.1 million, or $0.23 per diluted
share, from the discontinued operations of the merchant bankcard
processing operation.

Net Interest Income

Net interest income is the most significant
source of Humboldts operating income. Net interest income
for 2003 totaled $47.3 million, an increase of
$0.6 million, or 1%, over 2002. Net interest income for
2002 totaled $46.7 million, an increase of
$8.9 million, or 23% over 2001.

The banking industry uses two key ratios to
measure relative profitability of net interest revenue. The
net interest rate spreadmeasures the difference between
the average yield on earning assets and the average rate paid on
interest bearing liabilities. The interest rate spread ignores
the beneficial impact of non-interest bearing deposits and
capital, and provides a direct perspective on the effect of
market interest rate movements. The net interest marginis defined as net interest income as a percentage of total
average earning assets, which includes the positive impact of
obtaining a portion of the funding for earning assets with
non-interest bearing deposits and capital.

22



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##### Table of Contents



Table 1 presents, for the years indicated,
condensed average balance sheet information for Humboldt,
together with interest income and yields earned on average
interest-earning assets and interest expense and rates paid on
average interest-bearing liabilities.

Table 1  Average Rates and
Balances

|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |       |       | 
|------------------------------------------------------- | ------------------------------------------------ | ---------------------------------- | ------- | ---------------------------- | ------- | ---------------------------- | - | ------- | ------ | --------- | ----- | ------- | ----- | ------- | ------- | --------- | ------- | ------- | - | ------ | ------ |  | ----- | ----- | ----- |  | ------- | ------- | ------- |  | - | ------ | ------ |  | ----- | ----- | ----- | 
|                                                        |                                                  |                                    |         |                              |         |                             
|                                                        |                                                  | Year Ended December 31, 2003       |         | Year Ended December 31, 2002 |         | Year Ended December 31, 2001
|                                                        |                                                  |                                    |         |                              |         |                             
|                                                        |                                                  |                                    |         | Interest                     |         | Average                      |   |         |        | Interest  |       | Average |       |         |         | Interest  |         | Average
|                                                        |                                                  | Average                            |         | Income or                    |         | Yield                        |   | Average |        | Income or |       | Yield   |       | Average |         | Income or |         | Yield  
|                                                        |                                                  | Balance                            |         | Expense                      |         | or Rate                      |   | Balance |        | Expense   |       | or Rate |       | Balance |         | Expense   |         | or Rate
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |        
|                                                        |                                                  |                                   
|                                                        |                                                  | (Dollars in thousands)            
|Interest-earning assets:                                |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        | Loans and leases(2)                              |                                    | $       | 758,730                      |         |                              | $ | 54,328  |        |           |       | 7.16%   |       |         | $       | 711,842   |         |         | $ | 56,010 |        |  |       | 7.87% |       |  | $       | 616,159 |         |  | $ | 55,971 |        |  |       | 9.08% |      
|                                                        | Investment securities:                           |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |       |      
|                                                        |                                                  | Taxable securities                 |         |                              | 143,295 |                              |   |         | 5,290  |           |       |         | 3.69% |         |         |           | 153,025 |         |   |        | 6,871  |  |       |       | 4.49% |  |         |         | 111,825 |  |   |        | 7,125  |  |       |       | 6.37% | 
|                                                        |                                                  | Nontaxable securities(1)           |         |                              | 29,323  |                              |   |         | 2,228  |           |       |         | 7.60% |         |         |           | 27,293  |         |   |        | 2,138  |  |       |       | 7.83% |  |         |         | 30,131  |  |   |        | 2,357  |  |       |       | 7.82% | 
|                                                        | Other interest income                            |                                    |         | 24,416                       |         |                              |   | 244     |        |           |       | 1.00%   |       |         |         | 1,103     |         |         |   | 39     |        |  |       | 3.54% |       |  |         | 43,347  |         |  |   | 1,498  |        |  |       | 3.46% |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        |                                                  | Total interest-earning assets      |         |                              | 955,764 |                              |   |         | 62,090 |           |       |         | 6.50% |         |         |           | 893,263 |         |   |        | 65,058 |  |       |       | 7.28% |  |         |         | 801,462 |  |   |        | 66,951 |  |       |       | 8.35% | 
|Cash and due from banks                                 |                                                  |                                    | 44,681  |                              |         |                              |   |         |        |           |       |         |       |         | 51,787  |           |         |         |   |        |        |  |       |       |       |  | 59,658  |         |         |  |   |        |        |  |       |      
|Premises and equipment, net                             |                                                  |                                    | 19,652  |                              |         |                              |   |         |        |           |       |         |       |         | 17,086  |           |         |         |   |        |        |  |       |       |       |  | 19,043  |         |         |  |   |        |        |  |       |      
|Loan loss allowance                                     |                                                  |                                    | (12,034 | )                            |         |                              |   |         |        |           |       |         |       |         | (10,569 | )         |         |         |   |        |        |  |       |       |       |  | (9,371  | )       |         |  |   |        |        |  |       |      
|Other assets                                            |                                                  |                                    | 46,323  |                              |         |                              |   |         |        |           |       |         |       |         | 31,943  |           |         |         |   |        |        |  |       |       |       |  | 45,275  |         |         |  |   |        |        |  |       |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        | Total assets                                     |                                    | $       | 1,054,386                    |         |                              |   |         |        |           |       |         |       |         | $       | 983,510   |         |         |   |        |        |  |       |       |       |  | $       | 916,067 |         |  |   |        |        |  |       |       |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|Interest-bearing liabilities:                           |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        | Interest-bearing checking & savings
    accounts |                                    | $       | 315,235                      |         |                              |   | 2,231   |        |           |       | 0.71%   |       |         | $       | 306,147   |         |         |   | 3,362  |        |  |       | 1.10% |       |  | $       | 251,780 |         |  |   | 6,513  |        |  |       | 2.59% |      
|                                                        | Time deposit and IRA accounts                    |                                    |         | 314,044                      |         |                              |   | 7,711   |        |           |       | 2.46%   |       |         |         | 277,847   |         |         |   | 10,270 |        |  |       | 3.70% |       |  |         | 341,677 |         |  |   | 18,690 |        |  |       | 5.47% |      
|                                                        | Borrowed funds                                   |                                    |         | 94,849                       |         |                              |   | 4,146   |        |           |       | 4.37%   |       |         |         | 81,218    |         |         |   | 4,005  |        |  |       | 4.93% |       |  |         | 49,104  |         |  |   | 3,138  |        |  |       | 6.39% |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        |                                                  | Total interest-bearing liabilities |         |                              | 724,128 |                              |   |         | 14,088 |           |       |         | 1.95% |         |         |           | 665,212 |         |   |        | 17,637 |  |       |       | 2.65% |  |         |         | 642,561 |  |   |        | 28,341 |  |       |       | 4.41% | 
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|Noninterest-bearing deposits                            |                                                  |                                    | 215,873 |                              |         |                              |   |         |        |           |       |         |       |         | 221,964 |           |         |         |   |        |        |  |       |       |       |  | 184,762 |         |         |  |   |        |        |  |       |      
|Other liabilities                                       |                                                  |                                    | 22,490  |                              |         |                              |   |         |        |           |       |         |       |         | 26,005  |           |         |         |   |        |        |  |       |       |       |  | 20,704  |         |         |  |   |        |        |  |       |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        | Total liabilities                                |                                    |         | 962,491                      |         |                              |   |         |        |           |       |         |       |         |         | 913,181   |         |         |   |        |        |  |       |       |       |  |         | 848,027 |         |  |   |        |        |  |       |       |      
|Shareholders equity                                    |                                                  |                                    | 91,895  |                              |         |                              |   |         |        |           |       |         |       |         | 70,329  |           |         |         |   |        |        |  |       |       |       |  | 68,040  |         |         |  |   |        |        |  |       |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        | Total liabilities & shareholders
    equity     |                                    | $       | 1,054,386                    |         |                              |   |         |        |           |       |         |       |         | $       | 983,510   |         |         |   |        |        |  |       |       |       |  | $       | 916,067 |         |  |   |        |        |  |       |       |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        | Net interest income                              |                                    |         |                              |         |                              | $ | 48,002  |        |           |       |         |       |         |         |           |         |         | $ | 47,421 |        |  |       |       |       |  |         |         |         |  | $ | 38,610 |        |  |       |       |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|                                                        | Net interest spread                              |                                    |         |                              |         |                              |   |         |        |           |       | 4.55%   |       |         |         |           |         |         |   |        |        |  |       | 4.63% |       |  |         |         |         |  |   |        |        |  |       | 3.94% |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|Average yield on average interest-earning
    assets(1) |                                                  |                                    |         |                              |         |                              |   |         |        |           | 6.50% |         |       |         |         |           |         |         |   |        |        |  | 7.28% |       |       |  |         |         |         |  |   |        |        |  | 8.35% |      
|Interest expense to average interest-earning
    assets |                                                  |                                    |         |                              |         |                              |   |         |        |           | 1.48% |         |       |         |         |           |         |         |   |        |        |  | 1.97% |       |       |  |         |         |         |  |   |        |        |  | 3.53% |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      
|Net interest margin(3)                                  |                                                  |                                    |         |                              |         |                              |   |         |        |           | 5.02% |         |       |         |         |           |         |         |   |        |        |  | 5.31% |       |       |  |         |         |         |  |   |        |        |  | 4.82% |      
|                                                        |                                                  |                                    |         |                              |         |                              |   |         |        |           |       |         |       |         |         |           |         |         |   |        |        |  |       |       |       |  |         |         |         |  |   |        |        |  |       |      



---



|    |                                                                                                                                           
|--- | ------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Interest income on tax-exempt securities and
    loans has been increased by 50% to reflect comparable interest
    on taxable securities.
|   
|(2) | Nonaccrual loans are included in the average
    balance for loans.                                                                       
|   
|(3) | Net interest margin is computed by dividing net
    interest income by average total interest-earning assets.                             

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Humboldts fully-taxable-equivalent net
interest margin for 2003 was 5.02%, a decrease of 29 basis
points from 2002. This decrease is principally attributable to
the impact of lower market interest rates, partially offset by
growth in outstanding average interest earning assets from 2002
to 2003. 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 78 basis points, while the
average cost of interest bearing liabilities declined by
70 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 in 2003 because, in some instances, the
rates paid are approaching 0%. In addition, the net carrying
cost of the $28 million of Junior subordinated debentures
issued in September 2003 to fund the cash portion of the January
2004 California Independent Bancorp merger reduced the net
interest margin in 2003 by 9 basis points.

For 2002, the tax-equivalent net interest margin
was 5.31%, an increase of 49 basis points over 2001. This
was a result of a combination of factors that allowed the cost
of interest bearing liabilities to be reduced by 176 basis
points, while the yield on average earning assets declined by
only 107 basis points. After an evaluation was conducted
during the fourth quarter of 2001, management decided to stop
offering premium rate certificates of deposit at certain
branches that had historically obtained most of their funding by
that method. As a result of this change, a substantial portion
of the premium rate certificates of deposit did not remain with
the Bank after maturity and average certificates of deposit
outstanding for 2002 decreased by approximately
$64 million, or 19%, from the prior period. This outflow
was funded principally by a reduction in federal funds sold from
an average outstanding balance of $42 million in 2001 to
zero in 2002, and a combination of long and short-term FHLB
borrowings. Management also aggressively lowered rates on
interest bearing transaction accounts during 2002, resulting in
a reduction in the average rate paid by 149 basis points
from the prior year, while short-term market rates remained
relatively flat until November 2002.

The reduction in the average yield on earning
assets for 2003 and 2002 was partially mitigated by the
initiation of a hedging strategy during the first quarter of
2002, proactive management of the Banks investment
securities portfolio and disciplined loan pricing. The hedging
strategy involved utilizing interest rate swap contracts to
synthetically convert $50 million of the Banks loan
portfolio from floating to fixed rates. For 2003 and 2002,
interest income on loans reflects $1,211,000 and $695,000,
respectively, related to the loan portfolio hedging contracts,
resulting in an increase in the average yield on loans of
approximately 16 basis points in 2003 and 10 basis
points in 2002.

During the second quarter of 2002, management
conducted a comprehensive review of the Banks securities
portfolio, of which over two-thirds of the investments are
mortgage-related (see Note 4 of the Notes to the
Consolidated Financial Statements for additional information).
This review resulted in the sale of approximately
$41 million of securities which management believed would
not perform well under the then-expected market rate
environment. A like amount of similar securities was purchased
to replace those sold, with an increased duration of
approximately 3 years, allowing for an improvement in the
overall yield on investment securities. The loan pricing
discipline utilized by Humboldt includes negotiating for a
risk-appropriate rate on all loans, including caps and floors on
adjustable rate loans when possible, and using market-based
tools to establish target rates on fixed rate loans of three
years or more.

The Federal Reserve lowered the target federal
funds rate a record 11 times in 2001, once in 2002 and once
again in 2003. These Fed actions reduced the target federal
funds rate by 475 basis points over the course of 2001, by
another 50 basis points toward the end of 2002, and another
25 basis points, to 1.00%, in June 2003. During the first
three quarters of 2001, management did not aggressively lower
the offering rates on certificates of deposit or rates paid on
interest bearing transaction accounts, given the level of
uncertainty with respect to potential customer reaction. As a
result, the average cost of interest bearing liabilities
declined by only 34 basis points during 2001. As described
above, a more aggressive position with respect to deposit rates
was adopted during the fourth quarter of 2001 and for all of
2002 and 2003.

The most significant impact on Humboldts
net interest income between periods is derived from the
interaction of changes in the volume of and rate earned or paid
on interest-earning assets and interest-bearing liabilities. The
volume of interest-earning assets, primarily loans and
investments, compared to the volume of

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##### Table of Contents



interest-bearing liabilities represented by
deposits and borrowings, when combined with the spread, produces
the changes in the net interest income between periods. Table 2
sets forth, for the years indicated, a summary of the changes in
net interest income due to changes in average asset and
liability balances (volume) and changes in average interest
rates (rate). Changes in interest income and expense, which are
not attributable specifically to either volume or rate, are
allocated proportionately between both variances.


Table 2  Rate/Volume
Analysis

|                                                 |                                                |                                               |       |                             |       |       |      |        |        |      |     |        |        |   |       |        |       |   |      |        |         |   |       |        |         |  
|------------------------------------------------ | ---------------------------------------------- | --------------------------------------------- | ----- | --------------------------- | ----- | ----- | ---- | ------ | ------ | ---- | --- | ------ | ------ | - | ----- | ------ | ----- | - | ---- | ------ | ------- | - | ----- | ------ | ------- | -
|                                                 |                                                |                                               |       |                            
|                                                 |                                                | 2003 Compared to 2002                         |       | 2002 Compared to 2001      
|                                                 |                                                |                                               |       |                            
|                                                 |                                                |                                               |       |                            
|                                                 |                                                | Increase (Decrease) in                        |       | Increase (Decrease) in     
|                                                 |                                                | Interest Income and Expense                   |       | Interest Income and Expense
|                                                 |                                                | Due to Changes in                             |       | Due to Changes in          
|                                                 |                                                |                                               |       |                            
|                                                 |                                                | Volume                                        |       | Rate                        |       | Total |      | Volume |        | Rate |     | Total 
|                                                 |                                                |                                               |       |                             |       |       |      |        |        |      |     |       
|                                                 |                                                |                                              
|                                                 |                                                | (Dollars in thousands)                       
|Interest income:                                 |                                                |                                               |       |                             |       |       |      |        |        |      |     |        |        |   |       |        |       |   |      |        |         |   |       |       
|                                                 | Loans and leases                               |                                               | $     | 3,549                       |       |       | $    | (5,231 | )      |      | $   | (1,682 | )      |   | $     | 8,067  |       |   | $    | (8,028 | )       |   | $     | 39     |        
|                                                 | Investment securities                          |                                               |       | (372                        | )     |       |      | (1,119 | )      |      |     | (1,491 | )      |   |       | 2,228  |       |   |      | (2,701 | )       |   |       | (473   | )      
|                                                 | Other interest income                          |                                               |       | 252                         |       |       |      | (47    | )      |      |     | 205    |        |   |       | (1,493 | )     |   |      | 34     |         |   |       | (1,459 | )      
|                                                 |                                                |                                               |       |                             |       |       |      |        |        |      |     |        |        |   |       |        |       |   |      |        |         |   |       |       
|                                                 |                                                | Total increase (decrease) in interest income  |       |                             | 3,429 |       |      |        | (6,397 | )    |     |        | (2,968 | ) |       |        | 8,802 |   |      |        | (10,695 | ) |       |        | (1,893  | )
|Interest expense:                                |                                                |                                               |       |                             |       |       |      |        |        |      |     |        |        |   |       |        |       |   |      |        |         |   |       |       
|                                                 | Interest-bearing checking and savings accounts |                                               |       | 97                          |       |       |      | (1,228 | )      |      |     | (1,131 | )      |   |       | 1,186  |       |   |      | (4,337 | )       |   |       | (3,151 | )      
|                                                 | Time deposits & IRA accounts                   |                                               |       | 1,212                       |       |       |      | (3,771 | )      |      |     | (2,559 | )      |   |       | (3,078 | )     |   |      | (5,342 | )       |   |       | (8,420 | )      
|                                                 | Borrowed funds                                 |                                               |       | 627                         |       |       |      | (486   | )      |      |     | 141    |        |   |       | 1,705  |       |   |      | (838   | )       |   |       | 867    |        
|                                                 |                                                |                                               |       |                             |       |       |      |        |        |      |     |        |        |   |       |        |       |   |      |        |         |   |       |       
|                                                 |                                                | Total increase (decrease) in interest expense |       |                             | 1,936 |       |      |        | (5,485 | )    |     |        | (3,549 | ) |       |        | (187  | ) |      |        | (10,517 | ) |       |        | (10,704 | )
|                                                 |                                                |                                               |       |                             |       |       |      |        |        |      |     |        |        |   |       |        |       |   |      |        |         |   |       |       
|Total increase (decrease) in net interest income |                                                | $                                             | 1,493 |                             |       | $     | (912 | )      |        | $    | 581 |        |        | $ | 8,989 |        |       | $ | (178 | )      |         | $ | 8,811 |       
|                                                 |                                                |                                               |       |                             |       |       |      |        |        |      |     |        |        |   |       |        |       |   |      |        |         |   |       |       

Provision for Loan Losses

The provision for loan losses was
$1.5 million in 2003, compared with $3.3 million in
2002 and $2.9 million in 2001. As a percentage of average
outstanding loans, the provision for loan losses recorded for
2003 was 0.20%, a decrease of 27 basis points from 2002 and
2001. Net loan charge-offs as a percentage of average
outstanding loans for 2003 were 0.12%, compared with 0.21% for
2002 and 0.24% for 2001.

The provision for loan losses is based on
managements evaluation of inherent risks in the loan
portfolio and a corresponding analysis of the allowance for loan
losses. The reduction in net charge-offs and a low level of loan
growth in 2003 combined to produce a lower loan loss provision
in 2003 as compared to 2002. Even with the lower provision, the
allowance for loan losses as a percentage of total loans
increased from year-end 2002 to year-end 2003.

Additional discussion on loan quality and the
allowance for loan losses is included in the Asset Qualitysection of this report. As shown in the Asset Qualitydiscussion, nonperforming loans increased significantly from
December 31, 2002 to December 31, 2003. This increase
is due to two large loans: one is well secured and the other is
substantially supported by government guarantees. Therefore, no
significant additional provision was considered necessary as a
result of these two loans being classified as nonperforming.

The increase in the provision for loan losses
from 2001 to 2002 was primarily attributed to growth in the loan
portfolio and managements concern about the increased
potential for deterioration of real estate values in the
Banks principal market areas.

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##### Table of Contents



Non-interest Income

Non-interest income represented 13%, 13% and 16%
of total revenue for the years ended December 31, 2003,
2002, and 2001, respectively. Total non-interest income for 2003
was $9.0 million, a reduction from the $9.6 million
recorded in 2002 and $12.8 million in 2001.

The lower non-interest income level for 2002 and
2003 reflects reduced ATM fees due to Humboldts exit from
the ATM funding business during the second quarter of 2002.
During the first quarter of 2002, Humboldt conducted an
evaluation of the risk-return relationship of ATM funding in
light of a $1.4 million pre-tax loss recorded during the
fourth quarter 2001 in connection with the theft of ATM cash.
Management concluded that alternative uses of the ATM funding
cash, such as funding loans, would provide a more acceptable
risk-adjusted return. Accordingly, the ATM funding operation was
terminated during the third quarter of 2002. Fees related to
Humboldts ATM funding operation were $-0- in 2003,
$825,000 for 2002 and $3.0 million for 2001, respectively.

Table 3 presents the components of non-interest
income for 2003, 2002, and 2001.

Table 3  Non-interest
Income

|                                      |                           |                          |       |       |  |      |       |       |  |   |       |        | 
|------------------------------------- | ------------------------- | ------------------------ | ----- | ----- |  | ---- | ----- | ----- |  | - | ----- | ------ | 
|                                      |                           |                         
|                                      |                           | Years Ended December 31,
|                                      |                           |                         
|                                      |                           | 2003                     |       | 2002  |  | 2001
|                                      |                           |                          |       |       |  |     
|                                      |                           |                         
|                                      |                           | (Dollars in thousands)  
|Service charges on deposit accounts   |                           | $                        | 3,476 |       |  | $    | 3,030 |       |  | $ | 3,521 |       
|Net gain on sale of loans             |                           |                          | 2,199 |       |  |      | 2,172 |       |  |   | 1,269 |       
|Fees for customer services            |                           |                          | 1,300 |       |  |      | 387   |       |  |   | 863   |       
|Loan broker fees                      |                           |                          | 858   |       |  |      | 488   |       |  |   | 1,086 |       
|Earnings on life insurance            |                           |                          | 773   |       |  |      | 814   |       |  |   | 875   |       
|ATM funding income                    |                           |                          |      |       |  |      | 825   |       |  |   | 2,983 |       
|Loan servicing fees                   |                           |                          | 95    |       |  |      | (413  | )     |  |   | 363   |       
|Lease residuals and rentals           |                           |                          | 26    |       |  |      | 405   |       |  |   | 832   |       
|Net investment securities (loss)/gain |                           |                          | (137  | )     |  |      | 887   |       |  |   | 206   |       
|All other                             |                           |                          | 458   |       |  |      | 1,016 |       |  |   | 787   |       
|                                      |                           |                          |       |       |  |      |       |       |  |   |       |       
|                                      | Total non-interest income |                          | $     | 9,048 |  |      | $     | 9,611 |  |   | $     | 12,785 | 
|                                      |                           |                          |       |       |  |      |       |       |  |   |       |       

With the exit from the merchant bankcard
processing business, service charges and fees on deposit
accounts has become Humboldts largest source of
non-interest income. Total deposit service charges and fees for
2003 were $3.5 million, as compared with $3.0 million
in 2002 and $3.5 million in 2001. The increase in service
charges in 2003 is principally attributable to Humboldts
introduction of a new overdraft privilege feature for certain
consumer transaction accounts, resulting in increased overdraft
charges.

Net gains on the sale of loans totaled
$2.2 million, $2.2 million and $1.3 million for
years ended December 31, 2003, 2002, and 2001 respectively.
Loans sold include residential mortgage, SBA and USDA loans.
Gains on the sale of $82 million of residential real estate
loans accounted for $1.4 million of the gains recognized in
2003, compared with $0.8 million of gains on the sale of
$73 million of residential loans in 2002, and
$0.9 million of gains on the sale of $100 million of
residential loans in 2001. During the third quarter of 2002, the
Bank sold its residential mortgage loan servicing portfolio to a
third party for cash consideration of $2.4 million. The
Bank recognized a loss, net of selling-related costs, of
approximately $259,000 in connection with this sale. Subsequent
to the sale, the Bank adopted a program whereby the residential
mortgage loans are sold on a servicing released
basis, in exchange for a cash fee.

The Bank generally sells the guaranteed portion
of SBA and USDA loans and retains the servicing, with the
capitalized value of the servicing asset included as part of the
gain on sale. A total of $14 million of SBA and USDA loans
were sold during 2003 and a net gain of $0.8 million was
recognized, compared with $24 million sold in 2002 at a
gain of $1.4 million, and a net gain of $0.4 million
on the sale of $14 million of

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##### Table of Contents



SBA loans in 2001. Humboldt Bank was ranked 6th
in terms of lending production in the SBAs Sacramento
District for the 2003 fiscal year. A valuation allowance of
approximately $600,000 was recorded during the fourth quarter of
2002 based on the fair value of the SBA/ USDA servicing asset.
During 2003, $52,000 of this impairment adjustment was recovered.


During 2003, Humboldt recognized $137,000 in
losses on the sale of $7.6 million of securities. This
compares with gains of $887,000 (on sales of $80.7 million)
recorded for 2002 and gains of $206,000 (on sales of
$26.3 million) for 2001.

In the fourth quarter of 2003, the Banks
Fresno (California) branch was sold for a net loss of $39
thousand. The Banks branch facilities in Loleta and Willow
Creek (California) were sold in 2002 and an aggregate loss of
$130,000 was recognized. The Loleta branch was permanently
closed and customer accounts transferred to the Fortuna branch.
The sale of the Willow Creek facility included a leaseback of a
portion of the building, which continues to serve as a branch
office. During 2001, a building that served as the
administrative office for Capitol Thrift & Loan was
sold as the operation was being consolidated. A gain of $615,000
was recognized in connection with the sale.

Non-Interest Expense

Total non-interest expense for 2003 was
$40.6 million, an increase of $0.7 million, or 2%,
from 2002. For 2002 as compared to 2001, non-interest expense
decreased $2.4 million, or 6%. Table 4 presents the
components of non-interest expense for the years ended
December 31, 2003, 2002 and 2001.

Table 4  Non-interest
Expense

|                                        |                             |                          |        |        |  |      |        |        |  |   |        |        | 
|--------------------------------------- | --------------------------- | ------------------------ | ------ | ------ |  | ---- | ------ | ------ |  | - | ------ | ------ | 
|                                        |                             |                         
|                                        |                             | Years Ended December 31,
|                                        |                             |                         
|                                        |                             | 2003                     |        | 2002   |  | 2001
|                                        |                             |                          |        |        |  |     
|                                        |                             |                         
|                                        |                             | (Dollars in thousands)  
|Salaries and employee benefits          |                             | $                        | 22,094 |        |  | $    | 19,984 |        |  | $ | 20,123 |       
|Net occupancy and equipment expense     |                             |                          | 6,252  |        |  |      | 6,107  |        |  |   | 5,395  |       
|Professional and other outside services |                             |                          | 2,410  |        |  |      | 3,678  |        |  |   | 2,509  |       
|Stationery, supplies and postage        |                             |                          | 1,592  |        |  |      | 1,455  |        |  |   | 1,483  |       
|Communications                          |                             |                          | 925    |        |  |      | 874    |        |  |   | 827    |       
|Travel                                  |                             |                          | 822    |        |  |      | 611    |        |  |   | 466    |       
|Advertising and business development    |                             |                          | 1,207  |        |  |      | 739    |        |  |   | 658    |       
|Amortization of core deposit intangible |                             |                          | 436    |        |  |      | 503    |        |  |   | 876    |       
|Data processing and ATM fees            |                             |                          | 578    |        |  |      | 801    |        |  |   | 874    |       
|Merger related expenses                 |                             |                          | 195    |        |  |      |       |        |  |   | 3,531  |       
|All other                               |                             |                          | 4,049  |        |  |      | 5,074  |        |  |   | 5,452  |       
|                                        |                             |                          |        |        |  |      |        |        |  |   |        |       
|                                        | Total non-interest expenses |                          | $      | 40,560 |  |      | $      | 39,826 |  |   | $      | 42,194 | 
|                                        |                             |                          |        |        |  |      |        |        |  |   |        |       

Salaries and employee benefits increased
$2.1 million in 2003 as compared to 2002. Compensation
expense for 2003 includes $634,000 of stock-based compensation
expense (under SFAS No. 123) and $570,000 of expense
related to severance agreements for two regional executives who
were terminated. From 2001 to 2002, salaries and employee
benefits declined by $0.1 million, as increased healthcare
insurance costs and merit increases were offset by staffing
reductions realized through completion of the Tehama merger
integration and bank charter consolidation initiative.

Net occupancy and equipment expense was virtually
unchanged in 2003 as compared to 2002, the result of 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. In 2002, net occupancy and equipment expense increased by
$712,000, or 13%, over 2001. This increase is principally
attributable to premises and equipment related expenses
associated with Humboldts operations center facility

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##### Table of Contents



in Eureka, California. This facility, and related
equipment assets, was placed into service during the first and
second quarters of 2001 and, consequently, a full year of
expense was recognized in 2002.


Professional and other outside services expense
declined by $1.3 million in 2003, as compared to 2002. This
was due to bringing the companys outside legal counsel on
staff at the end of 2002, along with unusually high professional
fees in 2002. For 2002, professional fees totaled
$3.7 million, an increase of $1.2 million, or 47%,
over 2001. The 2002 increase in professional fees was primarily
due to several initiatives and legal and accounting matters
which are not expected to recur: the formation of HB Investment
Trust, the bank charter consolidation initiative, the planned
sale of the merchant processing division, the restatement of
Humboldts financial results for 1999 through 2001, and the
ATM-related litigation that was settled during the fourth
quarter of 2002.

Included in all other expenses for 2001 is a $1.4
million loss related to the theft of ATM cash. Humboldt is
continuing to pursue recovery of this loss through two insurance
policy claims.

During the first quarter of 2001, Humboldt
incurred $3.5 million of expenses in connection with the
completion and integration of the merger with Tehama Bancorp.
Table 5 sets forth the major components of the 2001
merger-related charge, along with expenses incurred in 2003 in
connection with the merger with California Independent Bancorp,
which was completed in January 2004.

Table 5  Merger-Related
Expenses

|                               |                               |                        |     |      |  |      |   |   |  |   |       |       | 
|------------------------------ | ----------------------------- | ---------------------- | --- | ---- |  | ---- | - | - |  | - | ----- | ----- | 
|                               |                               | 2003                   |     | 2002 |  | 2001
|                               |                               |                        |     |      |  |     
|                               |                               |                       
|                               |                               | (Dollars in thousands)
|Professional fees              |                               | $                      | 118 |      |  | $    |  |   |  | $ | 1,664 |      
|Severance and related expenses |                               |                        |    |      |  |      |  |   |  |   | 655   |      
|Fixed asset disposals          |                               |                        |    |      |  |      |  |   |  |   | 441   |      
|System conversions             |                               |                        | 69  |      |  |      |  |   |  |   | 262   |      
|Other                          |                               |                        | 8   |      |  |      |  |   |  |   | 509   |      
|                               |                               |                        |     |      |  |      |   |   |  |   |       |      
|                               | Total merger-related expenses |                        | $   | 195  |  |      | $ |  |  |   | $     | 3,531 | 
|                               |                               |                        |     |      |  |      |   |   |  |   |       |      

Income Taxes

Humboldts effective income tax rate as a
percentage of pre-tax income from continuing operations for 2003
was 28.1%, as compared to 21.5% in 2002 and 28.6% in 2001. The
effective tax rates were below the expected statutory federal
rate of 34.0% and the state franchise tax rate of 7.1% (net of
the federal benefit), principally because of exemptions for
Enterprise Zone loans for state tax purposes, exemptions for
municipal obligations for federal purposes, low income housing
tax credits, bank owned life insurance and other permanent
differences. The decrease in the effective tax rate during 2002
was due in part to a reduction in the state franchise tax
resulting from the formation of and contribution of assets to
HB Investment Trust, a real estate investment trust
(REIT) subsidiary of the Bank. The REIT was formed
in December 2001 in order to provide flexibility with raising
capital to support growth and began to recognize state tax
benefits during the second quarter of 2002.

The increase in the effective tax rate in 2003 is
principally attributable to the potential elimination of state
tax benefits associated with the REIT. At the end of 2003 the
California Franchise Tax Board announced that it will not
recognize certain state tax benefits claimed by REIT taxpayers
using tax strategies similar to that being used by Humboldt. As
a result, Humboldt did not record any state tax benefits
associated with the REIT for 2003. Humboldt believes that it is
adequately reserved for the tax benefit recognized during 2002
and expects to defend its use of the structure.

28



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Balance Sheet Overview

Total assets at December 31, 2003 were
$1.04 billion, an increase of $12 million, or 1%, from
the $1.03 billion at December 31, 2002. From
December 31, 2001 to December 31, 2002 total assets
grew $73 million, or 8%. Loans grew by $5 million and
$96 million, respectively, over those two years.

Investment Securities

The composition of Humboldts investment
securities portfolio reflects managements investment
strategy of maintaining an appropriate level of liquidity while
providing a relatively stable source of interest income. The
investment securities portfolio also provides a means of balance
with respect to interest rate and credit risk inherent in the
loan portfolio, while providing a vehicle for the investment of
available funds, a source of liquidity (by pledging as
collateral or through repurchase agreements) and collateral for
certain public funds deposits.

Humboldts investment securities portfolio
is managed based on a total return concept, which
takes into consideration the yield on individual securities and
the market value appreciation under various interest rate
scenarios at specified future time horizons. The portfolio has,
historically, been comprised principally of mortgage-related
securities (generally about two-thirds of the total) and
bank-qualified municipal obligations. The mortgage-related
securities include both pooled mortgage-backed issues and
high-quality CMO structures, with an average duration of
2.2 years. These mortgage-related securities provide yield
spread to US Treasury or Agency securities; however, the cash
flows arising from them can be volatile (even in the best
structures) due to refinancing of the underlying mortgage loans.
The historically low mortgage interest rates experienced during
2002 and 2003 resulted in the acceleration of cash flows from
the mortgage-related securities, which were then reinvested in
similar securities at current market rates. The structure of
most of the mortgage-related securities provides for minimal
extension risk in the event of increased market rates.

During both 2002 and 2001, management actively
reviewed the investment securities portfolio on a regular basis
in light of declining market interest rates, the shape of the
yield curve, and Humboldts comprehensive asset/liability
management program. As a result of these reviews, certain
securities were sold during 2002 and 2001 that, in
managements opinion, were unlikely to perform well given
expected market rates. The proceeds received in connection with
the sales were used to purchase additional securities of
approximately the same amount as those sold.

Equity securities at December 31, 2003
consisted principally of money market mutual funds. Humboldt did
not have any corporate debt obligations as of December 31,
2003. Other securities at December 31, 2002 included a
$3 million Class-C lease-backed obligation issued by an
affiliate of Bancorp Financial Services, Inc. in March 2000.
That security was sold in the third quarter of 2003 and a loss
of $358,000 was recognized on the sale.

At December 31, 2003, the fair value of
Humboldts investment securities totaled $162 million,
a decrease of $14 million, or 8%, from the prior year-end.
All investment securities were classified as available for
sale at December 31, 2003 and 2002. The difference
between the fair value and amortized cost is recorded, net of
tax, in the Other Comprehensive Incomesection of
stockholders equity. Table 6 provides information
regarding the maturity structure of Humboldts investment
portfolio at December 31, 2003, 2002 and 2001.

29



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##### Table of Contents



Table 6  Investment Securities
Composition*

|                                                                                    |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |         |   |        |         |  |  |       |       |  |   |        |         |  |   |        |         |  |  |        |       | 
|----------------------------------------------------------------------------------- | ---------------------- | ---------------------- | - | ----------------- | ------- | ----------------- | - | --------- | ------- | ------- |  | ----- | ----- | --------- | - | ------- | ------- | ------- | - | ------ | ------- |  |  | ----- | ----- |  | - | ------ | ------- |  | - | ------ | ------- |  |  | ------ | ----- | 
|                                                                                    |                        |                        |   |                   |         |                  
|                                                                                    |                        | December 31, 2003      |   | December 31, 2002 |         | December 31, 2001
|                                                                                    |                        |                        |   |                   |         |                  
|                                                                                    |                        |                        |   | Approx.           |         |                   |   |           |         | Approx. |  |       |       |           |   | Approx. |         |        
|                                                                                    |                        | Amortized              |   | Market            |         | %                 |   | Amortized |         | Market  |  | %     |       | Amortized |   | Market  |         |        
|                                                                                    |                        | Cost                   |   | Value             |         | Yield             |   | Cost      |         | Value   |  | Yield |       | Cost      |   | Value   |         | % Yield
|                                                                                    |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |        
|                                                                                    |                        |                       
|                                                                                    |                        | (Dollars in thousands)
|U.S. Treasury and agencies:                                                         |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |         |   |        |         |  |  |       |       |  |   |        |         |  |   |        |         |  |  |       
|                                                                                    | Three months or less   |                        | $ |                  |         |                   | $ |          |         |         |  |       |       |           | $ |        |         |         | $ |       |         |  |  |       |       |  | $ | 1,000  |         |  | $ | 1,008  |         |  |  | 6.17%  |      
|                                                                                    | Three to twelve months |                        |   | 1,017             |         |                   |   | 1,031     |         |         |  | 3.19% |       |           |   | 16,714  |         |         |   | 16,734 |         |  |  | 1.54% |       |  |   |       |         |  |   |       |         |  |  |        |      
|                                                                                    | One to three years     |                        |   | 238               |         |                   |   | 251       |         |         |  | 4.26% |       |           |   | 1,044   |         |         |   | 1,072  |         |  |  | 3.19% |       |  |   | 1,525  |         |  |   | 1,560  |         |  |  | 4.27%  |      
|                                                                                    | Three to five years    |                        |   | 11,423            |         |                   |   | 11,419    |         |         |  | 3.36% |       |           |   | 544     |         |         |   | 562    |         |  |  | 3.62% |       |  |   | 247    |         |  |   | 244    |         |  |  | 4.27%  |      
|                                                                                    | Five to fifteen years  |                        |   |                  |         |                   |   |          |         |         |  |       |       |           |   | 546     |         |         |   | 558    |         |  |  | 3.83% |       |  |   |        |         |  |   |        |         |  |  |        |      
|Collateralized mortgage obligations (CMO) and
    mortgage-backed securities (MBS): |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |         |   |        |         |  |  |       |       |  |   |        |         |  |   |        |         |  |  |       
|                                                                                    | Three months or less   |                        |   |                  |         |                   |   |          |         |         |  |       |       |           |   |        |         |         |   |       |         |  |  |       |       |  |   | 656    |         |  |   | 658    |         |  |  | 5.78%  |      
|                                                                                    | Three to twelve months |                        |   | 15,124            |         |                   |   | 15,447    |         |         |  | 4.18% |       |           |   |        |         |         |   |       |         |  |  |       |       |  |   | 21,547 |         |  |   | 21,910 |         |  |  | 5.17%  |      
|                                                                                    | One to three years     |                        |   |                  |         |                   |   |          |         |         |  |       |       |           |   |        |         |         |   |       |         |  |  |       |       |  |   | 37,682 |         |  |   | 38,155 |         |  |  | 5.51%  |      
|                                                                                    | Three to five years    |                        |   | 7,556             |         |                   |   | 7,869     |         |         |  | 4.79% |       |           |   | 5,967   |         |         |   | 6,212  |         |  |  | 5.83% |       |  |   | 45,892 |         |  |   | 45,439 |         |  |  | 5.19%  |      
|                                                                                    | Five to fifteen years  |                        |   | 36,941            |         |                   |   | 37,635    |         |         |  | 3.77% |       |           |   | 96,746  |         |         |   | 99,199 |         |  |  | 3.55% |       |  |   | 21,434 |         |  |   | 21,227 |         |  |  | 6.29%  |      
|                                                                                    | Over fifteen years     |                        |   | 52,480            |         |                   |   | 52,188    |         |         |  | 4.05% |       |           |   | 17,896  |         |         |   | 18,108 |         |  |  | 4.51% |       |  |   | 3,627  |         |  |   | 3,327  |         |  |  | 7.26%  |      
|Obligations of political subdivisions:                                              |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |         |   |        |         |  |  |       |       |  |   |        |         |  |   |        |         |  |  |       
|                                                                                    | Three months or less   |                        |   | 190               |         |                   |   | 191       |         |         |  | 8.91% |       |           |   |        |         |         |   |       |         |  |  |       |       |  |   | 720    |         |  |   | 720    |         |  |  | 8.27%  |      
|                                                                                    | Three to twelve months |                        |   | 757               |         |                   |   | 773       |         |         |  | 7.54% |       |           |   | 593     |         |         |   | 604    |         |  |  | 7.73% |       |  |   | 1,047  |         |  |   | 1,068  |         |  |  | 8.96%  |      
|                                                                                    | One to three years     |                        |   | 1,512             |         |                   |   | 1,582     |         |         |  | 7.27% |       |           |   | 3,064   |         |         |   | 3,180  |         |  |  | 8.05% |       |  |   | 2,289  |         |  |   | 2,409  |         |  |  | 9.02%  |      
|                                                                                    | Three to five years    |                        |   | 757               |         |                   |   | 801       |         |         |  | 7.27% |       |           |   | 1,320   |         |         |   | 1,416  |         |  |  | 7.02% |       |  |   | 3,220  |         |  |   | 3,281  |         |  |  | 7.35%  |      
|                                                                                    | Five to fifteen years  |                        |   | 29,345            |         |                   |   | 31,151    |         |         |  | 7.15% |       |           |   | 21,936  |         |         |   | 23,573 |         |  |  | 7.73% |       |  |   | 18,692 |         |  |   | 19,362 |         |  |  | 8.29%  |      
|                                                                                    | Over fifteen years     |                        |   | 976               |         |                   |   | 1,048     |         |         |  | 7.92% |       |           |   | 1,482   |         |         |   | 1,594  |         |  |  | 8.02% |       |  |   | 3,304  |         |  |   | 3,342  |         |  |  | 8.09%  |      
|Corporate debt & other securities:                                                  |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |         |   |        |         |  |  |       |       |  |   |        |         |  |   |        |         |  |  |       
|                                                                                    | One to three years     |                        |   |                  |         |                   |   |          |         |         |  |       |       |           |   | 3,031   |         |         |   | 2,911  |         |  |  | 0.00% |       |  |   |       |         |  |   |       |         |  |  |        |      
|                                                                                    | Three to five years    |                        |   |                  |         |                   |   |          |         |         |  |       |       |           |   |        |         |         |   |       |         |  |  |       |       |  |   | 6,931  |         |  |   | 6,611  |         |  |  | 10.34% |      
|                                                                                    | Five to fifteen years  |                        |   |                  |         |                   |   |          |         |         |  |       |       |           |   |        |         |         |   |       |         |  |  |       |       |  |   | 569    |         |  |   | 577    |         |  |  | 6.36%  |      
|                                                                                    | Over fifteen years     |                        |   |                  |         |                   |   |          |         |         |  |       |       |           |   |        |         |         |   |       |         |  |  |       |       |  |   | 625    |         |  |   | 625    |         |  |  | 7.80%  |      
|                                                                                    | Equity securities      |                        |   | 513               |         |                   |   | 513       |         |         |  | 0.50% |       |           |   | 29      |         |         |   | 29     |         |  |  | 0.89% |       |  |   | 950    |         |  |   | 950    |         |  |  | 5.00%  |      
|                                                                                    |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |         |   |        |         |  |  |       |       |  |   |        |         |  |   |        |         |  |  |       
|                                                                                    |                        | Total securities       |   | $                 | 158,829 |                   |   | $         | 161,899 |         |  |       | 4.63% |           |   | $       | 170,912 |         |   | $      | 175,752 |  |  |       | 3.95% |  |   | $      | 171,957 |  |   | $      | 172,473 |  |  |        | 6.16% | 
|                                                                                    |                        |                        |   |                   |         |                   |   |           |         |         |  |       |       |           |   |         |         |         |   |        |         |  |  |       |       |  |   |        |         |  |   |        |         |  |  |       



---



|  |                                                                                                                                  
|- | ---------------------------------------------------------------------------------------------------------------------------------
|* | Weighted average yields are stated on a federal
    tax-equivalent basis of 34%, and have been annualized, where
    appropriate.

Loans

Total loans at December 31, 2003 were
$765 million, an increase of $5 million, or 1%, over
the prior year end. On an average basis, total loans outstanding
during 2003 were $759 million, an increase of
$47 million, or 7%, over 2002. Robust economic conditions
in Humboldts principal market areas, some of which are
among the fastest-growing areas in the state of California, led
to the strong loan growth experienced during 2002. In 2003,
however, with loan demand still high, management consciously
sought to limit loan growth, primarily due to liquidity concerns
related to the expected loss of approximately $70 million
of core deposits in connection with the exit from the merchant
bankcard business. To rein in loan growth, Humboldt stopped
purchasing loan participations and lowered its hold
position on loans participated to other banks, discontinued
originating transactional commercial loans (i.e.,
those with no ongoing customer deposit

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relationship), and maintained its credit and
pricing discipline on potential loans in the face of competitive
pressures for long-term fixed rate loans.


Humboldts loan portfolio consists of
commercial and agricultural real estate, residential real
estate, commercial and industrial, and consumer loans. While no
specific industry concentration is considered significant,
Humboldts lending operations are dependent on the local
economy. Accordingly, a downturn in the regional economy could
adversely impact Humboldts borrowers. This could, in turn,
reduce the demand for loans, adversely impact the
borrowers abilities to repay their loans and cause
collateral values to decline.

Table 7 presents the composition of
Humboldts loan portfolio at the dates indicated.

Table 7  Loan Portfolio
Composition

|                           |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |            |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         | 
|-------------------------- | --------------------------- | ----------------------- | ------- | ---------- | ------- | ------ | ------ | ---------- | ------- | ------ | ------- | ---------- | ------- | ------ | ------ | ---------- | ------- | ------ | ------- | ---------- | ------- |  | ------ | ------- | ------- |  | ------ | ------- | ------- |  | ------ | ------- | ------- |  | ------ | ------- | ------- |  | ------ | ------- | ------- | 
|                           |                             |                        
|                           |                             | As of December 31,     
|                           |                             |                        
|                           |                             |                         |         |            |         |        |        |            |         |       
|                           |                             | 2003                    |         | 2002       |         | 2001   |        | 2000       |         | 1999  
|                           |                             |                         |         |            |         |        |        |            |         |       
|Type of Loan               |                             | Amount                  |         | Percentage |         | Amount |        | Percentage |         | Amount |         | Percentage |         | Amount |        | Percentage |         | Amount |         | Percentage
|                           |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |           
|                           |                             |                        
|                           |                             | (Dollars in thousands) 
|Real estate secured loans: |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |            |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |        
|                           | Construction                |                         | $       | 128,375    |         |        |        | 17.04%     |         |        | $       | 129,075    |         |        |        | 17.26%     |         |        | $       | 65,021     |         |  |        | 9.97%   |         |  | $      | 43,597  |         |  |        | 7.58%   |         |  | $      | 31,153  |         |  |        | 8.46%   |        
|                           | Residential                 |                         |         | 104,253    |         |        |        | 13.84%     |         |        |         | 108,031    |         |        |        | 14.13%     |         |        |         | 109,559    |         |  |        | 16.80%  |         |  |        | 108,411 |         |  |        | 18.85%  |         |  |        | 80,596  |         |  |        | 21.89%  |        
|                           | Commercial and agricultural |                         |         | 344,514    |         |        |        | 45.74%     |         |        |         | 329,365    |         |        |        | 46.00%     |         |        |         | 316,571    |         |  |        | 48.54%  |         |  |        | 273,047 |         |  |        | 47.47%  |         |  |        | 125,702 |         |  |        | 34.15%  |        
|                           |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |            |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |        
|                           |                             | Total real estate loans |         |            | 577,142 |        |        |            | 76.62%  |        |         |            | 566,471 |        |        |            | 77.39%  |        |         |            | 491,151 |  |        |         | 75.31%  |  |        |         | 425,055 |  |        |         | 73.90%  |  |        |         | 237,451 |  |        |         | 64.50%  | 
|Commercial                 |                             |                         | 135,736 |            |         |        | 18.02% |            |         |        | 131,587 |            |         |        | 16.26% |            |         |        | 103,421 |            |         |  | 15.86% |         |         |  | 80,508 |         |         |  | 14.00% |         |         |  | 63,940 |         |         |  | 17.37% |        
|Lease financing            |                             |                         | 2,067   |            |         |        | 0.27%  |            |         |        | 2,387   |            |         |        | 0.32%  |            |         |        | 4,633   |            |         |  | 0.71%  |         |         |  | 15,818 |         |         |  | 2.75%  |         |         |  | 23,414 |         |         |  | 6.36%  |        
|Installment and Other      |                             |                         | 52,954  |            |         |        | 7.03%  |            |         |        | 62,651  |            |         |        | 7.91%  |            |         |        | 64,394  |            |         |  | 9.87%  |         |         |  | 63,601 |         |         |  | 11.06% |         |         |  | 49,822 |         |         |  | 13.53% |        
|                           |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |            |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |        
|                           | Total loans                 |                         |         | 767,899    |         |        |        | 101.94%    |         |        |         | 763,096    |         |        |        | 101.88%    |         |        |         | 663,599    |         |  |        | 101.75% |         |  |        | 584,982 |         |  |        | 101.71% |         |  |        | 374,627 |         |  |        | 101.76% |        
|Less:                      |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |            |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |        
|                           | Deferred loan fees          |                         |         | (2,445     | )       |        |        | 0.32%     |         |        |         | (2,448     | )       |        |        | 0.33%     |         |        |         | (1,621     | )       |  |        | 0.25%  |         |  |        | (1,473  | )       |  |        | 0.26%  |         |  |        | (977    | )       |  |        | 0.27%  |        
|                           | Allowance loan losses       |                         |         | (12,206    | )       |        |        | 1.62%     |         |        |         | (11,614    | )       |        |        | 1.55%     |         |        |         | (9,765     | )       |  |        | 1.50%  |         |  |        | (8,367  | )       |  |        | 1.45%  |         |  |        | (5,502  | )       |  |        | 1.49%  |        
|                           |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |            |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |        
|                           |                             | Loans receivable, net   |         | $          | 753,248 |        |        |            | 100.00% |        |         | $          | 749,034 |        |        |            | 100.00% |        |         | $          | 652,213 |  |        |         | 100.00% |  |        | $       | 575,142 |  |        |         | 100.00% |  |        | $       | 368,148 |  |        |         | 100.00% | 
|                           |                             |                         |         |            |         |        |        |            |         |        |         |            |         |        |        |            |         |        |         |            |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |        

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Humboldts real estate loans are generally
secured by property in Humboldts primary market areas. At
December 31, 2003, the most significant components of the
commercial real estate portfolio were office/retail (3.6%) and
lodging (3.4%). As of December 31, 2003, Humboldts 20
largest credit relationships consisted of loans and loan
commitments ranging from $5.9 million to
$16.9 million, with an aggregate total credit exposure of
$127.6 million. Management believes that these credits have
been underwritten in an appropriate manner and structured to
minimize Humboldts potential exposure to loss. Additional
detail on the composition of Humboldts loan portfolio as
of December 31, 2003 is presented in Table 8:

Table 8  Loan
Concentrations

|                                |                                           |                                 |         |            |         |  |       |       |        |  
|------------------------------- | ----------------------------------------- | ------------------------------- | ------- | ---------- | ------- |  | ----- | ----- | ------ | -
|                                |                                           |                                
|                                |                                           | December 31, 2003              
|                                |                                           |                                
|Type of Loan                    |                                           | Amount                          |         | Percentage
|                                |                                           |                                 |         |           
|                                |                                           |                                
|                                |                                           | (Dollars in thousands)         
|Construction loans:             |                                           |                                 |         |            |         |  |       |      
|                                | Acquisition and land development          |                                 | $       | 64,637     |         |  |       | 8.44  | %     
|                                | Commercial                                |                                 |         | 44,037     |         |  |       | 5.75  | %     
|                                | Residential                               |                                 |         | 14,047     |         |  |       | 1.84  | %     
|                                | Lot loans                                 |                                 |         | 5,654      |         |  |       | 0.75  | %     
|                                |                                           |                                 |         |            |         |  |       |      
|                                |                                           | Total construction loans        |         |            | 128,375 |  |       |       | 16.78  | %
|Other real estate loans:        |                                           |                                 |         |            |         |  |       |      
|                                | Non-farm, non-residential property        |                                 |         | 340,188    |         |  |       | 44.44 | %     
|                                | 1 to 4 family residential 
    1st liens |                                 |         | 25,191     |         |  |       | 3.29  | %     
|                                | 1 to 4 family residential  Jr. liens     |                                 |         | 56,434     |         |  |       | 7.37  | %     
|                                | Multi-family residential                  |                                 |         | 20,271     |         |  |       | 2.65  | %     
|                                | Farmland                                  |                                 |         | 6,683      |         |  |       | 0.87  | %     
|                                |                                           |                                 |         |            |         |  |       |      
|                                |                                           | Total real estate-secured loans |         |            | 577,142 |  |       |       | 75.40  | %
|Commercial and industrial loans |                                           |                                 | 122,347 |            |         |  | 15.98 | %    
|Agricultural loans              |                                           |                                 | 13,389  |            |         |  | 1.75  | %    
|Installment loans:              |                                           |                                 |         |            |         |  |       |      
|                                | Automobiles                               |                                 |         | 40,402     |         |  |       | 5.28  | %     
|                                | Other                                     |                                 |         | 4,009      |         |  |       | 0.52  | %     
|Other consumer loans            |                                           |                                 | 8,165   |            |         |  | 1.07  | %    
|                                |                                           |                                 |         |            |         |  |       |      
|                                |                                           | Total loans                     |         | $          | 765,454 |  |       |       | 100.00 | %
|                                |                                           |                                 |         |            |         |  |       |      

Table 9 presents the maturity distribution of
Humboldts commercial and construction loan portfolios and
the sensitivity of those loans to changes in interest rates as
of December 31, 2003.

Table 9  Maturities and
Sensitivities of Loans to Changes in Interest Rates

|                           |       |                        |         |                     |  |           |        |        |  |       |       |          |  |   |         |         |  |   |        |        |  |   |       |       | 
|-------------------------- | ----- | ---------------------- | ------- | ------------------- |  | --------- | ------ | ------ |  | ----- | ----- | -------- |  | - | ------- | ------- |  | - | ------ | ------ |  | - | ----- | ----- | 
|                           |       |                        |         |                     |  |           |        |        |  |      
|                           |       |                        |         | Loans Over One Year
|                           |       | By Maturity            |         | By Rate Sensitivity
|                           |       |                        |         |                    
|                           |       | One Year               |         | One through         |  | Over Five |        |        |  | Fixed |       | Floating
|                           |       | or Less                |         | Five Years          |  | Years     |        | Total  |  | Rate  |       | Rate    
|                           |       |                        |         |                     |  |           |        |        |  |       |       |         
|                           |       |                       
|                           |       | (Dollars in thousands)
|Commercial                 |       | $                      | 113,967 |                     |  | $         | 17,753 |        |  | $     | 4,016 |          |  | $ | 135,736 |         |  | $ | 14,964 |        |  | $ | 6,805 |      
|Real estate  construction |       |                        | 127,634 |                     |  |           | 478    |        |  |       | 264   |          |  |   | 128,376 |         |  |   | 344    |        |  |   | 398   |      
|                           |       |                        |         |                     |  |           |        |        |  |       |       |          |  |   |         |         |  |   |        |        |  |   |       |      
|                           | Total |                        | $       | 241,601             |  |           | $      | 18,231 |  |       | $     | 4,280    |  |   | $       | 264,112 |  |   | $      | 15,308 |  |   | $     | 7,203 | 
|                           |       |                        |         |                     |  |           |        |        |  |       |       |          |  |   |         |         |  |   |        |        |  |   |       |      

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Loan Servicing

During 2002, Humboldt conducted a comprehensive
review of its mortgage lending and servicing operations. As a
result of this review, which analyzed the revenue and expense
associated with servicing, a decision was made to discontinue
the practice of selling residential mortgage loans with the
servicing retained and to originate and sell all conforming
loans on a servicing-released basis. In connection with this
evaluation, the servicing rights associated with approximately
$260 million of residential mortgage loans were sold during
the third quarter of 2002 for cash consideration. A pre-tax loss
of $259,000 was recognized in connection with this transaction.
As of December 31, 2003 and 2002, Humboldt had no servicing
rights asset associated with residential mortgage loans.

Humboldt sells the guaranteed portion of most
Small Business Administration (SBA) and
U.S. Department of Agriculture (USDA) loans it
originates to institutional investors. However, it retains the
servicing on these loans in order to generate ongoing revenues
and to retain local customer relationships. During the fourth
quarter of 2002, Humboldt recorded an impairment valuation
reserve of approximately $600,000 in connection the SBA
servicing rights asset. During 2003, $52,000 of this impairment
adjustment was recovered. The carrying value of the asset was
$652,000 at December 31, 2003 and $716,000 as of
December 31, 2002.

Humboldt accounts for revenue from the sale of
loans where servicing is retained in conformity with the
requirements of SFAS No. 140, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities. Humboldt records an asset representing the
right to service loans for others when it sells a loan and
retains the servicing rights. The carrying value of loans is
allocated between the loan and the servicing rights, based on
their relative fair values. Fair value is estimated by
discounting estimated future cash flows from the servicing
assets using discount rates that approximate current market
rates and using current expected future prepayment rates. The
servicing rights are amortized in proportion to, and over the
period of, estimated net servicing income, assuming prepayments.

Asset Quality and Non-Performing
Assets

Humboldt manages asset quality and controls
credit risk through diversification of the loan portfolio and
the application of policies designed to promote sound
underwriting and loan monitoring practices. Humboldts loan
administration function is charged with monitoring asset
quality, establishing credit policies and procedures and
enforcing the consistent application of these policies and
procedures across the Bank. The provision for loan losses
charged to earnings is based upon managements judgment of
the amount necessary to maintain the allowance at a level
adequate to absorb probable losses. The amount of provision
charge is dependent upon many factors, including loan growth,
net charge-offs, changes in the composition of the loan
portfolio, delinquencies, managements assessment of loan
portfolio quality, general economic conditions that can impact
the value of collateral, and other trends. The evaluation of
these factors is performed by the Banks Credit
Administration Department through an analysis of the adequacy of
the allowance for loan losses. Reviews of non-performing, past
due loans and larger credits, designed to identify potential
charges to the allowance for loan losses, as well as determine
the adequacy of the allowance, are conducted on a quarterly
basis. These reviews are performed by an independent third party
and Bank staff, and consider such factors as the financial
strength of borrowers, the value of the applicable collateral,
loan loss experience, anticipated loan losses, growth in the
loan portfolio, prevailing and anticipated economic conditions
and other factors. There were no significant changes in the
estimation methods and assumptions used to determine the
adequacy of the allowance for loan losses during 2003 or 2002.
Additional information regarding the methodology used in
determining the adequacy of the allowance for loan losses is
contained in Part I of this report in the section titled
Lending and Credit Functions.

Non-performing loans, which include nonaccrual
loans and accruing loans past due over 90 days totaled
$9.4 million, or 1.22% of total loans, at December 31,
2003, as compared to $3.6 million, or 0.48% of total loans,
at December 31, 2002. Non-performing assets, which include
non-performing loans and foreclosed real estate, totaled
$9.5 million, or 0.91% of total assets as of
December 31, 2003, compared with $3.7 million, or
0.36% of total assets as of December 31, 2002. Non
performing asset levels increased substantially during the

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first quarter of 2003 as two large
loans  one for expansion of a boutique hotel and the
other agriculture related  were placed on non
accrual. The hotel loan, representing $5.5 million, or 59%
of the year-end non-performing loans, was paid off subsequent to
December 31, 2003, resulting in a $0.1 million
charge-off that will be reported in 2004.


Loans and leases, including impaired loans and
leases, are classified as nonaccrual if collection of principal
or interest is considered doubtful, generally if they are past
due as to maturity or payment of principal or interest for a
period of more than 90 days, unless such loans and leases
are well-secured and in the process of collection. When a loan
is placed on nonaccrual status, interest previously accrued but
not collected is reversed against current interest income.
Depending on managements evaluation of the borrower and
loan collateral, interest on a nonaccrual loan may be recognized
on a cash basis as payments are received. Loans made to
facilitate the sale of other real estate are made on terms
comparable to loans of similar risk. There were no commitments
to lend additional funds to customers whose loans were on
nonaccrual status at December 31, 2003. Table 10 summarizes
Humboldt non-performing assets for each of the last five years.

Table 10  Non-Performing
Assets

|                                            |                                                             |                        |        |       |   |      |        |       |   |      |       |       |   |   |       |       |   |   |       |       |  
|------------------------------------------- | ----------------------------------------------------------- | ---------------------- | ------ | ----- | - | ---- | ------ | ----- | - | ---- | ----- | ----- | - | - | ----- | ----- | - | - | ----- | ----- | -
|                                            |                                                             |                       
|                                            |                                                             | As of December 31,    
|                                            |                                                             |                       
|                                            |                                                             | 2003                   |        | 2002  |   | 2001 |        | 2000  |   | 1999
|                                            |                                                             |                        |        |       |   |      |        |       |   |     
|                                            |                                                             |                       
|                                            |                                                             | (Dollars in thousands)
|Loans on nonaccrual status                  |                                                             | $                      | 9,265  |       |   | $    | 3,054  |       |   | $    | 2,915 |       |   | $ | 1,434 |       |   | $ | 1,518 |      
|Loans past due 90 days or more and accruing |                                                             |                        | 104    |       |   |      | 561    |       |   |      | 1,560 |       |   |   | 2,373 |       |   |   | 899   |      
|Restructured loans                          |                                                             |                        |       |       |   |      |       |       |   |      |      |       |   |   |      |       |   |   |      |      
|                                            |                                                             |                        |        |       |   |      |        |       |   |      |       |       |   |   |       |       |   |   |       |      
|                                            | Total nonperforming loans                                   |                        |        | 9,369 |   |      |        | 3,615 |   |      |       | 4,475 |   |   |       | 3,807 |   |   |       | 2,417 |  
|Other real estate owned                     |                                                             |                        | 88     |       |   |      | 88     |       |   |      | 166   |       |   |   | 850   |       |   |   | 156   |      
|                                            |                                                             |                        |        |       |   |      |        |       |   |      |       |       |   |   |       |       |   |   |       |      
|                                            | Total nonperforming assets                                  |                        | $      | 9,457 |   |      | $      | 3,703 |   |      | $     | 4,641 |   |   | $     | 4,657 |   |   | $     | 2,573 |  
|                                            |                                                             |                        |        |       |   |      |        |       |   |      |       |       |   |   |       |       |   |   |       |      
|Allowance for loan losses                   |                                                             | $                      | 12,206 |       |   | $    | 11,614 |       |   | $    | 9,765 |       |   | $ | 8,367 |       |   | $ | 5,502 |      
|Asset quality ratios:                       |                                                             |                        |        |       |   |      |        |       |   |      |       |       |   |   |       |       |   |   |       |      
|                                            | Non-performing assets to total assets                       |                        |        | 0.91  | % |      |        | 0.36  | % |      |       | 0.48  | % |   |       | 0.55  | % |   |       | 0.40  | %
|                                            | Non-performing loans to total loans                         |                        |        | 1.22  | % |      |        | 0.48  | % |      |       | 0.67  | % |   |       | 0.65  | % |   |       | 0.65  | %
|                                            | Allowance for loan losses to total loans                    |                        |        | 1.59  | % |      |        | 1.53  | % |      |       | 1.47  | % |   |       | 1.43  | % |   |       | 1.47  | %
|                                            | Allowance for loan losses to total non-performing
    loans |                        |        | 130   | % |      |        | 321   | % |      |       | 218   | % |   |       | 220   | % |   |       | 228   | %

The increase in non-performing loans from
December 31, 2002 to December 31, 2003 is principally
attributable to loans to two borrowers totaling
$7.6 million being placed on non-accrual status, partially
offset by one loan for $1.3 million that was classified as
non-accrual as of December 31, 2002 but was paid in full
during the first quarter of 2003. One of the two loans placed on
non-accrual status is for the construction of a boutique hotel
and had a balance of $5.5 million as of December 31,
2003. This loan, representing 59% of the year-end non-performing
loans, was paid off subsequent to December 31, 2003,
resulting in a $0.1 million charge-off that will be
reported for 2004. The other relationship placed on non-accrual
status included various loans totaling $2.1 million to an
agriculture-related business, approximately 90% of which are
backed by government guarantees. In all, approximately
$2.2 million of the non-performing loans were backed by
government guarantees.

At December 31, 2003, Humboldt had
approximately $10.3 million of loans that were not
classified as non-performing but for which known information
about the borrowers financial condition caused management
to have concern about the ability of the borrowers to comply
with the repayment terms of the loans. These loans were
identified through the loan review process described above that
provides for assignment of a risk rating based on a nine-grade
scale. Based on the evaluation of current market conditions,
loan collateral, other secondary sources of repayment and cash
flow generation, management does not anticipate any significant
losses related to these loans. These loans are subject to
continuing management attention and are considered

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in the determination of the allowance for loan
losses. A decline in the economic conditions in Humboldts
market areas or other factors could adversely impact individual
borrowers or the loan portfolio in general. Accordingly, there
can be no assurance that other loans will not become
90 days or more past due, be placed on nonaccrual or
transferred to other real estate owned in the future.


Allowance for Loan Losses

The allowance for loan losses (ALL)
totaled $12.2 million, $11.6 million, and
$9.8 million as of December 31, 2003, 2002 and 2001,
respectively. As a percentage of total loans, the ALL was 1.59%,
1.53%, and 1.47% at December 31, 2003, 2002 and 2001
respectively. The ALL as a percentage of non-performing loans as
of December 31, 2003, 2002, and 2001 was 130%, 321%, and
218%, respectively.

Table 11 provides a summary of activity in the
ALL by type of loan for the years indicated:

Table 11  Summary of Loan Loss
Experience

|                                          |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |        |        |  
|----------------------------------------- | --------------------- | ----------------------- | ------- | ---- | ------ | ---- | ------- | ---- | ------ | ---- | ------- | ---- | ------ | - | ------- | ---- | ------ | - | ------- | ------ | ------ | -
|                                          |                       | 2003                    |         | 2002 |        | 2001 |         | 2000 |        | 1999
|                                          |                       |                         |         |      |        |      |         |      |        |     
|                                          |                       |                        
|                                          |                       | (Dollars in thousands) 
|Balance at beginning of year              |                       | $                       | 11,614  |      |        | $    | 9,765   |      |        | $    | 8,367   |      |        | $ | 5,502   |      |        | $ | 5,136   |       
|Loans charged off:                        |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |       
|                                          | Real Estate           |                         |         | (491 | )      |      |         | (50  | )      |      |         | (33  | )      |   |         | (65  | )      |   |         | (67    | )     
|                                          | Commercial            |                         |         | (419 | )      |      |         | (941 | )      |      |         | (264 | )      |   |         | (287 | )      |   |         | (1,307 | )     
|                                          | Consumer              |                         |         | (279 | )      |      |         | (641 | )      |      |         | (534 | )      |   |         | (28  | )      |   |         | (30    | )     
|                                          | Lease financing       |                         |         | (38  | )      |      |         | (254 | )      |      |         | (905 | )      |   |         | (837 | )      |   |         | (148   | )     
|                                          | Credit card and other |                         |         | (117 | )      |      |         | (261 | )      |      |         | (181 | )      |   |         | (701 | )      |   |         | (963   | )     
|                                          |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |       
|                                          |                       | Total loans charged off |         |      | (1,344 | )    |         |      | (2,147 | )    |         |      | (1,917 | ) |         |      | (1,918 | ) |         |        | (2,515 | )
|Recoveries:                               |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |       
|                                          | Real Estate           |                         |         | 117  |        |      |         | 31   |        |      |         | 11   |        |   |         | 19   |        |   |         | 98     |       
|                                          | Commercial            |                         |         | 21   |        |      |         | 168  |        |      |         | 95   |        |   |         | 57   |        |   |         | 96     |       
|                                          | Consumer              |                         |         | 222  |        |      |         | 267  |        |      |         | 105  |        |   |         | 6    |        |   |         | 5      |       
|                                          | Lease financing       |                         |         | 12   |        |      |         | 154  |        |      |         | 144  |        |   |         | 7    |        |   |         | 9      |       
|                                          | Credit card and other |                         |         | 41   |        |      |         | 55   |        |      |         | 57   |        |   |         | 159  |        |   |         | 302    |       
|                                          |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |       
|                                          |                       | Total recoveries        |         |      | 413    |      |         |      | 675    |      |         |      | 412    |   |         |      | 248    |   |         |        | 510    |  
|                                          |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |       
|Net charge-offs                           |                       |                         | (931    | )    |        |      | (1,472  | )    |        |      | (1,505  | )    |        |   | (1,670  | )    |        |   | (2,005  | )     
|Changes incident to mergers               |                       |                         |        |      |        |      |        |      |        |      |        |      |        |   | 2,000   |      |        |   |        |       
|Provision charged to operations           |                       |                         | 1,523   |      |        |      | 3,321   |      |        |      | 2,903   |      |        |   | 2,535   |      |        |   | 2,371   |       
|                                          |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |       
|Balance at end of year                    |                       | $                       | 12,206  |      |        | $    | 11,614  |      |        | $    | 9,765   |      |        | $ | 8,367   |      |        | $ | 5,502   |       
|                                          |                       |                         |         |      |        |      |         |      |        |      |         |      |        |   |         |      |        |   |         |       
|Ratio of net charge-offs to average loans |                       |                         | 0.12    | %    |        |      | 0.21    | %    |        |      | 0.24    | %    |        |   | 0.33    | %    |        |   | 0.60    | %     
|Ratio of provision to average loans       |                       |                         | 0.20    | %    |        |      | 0.47    | %    |        |      | 0.47    | %    |        |   | 0.50    | %    |        |   | 0.72    | %     
|Average loans                             |                       | $                       | 758,730 |      |        | $    | 711,842 |      |        | $    | 616,159 |      |        | $ | 503,739 |      |        | $ | 331,551 |       

Management believes that the ALL at
December 31, 2003 is sufficient to absorb losses inherent
in the loan portfolio as of that date based on the best
information available. This assessment, based in part on the low
level of net charge-offs and loan growth in 2003 and a detailed
review of the quality of the loan portfolio, involves
uncertainty and judgment; therefore, the adequacy of the ALL
cannot be determined with precision and may be subject to change
in future periods. In addition, bank regulatory authorities, as
part of their periodic examination of the Bank, may require
additional charges to the provision for loan losses in future
periods if the results of their review warrant.

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Deposits

Total deposits were $823 million at
December 31, 2003, a decrease of $18 million, or 2%
from the prior year end. Average total deposits for 2003 were
$845 million, an increase of $39 million, or 5%, over
2002.

Average demand deposit accounts were
$216 million for 2003, a decrease of $6 million, or
3%, from 2002. As expected at the end of 2002, Humboldt lost
approximately $70 million of core deposits 
mostly non-interest-bearing demand accounts 
subsequent to the sale of the proprietary merchant processing
operation and termination of ISO sponsorships during 2003.
Strong sales efforts, however, resulted in the replacement of
all of those deposits in the most economical manner 
with other core deposit accounts  by the end of the
year.

Average time deposits for 2003 were
$204 million, as compared with $252 million for 2002,
a decrease of $48 million, or 19%. Table 12 sets forth the
scheduled maturities of time deposits of $100,000 and greater at
December 31, 2003.

Table 12  Maturities of Time
Deposits of $100,000 and Greater

|                                           |  |                        |        | 
|------------------------------------------ |  | ---------------------- | ------ | 
|                                           |  | (Dollars in thousands)
|Three months or less                       |  | $                      | 24,708 | 
|Three months to six months                 |  |                        | 23,941 | 
|Six months to one year                     |  |                        | 16,325 | 
|Over one year                              |  |                        | 28,187 | 
|                                           |  |                        |        | 
|Total time deposits of $100,000 or greater |  | $                      | 93,161 | 
|                                           |  |                        |        | 

As of December 31, 2003, Humboldt had
$67 million of brokered certificates of deposit
outstanding, most of which mature in less than one year. One
brokered issuance, in the amount of $10 million, matures in
June 2010. This deposit, which bears a fixed rate of 4.70%, was
paired with an interest rate swap to effectively convert the
rate to LIBOR plus 7 basis points on a variable basis. The
certificate of deposit is callable at the Banks option and
the swap is callable by the counterparty. Management expects
that brokered certificates of deposit will be used from time to
time in the future as an alternative source of funding.

Table 13 sets forth the scheduled maturities of
brokered certificates of deposit outstanding at
December 31, 2003.

Table 13  Maturities of Brokered
Certificates of Deposit

|                           |                                        |                        |        |        | 
|-------------------------- | -------------------------------------- | ---------------------- | ------ | ------ | 
|                           |                                        | (Dollars in thousands)
|Three months or less       |                                        | $                      | 27,135 |       
|Three months to six months |                                        |                        | 29,962 |       
|Six months to one year     |                                        |                        |       |       
|Over one year              |                                        |                        | 9,923  |       
|                           |                                        |                        |        |       
|                           | Total brokered certificates of deposit |                        | $      | 67,020 | 
|                           |                                        |                        |        |       

Other Borrowings

At December 31, 2003, the Bank was a
shareholder in the Federal Home Loan Bank of
San Francisco (FHLB). Through this affiliation,
advances secured by investment securities and residential
mortgage loans totaling $59 million were outstanding as of
year-end 2003 at rates comparable to time deposits or overnight
federal funds. Management expects continued use of FHLB advances
as a source of short and long-term funding. The FHLB advances
outstanding at December 31, 2003 had fixed interest rates
ranging from 1.11% to 7.44%. Approximately $27 million, or
45%, of the FHLB advances mature prior to December 31,
2004, and $57 million, or 95%, mature prior to
December 31, 2005. Additional information regarding FHLB
advances is provided in Note 9 of the Notes to the
Consolidated Financial Statements.

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Humboldt had $48.6 million of junior
subordinated debentures outstanding at December 31, 2003
and $20.8 million at December 31, 2002. The junior
subordinated debentures were issued to special-purpose
subsidiaries of Humboldt. Those special purpose subsidiaries
simultaneously issued trust preferred securities with identical
terms totaling $47.1 million. Table 14 presents information
about Humboldts junior subordinated debentures.

Table 14  Junior Subordinated
Debentures

|               |  |                        |        |      |  |               |          |           |  |  |                |  |  |  |                | 
|-------------- |  | ---------------------- | ------ | ---- |  | ------------- | -------- | --------- |  |  | -------------- |  |  |  | -------------- | 
|Issue Date     |  | Amount                 |        | Rate |  | Maturity Date |          | Call Date
|               |  |                        |        |      |  |               |          |          
|               |  |                       
|               |  | (Dollars in thousands)
|March 2000     |  | $                      | 5,310  |      |  |               | 10.875   | %         |  |  | March 2030     |  |  |  | March 2010     | 
|February 2001  |  |                        | 5,155  |      |  |               | 10.200   | %         |  |  | February 2031  |  |  |  | February 2011  | 
|December 2002  |  |                        | 10,310 |      |  |               | Floating | *         |  |  | December 2031  |  |  |  | December 2006  | 
|September 2003 |  |                        | 27,836 |      |  |               | 6.75     | %**       |  |  | September 2033 |  |  |  | September 2008 | 



---



|  |                                                              
|- | -------------------------------------------------------------
|* | Floating rate at three-month LIBOR plus
    360 basis points.



|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|** | Fixed rate for five years, then floating at
    three-month LIBOR plus 295 basis points.

The $10 million floating rate junior
subordinated debentures issued in December 2002 have effectively
been converted to an 8.42% fixed rate liability through the use
of an interest rate swap transaction. See the Quantitative
and Qualitative Disclosures about Market Risksection of
this discussion for further information on interest rate swaps.

As of December 31, 2003, $30 million of
the junior subordinated debentures outstanding qualified as
Tier I capital for regulatory purposes. Additional
information regarding the terms of the junior subordinated
debentures is provided in Note 10 of the Notes to the
Consolidated Financial Statements.

Humboldt had, as of December 31, 2003 and
2002, an obligation in the amount of approximately
$1.2 million that is structured so the sole source of
repayment (of principal and interest) is cash flows arising out
of retained interest assets related to certain lease-backed
securitizations. Since the retained interest assets were
written-off during the second quarter of 2001, this liability
will eventually be recovered as a gain either as cash flows are
received in connection with the retained interests and passed to
the lender, or when it is determined that the cash flows from
retained interests will not be sufficient to repay the debt.

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Liquidity and Cash Flow

The objective of Humboldts liquidity
management is to maintain the Banks ability to meet the
day-to-day cash flow requirements of its customers who either
wish to withdraw funds or require funds to meet their credit
needs. Humboldt must manage its liquidity position to meet the
needs of its customers while maintaining an appropriate balance
between assets and liabilities to meet the return on investment
expectations of its shareholders. Humboldt monitors the sources
and uses of funds on a daily basis to maintain an acceptable
liquidity position. In addition to liquidity from core deposits
and repayments and maturities of loans and investments, the Bank
can utilize established credit lines, sell securities under
agreements to repurchase, secure FHLB advances or purchase
overnight federal funds. Following is a summary of
Humboldts contractual obligations extending beyond one
year from December 31, 2003:

Table 15  Long-Term Contractual
Obligations

|                               |                               |                        |        |          |  |          |        |           |  |       |       |       |  |   |        |        |  |   |        |         | 
|------------------------------ | ----------------------------- | ---------------------- | ------ | -------- |  | -------- | ------ | --------- |  | ----- | ----- | ----- |  | - | ------ | ------ |  | - | ------ | ------- | 
|                               |                               | Less than              |        | 1 thru 3 |  | 3 thru 5 |        | More than |  |      
|                               |                               | 1 Year                 |        | Years    |  | Years    |        | 5 Years   |  | Total
|                               |                               |                        |        |          |  |          |        |           |  |      
|                               |                               |                       
|                               |                               | (Dollars in thousands)
|Borrowed funds                 |                               | $                      | 27,396 |          |  | $        | 31,165 |           |  | $     | 1,000 |       |  | $ | 1,736  |        |  | $ | 61,297 |        
|Junior subordinated debentures |                               |                        |       |          |  |          |       |           |  |       |      |       |  |   | 48,611 |        |  |   | 48,611 |        
|Operating leases               |                               |                        | 1,139  |          |  |          | 2,458  |           |  |       | 2,309 |       |  |   | 1,577  |        |  |   | 7,483  |        
|Capital leases                 |                               |                        |       |          |  |          |       |           |  |       |      |       |  |   |       |        |  |   |       |        
|Purchase obligations           |                               |                        |       |          |  |          |       |           |  |       |      |       |  |   |       |        |  |   |       |        
|Other long-term liabilities    |                               |                        | 317    |          |  |          | 704    |           |  |       | 635   |       |  |   | 2,274  |        |  |   | 3,930  |        
|                               |                               |                        |        |          |  |          |        |           |  |       |       |       |  |   |        |        |  |   |        |        
|                               | Total contractual obligations |                        | $      | 28,852   |  |          | $      | 34,327    |  |       | $     | 3,944 |  |   | $      | 54,198 |  |   | $      | 121,321 | 
|                               |                               |                        |        |          |  |          |        |           |  |       |       |       |  |   |        |        |  |   |        |        

Not included in the table above is a
$3.4 million liability for deferred compensation
agreements, which will be paid subsequent to the termination of
the respective executives or directors employment
with Humboldt. This liability is included in other liabilities
in the consolidated balance sheet as of December 31, 2003.

Humboldt Bancorp is a company separate and apart
from the Bank. It must provide for its own liquidity.
Substantially all of Humboldt Bancorps revenues are
obtained from dividends declared and paid by the Bank. There are
statutory and regulatory provisions that could limit the ability
of the Bank to pay dividends to Humboldt Bancorp. Management
believes that such restrictions will not have an impact on the
ability of Humboldt Bancorp to meet its ongoing cash obligations.

As disclosed in Humboldts Consolidated
Statements of Cash Flows, net cash provided by operating
activities was approximately $12 million during 2003. The
major source of cash provided by operating activities was net
income, partially offset by the decrease in interest payable and
other liabilities. Net cash used in investing activities of
$8 million consisted primarily of a net increase in federal
funds sold of $26 million and securities purchases of
$75 million funded largely by sales, maturities and pay
downs of securities of $85 million. The $7 million of
net cash used in financing activities consisted primarily of an
$18 million net increase in deposits, a net increase in
borrowings of $8 million and $11 million used to
repurchase common stock, largely offset by the $28 million
proceeds from the issuance of junior subordinated debentures.

As of December 31, 2003, the Bank had
$29 million in available federal funds lines of credit and
approximately $68 million in secured borrowing availability
from the FHLB. Humboldt Bancorp had borrowing availability of
$1.25 million under a line of credit with an unaffiliated
commercial bank as of December 31, 2003. An additional line
of credit with a borrowing limit of $8.0 million was put in
place in January 2004.

Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon the total commitment
amounts do not necessarily represent future cash requirements.

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Commitments to extend credit, credit card
arrangements, and standby letters of credit as of
December 31, 2003 were approximately $189 million,
$16 million and $2 million respectively.


Management expects the Banks and
Humboldts liquidity positions to remain satisfactory
during 2004. Management expects that wholesale funding sources,
including brokered certificates of deposit, will be used from
time to time on a short-term basis to meet liquidity needs.

Capital Resources

Stockholders equity at December 31,
2003 was $97 million, an increase of $19 million, or
24%, from December 31, 2002. The increase in
stockholders equity during 2003 was principally due to the
retention of $27.7 million, or approximately 95% of net
income for the year, partially offset by $11 million of
common stock repurchases. Book value per share as of
December 31, 2003 was $7.95; tangible book value per share
was $7.53.

The Board of Governors of the Federal Reserve
System has in place guidelines for risk-based capital
requirements applicable to U.S. banks and bank holding
companies. These risk-based capital guidelines take into
consideration risk factors, as defined by regulators, associated
with various categories of assets, both on and off the balance
sheet. Under the guidelines, capital strength is measured in two
tiers, which are used in conjunction with risk-adjusted assets
to determine the risk-based capital ratios. The guidelines
require an 8% total risk-based capital ratio, of which 4% must
be Tier I capital. Humboldts Tier I capital,
which consists of stockholders equity and qualifying
trust-preferred securities, less other comprehensive income,
goodwill and deposit-based intangibles, totaled
$119 million at December 31, 2003. Tier II
capital components include all, or a portion of, the allowance
for loan losses and subordinated debt. The total of Tier I
capital plus Tier II capital components is referred to as
Total Risk-based Capital, and was $148 million at
December 31, 2003. The percentage ratios, as calculated
under the guidelines, were 13.06% and 16.21% for Tier I and
Total Risk-based Capital, respectively, at December 31,
2003. A minimum leverage ratio is required in addition to the
risk-based capital standards and is defined as period-end
stockholders equity and qualifying trust preferred
securities, less other comprehensive income, goodwill and
deposit-based intangibles, divided by average assets as adjusted
for goodwill and other intangible assets.

Although a minimum leverage ratio of 4% is
required for the highest-rated bank holding companies which are
not undertaking significant expansion programs, the Federal
Reserve Board requires a bank holding company to maintain a
leverage ratio greater than 4% if it is experiencing or
anticipating significant growth or is operating with less than
well-diversified risks in the opinion of the Federal Reserve
Board. The Federal Reserve Board uses the leverage and
risk-based capital ratios to assess capital adequacy of banks
and bank holding companies. Humboldts leverage ratios at
December 31, 2003 and 2002 were 11.40%, and 8.73%,
respectively.

Humboldt initiated the payment of a quarterly
cash dividend in June 2002 and paid total cash dividends of
$1,406,000 during 2003 and $886,000 in 2002. Any decision to pay
cash dividends in the future will be based on Humboldts
results of operations, growth expectations, financial condition,
regulatory constraints and other factors considered important by
the Board of Directors.

At December 31, 2003, all three of the
capital ratios of the Bank exceeded the minimum ratios required
at December 31, 2003 as defined by federal regulation.
Management monitors these ratios to ensure that the Bank remains
within regulatory guidelines. Further information regarding the
actual and required capital ratios of Humboldt and the Bank is
provided in Note 20 in the Notes to the Consolidated
Financial Statements.

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On February 6, 2002, Humboldt announced a
common stock repurchase program that authorized the repurchase
of up to 600,000 shares of common stock in open market or
private transactions. Additionally, on July 17, 2002,
Humboldt announced a second common stock repurchase program that
authorized repurchase of up to 1.2 million shares of common
stock in open market or private transactions. Table 16 below
presents the number of shares repurchased and average price paid
during 2002 and 2003:

Table 16  Shares
Repurchased

|      |             |                |  |         |         |  |   |       |       | 
|----- | ----------- | -------------- |  | ------- | ------- |  | - | ----- | ----- | 
|      |             |                |  | Average
|      |             | Shares         |  | Price  
|      |             | Repurchased    |  | Paid   
|      |             |                |  |        
|2002: |             |                |  |         |         |  |   |      
|      | 1st quarter |                |  | 254,640 |         |  | $ | 8.31  |      
|      | 2nd quarter |                |  | 84,480  |         |  |   | 10.95 |      
|      | 3rd quarter |                |  | 86,040  |         |  |   | 13.37 |      
|      | 4th quarter |                |  | 9,000   |         |  |   | 10.91 |      
|      |             |                |  |         |         |  |   |      
|      |             | Full year 2002 |  |         | 434,160 |  |   | $     | 9.88  | 
|      |             |                |  |         |         |  |   |      
|2003: |             |                |  |         |         |  |   |      
|      | 1st quarter |                |  | 366,426 |         |  |   | 11.90 |      
|      | 2nd quarter |                |  | 497,501 |         |  |   | 13.14 |      
|      | 3rd quarter |                |  | 10,000  |         |  |   | 13.94 |      
|      | 4th quarter |                |  |        |         |  |   |      |      
|      |             |                |  |         |         |  |   |      
|      |             | Full year 2003 |  |         | 873,927 |  |   | $     | 12.63 | 
|      |             |                |  |         |         |  |   |      

Both of the repurchase programs may be modified,
suspended or terminated at any time without notice. The extent
to which Humboldt repurchases its shares and the timing of such
purchases will depend upon market conditions and other corporate
considerations.

Quantitative and Qualitative Disclosures about
Market Risk

The absolute level and volatility of interest
rates can have a significant impact on Humboldts
profitability. The objective of interest rate risk management is
to identify and manage the sensitivity of net interest income to
changing interest rates to achieve Humboldts overall
financial objectives. Based on economic conditions, asset
quality and various other considerations, management establishes
tolerance ranges for interest rate sensitivity and manages
within these ranges. Humboldts net interest income and the
fair value of its financial instruments are influenced by
changes in the level of interest rates. Humboldt manages its
exposure to fluctuations in interest rates through policies
established by Asset/ Liability Management Committee
(ALCO). The ALCO meets at least quarterly and has
responsibility for developing asset/ liability management
policy, formulating and implementing strategies to improve
balance sheet positioning and/or earnings and reviewing interest
rate sensitivity. The Board of Directors reviews and approves
the asset/liability management policy on an annual basis and
reviews the results of the interest rate risk analyses prepared
for the ALCO.

Management utilizes an interest rate simulation
model to estimate the sensitivity of net interest income to
changes in market interest rates. Such estimates are based upon
a number of assumptions for each scenario, including the level
of balance sheet growth, deposit repricing characteristics and
the rate of prepayments. Interest rate sensitivity is a function
of the repricing characteristics of Humboldts interest
earning assets and interest bearing liabilities. These repricing
characteristics are the time frames within which the interest
bearing assets and liabilities are subject to change in interest
rates either at replacement, repricing or maturity during the
life of the instruments. Interest rate sensitivity management
focuses on the maturity structure of assets and liabilities and
their repricing characteristics during periods of changes in
market interest rates. Effective interest rate sensitivity
management seeks to ensure that both assets and liabilities
respond to

40



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changes in interest rates within an acceptable
timeframe, thereby minimizing the impact of interest rate
changes on net interest income. Interest rate sensitivity is
measured as the difference between the volumes of assets and
liabilities in Humboldts current portfolio that are
subject to repricing at various time horizons: immediate, one to
three months, four to twelve months, one to five years, over
five years, and on a cumulative basis. The differences are known
as interest sensitivity gaps. Table 17 sets forth interest
sensitivity gaps for these different intervals as of
December 31, 2003.


Table 17  Interest Sensitivity
Gap

|                                         |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |         |           |           | 
|---------------------------------------- | ------------------------------------------- | -------------------------------- | ------------ | ------- | ------ | ------- | ------- | ------- | ------- | --------- | ------- | ------- | ------- | ------- | -------- | ------- | ------- | ------ | -------- | ------- | ------- | ------ | - | ------- | --------- | --------- | 
|                                         |                                             |                                  |              |         |        |        
|                                         |                                             | Sensitive to Rate Changes Within |              |         |        |        
|                                         |                                             |                                  |              |         |        |        
|                                         |                                             | 0 to 3                           |              | 4 to 12 |        | 1 to 5  |         | Over 5  |         | Non-Rate- |         |        
|                                         |                                             | Months                           |              | Months  |        | Years   |         | Years   |         | Sensitive |         | Total  
|                                         |                                             |                                  |              |         |        |         |         |         |         |           |         |        
|                                         |                                             |                                 
|                                         |                                             | (Dollars in thousands)          
|Earning Assets:                          |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |        
|                                         | Loans                                       |                                  | $            | 356,298 |        |         | $       | 182,740 |         |           | $       | 201,589 |         |         | $        | 24,827  |         |        | $        |        |         |        | $ | 765,454 |          
|                                         | Investment securities                       |                                  |              | 13,911  |        |         |         | 35,597  |         |           |         | 85,105  |         |         |          | 27,286  |         |        |          |        |         |        |   | 161,899 |          
|                                         | Other interest-earning assets               |                                  |              | 26,365  |        |         |         |        |         |           |         |        |         |         |          |        |         |        |          |        |         |        |   | 26,365  |          
|                                         | Non-interest-earning assets                 |                                  |              |        |        |         |         |        |         |           |         |        |         |         |          |        |         |        |          | 90,843  |         |        |   | 90,843  |          
|                                         |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |        
|                                         |                                             |                                  | Total assets |         | $      | 396,574 |         |         | $       | 218,337   |         |         | $       | 286,694 |          |         | $       | 52,113 |          |         | $       | 90,843 |   |         | $         | 1,044,561 | 
|Interest-Bearing Liabilities:            |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |        
|                                         | Interest-bearing deposits                   |                                  | $            | 86,526  |        |         | $       | 198,468 |         |           | $       | 62,583  |         |         | $        | 308,894 |         |        | $        |        |         |        | $ | 656,471 |          
|                                         | Borrowed funds                              |                                  |              | 10,812  |        |         |         | 16,220  |         |           |         | 32,371  |         |         |          | 1,894   |         |        |          |        |         |        |   | 61,297  |          
|                                         | Junior subordinated debentures              |                                  |              |        |        |         |         |        |         |           |         | 10,310  |         |         |          | 38,301  |         |        |          |        |         |        |   | 48,611  |          
|                                         | Non-interest-bearing liabilities and equity |                                  |              |        |        |         |         |        |         |           |         |        |         |         |          |        |         |        |          | 278,182 |         |        |   | 278,182 |          
|                                         |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |        
|                                         |                                             | Total liabilities and equity     |              | $       | 97,338 |         |         | $       | 214,688 |           |         | $       | 105,264 |         |          | $       | 349,089 |        |          | $       | 278,182 |        |   | $       | 1,044,561 |          
|Interest rate swap contracts             |                                             |                                  | (70,000      | )       |        |         |        |         |         |           | 60,000  |         |         |         | 10,000   |         |         |        |         |         |         |        |  |        
|                                         |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |        
|Interest rate sensitivity gap            |                                             | $                                | 229,236      |         |        | $       | 3,649   |         |         | $         | 241,430 |         |         | $       | (286,976 | )       |         | $      | (187,339 | )       |         | $      |  |        
|                                         |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |        
|Cumulative interest rate sensitivity gap |                                             | $                                | 229,236      |         |        | $       | 232,885 |         |         | $         | 474,315 |         |         | $       | 187,339  |         |         | $      |         |         |         |        |   |        
|                                         |                                             |                                  |              |         |        |         |         |         |         |           |         |         |         |         |          |         |         |        |          |         |         |        |   |        
|Cumulative gap to total earning assets   |                                             |                                  | 22           | %       |        |         | 22      | %       |         |           | 45      | %       |         |         | 18       | %       |         |        |          |         |         |        |   |        

As shown in the preceding table, during the first
year 64% of all interest earning assets will reprice, compared
with 41% of interest bearing liabilities. Changes in the mix of
earning assets or supporting liabilities can either increase or
decrease the net interest margin without affecting interest rate
sensitivity. In addition, the interest rate spread between an
asset and its supporting liability can vary significantly, while
the timing of repricing for both the asset and the liability
remains the same, thus impacting net interest income. This
characteristic is referred to as basis risk and generally
relates to the possibility that the repricing characteristics of
short-term assets tied to Humboldts prime lending rate are
different from those of short-term funding sources such as
certificates of deposit. Varying interest rate environments can
create unexpected changes in prepayment levels of assets and
liabilities that are not reflected in the interest rate
sensitivity analysis. These prepayments may have significant
impact on Humboldts net interest margin. Because of these
factors, an interest sensitivity gap analysis may not provide an
accurate assessment of Humboldts exposure to changes in
interest rates.

Humboldt utilizes an interest rate simulation
model to monitor and evaluate the impact of changing interest
rates on net interest income. The estimated impact on
Humboldts net interest income over a time

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horizon of one year as of December 31, 2003
is indicated in Table 18. 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 for
twelve months. In addition, the simulation includes the impact
of the $70 million in interest rate swap contracts that are
described below.


Table 18  Interest Rate
Simulation

|                      |  |                                     |        |            |  |  |      |  
|--------------------- |  | ----------------------------------- | ------ | ---------- |  |  | ---- | -
|                      |  | Increase (Decrease) in Net Interest |        | Percentage
|Scenario              |  | Income from Base Scenario           |        | Change    
|                      |  |                                     |        |           
|                      |  | (Dollars in thousands)              |        |           
|Up 200 basis points   |  | $                                   | 1,966  |            |  |  | 4.5  | %
|Up 100 basis points   |  |                                     | 979    |            |  |  | 2.2  | %
|Down 100 basis points |  |                                     | (1,103 | )          |  |  | -2.5 | %

Based on the simulation model, net income is
expected to increase slightly when rates increase and shrink
somewhat when rates fall. This is because of the concentration
of variable-rate and short-term loans in Humboldts
portfolio. However, there can be no assurance that fluctuations
in interest rates will not have a material adverse impact on
Humboldt.

The preceding interest rate sensitivity analysis
does not represent a forecast by Humboldt and should not be
relied on as being indicative of future operating results. These
hypothetical estimates are based on numerous assumptions
including the nature and timing of interest rate levels
including yield curve shape, repayments on loans and securities,
pricing decisions on loans and deposits, reinvestment and
replacement of asset and liability cash flows, and others. While
assumptions are developed based upon current economic and local
market conditions. Humboldt cannot make any assurance as to the
predictive nature of these assumptions, including how customer
preferences or competitor influences might change. Also, as
market conditions vary from those assumed in the sensitivity
analysis, actual results will also differ due to prepayment and
refinancing levels deviating from those assumed, the varying
impact on adjustable rate assets of interest rate change caps
and floors, the potential effect of changing debt service levels
on customers with adjustable rate loans, depositor early
withdrawals and product preference changes, and other internal
and external variables. Furthermore, the sensitivity analysis
does not reflect actions that the ALCO might take in responding
to or anticipating changes in interest rates.

To assist in achieving a desired level of
interest rate sensitivity, Humboldt has entered into off-balance
sheet contracts that are considered derivativefinancial
instruments. Derivative financial instruments can be a cost- and
capital-effective means of modifying the repricing
characteristics of on-balance-sheet assets and liabilities. The
following table presents Humboldts derivative contracts as
of December 31, 2003:

|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   |      |     | 
|------------- | ------------------------- | ---------------------- | ------ | --------- |  | -------- | ----- | ------------- |  | ---------- | ----- | ---------- |  | ------------- |  |  | ---------- |  |  | --------------- |  | - | ---- | --- | 
|Issue         |                           | Notional               |        |           |  | Rate     |       |               |  |            |       | Hedged     |  |              
|Date          |                           | Amount                 |        | Rate Paid |  | Received |       | Maturity Date |  | Hedge Type |       | Instrument |  | Fair Value   
|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |              
|              |                           |                       
|              |                           | (Dollars in thousands)
|January 2002  |                           | $                      | 25,000 |           |  |          | 4.00% | (1)           |  |            | 6.72% | (4)        |  | January 2005  |  |  | Cash Flow  |  |  | Loans           |  | $ | 632  |    
|July 2002     |                           |                        | 25,000 |           |  |          | 4.00% | (2)           |  |            | 6.30% | (4)        |  | July 2005     |  |  | Cash Flow  |  |  | Loans           |  |   | 647  |    
|December 2002 |                           |                        | 10,000 |           |  |          | 1.24% | (3)           |  |            | 4.70% | (4)        |  | June 2010     |  |  | Fair Value |  |  | Callable CD     |  |   | (21  | )  
|December 2001 |                           |                        | 10,000 |           |  |          | 8.42% | (4)           |  |            | 4.77% | (5)        |  | December 2006 |  |  | Cash Flow  |  |  | Trust Preferred |  |   | (573 | )  
|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   |      |    
|              | Total interest rate swaps |                        | $      | 70,000    |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   | $    | 685 | 
|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   |      |    



---



|    |                                                                       
|--- | ----------------------------------------------------------------------
|(1) | Variable rate based on prime.                                         
|   
|(2) | Variable rate based on prime.                                         
|   
|(3) | Variable rate based on 3 month LIBOR +
    7 basis points.            
|   
|(4) | Fixed rate.                                                           
|   
|(5) | Variable rate based on 3 month LIBOR + 3.6%,
    not to exceed 12.50%.

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Additional information about derivative
instruments is provided in Note 11 of the Notes to the
Consolidated Financial Statements.

Humboldt records all derivative financial
instruments at fair value on the balance sheet. Humboldts
derivative financial instruments are classified as either fair
value or cash flow hedges. 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 the fair value of the hedged asset or liability.
The change in the fair value of cash flow hedges is recognized
in other comprehensive income to the extent that the derivative
meets the value correlation requirements for being considered a
highly effective hedge. Management expects that all
derivative contracts will meet the requirements for
classification as highly effective for the term of
each contract.

Humboldts policy requires all derivative
financial instruments 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.



| |                                                       
| | ------------------------------------------------------
| | Impact of Inflation, Deflation and Changing
    Prices

A financial institutions asset and
liability structure is substantially different from that of an
industrial firm in that primarily all assets and liabilities of
a bank are monetary in nature, with relatively little
investments in fixed assets or inventories. Inflation has an
important impact on the growth of total assets and the resulting
need to increase equity capital at higher than normal rates in
order to maintain an appropriate equity to assets ratio.
Management believes that the impact of inflation on financial
results depends on Humboldts ability to react to changes
in interest rates and, by such reaction, reduce the inflationary
impact on performance. Humboldt has an asset/liability
management program which attempts to manage interest rate
sensitivity. In addition, periodic reviews of banking services
and products are conducted to adjust pricing in view of current
and expected costs.

With the continued economic weakness experienced
by the U.S. economy during 2002 and 2003 and historically
low market interest rates, the potential for a deflationary
economic environment has been publicized. During a period of
deflation, prices fall and real short-term interest rates are
negative, and consumers and businesses generally tend to defer
purchases of goods and services waiting for prices to fall
further, which can exacerbate recessionary conditions. A
deflationary economic environment would adversely impact
financial institutions, including Humboldt, through the decline
in demand for additional loans, contraction of the net interest
margin and potentially higher loan losses. The Federal Reserve
Bank has indicated that deflation is unlikely and that, if
deflation were detected, swift action would be taken to
stimulate spending and the economy.

Discontinued Operations



| |                           
| | --------------------------
| | Merchant Bankcard Services

In 1993, Humboldt established a merchant credit
and debit card processing operation (Merchant Bankcard
Services). From 1993 through 2003, the operation has grown
steadily both in volume and scope of activities. In general,
Merchant Bankcard Services operations involve collecting
funds for, and crediting the accounts of, merchants for sales of
merchandise and services to credit and debit card customers.
Merchant Bankcard Services specializes in providing processing
for first time merchants and small- to medium-sized merchants in
the retail, telephone, mail order and Internet commerce
industries. Merchant Bankcard Services included processing for
merchant accounts owned by Humboldt (the Proprietary
Portfolio) and sponsorship processing for merchant
accounts owned by Independent Sales Organizations (ISO
Portfolio).

During the second quarter of 2002, Humboldt
conducted a strategic review of its Merchant Bankcard Services
and the risks and rewards associated with the business in
general. The review concluded that Humboldts long-term
stockholder value would be maximized by reducing the
Companys overall risk profile

43



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through the strategic sale of its Merchant
Bankcard Services and refocusing efforts on community banking.
On March 13, 2003, the Bank completed the sale of the
Proprietary Portfolio to an affiliate of First National Bank
Holding Company called Humboldt Merchant Services, LP for
$32 million in cash. The Bank recognized a
$29.8 million gain on the sale ($17.3 million after
tax). At closing, Humboldt Merchant Services, LP assumed all
liability for transactions processed on or before the closing
date. Accordingly, the Bank no longer has an exposure to losses
related to the Proprietary Portfolio.


Humboldt continued to provide sponsorship
processing under several existing ISO agreements during the
remainder of 2003. As of December 31, 2003, substantially
all of Humboldts processing under ISO agreements had
ceased and, as a result, the Merchant Bankcard Processing
results for 2003 (including the gain recognized in connection
with the sale of the Proprietary Portfolio) and all prior period
shown in this report were reclassified as a discontinued
operation in accordance generally accepted accounting principles.

Humboldts final ISO processing agreement
terminated on January 28, 2004. All of Humboldts ISO
agreements provide for full indemnification of Humboldt for any
and all losses, damages or liabilities arising from ISO
merchants (including legal defense costs).



| |                                     
| | ------------------------------------
| | Bancorp Financial Services,
    Inc.

During the first quarter of 2001, Humboldts
Board of Directors completed a strategic review of Bancorp
Financial Services, Inc. (BFS), which principally
acquired and serviced small ticket leases on a nationwide basis.
This review was initiated in response to a number of factors,
including future capital needs of BFS to support its growth and
reliance upon the lease-backed securities market for liquidity.
As a result of this review, Humboldt adopted a plan to
discontinue the operations of BFS. This plan included the
immediate termination of all lease and loan acquisition
activities. In connection with the wind-down plan, Humboldt
recognized a loss on discontinued operations, net of tax, of
$13.5 million during the second quarter of 2001. This loss
included a $14.0 million wind-down charge, the major
components of which are summarized below:

|                                                         |                         |                        |        |        | 
|-------------------------------------------------------- | ----------------------- | ---------------------- | ------ | ------ | 
|                                                         |                         | (Dollars in thousands)
|Write-off of retained interests and servicing
    assets |                         | $                      | 11,798 |       
|Provision for loan and lease losses                      |                         |                        | 4,679  |       
|Lease and loan market value adjustments                  |                         |                        | 1,580  |       
|Professional fees                                        |                         |                        | 470    |       
|Other                                                    |                         |                        | 1,315  |       
|                                                         |                         |                        |        |       
|                                                         | Total before tax effect |                        |        | 19,842 | 
|Income tax effect                                        |                         |                        | (5,848 | )     
|                                                         |                         |                        |        |       
|                                                         | Total wind-down expense |                        | $      | 13,994 | 
|                                                         |                         |                        |        |       

During the second quarter of 2002, the remaining
employees of BFS were terminated and operations ceased. A loss
on discontinued operations of $276,000, net of tax, was recorded
during the second quarter of 2002. No other gain or loss on
discontinued operations was recorded during 2002 or 2003. The
operating results of BFS are included, net of tax, in the income
statement as loss from discontinued operations.

As of December 31, 2003, BFS had total
assets of $643,000, which included cash of $206,000 and deferred
tax assets of $425,000. Total liabilities as of
December 31, 2003 were $699,000, and included security
deposits of $685,000 and other liabilities of $14,000. These
amounts are recorded net in other assets as of December 31,
2003.

As of December 31, 2003 and 2002, Humboldt
Bancorp had a liability in the amount of $1,165,000 recorded in
connection with a loan from an unaffiliated third party that was
arranged in connection with the sale of certain Class C
lease-backed notes during the first quarter of 2002. The loan is
secured by the retained interest assets of two securitizations
issued by subsidiaries of BFS, and the loan agreement provides
that any repayment of principal or interest is limited to cash
flows arising from the retained interest assets. In the event no
cash flows are received from the retained interests, Humboldt
has no further obligation under the terms of

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the loan agreement and will recognize a pre-tax
gain for the carrying amount of the loan. Since the retained
interest assets were written off in 2001, Humboldt expects to
recognize a minimum recovery equal to the loan amount in the
future as retained interest cash flows are received. Humboldt
expects the recovery will be recognized during 2005 and 2006.


In conducting its business, BFS formed three
subsidiaries that are considered Special Purpose Entitiesor SPEs. These subsidiaries were formed in
accordance with legal requirements and were, at formation, not
subject to consolidation on the financial statements of BFS.

Note 3 of the Notes to the Consolidated
Financial Statements contains additional information regarding
discontinued operations.

The change in the method of accounting for
stock options will continue to reduce our net income and
earnings per share.

In December 2002, the Financial Accounting
Standards Board (FASB) issued
SFAS No. 148, Accounting for Stock-Based
Compensation, an Amendment of SFAS No. 123, in an
effort to encourage the recognition of compensation expense for
the issuance of stock options. Humboldt adopted
SFAS No. 148 effective January 1, 2003 using the
prospective application method. Under this method, compensation
expense and the related tax benefit associated with stock option
grants issued on or after January 1, 2003 has been
recognized in the income statement. The unvested portion of
stock option grants issued before January 1, 2003 will
continue to be accounted for under APB No. 25.

The adoption of SFAS No. 148 has
reduced, and is expected to continue to reduce, Humboldts
net income and earnings per share as, over time, a larger
proportion of Humboldts stock-based compensation will fall
under SFAS No. 123, as opposed to APB No. 25. The
future amount of this reduction is dependent upon a number of
factors, including the number of options granted and certain
variables used in determining the fair value of each
option granted under the Black-Scholes model. These
variables include the volatility of Humboldts stock price,
Humboldts dividend yield, market interest rates and the
expected life of the options. The actual compensation ultimately
realized by option holders is determined at the time of exercise
based on the differential between the option exercise price and
the current market value of Humboldt stock.

The historical cost of options granted, although
not recognized in the income statement in years prior to 2003,
is presented in Note 1 of the Notes to the Consolidated
Financial Statements and is calculated in the same manner as if
such expense were recognized in the income statement in
accordance with SFAS No. 148.






|         |                                                               
|-------- | --------------------------------------------------------------
|Item 7A. | Quantitative and Qualitative Disclosures
    About Market Risk

Information regarding this item is provided under
the heading Quantitative and Qualitative Disclosures of
Market Risk contained in Managements Discussion and
Analysis (Item 7).






|        |                                                
|------- | -----------------------------------------------
|Item 8. | Financial Statements and Supplementary
    Data

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INDEPENDENT AUDITORS REPORT

The Board of Directors

Humboldt Bancorp and Subsidiaries:


We have audited the accompanying consolidated
balance sheets of Humboldt Bancorp and Subsidiaries (the
Company) as of December 31, 2003, and 2002, and the related
consolidated statements of income, changes in stockholders
equity and cash flows for the three years then ended. These
consolidated financial statements are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.

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

In our opinion, the consolidated financial
statements referred to above present fairly, in all material
respects, the financial position of Humboldt Bancorp and
Subsidiaries as of December 31, 2003 and 2002, and the
results of their operations and their cash flows for the three
years ended December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.

As discussed in Note 1 to the consolidated
financial statements, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 148,
Accounting for Stock-Based Compensation, under the
prospective method of adoption as of January 1, 2003.

/s/ KPMG LLP

Sacramento, California

January 29, 2004


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HUMBOLDT BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


|                                                                                                                                                  |                                                |                        |         |           |         |   |         |           |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------------------- | ---------------------- | ------- | --------- | ------- | - | ------- | --------- | ------- | 
|                                                                                                                                                  |                                                | 2003                   |         | 2002     
|                                                                                                                                                  |                                                |                        |         |          
|                                                                                                                                                  |                                                |                       
|                                                                                                                                                  |                                                | (Dollars in thousands)
|ASSETS                                                                                                                                           
|Cash and due from banks                                                                                                                           |                                                | $                      | 31,596  |           |         | $ | 35,156  |          
|Interest-bearing deposits in other banks                                                                                                          |                                                |                        |        |           |         |   | 202     |          
|Federal funds sold                                                                                                                                |                                                |                        | 26,365  |           |         |   |        |          
|Investment securities available for sale, at fair
    value                                                                                       |                                                |                        | 161,899 |           |         |   | 175,752 |          
|Loans                                                                                                                                             |                                                |                        | 765,454 |           |         |   | 760,648 |          
|                                                                                                                                                  | Allowance for loan losses                      |                        |         | 12,206    |         |   |         | 11,614    |        
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                  | Net loans                                      |                        |         | 753,248   |         |   |         | 749,034   |        
|Premises and equipment, net                                                                                                                       |                                                |                        | 19,872  |           |         |   | 16,593  |          
|Accrued interest receivable and other assets                                                                                                      |                                                |                        | 51,581  |           |         |   | 55,438  |          
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                  | Total Assets                                   |                        | $       | 1,044,561 |         |   | $       | 1,032,175 |        
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                 
|LIABILITIES AND STOCKHOLDERS
    EQUITY                                                                                                         
|Liabilities                                                                                                                                       |                                                |                        |         |           |         |   |         |          
|Deposits                                                                                                                                          |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                  | Noninterest-bearing                            |                        | $       | 166,229   |         |   | $       | 227,406   |        
|                                                                                                                                                  | Interest-bearing                               |                        |         | 656,471   |         |   |         | 613,021   |        
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                  |                                                | Total deposits         |         |           | 822,700 |   |         |           | 840,427 | 
|Accrued interest payable and other liabilities                                                                                                    |                                                |                        | 15,057  |           |         |   | 23,827  |          
|Borrowed funds                                                                                                                                    |                                                |                        | 61,297  |           |         |   | 69,298  |          
|Junior subordinated debentures                                                                                                                    |                                                |                        | 48,611  |           |         |   | 20,775  |          
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                  | Total Liabilities                              |                        |         | 947,665   |         |   |         | 954,327   |        
|Stockholders Equity                                                                                                                              |                                                |                        |         |           |         |   |         |          
|Preferred Stock, no par value;
    20,000,000 shares authorized, no shares issued and
    outstanding in 2003 and 2002                            |                                                |                        |        |           |         |   |        |          
|Common stock, no par value;
    100,000,000 shares authorized, 12,194,646 shares in
    2003 and 12,604,157 shares in 2002 issued and outstanding |                                                |                        | 58,900  |           |         |   | 66,345  |          
|Retained earnings                                                                                                                                 |                                                |                        | 35,789  |           |         |   | 8,103   |          
|Accumulated other comprehensive income                                                                                                            |                                                |                        | 2,207   |           |         |   | 3,400   |          
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                  | Total Stockholders Equity                     |                        |         | 96,896    |         |   |         | 77,848    |        
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          
|                                                                                                                                                  | Total Liabilities and Stockholders
    Equity |                        | $       | 1,044,561 |         |   | $       | 1,032,175 |        
|                                                                                                                                                  |                                                |                        |         |           |         |   |         |          

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

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HUMBOLDT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2003,
2002 and 2001


|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |         |        |  
|---------------------------------------- | ----------------------------------------------------------------------------------- | ------------------------------ | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------- | ------ | -
|                                         |                                                                                     | 2003                           |   | 2002   |        | 2001
|                                         |                                                                                     |                                |   |        |        |     
|                                         |                                                                                     |                               
|                                         |                                                                                     | (Dollars in thousands)        
|Interest Income                          |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Interest and fees on loans                                                          |                                | $ | 54,328 |        |      | $ | 56,010 |        |  | $ | 55,971  |       
|                                         | Interest and dividends on investment securities                                     |                                |   |        |        |      |   |        |        |  |   |         |       
|                                         |                                                                                     | Taxable                        |   |        | 5,290  |      |   |        | 6,871  |  |   |         | 7,125  |  
|                                         |                                                                                     | Exempt from federal income tax |   |        | 1,485  |      |   |        | 1,425  |  |   |         | 1,571  |  
|                                         | Other interest income                                                               |                                |   | 244    |        |      |   | 39     |        |  |   | 1,498   |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Total Interest Income                                                               |                                |   | 61,347 |        |      |   | 64,345 |        |  |   | 66,165  |       
|Interest Expense                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Interest on deposits                                                                |                                |   | 9,942  |        |      |   | 13,632 |        |  |   | 25,203  |       
|                                         | Interest on borrowed funds                                                          |                                |   | 4,146  |        |      |   | 4,005  |        |  |   | 3,138   |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Total Interest Expense                                                              |                                |   | 14,088 |        |      |   | 17,637 |        |  |   | 28,341  |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         |                                                                                     | Net Interest Income            |   |        | 47,259 |      |   |        | 46,708 |  |   |         | 37,824 |  
|                                         | Provision for loan losses                                                           |                                |   | 1,523  |        |      |   | 3,321  |        |  |   | 2,903   |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Net Interest Income After Provision for Loan
    Losses                             |                                |   | 45,736 |        |      |   | 43,387 |        |  |   | 34,921  |       
|Non-Interest Income                      |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Fees and other income                                                               |                                |   | 3,510  |        |      |   | 3,522  |        |  |   | 7,789   |       
|                                         | Service charges on deposit accounts                                                 |                                |   | 3,476  |        |      |   | 3,030  |        |  |   | 3,521   |       
|                                         | Net gain on sale of loans                                                           |                                |   | 2,199  |        |      |   | 2,172  |        |  |   | 1,269   |       
|                                         | Net investment securities (loss) gain                                               |                                |   | (137   | )      |      |   | 887    |        |  |   | 206     |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Total Non-Interest Income                                                           |                                |   | 9,048  |        |      |   | 9,611  |        |  |   | 12,785  |       
|Non-Interest Expenses                    |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Salaries and employee benefits                                                      |                                |   | 22,094 |        |      |   | 19,984 |        |  |   | 20,123  |       
|                                         | Net occupancy and equipment expense                                                 |                                |   | 6,252  |        |      |   | 6,107  |        |  |   | 5,395   |       
|                                         | Merger related expenses                                                             |                                |   | 195    |        |      |   |       |        |  |   | 3,531   |       
|                                         | Other expenses                                                                      |                                |   | 12,019 |        |      |   | 13,735 |        |  |   | 13,145  |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Total Non-Interest Expenses                                                         |                                |   | 40,560 |        |      |   | 39,826 |        |  |   | 42,194  |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         |                                                                                     | Income Before Income Taxes     |   |        | 14,224 |      |   |        | 13,172 |  |   |         | 5,512  |  
|                                         | Provision for income taxes                                                          |                                |   | 3,992  |        |      |   | 2,838  |        |  |   | 1,577   |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Net Income From Continuing
    Operations                                           |                                |   | 10,232 |        |      |   | 10,334 |        |  |   | 3,935   |       
|                                         | Gain (loss) on sale or winddown of discontinued
    operations, net of tax (Note 3) |                                |   | 17,252 |        |      |   | (276   | )      |  |   | (13,994 | )     
|                                         | Income from discontinued operations, net of tax
    (Note 3)                        |                                |   | 1,608  |        |      |   | 2,205  |        |  |   | 3,050   |       
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Net Income (Loss)                                                                   |                                | $ | 29,092 |        |      | $ | 12,263 |        |  | $ | (7,009  | )     
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|Earnings (Loss) per Share 
    Basic:   |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Continuing operations                                                               |                                | $ | 0.83   |        |      | $ | 0.83   |        |  | $ | 0.32    |       
|                                         | Discontinued operations                                                             |                                |   | 1.54   |        |      |   | 0.15   |        |  |   | (0.88   | )     
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         |                                                                                     | Net Income (Loss)              |   | $      | 2.37   |      |   | $      | 0.98   |  |   | $       | (0.56  | )
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|Earnings (Loss) per Share 
    Diluted: |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         | Continuing operations                                                               |                                | $ | 0.80   |        |      | $ | 0.79   |        |  | $ | 0.30    |       
|                                         | Discontinued operations                                                             |                                |   | 1.48   |        |      |   | 0.15   |        |  |   | (0.84   | )     
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        
|                                         |                                                                                     | Net Income (Loss)              |   | $      | 2.28   |      |   | $      | 0.94   |  |   | $       | (0.54  | )
|                                         |                                                                                     |                                |   |        |        |      |   |        |        |  |   |        

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

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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY

For the Years Ended December 31, 2003,
2002, and 2001


|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |        |  
|----------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------- | ------ | ------------ | - | -------- | ---------- | ------------- |  | ------ | ------- | ----- |  | - | ------ | - |  | - | ----- | ------ | - | - | ------- | ------ | -
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            | Accumulated   |  |       
|                                                                                                |                                                                                                                                                     |                        |        | Common Stock |   |          |            | Other         |  |       
|                                                                                                |                                                                                                                                                     | Comprehensive          |        |              |   | Retained |            | Comprehensive |  |       
|                                                                                                |                                                                                                                                                     | Income (loss)          |        | Shares       |   | Amount   |            | Earnings      |  | Income |         | Total
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |      
|                                                                                                |                                                                                                                                                     |                       
|                                                                                                |                                                                                                                                                     | (Dollars in thousands)
|Balance, December 31, 2000                                                                      |                                                                                                                                                     |                        |        |              |   |          | 9,352,311  |               |  | $      | 58,295  |       |  | $ | 12,472 |   |  | $ | 1,072 |        |   | $ | 71,839  |       
|10% stock dividend                                                                              |                                                                                                                                                     |                        |        |              |   |          | 938,374    |               |  |        | 8,719   |       |  |   | (8,719 | ) |  |   |       |        |   |   |         |       
|Dissenters payments                                                                            |                                                                                                                                                     |                        |        |              |   |          | (18,133    | )             |  |        | (220    | )     |  |   |        |   |  |   |       |        |   |   | (220    | )     
|Fractional shares purchased                                                                     |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   | (9     | ) |  |   |       |        |   |   | (9      | )     
|Shares issued in connection with various employee
    and director plans including tax benefits |                                                                                                                                                     |                        |        |              |   |          | 188,244    |               |  |        | 665     |       |  |   |        |   |  |   |       |        |   |   | 665     |       
|Comprehensive income:                                                                           |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|Net (loss)                                                                                      |                                                                                                                                                     | $                      | (7,009 | )            |   |          |            |               |  |        |         |       |  |   | (7,009 | ) |  |   |       |        |   |   | (7,009  | )     
|Other comprehensive loss, net of tax:                                                           |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|                                                                                                | Unrealized holding (losses) on securities
    available-for-sale arising during the year, net of taxes of $369
    and reclassification adjustments |                        |        | (684         | ) |          |            |               |  |        |         |       |  |   |        |   |  |   |       | (684   | ) |   |         | (684   | )
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|                                                                                                | Total comprehensive income (loss)                                                                                                                   |                        | $      | (7,693       | ) |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |        |  
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|Balance, December 31, 2001                                                                      |                                                                                                                                                     |                        |        |              |   |          | 10,460,796 |               |  | $      | 67,459  |       |  | $ | (3,265 | ) |  | $ | 388   |        |   | $ | 64,582  |       
|6-for-5 stock split                                                                             |                                                                                                                                                     |                        |        |              |   |          | 2,092,159  |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|Fractional shares purchased                                                                     |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   | (9     | ) |  |   |       |        |   |   | (9      | )     
|Shares repurchased                                                                              |                                                                                                                                                     |                        |        |              |   |          | (434,160   | )             |  |        | (4,289  | )     |  |   |        |   |  |   |       |        |   |   | (4,289  | )     
|Shares issued in connection with various employee
    and director plans including tax benefits |                                                                                                                                                     |                        |        |              |   |          | 485,362    |               |  |        | 3,175   |       |  |   |        |   |  |   |       |        |   |   | 3,175   |       
|Cash dividend declared                                                                          |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   | (886   | ) |  |   |       |        |   |   | (886    | )     
|Comprehensive income:                                                                           |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|Net income                                                                                      |                                                                                                                                                     | $                      | 12,263 |              |   |          |            |               |  |        |         |       |  |   | 12,263 |   |  |   |       |        |   |   | 12,263  |       
|Other comprehensive income, net of tax:                                                         |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|                                                                                                | Unrealized holding gains on securities
    available-for-sale arising during the year, net of taxes of
    $1,108 and reclassification adjustments  |                        |        | 3,012        |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       | 3,012  |   |   |         | 3,012  |  
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|                                                                                                | Total comprehensive income                                                                                                                          |                        | $      | 15,275       |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |        |  
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|Balance, December 31, 2002                                                                      |                                                                                                                                                     |                        |        |              |   |          | 12,604,157 |               |  | $      | 66,345  |       |  | $ | 8,103  |   |  | $ | 3,400 |        |   | $ | 77,848  |       
|Shares repurchased                                                                              |                                                                                                                                                     |                        |        |              |   |          | (873,927   | )             |  |        | (11,037 | )     |  |   |        |   |  |   |       |        |   |   | (11,037 | )     
|Shares issued in connection with various employee
    and director plans including tax benefits |                                                                                                                                                     |                        |        |              |   |          | 464,416    |               |  |        | 2,958   |       |  |   |        |   |  |   |       |        |   |   | 2,958   |       
|Stock-based compensation under
    SFAS No. 148                                                 |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        | 634     |       |  |   |        |   |  |   |       |        |   |   | 634     |       
|Cash dividends declared                                                                         |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   | (1,406 | ) |  |   |       |        |   |   | (1,406  | )     
|Comprehensive income:                                                                           |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|Net income                                                                                      |                                                                                                                                                     | $                      | 29,092 |              |   |          |            |               |  |        |         |       |  |   | 29,092 |   |  |   |       |        |   |   | 29,092  |       
|Other comprehensive loss, net of tax:                                                           |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|                                                                                                | Unrealized holding (losses) on securities
    available-for-sale arising during the year, net of taxes of $979
    and reclassification adjustments |                        |        | (1,193       | ) |          |            |               |  |        |         |       |  |   |        |   |  |   |       | (1,193 | ) |   |         | (1,193 | )
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|                                                                                                | Total comprehensive income                                                                                                                          |                        | $      | 27,899       |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |        |  
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       
|Balance, December 31, 2003                                                                      |                                                                                                                                                     |                        |        |              |   |          | 12,194,646 |               |  | $      | 58,900  |       |  | $ | 35,789 |   |  | $ | 2,207 |        |   | $ | 96,896  |       
|                                                                                                |                                                                                                                                                     |                        |        |              |   |          |            |               |  |        |         |       |  |   |        |   |  |   |       |        |   |   |         |       

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

49



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the years ended December 31, 2003,
2002, and 2001


|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |          |         |         |          |  
|----------------------------------------------------- | -------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | ------------------------------------------------------- | ------------------------------------- | ------- | ------ | ------- | -------- | ------ | ------ | ------- | -------- | ------- | ------- | -------- | -
|                                                      |                                                                                              | 2003                                                                                                       |                                                         | 2002                                  |         | 2001  
|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |       
|                                                      |                                                                                              |                                                                                                           
|                                                      |                                                                                              | (Dollars in thousands)                                                                                    
|Operating Activities                                  |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      | Net income (loss)                                                                            |                                                                                                            | $                                                       | 29,092                                |         |        | $       | 12,263   |        |        | $       | (7,009   | )      
|                                                      | Adjustments to reconcile net income
    (loss) to net cash provided by operating activities: |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |          |        
|                                                      |                                                                                              | Discontinued operations                                                                                    |                                                         |                                       | (18,860 | )      |         |          | (1,929 | )      |         |          | 10,944  |        
|                                                      |                                                                                              | Stock-based compensation, net of tax                                                                       |                                                         |                                       | 456     |        |         |          | 47     |        |         |          |        |        
|                                                      |                                                                                              | Provision for loan losses                                                                                  |                                                         |                                       | 1,523   |        |         |          | 3,321  |        |         |          | 2,903   |        
|                                                      |                                                                                              | Depreciation and amortization                                                                              |                                                         |                                       | 6,569   |        |         |          | 5,456  |        |         |          | 4,087   |        
|                                                      |                                                                                              | Loss (gain) on sale of investments                                                                         |                                                         |                                       | 137     |        |         |          | (887   | )      |         |          | (206    | )      
|                                                      |                                                                                              | Decrease in loans held for sale                                                                            |                                                         |                                       |        |        |         |          |       |        |         |          | 373     |        
|                                                      |                                                                                              | Decrease (increase) in interest receivable
    and other assets                                            |                                                         |                                       | 3,894   |        |         |          | (257   | )      |         |          | (13,382 | )      
|                                                      |                                                                                              | (Decrease) increase in interest payable and other
    liabilities                                          |                                                         |                                       | (8,592  | )      |         |          | 2,288  |        |         |          | 5,785   |        
|                                                      |                                                                                              | Net gain on sale of loans                                                                                  |                                                         |                                       | (2,199  | )      |         |          | (2,172 | )      |         |          | (1,269  | )      
|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      |                                                                                              |                                                                                                            | Net cash provided by operating activities               |                                       |         | 12,020 |         |          |        | 18,130 |         |          |         | 2,226   |         
|Investing Activities                                  |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      | Net increase (decrease) in interest-bearing
    deposits with banks                          |                                                                                                            |                                                         | 202                                   |         |        |         | 718      |        |        |         | (749     | )      
|                                                      | Net (increase) decrease in federal funds sold                                                |                                                                                                            |                                                         | (26,365                               | )       |        |         |         |        |        |         | 13,000   |        
|                                                      | Proceeds from maturities and sales of investment
    securities available for sale           |                                                                                                            |                                                         | 85,054                                |         |        |         | 106,173  |        |        |         | 63,645   |        
|                                                      | Proceeds from maturities of investment securities
    held to maturity                       |                                                                                                            |                                                         |                                      |         |        |         |         |        |        |         | 14,707   |        
|                                                      | Purchases of investment securities available for
    sale                                    |                                                                                                            |                                                         | (75,324                               | )       |        |         | (112,325 | )      |        |         | (111,318 | )      
|                                                      | Purchases of investment securities held to
    maturity                                      |                                                                                                            |                                                         |                                      |         |        |         |         |        |        |         | (465     | )      
|                                                      | Net increase in loans                                                                        |                                                                                                            |                                                         | (3,538                                | )       |        |         | (93,444  | )      |        |         | (81,432  | )      
|                                                      | Purchases of premises and equipment                                                          |                                                                                                            |                                                         | (6,792                                | )       |        |         | (1,804   | )      |        |         | (3,999   | )      
|                                                      | Proceeds from sale of discontinued operations,
    net of tax                                |                                                                                                            |                                                         | 18,560                                |         |        |         |         |        |        |         |         |        
|                                                      | Investing activities related to discontinued
    operations                                  |                                                                                                            |                                                         |                                      |         |        |         | 6,000    |        |        |         | (10,095  | )      
|                                                      | Proceeds from the sale of foreclosed real estate
    and other assets                        |                                                                                                            |                                                         |                                      |         |        |         | 2,071    |        |        |         | 995      |        
|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      |                                                                                              |                                                                                                            |                                                         | Net cash used in investing activities |         |        | (8,203  | )        |        |        | (92,611 | )        |         |         | (115,711 | )
|Financing Activities                                  |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      | Net (decrease) increase in deposits                                                          |                                                                                                            |                                                         | (17,727                               | )       |        |         | 33,341   |        |        |         | 94,279   |        
|                                                      | Net (decrease) increase in borrowed funds                                                    |                                                                                                            |                                                         | (8,001                                | )       |        |         | 23,738   |        |        |         | (1,790   | )      
|                                                      | Cash dividends on common stock                                                               |                                                                                                            |                                                         | (1,406                                | )       |        |         | (886     | )      |        |         |         |        
|                                                      | Repurchase of common stock                                                                   |                                                                                                            |                                                         | (11,037                               | )       |        |         | (4,289   | )      |        |         |         |        
|                                                      | Proceeds from issuance of junior subordinated
    debentures                                 |                                                                                                            |                                                         | 27,836                                |         |        |         |         |        |        |         | 15,000   |        
|                                                      | Proceeds from issuance of common stock                                                       |                                                                                                            |                                                         | 2,958                                 |         |        |         | 3,175    |        |        |         | 665      |        
|                                                      | Cash payments for fractional shares and dissenters                                           |                                                                                                            |                                                         |                                      |         |        |         | (9       | )      |        |         | (229     | )      
|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      |                                                                                              |                                                                                                            | Net cash (used in) provided by financing
    activities |                                       |         | (7,377 | )       |          |        | 55,070 |         |          |         | 107,925 |         
|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|Net decrease in cash and due from
    banks           |                                                                                              |                                                                                                            | (3,560                                                  | )                                     |         |        | (19,411 | )        |        |        | (5,560  | )       
|                                                      | Cash and due from banks at beginning of year                                                 |                                                                                                            |                                                         | 35,156                                |         |        |         | 54,567   |        |        |         | 60,127   |        
|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|Cash and due from banks at end of
    year            |                                                                                              | $                                                                                                          | 31,596                                                  |                                       |         | $      | 35,156  |          |        | $      | 54,567  |         
|                                                      |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|Supplemental disclosure of cash flow
    information: |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      | Cash paid during the year for interest                                                       |                                                                                                            | $                                                       | 14,420                                |         |        | $       | 17,679   |        |        | $       | 28,596   |        
|                                                      | Cash paid during the year for income taxes                                                   |                                                                                                            |                                                         | 17,450                                |         |        |         | 2,500    |        |        |         | 4,541    |        
|Non-cash transactions:                                |                                                                                              |                                                                                                            |                                                         |                                       |         |        |         |          |        |        |         |         
|                                                      |                                                                                              | Unrealized holding (losses) gains on
    securities and interest rate swaps                                |                                                         |                                       | (2,172  | )      |         |          | 4,077  |        |         |          | 806     |        
|                                                      |                                                                                              | Deferred income taxes on unrealized holding
    (losses) gains on securities and interest rate swaps swaps |                                                         |                                       | (979    | )      |         |          | 1,305  |        |         |          | 273     |        
|                                                      | Loans transferred to foreclosed real estate                                                  |                                                                                                            |                                                         |                                      |         |        |         | 391      |        |        |         | 480      |        
|                                                      | Tax benefit from non-qualifying dispositions of
    stock from options exercised             |                                                                                                            |                                                         | 477                                   |         |        |         | 1,034    |        |        |         | 196      |        

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

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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

December 31, 2003 and 2002


Note 1  Significant Accounting
Policies

Business:Humboldt
Bancorp (Humboldt) is a bank holding company whose
principal activity is the ownership and management of its
wholly-owned subsidiary, Humboldt Bank (Bank).
During 2002, Humboldt merged its Tehama Bank, Capitol Valley
Bank and Capitol Thrift & Loan subsidiaries into
Humboldt Bank. There were no purchase accounting adjustments
made in connection with this charter consolidation. Humboldt and
the Bank are subject to regulation, supervision and regular
examination by the Federal Reserve Bank, the California
Department of Financial Institutions and the Federal Deposit
Insurance Corporation. The regulations of these agencies govern
most aspects of the Banks business. The accounting and
reporting policies of Humboldt Bancorp and Subsidiaries conform
with accounting principles generally accepted in the United
States of America. In addition, certain 2002 and 2001 amounts
have been reclassified to conform to the 2003 presentation
format. These reclassifications had no impact on net income.

Principles of
Consolidation:The consolidated
financial statements include the accounts of Humboldt and its
wholly owned subsidiaries. All material inter-company accounts
and transactions have been eliminated.

Nature of
Operations:The Bank provides general
commercial banking services at 19 locations located throughout
Northern California. These banking services include accepting
deposit accounts (demand, time and savings), and making secured
and unsecured loans to businesses and individuals. Other
significant business operations of Humboldt included merchant
credit card transaction processing for businesses throughout the
United States (see Note 3  Discontinued
Operations).

Significant Management
Estimates:The preparation of
financial statements in conformity with accounting principles
generally accepted in the United States of America requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates. For the Bank, the significant accounting
estimate is the allowance for loan losses. See Allowance
for Loan Losses below.

Investment
Securities:Securities are classified
as held-to-maturity if Humboldt has both the intent and ability
to hold those debt securities to maturity regardless of changes
in market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost
adjusted for amortization of premium and accretion of discount,
computed by the effective interest method over their contractual
lives. Humboldt did not have any securities classified as held
to maturity at December 31, 2003 or 2002.

Securities are classified as available-for-sale
if Humboldt intends to hold those debt securities for an
indefinite period of time, but not necessarily to maturity. Any
decision to sell a security classified as available-for-sale
would be based on various factors, including significant
movements in interest rates, changes in the maturity mix of
assets and liabilities, liquidity needs, regulatory capital
considerations and other similar factors. Securities
available-for-sale are carried at fair value. Unrealized holding
gains or losses are included in other comprehensive income as a
separate component of stockholders equity, net of tax.
Realized gains or losses, determined on the basis of the cost of
specific securities sold, are included in earnings. Unrealized
losses due to fluctuations in the fair value of securities held
to maturity or available for sale are recognized through
earnings when it is determined that an other than temporary
decline in value has occurred. Premiums and discounts are
amortized or accreted over the life of the related investment
security as an adjustment to yield using the effective interest
method. Dividend and interest income are recognized when earned.
Humboldts investment policy does not permit management to
purchase securities for trading unless the purchase has been
pre-approved by the Board of Directors. No securities were
classified as trading securities during 2003 or 2002.

Loans Held for Sale:Humboldt sells or transfers loans, including the guaranteed
portion of Small Business Administration (SBA) and
Department of Agriculture (USDA) loans (with
servicing re-

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

tained) for cash proceeds equal to the principal
amount of loans, as adjusted to yield interest to the investor
based upon the current market rates. Humboldt records an asset
representing the right to service loans for others when it sells
a loan and retains the servicing rights. The carrying value of
loans is allocated between the loan and the servicing rights,
based on their relative fair values. The fair value of servicing
rights is estimated by discounting estimated future cash flows
from servicing using discount rates that approximate current
market rates and using estimated prepayment rates. The servicing
rights are carried at the lower of cost or market and are
amortized in proportion to, and over the period of, the
estimated net servicing income, assuming prepayments.

For purposes of evaluating and measuring
impairment, servicing rights are based on a discounted cash flow
methodology, current prepayment speeds and market discount rate.
Any impairment is measured as the amount by which the carrying
value of servicing rights for a stratum exceeds its fair value.

A premium over the adjusted carrying value is
received upon the sale of the guaranteed portion of an SBA or
USDA loan. Humboldts investment in an SBA or USDA loan is
allocated among the sold and retained portions of the loan based
on the relative fair value of each portion at the time of loan
origination, adjusted for payments and other activities. Because
the portion retained does not carry an SBA or USDA guarantee,
part of the gain recognized on the sold portion of the loan may
be deferred and amortized as a yield enhancement on the retained
portion in order to obtain a market equivalent yield.

Loans held for sale are recorded at the lower of
cost or market determined on an aggregate basis. Humboldt had no
loans held for sale as of December 31, 2003 and 2002
respectively.

Loans:Loans are
stated at the amount of unpaid principal, less the allowance for
losses, net deferred loan fees and costs and unearned income.
Interest on loans is accrued and credited to income based on the
principal amount outstanding. Unearned income on installment
loans is recognized as income over the term of the loans using a
method that approximates the interest method.

Loan origination fees and certain direct
origination and acquisition costs are capitalized and recognized
as an adjustment of the yield on the related loan. Amortization
is discontinued when the loan is placed on nonaccrual status.

Allowance for Loan
Losses:The allowance is maintained at
a level which, in the opinion of management, is adequate to
absorb probable losses inherent in the loan portfolio.
Management determines the adequacy of the allowance based upon
reviews of individual loans, recent loss experience, current
economic conditions, the risk characteristics of the various
categories of loans and other relevant factors. The allowance is
based on estimates, and ultimate losses may vary from the
current estimates. These estimates are evaluated on a regular
basis and, as adjustments become necessary, they are reported in
earnings in the periods in which they become known. Loans and
leases deemed uncollectible are charged to the allowance.
Provisions for losses, and recoveries on loans and leases
previously charged off, are added to the allowance.

Loans are considered impaired, based on current
information and events, if it is probable that the Bank will be
unable to collect the scheduled payments of principal or
interest when due according to the contractual terms of the loan
agreement. Allowances on impaired loans are established based on
the present value of expected future cash flows discounted at
the loans effective interest rate or, for
collateral-dependent loans, on the fair value of the collateral
less estimated selling costs. Cash receipts on impaired loans
are used to reduce principal.

Income Recognition on Impaired and Nonaccrual
Loans:Loans, including impaired
loans, are classified as nonaccrual if collection of principal
or interest is considered doubtful  generally if they
are past due as to maturity or payment of principal or interest
for a period of more than 90 days  unless such
loans are well-secured and in the process of collection. If a
loan or a portion of a loan is classified as doubtful or is
partially

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

charged off, the loan is classified as
nonaccrual. Loans that are on a current payment status or past
due less than 90 days may also be classified as nonaccrual
if repayment in full of principal and/or interest is in doubt.

Loans may be returned to accrual status when all
principal and interest amounts contractually due (including
arrearages) are brought fully current, and there is a sustained
period of repayment performance by the borrower, in accordance
with the contractual terms of interest and principal.

While a loan is classified as nonaccrual and the
future collectibility of the recorded balance is doubtful,
collections of interest and principal are generally applied as a
reduction to principal outstanding. Uncollected accrued interest
on nonaccrual loans is reversed against interest income. When
the future collectibility of the recorded balance is expected,
interest income may be recognized on a cash basis.

Merchant Bankcard
Processing:Merchant Bankcard revenue
was based on the volume of transactions processed and was
recorded on a cash basis (see Note 3 
Discontinued Operations).

Premises and
Equipment:Premises and equipment are
stated at cost, less accumulated depreciation. The provision for
depreciation is computed by the straight-line method over the
estimated useful lives of the related assets. The useful lives
of buildings and improvements are estimated to be fifteen to
thirty years. The useful lives of furniture, fixtures and
equipment are estimated to be three to ten years. Leasehold
improvements are amortized over the life of the related lease,
or the life of the asset, whichever is shorter. When assets are
sold or otherwise disposed of, the cost and related accumulated
depreciation and amortization are removed from the accounts, and
any resulting gain or loss is recognized in income for the
period. The cost of maintenance and repairs is charged to
expense as incurred.

Other Real Estate
Owned:Other real estate owned
represents real estate which Humboldt has taken control of in
partial or full satisfaction of loans. At the time of
foreclosure, other real estate owned is recorded at the lower of
the carrying amount of the loan or fair value less costs to
sell, which becomes the propertys new basis. Any
write-downs based on the assets fair value at date of
acquisition are charged to the allowance for loan losses. After
foreclosure, management periodically performs valuations and the
real estate is carried at the lower of their new cost basis or
fair value net of estimated costs to sell. Revenue and expenses
from operations and subsequent adjustments to the carrying
amount of the property are included in other non-interest
expenses in the consolidated statements of income.

In some instances, Humboldt makes loans to
facilitate the sales of other real estate owned. Management
reviews all sales for which it is the lending institution for
compliance with sales treatment under provisions established by
SFAS No. 66, Accounting for Sales of Real
Estate.

Intangible Assets:Intangible assets, which are included in other assets, are
comprised of goodwill and core deposit intangibles acquired in
business combinations. Humboldt has adopted Statement of
Financial Accounting Standards No. 141, Business
Combinations, and SFAS No. 142, Accounting for
Goodwill and Other Intangible Assets. Statement 141 requires
that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001 and specifies
criteria that intangible assets acquired in a purchase method
business combination must meet in order to be recognized and
reported apart from goodwill. SFAS No. 142 requires
that goodwill and intangible assets with indefinite useful lives
no longer be amortized after 2001, but instead be periodically
evaluated for impairment in accordance with
SFAS No. 144, Accounting for Impairment or disposal
of Long-Lived Assets.

Intangible assets with definite useful lives are
required to be amortized to their estimated residual values over
their respective estimated useful lives, and also reviewed for
impairment. Upon adoption of SFAS No. 142, any
goodwill and any intangible asset determined to have an
indefinite useful life acquired in a purchase business
combination ceased to be amortized, and is periodically
evaluated for impairment in accordance with the appropriate
accounting literature. In connection with its adoption of
SFAS No. 141 and No. 142, Humboldt was required
to reassess the useful lives and residual values of all such
intangible assets

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

and make any necessary amortization period
adjustments by the end of the first interim period and recognize
any impairment loss measured as of the date of adoption as the
cumulative effect of a change in accounting principle in the
period. Humboldt did not have any transitional impairment losses.

The following table summarizes Humboldts
goodwill and core deposit intangible assets as of
December 31, 2002 and 2003:

Goodwill & Core Deposit
Intangibles

|                         |  |                        |        |           |  |            |   |              |  |   |      |   |  |   |        |  
|------------------------ |  | ---------------------- | ------ | --------- |  | ---------- | - | ------------ |  | - | ---- | - |  | - | ------ | -
|                         |  | December 31,           |        |           |  |            |   | December 31,
|                         |  | 2002                   |        | Additions |  | Reductions |   | 2003        
|                         |  |                        |        |           |  |            |   |             
|                         |  |                       
|                         |  | (Dollars in thousands)
|Goodwill                 |  | $                      | 3,957  |           |  | $          |  |              |  | $ |     |   |  | $ | 3,957  |  
|Accumulated amortization |  |                        | (263   | )         |  |            |  |              |  |   |     |   |  |   | (263   | )
|                         |  |                        |        |           |  |            |   |              |  |   |      |   |  |   |        |  
|Net                      |  | $                      | 3,694  |           |  | $          |  |              |  | $ |     |   |  | $ | 3,694  |  
|                         |  |                        |        |           |  |            |   |              |  |   |      |   |  |   |        |  
|Core deposit intangibles |  | $                      | 6,069  |           |  | $          |  |              |  | $ |     |   |  | $ | 6,069  |  
|Accumulated amortization |  |                        | (4,267 | )         |  |            |  |              |  |   | (370 | ) |  |   | (4,637 | )
|                         |  |                        |        |           |  |            |   |              |  |   |      |   |  |   |        |  
|Net                      |  | $                      | 1,802  |           |  | $          |  |              |  | $ | (370 | ) |  | $ | 1,432  |  
|                         |  |                        |        |           |  |            |   |              |  |   |      |   |  |   |        |  

Amortization of core deposit intangibles is
included in other non-interest expense in the Consolidated
Statements of Income.

At December 31, 2003, the estimated annual
amortization of core deposit intangibles for the next five
years, in thousands of dollars, is $297,000, $297,000, $249,000,
$225,000, and $220,000 respectively. The weighted average
remaining amortization period for core deposit intangibles is
5.5 years.

Goodwill is tested for impairment annually at
December 31 and more frequently if events and circumstances
indicate that the asset might be impaired. An impairment loss is
recognized to the extent that the carrying amount of the asset
exceeds its fair value.

Impairment of Long-Lived
Assets:The company adopted
SFAS No. 144 on January 1, 2002. The adoption of
Statement 144 did not affect Humboldts financial
statements.

In accordance with SFAS No. 144,
long-lived assets, such as premises and equipment, and purchased
intangibles subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of the asset to the estimated
undiscounted future cash flows expected to be generated by the
asset. If the carrying amount of the asset exceeds its estimated
future cash flows, an impairment charge is recognized to the
extent that the carrying amount of the asset exceeds the fair
value of the asset. Assets to be disposed of would be separately
presented in the balance sheet and reported at the lower of the
carrying amount or fair value less costs to sell, and would no
longer be depreciated. The assets and liabilities of a disposed
group classified as held for sale would be presented separately
in the appropriate asset and liability sections of the balance
sheet.

Derivative Financial
Instruments:All derivative
instruments (including certain derivative instruments embedded
in other contracts) are recognized in the consolidated balance
sheet at fair value. Humboldts policy dictates that the
accounting treatment for gains or losses from changes in the
derivative instruments fair value is contingent on whether
the derivative instrument qualifies as a hedge. On the date
Humboldt enters into a derivative contract, Humboldt designates
the derivative instrument as either (1) a hedge of the fair
value of a recognized asset or liability or of an unrecognized
firm commitment (fair value hedge), or (2) a hedge of a
forecasted transaction or of the variability of cash flows to be
received or paid related to a recognized asset or liability
(cash flow hedge). For a fair value hedge, changes in the fair
value of the

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

derivative instrument and changes in the fair
value of the hedged asset or liability or of an unrecognized
firm commitment attributable to the hedged risk are recorded in
current period net income. For a cash flow hedge, changes in the
fair value of the derivative instrument, to the extent that the
hedge is effective, are recorded (net of tax) in other
comprehensive income within stockholders equity, and
subsequently reclassified to net income in the same period(s)
that the hedged transaction impacts net income. For
free-standing derivative instruments, changes in the fair values
are reported in current period net income. Humboldt formally
documents the relationship between hedging instruments and
hedged items, as well as the risk management objective and
strategy for undertaking any hedge transaction. This process
includes linking all derivative instruments that are designated
as fair value or cash flow hedges to specific assets and
liabilities on the balance sheet or to specific forecasted
transactions. Humboldt also formally assesses, both at the
inception of the hedge and on an ongoing basis, whether the
derivative instruments used are highly effective in offsetting
changes in fair values or cash flows of hedged items. If it is
determined that the derivative instrument is not highly
effective as a hedge, hedge accounting is discontinued.

Investments in Limited
Partnerships:Humboldt owns
approximately 99% interests in two limited partnerships that own
and operate affordable housing projects. Investment in these
projects serves as an element of the Banks compliance with
the Community Reinvestment Act and provides tax benefits in the
form of deductions for operating losses and tax credits. The tax
credits may be used to reduce taxes currently payable or may be
carried back one year or forward twenty years to recapture or
reduce taxes. The partnership agreements dictate that the
properties revert to the general partners at the end of each
partnership, which results in Humboldt not being the primary
beneficial interest holder. Therefore, the Bank uses the equity
method of accounting for the partnerships operating
results; tax credits are recorded in the years they become
available to reduce income taxes. The total assets of these two
partnerships consist primarily of multi-family housing and
amounted to $3.8 million as of December 31, 2003. The
Banks total exposure to loss is limited to its investment
of $800,000 as of December 31, 2003.

Income Taxes:Provisions for income taxes are based on amounts reported in the
statement of income (after exclusion of non-taxable income such
as interest on state and municipal loans and securities) and
include deferred taxes on temporary differences in the
recognition of income and expense for tax and financial
statement purposes.

Deferred taxes are computed using the asset and
liability method. Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of
assets and liabilities and their respective tax bases. Deferred
tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes
the enactment date. Deferred tax assets are recognized for
deductible temporary differences and tax credit carryforwards,
and then a valuation allowance is established to reduce that
deferred tax asset if it is more likely than not
that the related tax benefits will not be realized.

Earnings Per Share:Basic earnings per share is computed by dividing net income by
the weighted average number of common shares outstanding during
the period, after giving retroactive effect to stock dividends
and splits. Diluted earnings per share is computed similar to
basic earnings per share except that the denominator is
increased to include the number of additional common shares that
would have been outstanding if the dilutive potential common
shares had been issued. Included in the denominator is the
dilutive effect of stock options, warrants and unvested
(restricted) stock, computed under the treasury
stock method.

Off-Balance-Sheet Financial
Instruments:In the ordinary course of
business, the Bank issues commitments to extend credit,
commitments under credit card arrangements and standby letters
of credit. These financial instruments are described more fully
in Note 19  Commitments and Contingent
Liabilities.

Cash and
Equivalents:For the purpose of
presentation in the Consolidated Statement of Cash Flows, cash
and cash equivalents include cash, balances due from banks and
certificates of deposit with maturity

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

dates of 90 days or less. Cash and due from
banks includes amounts the Bank is required to maintain to meet
certain average reserve and compensating balance requirements of
the Federal Reserve Bank. The total requirements at
December 31, 2003, and 2002, were $2,810,000, and
$13,128,000, respectively.

Stock-Based
Compensation:Humboldt has various
stock-based compensation plans that authorize the granting of
stock options, restricted stock and other stock-based awards to
eligible employees and directors.

Effective as of January 1, 2003, Humboldt
adopted the fair value recognition provisions of FASB Statement
No. 123, Accounting for Stock-Based Compensation
(SFAS No. 123). Under the prospective method of
adoption selected by the company, stock-based employee
compensation costs are recognized as awards are granted,
modified or settled. Prior to January 1, 2003, these plans
were accounted for under the intrinsic value method as
prescribed in APB Opinion No. 25, Accounting for Stock
Issued to Employees. Under the intrinsic value method,
compensation expense was recognized on the date of grant only if
the market price of the underlying stock exceeded the exercise
price on that date.

Accordingly, a total of $634,000 was recognized
as compensation expense for the issuance of stock options for
the year ended December 31, 2003, $79,000 was recognized
for 2002, and no compensation expense was recognized for the
issuance of stock options granted under any of the various plans
for the year ended December 31, 2001. 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.

|                                                              |                                                                                                                                  |                                                 |        |      |        |      |        |      |        |   |        |       |        |  
|------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------- | ------ | ---- | ------ | ---- | ------ | ---- | ------ | - | ------ | ----- | ------ | -
|                                                              |                                                                                                                                  |                                                
|                                                              |                                                                                                                                  | Year Ended December 31,                        
|                                                              |                                                                                                                                  |                                                
|                                                              |                                                                                                                                  | 2003                                            |        | 2002 |        | 2001
|                                                              |                                                                                                                                  |                                                 |        |      |        |     
|                                                              |                                                                                                                                  |                                                
|                                                              |                                                                                                                                  | (In thousands, except per share                
|                                                              |                                                                                                                                  | data)                                          
|Net income (loss), as reported                                |                                                                                                                                  | $                                               | 29,092 |      |        | $    | 12,263 |      |        | $ | (7,009 | )    
|                                                              | Add stock-based employee compensation expense
    included in reported net income, net of tax effects                            |                                                 |        | 456  |        |      |        | 47   |        |   |        |      |       
|                                                              | Deduct Stock-based employee compensation
    determined under the fair-value-based method for all awards, net
    of tax effects |                                                 |        | (580 | )      |      |        | (675 | )      |   |        | (494  | )     
|                                                              |                                                                                                                                  |                                                 |        |      |        |      |        |      |        |   |        |      
|                                                              |                                                                                                                                  | Pro forma net income (loss)                     |        | $    | 28,968 |      |        | $    | 11,635 |   |        | $     | (7,503 | )
|                                                              |                                                                                                                                  |                                                 |        |      |        |      |        |      |        |   |        |      
|Net income (loss) from continuing operations, as
    reported |                                                                                                                                  | $                                               | 10,232 |      |        | $    | 10,334 |      |        | $ | 3,935  |      
|                                                              | Add stock-based employee compensation expense
    included in reported net income, net of tax effects                            |                                                 |        | 456  |        |      |        | 47   |        |   |        |      |       
|                                                              | Deduct Stock-based employee compensation
    determined under the fair-value-based method for all awards, net
    of tax effects |                                                 |        | (580 | )      |      |        | (675 | )      |   |        | (494  | )     
|                                                              |                                                                                                                                  |                                                 |        |      |        |      |        |      |        |   |        |      
|                                                              |                                                                                                                                  | Pro forma net income from continuing operations |        | $    | 10,108 |      |        | $    | 9,706  |   |        | $     | 3,441  |  
|                                                              |                                                                                                                                  |                                                 |        |      |        |      |        |      |        |   |        |      
|Net income (loss) per share:*                                 |                                                                                                                                  |                                                 |        |      |        |      |        |      |        |   |        |      
|                                                              | Basic  as reported                                                                                                              |                                                 | $      | 2.37 |        |      | $      | 0.98 |        |   | $      | (0.56 | )     
|                                                              | Basic  pro forma                                                                                                                |                                                 |        | 2.36 |        |      |        | 0.93 |        |   |        | (0.60 | )     
|                                                              | Diluted  as reported                                                                                                            |                                                 |        | 2.28 |        |      |        | 0.94 |        |   |        | (0.54 | )     
|                                                              | Diluted  pro forma                                                                                                              |                                                 |        | 2.27 |        |      |        | 0.89 |        |   |        | (0.58 | )     
|Net income from continuing operations per share:*             |                                                                                                                                  |                                                 |        |      |        |      |        |      |        |   |        |      
|                                                              | Basic  as reported                                                                                                              |                                                 | $      | 0.83 |        |      | $      | 0.83 |        |   | $      | 0.32  |       
|                                                              | Basic  pro forma                                                                                                                |                                                 |        | 0.82 |        |      |        | 0.78 |        |   |        | 0.28  |       
|                                                              | Diluted  as reported                                                                                                            |                                                 |        | 0.80 |        |      |        | 0.79 |        |   |        | 0.30  |       
|                                                              | Diluted  pro forma                                                                                                              |                                                 |        | 0.79 |        |      |        | 0.74 |        |   |        | 0.26  |       



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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



|  |                                                                                                                 
|- | ----------------------------------------------------------------------------------------------------------------
|* | All per-share data has been adjusted for the 6
    for 5 stock split in 2002 and the 10% stock dividend in 2001.

The fair value of each option grant is estimated
on the date of grant using the Black-Scholes option pricing
model with the following weighted-average assumptions:

|                                                                              |  |      |      |      |  |      |      |   |  |   |      |  
|----------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                                              |  | 2003 |      | 2002 |  | 2001
|                                                                              |  |      |      |      |  |     
|Dividend yield                                                                |  |      | 1.4  | %    |  |      | 1.4  | % |  |   | 0.0  | %
|Expected life (years)                                                         |  |      | 6.0  |      |  |      | 6.0  |   |  |   | 9.0  |  
|Expected volatility                                                           |  |      | 45   | %    |  |      | 45   | % |  |   | 53   | %
|Risk-free rate                                                                |  |      | 2.94 | %    |  |      | 4.80 | % |  |   | 5.20 | %
|Weighted average grant date fair value of options
    granted during the year |  | $    | 4.90 |      |  | $    | 4.76 |   |  | $ | 4.80 |  

Note 2  Mergers and
Acquisitions

Effective March 9, 2001, Humboldt acquired,
for 4.48 million shares of its common stock and
approximately $220,000 in cash, all of the outstanding common
stock of Tehama Bancorp (Tehama), a one-bank holding
company, based in Red Bluff, California. Each share of Tehama
common stock was converted into and exchanged for
1.775 shares of Humboldt common stock. The cash
consideration paid was to Tehama stockholders that exercised
their dissenters rights. This merger was accounted for as
a pooling of interests and, accordingly, all financial
information contained in this report is has been restated to
reflect the combination of Humboldt and Tehama for all periods
presented.

In 2001, Humboldt recorded operating expenses
related to the merger and integration of Tehama in the amount of
$3,531,000 on a pre-tax basis. The following table presents the
major components of merger-related expenses (dollars in
thousands):

|                               |                               |   |       |       | 
|------------------------------ | ----------------------------- | - | ----- | ----- | 
|Professional fees              |                               | $ | 1,664 |      
|Severance and related expenses |                               |   | 655   |      
|Fixed asset disposals          |                               |   | 441   |      
|System conversions             |                               |   | 262   |      
|Other                          |                               |   | 509   |      
|                               |                               |   |       |      
|                               | Total merger-related expenses |   | $     | 3,531 | 
|                               |                               |   |       |      

No accrued liability for expected merger related
expenses remained at December 31, 2003 or 2002.

Note 3  Discontinued
Operations



| |                           
| | --------------------------
| | Merchant Bankcard Services

In 1993, Humboldt established a merchant credit
and debit card processing operation (Merchant Bankcard
Services). From 1993 through 2003, the operation grew
steadily both in volume and scope of activities. In general,
Merchant Bankcard Services operations involve collecting
funds for, and crediting the accounts of, merchants for sales of
merchandise and services to credit and debit card customers.
Merchant Bankcard Services specializes in providing processing
for first time merchants and small- to medium-sized merchants in
the retail, telephone, mail order and Internet commerce
industries. Merchant Bankcard Services included processing for
merchant accounts owned by Humboldt (the Proprietary
Portfolio) and sponsorship processing for merchant
accounts owned by Independent Sales Organizations (ISO
Portfolio).

During the second quarter of 2002, Humboldt
conducted a strategic review of its Merchant Bankcard Services
and the risks and rewards associated with the business in
general. The review concluded that

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Humboldts long-term stockholder value would
be maximized by reducing the Companys overall risk profile
through the strategic sale of its Merchant Bankcard Services and
refocusing efforts on community banking. On March 13, 2003,
the Bank completed the sale of the Proprietary Portfolio to an
affiliate of First National Bank Holding Company called Humboldt
Merchant Services, LP for $32 million in cash. The Bank
recognized a $29.8 million gain on the sale
($17.3 million after tax). As of the closing date, Humboldt
Merchant Services, LP assumed all liability for transactions
processed on or before the closing date. Accordingly, the Bank
no longer has an exposure to losses related to the Proprietary
Portfolio.

Humboldt continued to provide sponsorship
processing under several existing ISO agreements during the
remainder of 2003. As of December 31, 2003, substantially
all of Humboldts processing under ISO agreements had
ceased and, as a result, the Merchant Bankcard Processing
results for 2003 (including the gain recognized in connection
with the sale of the Proprietary Portfolio) and all prior
periods shown in this report were reclassified as a discontinued
operation in accordance generally accepted accounting
principles. The following table shows Merchant Bankcard
Services contribution to net income for the three years
ended December 31, 2003:

Contribution to Net Income From Merchant
Bankcard

|                                                                |                                            |                                          |        |        |       |      |        |       |       |   |        |       |       | 
|--------------------------------------------------------------- | ------------------------------------------ | ---------------------------------------- | ------ | ------ | ----- | ---- | ------ | ----- | ----- | - | ------ | ----- | ----- | 
|                                                                |                                            | 2003                                     |        | 2002   |       | 2001
|                                                                |                                            |                                          |        |        |       |     
|                                                                |                                            |                                         
|                                                                |                                            | (Dollars in thousands)                  
|Net-interest income and non-interest income                     |                                            | $                                        | 4,930  |        |       | $    | 16,536 |       |       | $ | 16,942 |      
|Non-interest expense                                            |                                            |                                          | 2,166  |        |       |      | 12,732 |       |       |   | 11,680 |      
|                                                                |                                            |                                          |        |        |       |      |        |       |       |   |        |      
|                                                                | Income from operations before income taxes |                                          |        | 2,764  |       |      |        | 3,804 |       |   |        | 5,262 |      
|                                                                | Less applicable income taxes               |                                          |        | 1,156  |       |      |        | 1,599 |       |   |        | 2,212 |      
|                                                                |                                            |                                          |        |        |       |      |        |       |       |   |        |      
|                                                                |                                            | Income from Merchant Bankcard operations |        |        | 1,608 |      |        |       | 2,205 |   |        |       | 3,050 | 
|                                                                | Gain on sale of Merchant Bankcard Services |                                          |        | 29,768 |       |      |        |      |       |   |        |      |      
|                                                                | Less applicable income taxes               |                                          |        | 12,516 |       |      |        |      |       |   |        |      |      
|                                                                |                                            |                                          |        |        |       |      |        |       |       |   |        |      
|Net income and gain from sale of Merchant
    Bankcard Services |                                            | $                                        | 18,860 |        |       | $    | 2,205  |       |       | $ | 3,050  |      
|                                                                |                                            |                                          |        |        |       |      |        |       |       |   |        |      

Humboldts final ISO processing agreement
terminated on January 28, 2004. All of Humboldts ISO
agreements provide for full indemnification of Humboldt for any
and all losses, damages or liabilities arising from ISO
merchants (including legal defense costs).



| |                                     
| | ------------------------------------
| | Bancorp Financial Services,
    Inc.

During the first quarter of 2001, Humboldts
Board of Directors completed a strategic review of Bancorp
Financial Services, Inc. (BFS), which principally
acquired and serviced small ticket leases on a nationwide basis.
This review was initiated in response to a number of factors,
including future capital needs of BFS to support its growth and
reliance upon the lease-backed securities market for liquidity.
As a result of this review, Humboldt adopted a plan to
discontinue the operations of BFS by sale of the company and
engaged an investment banking firm to facilitate the sale during
the first quarter of 2001. The operating results of BFS are
included, net of tax, in the income statement as loss from
discontinued operations.

During the second quarter of 2001, Humboldt was
notified by the investment banker that the prospects for the
sale of BFS as a going concern were unlikely. In response,
Humboldt adopted a plan to wind-down the operations of BFS in an
orderly manner. This plan included the immediate termination of
all lease and loan acquisition activities. In connection with
the wind-down plan, Humboldt recognized a loss on discontinued
operations, net of tax, of $14.0 million during the second
quarter of 2001.

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2003, BFS had total
assets of $643,000, which included cash of $206,000 and deferred
tax assets of $425,000. Total liabilities as of
December 31, 2003 were $699,000, and included security
deposits of $685,000 and other liabilities of $14,000. On
December 31, 2002, BFS had total assets of $993,000, which
included cash of $568,000 and deferred tax assets of $425,000.
Total liabilities as of December 31, 2002 were $1,046,000,
and included security deposits of $1,025,000 and other
liabilities of $21,000. These amounts are recorded net in other
assets as of December 31, 2003 and 2002.

As of December 31, 2003 and 2002, Humboldt
Bancorp had a liability in the amount of $1,165,000 recorded in
connection with a loan from an unaffiliated third party that was
arranged in connection with the sale of certain Class C
lease-backed notes during the first quarter of 2002. The loan is
secured by the retained interest assets of two securitizations
issued by subsidiaries of BFS, and the loan agreement provides
that any repayment of principal or interest is limited to cash
flows arising from the retained interest assets. In the event no
cash flows are received from the retained interests, Humboldt
has no further obligation under the terms of the loan agreement
and will recognize a pre-tax gain for the carrying amount of the
loan. Since the retained interest assets were written off in
2001, Humboldt expects to recognize a minimum recovery equal to
the loan amount in the future as retained interest cash flows
are received. Humboldt expects the recovery will be recognized
during 2005 and 2006.

During the second quarter of 2002, the remaining
employees of BFS were terminated and operations ceased. A loss
on discontinued operations of $276,000, net of tax, was recorded
during the second quarter of 2002. No other gain or loss on
discontinued operations was recorded during 2002 or 2003.

In conducting its business, BFS formed three
subsidiaries that are considered Special Purpose
Entities or SPEs. These subsidiaries were
formed in accordance with legal requirements and were, at
formation, not subject to consolidation on the financial
statements of BFS.

|                            |  |                                                                                                                                                                                                                                                                                       
|--------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Subsidiary Name             |  | Primary Purpose                                                                                                                                                                                                                                                                       
|                            |  |                                                                                                                                                                                                                                                                                       
|BFS Funding Corporation     |  | Issuance of lease-backed notes funded by a
    commercial paper conduit. The line of credit from the commercial
    paper conduit was not renewed upon maturity in March 2001 and
    the subsidiarys assets and related debt were
    reconsolidated on to the balance sheet of BFS.
|BFS Funding Company, LLC    |  | Issuance of $75,000,000 of term lease-backed
    notes to institutional investors in March 2000.                                                                                                                                                                                      
|BFS Funding Company II, LLC |  | Issuance of $60,058,000 of term lease-backed
    notes to institutional investors in February 2001.                                                                                                                                                                                   

BFS Funding Company, LLC and BFS Funding
Company II, LLC are considered qualifying SPEs
under SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of
Liabilities.

All retained interest assets related to the
lease-backed notes issued by BFS Funding Company LLC and
BFS Funding Company II, LLC were written off during
the second quarter of 2001. At December 31, 2002, Humboldt
Bancorp owned the Class C notes issued in the 2000
securitization. During the third quarter of 2003 the
Class C notes were sold to an unrelated third party and a
loss of $358,000 was recognized in connection with the sale.

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 4  Investment
Securities

The amortized cost of investment securities and
their approximate fair values at December 31 were as
follows (dollars in thousands):

|                   |                    |                                       |                          |            |        |            |  |            |       |       |  |   |      |      |   |   |        |         | 
|------------------ | ------------------ | ------------------------------------- | ------------------------ | ---------- | ------ | ---------- |  | ---------- | ----- | ----- |  | - | ---- | ---- | - | - | ------ | ------- | 
|                   |                    | Amortized                             |                          | Unrealized |        | Unrealized |  |           
|                   |                    | Cost                                  |                          | Gains      |        | Losses     |  | Fair Value
|                   |                    |                                       |                          |            |        |            |  |           
|December 31, 2003: |                    |                                       |                          |            |        |            |  |            |       |       |  |   |      |      |   |  
|                   | Available-for-sale |                                       |                          |            |        |            |  |            |       |       |  |   |      |      |   |   |       
|                   |                    | U.S. Government and agency securities |                          | $          | 12,678 |            |  | $          | 44    |       |  | $ | (21  | )    |   | $ | 12,701 |        
|                   |                    | Obligations of political subdivisions |                          |            | 33,537 |            |  |            | 2,243 |       |  |   | (234 | )    |   |   | 35,546 |        
|                   |                    | Collateralized mortgage obligations   |                          |            | 98,632 |            |  |            | 1,341 |       |  |   | (495 | )    |   |   | 99,478 |        
|                   |                    | Mortgage-backed securities            |                          |            | 13,469 |            |  |            | 216   |       |  |   | (24  | )    |   |   | 13,661 |        
|                   |                    | Equity securities                     |                          |            | 513    |            |  |            |      |       |  |   |     |      |   |   | 513    |        
|                   |                    |                                       |                          |            |        |            |  |            |       |       |  |   |      |      |   |  
|                   |                    |                                       | Total available-for-sale |            | $      | 158,829    |  |            | $     | 3,844 |  |   | $    | (774 | ) |   | $      | 161,899 | 
|                   |                    |                                       |                          |            |        |            |  |            |       |       |  |   |      |      |   |  

|                   |                    |                                       |                          |            |         |            |  |            |       |       |  |   |      |      |   |   |         |         | 
|------------------ | ------------------ | ------------------------------------- | ------------------------ | ---------- | ------- | ---------- |  | ---------- | ----- | ----- |  | - | ---- | ---- | - | - | ------- | ------- | 
|                   |                    | Amortized                             |                          | Unrealized |         | Unrealized |  |           
|                   |                    | Cost                                  |                          | Gains      |         | Losses     |  | Fair Value
|                   |                    |                                       |                          |            |         |            |  |           
|December 31, 2002: |                    |                                       |                          |            |         |            |  |            |       |       |  |   |      |      |   |  
|                   | Available-for-sale |                                       |                          |            |         |            |  |            |       |       |  |   |      |      |   |   |        
|                   |                    | U.S. Government and agency securities |                          | $          | 18,848  |            |  | $          | 78    |       |  | $ |     |      |   | $ | 18,926  |        
|                   |                    | Obligations of political subdivisions |                          |            | 28,395  |            |  |            | 2,005 |       |  |   | (33  | )    |   |   | 30,367  |        
|                   |                    | Collateralized mortgage obligations   |                          |            | 108,767 |            |  |            | 2,445 |       |  |   | (56  | )    |   |   | 111,156 |        
|                   |                    | Mortgage-backed securities            |                          |            | 8,725   |            |  |            | 240   |       |  |   |     |      |   |   | 8,965   |        
|                   |                    | Other asset-backed securities         |                          |            | 6,148   |            |  |            | 281   |       |  |   | (120 | )    |   |   | 6,309   |        
|                   |                    | Equity securities                     |                          |            | 29      |            |  |            |      |       |  |   |     |      |   |   | 29      |        
|                   |                    |                                       |                          |            |         |            |  |            |       |       |  |   |      |      |   |  
|                   |                    |                                       | Total available-for-sale |            | $       | 170,912    |  |            | $     | 5,049 |  |   | $    | (209 | ) |   | $       | 175,752 | 
|                   |                    |                                       |                          |            |         |            |  |            |       |       |  |   |      |      |   |  

Investment securities in a temporary unrealized
loss position as of December 31, 2003 are presented in the
following table, based on the length of time they have been
continuously in an unrealized loss position:

|                                      |                                       |                     |        |              |  |       |     |            |  |       |   |            |  |   |   |   |  |   |        |        |  |   |     |     | 
|------------------------------------- | ------------------------------------- | ------------------- | ------ | ------------ |  | ----- | --- | ---------- |  | ----- | - | ---------- |  | - | - | - |  | - | ------ | ------ |  | - | --- | --- | 
|                                      |                                       |                     |        |              |  |       |     |            |  |      
|                                      |                                       |                     |        | 12 Months or |  |      
|                                      |                                       | Less than 12 Months |        | Longer       |  | Total
|                                      |                                       |                     |        |              |  |      
|                                      |                                       | Fair                |        | Unrealized   |  | Fair  |     | Unrealized |  | Fair  |   | Unrealized
|                                      |                                       | Value               |        | Losses       |  | Value |     | Losses     |  | Value |   | Losses    
|                                      |                                       |                     |        |              |  |       |     |            |  |       |   |           
|U.S. Government and agency securities |                                       | $                   | 10,563 |              |  | $     | 21  |            |  | $     |  |            |  | $ |  |   |  | $ | 10,563 |        |  | $ | 21  |    
|Obligations of political subdivisions |                                       |                     | 7,237  |              |  |       | 234 |            |  |       |  |            |  |   |  |   |  |   | 7,237  |        |  |   | 234 |    
|Collateralized mortgage obligations   |                                       |                     | 31,515 |              |  |       | 495 |            |  |       |  |            |  |   |  |   |  |   | 31,515 |        |  |   | 495 |    
|Mortgage-backed securities            |                                       |                     | 3,224  |              |  |       | 24  |            |  |       |  |            |  |   |  |   |  |   | 3,224  |        |  |   | 24  |    
|                                      |                                       |                     |        |              |  |       |     |            |  |       |   |            |  |   |   |   |  |   |        |        |  |   |     |    
|                                      | Total temporarily impaired securities |                     | $      | 52,539       |  |       | $   | 774        |  |       | $ |           |  |   | $ |  |  |   | $      | 52,539 |  |   | $   | 774 | 
|                                      |                                       |                     |        |              |  |       |     |            |  |       |   |            |  |   |   |   |  |   |        |        |  |   |     |    

The unrealized losses on investments in
U.S. Government and government agency securities were
caused by interest rate increases subsequent to the purchase of
the security. The contractual terms of these investments do not
permit the issuer to settle the securities at a price less than
the amortized cost of the

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

investment. Because the Bank has the ability and
intent to hold these investments until a market price recovery
or to maturity, the unrealized losses on these investments are
not considered other-than-temporarily impaired.

The unrealized losses on obligations of political
subdivisions were caused by interest rate increases subsequent
to the purchase of the security. Management monitors published
credit ratings of these securities and no adverse ratings
changes have occurred since the date of purchase on obligations
of political subdivisions in an unrealized loss position as of
December 31, 2003. Because the decline in fair value is
attributable to changes in interest rates and not credit
quality, and because the Bank has the ability and intent to hold
these investments until a market price recovery or to maturity,
the unrealized losses on these investments are not considered
other-than-temporarily impaired.

The unrealized losses on collateralized mortgage
obligations and mortgage-backed securities were caused by
interest rate increases subsequent to the purchase of the
security. The contractual cash flows of these securities are
guaranteed by the Federal National Mortgage Association
(FNMA or Fannie Mae). It is expected
that the securities would not be settled at a price less than
the amortized cost of the investment. Because the decline in
fair value is attributable to changes in interest rates and not
credit quality, and because the Bank has the ability and intent
to hold these investments until a market price recovery or to
maturity, the unrealized losses on these investments are not
considered other-than-temporarily impaired.

The maturities of investment securities at
December 31, 2003 were as follows (dollars in thousands):

|                     |                                         |                    |         |            |  |   |         |        | 
|-------------------- | --------------------------------------- | ------------------ | ------- | ---------- |  | - | ------- | ------ | 
|                     |                                         |                   
|                     |                                         | Available-for-Sale
|                     |                                         |                   
|                     |                                         | Amortized          |         |           
|                     |                                         | Cost               |         | Fair Value
|                     |                                         |                    |         |           
|Amounts maturing in: |                                         |                    |         |            |  |   |         |       
|                     | Three months or less                    |                    | $       | 20,021     |  |   | $       | 20,043 | 
|                     | Over three months through twelve months |                    |         | 16,002     |  |   |         | 16,597 | 
|                     | After one year through three years      |                    |         | 51,219     |  |   |         | 52,067 | 
|                     | After three years through five years    |                    |         | 26,039     |  |   |         | 25,915 | 
|                     | After five years through fifteen years  |                    |         | 38,811     |  |   |         | 40,441 | 
|                     | After fifteen years                     |                    |         | 6,224      |  |   |         | 6,323  | 
|                     | Equity securities                       |                    |         | 513        |  |   |         | 513    | 
|                     |                                         |                    |         |            |  |   |         |       
|                     |                                         | $                  | 158,829 |            |  | $ | 161,899 |       
|                     |                                         |                    |         |            |  |   |         |       

The amortized cost and fair value of
collateralized mortgage obligations and mortgage-backed
securities are presented by expected average life, rather than
contractual maturity, in the preceding table. Expected
maturities differ from contractual maturities because borrowers
may have the right to prepay underlying loans without prepayment
penalties.

Proceeds from sales of investment securities
available-for-sale during 2003, 2002, and 2001 were $7,665,000,
$81,550,000, and $52,707,000 respectively. Gross gains and
losses on those sales were $221,000 and $358,000 in 2003,
$1,082,000, and $195,000 in 2002, and $501,000 and $295,000 in
2001.

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

As of December 31, 2003, investment
securities as follows were pledged to secure borrowings, public
deposits, and for other purposes permitted or required by law
(dollars in thousands):

|                    |                                                                          |                          |   |            |         |  |   |         |         | 
|------------------- | ------------------------------------------------------------------------ | ------------------------ | - | ---------- | ------- |  | - | ------- | ------- | 
|                    |                                                                          | Amortized                |   |           
|                    |                                                                          | Cost                     |   | Fair Value
|                    |                                                                          |                          |   |           
|Securities pledged: |                                                                          |                          |   |            |         |  |   |        
|                    | To Federal Home Loan Bank to secure
    borrowings                       |                          | $ | 116,083    |         |  | $ | 117,154 |        
|                    | To state and local governments to secure public
    deposits             |                          |   | 19,668     |         |  |   | 21,547  |        
|                    | To U.S. Treasury and Federal Reserve to
    secure customer tax payments |                          |   | 808        |         |  |   | 818     |        
|                    | Other securities pledged                                                 |                          |   | 5,498      |         |  |   | 5,796   |        
|                    |                                                                          |                          |   |            |         |  |   |        
|                    |                                                                          | Total pledged securities |   | $          | 142,057 |  |   | $       | 145,315 | 
|                    |                                                                          |                          |   |            |         |  |   |        

Note 5  Loans and Allowance
for Loan Losses

The components of loans and leases in the balance
sheets were as follows at December 31 (dollars in
thousands):

|                                                     |             |      |         |         |  |   |         |         | 
|---------------------------------------------------- | ----------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                                     |             | 2003 |         | 2002   
|                                                     |             |      |         |        
|Real estate  construction and land
    development  |             | $    | 128,375 |         |  | $ | 129,075 |        
|Real estate  commercial and
    agricultural        |             |      | 344,514 |         |  |   | 343,957 |        
|Real estate  family and multifamily
    residential |             |      | 103,595 |         |  |   | 105,647 |        
|Commercial, industrial and agricultural              |             |      | 137,492 |         |  |   | 121,538 |        
|Installment and Other                                |             |      | 55,021  |         |  |   | 61,531  |        
|                                                     |             |      |         |         |  |   |         |        
|                                                     |             |      | 768,997 |         |  |   | 761,748 |        
|Unearned premiums (discounts)                        |             |      | (1,098  | )       |  |   | 1,348   |        
|Deferred loan fees                                   |             |      | (2,445  | )       |  |   | (2,448  | )      
|                                                     |             |      |         |         |  |   |         |        
|                                                     | Total loans |      | $       | 765,454 |  |   | $       | 760,648 | 
|                                                     |             |      |         |         |  |   |         |        

At December 31, 2003, the recorded
investment in loans for which impairment had been recognized in
accordance with SFAS No. 114 totaled $8,883,000, with
a corresponding valuation allowance of $1,133,000. At
December 31, 2002, the recorded investment in loans for
which impairment had been recognized totaled $2,835,000, with a
corresponding valuation allowance of $342,000. For the years
ended December 31, 2003, 2002, and 2001, the average
recorded investment in impaired loans was approximately
$8,900,000, $1,448,000, and $1,014,000, respectively. In 2003,
2002, and 2001, Humboldt recognized $37,000, $75,000, and
$56,000, respectively, of interest on impaired loans (during the
portion of the year that they were impaired), all of which was
recognized on the cash basis. Nonaccrual loans totaled
$9,265,000 and $3,054,000 at December 31, 2003, and 2002
respectively.

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The following table summarizes activity related
to the allowance for loan losses for the years ended
December 31 (dollars in thousands):

|                          |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                          |  | 2003 |        | 2002 |  | 2001
|                          |  |      |        |      |  |     
|Beginning balance         |  | $    | 11,614 |      |  | $    | 9,765  |   |  | $ | 8,367  |  
|Provision for loan losses |  |      | 1,523  |      |  |      | 3,321  |   |  |   | 2,903  |  
|Charge offs               |  |      | (1,344 | )    |  |      | (2,147 | ) |  |   | (1,917 | )
|Recoveries                |  |      | 413    |      |  |      | 675    |   |  |   | 412    |  
|                          |  |      |        |      |  |      |        |   |  |   |        |  
|Ending balance            |  | $    | 12,206 |      |  | $    | 11,614 |   |  | $ | 9,765  |  
|                          |  |      |        |      |  |      |        |   |  |   |        |  

Note 6  Premises and
Equipment

Components of premises and equipment included the
following at December 31 (dollars in thousands):

|                                                |                              |      |        |        |  |   |         |        | 
|----------------------------------------------- | ---------------------------- | ---- | ------ | ------ |  | - | ------- | ------ | 
|                                                |                              | 2003 |        | 2002  
|                                                |                              |      |        |       
|Land                                            |                              | $    | 2,234  |        |  | $ | 2,228   |       
|Buildings and improvements                      |                              |      | 12,302 |        |  |   | 12,182  |       
|Furniture, fixtures and equipment               |                              |      | 10,613 |        |  |   | 13,187  |       
|Leasehold improvements                          |                              |      | 1,733  |        |  |   | 1,050   |       
|                                                |                              |      |        |        |  |   |         |       
|                                                | Total premises and equipment |      |        | 26,882 |  |   |         | 28,647 | 
|Less: Accumulated depreciation and amortization |                              |      | (7,010 | )      |  |   | (12,054 | )     
|                                                |                              |      |        |        |  |   |         |       
|                                                | Premises and equipment, net  |      | $      | 19,872 |  |   | $       | 16,593 | 
|                                                |                              |      |        |        |  |   |         |       

Depreciation expense totaled $3,513,000,
$2,480,000 and $2,711,000 in 2003, 2002 and 2001.

Note 7  Loan Servicing
Rights

In August 2002, the Bank sold its residential
mortgage loan servicing portfolio to a third party for cash
consideration of $2,420,000. The Bank recognized a loss, net of
selling-related costs, of approximately $259,000. In connection
with this sale, the Bank adopted a program whereby the
residential mortgage loans are sold on a servicing
released basis, in exchange for a cash fee.

The Bank recorded servicing assets related to the
sale of SBA and USDA loans in 2003 and 2002 of $339,000 and
$821,000 respectively. Following is a summary of the changes in
the SBA and USDA loan servicing assets for the year ended
December 31, 2003 (dollars in thousands):

|                                                                 |  |              |       |           |  |            |     |              |  |   |      |   |  |   |       |  
|---------------------------------------------------------------- |  | ------------ | ----- | --------- |  | ---------- | --- | ------------ |  | - | ---- | - |  | - | ----- | -
|                                                                 |  | December 31, |       |           |  |            |     | December 31,
|                                                                 |  | 2002         |       | Additions |  | Reductions |     | 2003        
|                                                                 |  |              |       |           |  |            |     |             
|SBA & USDA loan servicing rights                                 |  | $            | 1,316 |           |  | $          | 339 |              |  | $ | (455 | ) |  | $ | 1,200 |  
|Valuation allowance                                              |  |              | (600  | )         |  |            | 52  |              |  |   |     |   |  |   | (548  | )
|                                                                 |  |              |       |           |  |            |     |              |  |   |      |   |  |   |       |  
|SBA & USDA loan servicing rights, net of
    valuation allowance |  | $            | 716   |           |  | $          | 391 |              |  | $ | (455 | ) |  | $ | 652   |  
|                                                                 |  |              |       |           |  |            |     |              |  |   |      |   |  |   |       |  

The impairment charge of $600,000 which was
recorded at December 31, 2002 was based on the fair value
of the servicing asset. During 2003, $52,000 of this impairment
adjustment was recovered. The valuation analysis was provided by
a third party using a weighted average discount rate of 15.4%.

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 8  Interest-Bearing
Deposits

Interest-bearing deposits consisted of the
following at December 31 (dollars in thousands):

|                                     |                                 |      |         |         |  |   |         |         | 
|------------------------------------ | ------------------------------- | ---- | ------- | ------- |  | - | ------- | ------- | 
|                                     |                                 | 2003 |         | 2002   
|                                     |                                 |      |         |        
|Negotiable order of withdrawal (NOW) |                                 | $    | 108,799 |         |  | $ | 52,052  |        
|Savings and money market             |                                 |      | 263,150 |         |  |   | 224,908 |        
|Time, $100,000 and over              |                                 |      | 93,161  |         |  |   | 102,743 |        
|Other time less than $100,000        |                                 |      | 124,341 |         |  |   | 157,760 |        
|Brokered time deposits               |                                 |      | 67,020  |         |  |   | 75,558  |        
|                                     |                                 |      |         |         |  |   |         |        
|                                     | Total interest-bearing deposits |      | $       | 656,471 |  |   | $       | 613,021 | 
|                                     |                                 |      |         |         |  |   |         |        

Interest expense on these deposits for the years
ended December 31 is as follows:

|                              |                            |      |       |       |  |      |       |        |  |   |        |        | 
|----------------------------- | -------------------------- | ---- | ----- | ----- |  | ---- | ----- | ------ |  | - | ------ | ------ | 
|                              |                            | 2003 |       | 2002  |  | 2001
|                              |                            |      |       |       |  |     
|NOW                           |                            | $    | 139   |       |  | $    | 111   |        |  | $ | 247    |       
|Savings and money market      |                            |      | 2,106 |       |  |      | 3,249 |        |  |   | 6,268  |       
|Time, $100,000 and over       |                            |      | 1,840 |       |  |      | 4,095 |        |  |   | 6,513  |       
|Other time less than $100,000 |                            |      | 4,367 |       |  |      | 5,479 |        |  |   | 12,020 |       
|Brokered time deposits        |                            |      | 1,490 |       |  |      | 698   |        |  |   | 155    |       
|                              |                            |      |       |       |  |      |       |        |  |   |        |       
|                              | Total interest on deposits |      | $     | 9,942 |  |      | $     | 13,632 |  |   | $      | 25,203 | 
|                              |                            |      |       |       |  |      |       |        |  |   |        |       

The maturities of time deposits are as follows as
of December 31, 2003 (dollars in thousands):

|                                        |                     |   |         |         | 
|--------------------------------------- | ------------------- | - | ------- | ------- | 
|Three months or less                    |                     | $ | 86,424  |        
|Over three months through twelve months |                     |   | 125,448 |        
|Over one year through three years       |                     |   | 59,382  |        
|Over three years                        |                     |   | 13,268  |        
|                                        |                     |   |         |        
|                                        | Total time deposits |   | $       | 284,522 | 
|                                        |                     |   |         |        

At December 31, 2003, Humboldt had
$67 million of brokered certificates of deposit
outstanding, most of which mature in less than one year. One
brokered issuance, in the amount of $10 million, matures in
June 2010. This deposit, which bears a fixed rate of 4.70%, was
paired with an interest rate swap to convert the rate to LIBOR
plus 7 basis points on a variable basis. The certificate of
deposit is callable at the Banks option and the swap is
callable by the counterparty. Management expects that brokered
certificates of deposit will be used from time to time in the
future as an alternative source of funding.

Note 9  Lines of Credit and
Borrowed Funds

The Bank has uncommitted federal funds line of
credit agreements with four financial institutions totaling
$29,000,000 and $23,000,000 as of December 31, 2003 and
2002 respectively. Availability of the lines is subject to
federal funds balances available for loan and continued borrower
eligibility. These lines are intended to support short-term
liquidity, and cannot be used for more than ten consecutive
business days or more than twelve times during a given thirty
day period. At December 31, 2003 and 2002 there were no
borrowings outstanding under the agreements.

The Bank had advances from the Federal Home
Loan Bank (FHLB) totaling $59,392,000 as of
December 31, 2003 and $62,934,000 as of December 31,
2002. The 2003 advances are due at various maturity dates
ranging from January 9, 2004 to May 2, 2013, and
interest rates ranging from 1.11% to 7.44%. The

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

advances have various repayment schedules for
both principal and interest. The FHLB advances are
collateralized by first mortgage loans, mortgage-backed
securities and FHLB stock. As of December 31, 2003 the bank
had approximately $68 million of additional secured
borrowing available from the FHLB.

During 2003 and 2002, Humboldt had a line of
credit with an unaffiliated financial institution with a
borrowing limit of $7,000,000. This facility terminated on
December 31, 2003. This line was secured with stock of the
Bank and bore interest at a variable rate of Prime plus
75 basis points, with interest payments due monthly. This
facility had no balance as of December 31, 2003 and
$3,700,000, at December 31, 2002. Subsequent to
December 31, 2003, Humboldt secured a replacement credit
facility with another financial institution with a limit of
$8 million that bears interest at one-half percentage point
below the prime rate.

Humboldt has an unsecured line of credit with an
unaffiliated financial institution with a borrowing limit of
$2,000,000. This line bears interest at a variable rate of Prime
plus 50 basis points, with interest payments due monthly.
There was a balance of $740,000 on this line as of
December 31, 2003 and no balance as of December 31,
2002.

As of December 31, 2003 and 2002, Humboldt
had a loan in the amount of $1,165,000 from an unrelated third
party related to the transfer of certain lease-back securities
described in Note 3.

As of December 31, 2002, Humboldt had an
amortizing term loan with a balance of $1,297,000 and bearing
interest at the rate of 6.625% with a maturity date of October
2004, and another amortizing term loan with a balance of
$202,000 and interest at 1.25% above the prime rate, maturing in
March 2003. Both of these amortizing term loans were paid off
during 2003.

Borrowed funds as of December 31, 2003
mature as follows:

|           |                      |                        |        |        | 
|---------- | -------------------- | ---------------------- | ------ | ------ | 
|Year       |                      | Amount                
|           |                      |                       
|           |                      | (Dollars in thousands)
|2004       |                      | $                      | 27,396 |       
|2005       |                      |                        | 30,000 |       
|2006       |                      |                        | 1,165  |       
|2007       |                      |                        | 1,000  |       
|2008       |                      |                        |       |       
|Thereafter |                      |                        | 1,736  |       
|           |                      |                        |        |       
|           | Total borrowed funds |                        | $      | 61,297 | 
|           |                      |                        |        |       

The total maturities noted in 2004 above include
no overnight borrowings.

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 10  Junior Subordinated
Debentures (Trust Preferred Securities)

As of December 31, 2003, Humboldt had four
wholly-owned trusts (Trusts) that were formed to
issue trust preferred securities and related common securities
of the Trusts. As a result of the adoption of FIN 46R, the
Trusts were deconsolidated for years ended December 31,
2003 and 2002. The $48,611,000 of junior subordinated debentures
issued by the Trusts as of December 31, 2003 ($20,775,000
as of December 31, 2002) is reflected as junior
subordinated debentures in the consolidated balance sheets. The
common stock issued by the Trusts is recorded in other assets in
the consolidated balance sheets at December 31, 2003 and
2002. Following are terms of each debenture as of
December 31, 2003:

|                       |       |        |        |        |  |               |  |           |                |  |  |                | 
|---------------------- | ----- | ------ | ------ | ------ |  | ------------- |  | --------- | -------------- |  |  | -------------- | 
|Issue Date             |       | Amount |        | Rate   |  | Maturity Date |  | Call Date
|                       |       |        |        |        |  |               |  |          
|                      
|(Dollars in thousands)
|March 2000             |       | $      | 5,310  |        |  | 10.875%       |  |           | March 2030     |  |  | March 2010    
|February 2001          |       |        | 5,155  |        |  | 10.200%       |  |           | February 2031  |  |  | February 2011 
|December 2002          |       |        | 10,310 |        |  | Floating*     |  |           | December 2031  |  |  | December 2006 
|September 2003         |       |        | 27,836 |        |  | 6.75%**       |  |           | September 2033 |  |  | September 2008
|                       |       |        |        |        |  |               |  |           |                |  |  |               
|                       | Total |        | $      | 48,611 |  |               |  |           |                |  |  |                | 
|                       |       |        |        |        |  |               |  |           |                |  |  |               



---



| |   |                                                                  
| | - | -----------------------------------------------------------------
| | * | Floating rate at the three-month LIBOR plus
    360 basis points.



|   |                                                                                         
|-- | ----------------------------------------------------------------------------------------
|** | Fixed rate for five years, then floating at
    three-month LIBOR plus 295 basis points.

Approximately $30 million of the debentures
issued by the Trusts, less the common securities of the Trusts,
qualifies as Tier 1 capital under interim guidance issued
by the Board of Governors of the Federal Reserve System (Federal
Reserve Board) as of December 31, 2003.

The trust preferred securities issued by the
Trusts were issued on substantially the same terms as the junior
subordinated debentures.

Note 11  Derivative Financial
Instruments

Humboldt maintains an overall interest rate
risk-management strategy that incorporates the use of derivative
instruments to minimize significant unplanned fluctuations in
earnings that are caused by interest rate volatility. The
objective is to reduce Humboldts exposure to changes in
market interest rates by modifying the repricing characteristics
of certain balance sheet assets and liabilities through the use
of a derivative hedging instrument. Humboldt views this strategy
as a component of a comprehensive and prudent asset liability
management program.

Derivative instruments that are used as part of
Humboldts interest rate risk-management strategy consist
entirely of interest rate swap contracts. As a matter of policy,
Humboldt does not use highly leveraged derivative instruments
for interest rate risk management. Interest rate swaps generally
involve the exchange of fixed and variable rate interest
payments between two parties, based on a common notional
principal amount and maturity date.

66



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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Humboldt accounts for all derivative financial
instruments in accordance with SFAS No. 133,
Accounting for Certain Derivative Instruments and Certain
Hedging Activities, and SFAS No. 138, an amendment
to SFAS No. 133. Further information regarding the
accounting treatment is provided in Note 1. At
December 31, 2003, Humboldt had the following interest rate
swap contracts (dollars in thousands):

|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   |      |     | 
|------------- | ------------------------- | ---------------------- | ------ | --------- |  | -------- | ----- | ------------- |  | ---------- | ----- | ---------- |  | ------------- |  |  | ---------- |  |  | --------------- |  | - | ---- | --- | 
|Issue         |                           | Notional               |        |           |  | Rate     |       |               |  |            |       | Hedged     |  |              
|Date          |                           | Amount                 |        | Rate Paid |  | Received |       | Maturity Date |  | Hedge Type |       | Instrument |  | Fair Value   
|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |              
|              |                           |                       
|              |                           | (Dollars in thousands)
|January 2002  |                           | $                      | 25,000 |           |  |          | 4.00% | (1)           |  |            | 6.72% | (4)        |  | January 2005  |  |  | Cash Flow  |  |  | Loans           |  | $ | 632  |    
|July 2002     |                           |                        | 25,000 |           |  |          | 4.00% | (2)           |  |            | 6.30% | (4)        |  | July 2005     |  |  | Cash Flow  |  |  | Loans           |  |   | 647  |    
|December 2002 |                           |                        | 10,000 |           |  |          | 1.24% | (3)           |  |            | 4.70% | (4)        |  | June 2010     |  |  | Fair Value |  |  | Callable CD     |  |   | (21  | )  
|December 2001 |                           |                        | 10,000 |           |  |          | 8.42% | (4)           |  |            | 4.77% | (5)        |  | December 2006 |  |  | Cash Flow  |  |  | Trust Preferred |  |   | (573 | )  
|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   |      |    
|              | Total interest rate swaps |                        | $      | 70,000    |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   | $    | 685 | 
|              |                           |                        |        |           |  |          |       |               |  |            |       |            |  |               |  |  |            |  |  |                 |  |   |      |    



---



|    |                                                                      
|--- | ---------------------------------------------------------------------
|(1) | Variable rate based on prime                                         
|   
|(2) | Variable rate based on prime                                         
|   
|(3) | Variable rate based on 3 month LIBOR +
    7 basis points            
|   
|(4) | Fixed rate                                                           
|   
|(5) | Variable rate based on 3 month LIBOR + 3.6%
    not to exceed 12.50%.

As of December 31, 2003 Humboldt had
$1,279,000 recorded in other assets as the carrying value of
interest rate swaps hedging assets and $552,000 recorded in
other liabilities as the carrying value of interest rate swaps
hedging liabilities. As of December 31, 2002 the carrying
value of all interest rate swaps totaled $1,155,000 and was
recorded in other assets.

Note 12  Fees and Other
Non-Interest Income

Fees and other income consisted of the following
for the years ended December 31 (dollars in thousands):

|                                      |  |      |       |      |  |      |       |   |  |   |       | 
|------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                      |  | 2003 |       | 2002 |  | 2001
|                                      |  |      |       |      |  |     
|Fees for customer services            |  | $    | 1,300 |      |  | $    | 387   |   |  | $ | 863   | 
|Loan broker fees                      |  |      | 858   |      |  |      | 488   |   |  |   | 1,086 | 
|Earnings on bank-owned life insurance |  |      | 773   |      |  |      | 814   |   |  |   | 875   | 
|ATM funding income                    |  |      |      |      |  |      | 825   |   |  |   | 2,983 | 
|Loan servicing fees                   |  |      | 95    |      |  |      | (413  | ) |  |   | 363   | 
|Lease residuals and rentals           |  |      | 26    |      |  |      | 405   |   |  |   | 832   | 
|Other                                 |  |      | 458   |      |  |      | 1,016 |   |  |   | 787   | 
|                                      |  |      |       |      |  |      |       |   |  |   |       | 
|                                      |  | $    | 3,510 |      |  | $    | 3,522 |   |  | $ | 7,789 | 
|                                      |  |      |       |      |  |      |       |   |  |   |       | 

67



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 13  Other Non-Interest
Expenses

Other expenses consisted of the following for the
years ended December 31 (dollars in thousands):

|                                        |  |      |        |      |  |      |        |  |  |   |        | 
|--------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ |  |  | - | ------ | 
|                                        |  | 2003 |        | 2002 |  | 2001
|                                        |  |      |        |      |  |     
|Professional and other outside services |  | $    | 2,410  |      |  | $    | 3,678  |  |  | $ | 2,609  | 
|Stationery, supplies and postage        |  |      | 1,592  |      |  |      | 1,455  |  |  |   | 1,483  | 
|Communications                          |  |      | 925    |      |  |      | 874    |  |  |   | 827    | 
|Travel                                  |  |      | 822    |      |  |      | 611    |  |  |   | 466    | 
|Amortization of core deposit intangible |  |      | 370    |      |  |      | 503    |  |  |   | 876    | 
|Data processing and ATM fees            |  |      | 578    |      |  |      | 801    |  |  |   | 874    | 
|Advertising and business development    |  |      | 1,207  |      |  |      | 739    |  |  |   | 557    | 
|Other                                   |  |      | 4,115  |      |  |      | 5,074  |  |  |   | 5,453  | 
|                                        |  |      |        |      |  |      |        |  |  |   |        | 
|                                        |  | $    | 12,019 |      |  | $    | 13,735 |  |  | $ | 13,145 | 
|                                        |  |      |        |      |  |      |        |  |  |   |        | 

Note 14  Income
Taxes

The components of income tax expense included in
the statements of income were as follows for the years ended
December 31 (dollars in thousands):

|                                                            |         |      |        |       |   |      |        |        |   |   |        |        |  
|----------------------------------------------------------- | ------- | ---- | ------ | ----- | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                                            |         | 2003 |        | 2002  |   | 2001
|                                                            |         |      |        |       |   |     
|Currently payable:                                          |         |      |        |       |   |      |        |        |   |   |        |       
|                                                            | Federal |      | $      | 4,645 |   |      | $      | 5,764  |   |   | $      | 2,294  |  
|                                                            | State   |      |        | 833   |   |      |        | (179   | ) |   |        | 544    |  
|                                                            |         |      |        |       |   |      |        |        |   |   |        |       
|                                                            |         |      | 5,478  |       |   |      | 5,585  |        |   |   | 2,838  |       
|Deferred tax expense (benefit):                             |         |      |        |       |   |      |        |        |   |   |        |       
|                                                            | Federal |      |        | (879  | ) |      |        | (1,829 | ) |   |        | (1,001 | )
|                                                            | State   |      |        | (607  | ) |      |        | (918   | ) |   |        | (260   | )
|                                                            |         |      |        |       |   |      |        |        |   |   |        |       
|                                                            |         |      | (1,486 | )     |   |      | (2,747 | )      |   |   | (1,261 | )     
|                                                            |         |      |        |       |   |      |        |        |   |   |        |       
|Net provision for income taxes on continuing
    operations |         | $    | 3,992  |       |   | $    | 2,838  |        |   | $ | 1,577  |       
|                                                            |         |      |        |       |   |      |        |        |   |   |        |       

A reconciliation of income taxes computed at the
federal statutory rate and the provision for income taxes for
the years ended December 31 are as follows (dollars in
thousands):

|                                                        |                                                               |      |       |      |   |      |       |      |   |   |       |      |  
|------------------------------------------------------- | ------------------------------------------------------------- | ---- | ----- | ---- | - | ---- | ----- | ---- | - | - | ----- | ---- | -
|                                                        |                                                               | 2003 |       | 2002 |   | 2001
|                                                        |                                                               |      |       |      |   |     
|Federal statutory tax rate                              |                                                               |      | 35    | %    |   |      | 34    | %    |   |   | 34    | %   
|Income tax at the federal statutory rate                |                                                               | $    | 4,978 |      |   | $    | 4,478 |      |   | $ | 1,874 |     
|                                                        | State franchise tax, less federal income tax
    benefit      |      |       | 147  |   |      |       | (724 | ) |   |       | 187  |  
|                                                        | Non-deductible merger-related expenses                        |      |       |     |   |      |       |     |   |   |       | 386  |  
|                                                        | Interest on municipal obligations exempt from
    federal tax |      |       | (518 | ) |      |       | (442 | ) |   |       | (501 | )
|                                                        | Life insurance earnings and expenses                          |      |       | (280 | ) |      |       | (223 | ) |   |       | (101 | )
|                                                        | Low income housing credits                                    |      |       | (258 | ) |      |       | (136 | ) |   |       | (175 | )
|                                                        | Deferred tax asset valuation allowance change                 |      |       |     |   |      |       |     |   |   |       | (23  | )
|                                                        | Other differences                                             |      |       | (77  | ) |      |       | (115 | ) |   |       | (70  | )
|                                                        |                                                               |      |       |      |   |      |       |      |   |   |       |     
|Provision for income taxes on continuing
    operations |                                                               | $    | 3,992 |      |   | $    | 2,838 |      |   | $ | 1,577 |     
|                                                        |                                                               |      |       |      |   |      |       |      |   |   |       |     

68



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The tax effects of temporary differences that
give rise to the components of the net deferred tax asset
recorded as an other asset as of December 31 were as
follows (dollars in thousands):

|                          |                                             |                                |   |        |        |   |   |        |        |  
|------------------------- | ------------------------------------------- | ------------------------------ | - | ------ | ------ | - | - | ------ | ------ | -
|                          |                                             | 2003                           |   | 2002  
|                          |                                             |                                |   |       
|Deferred tax assets:      |                                             |                                |   |        |        |   |   |       
|                          | Allowance for loan losses                   |                                | $ | 4,826  |        |   | $ | 4,408  |       
|                          | Deferred loan fees                          |                                |   | 518    |        |   |   | 238    |       
|                          | State franchise taxes                       |                                |   | 311    |        |   |   | 243    |       
|                          | Depreciation                                |                                |   | 1,284  |        |   |   | 1,222  |       
|                          | Core deposit intangible amortization        |                                |   | 692    |        |   |   | 666    |       
|                          | Organization costs                          |                                |   | 85     |        |   |   | 41     |       
|                          | Deferred compensation                       |                                |   | 3,218  |        |   |   | 2,956  |       
|                          | Enterprise Zone hiring credit carryforward  |                                |   | 459    |        |   |   |       |       
|                          | Other                                       |                                |   | 473    |        |   |   | 406    |       
|                          |                                             |                                |   |        |        |   |   |       
|                          |                                             | Total deferred tax assets      |   |        | 11,866 |   |   |        | 10,180 |  
|                          | Valuation allowance for deferred tax assets |                                |   | (241   | )      |   |   | (241   | )     
|                          |                                             |                                |   |        |        |   |   |       
|                          |                                             | Deferred tax assets recognized |   |        | 11,625 |   |   |        | 9,939  |  
|Deferred tax liabilities: |                                             |                                |   |        |        |   |   |       
|                          | Loan premium                                |                                |   | (274   | )      |   |   | (555   | )     
|                          | Unrealized securities holding gains         |                                |   | (1,867 | )      |   |   | (2,468 | )     
|                          | Federal Home Loan Bank stock dividends      |                                |   | (275   | )      |   |   | (131   | )     
|                          | Other                                       |                                |   | (718   | )      |   |   | (381   | )     
|                          |                                             |                                |   |        |        |   |   |       
|                          |                                             | Total deferred tax liabilities |   |        | (3,134 | ) |   |        | (3,535 | )
|                          |                                             |                                |   |        |        |   |   |       
|                          |                                             | Net deferred tax asset         |   | $      | 8,491  |   |   | $      | 6,404  |  
|                          |                                             |                                |   |        |        |   |   |       

Amounts presented for the tax effects of
temporary differences are based upon estimates and assumptions
and could vary from amounts ultimately reflected on
Humboldts tax returns. Accordingly, the variances from
amounts reported for prior years are primarily the result of
adjustments to conform to the tax returns as filed. A valuation
allowance has been established to reduce deferred tax assets to
the amount that is more likely than not to be realized.

Income taxes receivable were $2,151,000 and
$1,186,000 at December 31, 2003 and 2002, respectively and
were included in other assets.

69



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 15  Earnings Per
Share

The following is a computation of basic and
diluted earnings per share for the years ended December 31,
which has been retroactively adjusted for stock dividends and
splits (dollars in thousands except per share amounts):

|                            |                                                                                                                                                                                               |                                                                            |   |        |        |      |   |        |        |  |   |        |        | 
|--------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | - | ------ | ------ | ---- | - | ------ | ------ |  | - | ------ | ------ | 
|                            |                                                                                                                                                                                               | 2003                                                                       |   | 2002   |        | 2001
|                            |                                                                                                                                                                                               |                                                                            |   |        |        |     
|Basic earnings per share:   |                                                                                                                                                                                               |                                                                            |   |        |        |      |   |        |        |  |   |       
|                            | Weighted average shares outstanding                                                                                                                                                           |                                                                            |   | 12,261 |        |      |   | 12,503 |        |  |   | 12,464 |       
|                            |                                                                                                                                                                                               |                                                                            |   |        |        |      |   |        |        |  |   |       
|                            | Net income (loss)                                                                                                                                                                             |                                                                            | $ | 29,092 |        |      | $ | 12,263 |        |  | $ | (7,009 | )     
|                            | Net income from continuing operations                                                                                                                                                         |                                                                            | $ | 10,232 |        |      | $ | 10,334 |        |  | $ | 3,935  |       
|                            | Basic earnings (loss) per share                                                                                                                                                               |                                                                            | $ | 2.37   |        |      | $ | 0.98   |        |  | $ | (0.56  | )     
|                            | Basic earnings per share  continuing
    operations                                                                                                                                          |                                                                            | $ | 0.83   |        |      | $ | 0.83   |        |  | $ | 0.32   |       
|Diluted earnings per share: |                                                                                                                                                                                               |                                                                            |   |        |        |      |   |        |        |  |   |       
|                            | Weighted average shares outstanding                                                                                                                                                           |                                                                            |   | 12,261 |        |      |   | 12,503 |        |  |   | 12,464 |       
|                            | Net effect of the assumed exercise of stock
    options, based on the treasury stock method using average market
    price for the period, and warrants, based on the if-converted
    method |                                                                            |   | 516    |        |      |   | 546    |        |  |   | 532    |       
|                            |                                                                                                                                                                                               |                                                                            |   |        |        |      |   |        |        |  |   |       
|                            |                                                                                                                                                                                               | Total weighted average shares and common stock
    equivalents outstanding |   |        | 12,777 |      |   |        | 13,049 |  |   |        | 12,996 | 
|                            |                                                                                                                                                                                               |                                                                            |   |        |        |      |   |        |        |  |   |       
|                            | Net income (loss)                                                                                                                                                                             |                                                                            | $ | 29,092 |        |      | $ | 12,263 |        |  | $ | (7,009 | )     
|                            | Net income from continuing operations                                                                                                                                                         |                                                                            | $ | 10,232 |        |      | $ | 10,334 |        |  | $ | 3,935  |       
|                            | Diluted earnings (loss) per share                                                                                                                                                             |                                                                            | $ | 2.28   |        |      | $ | 0.94   |        |  | $ | (0.54  | )     
|                            | Diluted earnings per share  continuing
    operations                                                                                                                                        |                                                                            | $ | 0.80   |        |      | $ | 0.79   |        |  | $ | 0.30   |       

The following table presents options that were
outstanding for the years ended December 31, 2003, 2002,
and 2001, but were excluded from the calculation of diluted
earnings per share because the exercise price was greater than
the average market price of Humboldt common shares:

|                |                  |           |  |                 |        |           |  |                 |                 |           |  |  |         |  |  |   |                |  |  |  |         | 
|--------------- | ---------------- | --------- |  | --------------- | ------ | --------- |  | --------------- | --------------- | --------- |  |  | ------- |  |  | - | -------------- |  |  |  | ------- | 
|                |                  |           |  |                
|2003            |                  | 2002      |  | 2001           
|                |                  |           |  |                
|Range of        |                  | Number of |  | Range of        |        | Number of |  | Range of        |                 | Number of
|Exercise Prices |                  | Shares    |  | Exercise Prices |        | Shares    |  | Exercise Prices |                 | Shares   
|                |                  |           |  |                 |        |           |  |                 |                 |          
|                | $14.94 to $15.59 |           |  |                 | 59,666 |           |  | $               | 9.96 to $11.56  |           |  |  | 216,345 |  |  | $ | 7.38 to $8.78  |  |  |  | 155,063 | 
|                |                  |           |  |                 |        |           |  | $               | 11.57 to $14.94 |           |  |  | 55,000  |  |  | $ | 8.79 to $10.85 |  |  |  | 210,610 | 

Humboldt had outstanding at December 31,
2002 and 2001 warrants for 130,680 shares, which were
issued in connection with the acquisition of Silverado Merger
Corporation in 1999. As of December 31, 2003, warrants for
95,395 shares were outstanding. The current exercise price
of these warrants is $9.47. The warrants were included in the
calculation of diluted earnings per share for 2003 and 2002, but
were excluded from the diluted earnings per share calculation in
2001 because the exercise price exceeded the average market
price of Humboldt common stock.

Note 16  Benefit
Plans

Retirement and Profit Sharing
Plan:Humboldt has a defined
contribution/ 401(k) retirement plan covering substantially all
of the employees. During 2001, this plan was amended in order to
combine the Humboldt Employee Stock Bonus Plan into the 401(k)
plan in order to reduce the administrative burden of managing
the plans. Contributions to the plan are made at the discretion
of the Board of Directors in an amount not to exceed the maximum
amount deductible under the profit sharing plan rules of the
Internal

70



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Revenue Service. Employees may elect to have a
portion of their compensation contributed to the plan in
conformity with the requirements of Section 401(k) of the
Internal Revenue Code. Salaries and employee benefits expense
includes company contributions to the retirement plan (inclusive
of amounts contributed to the former Employee Stock Bonus Plan)
of $301,000 in 2003, $403,000 in 2002 and $642,000 in 2001.

Postemployment Benefit Plans and Life
Insurance Policies:Humboldt has
purchased single premium life insurance policies in connection
with the implementation of salary continuation and deferred
compensation plans for certain key employees. The policies
provide protection against the adverse financial effects from
the death of a key employee and provide income to offset
expenses associated with the plans. The specified employees are
insured under the policies, but Humboldt is the owner and
beneficiary. At December 31, 2003 and 2002, the cash
surrender value of these policies totaled approximately
$16,279,000 and $15,613,000, respectively.

The plans are unfunded and provide for Humboldt
to pay the employees specified amounts for specified periods
after retirement and allow the employees to defer a portion of
current compensation in exchange for Humboldts commitment
to pay a deferred benefit at retirement. If death occurs prior
to or during retirement, Humboldt will pay the employees
beneficiary or estate the benefits set forth in the plans.

At December 31, 2003 and 2002, liabilities
recorded for the estimated present value of future salary
continuation and deferred compensation benefits totaled
approximately $6,502,000 and $6,384,000 respectively. Deferred
compensation is vested as to the amounts deferred. Humboldt
maintains a non-qualified salary continuation plan for certain
senior executive officers. Under these plans, Humboldt has
agreed to pay benefits for a ten to fifteen year period after
retirement so long as certain length-of-service vesting
requirements are met. The plan is informally linked to several
single premium universal life insurance policies that provide
life insurance on certain senior executive officers with
Humboldt named as the owner and beneficiary of these policies.
Salary continuation expense totaled $506,000, $432,000 and
$765,000 as of December 31, 2003, 2002, and 2001
respectively.

Director Fee Plan:Humboldt has adopted the Humboldt Bancorp &
Subsidiaries Director Fee Plan (Fee Plan), as
amended and restated effective December 17, 2002. The Fee
Plan permits each director of Humboldt Bancorp or the Banks to
elect to receive directors fees in the form of Humboldt
common stock, cash, or a combination of Humboldt common stock
and cash, and to elect to defer the receipt of any of the
foregoing until the end of his term as a director. If deferral
is elected, the amount of the directors fees shall be
credited to an account on behalf of the director, however, such
crediting shall constitute a mere promise on the part of the
Humboldt to pay/distribute on this account. The account is
otherwise unsecured, unfunded and subject to the general claims
of creditors of Humboldt. The Fee Plan provides for the issuance
of up to 193,261 shares of Humboldt common stock. The
amount of such fees deferred in 2003, 2002 and 2001 totaled
$144,000, $154,000 and $120,000, respectively. At
December 31, 2003 and 2002, the liability for amounts due
under this plan totaled $456,000 and $312,000 respectively, or
44,760 and 34,147 shares of stock, respectively, based upon
the fair market value of the stock at the time the fee was
earned.

Note 17  Stock Option
Plans

Humboldt had stock options outstanding under
various plans at December 31, 2003 and 2002, including two
plans assumed in the merger with Tehama Bancorp. The stock
option plans provide for option grants to directors and key
employees to purchase shares of Humboldt common stock at a price
based on the fair market value on the date of grant. The Amended
and Restated 2001 Humboldt Bancorp & Subsidiaries
Equity Incentive Plan (2001 Plan) provides for
grants of options, restricted stock and stock appreciation
rights. As of December 31, 2003, a total of 259,587 options
were available for grant from the 2001 Plan and 13,416 options
were available from the Amended Humboldt Bancorp Stock Option
Plan. No options were available for grant from any other plan.
Generally, the options are granted for a term of ten years.
Options granted to directors typically are vested immediately
and options granted to employees vest ratably over three

71



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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

years. Options granted under the Tehama Bancorp
plans did not fully vest as a result of the merger. The
following is a summary of stock options outstanding, granted,
exercised and forfeited under Humboldts various stock
option plans:

|                                                                                    |  |           |           |                |  |           |       |                |  |           |           |                |  |   |       |  |  |   |           |   |  |   |      | 
|----------------------------------------------------------------------------------- |  | --------- | --------- | -------------- |  | --------- | ----- | -------------- |  | --------- | --------- | -------------- |  | - | ----- |  |  | - | --------- | - |  | - | ---- | 
|                                                                                    |  |           |           |                |  |          
|                                                                                    |  | 2003      |           | 2002           |  | 2001     
|                                                                                    |  |           |           |                |  |          
|                                                                                    |  | Number of |           | Weighted-Avg   |  | Number of |       | Weighted-Avg   |  | Number of |           | Weighted-Avg  
|                                                                                    |  | Shares    |           | Exercise Price |  | Shares    |       | Exercise Price |  | Shares    |           | Exercise Price
|                                                                                    |  |           |           |                |  |           |       |                |  |           |           |               
|Outstanding at beginning of year                                                    |  |           | 1,469,268 |                |  | $         | 6.38  |                |  |           | 1,717,111 |                |  | $ | 5.20  |  |  |   | 1,868,806 |   |  | $ | 4.75 | 
|Granted                                                                             |  |           | 103,000   |                |  |           | 12.06 |                |  |           | 258,000   |                |  |   | 10.82 |  |  |   | 129,089   |   |  |   | 6.95 | 
|Exercised                                                                           |  |           | (448,581  | )              |  |           | 5.25  |                |  |           | (469,752  | )              |  |   | 4.56  |  |  |   | (230,602  | ) |  |   | 2.49 | 
|Forfeited/expired                                                                   |  |           | (23,045   | )              |  |           | 8.96  |                |  |           | (36,091   | )              |  |   | 5.67  |  |  |   | (50,182   | ) |  |   | 6.38 | 
|                                                                                    |  |           |           |                |  |           |       |                |  |           |           |                |  |   |       |  |  |   |           |   |  |   |      | 
|Options outstanding at end at year                                                  |  |           | 1,100,642 |                |  | $         | 7.32  |                |  |           | 1,469,268 |                |  | $ | 6.38  |  |  |   | 1,717,111 |   |  | $ | 5.20 | 
|                                                                                    |  |           |           |                |  |           |       |                |  |           |           |                |  |   |       |  |  |   |           |   |  |   |      | 
|Options exercisable at end of year                                                  |  |           | 947,537   |                |  | $         | 6.85  |                |  |           | 1,208,157 |                |  | $ | 5.89  |  |  |   | 1,481,100 |   |  | $ | 5.13 | 
|                                                                                    |  |           |           |                |  |           |       |                |  |           |           |                |  |   |       |  |  |   |           |   |  |   |      | 
|Weighted average fair value of options granted
    during the year                  |  | $         | 5.05      |                |  |           |       |                |  | $         | 4.70      |                |  |   |       |  |  | $ | 4.80      |   |  |   |      | 
|Number of shares of nonvested stock granted
    during the year, net of forfeitures |  |           | 17,000    |                |  |           |       |                |  |           | 8,000     |                |  |   |       |  |  |   |          |   |  |   |      | 
|Weighted average fair value of nonvested stock
    granted during the year          |  | $         | 14.25     |                |  |           |       |                |  | $         | 9.37      |                |  |   |       |  |  |   |          |   |  |   |      | 

The following table summarizes information about
fixed stock options outstanding at December 31, 2003 under
Humboldts various stock option plans:

|                    |  |                     |           |                  |  |                |     |           |  |                |       |  |  |  |         |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ---------------- |  | -------------- | --- | --------- |  | -------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|                    |  |                     |           |                 
|Options Outstanding |  |                    
|                    |  | Options Exercisable
|                    |  | Weighted Average    |           |                  |  |               
|Range of            |  | Number of           |           | Remaining        |  | Weighted-Avg   |     | Number    |  | Weighted-Avg  
|Exercise Prices     |  | Shares              |           | Contractual Life |  | Exercise Price |     | of Shares |  | Exercise Price
|                    |  |                     |           |                  |  |                |     |           |  |               
|$ 1.48 to $ 5.88    |  |                     | 436,569   |                  |  |                | 3.2 |           |  | $              | 3.75  |  |  |  | 420,132 |  |  | $ | 3.71  | 
|$ 5.89 to $ 7.76    |  |                     | 202,844   |                  |  |                | 5.4 |           |  |                | 7.27  |  |  |  | 202,844 |  |  |   | 7.27  | 
|$ 7.77 to $ 9.96    |  |                     | 270,425   |                  |  |                | 7.2 |           |  |                | 9.64  |  |  |  | 204,425 |  |  |   | 9.55  | 
|$ 9.97 to $11.56    |  |                     | 101,138   |                  |  |                | 7.8 |           |  |                | 10.55 |  |  |  | 59,471  |  |  |   | 10.69 | 
|$11.57 to $15.59    |  |                     | 89,666    |                  |  |                | 7.4 |           |  |                | 14.18 |  |  |  | 60,665  |  |  |   | 14.28 | 
|                    |  |                     |           |                  |  |                |     |           |  |                |       |  |  |  |         |  |  |   |       | 
|                    |  |                     | 1,100,642 |                  |  |                | 5.4 |           |  | $              | 7.32  |  |  |  | 947,537 |  |  | $ | 6.85  | 
|                    |  |                     |           |                  |  |                |     |           |  |                |       |  |  |  |         |  |  |   |       | 

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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 18  Related Party
Transactions

The Bank has entered into lending transactions
with related parties, which are defined as directors, executive
officers and related interests. The following is a summary of
the aggregate activity involving related party borrowers for the
years ended December 31, 2003 and 2002 (dollars in
thousands):

|                                       |                                  |                        |        |       |  |   |        |       | 
|-------------------------------------- | -------------------------------- | ---------------------- | ------ | ----- |  | - | ------ | ----- | 
|                                       |                                  | 2003                   |        | 2002 
|                                       |                                  |                        |        |      
|                                       |                                  |                       
|                                       |                                  | (Dollars in thousands)
|Loans outstanding at beginning of year |                                  | $                      | 4,449  |       |  | $ | 7,264  |      
|New loans and advances                 |                                  |                        | 3,102  |       |  |   | 964    |      
|Less loan repayments                   |                                  |                        | (4,420 | )     |  |   | (3,779 | )    
|                                       |                                  |                        |        |       |  |   |        |      
|                                       | Loans outstanding at end of year |                        | $      | 3,131 |  |   | $      | 4,449 | 
|                                       |                                  |                        |        |       |  |   |        |      

Note 19  Commitments and
Contingent Liabilities

Lease Commitments:Humboldt leases 19 sites under non-cancelable operating leases.
Four of the leases are renewable for an additional five-year
period, five of the leases are renewable for two consecutive
five-year periods, two of the leases 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 December 31, 2003, future minimum
lease payments under noncancelable operating leases are as
follows (dollars in thousands):

|           |                                 |   |       |       | 
|---------- | ------------------------------- | - | ----- | ----- | 
|2004       |                                 | $ | 1,139 |      
|2005       |                                 |   | 1,242 |      
|2006       |                                 |   | 1,216 |      
|2007       |                                 |   | 1,215 |      
|2008       |                                 |   | 1,094 |      
|Thereafter |                                 |   | 1,577 |      
|           |                                 |   |       |      
|           | Total minimum lease commitments |   | $     | 7,483 | 
|           |                                 |   |       |      

Rent expense for the years ended
December 31, 2003, 2002, and 2001 totaled $962,000,
$948,000 and $1,021,000, respectively. Rental income was
$767,000 in 2003 and $403,000 in 2002. Future rental income is
$819,000 annually through November 2008.

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 December 31, 2003
and 2002 is as follows (dollars in thousands):

|                             |  |                        |         |      |  |   |         | 
|---------------------------- |  | ---------------------- | ------- | ---- |  | - | ------- | 
|                             |  |                       
|                             |  | Contractual Amounts   
|                             |  |                       
|                             |  | 2003                   |         | 2002
|                             |  |                        |         |     
|                             |  |                       
|                             |  | (Dollars in thousands)
|Commitments to extend credit |  | $                      | 189,494 |      |  | $ | 153,178 | 
|Credit card arrangements     |  |                        | 15,888  |      |  |   | 13,685  | 
|Standby letters of credit    |  |                        | 2,438   |      |  |   | 2,144   | 

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

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.

Commitments to extend credit are agreements to
lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses and may
require payment of a fee. Humboldt evaluates each
customers credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by Humboldt
upon extension of credit, is based on managements credit
evaluation of the customer. Collateral held varies, but may
include accounts receivable, inventory, property, plant and
equipment, certificates of deposit and income-producing
commercial properties.

Standby letters of credit are conditional
commitments issued by the Bank to guarantee the performance of a
customer to a third party. Those guarantees are primarily issued
to support public and private borrowing arrangements. All
letters of credit are short-term guarantees with no guarantees
extending more than two years. The credit risk involved in
issuing letters of credit is essentially the same as that
involved in extending facilities to customers. Humboldt holds
assigned deposit accounts as collateral supporting those
commitments for which collateral is deemed necessary. None of
these letters of credit were utilized during 2003 or 2002.
Humboldt did not incur any losses on its commitments in 2003,
2002, or 2001.

Legal Proceedings:In the ordinary course of business, various claims and lawsuits
are brought by and against Humboldt and the Bank. In the opinion
of management, there is no pending or threatened proceeding in
which an adverse decision could result in a material adverse
change in the consolidated financial condition or results of
operations of Humboldt.

The Bank is a party to a lawsuit brought by a
merchant for whom the 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 the 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 the Bank.
During the fourth quarter, the jury judgment against the Bank
was overturned. Further, the ISO has confirmed in writing to the
Bank that it will honor its indemnification of the Bank for all
compensatory and punitive damages and related legal fees.
Accordingly, the Bank does not expect to incur any liability in
connection with this matter.

Note 20  Regulatory
Matters

The primary source of cash for Humboldt is
dividends received from the Bank. Banking regulations limit the
amount of cash dividends that may be paid without prior approval
of the Banks primary regulatory agency. Cash dividends are
limited by the California Financial Code to the lesser of
retained earnings, if any, or net income for the last three
years, net of the amount of any other capital distributions made
during such periods. As of December 31, 2003, $27,800,000
was available for cash dividend distributions from the Bank
without prior regulatory approval.

Humboldt and the Bank are subject to various
regulatory capital requirements as defined for banks and bank
holding companies. Failure to meet minimum capital requirements
can initiate certain mandatory and

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

possible additional discretionary actions by
regulators that, if undertaken, could have a direct material
effect on Humboldts financial statements.

As of December 31, 2003, the Bank was
categorized as well capitalized under the regulatory framework
for prompt corrective action. The regulatory definition of
prompt corrective action is not applicable to
Humboldt as a Bank Holding Company. However, the Federal Reserve
has established Regulation Y, which requires a Holding
Company to be well capitalized in order to qualify for expedited
approval of regulatory applications. For such purposes,
well capitalized is defined as a Tier 1
risk-based ratio of 6% or more and a total risk-based ratio
capital ratio greater than or equal to 4%. There are no
conditions or events since that notification that management
believes have changed the capital category of Humboldt or the
Bank. The following table provides a summary of the capital
amounts and ratios for Humboldt and the Bank as of
December 31, 2003 and 2002:

|                         |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  |  |      |  
|------------------------ | ------------------------- | ---------------------- |  | ----------------- | ------- | ----------------------- |  | ---------------------- | ----- | ------ |  | - | ------ | ----- |  |  | --- | - |  | - | ------ |  |  |  | --- |  |  |  | ---- | -
|                         |                           |                        |  |                   |         |                         |  |                        |       |       
|                         |                           |                        |  |                   |         |                         |  | To Be Well-Capitalized
|                         |                           |                        |  | For Capital       |         | Under Prompt Corrective
|                         |                           | Actual                 |  | Adequacy Purposes |         | Action Provisions      
|                         |                           |                        |  |                   |         |                        
|                         |                           | Amount                 |  | Ratio             |         | Amount                  |  | Ratio                  |       | Amount |  |   |        | Ratio
|                         |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |      
|                         |                           |                       
|                         |                           | (Dollars in thousands)
|As of December 31, 2003: |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|Total Capital            |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|                         | (to Risk Weighted Assets) |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  |  |     
|                         |                           | Consolidated           |  | $                 | 148,074 |                         |  |                        | 16.21 | %      |  | $ | 73,077 |       |  |  | 8.0 | % |  |   |        |  |  |  | N/A |  |  |  |      |  
|                         |                           | Humboldt Bank          |  | $                 | 115,829 |                         |  |                        | 12.79 | %      |  | $ | 72,426 |       |  |  | 8.0 | % |  | $ | 90,532 |  |  |  |     |  |  |  | 10.0 | %
|Tier I Capital           |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|                         | (to Risk Weighted Assets) |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  |  |     
|                         |                           | Consolidated           |  | $                 | 119,328 |                         |  |                        | 13.06 | %      |  | $ | 36,539 |       |  |  | 4.0 | % |  |   |        |  |  |  | N/A |  |  |  |      |  
|                         |                           | Humboldt Bank          |  | $                 | 104,502 |                         |  |                        | 11.54 | %      |  | $ | 36,213 |       |  |  | 4.0 | % |  | $ | 54,319 |  |  |  |     |  |  |  | 6.0  | %
|Tier I Capital           |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|                         | (to Average Assets)       |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  |  |     
|                         |                           | Consolidated           |  | $                 | 119,328 |                         |  |                        | 11.40 | %      |  | $ | 41,858 |       |  |  | 4.0 | % |  |   |        |  |  |  | N/A |  |  |  |      |  
|                         |                           | Humboldt Bank          |  | $                 | 104,502 |                         |  |                        | 10.12 | %      |  | $ | 41,299 |       |  |  | 4.0 | % |  | $ | 51,623 |  |  |  |     |  |  |  | 5.0  | %
|As of December 31, 2002: |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|Total Capital            |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|                         | (to Risk Weighted Assets) |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  |  |     
|                         |                           | Consolidated           |  | $                 | 98,918  |                         |  |                        | 11.43 | %      |  | $ | 69,247 |       |  |  | 8.0 | % |  |   |        |  |  |  | N/A |  |  |  |      |  
|                         |                           | Humboldt Bank          |  | $                 | 95,019  |                         |  |                        | 11.10 | %      |  | $ | 68,462 |       |  |  | 8.0 | % |  | $ | 85,578 |  |  |  |     |  |  |  | 10.0 | %
|Tier I Capital           |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|                         | (to Risk Weighted Assets) |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  |  |     
|                         |                           | Consolidated           |  | $                 | 88,089  |                         |  |                        | 10.18 | %      |  | $ | 34,623 |       |  |  | 4.0 | % |  |   |        |  |  |  | N/A |  |  |  |      |  
|                         |                           | Humboldt Bank          |  | $                 | 84,310  |                         |  |                        | 9.85  | %      |  | $ | 34,231 |       |  |  | 4.0 | % |  | $ | 51,347 |  |  |  |     |  |  |  | 6.0  | %
|Tier I Capital           |                           |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  | 
|                         | (to Average Assets)       |                        |  |                   |         |                         |  |                        |       |        |  |   |        |       |  |  |     |   |  |   |        |  |  |  |     |  |  |  |     
|                         |                           | Consolidated           |  | $                 | 88,089  |                         |  |                        | 8.73  | %      |  | $ | 40,360 |       |  |  | 4.0 | % |  |   |        |  |  |  | N/A |  |  |  |      |  
|                         |                           | Humboldt Bank          |  | $                 | 84,310  |                         |  |                        | 8.47  | %      |  | $ | 39,805 |       |  |  | 4.0 | % |  | $ | 49,757 |  |  |  |     |  |  |  | 5.0  | %

Proposed accounting rules regarding special
purpose entities (FIN 46) could disqualify junior
subordinated debentures from Tier 1 capital status. In the
event these capital instruments are no longer allowed to be
included as Tier 1 capital, the capital position of
Humboldt could be adversely affected. Since the net proceeds of
these securities have been contributed to the bank in the form
of equity capital, the banks regulatory capital ratios
would not be affected. Junior subordinated debentures at
December 31, 2003 made up 25% of Humboldts
Tier 1 capital.

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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 21  Condensed Financial
Information of Humboldt Bancorp (Parent Company Only)

Condensed Balance Sheets

December 31, 2003 and 2002

|                               |                                            |                        |         |         |  |   |        |         | 
|------------------------------ | ------------------------------------------ | ---------------------- | ------- | ------- |  | - | ------ | ------- | 
|                               |                                            | 2003                   |         | 2002   
|                               |                                            |                        |         |        
|                               |                                            |                       
|                               |                                            | (Dollars in thousands)
|ASSETS                        
|Cash                           |                                            | $                      | 27,343  |         |  | $ | 1,245  |        
|Investment in subsidiaries     |                                            |                        | 111,951 |         |  |   | 94,017 |        
|Investment securities          |                                            |                        | 1,107   |         |  |   | 4,032  |        
|Other assets                   |                                            |                        | 8,512   |         |  |   | 9,985  |        
|                               |                                            |                        |         |         |  |   |        |        
|                               | Total assets                               |                        | $       | 148,913 |  |   | $      | 109,279 | 
|                               |                                            |                        |         |         |  |   |        |        
|LIABILITIES                   
|Borrowed funds                 |                                            | $                      | 1,905   |         |  | $ | 6,989  |        
|Junior subordinated debentures |                                            |                        | 48,611  |         |  |   | 20,775 |        
|Other liabilities              |                                            |                        | 1,501   |         |  |   | 3,667  |        
|                               |                                            |                        |         |         |  |   |        |        
|                               | Total Liabilities                          |                        |         | 52,017  |  |   |        | 31,431  | 
|Stockholders equity           |                                            |                        | 96,896  |         |  |   | 77,848 |        
|                               |                                            |                        |         |         |  |   |        |        
|                               | Total liabilities and stockholders equity |                        | $       | 148,913 |  |   | $      | 109,279 | 
|                               |                                            |                        |         |         |  |   |        |        

Condensed Statements of Income

For the Years Ended December 31, 2003,
2002 and 2001

|                                                           |                                                                         |                        |        |        |  |      |         |        |  |   |         |        |  
|---------------------------------------------------------- | ----------------------------------------------------------------------- | ---------------------- | ------ | ------ |  | ---- | ------- | ------ |  | - | ------- | ------ | -
|                                                           |                                                                         | 2003                   |        | 2002   |  | 2001
|                                                           |                                                                         |                        |        |        |  |     
|                                                           |                                                                         |                       
|                                                           |                                                                         | (Dollars in thousands)
|Dividends from subsidiaries                                |                                                                         | $                      | 13,000 |        |  | $    | 14,837  |        |  | $ | 5,070   |       
|Reimbursement from subsidiaries for allocated
    expenses |                                                                         |                        |       |        |  |      | 4,937   |        |  |   | 6,715   |       
|Other income                                               |                                                                         |                        | 45     |        |  |      | 6       |        |  |   | 499     |       
|Expenses                                                   |                                                                         |                        | (5,421 | )      |  |      | (11,008 | )      |  |   | (17,009 | )     
|                                                           |                                                                         |                        |        |        |  |      |         |        |  |   |         |       
|                                                           | Income (loss) before taxes                                              |                        |        | 7,624  |  |      |         | 8,772  |  |   |         | (4,725 | )
|Tax (expense) benefit                                      |                                                                         |                        | 2,066  |        |  |      | 1,715   |        |  |   | 3,203   |       
|                                                           |                                                                         |                        |        |        |  |      |         |        |  |   |         |       
|                                                           | Income (loss) before equity in undistributed
    income of subsidiaries |                        |        | 9,690  |  |      |         | 10,487 |  |   |         | (1,522 | )
|Equity in undistributed income (loss) of
    subsidiaries  |                                                                         |                        | 19,402 |        |  |      | 1,776   |        |  |   | (5,487  | )     
|                                                           |                                                                         |                        |        |        |  |      |         |        |  |   |         |       
|                                                           | Net income (loss)                                                       |                        | $      | 29,092 |  |      | $       | 12,263 |  |   | $       | (7,009 | )
|                                                           |                                                                         |                        |        |        |  |      |         |        |  |   |         |       

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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Condensed Statements of Cash Flows

For the Years Ended December 31, 2003,
2002 and 2001

|                          |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |         |         |        |  
|------------------------- | ------------------------------------------------------------------------------------------------------ | -------------------------------------------------------------- | ------------------------------------------------------- | ------- | ------- | ----- | -- | ------ | ------- | ------ | --- | ------- | ------- | ------ | -
|                          |                                                                                                        | 2003                                                           |                                                         | 2002    |         | 2001 
|                          |                                                                                                        |                                                                |                                                         |         |         |      
|                          |                                                                                                        |                                                               
|                          |                                                                                                        | (Dollars in thousands)                                        
|Operating activities:     |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          | Net income (loss)                                                                                      |                                                                | $                                                       | 29,092  |         |       | $  | 12,263 |         |        | $   | (7,009  | )      
|                          | Adjustments to reconcile net income (loss) to net
    cash provided by (used in) operating activities: |                                                                |                                                         |         |         |       |    |        |         |        |     |         |        
|                          |                                                                                                        | (Equity in) return of undistributed income of
    subsidiaries |                                                         |         | (19,402 | )     |    |        | (1,776  | )      |     |         | 5,487   |       
|                          |                                                                                                        | Decrease (increase) in other assets                            |                                                         |         | 2,479   |       |    |        | 6,817   |        |     |         | (8,462  | )     
|                          |                                                                                                        | Increase (decrease) in other liabilities                       |                                                         |         | (2,791  | )     |    |        | (472    | )      |     |         | 4,072   |       
|                          |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          |                                                                                                        |                                                                | Net cash provided by (used) in operating
    activities |         |         | 9,378 |    |        |         | 16,832 |     |         |         | (5,912 | )
|Investing activities:     |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          | Investment in subsidiaries                                                                             |                                                                |                                                         |         |         |       |    | (6,844 | )       |        |     | (3,500  | )      
|                          | Wind down of discontinued operations                                                                   |                                                                |                                                         |        |         |       |    | (6,447 | )       |        |     | (13,145 | )      
|                          | Purchase of available-for-sale securities                                                              |                                                                |                                                         |        |         |       |    | (800   | )       |        |     | (50     | )      
|                          | Purchase of held-to-maturity securities                                                                |                                                                |                                                         |        |         |       |    |       |         |        |     | (712    | )      
|                          | Proceeds from sales and maturity of available for
    sale securities                                  |                                                                |                                                         | 2,673   |         |       |    | 3,772  |         |        |     |        |        
|                          |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          |                                                                                                        | Net cash provided by (used in) investing
    activities        |                                                         |         | 2,673   |       |    |        | (10,319 | )      |     |         | (17,407 | )     
|Financing activities:     |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          | Net (decrease) in borrowed funds                                                                       |                                                                |                                                         | (3,623  | )       |       |    | (3,328 | )       |        |     | 7,820   |        
|                          | Proceeds from issuance of junior subordinated
    debentures                                           |                                                                |                                                         | 27,000  |         |       |    |       |         |        |     | 15,000  |        
|                          | Repurchase of common stock                                                                             |                                                                |                                                         | (11,037 | )       |       |    | (4,289 | )       |        |     |        |        
|                          | Cash dividends on common stock                                                                         |                                                                |                                                         | (1,406  | )       |       |    | (886   | )       |        |     |        |        
|                          | Cash paid for fractional and dissenters
    shares                                                    |                                                                |                                                         |        |         |       |    | (9     | )       |        |     | (229    | )      
|                          | Proceeds from issuance of common stock                                                                 |                                                                |                                                         | 2,958   |         |       |    | 3,175  |         |        |     | 666     |        
|                          | Other                                                                                                  |                                                                |                                                         | 155     |         |       |    |       |         |        |     |        |        
|                          |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          |                                                                                                        | Net cash provided by (used in) financing
    activities        |                                                         |         | 14,047  |       |    |        | (5,337  | )      |     |         | 23,257  |       
|                          |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          |                                                                                                        | Net (increase) decrease in cash                                |                                                         |         | 26,098  |       |    |        | 1,176   |        |     |         | (62     | )     
|Cash at beginning of year |                                                                                                        |                                                                | 1,245                                                   |         |         |       | 69 |        |         |        | 131 |        
|                          |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        
|                          | Cash at end of year                                                                                    |                                                                | $                                                       | 27,343  |         |       | $  | 1,245  |         |        | $   | 69      |        
|                          |                                                                                                        |                                                                |                                                         |         |         |       |    |        |         |        |     |        

Note 22  Fair Values of
Financial Instruments

Statement of Financial Accounting Standards
No. 107, Disclosures about Fair Value of Financial
Instruments, requires disclosure of fair value information
about financial instruments, whether or not recognized in the
balance sheet. In cases where quoted market prices are not
available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated
by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instruments.
Statement No. 107 excludes certain financial instruments
and all non-financial instruments from its disclosure
requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Humboldt
as a whole.

77



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

The estimated fair values of the Humboldts
financial instruments are as follows at December 31:

|                       |                                          |                        |   |           |  |          |   |           |  |  |   |         |  |  |   |         | 
|---------------------- | ---------------------------------------- | ---------------------- | - | --------- |  | -------- | - | --------- |  |  | - | ------- |  |  | - | ------- | 
|                       |                                          |                        |   |          
|                       |                                          | 2003                   |   | 2002     
|                       |                                          |                        |   |          
|                       |                                          |                        |   | Estimated |  |          |   | Estimated
|                       |                                          | Carrying               |   | Fair      |  | Carrying |   | Fair     
|                       |                                          | Amount                 |   | Value     |  | Amount   |   | Value    
|                       |                                          |                        |   |           |  |          |   |          
|                       |                                          |                       
|                       |                                          | (Dollars in thousands)
|Financial assets:      |                                          |                        |   |           |  |          |   |           |  |  |   |         |  |  |   |        
|                       | Cash and due from banks                  |                        | $ | 31,596    |  |          | $ | 31,596    |  |  | $ | 35,156  |  |  | $ | 35,156  | 
|                       | Interest-bearing deposits in other banks |                        |   |          |  |          |   |          |  |  |   | 202     |  |  |   | 202     | 
|                       | Federal funds sold                       |                        |   | 26,365    |  |          |   | 26,365    |  |  |   |        |  |  |   |        | 
|                       | Investment securities                    |                        |   | 161,899   |  |          |   | 161,899   |  |  |   | 175,752 |  |  |   | 175,752 | 
|                       | Loans and leases, net                    |                        |   | 753,248   |  |          |   | 766,650   |  |  |   | 749,034 |  |  |   | 767,877 | 
|                       | Accrued interest receivable              |                        |   | 4,456     |  |          |   | 4,456     |  |  |   | 5,231   |  |  |   | 5,231   | 
|                       | Cash surrender value of life insurance   |                        |   | 16,279    |  |          |   | 16,279    |  |  |   | 15,613  |  |  |   | 15,613  | 
|                       | Interest rate swap contracts             |                        |   | 685       |  |          |   | 685       |  |  |   | 1,155   |  |  |   | 1,155   | 
|Financial liabilities: |                                          |                        |   |           |  |          |   |           |  |  |   |         |  |  |   |        
|                       | Deposits                                 |                        |   | 822,700   |  |          |   | 824,635   |  |  |   | 840,427 |  |  |   | 846,880 | 
|                       | Accrued interest payable                 |                        |   | 1,632     |  |          |   | 1,632     |  |  |   | 1,197   |  |  |   | 1,197   | 
|                       | Borrowed funds                           |                        |   | 61,297    |  |          |   | 61,961    |  |  |   | 69,857  |  |  |   | 64,324  | 
|                       | Junior subordinated debentures           |                        |   | 48,611    |  |          |   | 49,262    |  |  |   | 20,775  |  |  |   | 23,192  | 
|Off-balance sheet:     |                                          |                        |   |           |  |          |   |           |  |  |   |         |  |  |   |        
|                       | Commitments                              |                        |   |           |  |          |   |          |  |  |   |         |  |  |   |        | 
|                       | Standby letters of credit                |                        |   |           |  |          |   |          |  |  |   |         |  |  |   |        | 

The carrying amounts in the preceding table are
included in the balance sheet under the applicable captions.

The following methods and assumptions were used
by Humboldt in estimating its fair value disclosures for
financial instruments:



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cash and Due from Banks, Interest-bearing
    Deposits in Other Banks and Federal Funds
    Sold:The carrying amount is a
    reasonable estimate of fair value.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | Investment Securities:Fair values for investment securities
    are based on quoted market prices, where available. If quoted
    market prices are not available, fair values are based on quoted
    market prices of comparable instruments. The carrying amount of
    accrued interest receivable approximates its fair value.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Loans and Leases Held for Sale:Fair values for loans and leases held
    for sale are based on quoted market prices or dealer quotes. If
    a quoted price is not available, fair value is estimated using
    quoted market prices for similar loans or leases.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | Loans and Leases, Net:For variable-rate loans that reprice
    frequently and fixed rate loans that mature in the near future,
    with no significant change in credit risk, fair values are based
    on carrying amounts. The fair values for other fixed rate loans
    are estimated using discounted cash flow analysis, based on
    interest rates currently being offered for loans with similar
    terms to borrowers of similar credit quality. Loan and lease
    fair value estimates include judgments regarding future expected
    loss experience and risk characteristics and are adjusted for
    the allowance for loan and lease losses. The carrying amount of
    accrued interest receivable approximates its fair value.

78



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Deposits:The fair
    values disclosed for demand deposits (for example,
    interest-bearing checking accounts and passbook accounts) are,
    by definition, equal to the amount payable on demand at the
    reporting date (that is, their carrying amounts). The fair
    values for certificates of deposit are estimated using a
    discounted cash flow calculation that applies interest rates
    currently being offered on certificates to a schedule of
    aggregated contractual maturities on such time deposits. The
    carrying amount of accrued interest payable approximates fair
    value.                                                                                                             
|
| | Borrowed Funds and Junior Subordinated
    Debentures:The fair value of borrowed
    funds and junior subordinated debentures is estimated using a
    discounted cash flow calculation that applies interest rates
    currently being offered on similar debt instruments.                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Off-balance Sheet Instruments:Off-balance sheet instruments consist
    of commitments to extend credit, credit card arrangements,
    standby letters of credit and derivative contracts. The contract
    or notional amounts of Humboldts financial instruments
    with off-balance-sheet risk are disclosed in Note 19.
    Estimating the fair value of commitments to extend credit is not
    considered practicable due to the immateriality of the amounts
    of fees collected, which are used as a basis for calculating the
    fair value, on such instruments. The fair value of interest rate
    swap contracts is based on the discounted net present value of
    the swap using third party dealer quotes.

Note 23  Operating
Segments

Reportable operating segments are generally
defined as components of an enterprise for which discrete
financial information is available, whose operating results are
regularly reviewed by the organizations decision makers
and whose revenue from external customers is 10 percent or
more of total revenue. Humboldt has only one reportable segment
under this definition  commercial banking. The
commercial banking segment provides traditional banking services
such as checking, savings, time certificates of deposit, loans,
and lease financings.

79



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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

Note 24  Quarterly Financial
Information (Unaudited)

The following table presents the summary results
for the stated eight quarters (dollars in thousands):

|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |        | 
|---------------------------------------------------------- | ------------------------------------- | --------------------------------------------- | ------ | -------- |  | ------------- | ------ | ------------ |  | -------- | ------ | ------ | - | - | ------ | ------ | - | - | ------ | ------ | 
|                                                           |                                       |                                              
|                                                           |                                       | For the Three Months Ended                   
|                                                           |                                       |                                              
|                                                           |                                       | March 31,                                     |        | June 30, |  | September 30, |        | December 31, |  | Four    
|                                                           |                                       | 2003                                          |        | 2003     |  | 2003          |        | 2003         |  | Quarters
|                                                           |                                       |                                               |        |          |  |               |        |              |  |         
|                                                           |                                       |                                              
|                                                           |                                       | (Dollars in thousands, except per share data)
|Interest income                                            |                                       | $                                             | 15,534 |          |  | $             | 15,443 |              |  | $        | 15,331 |        |   | $ | 15,039 |        |   | $ | 61,347 |       
|Interest expense                                           |                                       |                                               | 3,789  |          |  |               | 3,562  |              |  |          | 3,287  |        |   |   | 3,450  |        |   |   | 14,088 |       
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Net interest income                   |                                               |        | 11,745   |  |               |        | 11,881       |  |          |        | 12,044 |   |   |        | 11,589 |   |   |        | 47,259 | 
|Provision for loan losses                                  |                                       |                                               | 589    |          |  |               | 314    |              |  |          | 295    |        |   |   | 325    |        |   |   | 1,523  |       
|Other income                                               |                                       |                                               | 2,292  |          |  |               | 2,223  |              |  |          | 2,290  |        |   |   | 2,243  |        |   |   | 9,048  |       
|Other expenses                                             |                                       |                                               | 9,829  |          |  |               | 10,271 |              |  |          | 10,005 |        |   |   | 10,455 |        |   |   | 40,560 |       
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Income before taxes                   |                                               |        | 3,619    |  |               |        | 3,519        |  |          |        | 4,034  |   |   |        | 3,052  |   |   |        | 14,224 | 
|Income taxes                                               |                                       |                                               | 977    |          |  |               | 951    |              |  |          | 1,090  |        |   |   | 974    |        |   |   | 3,992  |       
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Net income from continuing operations |                                               |        | 2,642    |  |               |        | 2,568        |  |          |        | 2,944  |   |   |        | 2,078  |   |   |        | 10,232 | 
|Income (loss) from discontinued operations, net
    of tax |                                       |                                               | 19,319 |          |  |               | 93     |              |  |          | (257   | )      |   |   | (295   | )      |   |   | 18,860 |       
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Net income (loss)                     |                                               | $      | 21,961   |  |               | $      | 2,661        |  |          | $      | 2,687  |   |   | $      | 1,783  |   |   | $      | 29,092 | 
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|Earnings (loss) per share  basic:                         |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Continuing Operations                 |                                               | $      | 0.21     |  |               | $      | 0.21         |  |          | $      | 0.24   |   |   | $      | 0.17   |   |   |        |        | 
|                                                           | Discontinued Operations               |                                               |        | 1.54     |  |               |        | 0.01         |  |          |        | (0.02  | ) |   |        | (0.02  | ) |   |        |        | 
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Net income (loss)                     |                                               | $      | 1.75     |  |               | $      | 0.22         |  |          | $      | 0.22   |   |   | $      | 0.15   |   |   |        |        | 
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|Earnings (loss) per share  diluted:                       |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Continuing Operations                 |                                               | $      | 0.20     |  |               | $      | 0.20         |  |          | $      | 0.23   |   |   | $      | 0.16   |   |   |        |        | 
|                                                           | Discontinued Operations               |                                               |        | 1.48     |  |               |        | 0.01         |  |          |        | (0.02  | ) |   |        | (0.02  | ) |   |        |        | 
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       
|                                                           | Net income (loss)                     |                                               | $      | 1.68     |  |               | $      | 0.21         |  |          | $      | 0.21   |   |   | $      | 0.14   |   |   |        |        | 
|                                                           |                                       |                                               |        |          |  |               |        |              |  |          |        |        |   |   |        |        |   |   |        |       

80



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##### Table of Contents



HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |        |  | 
|---------------------------------------------------------- | ------------------------------------- | --------------------------------------------- | ------ | -------- | ---- | ------------- | ------ | ------------ | ---- | -------- | ------ | ------ | ---- | - | ------ | ------ | ---- | - | ------ | ------ |  | 
|                                                           |                                       |                                              
|                                                           |                                       | For the Three Months Ended                   
|                                                           |                                       |                                              
|                                                           |                                       | March 31,                                     |        | June 30, |      | September 30, |        | December 31, |      | Four    
|                                                           |                                       | 2002                                          |        | 2002     |      | 2002          |        | 2002         |      | Quarters
|                                                           |                                       |                                               |        |          |      |               |        |              |      |         
|                                                           |                                       |                                              
|                                                           |                                       | (Dollars in thousands, except per share data)
|Interest income                                            |                                       | $                                             | 15,407 |          |      | $             | 15,802 |              |      | $        | 16,404 |        |      | $ | 16,732 |        |      | $ | 64,345 |       
|Interest expense                                           |                                       |                                               | 4,625  |          |      |               | 4,428  |              |      |          | 4,456  |        |      |   | 4,128  |        |      |   | 17,637 |       
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           | Net interest income                   |                                               |        | 10,782   |      |               |        | 11,374       |      |          |        | 11,948 |      |   |        | 12,604 |      |   |        | 46,708 | 
|Provision for loan losses                                  |                                       |                                               | 446    |          |      |               | 642    |              |      |          | 1,103  |        |      |   | 1,130  |        |      |   | 3,321  |       
|Other income                                               |                                       |                                               | 2,513  |          |      |               | 3,085  |              |      |          | 3,033  |        |      |   | 980    |        |      |   | 9,611  |       
|Other expenses                                             |                                       |                                               | 9,675  |          |      |               | 10,126 |              |      |          | 10,185 |        |      |   | 9,840  |        |      |   | 39,826 |       
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           | Income before taxes                   |                                               |        | 3,174    |      |               |        | 3,691        |      |          |        | 3,693  |      |   |        | 2,614  |      |   |        | 13,172 | 
|Income taxes                                               |                                       |                                               | 903    |          |      |               | 975    |              |      |          | 691    |        |      |   | 269    |        |      |   | 2,838  |       
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           | Net income from continuing operations |                                               |        | 2,271    |      |               |        | 2,716        |      |          |        | 3,002  |      |   |        | 2,345  |      |   |        | 10,334 | 
|Income (loss) from discontinued operations, net
    of tax |                                       |                                               | 267    |          |      |               | 145    |              |      |          | 575    |        |      |   | 942    |        |      |   | 1,929  |       
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           | Net income (loss)                     |                                               | $      | 2,538    |      |               | $      | 2,861        |      |          | $      | 3,577  |      |   | $      | 3,287  |      |   | $      | 12,263 | 
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|Earnings (loss) per share  basic:                         |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           | Continuing Operations                 |                                               | $      | 0.18     |      |               | $      | 0.22         |      |          | $      | 0.24   |      |   | $      | 0.19   |      |   |        |        | 
|                                                           | Discontinued Operations               |                                               |        | 0.02     |      |               |        | 0.01         |      |          |        | 0.05   |      |   |        | 0.07   |      |   |        |        | 
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           |                                       | Net income (loss)                             |        | $        | 0.20 |               |        | $            | 0.23 |          |        | $      | 0.29 |   |        | $      | 0.26 |   |        |        |  | 
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|Earnings (loss) per share  diluted:                       |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           | Continuing Operations                 |                                               | $      | 0.17     |      |               | $      | 0.21         |      |          | $      | 0.23   |      |   | $      | 0.18   |      |   |        |        | 
|                                                           | Discontinued Operations               |                                               |        | 0.02     |      |               |        | 0.01         |      |          |        | 0.04   |      |   |        | 0.07   |      |   |        |        | 
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       
|                                                           | Net income (loss)                     |                                               | $      | 0.19     |      |               | $      | 0.22         |      |          | $      | 0.27   |      |   | $      | 0.25   |      |   |        |        | 
|                                                           |                                       |                                               |        |          |      |               |        |              |      |          |        |        |      |   |        |        |      |   |        |       

Note 25  Subsequent
Events

On March 13, 2004, Humboldt and Humboldt
Bank entered into a definitive Agreement and Plan of
Reorganization (Agreement) with Umpqua Holdings
Corporation (Umpqua) and Umpqua Bank. Under the
terms of the Agreement, Humboldt will merge with and into
Umpqua, with Umpqua the surviving corporation. The Agreement
also provides for Humboldt Bank to be merged with and into
Umpqua Bank, with Umpqua Bank the surviving entity.

The Agreement provides for each outstanding
Humboldt common share to be exchanged for one share of Umpqua
common stock and for Humboldts outstanding stock options
to be converted into Umpqua options on a one-for-one basis.
Approximately 15.2 million Umpqua common shares are expected to
be issued in connection with the merger, which is expected to
qualify as a tax-free reorganization. In addition, Humboldt
granted to Umpqua an option which, under certain circumstances,
would permit Umpqua to acquire 3,022,666 shares of
Humboldts common stock at an exercise price of $18.00 per
share.

The transaction is expected to be completed
during the third quarter of 2004, subject to the satisfaction of
customary conditions, including the favorable vote of Humboldt
and Umpqua shareholders and the receipt of either regulatory
approvals or waivers, as the case may be.

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HUMBOLDT BANCORP AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)

On January 6, 2004 Humboldt completed the
acquisition of California Independent Bancorp (CIB)
of Yuba City, California, the parent company of Feather River
State Bank, in an acquisition accounted for under the purchase
method of accounting. Humboldt issued approximately
2.9 million shares of Humboldt common stock and paid
approximately $29.8 million in cash for all the outstanding
shares of CIB. In addition, outstanding CIB stock options were
converted into approximately 199,000 Humboldt stock options.

As of December 31, 2003, the recorded values
of CIBs assets and liabilities were as follows (dollars in
millions):

|             |                                         |                   |   |     |     | 
|------------ | --------------------------------------- | ----------------- | - | --- | --- | 
|Assets:      |                                         |                   |   |    
|             | Cash and cash equivalents               |                   | $ | 40  |    
|             | Investment securities                   |                   |   | 141 |    
|             | Loans, net of allowance for loan losses |                   |   | 197 |    
|             | Premises and equipment, net             |                   |   | 6   |    
|             | Other assets                            |                   |   | 17  |    
|             |                                         |                   |   |    
|             |                                         | Total Assets      |   | $   | 401 | 
|Liabilities: |                                         |                   |   |    
|             | Deposits                                |                   | $ | 342 |    
|             | Borrowed funds                          |                   |   | 15  |    
|             | Trust preferred securities              |                   |   | 10  |    
|             | Other liabilities                       |                   |   | 5   |    
|             |                                         |                   |   |    
|             |                                         | Total Liabilities |   | $   | 372 | 

Under the purchase method of accounting, Humboldt
will record CIBs assets and liabilities at their fair
values at the acquisition date, and record an intangible asset
(goodwill) for the excess of the fair value of the purchase
price paid over the fair value of assets and liabilities
acquired.

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|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|Item 9. | Changes In and Disagreements with
    Accountants on Accounting and Financial Disclosure

None.






|         |                        
|-------- | -----------------------
|Item 9A. | Controls and Procedures

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

There have been no significant changes in
Humboldts internal controls or other factors, which could
significantly affect internal controls subsequent to the date
that Humboldt carried out its evaluation.




PART III



|         |                                                       
|-------- | ------------------------------------------------------
|Item 10. | Directors and Executive Officers of the
    Registrant

Directors

The following indicates the age, principal
occupation or employment for at least the last five years and
affiliation with the Company, if any, for each director of the
Company.

|                    |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------- |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Ronald F. Angell    |  | 61 |  | Attorney serving as of Counsel to the firm of
    Roberts, Hill, Bragg, Angell & Perlman. Humboldt
    director since 1996. He has also served as a director of the
    Bank since 1989.                                                                                                                                                                                                                                         
|Richard Claussen    |  | 5l |  | Partner with GC Strategic Advocacy, a public
    affairs firm since 2003. Prior to joining GC Strategic
    Advocacy, Mr. Claussen was Partner with Goddard Claussen
    Porter Novelli, a public relations firm, from 1999 to 2003.
    Humboldt director since May 2002 and Bank director since June
    2002. Also served as a director of Capitol Valley Bank from 1999
    until June 2002 when it was merged into Humboldt.
|Robert M. Daugherty |  | 50 |  | President and Chief Executive Officer of Humboldt
    since April 2002. Prior to joining Humboldt, Mr. Daugherty
    served as Executive Vice President of Zions Bank in Salt Lake
    City, Utah from March 2001 through March 2002 and as President
    and Chief Executive Officer of Draper Bank & Trust from
    June 1997 through March 2001. Director of Humboldt and Humboldt
    Bank since May 2002.                   
|Harold M. Eastridge |  | 60 |  | Chief Executive Officer of Trident Investment
    Corporation. President of Feather River Construction and
    Development Company. Humboldt director since January 2004. Also
    served as a director of California Independent Bancorp from 1995
    until January 2004 when it was merged into Humboldt.                                                                                                                     
|Gary C. Katz        |  | 54 |  | Chairman and Chief Executive Officer of Katz
    Investments. Humboldt director since March 2001 and Bank
    director since June 2002. Also served as a director of Tehama
    Bank from 1984 until June 2002 when it was merged into the Bank.                                                                                                                                                                                 

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|                      |  |    |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|--------------------- |  | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|John W. Koeberer      |  | 60 |  | President, Chief Executive Officer and co-owner
    of Urban Park Concessionaires, California Guest
    Services, Inc. and The Picnic People, Inc., which
    operate concessions at various parks located throughout northern
    California. Humboldt director since March 2001 and Bank director
    since June 2002. Also served as a director of Tehama Bank from
    1984 until June 2002 when it was merged into the Bank.                                                               
|Donald H. Livingstone |  | 61 |  | Director for the Center of Entrepreneurship and
    teaching Professor at Marriott School of Management at Brigham
    Young University. Humboldt director since January 2004. Also
    served as a director of California Independent Bancorp from 1998
    until January 2004 when it was merged into Humboldt.                                                                                                                                                                               
|Theodore S. Mason     |  | 61 |  | Retired. President and Chief Executive Officer of
    Humboldt from January 1996 to April 2002 and of Humboldt Bank
    from 1989 to 2000. Humboldt director since 1996. He has also
    served as a director of the Bank since 1989.                                                                                                                                                                                                                                                           
|Diane D. Miller       |  | 50 |  | President of Wilcox, Miller & Nelson, an
    executive search and outplacement firm, since August 1986.
    Humboldt director since January 2004.                                                                                                                                                                                                                                                                                                                                               
|Steven R. Mills       |  | 48 |  | Senior Partner with Douglas, Curtis &
    Allyn LLP, a boutique mergers and acquisitions advisory firm,
    since August 2002. From July 2000 through July 2002, he served
    as Chief Financial Officer of Responsys, Inc., a software
    development firm. From 1997 through July 2000, he served as
    Chief Financial Officer of Anytime Access, Inc., a firm
    that provided outsourced credit services to financial
    institutions. Humboldt and Bank director since November 2002.
|Alfred G. Montna      |  | 59 |  | Owner of Montna Farms, Partner of A&G Montna
    Properties and Partner in American Commodity Company. Humboldt
    director since January 2004. Also served as a director of
    California Independent Bancorp from 1999 until January 2004 when
    it was merged into Humboldt.                                                                                                                                                                                                             
|Kelvin H. Moss        |  | 45 |  | President of K.H. Moss & Co., a real
    estate development firm. Humboldt director since May 2002 and
    Humboldt Bank director since June 2002. Also served as a
    director of Capitol Valley Bank from 1999 until June 2002 when
    it was merged into the Bank.                                                                                                                                                                                                                         
|Gary L. Napier        |  | 63 |  | President of Buffum and Napier Insurance Brokers
    and President of Torja Corporation, a private investment
    company. Humboldt director since March 2001 and Humboldt Bank
    director since June 2002. Also served as a director of Tehama
    Bank from 1984 until June 2002 when it was merged into the Bank.                                                                                                                                                                          

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|                |  |    |  |                                                                                                                                                                                                                                                                                                                                                          
|--------------- |  | -- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Tom Weborg      |  | 61 |  | Retired President and Chief Executive Officer of
    Java City, a wholesale supplier and retailer of coffee-related
    products and services. Humboldt director since November 2000 and
    Humboldt Bank director since June 2002. Also served as a
    director of Capitol Valley Bank from 1999 until June 2002 when
    it was merged into the Bank.
|John R. Winzler |  | 73 |  | Chairman of the Board of Directors of
    Winzler & Kelly Consulting Engineers. Humboldt director
    since 1996. Also served as a director of Humboldt Bank since
    1989.                                                                                                                                                                             

As of March 15, 2004, the Audit Committee
consisted of directors Katz, Livingstone, Mills and Moss.
Mr. Livingstone serves as the Chairman. All of the Audit
Committee members are deemed independent within the meaning of
NASD Rule 4200(a)(15). The Audit Committee has determined
that Donald H. Livingstone and Steven R. Mills are the
Committees financial experts within the meaning of
Rule 401(h)(2) of Regulation S-K.

As of March 15, 2004, the Governance and
Nominating Committee consisted of directors Angell, Claussen,
Koeberer, Montna and Moss. Ronald F. Angell serves as the
Chairman. Each member of the Governance and Nominating Committee
is deemed independent within the meaning of NASD
Rule 4200(a)(15). The Governance and Nominating Committee
is responsible for nomination of directors, determination of
director independence, director education and director
compensation. The Governance and Nominating Committee will
consider candidates for directors by security holders upon
submission to the Governance and Nominating Committee of the
names of the proposed candidates. No changes in director
nominating procedures by security holders were enacted by the
Governance and Nominating Committee during the past year.

Section 16(a) Beneficial Ownership
Reporting Compliance.

Section 16(a) of the Exchange Act requires
our executive officers and directors to file reports of
ownership and changes in ownership of our common stock with the
SEC. Executive officers and directors are required by
SEC regulations to furnish us with copies of all
Section 16(a) forms they file.

Based solely upon a review of Forms 3, 4 and
5 filed with the SEC, directors and officers of the Company
timely filed all required reports pursuant to Section 16(a)
of the Securities Exchange Act of 1934, except for the following
incidents. All Directors inadvertently filed a Form 4 late
due to a delay with the Non-Qualified stock option grant on
June 26, 2003. Messrs. Moss, Weborg, and Winzler each
inadvertently filed a Form 4 late due during July 2003 due
to delays in calculating the number of deferred shares issued
under Humboldt Director Fee Plan. Mr. Francis inadvertently
filed a Form 4 late for a transaction dated July 24,
2003, involving his spouse, who is also employed by the Company.
Mr. Claussen inadvertently filed a late Form 4 due to
a delay of communication from his stock broker with a
transaction dated September 19, 2003. Mr. Pigeon
inadvertently filed his initial Form 3 late due to delays
in obtaining his EDGAR codes.

Code of Ethics

Humboldt has adopted a Code of Ethics that
applies to its principal executive officer, principal financial
officer and principal accounting officer or persons performing
similar functions. A copy of the Code of Ethics is filed as an
exhibit to this Form 10-K and will be available on
Humboldts website at www.humboldtbancorp.com (click
on Corporate Governance icon). Humboldt intends to
post on the website any waivers of or amendments to the Code of
Ethics and also to disclose such under Item 10 on
Form 8-K by April 30, 2004.

85



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##### Table of Contents



Executive Officers of the Company

The names, ages and background for at least the
past five years for each person who served as an executive
officer during the past fiscal year is as follows:

|                                                                                |  |     |    |            |  |                                                                                                                                                                                                                                                                                                                                                                                                                                  
|------------------------------------------------------------------------------- |  | --- | -- | ---------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Name/Position                                                                   |  | Age |    | Experience
|                                                                                |  |     |    |           
|Robert M. Daugherty
    President and Chief Executive Officer                   |  |     | 50 |            |  | Mr. Daugherty joined Humboldt in his current
    position in April 2002. Prior to joining Humboldt,
    Mr. Daugherty served as Executive Vice President of Zions
    Bank from March 2001 until March 2002 and as President and Chief
    Executive Officer of Draper Bank & Trust from 1997
    until 2001.                                                                                                                    
|Mark A. Francis
    Executive Vice President and Director of Commercial Banking |  |     | 47 |            |  | Mr. Francis was appointed to his current
    position in June 2002. From October 2001 through May 2002, he
    served as President of Humboldts Tehama Bank subsidiary
    and from September 2001 through May 2002 and as Commercial
    Banking Officer from January 1999 through August 2001. Prior to
    joining Tehama Bank, Mr. Francis was employed by Bank of
    America as a Commercial Banking Officer for 16 years.
|Patrick J. Rusnak
    Executive Vice President and Chief Financial Officer      |  |     | 40 |            |  | Mr. Rusnak joined Humboldt as Chief Financial
    Officer in November 2000. Prior to joining Humboldt, he served
    as Controller of United Community Banks, Inc.                                                                                                                                                                                                                                                               
|Mark P. Wardlow
    Executive Vice President and Chief Credit Officer           |  |     | 46 |            |  | Mr. Wardlow joined Humboldt as Chief Credit
    Officer in June 2002. Prior to joining Humboldt, he was employed
    by Bank of America for nine years, most recently as Senior Vice
    President/ Commercial Banking for Bank of America                                                                                                                                                                                       
|Ronald B. Pigeon
    Senior Vice President and Controller                       |  |     | 54 |            |  | Mr. Pigeon joined Humboldt in July 2003. Prior to
    joining Humboldt he was employed as Chief Financial Officer of
    722 Redemption Funding, Inc., (1998  2003) and
    Controller of Trans Financial, Inc., (1993 
    1998).                                                                                                                                                                                             

Executive officers are elected annually by the
Board of Directors and serve at the pleasure of the Board.
Messrs. Daugherty, Francis, Rusnak and Wardlow have each
entered into employment agreements with Humboldt. Further
information regarding the employment agreements is provided in
Item 11 under the heading Employment
Agreements. There is no family relationship between any of
the executive officers or directors.



|         |                       
|-------- | ----------------------
|Item 11. | Executive Compensation

This table lists the compensation paid in the
past three years for all services of Humboldts named
Executive Officers.

86



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##### Table of Contents



Salary Compensation Table

|                            |                       |      |      |                     |  |            |         |          |  |                        |         |           |     |         |   |              |  |   |        |         |     |  |        |         |     |  |   |   |  |   |         |         |     
|--------------------------- | --------------------- | ---- | ---- | ------------------- |  | ---------- | ------- | -------- |  | ---------------------- | ------- | --------- | --- | ------- | - | ------------ |  | - | ------ | ------- | --- |  | ------ | ------- | --- |  | - | - |  | - | ------- | ------- | ----
|                            |                       |      |      |                     |  |            |         |          |  |                        |         |          
|                            |                       |      |      |                     |  |            |         |          |  | Long-Term Compensation |         |          
|                            |                       |      |      |                     |  |            |         |         
|                            |                       |      |      | Annual Compensation |  | Restricted |         | Stock    |  |                        |         |          
|                            |                       |      |      |                     |  | Stock      |         | Options  |  | LTIP                   |         | All Other
|Name and Principal Position |                       | Year |      | Salary              |  | Bonus      |         | Other(5) |  | Awards                 |         | Granted   |     | Payouts |   | Compensation
|                            |                       |      |      |                     |  |            |         |          |  |                        |         |           |     |         |   |             
|Robert M. Daugherty(1)      |                       |      | 2003 |                     |  | $          | 270,000 |          |  | $                      | 180,542 |           |     |         |  |              |  |   |       |         |     |  | 60,000 | (3)     |     |  |  |   |  | $ | 271,824 | (4)    
|                            | President and Chief   |      |      | 2002                |  |            |         | 184,170  |  |                        |         | 230,000   | (2) |         |   |             |  |   |        |        |     |  |        | 180,000 | (3) |  |   |  |  |   |         | 87,851  | (4) 
|                            | Executive Officer     |      |      | 2001                |  |            |         |         |  |                        |         |          |     |         |   |             |  |   |        |        |     |  |        |        |     |  |   |  |  |   |         |        |     
|Mark A. Francis             |                       |      | 2003 |                     |  |            | 160,000 |          |  |                        | 17,500  |           |     |         |   |              |  | $ | 28,500 | (6)     |     |  |       |         |     |  |  |   |  |   |        |        
|                            | Executive Vice        |      |      | 2002                |  |            |         | 143,333  |  |                        |         | 35,000    |     |         |   |              |  |   |        |        |     |  |        |        |     |  |   |  |  |   |         |        |     
|                            | President/ Director   |      |      | 2001                |  |            |         | 96,942   |  |                        |         | 22,500    |     |         |   |              |  |   |        |        |     |  |        |        |     |  |   |  |  |   |         |        |     
|                            | of Commercial Banking |      |      |                     |  |            |         |          |  |                        |         |           |     |         |   |              |  |   |        |         |     |  |        |         |     |  |   |   |  |   |         |         |     
|Patrick J. Rusnak           |                       |      | 2003 |                     |  |            | 175,000 |          |  |                        | 87,500  | (7)       |     |         |   |              |  |   | 28,500 | (6)     |     |  |       |         |     |  |  |   |  |   |        |        
|                            | Executive Vice        |      |      | 2002                |  |            |         | 165,000  |  |                        |         | 75,000    | (7) |         |   |              |  |   |        | 112,560 | (8) |  |        | 18,000  |     |  |   |  |  |   |         | 111,895 | (9) 
|                            | President/ Chief      |      |      | 2001                |  |            |         | 151,875  |  |                        |         | 56,250    | (7) |         |   |              |  |   |        |        |     |  |        | 3,960   |     |  |   |  |  |   |         | 19,739  | (10)
|                            | Financial Officer     |      |      |                     |  |            |         |          |  |                        |         |           |     |         |   |              |  |   |        |         |     |  |        |         |     |  |   |   |  |   |         |         |     
|Mark P. Wardlow(1)          |                       |      | 2003 |                     |  |            | 160,000 |          |  |                        | 50,000  |           |     |         |   |              |  |   | 28,500 | (6)     |     |  |       |         |     |  |  |   |  |   | 16,655  | (11)   
|                            | Executive Vice        |      |      | 2002                |  |            |         | 83,081   |  |                        |         | 35,000    |     |         |   |              |  |   |        |        |     |  |        | 30,000  |     |  |   |  |  |   |         |        |     
|                            | President/ Chief      |      |      | 2001                |  |            |         |         |  |                        |         |          |     |         |   |              |  |   |        |        |     |  |        |        |     |  |   |  |  |   |         |        |     
|                            | Credit Officer        |      |      |                     |  |            |         |          |  |                        |         |           |     |         |   |              |  |   |        |         |     |  |        |         |     |  |   |   |  |   |         |         |     



---



|    |                                                                                                                                                                                                                                                                                                                                                                                              
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Daugherty joined Humboldt in April 2002
    and Mr. Wardlow joined Humboldt in June 2002.                                                                                                                                                                                                                                                                                                
|   
|(2) | Includes $100,000 paid to Mr. Daugherty for
    the achievement of a performance goal under the terms of his
    amended employment agreement dated May 2, 2002 and a
    $130,000 bonus related to Humboldts financial performance
    during 2002 paid on January 15, 2003.                                                                                                               
|   
|(3) | Options granted to Mr. Daugherty pursuant to
    his employment agreement, as amended.                                                                                                                                                                                                                                                                                                       
|   
|(4) | Includes payments made to or on behalf of
    Mr. Daugherty, including tax gross-ups, related to the sale
    of his principal residence in Sandy, Utah, the purchase of a
    residence in Granite Bay, California and temporary living
    expenses.                                                                                                                                       
|   
|(5) | No perquisites are reported as Other Annual
    Compensation as such perquisites did not exceed the lesser of
    $50,000 or 10% of the total of the annual salary and bonus
    reported for the named executive officers.                                                                                                                                                                  
|   
|(6) | Represents restricted shares of 2,000 each
    granted to Messrs. Francis, Rusnak, and Wardlow. The
    restricted shares were valued at $14.25 on the grant date. The
    vesting schedule provides for the shares to vest over a period
    of four years, with 1/4 of the shares vested on the
    first anniversary from date of grant. Dividends will only be
    paid on vested shares.
|   
|(7) | Includes amounts deferred by Mr. Rusnak
    pursuant to a deferred compensation agreement.                                                                                                                                                                                                                                                                                                   
|   
|(8) | Mr. Rusnak was granted 12,000 restricted
    shares valued at $9.38 per share in April 2002. The vesting
    schedule provides for the shares to vest over a period of two
    years, with 1/3 the shares vested on the date of grant.
    Dividends will only be paid on vested shares.                                                                                                     
|   
|(9) | Includes payments made to or on behalf of
    Mr. Rusnak, including tax gross-ups related to the sale of
    his principal residences and related moving costs in
    Blairsville, Georgia and Eureka, California and the purchase of
    a residence in Granite Bay, California.                                                                                                            



|     |                                                                                                                                                                                                                         
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(10) | Relocation-related expense payments made to or on
    behalf of Mr. Rusnak for moving household goods and
    temporary living expenses in connection with his move from
    Blairsville, Georgia to Eureka, California.
|    
|(11) | Includes payments made to or on behalf of
    Mr. Wardlow, including tax gross-ups, related to the
    purchase of his new residence in Granite Bay, California.                                                        

Employment Agreements

Humboldt has entered into employment agreements
with Messrs. Daugherty, Francis, Rusnak and Wardlow.

87



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The agreement between Humboldt and Robert M.
Daugherty was entered into on April 15, 2002 and has a term
of three years. Under the terms of his employment agreement,
Mr. Daugherty is paid a base salary of $270,000, and
bonuses of up to 100% of base salary based on performance. In
addition, the employment agreement provided for the following
stock option grants (as adjusted for the six-for-five stock
split in August 2002): Options to purchase 180,000 shares
effective April 15, 2002; 60,000 shares on
January 1, 2003; 60,000 shares on January 1,
2004; and 27,600 shares on January 1, 2005.

The exercise price for each grant will be the
fair market value as of the date of such grant and
vest  1/3 each on the date of grant, first anniversary
and second anniversary. In May 2002, Mr. Daughertys
employment agreement was amended in order to adjust for the
differential between the exercise price of
Mr. Daughertys initial stock option grant on
August 15, 2002 and the market value of Humboldt common
stock when Mr. Daugherty orally accepted an offer of
employment on March 26, 2002. The amendment provides for
payment of a $100,000 cash bonus if the market price of
Humboldts common stock exceeds certain targets for 30
consecutive trading days. During August 2002, the first target
of $13.33 was met and the prescribed payment was made. The two
remaining targets are $17.50 and $21.67 per share.

Mr. Daughertys employment agreement
provides that, in the event of a change in control, he will
receive the greater of (i) his base salary for the
remaining term of his employment, plus a pro-rata portion of his
prior year bonus and (ii) two times his base salary and his
prior years bonus.

On June 27, 2002, Humboldt entered into
employment agreements with Mark A. Francis, Patrick J. Rusnak
and Mark P. Wardlow (Executive Officer
individually). These agreements all have substantially similar
terms and provisions, including a term of three years. Further,
the employment agreement provides that, under certain
circumstances following a change in control, the Executive
Officer will receive the greater of (i) his base salary for
the remaining term of his employment and earned but unpaid bonus
and (ii) two times his base salary plus any earned but
unpaid bonus. Mr. Rusnaks agreement provides for an
additional payment equal to two times the prior years
bonus. The circumstances triggering the change in control
payments include, but are not limited to, involuntary
termination without cause or a material reduction in the
Executive Officers compensation or responsibilities within
one year of the change in control.

Options Granted in Last Fiscal Year

The following table sets forth options granted to
the named executive officers during the past fiscal year.

|                    |  |            |        |                 |  |          |       |            |  |                          |       |        |  |  |         |  |  |          |  |         
|------------------- |  | ---------- | ------ | --------------- |  | -------- | ----- | ---------- |  | ------------------------ | ----- | ------ |  |  | ------- |  |  | -------- |  | --------
|                    |  |            |        |                 |  |          |       |            |  |                         
|                    |  |            |        |                 |  |          |       |            |  | Potential Realized Value
|                    |  |            |        |                 |  |          |       |            |  | at Assumed Annual Rates 
|                    |  | Number of  |        | Percent of      |  |          |       |            |  | of Stock Price          
|                    |  | Securities |        | Total           |  | Exercise |       |            |  | Appreciation for        
|                    |  | Underlying |        | Options Granted |  | Base     |       |            |  | Option Term             
|                    |  | Options    |        | to Employees in |  | Price    |       | Expiration |  |                         
|Name                |  | Granted    |        | Fiscal Year(1)  |  | ($/sh)   |       | Date       |  | 5%(2)                    |       | 10%(2)
|                    |  |            |        |                 |  |          |       |            |  |                          |       |       
|Robert M. Daugherty |  |            | 60,000 |                 |  |          | 75.9% |            |  | $                        | 10.30 |        |  |  | 1/13/13 |  |  | $388,657 |  | $984,933



---



|    |                                                                                                                                                                                                                                                                       
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based on total options granted to employees in
    2003 of 79,000.                                                                                                                                                                                                    
|   
|(2) | 5% and 10% assumed compounded annual growth rates
    of appreciation are mandated by the rules of the SEC and are not
    an estimate or projection and therefore may bear no relation to
    future prices for the Companys common stock or actual
    performance.

88



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##### Table of Contents



Ten-Year Options/ SAR Repricings

There was no repricing of options for the fiscal
year ended December 31, 2003.

Aggregated Option Exercises in Last Fiscal
Year and Fiscal Year-End Option Values

The following table sets forth executive officer
options exercised and option values for the fiscal year ended
December 31, 2003 for all executive officers at the end of
the year.

|                    |  |          |        |          |  |                      |         |                                   |  |                |        |                  |  |  |         |  |  |   |         |  |  |   |           | 
|------------------- |  | -------- | ------ | -------- |  | -------------------- | ------- | --------------------------------- |  | -------------- | ------ | ---------------- |  |  | ------- |  |  | - | ------- |  |  | - | --------- | 
|                    |  |          |        |          |  |                      |         |                                  
|                    |  | Shares   |        |          |  | Number of Options at |         | Value of Unexercised Options     
|                    |  | Acquired |        |          |  | December 31, 2003    |         | In-the-Money at December 31, 2003
|                    |  | on       |        | Value    |  |                      |         |                                  
|Name                |  | Exercise |        | Realized |  | Exercisable          |         | Unexercisable                     |  | Exercisable(1) |        | Unexercisable(1)
|                    |  |          |        |          |  |                      |         |                                   |  |                |        |                 
|Robert M. Daugherty |  |          | 49,958 |          |  | $                    | 55,953  |                                   |  |                | 80,000 |                  |  |  | 100,000 |  |  | $ | 600,400 |  |  | $ | 1,345,800 | 
|Mark A. Francis     |  |          | 12,888 |          |  |                      | 156,460 |                                   |  |                | 10,309 |                  |  |  | 2,579   |  |  |   | 133,914 |  |  |   | 33,501    | 
|Patrick J. Rusnak   |  |          |       |          |  |                      |        |                                   |  |                | 17,280 |                  |  |  | 6,000   |  |  |   | 151,632 |  |  |   | 49,020    | 
|Mark P. Wardlow     |  |          |       |          |  |                      |        |                                   |  |                | 19,999 |                  |  |  | 10,001  |  |  |   | 85,196  |  |  |   | 42,604    | 



---



|    |                                                                                                                                                                                                                                                  
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Value of an unexercised option in the money is
    calculated by the remainder of the closing price for a share of
    Humboldt common stock as of December 31, 2003, minus the
    exercise price times the number shares subject to the option.

Benefit Plans

Retirement Plan.Currently, Humboldt has a defined contribution retirement plan
covering substantially all employees. Contributions to the plan
are made at the discretion of the Board of Directors in an
amount not to exceed the maximum amount deductible under the
profit sharing plan rules of the Internal Revenue Service.
Employees may elect to have a portion of their compensation
contributed to the plan in conformity with the requirements of
Section 401(k) of the Internal Revenue Code. Salaries and
employee benefits expense includes contributions to the plan of
$298,000, $403,000, and $642,000 during 2003, 2002 and 2001,
respectively.

Director Fee Plan.Humboldt has adopted the Humboldt Bancorp and Subsidiaries
Amended and Restated Director Fee Plan (the Fee
Plan). The Fee Plan permits each director of Humboldt or
one of its subsidiary banks to elect to receive his/her
directors fees in the form of Humboldt common stock or
cash, or a combination thereof of Humboldt common stock and
cash, and to elect to defer the receipt of any of the foregoing
until the end of his/her term as a director. If deferral is
elected, the amount of the directors fees shall be
credited to an account on behalf of the director. However, such
crediting shall constitute a mere promise on the part of
Humboldt to pay/distribute on this account. The account is
otherwise unsecured, unfunded, and subject to the general claims
of creditors of Humboldt. The Fee Plan provides for the issuance
of up to 193,261 shares of Humboldt common stock. The
amount of such fees deferred was $144,450, $153,750 and $119,976
in 2003, 2002, and 2001, respectively. At December 31,
2003, and 2002, the liability for amounts due under this plan
totaled $455,956 and $311,012, respectively, or approximately
44,760 and 34,147 shares of Humboldt Bancorp common stock.

Post-Employment Benefit Plans and Life
Insurance Policies.Humboldt and
Humboldt Bank have entered into Officer Salary Continuation
Agreements and Deferred Compensation Agreements with key
employees. The Officer Salary Continuation Agreements provide
for payments in the event of retirement, death, disability or
change in control. The Deferred Compensation Agreements allow
the employees to defer a portion of current compensation in
exchange for Humboldts commitment to pay a deferred
benefit at retirement. Deferred compensation is vested as to the
amounts deferred. Both the Officer Salary Continuation
Agreements and the Deferred Compensation Agreements are unfunded
although, as discussed below, Humboldt has purchased life
insurance policies in connection with the implementation of the
two plans.

Humboldt has entered into Deferred Compensation
Agreements with Robert M. Daugherty (Effective
January 1, 2004) and Patrick J. Rusnak (Effective December
2000). Under the terms of these agreements
Messrs. Daugherty and Rusnak can elect to defer cash
compensation in an unfunded account that bears

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interest at Wall Street Journal Prime
plus 1%. Humboldt has entered into a Salary Continuation
Agreement with Mark A. Francis, dated January 15, 1999,
which provides for payment of the following Annual Benefits
based on years of service: $66,667 per year for
7 years increasing to $83,333 per year if
Mr. Francis is employed for at least 9 years and he
will receive such annual payment for each year he is employed.


At December 31, 2003, 2002 and 2001,
liabilities recorded for the estimated present value of future
salary continuation and deferred compensation benefits totaled
approximately $6.5 million, $6.4 million, and
$5.9 million respectively. In the event of death or under
other selected circumstances, Humboldt is contingently liable to
make future payments greater than the amounts recorded as
liabilities. Based on present circumstances, Humboldt does not
consider it probable that this contingent liability will be
incurred or that in the event of death, a liability would be
material after consideration of life insurance benefits.

Humboldt has purchased single premium life
insurance policies in connection with the implementation of
these salary continuation and deferred compensation plans for
certain key employees. The policies provide protection against
the adverse financial effects from the death of a key employee
and provide income to offset expenses associated with the plans.
The specified employees are insured under the policies, but
Humboldt (or Humboldt Bank) is the owner and beneficiary. At
December 31, 2003, 2002, and 2001 the cash surrender value
of these policies totaled approximately $16.3 million,
$15.6 million and $15.1 million, respectively.

Stock Option Plans.Humboldt has a stock option plan that was originally adopted by
Humboldt Bank in 1992 and assumed by Humboldt Bancorp upon
formation of the holding company in 1996 (1992 Plan)
under which incentive stock options, as defined under the
Internal Revenue Code, and/or non-statutory stock options may be
granted.

As of December 31, 2003, 599,095 options
were outstanding under the 1992 Plan. Options granted under the
1992 Plan may have an exercise period of not longer than ten
years and all options granted vest immediately. The numbers of
shares authorized and outstanding under the 1992 plan above
include options granted by Humboldt Bank prior to the assumption
of the 1992 Plan by Humboldt Bancorp.

The 1992 Plan contains an antidilution provision
in the event of a private or public offering of Humboldt Bancorp
common stock. Under the current antidilution provision,
participants will be granted additional options to purchase
shares of Humboldt Bancorp common stock based on the number of
shares issued in the public offering. Additional options will be
granted to a current employee, officer or director who holds
options so as to maintain on optionees proportionate
interest in Humboldt Bancorp by reason of his or her unexercised
portions of options as before the issuance. However, the total
number may not exceed that available for grant under the
Humboldt Stock Option Plan. In December 2000, the Directors of
Humboldt sought waiver of the antidilution provision of the
stock option plan representing approximately 42% of the
outstanding options. In March 2001, substantially all Humboldt
Employees holding stock options also agreed to waive the
antidilution provision of the Stock Option Plan. The waiver of
antidilution provision became effective March 9, 2001.

The exercise price for such additional options
shall be the fair market value of the Humboldt common stock on
the date of the additional grant, except that in the event of an
incentive stock option, the exercise price shall be 110% if the
optionee is an employee owning more than 10% of the total
combined voting power of all classes of stock of Humboldt.

Humboldt Bancorp & Subsidiaries 2001
Equity Incentive Plan.In May 2001,
the shareholders of Humboldt approved the Humboldt
Bancorp & Subsidiaries 2001 Equity Incentive Plan,
which was subsequently amended during 2003 (2001
Plan). Under the 2001 Plan, a total of 655,000 shares
may be issued under different forms, including stock options and
restricted shares to all Humboldt employees, officers and
directors. As of December 31, 2003, a total of
329,411 shares are subject to options and restricted stock
awards under the 2001 Plan.

Option Grants.One
or more options may be granted to each eligible person. The
options granted under the 2001 Plan will be evidenced by an
award agreement, which will expressly identify the option as an
incentive stock option or a non-qualified stock option. The
administrator shall specify the grant date, exercise price,
terms and conditions for the exercise of the options. No option
under the 2001 Plan shall terminate later than ten years after
the date of grant subject to certain restrictions. In the case
of an incentive stock option

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when the optionee owns more than 10% of the total
combined voting power of all classes of stock, the option shall
expire not later than five years after the date of grant. The
2001 Plan has been amended to increase to 162,000 shares
the maximum number of shares subject to options which can be
granted under the Amended 2001 Plan during any calendar year to
an individual.


Restricted Stock
Awards.The administrator shall
determine all terms and conditions of the restricted stock award
subject to the following. The offer of an award of restricted
stock shall be accepted by the participants execution and
delivery of the award agreement and full payment for the shares
to Humboldt within thirty days from the date the award agreement
is delivered to the person. The purchase price will be at least
eighty-five percent of the fair market value of the shares on
the date the restricted stock award is granted. Unless the
administrator provides otherwise, no grant of restricted shares
may be assigned, encumbered, or transferred except in the event
of death, or by will or the laws of descent and distribution.

Stock Bonuses.A
stock bonus may be awarded pursuant to an award agreement and
will comply with the terms of the 2001 Plan. The administrator
shall determine the number shares to be awarded to each
participant and whether such shares will be restricted stock. If
the stock bonus is being earned upon the satisfaction of a
performance goal, the administrator shall determine the proper
award. The maximum number of shares available under the 2001
Plan for Restricted Stock Awards and Stock Bonuses is
130,000 shares.

Stock Appreciation
Rights.A stock appreciation right
(SAR) may be awarded pursuant to an award agreement and
shall be based upon such factors as the administrator may
determine. The administrator will determine the time period
during which a SAR may be exercised, but such period may not
commence until six months after the date of grant. The maximum
number of shares subject to SARs which can be granted
under the 2001 Plan during any calendar year to any individual
is 162,000 shares. Exercise of the right shall be by
written notice and entitles the participant to receive a number
of shares, cash, or a combination thereof. The number of shares
which may be issued upon exercise of the SARs shall be
determined by dividing the number of shares as to which the SAR
is exercised multiplied by the amount by which the fair market
value of the shares on the exercise date exceeds the fair market
value of the shares on the date of grant of the SAR, by the fair
market value of the shares on the exercise date, however, the
administrator may, in its sole discretion, pay cash in lieu of
shares.

Tehama Stock Option
Plans.Humboldt has assumed the Stock
Option Plans of Tehama Bancorp as part of the merger agreement
entered into between the two companies effective March 9,
2001. As of March 9, 2001, Tehama Bancorp had two Stock
Options Plans under which issued and unexercised options exist.
The two plans are the Tehama Bancorp 1994 Stock Option Plan (the
1994 Plan) and the 1999 Stock Option Plan (the
1999 Plan).

As of the effective date of the merger, all
outstanding rights with respect to stock options issued under
the 1994 and 1999 Plans were converted into and became
equivalent rights with respect to Humboldt common stock at the
applicable conversion rate with a corresponding adjustment in
the option price, and Humboldt assumed each Tehama Stock Option
in accordance with the terms of the Tehama Stock Option Plans
and the stock option agreement by which it is evidenced.

The 1994 Plan was terminated for the purpose of
granting new options on May 14, 1999, the effective date of
the 1999 Plan approved by the shareholders of Tehama Bancorp at
the 1999 Annual Meeting of Shareholders. As of December 31,
2003 there were no options outstanding under the 1994 Plan.
Under the 1999 Plan, nonstatutory (sometimes also called
non-qualified) options to purchase shares of Tehama
Bancorps common stock may be granted to employees,
directors and consultants of Tehama Bancorp, and incentive
options may be granted to employees. The 1999 Plan is now
administered by the Humboldt Bancorp Board of Directors and
assumed by Humboldt. Options for 193,137 shares of Humboldt
common stock were outstanding under the 1999 Plan as of
December 31, 2003.

The exercise price of each option granted
pursuant to the 1999 Plan ordinarily may not be less than one
hundred percent (100%) of the fair market value of the stock
subject to the option on the date the option is granted, and no
option may have a term exceeding ten years. All options (except
for automatic option grants to directors of Tehama Bancorp)
terminate upon termination of employment, but may be exercised
(to the

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extent vested) for varying periods after
termination of employment. During an optionees lifetime,
the optionees incentive options may be exercised only by
him or her and may not be transferred. An optionees
nonstatutory options also are not transferable during the
optionees lifetime, except to the extent otherwise
permitted in the option agreement. The exercise price of shares
issued pursuant to exercise of an option under the 1999 Plan may
always be paid in cash and, in addition, may be paid, in the
discretion of the Board, with (1) Humboldt shares already owned
by the optionee, valued at their fair market value, (2) the
proceeds of a resale of the shares by an authorized securities
broker or (3) the proceeds of a loan (by a securities
broker or lender approved by Humboldt) secured by a pledge of
the shares acquired by the exercise.


Director Compensation

In 2003, each director received a monthly
retainer of $1,000 and a monthly meeting fee of $800 for each
meeting attended. In addition to the above, the Chairman
received an additionally monthly retainer of $500. Directors are
also paid $800 for each special meeting not held by
teleconference. No fee was paid for special meetings held by
teleconference.

Each director serving on a committee was paid for
meetings attended as follows: Audit Committee, $500; Governance
and Nominating Committee, $300; Compensation Committee, $300 and
Risk committee, $300. Committee Chairs also received a monthly
fee of $250.

Directors are entitled to defer all or part of
their compensation in accordance with the terms of the Amended
Humboldt Bancorp Directors Fee Plan. This plan provides
for the deferral of fees into stock units (based on the current
market price of Humboldt common stock), or cash (with interest
accrued at a market-based rate), or a combination of stock and
cash.

Compensation Committee Interlocks and Insider
Participation

No Member of the Compensation Committee was an
officer or employee of Humboldt or any of its subsidiaries
during 2003. None of the executive officers of Humboldt has
served on the Board of Directors or on the Compensation
Committee of any other entity, any of whose officers served
either on the Board of Directors or on the Compensation
Committee of Humboldt. During 2002, a corporation in which
Mr. Napier is a part owner, provided insurance to Humboldt
for which such corporation received insurance premiums. See
Item 13. Certain Relationships and Related
Transactions.

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|         |                                                                   
|-------- | ------------------------------------------------------------------
|Item 12. | Security Ownership of Certain Beneficial
    Owners and Management

The following table sets forth, as of
March 15, 2003, certain information with respect to the
beneficial ownership of our common stock by (i) each
stockholder known by us to be the beneficial owner of more than
5% of our common stock, (ii) each of our executive officers
and directors, and (iii) each of our directors and
executive officers as a group. As of March 15, 2003, there
were 15,153,445 shares outstanding.

|                                  |  |           |         |               |  |              |         |           |  |  |           |  |  |  |        |  
|--------------------------------- |  | --------- | ------- | ------------- |  | ------------ | ------- | --------- |  |  | --------- |  |  |  | ------ | -
|                                  |  |           |         | Stock Options |  |              |         |          
|                                  |  |           |         | Outstanding   |  |              |         |          
|                                  |  |           |         | and           |  | Beneficial   |         | Ownership
|Name                              |  | Shares(1) |         | Warrants(2)   |  | Ownership(3) |         | %        
|                                  |  |           |         |               |  |              |         |          
|Ronald F. Angell                  |  |           | 101,694 |               |  |              | 45,373  |           |  |  | 147,067   |  |  |  | 0.968  | %
|Richard Claussen                  |  |           | 12,154  |               |  |              | 15,866  |           |  |  | 28,020    |  |  |  | 0.128  | %
|Robert M. Daugherty               |  |           | 60,000  |               |  |              | 240,000 |           |  |  | 300,000   |  |  |  | 1.949  | %
|Harold M. Eastridge               |  |           | 178,835 |               |  |              | 55,224  |           |  |  | 234,059   |  |  |  | 1.539  | %
|Gary C. Katz                      |  |           | 114,461 |               |  |              | 4,681   |           |  |  | 119,142   |  |  |  | 0.786  | %
|John W. Koeberer                  |  |           | 66,727  |               |  |              | 14,888  |           |  |  | 81,615    |  |  |  | 0.538  | %
|Donald H. Livingstone             |  |           | 6,422   |               |  |              | 32,050  |           |  |  | 38,472    |  |  |  | 0.253  | %
|Theodore S. Mason                 |  |           | 48,624  |               |  |              | 131,177 |           |  |  | 179,801   |  |  |  | 1.176  | %
|Diane D. Miller                   |  |           |        |               |  |              |        |           |  |  |          |  |  |  | 0.000  | %
|Steven R. Mills                   |  |           | 3,700   |               |  |              | 2,000   |           |  |  | 5,700     |  |  |  | 0.038  | %
|Alfred G. Montna                  |  |           | 10,171  |               |  |              | 28,186  |           |  |  | 38,357    |  |  |  | 0.253  | %
|Kelvin H. Moss                    |  |           | 34,423  |               |  |              | 16,599  |           |  |  | 51,022    |  |  |  | 0.275  | %
|Gary L. Napier                    |  |           | 83,440  |               |  |              | 7,259   |           |  |  | 90,699    |  |  |  | 0.598  | %
|Tom Weborg                        |  |           | 12,098  |               |  |              | 10,227  |           |  |  | 22,325    |  |  |  | 0.147  | %
|John R. Winzler                   |  |           | 138,839 |               |  |              | 56,374  |           |  |  | 195,213   |  |  |  | 1.283  | %
|Mark A. Francis                   |  |           | 15,467  |               |  |              | 17,066  |           |  |  | 32,533    |  |  |  | 0.187  | %
|Patrick J. Rusnak                 |  |           | 6,437   |               |  |              | 27,281  |           |  |  | 33,718    |  |  |  | 0.222  | %
|Mark P. Wardlow                   |  |           |        |               |  |              | 30,000  |           |  |  | 30,000    |  |  |  | 0.198  | %
|Ronald B. Pigeon                  |  |           |        |               |  |              |        |           |  |  |          |  |  |  | 0.000  | %
|Total (19 Officers and Directors) |  |           | 893,492 |               |  |              | 734,251 |           |  |  | 1,627,743 |  |  |  | 10.538 | %



---



|    |                                                                                                                                                         
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Does not include deferred shares attributed to
    certain directors that have not yet been issued and therefore,
    are not deemed beneficially owned.
|   
|(2) | Represent shares underlying options and warrants
    exercisable within sixty days.                                                                     
|   
|(3) | Represent shares owned and options and warrants
    exercisable within sixty days.                                                                      

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Compensation Plan Table

The following table provides aggregate
information as of the end of the fiscal year ended
December 31, 2003 with respect to all compensation plans
(including individual compensation arrangements) under which
equity securities are authorized for issuance. Also see
Notes 1 and 17 to Humboldts financial statements for
the year ended December 31, 2003 regarding more information
on Humboldts stock option plans.

|                                                               |  |                  |         |                     |  |                         |      |  |  |  |         | 
|-------------------------------------------------------------- |  | ---------------- | ------- | ------------------- |  | ----------------------- | ---- |  |  |  | ------- | 
|                                                               |  | Number of        |         |                     |  | Number of Securities   
|                                                               |  | Securities to be |         |                     |  | Remaining Available for
|                                                               |  | Issued Upon      |         |                     |  | Future Issuance Under  
|                                                               |  | Exercise of      |         |                     |  | Equity Compensation    
|                                                               |  | Outstanding      |         | Weighted-average    |  | Plans (excluding       
|                                                               |  | Options          |         | Exercise Price of   |  | securities reflected in
|Plan Category                                                  |  | (1),(2),(3)      |         | Outstanding Options |  | column A)(3)           
|                                                               |  |                  |         |                     |  |                        
|Equity compensation plans approved by security
    holders     |  |                  | 973,266 |                     |  | $                       | 7.79 |  |  |  | 399,584 | 
|Equity compensation plans not approved by
    security holders |  |                  | None    |                     |  |                         | N/A  |  |  |  | N/A     | 
|Total                                                          |  |                  | 973,266 |                     |  | $                       | 7.79 |  |  |  | 399,584 | 



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Column A includes 21,001 unvested stock bonus
    award shares under the 2001 Plan.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|   
|(2) | Column A includes 44,760 shares accrued and
    Column C includes 126,581 shares reserved under the Fee
    Plan, which provides for directors of Humboldt Bancorp or
    Humboldt Bank to elect to defer earned fees into a cash account
    (with interest paid at a market-based variable rate) or stock
    units (calculated monthly by dividing the fees deferred by the
    current market value of Humboldt common stock).                                                                                                                                                                                                                                                                                                                                                                          
|   
|(3) | Column A does not included options for
    193,197 shares issued and outstanding under two plans that
    were approved by the shareholders of Tehama Bancorp prior to the
    merger of Humboldt Bancorp and Tehama Bancorp in March 2001.
    Upon completion of the merger, options to purchase one share of
    Tehama Bancorp common stock under the Tehama Bancorp plans was
    converted to purchase 1.775 shares of common stock of
    Humboldt Bancorp (the same exchange ratio as used for the
    conversion of Tehama Bancorp shares into Humboldt Bancorp
    shares), and the exercise price of each option was adjusted
    accordingly by the exchange ratio. Subsequent to the completion
    of the merger, no additional grants were made under either of
    the Tehama Bancorp plans.



|         |                                                   
|-------- | --------------------------------------------------
|Item 13. | Certain Relationships and Related
    Transactions

Some of Humboldts directors and executive
officers and their immediate families, as well as the companies,
with which they may have interest in, have had loans from the
Bank in the ordinary course of the Banks business. In
addition, the Bank expects to have loans with these persons in
the future. In managements opinion, all these loans and
commitments to lend were made in the ordinary course of
business, were made in compliance with applicable laws on
substantially the same terms, including interest rates and
collateral, as those prevailing for comparable transactions with
other persons of similar creditworthiness and, in the opinion of
management, did not involve more than a normal risk of
collectability or present other unfavorable features. Since
these loans were made in compliance with Federal Reserve
Regulation O, they are exempt from the requirements of the
Sarbanes-Oxley Act of 2002.

The outstanding balance under extensions of
credit by the Bank to directors and executive officers of
Humboldt and the Bank and to the companies that these directors
and executive officers may have an interest was $3,131,000,
$4,449,000 and $7,264,000 as of December 31, 2003, 2002 and
2001, respectively.

Humboldt purchased insurance coverage through
Buffum and Napier Insurance Brokers. Mr. Gary Napier, a
director, is the indirect owner of Buffum and Napier Insurance
Brokers. The annual insurance premium of $84,957 began
December 17, 2001 and will end on December 17, 2004.

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|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accounting Fees and
    Services

KPMG LLP has served as Humboldts
independent certifying accountants for the fiscal year ended
December 31, 2003, and during the course of that fiscal
year they were also engaged by Humboldt to provide certain
non-audit services. During the year ended December 31, 2003
and 2002, the following fees were paid for services provided by
KPMG LLP.

|                        |  |      |         |      |  |   |         | 
|----------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                        |  | 2003 |         | 2002
|                        |  |      |         |     
|Audit Fees(1)           |  | $    | 280,788 |      |  | $ | 229,000 | 
|Audited-Related Fees(2) |  |      | 20,000  |      |  |   | 27,000  | 
|Tax Fees(3)             |  |      | 88,060  |      |  |   | 96,000  | 
|All Other Fees(4)       |  |      | 57,165  |      |  |   | 415,000 | 
|Total                   |  |      | 446,013 |      |  |   | 767,000 | 



---



|    |                                                                                                                                                                                                                                                                                                                                  
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Audit Fees  The aggregate fees paid
    for the annual audit of Humboldts financial statements
    included in Humboldts Form 10-K for the years ended
    December 31, 2003 and 2002 and the review of
    Humboldts quarterly reports on Form 10-Q for such
    years, including reimbursements for out of pocket expenses.
|   
|(2) | Audited-Related Fees  The aggregate
    fees paid for Retirement Plan Audit Services.                                                                                                                                                                                                                                           
|   
|(3) | Tax Fees  The aggregate fees paid for
    the tax compliance and tax consulting for Humboldt for years
    ended December 31, 2003 and 2002.                                                                                                                                                                                    
|   
|(4) | All Other Fees  The aggregate fees
    paid to KPMG LLP for other non-audit services for Humboldt
    during years ended December 31, 2003 and 2002.                                                                                                                                                                            

The Audit committee has considered the provision
of services under this caption of All Other Fees,
approved such fees and believes that these services rendered are
compatible with maintaining KPMG LLPs 2003 independence.




PART IV






|         |                                                                    
|-------- | -------------------------------------------------------------------
|Item 15. | Exhibits, Financial Statement Schedules and
    Reports on Form 8-K

(a) 1. Financial Statements



| |                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------
| | The following documents are contained in
    Part III, Item 8 of this report:                                       
|
| | Report of Independent Certifying Accountants                                                                        
|
| | Consolidated Balance Sheets at December 31,
    2003 and 2002                                                       
|
| | Consolidated Statements of Income for the years
    ended December 31, 2003, 2002, and 2001                         
|
| | Consolidated Statements of Changes in
    Stockholders Equity for years ended December 31,
    2003, 2002, and 2001
|
| | Consolidated Statements of Cash Flows for the
    years ended December 31, 2003, 2002, and 2001                     
|
| | Notes to Consolidated Financial Statements                                                                          

2. Financial Statement Schedules



| |                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------
| | All financial statement schedules are omitted, as
    the required information is not applicable or included in the
    notes to the financial statements.

3. Exhibits (See Item 15 (c))

(b) Report on Form 8-K was filed on
December 16, 2003 disclosing that the shareholders of
Humboldt Bancorp and California Independent had each approved
the principal terms of the Agreement and Plan of

95



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Merger between Humboldt Bancorp and California
Independent Bancorp at special shareholders meetings held
on December 15, 2003. A copy of the press release for the
announcement was included as an exhibit.


(c) Exhibits Required by Item 601 of
Regulation S-K

| |     |    |  |                                                                                                                                                                                                                                   
| | --- | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.  | 1  |  | Amended and Restated Articles of Incorporation of
    Humboldt Bancorp (Incorporated by reference to the
    Companys Form 10-KSB for the fiscal year ended
    December 31, 1996, previously filed with the Commission)         
| | 3.  | 2  |  | Bylaws of Humboldt Bancorp (Incorporated by
    reference to the Companys Form 10-KSB for the fiscal
    year ended December 31, 1996, previously filed with the
    Commission)                                                 
| | 3.  | 3  |  | Amended and Restated Articles of Incorporation
    dated June 5, 2002. (Incorporated by reference to the
    Companys Form 10-K for the fiscal year ended
    December 31, 2002, previously filed with the Commission)           
| | 3.  | 4  |  | Amended and Restated Bylaws dated May 16,
    2002. (Incorporated by reference to the Companys
    Form 10-K for the fiscal year ended December 31, 2002,
    previously filed with the Commission)                              
| | 10. | 1  |  | Amended Employment Agreement with Theodore S.
    Mason (Incorporated by reference to the Companys
    Form 10-K for the fiscal year ended December 31, 1996,
    and previously filed with the Commission)                      
| | 10. | 2  |  | Director Fee Plan (Incorporated by reference to
    the Companys Form 10-K for the fiscal year ended
    December 31, 1998, and previously filed with the Commission)                                                            
| | 10. | 3  |  | Amended Humboldt Bancorp Stock Option Plan
    (Incorporated by reference to the Companys Form 10-K
    for the fiscal year ended December 31, 1998, and previously
    filed with the Commission)                               
| | 10. | 4  |  | Salary Continuation Agreement with Theodore S.
    Mason (Incorporated by reference to the Companys
    Form 10-K for the fiscal year ended December 31, 1998,
    and previously filed with the Commission)                     
| | 10. | 6  |  | Salary Continuation Agreement with Ronald V.
    Barkley (Incorporated by reference to the Companys
    Form 10-K for the fiscal year ended December 31, 1998,
    and previously filed with the Commission)                     
| | 10. | 7  |  | Salary Continuation Agreement with Paul A.
    Ziegler (Previously filed on November 12, 1999, with the
    Companys filing on Form S-4 (File No. 333-90925))                                                                    
| | 10. | 8  |  | Director-Shareholders Agreement in Global
    Bancorp and Humboldt Bank Merger (Previously filed on
    November 12, 1999, with the Companys filing on
    Form S-4 (File No. 333-90925))                                       
| | 10. | 9  |  | Affiliates Agreement with Global Bancorp
    (Previously filed on November 12, 1999, with the
    Companys filing on Form S-4 (File No. 333-90925))                                                                             
| | 10. | 10 |  | Trust Indenture in connection with
    certificates of interest in a promissory note for the Global
    Bancorp merger (Previously filed on November 12, 1999, with
    the Companys filing on Form S-4 (File
    No. 333-90925))
| | 10. | 11 |  | Deferred Compensation Agreement with Theodore S.
    Mason (Previously filed on November 12, 1999, with the
    Companys filing on Form S-4 (File No. 333-90925))                                                                
| | 10. | 13 |  | Deferred Compensation Agreement with Ronald V.
    Barkley (Previously filed on November 12, 1999, with the
    Companys filing on Form S-4 (File No. 333-90925))                                                                
| | 10. | 14 |  | Plan of Reorganization with Silverado Merger Co.
    (Previously filed on November 12, 1999, with the
    Companys filing on Form S-4 (File No. 333-90925))                                                                      
| | 10. | 15 |  | Global Bancorp Loan Purchase Agreement
    (Previously filed on February 7, 2000, with the
    Companys pre-effective amendment no. 1 to
    Form S-4 (File No. 333-90925))                                                      

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| |     |    |  |                                                                                                                                                                                                                                                                  
| | --- | -- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10. | 16 |  | Affiliates Agreement signed by Tehama
    Bancorp affiliates in connection with the Tehama Bancorp Merger
    (Previously filed on November 14, 2000, with the
    Companys filing on Form S-4 (File No. 333-49866))                                           
| | 10. | 17 |  | Humboldt Bancorp Stock Option Agreement to
    purchase Tehama Bancorp common stock (Previously filed on
    November 14, 2000, with the Companys filing on
    Form S-4 (File No. 333-49866))                                                                  
| | 10. | 18 |  | Tehama Bancorp Stock Option Agreement to purchase
    Humboldt Bancorp common stock (Previously filed on
    November 14, 2000, with the Companys filing on
    Form S-4 (File No. 333-49866))                                                                  
| | 10. | 19 |  | Humboldt Bancorp Indenture  Junior
    subordinated debt securities (Filed on November 14, 2000,
    with the Companys Form 10-Q for the quarter ended
    September 30, 2000)                                                                                 
| | 10. | 20 |  | Amended and Restated Declaration of Trust for
    junior subordinated debt securities (Filed on November 14,
    2000, with the Companys Form 10-Q for the quarter
    ended September 30, 2000)                                                                
| | 10. | 21 |  | 2001 Humboldt Bancorp and Subsidiaries Equity
    Incentive Plan (Previously filed with the Companys proxy
    statement dated April 13, 2001 filed with the Commission on
    April 14, 2001)                                                                  
| | 10. | 22 |  | Change in control severance agreement dated
    April 12, 2002 by and between Humboldt Bancorp and Patrick
    J. Rusnak. (Incorporated by reference to the Humboldts
    Form 10-Q for the quarter ended March 31, 2002 filed
    with the SEC on May 15, 2002)
| | 10. | 23 |  | Employment agreement dated April 14,2002 by
    and between Humboldt Bancorp and Robert M. Daugherty
    (Incorporated by reference to the Humboldts Form 10-Q
    for the quarter ended March 31, 2002 filed with the SEC on
    May 15, 2002)                 
| | 10. | 24 |  | First Amendment to Employment Agreement between
    Humboldt Bancorp and Robert M. Daugherty (Incorporated by
    reference to the Humboldts Form 10-Q for the quarter
    ended March 31, 2002 filed with the SEC on May 15,
    2002).                        
| | 10. | 25 |  | Employment Agreement dated June 24, 2002
    between Humboldt Bancorp and Patrick J. Rusnak (Incorporated by
    reference to Exhibit 10.1 of Humboldts Form 10-Q
    for the quarter ended June 30, 2002 filed with the SEC on
    August 19, 2002).           
| | 10. | 26 |  | Employment Agreement dated June 24, 2002
    between Humboldt Bancorp and Mark P. Wardlow (Incorporated by
    reference to Exhibit 10.2 of Humboldts Form 10-Q
    for the quarter ended June 30, 2002 filed with the SEC on
    August 19. 2002).             
| | 10. | 27 |  | Employment Agreement dated June 24, 2002
    between Humboldt Bancorp and Mark A. Francis (Incorporated by
    reference to Exhibit 10.3 of Humboldts Form 10-Q
    for the quarter ended June 30, 2002 filed with the SEC on
    August 19, 2002).             
| | 10. | 29 |  | Executive Salary Continuation Agreement for Mark
    A. Francis (incorporated by reference to Exhibit 10.29 of
    Humboldts Form 10-K for the year ended December 31,
    2002, filed with the Commission on March 28, 2003).                                  
| | 10. | 30 |  | California Independent Bancorp 1989 Amended and
    Restated Stock Option Plan (Incorporated by reference to
    Form S-8 filed with the Commission on January 8, 2004)                                                                                          
| | 10. | 31 |  | California Independent Bancorp 1996 Stock Option
    Plan (Incorporated by reference to Form S-8 filed with the
    Commission on January 8, 2004)                                                                                                               

97



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| |     |    |  |                                                                                                                                                       
| | --- | -- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
| | 10. | 32 |  | California Independent Bancorp 2000 Equity
    Incentive Plan (Incorporated by reference to Form S-8 filed
    with the Commission on January 8, 2004)
| | 10. | 33 |  | Code of Ethics                                                                                                                                        
| | 21. | 1  |  | Subsidiaries of Humboldt Bancorp are:                                                                                                                 

|                                     |  |                       
|------------------------------------ |  | ----------------------
|Subsidiary Name                      |  | State of Incorporation
|                                     |  |                       
|Humboldt Bank                        |  | California            
|HB Capital Trust I                   |  | Delaware              
|Humboldt Bancorp Statutory Trust I   |  | Connecticut           
|Humboldt Bancorp Statutory Trust II  |  | Connecticut           
|Humboldt Bancorp Statutory Trust III |  | Connecticut           
|Bancorp Financial Services, Inc.     |  | California            

Humboldt Bancorp owns either directly or
indirectly 100% of the voting stock of each subsidiary listed
above.

|     |  |                                                                                                                                         
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------
|23.1 |  | Consent of KPMG LLP                                                                                                                     
|31.1 |  | Certifications by Chief Executive Officer and
    Chief Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.
|32.1 |  | Certifications by Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.

98



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13
or 15(d) of the Securities Exchanged Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 29th day of
March, 2004.



| |                                          
| | -----------------------------------------
| | HUMBOLDT BANCORP                         
|
| | /s/ ROBERT M. DAUGHERTY                  
| |                                          
| | Robert M. Daugherty                      
| | President and Chief Executive
    Officer

Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the capacities
and on the dates indicated.

|                                               |  |                                                                                                   |  |                |  | 
|---------------------------------------------- |  | ------------------------------------------------------------------------------------------------- |  | -------------- |  | 
|                                               |  |                                                                                                   |  |               
|Signature                                      |  | Title                                                                                             |  | Date          
|                                               |  |                                                                                                   |  |               
|                                              
|/s/ ROBERT M. DAUGHERTYRobert M. Daugherty     |  | President, Chief Executive Officer and Director
    (Principal Executive Officer)                 |  | March 29, 2004
|                                              
|/s/ PATRICK J. RUSNAKPatrick J. Rusnak         |  | Executive Vice President, Chief Financial Officer
    and Secretary (Principal Financial Officer) |  | March 29, 2004
|                                              
|/s/ RONALD B. PIGEONRonald B. Pigeon           |  | Senior Vice President and Controller (Principal
    Accounting Officer)                           |  | March 29, 2004
|                                              
|/s/ RONALD F. ANGELLRonald F. Angell           |  | Director                                                                                          |  | March 29, 2004
|                                              
|/s/ RICHARD CLAUSSENRichard Claussen           |  | Director                                                                                          |  | March 29, 2004
|                                              
|/s/ HAROLD M. EASTRIDGEHarold M. Eastridge     |  | Director                                                                                          |  | March 29, 2004
|                                              
|/s/ GARY C. KATZGary C. Katz                   |  | Director                                                                                          |  | March 29, 2004
|                                              
|/s/ JOHN W. KOEBERERJohn W. Koeberer           |  | Chairman of the Board                                                                             |  | March 29, 2004
|                                              
|/s/ DONALD H. LIVINGSTONEDonald H. Livingstone |  | Director                                                                                          |  | March 29, 2004
|                                              
|/s/ STEVEN R. MILLSSteven R. Mills             |  | Director                                                                                          |  | March 29, 2004

99



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|                                       |  |          |  |                |  | 
|-------------------------------------- |  | -------- |  | -------------- |  | 
|                                       |  |          |  |               
|Signature                              |  | Title    |  | Date          
|                                       |  |          |  |               
|                                      
|/s/ KELVIN H. MOSSKelvin H. Moss       |  | Director |  | March 29, 2004
|                                      
|/s/ THEODORE S. MASONTheodore S. Mason |  | Director |  | March 29, 2004
|                                      
|/s/ DIANE D. MILLERDiane D. Miller     |  | Director |  | March 29, 2004
|                                      
|/s/ ALFRED G. MONTNAAlfred G. Montna   |  | Director |  | March 29, 2004
|                                      
|/s/ GARY L. NAPIERGary L. Napier       |  | Director |  | March 29, 2004
|                                      
|/s/ TOM WEBORGTom Weborg               |  | Director |  | March 29, 2004
|                                      
|John R. Winzler                        |  | Director |  |               

100



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EXHIBIT INDEX

| |     |    |  |                                      
| | --- | -- |  | -------------------------------------
| | 10. | 33 |  | Code of Ethics                       
| | 21. | 1  |  | Subsidiaries of Humboldt Bancorp are:

|                                     |  |                       
|------------------------------------ |  | ----------------------
|Subsidiary Name                      |  | State of Incorporation
|                                     |  |                       
|Humboldt Bank                        |  | California            
|HB Capital Trust I                   |  | Delaware              
|Humboldt Bancorp Statutory Trust I   |  | Connecticut           
|Humboldt Bancorp Statutory Trust II  |  | Connecticut           
|Humboldt Bancorp Statutory Trust III |  | Connecticut           
|Bancorp Financial Services, Inc.     |  | California            

Humboldt Bancorp owns either directly or
indirectly 100% of the voting stock of each subsidiary listed
above.

| |     |   |  |                                                                                                                                         
| | --- | - |  | ----------------------------------------------------------------------------------------------------------------------------------------
| | 23. | 1 |  | Consent of KPMG LLP                                                                                                                     
| | 31. | 1 |  | Certifications by Chief Executive Officer and
    Chief Financial Officer pursuant to Section 302 of the
    Sarbanes-Oxley Act of 2002.
| | 32. | 1 |  | Certifications by Chief Executive Officer and
    Chief Financial Officer pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.