10-Q

United States
Securities and Exchange Commission

Washington, D.C. 20549

FORM 10-Q

[X]	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
	for the quarterly period ended:     September 30, 2004

[  ]	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: 000-25597

Umpqua Holdings Corporation

(Exact Name of Registrant as Specified in Its Charter)

OREGON	93-1261319
(State or Other Jurisdiction	(I.R.S. Employer Identification Number)
of Incorporation or Organization)

200 SW Market Street, Suite 1900
Portland, Oregon 97201
(Address of Principal Executive Offices)(Zip Code)

(503) 546-2491
(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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.

[X]   Yes   [  ]   No

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

[X]   Yes   [  ]   No

Indicate the number of shares outstanding for each of the issuer’s classes of common stock, as of the latest practical date:

Common stock, no par value: 44,037,096 shares outstanding as of October 29, 2004:

FORM 10-Q CROSS-REFERENCE INDEX

	PAGE
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets		3
Condensed Consolidated Statements of Income		4
Condensed Consolidated Statements of Comprehensive Income		5
Condensed Consolidated Statements of Cash Flows		6
Notes to Condensed Consolidated Financial Statements		7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		14-35
Item 3. Quantitative and Qualitative Disclosures about Market Risk		35
Item 4. Controls and Procedures		35
PART II OTHER INFORMATION
Item 1. Legal Proceedings		35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		36
Item 3. Defaults Upon Senior Securities		36
Item 4. Submission of Matters to a Vote of Security Holders		36
Item 5. Other Information		37
Item 6. Exhibits and Reports on Form 8-K		37
SIGNATURES		38
EXHIBIT INDEX		39
CERTIFICATIONS
EXHIBIT 10.1
EXHIBIT 10.2
EXHIBIT 10.3
EXHIBIT 10.4
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32
Exhibit 99.1

UMPQUA HOLDINGS CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

	September 30,			December 31,
Dollars in thousands	2004			2003
ASSETS
Cash and due from banks	$	119,603		$	103,565
Temporary investments		125,954			30,441
Total Cash and Cash Equivalents		245,557			134,006
Trading account assets		1,539			1,265
Investment securities available for sale, at fair value		738,538			501,904
Investment securities held to maturity, at amortized cost		12,340			14,612
Mortgage loans held for sale		29,632			37,798
Loans		3,323,137			2,003,587
Less: Allowance for loan losses		(43,374	)		(25,352	)
Loans, net		3,279,763			1,978,235
Federal Home Loan Bank stock, at cost		14,840			7,168
Property and equipment, net		94,928			63,328
Goodwill and other intangible assets, net		409,516			159,585
Mortgage servicing rights, net		11,140			10,608
Other assets		108,668			55,306
Total Assets	$	4,946,461		$	2,963,815
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	935,206		$	589,901
Interest bearing		2,984,065			1,788,291
Total Deposits		3,919,271			2,378,192
Securities sold under agreements to repurchase		47,752			43,531
Federal funds purchased		—			40,000
Term debt		88,521			55,000
Junior subordinated debentures		166,280			97,941
Other liabilities		52,660			30,182
Total Liabilities		4,274,484			2,644,846
Commitments and contingencies
SHAREHOLDERS’ EQUITY
Common stock, no par value, 100,000,000 shares authorized; issued and outstanding: 43,979,674 in 2004 and 28,411,816 in 2003		556,995			230,773
Retained earnings		114,494			89,058
Accumulated other comprehensive income (loss)		488			(862	)
Total Shareholders’ Equity		671,977			318,969
Total Liabilities and Shareholders’ Equity	$	4,946,461		$	2,963,815

See accompanying notes to condensed consolidated financial statements

3

UMPQUA HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

	Three months ended September 30,				Nine months ended September 30,
Dollars in thousands, except per share data	2004		2003		2004		2003
Interest Income
Interest and fees on loans	$	50,718	$	32,615	$	115,373	$	94,960
Interest on taxable securities		7,433		2,726		17,438		8,088
Interest on non-taxable securities		749		479		1,558		2,002
Interest on temporary investments		194		82		247		420
Interest on trading account assets		14		24		45		54
Total interest income		59,108		35,926		134,661		105,524
Interest Expense
Interest on deposits		8,927		5,454		20,601		18,202
Interest on federal funds purchased and repurchase agreements		207		99		529		313
Interest on junior subordinated debentures		1,979		936		4,222		2,787
Interest on term debt		731		349		1,440		754
Total interest expense		11,844		6,838		26,792		22,056
Net Interest Income		47,264		29,088		107,869		83,468
Provision for credit losses		1,479		1,050		3,654		3,475
Net interest income after provision for credit losses		45,785		28,038		104,215		79,993
Noninterest Income
Service charges		5,323		3,256		11,723		9,368
Brokerage fees and commissions		2,787		2,635		8,692		6,944
Mortgage banking revenue, net		1,836		3,159		5,884		10,273
Gain on sale of securities		13		10		19		2,153
Other noninterest income		1,863		457		3,372		2,601
Total noninterest income		11,822		9,517		29,690		31,339
Noninterest Expense
Salaries and employee benefits		19,744		13,438		47,162		39,507
Premises and equipment		5,746		3,535		14,014		11,064
Other noninterest expense		10,037		6,332		22,534		19,186
Merger-related expenses		2,176		394		2,941		2,082
Total noninterest expense		37,703		23,699		86,651		71,839
Income before income taxes		19,904		13,856		47,254		39,493
Provision for income taxes		6,536		4,841		16,357		13,965
Net Income	$	13,368	$	9,015	$	30,897	$	25,528
Earnings Per Share
Basic	$	0.32	$	0.32	$	0.94	$	0.90
Diluted	$	0.31	$	0.31	$	0.92	$	0.89

See accompanying notes to condensed consolidated financial statements

4

UMPQUA HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)

	Three months ended September 30,						Nine months ended September 30,
Dollars in thousands	2004			2003			2004			2003
Net income	$	13,368		$	9,015		$	30,897		$	25,528
Unrealized gains (losses) arising during the period on investment securities available for sale		15,229			(2,282	)		2,307			(2,950	)
Income tax expense (benefit) related to unrealized gains (losses) on investment securities, available for sale		6,244			(896	)		946			(1,161	)
Reclassification adjustment for gains realized in net income, net of tax (expense of $5 and $4 for the 3 months ended and $8 and $846 for the 9 months ended)		(8	)		(6	)		(11	)		(1,307	)
Net unrealized gains (losses) on investment securities available for sale		8,977			(1,392	)		1,350			(3,096	)
Comprehensive Income	$	22,345		$	7,623		$	32,247		$	22,432

See accompanying notes to condensed consolidated financial statements

5

UMPQUA HOLDINGS CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)

	Nine Months Ended
	September 30,
Dollars in thousands	2004			2003
Net cash provided by (used in) operating activities	$	50,512		$	34,402
Investing Activities
Purchases of investment securities available for sale		(133,723	)		(275,034	)
Sales and maturities of investment securities available for sale		117,637			195,542
Maturities of investment securities held to maturity		2,291			1,806
Net decrease (increase) in FHLB stock		(3,037	)		107
Purchase of bank-owned life insurance		—			(14,300	)
Net loan originations		(261,860	)		(159,759	)
Purchases of premises and equipment		(7,211	)		(10,528	)
Proceeds from disposal of premises and equipment		—			999
Acquisition, net of cash acquired		54,180			—
Net cash used in investing activities		(231,723	)		(261,167	)
Financing Activities
Net increase in deposits		349,406			160,395
Net decrease (increase) in federal funds purchased and securities sold under agreement to repurchase		(35,779	)		27,321
Net (decrease) increase in other borrowed funds		(14,191	)		47,971
Payment of cash dividends on common stock		(3,969	)		(3,398	)
Repurchase of common stock		(6,062	)		(409	)
Proceeds from issuance of stock for exercised options		3,357			5,090
Net cash provided by financing activities		292,762			236,970
Net change in cash and cash equivalents		111,551			10,205
Cash and cash equivalents at beginning of period		134,006			120,542
Cash and cash equivalents at end of period	$	245,557		$	130,747
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	24,120		$	22,313
Income taxes		8,947			10,180

See accompanying notes to the consolidated financial statements

6

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 – Summary of Significant Accounting Policies

The accounting and financial reporting policies of Umpqua Holdings Corporation (referred to in this report as “we”, “our” or “Umpqua Holdings”) conform with accounting principles generally accepted in the United States of America. All material inter-company balances and transactions have been eliminated. The consolidated financial statements have not been audited. A more detailed description of our accounting policies is included in the 2003 Annual Report filed on Form 10-K. There have been no significant changes to these policies.

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

Note 2 – Mergers

On July 9, 2004, we acquired all of the outstanding common stock of Humboldt Bancorp (“Humboldt”) of Roseville, California, the parent company of Humboldt Bank, in an acquisition accounted for under the purchase method of accounting. The results of Humboldt’s operations have been included in the consolidated financial statements since that date. This merger was consistent with our community banking expansion strategy and provides the opportunity to enter growth markets in Northern California with an established franchise with 27 stores.

The aggregate purchase price was $329 million, consisting of common stock valued at $310 million, stock options valued at $17 million and direct merger costs of $2 million. The value of the 15.5 million common shares issued was determined based on the $19.98 average closing market price for our common stock for the two days before and after announcement of the merger agreement on March 15, 2004. Outstanding Humboldt stock options were converted (using the same 1:1 exchange ratio applied to the share conversion) into approximately 1.1 million Umpqua Holdings stock options, at a weighted average fair value of $15.58 per option.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition:

7

Fair Value of Humboldt Assets Acquired and Liabilities Assumed

(In thousands)

	July 9, 2004
Assets Acquired
Cash and due from banks	$	46,170
Temporary investments		8,010
Total cash and cash equivalents		54,180
Investment securities available for sale		219,430
Loans		1,059,295
Less: allowance for loan losses		(17,257	)
Net loans		1,042,038
Federal Home Loan Bank stock, at cost		4,357
Property and equipment, net		28,252
Goodwill		238,205
Core deposit intangible asset		11,646
Other assets		63,731
Total assets	$	1,661,839
Liabilities Assumed
Deposits
Noninterest-bearing	$	471,571
Interest-bearing		720,488
Total deposits		1,192,059
Term debt		47,142
Junior subordinated debentures held by trusts that issued guaranteed capital debt securities		68,561
Other liabilities		27,211
Total liabilities	$	1,334,973

The core deposit intangible asset shown in the table above represents the value ascribed to the long-term deposit relationships acquired. This intangible asset is being amortized on a double declining balance basis over a term of ten years. Amortization of the Humboldt core deposit intangible asset for the third quarter of 2004 totaled $582,000. Goodwill represents the excess of the total purchase price paid for Humboldt over the fair values of the assets acquired, net of liabilities assumed. Goodwill is not amortized, but is evaluated for possible impairment at least annually and more frequently if events and circumstances indicate that the asset might be impaired. No impairment losses were recognized in connection with core deposit intangible or goodwill assets during the three and nine-month month periods ended September 30, 2004 and 2003.

The table below presents the forecasted amortization expense for 2005 through 2009 for core deposit intangible assets acquired in all mergers:

8

Expected Core Deposit Intangible Amortization

dollars in thousands

	Expected
Year	Amortization
2005	$	2,408
2006	$	1,999
2007	$	1,672
2008	$	1,407
2009	$	1,194

Following is pro forma presentation of the results for the combined companies for the three and nine-month periods ended September 30, 2003 as if the merger had occurred on January 1, 2003. Since Humboldt completed its merger with California Independent Bancorp (“CIB”) on January 6, 2004, the pro forma results for that transaction are presented separately in the tables.

Pro Forma Financial Information
(In thousands, except per share data)

	Three Months Ended September 30, 2003
							Pro Forma			Pro Forma
	Umpqua		Humboldt		CIB		Adjustments			Combined
Net interest income after provision for loan losses	$	28,038	$	11,749	$	3,567	$	324	(a)(b)	$	43,678
Non-interest income		9,517		2,290		919		—			12,726
Non-interest expense		23,699		10,005		3,331		214	(a)		37,249
Income from continuing operations		13,856		4,034		1,155		110			19,155
Income taxes		4,841		1,090		385		(46	) (c)		6,270
Net income from continuing operations	$	9,015	$	2,944	$	770	$	156		$	12,885
Earnings from continuing operations per share:
Basic	$	0.32								$	0.30
Diluted	$	0.31								$	0.29
Average shares outstanding:
Basic		28,344						15,044			43,388
Diluted		28,703						15,548			44,251

	Nine Months Ended September 30, 2003
							Pro Forma			Pro Forma
	Umpqua		Humboldt		CIB		Adjustments			Combined
Net interest income after provision for loan losses	$	79,993	$	34,472	$	11,144	$	973	(a)(b)	$	126,582
Non-interest income		31,339		6,805		2,335					40,479
Non-interest expense		71,839		30,105		9,343		642	(a)		111,929
Income from continuing operations		39,493		11,172		4,136		331			55,132
Income taxes		13,965		3,018		1,442		(139	) (c)		18,286
Net income from continuing operations	$	25,528	$	8,154	$	2,694	$	470		$	36,846
Earnings from continuing operations per share:
Basic	$	0.90								$	0.85
Diluted	$	0.89								$	0.83
Average shares outstanding:
Basic		28,262						15,119			43,381
Diluted		28,622						15,628			44,250

(a)	Amortization and accretion of purchase accounting adjustments.
(b)	Reflects cost of subordinated debentures issued to fund cash portion of consideration.
(c)	Income tax effect of pro forma adjustments.

9

Note 3 – Per Share Information

Basic earnings per share is computed by dividing net income available to common stockholders by the weighted average number shares of common stock outstanding during the period. Diluted earnings per share is computed in the same manner as 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 and unvested (“restricted”) stock, computed under the treasury stock method. The following table provides a reconciliation of the basic and diluted earnings per share computations for the three and nine-month periods ended September 30, 2004 and 2003.

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

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
Basic earnings per share:
Weighted average shares outstanding		42,149		28,344		33,011		28,262
Net income	$	13,368	$	9,015		30,897	$	25,528
Basic earnings per share	$	0.32	$	0.32		0.94	$	0.90
Diluted earnings per share:
Weighted average shares outstanding		42,149		28,344		33,011		28,262
Net effect of the assumed exercise of stock options based on the treasury stock method using average market price for the period		741		359		505		360
Total weighted average shares and common stock equivalents outstanding		42,890		28,703		33,516		28,622
Net income	$	13,368	$	9,015	$	30,897	$	25,528
Diluted earnings per share	$	0.31	$	0.31	$	0.92	$	0.89

Note 4 – Segment Information

For purposes of measuring and reporting the financial results, the Company is divided into three business segments: Community Banking, Mortgage Banking and Retail Brokerage Services. The Community Banking segment consists of operations conducted by Umpqua Bank (“the Bank”), which is our largest subsidiary. The Bank provides a full array of credit and deposit products to meet the banking needs of its market area and targeted customers. The Mortgage Banking segment, which operates as a division of the Bank, originates, sells and services residential mortgage loans. The Retail Brokerage Services segment consists of the operations of our brokerage subsidiary, Strand, Atkinson Williams and York (“Strand Atkinson”). The following table presents summary income statements and reconciliation to the consolidated totals for the three and nine-month periods ended September 30, 2004 and 2003.

10

Segment Information
(in thousands, except per share data)

	Three Months Ended September 30, 2004
			Retail
	Community		Brokerage			Mortgage
	Banking		Services			Banking		Consolidated
Interest income	$	57,316	$	14		$	1,778	$	59,108
Interest expense		10,986		—			858		11,844
Net interest income		46,330		14			920		47,264
Provision for loan losses		1,450		—			29		1,479
Non-interest income		7,067		2,813			1,942		11,822
Non-interest expense		30,522		2,834			2,171		35,527
Merger-related expense		2,176		—			—		2,176
Income (loss) before income taxes		19,249		(7	)		662		19,904
Income tax expense (benefit)		6,312		(5	)		229		6,536
Net income (loss)	$	12,937	$	(2	)	$	433	$	13,368
Net income per diluted share	$	0.30	$	—		$	0.01	$	0.31

	Three Months Ended September 30, 2003
			Retail
	Community		Brokerage		Mortgage
	Banking		Services		Banking		Consolidated
Interest income	$	33,486	$	24	$	2,416	$	35,926
Interest expense		5,860		—		978		6,838
Net interest income		27,626		24		1,438		29,088
Provision for loan losses		1,026		—		24		1,050
Non-interest income		3,620		2,682		3,215		9,517
Non-interest expense		17,967		2,426		2,912		23,305
Merger-related expense		366		28		—		394
Income before income taxes		11,887		252		1,717		13,856
Income tax expense		4,146		93		602		4,841
Net income	$	7,741	$	159	$	1,115	$	9,015
Net income per diluted share	$	0.27	$	—	$	0.04	$	0.31

	Nine Months Ended September 30, 2004
			Retail
	Community		Brokerage		Mortgage
	Banking		Services		Banking		Consolidated
Interest income	$	131,095	$	45	$	3,521	$	134,661
Interest expense		25,030		—		1762		26,792
Net interest income		106,065		45		1,759		107,869
Provision for loan losses		3,593		—		61		3,654
Non-interest income		14,798		8,868		6,024		29,690
Non-interest expense		69,760		8,265		5,685		83,710
Merger-related expense		2,941		—		—		2,941
Income before income taxes		44,569		648		2,037		47,254
Income tax expense		15,402		228		727		16,357
Net income	$	29,167	$	420	$	1,310	$	30,897
Net income per diluted share	$	0.87	$	0.01	$	0.04	$	0.92

	Nine Months Ended September 30, 2003
			Retail
	Community		Brokerage		Mortgage
	Banking		Services		Banking		Consolidated
Interest income	$	98,302	$	54	$	7,168	$	105,524
Interest expense		19,005		—		3051		22,056
Net interest income		79,297		54		4,117		83,468
Provision for loan losses		3,297		—		178		3,475
Non-interest income		13,806		7,080		10,453		31,339
Non-interest expense		53,960		6,825		8,972		69,757
Merger-related expense		1,966		116		—		2,082
Income before income taxes		33,880		193		5,420		39,493
Income tax expense		11,967		64		1,934		13,965
Net income	$	21,913	$	129	$	3,486	$	25,528
Net income per diluted share	$	0.77	$	—	$	0.12	$	0.89

The only material change to total assets by segment was for the Community Banking segment, which increased by approximately $1.7 billion as a result of the Humboldt merger. Total Community Banking segment assets were approximately $4.8 billion at September 30, 2004, as compared to $2.9 billion at December 31, 2003.

Note 5 – Stock-Based Compensation

At September 30, 2004, we had a total of 2.2 million stock options issued under various plans (some assumed in connection with mergers) that were accounted for under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related Interpretations. No stock-based employee compensation cost related to stock options issued by Umpqua Holdings is reflected in net income, as all options granted under the plans had an exercise price equal to the market value of the underlying common stock on the date of grant. The following table presents the effect on net income and earnings per share as if we had applied the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, to outstanding unvested stock options for each period presented.

11

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

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Net income, as reported	$	13,368		$	9,015		$	30,897		$	25,528
Deduct: Total stock-based employee compensation determined under fair value based method for all awards, net of related tax effects		(368	)		(188	)		(835	)		(446	)
Pro forma net income	$	13,000		$	8,827		$	30,062		$	25,082
Earnings per share:
Basic — as reported	$	0.32		$	0.32		$	0.94		$	0.90
Basic — pro forma	$	0.31		$	0.31		$	0.91		$	0.89
Diluted — as reported	$	0.31		$	0.31		$	0.92		$	0.89
Diluted — pro forma	$	0.30		$	0.31		$	0.90		$	0.88

In connection with the Humboldt merger, we assumed approximately 1.1 million stock options that were granted under various plans. Substantially all of these options were vested prior to the merger date. The fair value of the assumed options was included as a component of the acquisition cost and, accordingly, there is no pro forma impact for converted Humboldt options reflected in the table above.

Note 6 – Recently Issued Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46 (“FIN 46R”), Consolidation of Variable Interest Entities (revised December 2003). In December 2003, the FASB made revisions and delayed implementation of certain provisions of FIN 46R. FIN 46R provides guidance on how to identify the primary beneficiary of a variable interest entity and determine when the variable interest entity should be consolidated by the primary beneficiary. The recognition and measurement provisions of FIN 46R, as revised, were adopted for our Trust Preferred subsidiaries for the quarter ended September 30, 2003, and for other variable interest entities for the quarter ended March 31, 2004. The adoption did not have a material impact on our financial condition or results of operations.

In March 2004, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 105 (“SAB 105”), Application of Accounting Principles to Loan Commitments. SAB 105 provides guidance on the accounting for loan commitments accounted for as derivative instruments. We adopted SAB 105 in March 2004. The adoption did not have a material impact on our financial condition or results of operations.

In March 2004, the FASB ratified the consensus reached by the Emerging Issues Task Force regarding issue 03-1 The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments (“EITF 03-01”). The consensus provided guidance for determining when an investment is other-than-temporarily-impaired. The guidance was effective for periods beginning after June 15, 2004. On September 30, 2004, the FASB deferred the implementation of the recognition criteria of EITF 03-01 until the fourth quarter of 2004 pending a review of the guidance in light of comments received. We will evaluate the potential impact this guidance may have on our financial condition and results of operations when it is released in final form.

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Note 7 – Allowance for Loan Losses

As of September 30, 2004, we refined the model used for determining certain components of the allowance for loan losses. The model refinement was done principally in connection with the Humboldt acquisition, and did not have a material impact on the recorded allowance for loan losses. Additionally, as of September 30, 2004, we reclassified the reserve for unfunded lending commitments from the allowance for loan losses to other liabilities. The amount reclassified as of September 30, 2004 was approximately $1.2 million, or 3 basis points of total gross loans. The reclassifications had no effect on the provision for credit losses as reported.

Note 8 – Junior Subordinated Debentures

As of September 30, 2004, we had ten wholly-owned trusts (“Trusts”) that were formed to issue trust preferred securities and related common securities of the Trusts. Five Trusts, representing aggregate total obligations of approximately $58.9 million (fair value of approximately $69 million as of the merger date), were assumed in connection with the Humboldt merger. Following is information regarding the Trusts:

Junior Subordinated Debentures
(in thousands)

		Issued		Carrying					Effective
Trust Name	Issue Date	Amount		Value (1)		Rate (2)			Rate (3)			Maturity Date	Call Date
Umpqua Holdings Statutory Trust I	September 2002	$	25,774	$	25,774	Floating (4)				5.80	%	September 2032	September 2007
Umpqua Statutory Trust II	October 2002		20,619		20,619	Floating (5)				5.03	%	October 2032	October 2007
Umpqua Statutory Trust III	October 2002		30,928		30,928	Floating (6)				5.17	%	November 2032	November 2007
Umpqua Statutory Trust IV	December 2003		10,310		10,310	Floating (7)				4.45	%	January 2034	January 2009
Umpqua Statutory Trust V	December 2003		10,310		10,310	Floating (7)				4.41	%	March 2034	March 2009
HB Capital Trust I	March 2000		5,310		6,734		10.875	%		7.73	%	March 2030	March 2010
Humboldt Bancorp Statutory Trust I	February 2001		5,155		6,178		10.200	%		7.91	%	February 2031	February 2011
Humboldt Bancorp Statutory Trust II	December 2002		10,310		11,766	Floating (8)				4.03	%	December 2031	December 2006
Humboldt Bancorp Staututory Trust III	September 2003		27,836		32,124		6.75%	(9)		4.89	%	September 2033	September 2008
CIB Capital Trust	November 2002		10,310		11,537	Floating (6)				4.23	%	November 2032	November 2007
	Total	$	156,862	$	166,280

(1)	Reflects purchase accounting adjustments, net of accumulated amortization, for junior subordiated debentures assumed in connection with the Humboldt merger.
(2)	Contractual interest rate of junior subordinated debentures.
(3)	Effective interest rate as of the third quarter of 2004, including impact of purchase accounting amortization.
(4)	Rate based on LIBOR plus 3.50%, adjusted quarterly.
(5)	Rate based on LIBOR plus 3.35%, adjusted quarterly.
(6)	Rate based on LIBOR plus 3.45%, adjusted quarterly.
(7)	Rate based on LIBOR plus 2.85%, adjusted quarterly.
(8)	Rate based on LIBOR plus 3.60%, adjusted quarterly.
(9)	Rate fixed for 5 years for issuance, then adjusted quarterly thereafter based on LIBOR plus 2.95%.

As a result of the adoption of FIN 46R, the Trusts have been deconsolidated. The $166.3 million of junior subordinated debentures issued to the Trusts as of September 30, 2004 ($97.9 million as of December 31, 2003) are 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, and totaled $4.7 million and $2.9 million, respectively, at September 30, 2004 and December 31, 2003.

All of the debentures issued to the Trusts, less the common stock of the Trusts, qualified as Tier 1 capital as of September 30, 2004, under guidance issued by the Board of Governors of the Federal Reserve System (Federal Reserve Board). In May 2004, the Federal Reserve Board proposed a rule that would continue to allow the inclusion of trust preferred securities in Tier 1 capital, but with stricter quantitative limits. Under the proposal, after a three-year transition period, the aggregate amount

13

of trust preferred securities and certain other capital elements would be limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions. Based on the proposed rule, we expect to include all currently issued trust preferred securities in Tier 1 capital. However, the provisions of the final rule could significantly differ from those proposed and there can be no assurance that the Federal Reserve Board will not further limit the amount of trust preferred securities permitted to be included in Tier 1 capital for regulatory capital purposes.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Report includes forward-looking statements, which are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Statements that expressly or implicitly predict future results, performance or events are forward-looking statements. The words “anticipate,” “believe,” “expect”, “estimate,” and “intend” and words or phrases of similar meaning, are intended to identify forward-looking statements. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. Factors that could cause or contribute to those differences include, but are not limited to, the following: general economic conditions, either nationally or regionally that could result in increased loan losses, interest rate fluctuations, pricing pressure and other competitive factors, potential delays or problems with integrating acquisitions, the ability to attract new deposits and loans, changes in legal or regulatory requirements, competition in the retail brokerage industry, general stock market conditions, changes in technology and other factors described in this and other reports filed with the SEC including exhibit 99.1 attached hereto. Readers are encouraged to review the notes that accompany this report and are cautioned not to place undue reliance on forward-looking statements. We do not intend to update these forward-looking statements. All written and oral forward-looking statements attributable to the Umpqua Holdings and/or persons acting on its behalf are expressly qualified by this disclosure.

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. Our significant accounting policies are described in Note 1 in the Notes to the Consolidated Financial Statements for the year ended December 31, 2003 as filed on Form 10-K (the “Notes to the 2003 Consolidated Financial Statements”). Not all of these critical accounting policies require management to make difficult, subjective or complex judgments or estimates. However, management believes that the following policies and those disclosed in the Notes to the 2003 Consolidated Financial Statements could be considered critical within the SEC definition.

Allowance for Loan Losses and Reserve for Unfunded Commitments

The allowance for loan losses (“ALL”) is established to absorb known and inherent losses attributable to loans and leases outstanding. The reserve for unfunded commitments (“RUC”) is established to absorb inherent losses associated with our commitment the lend funds, such as with a letter or line of credit. The adequacy of the ALL and RUC are monitored on a regular basis and are based on management’s evaluation of numerous factors. These factors include the quality of the current loan portfolio; the trend in the loan portfolio’s risk ratings; current economic conditions; loan concentrations; loan growth rates; past-due and non-performing trends; evaluation of specific loss estimates for all significant problem loans; historical charge-off and recovery experience; and other pertinent information. Approximately 73 percent of our loan portfolio is secured by real estate, and a significant decline in real estate market values may require an increase in the allowance for loan losses.

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Mortgage Servicing Rights

Retained mortgage servicing rights are measured by allocating the carrying value of the loans between the assets sold and the interest retained, based on their relative fair values at the date of the sale. The subsequent measurements are determined using a discounted cash flow model. Mortgage servicing rights assets are amortized over the expected life of the loan and are evaluated periodically for impairment. The expected life of the loan can vary from management’s estimates due to prepayments by borrowers, especially when rates fall. Prepayments in excess of management’s estimates would negatively impact the recorded value of the mortgage servicing rights. The value of the mortgage servicing rights is also dependent upon the discount rate used in the model. Management reviews this rate on an ongoing basis based on current market rates. A significant increase in the discount rate would reduce the value of mortgage servicing rights.

Goodwill and Intangible Assets

At September 30, 2004, we had approximately $410 million in goodwill and other intangible assets as a result of business combinations. We adopted Financial Accounting Standard No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002. In accordance with the standard, goodwill and other intangibles with indefinite lives are no longer being amortized but instead are periodically tested for impairment. Management performs an impairment analysis for the intangible assets with indefinite lives on a quarterly basis and determined that there was no impairment as of September 30, 2004.

Financial Overview

Net income was $13.4 million, or $0.31 per diluted share, for the quarter ended September 30, 2004, as compared with $9.0 million, or $0.31 per diluted share, for the same period in 2003. For the nine month period ended September 30, 2004, net income was $30.9 million, or $0.92 per diluted share, as compared with $25.6 million, or $0.89 per diluted share, for the same period in 2003.

We incur expenses related to mergers. Accordingly, we believe that our operating results are best measured on a comparative basis excluding the impact of merger-related expenses, net of tax. Operating Income is defined as net income before merger related expenses, net of tax, and operating income per diluted share is calculated by dividing operating earnings by the same diluted share total used in determining diluted earnings per share (see Note 3 of the Notes to the Condensed Consolidated Financial Statements).

The following table presents a reconciliation of net operating income and net operating income per share to net income and net income per share for the three and nine-month periods ended September 30, 2004 and 2003:

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Table 1 — Reconciliation of Operating Income to Net Income
(in thousands, except per share data)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2004		2003		2004		2003
Net income	$	13,368	$	9,015	$	30,897	$	25,528
Merger-related expenses, net of tax		1,411		252		1,888		1,332
Operating income	$	14,779	$	9,267	$	32,785	$	26,860
Per diluted share:
Net income	$	0.31	$	0.31	$	0.92	$	0.89
Merger-related expenses, net of tax		0.03		0.01		0.06		0.05
Operating income	$	0.34	$	0.32	$	0.98	$	0.94

The return on average assets and return on average shareholders’ equity were 1.13% and 8.5%, respectively, for the third quarter of 2004 compared with 1.30% and 11.7%, respectively, in 2003. For the nine months ended September 30, 2004, the return on average assets and average shareholders’ equity were 1.15% and 9.7%, respectively, compared with 1.28% and 11.4%, respectively, for the same period in 2003.

Our return on equity is negatively impacted as the result of capital required to support goodwill under bank regulatory guidelines. To the extent this performance metric is used to compare our performance with other financial institutions that do not have merger-related intangible assets, we believe it is important to consider the impact of intangible assets. The return on average tangible shareholders’ equity (which is computed by dividing net operating income, as shown above, plus amortization of identifiable intangible assets, net of taxes, by average total shareholders’ equity less average goodwill and average identifiable intangible assets) for the three and nine-month periods ended September 30, 2004 were 24.1% and 22.8%, respectively.

At September 30, 2004 total loans were $3.3 billion, total deposits were $3.9 billion and total shareholders’ equity was $672 million. The increases since year-end 2003 are attributable to the Humboldt acquisition and continued organic growth.

Results of Operations

Net Interest Income

Net interest income is the largest source of our operating income. Net interest income was $47.3 million for the three-month period ended September 30, 2004, an increase of $18.2 million, or 62% over the comparable period in 2003. This increase is attributable to growth in outstanding average interest earning assets and interest-bearing liabilities over the comparable prior year period, primarily due to the Humboldt merger, which was completed on July 9, 2004. The fair value of earning assets acquired on that date totaled $1,287 million, and interest-bearing liabilities totaled $836 million.

For the three-month period ended September 30, 2004, the net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 4.72%, a decrease of 10 basis points as compared to the same period in 2003. This decrease is principally attributable to lower loan yields resulting from continued historically low short-term market interest rates, offset by a higher margin on the earning asset base acquired in the Humboldt merger. The third quarter 2004 margin expanded by 15 basis

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points over second quarter principally due to the Humboldt merger. This is attributed both to the higher historical margin of Humboldt and also to accretion resulting from purchase accounting adjustments.

The following table presents the condensed average balance sheet information, together with interest income and yields on average interest bearing assets and interest expense and rates paid on average interest-bearing liabilities for the three-month periods ended September 30, 2004 and 2003:

Table 2 — Average Rates and Balances (Quarterly)
(in thousands)

	QUARTER ENDED SEPTEMBER 30, 2004								QUARTER ENDED SEPTEMBER 30, 2003
	AVERAGE			INTEREST INCOME		AVERAGE YIELDS			AVERAGE			INTEREST INCOME		AVERAGE YIELDS
	BALANCE			OR EXPENSE		OR RATES			BALANCE			OR EXPENSE		OR RATES
INTEREST-EARNING ASSETS:
Loans and loans held for sale (1)	$	3,188,278		$	50,718		6.33	%	$	1,973,693		$	32,615		6.56	%
Taxable securities		711,140			7,433		4.16	%		364,620			2,726		2.97	%
Non-taxable securities (2)		66,069			1,124		6.77	%		43,331			713		6.53	%
Temporary investments		50,117			194		1.54	%		30,984			119		1.52	%
Total interest earning assets		4,015,604			59,469		5.89	%		2,412,628			36,173		5.95	%
Allowance for credit losses		(43,522	)							(25,550	)
Goodwill and intangible assets		384,833								160,494
Other assets		336,810								212,018
Total assets	$	4,693,725							$	2,759,590
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and savings accounts	$	1,847,886		$	4,063		0.87	%	$	1,075,212		$	2,079		0.77	%
Time deposits		913,495			4,864		2.12	%		583,358			3,375		2.30	%
Repurchase agreements and federal funds		59,918			207		1.37	%		59,286			154		1.03	%
Junior subordinated debentures		159,740			1,979		4.93	%		77,321			936		4.80	%
Term debt		162,900			731		1.79	%		48,712			294		2.39	%
Total interest-bearing liabilities		3,143,939			11,844		1.50	%		1,843,889			6,838		1.47	%
Non-interest-bearing deposits		875,741								583,422
Other liabilities		45,378								26,528
Total liabilities		4,065,058								2,453,839
Shareholders’ equity		628,667								305,751
Total liabilities and shareholders’ equity	$	4,693,725							$	2,759,590
NET INTEREST INCOME (1) (2)				$	47,625							$	29,335
NET INTEREST SPREAD							4.39	%							4.48	%
Impact of non-interest-bearing sources and other changes in balance sheet composition							0.33	%							0.34	%
NET INTEREREST MARGIN							4.72	%							4.82	%

(1)	Non-accrual loans are included in average balance.
(2)	Tax exempt income has been adjusted to a tax equivalent basis at a 35% effective rate.

The following table sets forth a summary of the changes in net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the three-month period ended September 30, 2004 as compared to the same period in 2003. Changes in interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances:

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Table 3 — Rate/Volume Analysis (Quarterly)
(in thousands)

	QUARTER ENDED SEPTEMBER 30
	2004 COMPARED TO 2003
	INCREASE (DECREASE)
	DUE TO CHANGE IN
	VOLUME		RATE			NET CHANGE
INTEREST-EARNING ASSETS:
Loans	$	19,364	$	(1,261	)	$	18,103
Taxable securities		3,318		1,389			4,707
Non-taxable securities (1)		386		25			411
Temporary investments		74		1			75
Total (1)		23,142		154			23,296
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and savings accounts		1,666		318			1,984
Time deposits		1,777		(288	)		1,489
Repurchase agreements and federal funds		2		51			53
Junior subordinated debentures		1,021		22			1,043
Term debt		529		(92	)		437
Total (1)		4,995		12			5,006
Net increase in net interest income	$	18,147	$	142		$	18,290

(1) Tax exempt income has been adjusted to a tax equivalent basis at a 35% effective rate.

Net interest income was $107.9 million for the nine-month period ended September 30, 2004, an increase of $24.4 million, or 29% over the comparable period in 2003. This increase is attributable to growth in outstanding average interest earning assets and interest-bearing liabilities over the comparable prior year period, primarily due to the Humboldt merger and continued organic loan growth.

For the nine-month period ended September 30, 2004, the net interest margin on a fully tax-equivalent basis was 4.65%, a decrease of 24 basis points as compared to the same period in 2003. This decrease is principally attributable to lower loan yields resulting from continued historically low short-term market interest rates, partially offset by a higher margin on the earning asset base acquired in the Humboldt merger. The higher margin due to the Humboldt merger is attributed both to the higher historical margin of Humboldt and also to accretion resulting from purchase accounting adjustments.

The following table presents the condensed average balance sheet information, together with interest income and yields on average interest bearing assets and interest expense and rates paid on average interest-bearing liabilities for the nine-month periods ended September 30, 2004 and 2003:

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Table 4 — Average Rates and Balances (Year-to-Date)
(in thousands)

	NINE MONTHS ENDED SEPTEMBER 30, 2004								NINE MONTHS ENDED SEPTEMBER 30, 2003
	AVERAGE BALANCE			INTEREST INCOME OR EXPENSE		AVERAGE YIELDS OR RATES			AVERAGE BALANCE			INTEREST INCOME OR EXPENSE		AVERAGE YIELDS OR RATES
INTEREST-EARNING ASSETS:
Loans and loans held for sale (1)	$	2,469,635		$	115,373		6.24	%	$	1,891,490		$	94,960		6.71	%
Taxable securities		579,281			17,483		4.03	%		311,486			8,169		3.51	%
Non-taxable securities (2)		46,031			2,337		6.78	%		60,560			2,971		6.56	%
Temporary investments		24,476			82		0.45	%		48,160			420		1.17	%
Total interest earning assets		3,119,423			135,275		5.79	%		2,311,696			106,520		6.16	%
Allowance for credit losses		(32,282	)							(25,550	)
Goodwill and intangible assets		235,213								160,639
Other assets		262,402								212,158
Total assets	$	3,584,756							$	2,658,943
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and savings accounts	$	1,440,697		$	9,133		0.85	%	$	1,036,099		$	6,919		0.89	%
Time deposits		707,083			11,468		2.17	%		608,628			11,283		2.48	%
Repurchase agreements and federal funds		67,243			529		1.05	%		40,353			371		1.23	%
Junior subordinated debentures		118,691			4,222		4.75	%		75,782			2,787		4.92	%
Term debt		105,632			1,440		1.82	%		31,877			696		2.92	%
Total interest-bearing liabilities		2,439,346			26,792		1.47	%		1,792,739			22,056		1.64	%
Non-interest-bearing deposits		685,502								529,970
Other liabilities		32,530								36,243
Total liabilities		3,157,378								2,358,952
Shareholders’ equity		427,378								299,991
Total liabilities and shareholders’ equity	$	3,584,756							$	2,658,943
NET INTEREST INCOME (1) (2)				$	108,483							$	84,464
NET INTEREST SPREAD							4.33	%							4.52	%
Impact of non-interest-bearing sources and other changes in balance sheet composition							0.32	%							0.37	%
NET INTEREREST MARGIN							4.65	%							4.89	%

(1)	Non-accrual loans are included in average balance.
(2)	Tax exempt income has been adjusted to a tax equivalent basis at a 35% effective rate.

The following table sets forth a summary of the changes in net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the nine-month period ended September 30, 2004 as compared to the same period in 2003. Changes in interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances:

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Table 5 — Rate/Volume Analysis (Year-to-Date)
(in thousands)

	NINE MONTHS ENDED SEPTEMBER 30
	2004 COMPARED TO 2003
	INCREASE (DECREASE)
	DUE TO CHANGE IN
	VOLUME			RATE			NET CHANGE
INTEREST-EARNING ASSETS:
Loans	$	27,382		$	(6,969	)	$	20,413
Taxable securities		7,924			1,390			9,314
Non-taxable securities (1)		(735	)		101			(634	)
Temporary investments		(150	)		(188	)		(338	)
Total (1)		34,421			(5,666	)		28,755
INTEREST-BEARING LIABILITIES:
Interest-bearing checking and savings accounts		2,581			(367	)		2,214
Time deposits		1,696			(1,511	)		185
Repurchase agreements and federal funds		218			(60	)		158
Junior subordinated debentures		1,529			(94	)		1,435
Term debt		1,089			(345	)		744
Total (1)		7,113			(2,376	)		4,736
Net increase in net interest income	$	27,308		$	(3,290	)	$	24,019

(1) Tax exempt income has been adjusted to a tax equivalent basis at a 35% effective rate.

Additional information on our exposure to changes in market interest rates is included in the Asset/Liability Management section below.

Provision for Loan Losses

The provision for loan losses was $1.5 million, or 0.19% of average loans on an annualized basis, for the three months ended September 30, 2004, compared with $1.1 million, or 0.22% of average loans on an annualized basis, for the same period in 2003. For the nine-month period ended September 30, 2004, the provision for loan losses was $3.7 million, or 0.20% of loans on an annualized basis, compared with $3.5 million, or 0.25% of average loans on an annualized basis, for the same period in 2003. The decreases in the provision for loan losses as a percentage of average loans is principally attributable to the lower levels of net charge-offs.

Net charge-offs for the three months ended September 30, 2004 were $1.5 million, or 0.18% of average loans on an annualized basis, compared to $1.1 million, or 0.22% of average loans on an annualized basis, for the same period in 2003. For the nine-month period ended September 30, 2004, net charge-offs were $1.7 million, or 0.09% of average loans on an annualized basis, compared to $2.8 million, or 0.21% of loans on an annualized basis for the same period in 2003. The decreases for both the three and nine-month periods in 2004 are principally attributable to the identification of certain problem loans after completion of the Centennial acquisition during the fourth quarter of 2002 and subsequent recognition of related losses in 2003.

Effective September 30, 2004, a portion of the allowance for loan losses that has been allocated to cover potential losses associated with unfunded lending commitments (such as letters of credit) was reclassified

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from the allowance for loan losses to other liabilities. We refer to this as the “Reserve for Unfunded Commitments” (“RUC”). No adjustments were made to the provision for loan losses in connection with this reclassification. In future periods, the reserve for unfunded commitments will be increased or decreased (as the case may be) through charges or credits to other non-interest expense.

During the third quarter of 2004, in connection with the Humboldt acquisition, we refined our model for determining the allowance for loan losses. These refinements did not result in a material change in the amount of provision for loan losses recognized during the third quarter of 2004.

The ratio of allowance for loan losses to total loans and the allowance for credit losses (which includes the allowance for loan losses and the reserve for unfunded commitments) to total loans were 1.31% and 1.34 %, respectively, as of September 30, 2004. The allowance for credit losses was 1.27% of total loans at December 31 and September 30, 2003.

The provision for loan losses and allowance for loan losses reflect management’s consideration of the various risks in the loan portfolio. Based on current portfolio and economic information, we expect net charge-offs will fall in the range of 15 to 25 basis points of average loans annually; however, quarterly results may be higher or lower than this range. Additional discussion of loan quality and the allowance for loan losses is provided in the Asset Quality discussion section of this Report.

Non-Interest Income

Non-interest income for the quarter ended September 30, 2004 was $11.8 million, an increase of $2.3 million, or 24%, over the same period in 2003. For the nine-month period ended September 30, 2004, non-interest income was $29.7 million, a decrease of $1.7 million, or 5%, from the same period in 2003. The following table presents the key components on non-interest income for the three and nine-month periods ended September 30, 2004 and 2003:

Table 6 — Non-Interest Income
(In thousands)

	Three Months Ended										Nine Months Ended
	September 30,										September 30,
					Change			Change							Change			Change
	2004		2003		Amount			Percent			2004		2003		Amount			Percent
Deposit service charges	$	5,323	$	3,256	$	2,067			63	%	$	11,723	$	9,368	$	2,355			25	%
Brokerage fees		2,787		2,635		152			6	%		8,692		6,944		1,748			25	%
Mortgage banking revenue		1,836		3,159		(1,323	)		(42	%)		5,884		10,273		(4,389	)		(43	%)
Securities gains		13		10		3			30	%		19		2,153		(2,134	)		(99	%)
Other		1,863		457		1,406			308	%		3,372		2,601		771			30	%
Total	$	11,822	$	9,517	$	2,305			24	%	$	29,690	$	31,339	$	(1,649	)		(5	%)

Total deposit service charges for the three-month period ended September 30, 2004 were $5.3 million, an increase of $2.1 million, or 63%, over the same period in 2003. This increase is principally attributable to the Humboldt merger. The deposit service charge structures for Humboldt were conformed to the Umpqua Bank standards as of the merger date. As a result of these changes, total deposit service charges derived from the California region (formerly Humboldt) increased by approximately $500,000 over the second quarter results recorded by Humboldt. Growth in deposit service charges was a component of our expected synergies for the merger and was forecast to be approximately $2 million annually. Based on the results experienced during the first quarter of combined operations, we expect this synergy target will be realized.

21

Total brokerage fees for the three-month period ended September 30, 2004 were $2.8 million, an increase of $152,000, or 6%, over the same period in 2003. For the nine-month period ended September 30, 2004, brokerage fees were $8.7 million, an increase of $1.7 million, or 25%, over the same period in 2003. This increase is principally attributable to improved equity market conditions, additional brokerage staff and enhanced sales management.

The following table presents the key components of mortgage banking revenue for the three and nine-month periods ended September 30, 2004 and 2003:

Table 7 — Mortgage Banking Revenue
(In thousands)

	Three Months Ended												Nine Months Ended
	September 30,												September 30,
							Change			Change									Change			Change
	2004			2003			Amount			Percent			2004			2003			Amount			Percent
Gains on sale	$	1,959		$	2,424		$	(465	)		(19	%)	$	5,135		$	12,676		$	(7,541	)		(59	%)
Servicing fee revenue, net		196			(904	)		1,100			(122	%)		(398	)		(2,093	)		1,695			(81	%)
Valuation (impairment) / recovery		(319	)		1,640			(1,959	)		(119	%)		1,147			(310	)		1,457			(470	%)
Total	$	1,836		$	3,160		$	(1,324	)		(42	%)	$	5,884		$	10,273		$	(4,389	)		(43	%)

The decreases in gains on sale for the three and nine-month periods in 2004 is principally attributable to decreased origination and sale volumes due to higher market interest rates in 2004. The Humboldt acquisition did not have a material impact on mortgage gains. Servicing fee revenue for the third quarter of 2004 increased by $1.1 million, or 122%, over the same period in 2003. This is principally attributable to lower amortization of mortgage servicing rights as a result of higher market interest rates and lower loan prepayment speeds. During the third quarter of 2004, a valuation reserve charge was incurred for $319,000, as compared to a reserve recovery of $1.6 million for the same period in 2003. For the nine-month period ended September 30, 2004, net servicing fee revenue increased by $1.7 million, or 81%, over the same period in 2003. This increase is principally attributable to lower mortgage servicing rights amortization. A valuation reserve recovery of $1.1 million was recorded during the nine-month period ended September 30, 2004. During the same nine-month period in 2003, which was principally a period of historically low rates and high levels of prepayment and refinance activity, a valuation impairment reserve of $310,000 was recorded. Please see the Mortgage Servicing Rights section of this Report for additional information on impairment.

During the third quarter of 2004, after completion of a strategic evaluation of mortgage operations, we terminated our wholesale production unit. Although this decision will result in lower origination volumes and related gains on sale in future periods, we expect that the overall level of profitability of the mortgage segment will be positively impacted as a result of decreased operating expenses.

No material securities gains were recorded during the three-month periods ended September 30, 2004 or 2003, or for the nine month period ended September 30, 2003. Total gains on the sale of securities for the nine-month period ended September 30, 2003 were $2.2 million. Substantially all of this gain was recorded in connection with $30 million in securities sales initiated during the second quarter of 2004. The sales were in connection with a comprehensive review of the securities portfolio in light of changes in market interest rates and in consideration of offsetting valuation reserve adjustments related to mortgage servicing rights.

Other non-interest income for the three-month period ended September 30, 2004 was $1.9 million, an increase of $1.4 million, or 308%, over the same period in 2003. This increase is principally attributable to the Humboldt merger, which contributed approximately $920,000 of other non-interest income for the quarter ended September 30, 2004. The main components of this were ATM fees of $214,000, SBA-related fees of $160,000 and earnings on company-owned life insurance policies of $230,000.

22

For the nine-month period ended September 30, 2004, total other non-interest income was $3.4 million, an increase of $771,000, or 30%, as compared to the same period in 2003. This increase is principally attributable to the additional revenues resulting from the Humboldt merger (described above), offset by a gain of approximately $400,000 that was recognized during the second quarter of 2003 in connection with the sale of our credit card portfolio to a third party.

Non-Interest Expense

Non-interest expense for the quarter ended September 30, 2004 was $37.7 million, an increase of $14.0 million, or 59%, over the same period in 2003. For the nine-month period ended September 30, 2004, non-interest expense was $86.7 million, an increase of $14.8 million, or 21%, from the same period in 2003. The following table presents the key elements of non-interest expense for the three and nine-month periods ended September 30, 2004 and 2003:

Table 8 — Non-Interest Expense
(In thousands)

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
					Change		Change							Change			Change
	2004		2003		Amount		Percent			2004		2003		Amount			Percent
Compensation and benefits	$	19,744	$	13,438	$	6,306		47	%	$	47,162	$	39,507	$	7,655			19	%
Occupancy and equipment		5,746		3,535		2,211		63	%		14,014		11,064		2,950			27	%
Communications		1,559		1,160		399		34	%		4,099		3,531		568			16	%
Marketing		1,758		1,106		652		59	%		3,419		2,750		669			24	%
Stationery and supplies		535		462		73		16	%		1,387		1,674		(287	)		(17	%)
Professional fees and other services		2,824		1,595		1,229		77	%		6,091		5,742		349			6	%
Intangible amortization		669		96		573		597	%		842		306		536			175	%
Merger-related expenses		2,176		394		1,782		452	%		2,941		2,082		859			41	%
Other		2,692		1,913		779		41	%		6,696		5,183		1,513			29	%
Total	$	37,703	$	23,699	$	14,004		59	%	$	86,651	$	71,839	$	14,812			21	%

Compensation and benefits expense for the three and nine-month periods ended September 30, 2004 increased by $6.3 and $7.7 million, respectively, over the same periods in 2003. Approximately $5.5 million of the increase for both the three and nine-month periods is attributable to the inclusion of expenses for our California operations in the third quarter of 2004. The remaining increase is principally attributable to staff increases for new stores and operational support functions, annual merit increases, and increased variable compensation for loan officers and investment brokers.

Occupancy and equipment expense for the three and nine-month periods ended September 30, 2004 increased by $2.2 million and $3.0 million, respectively, over the same periods in 2003. Approximately $1.3 million of the increase for both the three and nine month periods is attributable to the inclusion of expenses for our California operations in the third quarter of 2004. The remaining increase is principally attributable to the opening of 3 new stores since October 1, 2003.

The increases in communications, marketing, stationery/supply and professional/service fee expenses for the three-month period ended September 30, 2004 are all principally attributable to the inclusion of expenses for our California operations in the third quarter of 2004. The year-to-date increases are principally attributable to the inclusion of expenses related to our California operations in the third quarter of 2004 and increased costs associated with growth in the number of stores and customer accounts.

23

Intangible amortization expense for the three-month and nine-month periods ended September 30, 2004 increased by $573,000 and $536,000, respectively, over the same periods in 2003. These increases are both attributable to core deposit intangible amortization related to the Humboldt merger. Note 2 of the Notes to the Condensed Consolidated Financial Statements includes information regarding expected core deposit amortization for the years 2005 through 2009.

We incur significant expenses related to mergers that cannot be capitalized. Generally, these expenses begin to be recognized while due diligence is being conducted and continue until such time as all systems have been converted and operational functions integrated. Merger-related expenses are included as a unique line item on the income statement and are excluded from the calculation of certain performance ratios since we believe that they not reflective of core operating results. Total merger-related expenses for the three-month periods ended September 30, 2004 and 2003 were $2.2 million and $394,000, respectively. For the nine-month period ended September 30, 2004, total merger related expense was $2.9 million, as compared to $2.1 million in 2003.

The following table presents the key components of merger-related expense for the three and nine-month periods ended September 30, 2004 and 2003. Substantially all of the merger-related expenses incurred in 2004 are in connection with the Humboldt merger and substantially all of the merger-related expenses incurred during 2003 were in connection with the Centennial merger.

Table 9 — Merger-Related Expense
(In thousands)

	Three Months Ended									Nine Months Ended
	September 30,									September 30,
					Change		Change							Change			Change
	2004		2003		Amount		Percent			2004		2003		Amount			Percent
Professional fees	$	280	$	56	$	224		400	%	$	528	$	363	$	165			45	%
Compensation and relocation		333		—		333	nm				410		526		(116	)		(22	%)
Communications		66		—		66	nm				87		169		(82	)		(49	%)
Premises and equipment		761		262		499		190	%		761		657		104			16	%
Charitable contributions		135		—		135	nm				135		—		135		nm
Other		601		75		526		701	%		1,020		367		653			178	%
Total	$	2,176	$	393	$	1,783		454	%	$	2,941	$	2,082	$	859			41	%
nm-not meaningful

We expect to incur approximately $3.5 million of additional merger-related expenses for the Humboldt integration, substantially all of which will be recognized during the fourth quarter of 2004 and relates to the write-off of computer hardware and software that is being replaced. Accrued merger expenses at September 30, 2004 were $2.4 million and consisted primarily of accrued severance related benefits and certain contract termination costs.

We view the Bank’s efficiency ratio (total non-interest expense as a percentage of net interest income plus total non-interest income) as a key performance metric. The Bank’s efficiency ratio, excluding the impact of merger-related expenses, was 55.4% for the third quarter of 2004, as compared to 55.9% for the same period in 2003. On a year-to-date basis as of September 30, 2004, the efficiency ratio (excluding merger-related expenses) was 56.1%, unchanged from the same period in 2003. Although there was no significant improvement in these ratios for 2004, it is important to note that the overall level of efficiency was maintained during the first quarter of combined operations with Humboldt. Since Humboldt Bank historically operated with an efficiency ratio in the mid-60 percent range, we believe the efficiency results for the third quarter of 2004 are an indicator that our integration synergies are line with original estimates.

24

Income Taxes

Income tax expense for the three-month period ended September 30, 2004 was $6.5 million, compared with $4.8 million for the same period in 2003. The effective tax rate (income tax expense as a percentage of pre-tax income) for the third quarter of 2004 was 32.8%, as compared to 34.9% for the same period in 2003. For the nine-month period ended September 30, 2004, income tax expense totaled $16.4 million, as compared to $14.0 million for the same period in 2003. The effective rate for the nine-month period ended September 30, 2004 was 34.6%, as compared to 35.4% for the same period in 2003.

Financial Condition

Cash and Equivalents

Total cash and equivalents at September 30, 2004 were $246 million, an increase of $112 million over year-end 2003. Approximately $54 million of cash and equivalents were acquired in connection with the Humboldt merger. Substantially all of the remaining increase is attributable to large deposits received in late September 2004. Since these deposits are viewed as temporary, they will not be available for the investment in loans or investment securities.

Investment Securities

Total investment securities as of September 30, 2004 were $752 million, as compared to $517 million at December 31, 2004. This increase is principally attributable to the Humboldt merger, in which investment securities with a fair value of approximately $219 million were acquired. Excluding the acquired investment portfolio, a total of $134 million of securities were purchased during the nine-month period ended September 30, 2004 (none during the three-month period then ended).

The following table presents the investment securities portfolio by major type as of September 30, 2004 and 2003:

25

Table 10 — Investment Securities
(in thousands)

	Investment Securities Available for Sale
	September 30, 2004					December 31, 2003
	Fair Value		%			Fair Value		%
U.S. Treasury and agencies	$	233,695		31	%	$	172,774		34	%
Mortgage-backed		159,436		22	%		108,820		22	%
Collateralized mortgage obligations		237,264		32	%		146,570		29	%
Obligations of states and political subdivisions		59,098		8	%		24,267		5	%
Other		49,045		7	%		49,473		10	%
Total	$	738,538		100	%	$	501,904		100	%

	Investment Securities Held to Maturity
	September 30, 2004					December 31, 2003
	Amortized					Amortized
	Cost		%			Cost		%
U.S. Treasury and agencies	$	—		0	%	$	—		0	%
Mortgage-backed		—		0	%		—		0	%
Collateralized mortgage obligations		—		0	%		—		0	%
Obligations of states and political subdivisions		11,965		97	%		14,237		97	%
Other		375		3	%		375		3	%
Total	$	12,340		100	%	$	14,612		100	%

For the three and nine-month periods ended September 30, 2004 the investment securities portfolio had net unrealized gains of $15.2 million and $2.3 million, respectively. These gains are principally attributable to changes (decreases) in market interest rates from June 30, 2004 and December 31, 2003, respectively.

The average duration for the investment securities portfolio at September 30, 2004 was approximately 2.2 years. Information on average investment securities balances and average fully tax-equivalent yields is included in Tables 2 and 4 under the Net Interest Income section of this Report.

Loans

Total loans as of September 30, 2004 were $3.3 billion, as compared to $2.0 billion at December 31, 2003. This increase is attributable to the Humboldt merger (total loans acquired of $1.1 billion) and organic growth. Annualized organic loan growth for the three and nine-month month periods ended September 30, 2004 was 21% and 18%, respectively. Third quarter 2004 loan growth was strong in both the Oregon/Washington and California markets, which recorded growth of $74 million and $34 million, respectively. This growth is consistent with recent periods and is attributed to continued improvement of economic conditions in our markets resulting in strong loan demand, the quality of our loan origination staff and the fact that most loan decisions can be made locally.

The following table presents the major components of the loan portfolio at September 30, 2004, December 31, 2003 and September 30, 2003:

26

Table 11 — Loans by Type
(in thousands)

	September 30, 2004					December 31, 2003					September 30, 2003
	$		%			$		%			$		%
Construction and development	$	427,671		13	%	$	238,218		12	%	$	243,952		13	%
Commercial real estate		1,575,864		48	%		918,199		45	%		849,096		43	%
Commercial & industrial		675,678		20	%		495,645		25	%		515,878		27	%
Agriculture		81,378		2	%		31,497		2	%		24,813		1	%
Multi-family		182,811		6	%		120,956		6	%		112,044		6	%
Residential term		94,753		3	%		93,330		5	%		111,529		6	%
Home equity		145,085		4	%		44,730		2	%		43,441		2	%
Consumer and other		139,897		4	%		61,012		3	%		34,729		2	%
Total	$	3,323,137		100	%	$	2,003,587		100	%	$	1,935,482		100	%

Information on average loan balances and average yields is included in Tables 2 and 4 under the Net Interest Income section of this Report.

Asset Quality

Non-performing assets, which include non-accrual loans, loans past-due 90 days or more and still accruing interest and other real estate owned, totaled $28.4 million at September 30, 2004, as compared to $14.0 million at December 31, 2003 and $15.8 million at September 30, 2003. Total non-performing loans at September 30, 2004 were $27.8 million, as compared to $11.4 million at December 31, 2003 and $13.4 million at September 30, 2003.

The increase in non-performing loans since December 31, 2003 is principally attributable to non-performing loans acquired in the Humboldt merger (approximately $4.9 million) and four real estate secured loans comprising a total aggregate outstanding relationship balance of approximately $10 million that were placed on non-accrual status during the third quarter of 2004.

Loans are classified as non-accrual when collection of principal or interest is doubtful—generally if they are past due as to maturity or payment of principal or interest by 90 days or more—unless such loans are well-secured and in the process of collection. Additionally, all loans that are “impaired” in accordance with SFAS No. 114, Accounting by Creditors for the Impairment of a Loan, are considered for non-accrual status. These loans will typically remain on non-accrual status until all principal and interest payments are brought current and the prospects for future payments in accordance with the loan agreement appear relatively certain. Foreclosed properties held as other real estate owned are recorded at the lower of the recorded investment in the loan or market value of the property less expected selling costs. Other real estate owned at September 30, 2004 totaled $641,000 and consisted of six properties, three of which were under contract for sale. No significant gains or losses are expected in connection with the disposition of these properties.

The following table presents information about non-performing assets, including asset quality ratios as of September 30, 2004, June 30, 2004, December 31, 2003 and September 30, 2003:

27

Table 12 — Non-Performing Assets
(in thousands)

	September 30,			June 30,			December 31,			September 30,
	2004			2004			2003			2003
Loans on non-accrual status	$	27,299		$	11,648		$	10,498		$	12,861
Loans past due 90 days or more and still accruing		497			704			927			533
Total non-performing loans		27,796			12,352			11,425			13,394
Other real estate owned		641			724			2,529			2,452
Total non-performing assets	$	28,437		$	13,076		$	13,954		$	15,846
Total non-performing loans as a percentage of total loans		0.84	%		0.57	%		0.57	%		0.69	%
Total non-performing assets as a percentage of total assets		0.58	%		0.41	%		0.47	%		0.56	%

The following table provides an analysis of the changes in the ALL for the three and nine-month periods ended September 30, 2004 and 2003:

28

Table 13 — Allowance for Loan Losses
(in thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Balance beginning of period	$	27,319		$	25,316		$	25,352		$	24,731
Provision for loan losses		1,479			1,050			3,654			3,475
Loans charged-off		(2,124	)		(2,045	)		(2,986	)		(4,486	)
Charge-off recoveries		659			991			1,313			1,592
Net charge-offs		(1,465	)		(1,054	)		(1,673	)		(2,894	)
Reclassification (1)		(1,216	)		—			(1,216	)		—
Change incident to merger		17,257			—			17,257			—
Balance end of period	$	43,374		$	25,312		$	43,374		$	25,312
Reserve for unfunded commitments	$	1,216		$	—		$	1,216		$	—
Allowance for credit losses (2)	$	44,590		$	25,312		$	44,590		$	25,312
As a percentage of average loans (annualized):
Net charge-offs		0.18	%		0.22	%		0.09	%		0.21	%
Provision for loan losses		0.19	%		0.22	%		0.20	%		0.25	%
Allowance for loan losses as a percentage of:
Period end loans		1.31	%		1.31	%		1.31	%		1.31	%
Non-performing loans		156	%		189	%		156	%		189	%
Allowance for credit losses as a percentage of:
Period end loans		1.34	%		1.31	%		1.34	%		1.31	%
Non-performing loans		160	%		189	%		160	%		189	%

(1) See Note 7 of Notes to the Condensed Consolidated Financial Statements

(2) Allowance for loan losses plus reserve for unfunded commitments

As of September 30, 2004, approximately $1.2 million of the ALL associated with unfunded lending commitments was reclassified to other liabilities. We refer to this as the reserve for unfunded commitments (“RUC”). Prior to 2004, we did not attribute any portion of the ALL for unfunded commitments. Accordingly, there is no restatement of prior periods in Table 13 above.

The ALL and RUC are maintained at a levels considered by management to be adequate to absorb losses inherent in the loan portfolio. Management monitors and evaluates the adequacy of the ALL and RUC on a quarterly basis. The following tools are used to manage and evaluate the overall quality of the loan portfolio:

• Internal risk grading system

• Internal credit review process

• Regulatory examination results

• Monitoring of charge-off, past due and non-performing activity and collection efforts

• Assessment of economic and business conditions in our market areas

On a quarterly basis, losses inherent in the portfolio are estimated by reviewing the following key elements of the loan portfolio:

• Portfolio performance measures

• Portfolio mix

• Portfolio growth rates

29

• Historical loss rates

• Portfolio concentrations

• Current economic conditions in our market areas

During the third quarter of 2004, in connection with the Humboldt merger, we refined the model for determining the adequacy of the ALL and RUC. These refinements included the bifurcation of the portfolio based on geography (Oregon/Washington and California) and the establishment of loss factors for each portfolio segment. In connection with the Humboldt merger, Humboldt’s ALL of approximately $17.3 million was transferred into our ALL at its carrying value without any adjustments. There were no material changes in the amount of provision for loan losses or the ALL as a result of the model refinement.

The total recorded investment in loans classified as “impaired” in accordance with SFAS No. 114 (Accounting by Creditors for Impairment of a Loan) was $35.3 million at September 30, 2004. Of this total, approximately $27.8 million, or 79%, were included in non-performing loans. Included in the allowance for loan losses at September 30, 2004 were specific valuation reserves for impaired loans totaling $3.0 million. Management closely monitors all impaired loans and the decision to continue interest accrual or to recognize interest on a cash basis for a loan classified as impaired requires the approval of the Allowance for Loan Losses Committee.

We believe that the ALL and RUC at September 30, 2004 are sufficient to absorb losses inherent in the loan portfolio. This assessment is based upon the best available information and does involve uncertainty and matters of judgment. Accordingly, the adequacy of the loan loss reserve cannot be determined with precision and could be susceptible to significant change in future periods.

Mortgage Servicing Rights

The following table presents the key elements of our mortgage servicing rights asset as of September 30, 2004 and December 31, 2003:

Table 14 — Mortgage Servicing Rights
(in thousands)

	September 30,			December 31,
	2004			2003
Principal balance of residential mortgage loans serviced for others	$	1,093,460		$	1,170,000
Mortgage servicing asset	$	11,900		$	12,515
Valuation reserve		(760	)		(1,907	)
Net mortgage servicing rights	$	11,140		$	10,608

As of September 30, 2004, we serviced residential mortgage loans for others with an aggregate outstanding principal balance of approximately $1.1 billion for which servicing assets have been recorded. In accordance with generally accepted accounting principles, the servicing asset recorded at the time of sale is amortized over the term of, and in proportion to, net servicing revenues.

Our servicing portfolio is segmented for purposes of determining impairment. To the extent the fair value for any segment is less than the carrying value, an impairment reserve is recorded. The following table presents information about the segmentation of our mortgage servicing rights portfolio as of September 30, 2004:

30

Table 15 — Mortgage Servicing Rights Valuation Analysis
(in thousands)

	Aggregate Principal		Servicing Asset								Net Carrying
	Balance		Net Book		Fair		Valuation		Net Carrying		Value/Agg.
Segment	Outstanding		Value		Value		Reserve		Value		Prin. Balance
ARM/Hybrid ARM	$	204,298	$	1,898	$	1,268	$	630	$	1,268		0.62	%
Fixed less than 5.50%		277,968		3,479		3,548		—		3,479		1.25	%
Fixed 5.50% - 6.24%		347,388		3,976		4,209		—		3,976		1.14	%
Fixed 6.25% - 6.99%		183,362		1,907		1,777		130		1,777		0.97	%
Fixed 7% or greater		80,444		640		757		—		640		0.80	%
Total portfolio	$	1,093,460	$	11,900	$	11,559	$	760	$	11,140		1.02	%

The value of servicing rights is impacted by market rates for mortgage loans. Historically low market rates, which have been experienced at times during the past two years, can cause prepayments to increase as a result of refinancing activity. To the extent prepayment speeds exceed those estimated at the time servicing assets are originally recorded, it is possible that certain mortgage servicing rights assets may become impaired to the extent that the fair value is less than carrying value (net of any previously recorded amortization or valuation reserves). Generally speaking, the fair value of our mortgage servicing rights will increase as market rates for mortgage loans rise and decrease if market rates fall.

Deposits

Total deposits as of September 30, 2004 were $3.9 billion, as compared to $2.4 billion at December 31, 2003. This increase is attributable to the Humboldt merger (total deposits assumed of $1.2 billion) and organic growth. Total deposits at September 30, 2004 included approximately $50 million of escrow-related deposits that are temporary in nature. Excluding the impact of these deposits, annualized deposit growth for the nine-months ended September 30, 2004 was approximately 17%. This growth is consistent with recent periods and is attributed to our unique delivery process, service quality focus, marketing and product design, and not as the result of paying rates in excess of market. Information on average deposit balances and average rates paid is included in Tables 2 and 4 under the Net Interest Income section of this Report.

The following table presents the deposit balances by major category as of September 30, 2004, December 31, 2003 and September 30, 2003:

Table 16 — Deposits
(in thousands)

	September 30, 2004					December 31, 2003					September 30, 2003
	$		%			$		%			$		%
Non-interest bearing	$	935,206		24	%	$	589,901		25	%	$	599,939		27	%
Interest bearing demand		1,502,899		38	%		1,048,733		44	%		937,606		40	%
Savings and money market		531,466		14	%		145,960		6	%		147,849		7	%
Time, less than $100,000		436,025		11	%		304,670		13	%		317,336		14	%
Time, $100,000 or greater		513,675		13	%		288,928		12	%		260,481		12	%
Total	$	3,919,271		100	%	$	2,378,192		100	%	$	2,263,211		100	%

As of September 30, 2004, we had $72 million of brokered time deposits. Of this total, $62 million are fixed-rate instruments that mature prior to June 30, 2006. One brokered issuance, in the amount of $10 million,

31

matures in June 2010. This issuance is callable at our option. We expect that brokered certificates of deposit will be used from time to time in the future as an alternative source of funding.

Asset/Liability Management

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

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

The estimated impact on our net interest income over a one-year time horizon as of September 30, 2004 is presented in the table below. The interest rate simulation assumes a parallel and sustained shift in market interest rates of 25 basis points per month until the rate shock limit is reached and no change in the composition or size of the balance sheet. For example, the “up 200 basis points” scenario is based on a theoretical increase in market rates of 25 basis points per month for 8 months and then held constant for four months.

Table 17 — Interest Rate Simulation

	Increase (Decrease) in Net Interest			Percentage
Scenario	Income from Flat Rate Scenario			Change
	(Dollars in thousands)
Up 200 basis points	$	8,081			3.7	%
Up 100 basis points		5,023			2.3	%
Down 100 basis points		(5,895	)		(2.7	%)
Down 200 basis points		(10,669	)		(4.9	%)

We acquired four derivative financial instruments in connection with the Humboldt merger. Subsequent to completion of the merger on July 9, 2004, an evaluation of the derivatives was performed in light of the combined company’s interest rate risk exposure. As a result of this review, all four of the derivatives were terminated as of September 30, 2004.

The following table presents information regarding the interest rate swap contracts terminated during the third quarter of 2004:

32

Table 18 — Interest Rate Swap Contracts Terminated
(in thousands)

						Fair Value			Gain
Issue	Notional		Maturity	Hedge	Hedged	at			(Loss) on
Date	Amount		Date	Type	Instrument	Acquisition			Sale
January 2002	$	25,000	January 2005	Cash Flow	Loans	$	266		$	(26	)
July 2002		25,000	July 2005	Cash Flow	Loans		280			(17	)
December 2002		10,000	June 2010	Fair Value	Callable CD		(100	)		55
December 2001		10,000	December 2006	Cash Flow	Trust Preferred		(335	)		(91	)
Total interest rate swaps	$	70,000				$	111		$	(79	)

Capital Resources and Liquidity

Shareholders’ equity at September 30, 2004 was $672 million, an increase of $353 million, or 111% from year-end 2003. The following table presents a summary of the major changes in stockholders’ equity for the three-month and nine-month periods ended September 30, 2004:

Table 19 — Summary of Changes in Shareholders’ Equity

	Periods Ended September 30, 2004
	Three Months			Nine Months
Shareholders’ equity at beginning of period	$	322,039		$	318,969
Net income		13,368			30,897
Dividends declared		(2,639	)		(5,472	)
Shares issued in connection with various plans, and related tax benefits		3,566			5,629
Shares repurchased		—			(6,062	)
Shares issued in connection with merger		326,666			326,666
Other comprehensive income		8,977			1,350
Shareholders’ equity at end of period	$	671,977		$	671,977

Our cash dividend per share was increased by 50%, to $0.06 per quarter, effective with the declaration in June 2004. This increase was approved by the Board of Directors in connection with its annual review of our capital plan and in consideration of the growth in net income per share. The following table presents cash dividends declared for the three and nine-month periods ended September 30, 2004 and 2003:

Table 20 — Cash Dividends

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2004			2003			2004			2003
Dividend per share	$	0.06		$	0.04		$	0.16		$	0.12
Payout ratio		19	%		13	%		17	%		13	%

Although we expect to pay cash dividends on a quarterly basis, there is no assurance that any future cash dividends will be paid. The payment of cash dividends is subject to Federal regulatory requirements for capital levels and other restrictions. In addition, the cash dividends paid by Umpqua Bank to Umpqua Holdings is subject to both Federal and State regulatory requirements.

33

Our board of directors has approved a stock repurchase plan for up to 1.5 million shares of common stock. As of September 30, 2004, a total of 1.1 million shares remain available for repurchase under this authorization, which expires on June 30, 2005. In addition, our stock option plans provide for option holders to pay for the exercise price in part or whole by tendering previously held shares. A table is included under Part II, Item 2 of this Report detailing the shares repurchased by month during 2004. Although no shares were repurchased in open market transactions during the third quarter, we do expect to repurchase additional shares in the future. The timing and amount of such repurchases will be dependent upon the market price for our common stock, securities laws restricting repurchases, asset growth, earnings and our capital plan.

The following table shows Umpqua Holdings’ consolidated capital ratios, as calculated under regulatory guidelines, compared to the regulatory minimum capital ratio and the regulatory minimum capital ratio needed to qualify as a “well-capitalized” institution at September 30, 2004 and December 31, 2003:

Table 21 — Capital Ratios

	September 30,			December 31,
	2004			2003
Leverage ratio:		9.63	%		9.40	%
Regulatory minimum		4.00	%		4.00	%
Well-capitalized minimum		5.00	%		5.00	%
Tier I risk-based capital:		10.39	%		10.67	%
Regulatory minimum		4.00	%		4.00	%
Well-capitalized minimum		6.00	%		6.00	%
Total risk-based capital:		11.48	%		11.73	%
Regulatory minimum		8.00	%		8.00	%
Well-capitalized minimum		10.00	%		10.00	%

Liquidity measures the ability to meet current and future cash flow needs as they become due. Maintaining an adequate level of liquid funds, at the most economical cost, is an important component of our asset and liability management program. We have several sources of available funding to provide the required level of liquidity, including deposits and short- and long-term borrowings. Like most banking organizations, we rely primarily upon cash inflows from financing activities (deposit gathering, short-term borrowing and issuance of long-term debt) in order to fund our investing activities (loan origination and securities purchases). The investing activity cash inflows such as loan payments and securities sales and prepayments are also a significant component of liquidity. Following is a summary of our contractual obligations extending beyond one year from September 30, 2004:

Table 22 — Long-Term Contractual Obligations
(in thousands)

	Less than		1 thru 3		3 thru 5		More than
	1 year		years		years		5 years		Total
Term debt*	$	85,000	$	—	$	1,000	$	2,240	$	88,240
Junior subordinated debentures*		—		—		—		156,862		156,862
Operating leases		4,942		8,975		7,131		13,884		34,932
Other long-term liabilities		708		1,821		1,817		7,602		11,948
Total contractual obligations	$	90,650	$	10,796	$	9,948	$	180,588	$	291,982

*Excludes fair value adjustments due to purchase accounting.

34

At September 30, 2004, we had overnight investments of $124 million and available lines of credit of approximately $58 million with various financial institutions.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

     There have been no material changes in the quantitative and qualitative disclosures about market risk as of September 30, 2004 from those presented in our Annual Report on Form 10-K for the year ended December 31, 2003. Refer to the Asset/Liability Management section above for additional information on interest rate risk.

Item 4. Controls and Procedures

     Our management, including our Chief Executive Officer and Chief Financial Officer, have concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings. The disclosure controls and procedures were last evaluated by management as of September 30, 2004.

     There have been no significant changes in our internal controls or in other factors that are likely to materially affect our internal controls over financial reporting subsequent to the date of the evaluation.

Part II: OTHER INFORMATION

Item 1. Legal Proceedings

     Because of the nature of our business, we are involved in legal proceedings in the regular course of business. At this time, we do not believe that there is pending litigation the unfavorable outcome of which would result in a material adverse change to our financial condition, results of operations or cash flows.

35

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     (e) Stock Repurchase Program

	Issuer Purchases of Equity Securities
					Total Number of		Maximum Number of
					Shares		Remaining
	Total number				Purchased as		Shares that
	of Shares		Average Price		Part of		May be
Period	Purchased(1)		Paid per Share		Publicly Announced Plan(1)		Purchased
April 2004		64,003	$	19.00		69,003		1,397,697
May 2004		257,726	$	18.75		257,726		1,139,971
June 2004		—	$	—		—		1,139,971
		321,729	$	18.80		321,729		1,139,971
July 2004		—	$	—		—		1,139,971
August 2004		60,984	$	22.98		—		1,139,971
September 2004		—	$	—		—		1,139,971
		60,984	$	22.98		60,984		1,139,971

     (1) Includes 60,984 shares tendered in consideration for the exercise price of stock options in August 2004. These shares are not considered as repurchased under the publicly announced plan described in Note 2 below.

     (2) On August 13, 2002, we announced that our board of directors authorized a plan to repurchase up to 1.0 million shares of common stock. This authorization was subsequently increased to 1.5 million shares. This plan expires on June 30, 2005.

Item 3. Defaults Upon Senior Securities

     None.

Item 4. Submission of Matters to a Vote of Securities Holders

     Umpqua Holdings held a special meeting of shareholders on July 7, 2004 to consider approval of the Agreement and Plan of Reorganization providing for the merger of Humboldt Bancorp with and into Umpqua Holdings. On March 15, 2004, the record date, there were 28,517,584 shares of common stock outstanding. Holders of 22,273,506 shares (78%) were present at the meeting in person or by proxy. The vote on that resolution follows:

	Votes
For		21,576,935
Against		627,795
Abstain		68,776
Broker non-votes		6,244,077

36

Item 5. Other Information

     On September 15, 2004, Robert M. Daugherty resigned as an executive officer and employee of Umpqua Holdings and Umpqua Bank.

Item 6. Exhibits and Reports on Form 8-K

(a)	The exhibits filed as part of this Report and exhibits incorporated herein by reference to other documents are listed in the Exhibit Index to this Report.
(b)	Reports on Form 8-K:

We filed the following reports on Form 8-K during the period covered by this Report:

1.	Report filed July 8, 2004. The information attached as Exhibit 99.1 was not filed, but was furnished under Item 9, Regulation FD disclosure. The report included a press release announcing the date of the Company’s quarterly earnings conference call.
2.	Report filed July 8, 2004. The information attached as Exhibit 99 was not filed, but was furnished under Item 9, Regulation FD disclosure. The report included a press release announcing the approval by the Company’s shareholders and Humboldt Bancorp’s shareholders of the proposed merger between the Company and Humboldt.
3.	Report filed July 12, 2004. The information attached as Exhibit 99.1 was filed under Item 2, Acquisition or Disposition of Assets. The report included a press release announcing the closing of the merger between the Company and Humboldt Bancorp.
4.	Report filed July 13, 2004. The information attached as Exhibit 99.1 was not filed, but was furnished under Item 9, Regulation FD disclosure. The report included a press release announcing the promotion of David Edson to the position of President, Umpqua Bank Oregon.
5.	Report filed July 15, 2004. The information attached as Exhibit 99.1 was filed under Item 12, Results of Operations and Financial Condition. The report included a press release and financial statements announcing the Company’s financial results for the second quarter of 2004.
6.	Report filed July 15, 2004. The information attached as Exhibit 99.1 was not filed, but was furnished under Item 9, Regulation FD disclosure. The report included a statistical supplement provided to shareholders and others who had requested additional financial and statistical information from the Company that was not included in the Company’s earnings release.
7.	Report filed July 16, 2004. The information provided was not filed, but was furnished under Item 9, Regulation FD disclosure. The information included disclosures made during the Company’s quarterly earnings conference call held July 15, 2004.
8.	Report filed July 28, 2004. The information attached as Exhibit 99 was not filed, but was furnished under Item 9, Regulation FD disclosure. The report included slides for a presentation made at investor conferences.
9.	Report filed September 21, 2004. The information attached as Exhibit 99 was filed under Item 8.01, Other Events. The report included a press release announcing a cash dividend to shareholders and the time and date of its quarterly investor conference call.

37

SIGNATURES

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

UMPQUA HOLDINGS CORPORATION
(Registrant)

Dated November 9, 2004	/s/ Raymond P. Davis
	Raymond P. Davis
	President and
	Chief Executive Officer
Dated November 9, 2004	/s/ Daniel A. Sullivan
	Daniel A. Sullivan
	Executive Vice President and
	Chief Financial Officer

38

EXHIBIT INDEX

Exhibit
3.1	(a) Articles of Incorporation, as amended
3.2	(b) Bylaws, as amended
4.0	(c) Specimen Stock Certificate
10.1	Employment Agreement dated March 13, 2004, effective July 9, 2004 between the Company and Patrick J. Rusnak
10.2	Nonqualified Stock Option Agreement dated effective July 9, 2004 for Patrick J. Rusnak
10.3	Employment Agreement dated March 13, 2004, effective July 9, 2004 between the Company and Robert M. Daugherty
10.4	Deferred Compensation Plan Trust Agreement dated effective July 10, 2004 between the Company and Wells Fargo Bank for the benefit of Robert M. Daugherty and Patrick J. Rusnak
31.1	Certification of Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Risk Factors

(a) Incorporated by reference to Exhibit 3.1 to the Registration Statement on Form S-4 filed September 9, 2002.

(b) Incorporated by reference to Exhibit 3.2 to the Form 10-Q filed Mayl 10, 2004.

(c) Incorporated by reference to the Registration Statement on Form S-8 (No. 333-77259) filed with the SEC on April 28, 1999.

39

EX-10.1

                                                                    EXHIBIT 10.1

                           UMPQUA HOLDINGS CORPORATION

                              EMPLOYMENT AGREEMENT

                                       FOR

                                PATRICK J. RUSNAK

                           DATED AS OF MARCH 13, 2004



                                TABLE OF CONTENTS




                                                                                   Page
                                                                                   ----
                                                                                
1.    PURPOSE OF AGREEMENT.....................................................     1
2.    TERM OF AGREEMENT........................................................     1
3.    NO TERM OF EMPLOYMENT....................................................     1
4.    DUTIES; POSITION.........................................................     1
      4.1      Position........................................................     1
      4.2      Obligations of Officer..........................................     1
5.    COMPENSATION.............................................................     2
      5.1      Base Salary.....................................................     2
      5.2      Performance Bonus...............................................     2
      5.3      Vacation........................................................     2
      5.4      Stock Options...................................................     2
      5.5      Other Benefits..................................................     2
      5.6      Deferred Compensation...........................................     3
      5.7      Relocation Expenses.............................................     3
6.    TERMINATION..............................................................     3
      6.1      For Cause.......................................................     3
      6.2      Without Cause...................................................     3
      6.3      For Good Reason.................................................     3
      6.4      Death or Disability.............................................     4
      6.5      Resignation.....................................................     4
7.    DEFINITIONS..............................................................     4
      7.1      Cause...........................................................     4
      7.2      Good Reason.....................................................     4
      7.3      Disability......................................................     5
      7.4      Change in Control...............................................     5
8.    PAYMENT UPON TERMINATION.................................................     5
9.    SEVERANCE BENEFIT........................................................     6
10.   CHANGE IN CONTROL BENEFIT................................................     6
11.   CHANGE IN CONTROL RETENTION BONUS........................................     6
12.   EXECUTIVE SEVERANCE PLAN.................................................     7
      12.1     In General......................................................     7
      12.2     Administration of Executive Severance Plan......................     7
      12.3     Claims Procedures...............................................     7
13.   RESIGNATION PAYMENT......................................................     9
14.   CONFIDENTIAL INFORMATION.................................................     9
15.   DISPUTE RESOLUTION.......................................................    10
16.   NOTICES..................................................................    10
17.   GENERAL PROVISIONS.......................................................    11
      17.1     Governing Law...................................................    11
      17.2     Saving Provision................................................    11
      17.3     Survival Provision..............................................    11


                                        i


                                                                                
      17.4     Counterparts....................................................    11
      17.5     Entire Agreement................................................    11
      17.6     Previous Agreements.............................................    11
      17.7     Waiver..........................................................    12
      17.8     Assignment......................................................    12
      17.9     Attorneys' Fees.................................................    12
18.   ADVICE OF COUNSEL........................................................    12



Exhibit A - Employment Agreement - Performance Bonus Criteria
Exhibit B - Employment Agreement - Change In Control Bonus
Exhibit C - Employment Agreement - Deferred Compensation Interests
Exhibit D - Employment Agreement - Employment Separation Agreement and Release
                                   of Claims

                                       ii


                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "Agreement") by and between Umpqua
Holdings Corporation ("Umpqua") and Patrick J. Rusnak ("Officer"), is dated
March 13, 2004. This Agreement is effective subject to and as of the closing of
the merger (the "Merger") between Umpqua and Humboldt Bancorp ("Humboldt")
pursuant to an Agreement and Plan of Reorganization dated March 13, 2004. The
closing date of the Merger is the "Effective Date."

      1. PURPOSE OF AGREEMENT. On the Effective Date, this Agreement shall
replace Officer's existing employment agreement with Humboldt dated June 22,
2002 (the "HB Agreement"). Officer agrees that he will not be entitled to any
further benefits under the HB Agreement, except that Officer is entitled to
those benefits listed on Exhibit B as a result of the Merger and he will be
entitled to those benefits without having to terminate his employment with
Umpqua as Humboldt's successor. This Agreement sets forth the terms of Officer's
employment with Umpqua and provides Officer benefits in certain circumstances
where Officer's employment is terminated or another Change in Control (defined
below) occurs.

      2. TERM OF AGREEMENT. This Agreement starts on the Effective Date and
expires on the third anniversary of the Effective Date.

      3. NO TERM OF EMPLOYMENT. Notwithstanding the term of this Agreement,
Umpqua may terminate Officer's employment at any time for any lawful reason or
for no reason at all, subject to the provisions of this Agreement.

      4. DUTIES; POSITION.

            4.1 Position. As of the Effective Date, Officer shall be employed as
Executive Vice President/Chief Financial Officer-Umpqua Bank California Region,
and will perform such duties as may be designated by Umpqua's board of directors
(the "Board") or the Executive Vice President and Chief Financial Officer of
Umpqua, to whom Officer will directly report (the "Supervisor").

            4.2 Obligations of Officer.

                  (a) Officer agrees that to the best of Officer's ability and
            experience, Officer will at all times loyally and conscientiously
            perform all of the duties and obligations required of Officer
            pursuant to the express and implicit terms of this Agreement and as
            directed by the Board or the Supervisor.

                                       1

                  (b) Officer shall devote Officer's entire working time,
            attention and efforts to Umpqua's business and affairs, shall
            faithfully and diligently serve Umpqua's interests and shall not
            engage in any business or employment activity that is not on
            Umpqua's behalf (whether or not pursued for gain or profit) except
            for (a) activities approved in writing in advance by the Board and
            (b) passive investments that do not involve Officer providing any
            advice or services to the businesses in which the investments are
            made.

      5. COMPENSATION. For all services performed under this Agreement, Umpqua
agrees to pay the following compensation and benefits:

            5.1 Base Salary. Officer's base salary is $16,666.67 per month
($200,000 on an annualized basis) (the "Base Salary") and shall be subject to
annual increases in Umpqua's sole discretion.

            5.2 Performance Bonus. Officer is entitled to receive an annual
performance bonus, which will be targeted at 35% of the Base Salary, provided
the performance criteria set forth in Exhibit A hereto are satisfied (the
"Performance Bonus"). For the fiscal year in which the Effective Date occurs,
Officer will be entitled to (1) any appropriately pro rated bonus due under the
HB Agreement for the period ending on the day prior to the Effective Date, and
(2) the Performance Bonus based on the actual Base Salary amount paid by Umpqua
to Officer in that fiscal year. If Officer's employment terminates on the third
anniversary of the Effective Date, the Performance Bonus for that year will be
pro rated.

            5.3 Vacation. Officer is entitled to four (4) weeks vacation per
year, to be used in accordance with Umpqua's vacation policy.

            5.4 Stock Options. Umpqua shall grant to Officer the option to
purchase up to 20,000 shares of Umpqua common stock at a price equal to the last
reported market price at the close of business on the Effective Date. The option
shall become exercisable as to twenty percent (20%) of the underlying shares on
the first anniversary of the Effective Date and as to an additional twenty
percent (20%) on each subsequent anniversary of the Effective Date. The option
will be a nonqualified option and will be subject to the terms and conditions of
Umpqua's 2003 Stock Incentive Plan and the stock option agreement evidencing
such grant. All of Officer's options granted by Umpqua during the term of this
Agreement will be subject to accelerated vesting upon a Change in Control.

            5.5 Other Benefits. Officer is entitled to participate, under the
terms of the respective plans, in other benefit plans and perquisites generally
available to Umpqua's executive officers.

                                       2


            5.6 Deferred Compensation. Unless the Board in the future offers a
deferred compensation plan to its executive officers and except as set forth in
this subsection, Officer shall not be entitled to participate in a deferred
compensation plan with respect to future compensation. Umpqua will continue to
account for any of Officer's deferred compensation prior to and earned as of the
Effective Date, as listed on Exhibit C hereto, under the terms of Officer's
Deferred Compensation Agreement with Humboldt dated December 29, 2000 and
amended January 1, 2003 (the "HB Deferred Compensation Plan"). Umpqua will
continue to account for these interests by assuming all of Humboldt's rights and
obligations under the HB Deferred Compensation Plan and preserving the
distribution and other relevant features of that plan for so long as Officer has
an interest in that plan. Umpqua will transfer such deferred amounts to a "Rabbi
Trust" with an independent institutional trustee and under terms and conditions
reasonably acceptable to Umpqua and Officer and without any costs to Umpqua.
Officer will pay the administrative and other costs incurred in connection with
the Rabbi Trust. The funds transferred to the Rabbi Trust will be credited with
interest at Umpqua's prime lending rate, plus 1%, as in effect from time to
time. The crediting of interest will be made monthly and the interest will
compound monthly. Upon Officer's retirement or other termination of employment,
the Rabbi Trust funds will no longer be credited with interest at Umpqua's prime
lending rate, plus 1%; instead, investment direction of such funds will be
granted to Officer or the rate paid on the account will be as mutually agreed.
Funds in the Rabbi Trust may be subject to forfeiture as provided in Section 13
of this Agreement. Umpqua agrees to grant its consent to any amendments that are
required to be made to the HB Deferred Compensation Plan to give effect to the
intention of this Section and Exhibit C, after an opportunity to review any such
amendment.

            5.7 Relocation Expenses. If Umpqua requires Officer to relocate his
office to Portland, Oregon, Officer will be entitled to the benefits of Umpqua's
Executive Officer Relocation Program.

      6. TERMINATION. Officer's employment may be terminated before the
expiration of this Agreement as described in this Section, in which event
Officer's compensation and benefits shall terminate except as otherwise provided
in this Agreement.

            6.1 For Cause. Upon Umpqua's termination of Officer for Cause (as
defined in Section 7.1 below) ("Termination For Cause").

            6.2 Without Cause. Upon Umpqua's termination of Officer without
Cause, with or without notice, at any time in Umpqua's sole discretion, for any
reason other than for Cause or for no reason ("Termination Without Cause"). A
Change in Control does not in itself constitute Termination Without Cause.

            6.3 For Good Reason. Upon Officer's termination of the employment
for Good Reason (as defined in Section 7.2 below) ("Termination For Good
Reason").

                                       3


            6.4 Death or Disability. Upon Officer's death or Disability (as
defined in Section 7.3 below).

            6.5 Resignation. Upon Officer's voluntary resignation without Good
Reason ("Resignation"), written notice of which Officer must give Umpqua at
least six (6) months in advance of Resignation.

      7. DEFINITIONS.

            7.1 Cause. For the purposes of this Agreement, "Cause" for Officer's
termination will exist upon the occurrence of one or more of the following
events:

                  (a) Dishonest or fraudulent conduct by Officer with respect to
            the performance of Officer's duties with Umpqua;

                  (b) Conduct by Officer that materially discredits Umpqua or
            any of its subsidiaries or is materially detrimental to the
            reputation of Umpqua or any of its subsidiaries, including but not
            limited to conviction or a plea of nolo contendere of Officer of a
            felony or crime involving moral turpitude;

                  (c) Officer's willful misconduct or gross negligence in
            performance of Officer's duties under this Agreement, including but
            not limited to Officer's refusal to comply in any material respect
            with the legal directives of the Board or the Supervisor, if such
            misconduct or negligence has not been remedied or is not being
            remedied to the Board's reasonable satisfaction within thirty (30)
            days after written notice, including a detailed description of the
            misconduct or negligence, has been delivered by the Board to
            Officer;

                  (d) An order or directive from a state or federal banking
            regulatory agency requesting or requiring removal of Officer or a
            finding by any such agency that Officer's performance threatens the
            safety or soundness of Umpqua or any of its subsidiaries; or

                  (e) Material breach of Officer's fiduciary duties to Umpqua if
            such breach has not been remedied or is not being remedied to the
            Board's reasonable satisfaction within thirty (30) days after
            written notice, including a detailed description of the breach, has
            been delivered by the Board to Officer.

            7.2 Good Reason. For purposes of this Agreement, "Good Reason" for
Officer's resignation of employment will exist upon the occurrence of one or
more of the following events, without Officer's consent, if Officer has informed
Umpqua in writing of the circumstances described below in this Section 7.2

                                       4


that could give rise to resignation for Good Reason and Umpqua has not removed
the circumstances within thirty (30) days of the written notice:

                  (a) A reduction of Officer's Base Salary, unless the reduction
            is in connection with, and commensurate with, reductions in the
            salaries of all or substantially all executive officers of Umpqua;
            or

                  (b) A relocation of Officer's principal office, such that
            Officer's one-way commute distance from the location of his office
            is increased by more than forty (40) miles. Officer agrees that
            Umpqua may request that Officer relocate to Portland, Oregon with
            six (6) months prior notice and that such request and relocation
            will not give rise to "Good Reason."

            7.3 Disability. For purposes of this Agreement, "Disability" shall
mean that (i) Officer has been unable to perform Officer's duties under this
Agreement as a result of Officer's incapacity due to physical or mental illness
for at least 90 consecutive calendar days or 150 calendar days during any
consecutive 12 month period and (ii) a physician selected by Umpqua and its
insurers and acceptable to Officer or Officer's legal representative (with such
agreement on acceptability of the physician not to be unreasonably withheld),
determines the incapacity to be (a) total and permanent and (b) prohibiting of
Officer's ability to perform the essential functions of Officer's position with
or without reasonable accommodation.

            7.4 Change in Control. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred when any of the following events take
place:

                  (a) Any person (including any individual or entity), or
            persons acting in concert, become(s) the beneficial owner of voting
            shares representing fifty percent (50%) or more of Umpqua.

                  (b) A majority of the Board is removed from office by a vote
            of the Umpqua's shareholders over the recommendation of the Board
            then serving.

                  (c) Umpqua is a party to a plan of merger or plan of exchange
            and upon consummation of such plan, the shareholders of Umpqua
            immediately prior to the transaction do not own or continue to own
            (i) at least forty percent (40%) of the shares of the surviving
            company (if the then current CEO of Umpqua continues as CEO of the
            surviving organization), or (ii) at least a majority of the shares
            of the surviving organization (if the then current CEO of Umpqua
            does not continue as CEO of the surviving organization).

      8. PAYMENT UPON TERMINATION. Upon termination of Officer's employment for
any of the reasons set forth in Section 6 above, Officer will receive payment
for all Base Salary and benefits accrued as of the date of Officer's

                                       5


termination ("Earned Compensation"), which shall be paid by the end of the
business day following termination or sooner if required by applicable law.

      9. SEVERANCE BENEFIT. In the event of Termination Without Cause or
Termination for Good Reason, in addition to receiving Earned Compensation,
Officer will receive a severance benefit equal to six (6) months Base Salary,
based on Officer's Base Salary just prior to termination (the "Severance
Benefit"). The Severance Benefit shall be paid in equal installments over the
number of months of continued base salary, starting on the next regular payday
following termination. Receipt of the Severance Benefit is conditioned on
Officer having executed the Separation Agreement in substantially the form
attached hereto as Exhibit D and the revocation period having expired without
Officer having revoked the Separation Agreement. Receipt and continued receipt
of the Severance Benefit is further conditioned on Officer not being in material
violation of any material term of this Agreement or in material violation of any
material term of the Separation Agreement. Officer shall not be required to
mitigate the amount of any payments under this Section (whether by seeking new
employment or otherwise) and no such payment shall be reduced by earnings that
Officer may receive from any other source.

      10. CHANGE IN CONTROL BENEFIT. After announcement of a proposed Change in
Control and for a period continuing for one year following a Change in Control,
in the event of Termination Without Cause, Termination for Good Reason or
Officer's resignation within thirty (30) days after reassignment to a position
that is not substantially equivalent, instead of receiving the Severance Benefit
set forth in Section 9 above, Officer shall receive 24 months Base Salary, based
on Officer's Base Salary just prior to the termination of employment, as well as
200% of the bonus Officer received in the previous year (the aforementioned Base
Salary and bonus are collectively referred to as the "Change in Control
Benefit"). The Change in Control Benefit shall be paid in equal installments
over 24 months, starting on the next regular payday following termination.
Receipt of the Change in Control Benefit is conditioned on Officer having
executed the Separation Agreement in substantially the form attached hereto as
Exhibit D and the revocation period having expired without Officer having
revoked the Separation Agreement. Receipt and continued receipt of the Change in
Control Benefit is further conditioned on Officer not being in material
violation of any material term of this Agreement or in material violation of any
material term of the Separation Agreement. Officer shall not be required to
mitigate the amount of any payments under this Section (whether by seeking new
employment or otherwise) and no such payment shall be reduced by earnings that
Officer may receive from any other source.

      11. CHANGE IN CONTROL RETENTION BONUS. If Officer remains employed for 12
months following a Change in Control, in addition to Officer's applicable base
salary and bonus during that 12 month period, Officer will receive 12 months
Base Salary and 50% of the bonus Officer received in the previous year (the
aforementioned Base Salary and bonus are collectively referred to as the
"Retention Bonus"). The Retention Bonus shall be paid in equal installments over
12 months, starting on the next regular payday following the first anniversary
of the Change in Control. If Officer receives a benefit under this Section 11,
such benefit shall cease when Officer begins to receive any further benefit
under Section 10.

                                       6


      12. EXECUTIVE SEVERANCE PLAN.

            12.1 In General. Those provisions of this Agreement (including this
Section 12) related to the Severance Benefit set forth in Section 9 and Change
in Control Benefit set forth in Section 10 constitute part of the terms of the
Umpqua Holdings Corporation Executive Severance Plan (the "Executive Severance
Plan") with respect to the Officer, and such terms and the general terms of the
Executive Severance Plan established by Umpqua shall comprise the entirety of
the Executive Severance Plan as it applies to Officer. Umpqua intends for the
Plan to be considered a welfare benefit plan within the meaning of Section 3(1)
of the Employee Retirement Income Security Act ("ERISA"), and a plan which is
unfunded and maintained by the Umpqua solely for the purpose of providing
benefits for a select group of management or highly compensated employees within
the meaning of ERISA Regulation Section 2520.104-24. A copy of the Executive
Severance Plan will be furnished to the Officer upon request.

            12.2 Administration of Executive Severance Plan. Umpqua's Chief
Executive Officer and Human Resources Director are each plan administrators (the
"Plan Administrator") of the Executive Severance Plan and the Plan Administrator
shall have the discretionary authority to administer and construe the terms of
the Executive Severance Plan, including the authority to decide if Officer is
entitled to the Severance Benefit or Change in Control Benefit and the authority
to determine if there is Termination for Cause or Termination for Good Reason.

            12.3 Claims Procedures. Officer may file a claim for a payment under
the Executive Severance Plan by filing a written request for such a payment with
the Plan Administrator. If the Plan Administrator prescribes a form for such a
claim, the claim must be filed on such form. The claim should be sent to the
attention of the Plan Administrator of the Executive Severance Plan at the
address set forth for Umpqua in Section 19.

      If the Plan Administrator denies the claim, in whole or in part, the Plan
Administrator shall notify the Officer within 90 days of the Plan
Administrator's receipt of the claim, unless the Plan Administrator determines
that special circumstances require an extension of time for processing the
claim. If the Plan Administrator determines that an extension of time is
required, written notice of the extension shall be furnished to Officer prior to
the termination of the initial 90-day period. Such extension notice shall
indicate the special circumstances and the date by which the Plan Administrator
expects to issue a determination with respect to the claim. The period of the
extension will not exceed 90 days beyond the termination of the original 90-day
period. If the Plan Administrator does not provide written notice, Officer may
deem the claim denied and seek review according to the appeals procedures set
forth below.

                                       7


      The notice of denial of Officer's claim shall state:

      a.    the specific reasons for the denial,

      b.    specific references to pertinent provisions of the Executive
            Severance Plan on which the denial was based;

      c.    a description of any additional material or information needed for
            Officer to perfect Officer's claim and an explanation of why the
            material or information is needed, and

      d.    a statement (1) that the Officer may request a review upon written
            application to the Plan Administrator, review or receive (free of
            charge) pertinent Plan documents and records, and submit issues and
            comments in writing, (2) that any appeal that Officer wishes to make
            of the adverse determination must be in writing to the Plan
            Administrator within sixty (60) days after Officer receives notice
            of denial of benefits, and (3) that Officer may bring a civil action
            under ERISA Section 502(a) following an adverse benefit
            determination upon review.

The notice of denial of benefits shall specify that Officer must forward any
appeal to the Plan Administrator at the address provided in such notice. The
notice may state that failure to appeal the action to the Plan Administrator in
writing within the sixty (60) day period will render the determination final,
binding and conclusive.

If Officer appeals to the Plan Administrator, Officer may submit in writing
whatever issues and comments Officer believes to be pertinent. The Plan
Administrator shall reexamine all facts related to the appeal and make a final
determination about whether the denial of benefits is justified under the
circumstances. The Plan Administrator shall advise Officer in writing of:

      a.    its decision on appeal,

      b.    the specific reasons for the decision,

      c.    the specific provisions of the Plan on which the decision is based,
            and

      d.    Officer's right to receive, upon request and free of charge,
            reasonable access to, and copies of, all relevant documents and
            records.

Notice of the Plan Administrator's decision shall be given within sixty (60)
days of Officer's written request for review, unless additional time is required
due to special circumstances. In no event shall the Plan Administrator render a
decision on an appeal later than one hundred twenty (120) days after receiving a
request for a review. If the Plan Administrator fails to provide a decision with
respect to Officer's appeal within the 60 (or, if applicable, 120) day period
Officer may deem his or her appeal denied and may pursue the arbitration remedy
set forth below.

                                       8


      In the event that Officer fails to pursue his or her administrative
remedies as set forth above within the specified periods, Officer shall have no
further right to the benefits subject to Officer's claim and agrees by executing
this Agreement that he or she shall have no right to pursue such claim in
arbitration or in a court of law.

      For purposes of this Claims Procedure under the Executive Severance Plan,
Officer may act through a representative authorized in writing to act on his
behalf, provided that such authorization is furnished to the Plan Administrator.

      In the event that Umpqua denies Officer's appeal of the denial of his or
her claim, in whole or in part, Umpqua and Officer may agree to submit the Plan
Administrator's decision to binding arbitration in lieu of Officer's right to
pursue Officer's claim in any court of law.

      13. RESIGNATION PAYMENT.

            13.1 Payment due to Resignation or Termination with Cause. If during
the one year period beginning on the Effective Date, Officer terminates his
employment by Resignation or is terminated for Cause, Officer will forfeit
$200,000 of his interest in the HB Deferred Compensation Plan and agrees to
instruct the trustee of the Rabbi Trust to transfer such funds to Umpqua. If
between the first anniversary of the Effective Date and the second anniversary
of the Effective Date, Officer terminates his employment by Resignation or is
terminated for Cause, Officer will forfeit $100,000 of his interest in the HB
Deferred Compensation Plan and agrees to instruct the trustee of the Rabbi Trust
to transfer such funds to Umpqua.

            13.2 Reasonableness of Termination Payment. Officer acknowledges and
agrees that Officer's failure to fulfill his full three-year commitment to
Umpqua will deprive Umpqua of his unique abilities and experience with Humboldt.
The parties agree that the actual monetary damage to Umpqua that is likely to
result due to Termination is difficult to predict; however, the parties agree
that the amount of damage that would result will likely be most significant in
the first two years of employment because Umpqua will not have had time to
familiarize itself with the California Region's employees and customers and
integrate the California Region's operations into existing Umpqua operations.
The parties, therefore, agree that the forfeiture amount set forth in Section
13.1 above is reasonable and not a penalty in light of the aforementioned
considerations and the difficulties of proof of the actual damages that would be
incurred by Umpqua.

      14. CONFIDENTIAL INFORMATION. The parties acknowledge that in the course
of Officer's duties, Officer will have access to and become familiar with
certain proprietary and confidential information of Umpqua and its subsidiaries
not known by its actual or potential competitors. Officer acknowledges that such
information constitutes valuable, special, and unique assets of Umpqua's
business, even though such information may not be of a technical nature and may
not be protected under trade secret or related laws. Officer agrees to hold in a
fiduciary capacity and not use for Officer's benefit, nor reveal, communicate,
or divulge during the period of Officer's employment with Umpqua or at any time
thereafter, and in any manner whatsoever, any such data and confidential
information of

                                       9


any kind, nature, or description concerning any matters affecting or relating to
Umpqua's business, its customers, or its services, including information
developed by Employee, alone or with others, or entrusted to Umpqua by its
customers or others, to any person, firm, entity, or company other than Umpqua
or persons, firms, entities, or companies designated by Umpqua. Officer agrees
that all memoranda, notes, records, papers, customer files, and other documents,
and all copies thereof relating to Umpqua's operations or business, or matters
related to any of Umpqua's customers, some of which may be prepared by Officer,
and all objects associated therewith in any way obtained by Officer, shall be
Umpqua's property ("Umpqua Property"). Upon termination or at Umpqua's request,
Officer shall promptly return all the Umpqua Property to Umpqua.

      15. DISPUTE RESOLUTION. Except where such matters are deemed governed by
ERISA and are subject to Section 12 above, the parties agree to submit any
dispute arising under this Agreement to final, binding, private arbitration in
Portland, Oregon. This includes not only disputes about the meaning or
performance of the Agreement, but disputes about its negotiation, drafting, or
execution. The dispute will be determined by a single arbitrator in accordance
with the then-existing rules of arbitration procedure of Multnomah County
Circuit Court, except that there shall be no right of de novo review in court
and the arbitrator may charge his or her standard arbitration fees rather than
the fees prescribed in the Multnomah County Circuit Court arbitration
procedures. The proceeding will be commenced by the filing of a civil complaint
in Multnomah County Circuit Court and a simultaneous request for transfer to
arbitration. The parties expressly agree that they may choose an arbitrator who
is not on the list provided by the Multnomah County Circuit Court Arbitration
Department, but if they are unable to agree upon the single arbitrator within
ten days of receipt of the Arbitration Department list, they will ask the
Arbitration Department to make the selection for them. The arbitrator will have
full authority to determine all issues, including arbitrability, to award any
remedy, including permanent injunctive relief, and to determine any request for
costs and expenses in accordance with Section 17.9 of this Agreement. The
arbitrator's award may be reduced to final judgment in Multnomah County Circuit
Court. The complaining party shall bear the arbitration expenses and may seek
their recovery if it prevails. Notwithstanding any other provision of this
Agreement, an aggrieved party may seek a temporary restraining order or
preliminary injunction in Multnomah County Circuit Court to preserve the status
quo during the arbitration proceeding.

      16. NOTICES. All notices, requests, demands, and other communications
provided for by this Agreement will be in writing and shall be deemed sufficient
upon receipt, when delivered personally or by a nationally-recognized delivery
service (such as Federal Express), or three (3) business days after being
deposited in the U.S. mail as certified mail, return receipt requested, with
postage prepaid, if such notice is addressed to the party to be notified at such
party's address as set forth below or as subsequently modified by written
notice.

                                       10


            To Umpqua:    Umpqua Holdings Corporation
                          200 SW Market Street
                          Suite 1900
                          Portland, Oregon 97201
                          Attention: Raymond P. Davis, Chief Executive Officer

            To Officer:   Patrick Rusnak
                          111 Heaton Court
                          Granite Bay, CA 95746

      17. GENERAL PROVISIONS.

            17.1 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by federal ERISA, as it relates
to the Severance Benefit and Change in Control Benefit as discussed in Section
12 above, and otherwise by the laws of the State of Oregon.

            17.2 Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this Agreement
is held to be unenforceable as written, it shall be enforced to the maximum
extent allowed by applicable law.

            17.3 Survival Provision. The confidential information and dispute
resolution provisions of this Agreement shall survive after termination of this
Agreement, and shall be enforceable regardless of any claim Employee may have
against Umpqua. Also, if any benefits provided in Sections 9, 10, or 11 of this
Agreement are still owed, or claims pursuant to Section 12, 13 or 14 are still
pending, at the time of termination of this Agreement, this Agreement shall
continue in force, with respect to those obligations or claims, until such
benefits are paid in full or claims are resolved in full.

            17.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

            17.5 Entire Agreement. This Agreement constitutes the sole agreement
of the parties regarding Officer's benefits in the event of termination or
Change in Control and together with Umpqua's employee handbook governs the terms
of Officer's employment. Where there is a conflict between the employee handbook
and this Agreement, the terms of this Agreement shall govern.

            17.6 Previous Agreements. This Agreement replaces in its entirety
the HB Agreement and supersedes all prior oral and written agreements between
the Officer and Umpqua, or any affiliates or representatives of Umpqua regarding
the subject matters set forth herein.

                                       11


            17.7 Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the party against whom the waiver is sought
to be enforced. The waiver of any breach of this Agreement or failure to enforce
any provision of this Agreement shall not waive any later breach.

            17.8 Assignment. Officer shall not assign or transfer any of
Officer's rights pursuant to this Agreement, wholly or partially, to any other
person or to delegate the performance of its duties under the terms of this
Agreement. The rights and obligations of Umpqua under this Agreement shall inure
to the benefit of and be binding in each and every respect upon the direct and
indirect successors and assigns of Umpqua, regardless of the manner in which the
successors or assigns succeed to the interests or assets of Umpqua. This
Agreement shall not be terminated by the voluntary or involuntary dissolution of
Umpqua, by any merger, consolidation or acquisition where Umpqua is not the
surviving corporation, by any transfer of all or substantially all of Umpqua's
assets, or by any other change in Umpqua's structure or the manner in which
Umpqua's business or assets are held. Officer's employment shall not be deemed
terminated upon the occurrence of one of the foregoing events. In the event of
any merger, consolidation or transfer of assets, this Agreement shall be binding
upon and shall inure to the benefit of the surviving corporation or the
corporation to which the assets are transferred.

            17.9 Attorneys' Fees. If either party institutes a proceeding to
enforce its rights under, or to recover damages for breach of, this Agreement,
the prevailing party shall be awarded all costs and expenses of the proceeding,
including, but not limited to, attorneys' fees, filing and service fees, witness
fees, and arbitrator's fees. If arbitration is commenced, the arbitrator will
have full authority and complete discretion to determine the "prevailing party"
and the amount of costs and expenses to be awarded under this paragraph.

      18. ADVICE OF COUNSEL. OFFICER ACKNOWLEDGES THAT, IN EXECUTING THIS
AGREEMENT, OFFICER HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT
LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF
THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY
REASON OF THE DRAFTING OR PREPARATION HEREOF.

UMPQUA HOLDINGS CORPORATION                       OFFICER

By:______________________________                 ______________________________
Raymond P. Davis, Chief Executive Officer         Patrick J. Rusnak

                                       12


                        EXHIBIT A - EMPLOYMENT AGREEMENT

                           PERFORMANCE BONUS CRITERIA

Officer shall be entitled to the Performance Bonus if the following criteria are
met for the given fiscal year by the Umpqua bank branches in California
excluding any branch acquisitions after the Effective Date (the "California
Region"):

2004

- -     Net Income. Pre-Tax Net Income from the California Region for the period
      from January 1, 2004 to December 31, 2004 equals $1.06 per share
      (excluding merger related expenses) on Humboldt's fully diluted shares
      outstanding as of the Effective Date.

- -     Integration/Synergy. Accomplishment of the following integration/synergy
      goals by December 31, 2004:

         [To be determined by Umpqua and Officer prior to the Effective Date].

- -     Growth. Accomplishment by the California Region of the following growth
      goals for the period of January 1, 2004 (based on pro forma inclusion of
      Feather River) to December 31, 2004.

         Increase in Core Deposits by 8%

         Increase in loans by 10%

Subsequent Years

Performance Bonus criteria for 2005, 2006, and 2007 to be determined by Umpqua
and Officer by January 1 of the respective year.

                                        1


                        EXHIBIT B - EMPLOYMENT AGREEMENT

                             CHANGE IN CONTROL BONUS

1. Accelerated Vesting of Options. Full vesting of all unvested equity-based
compensation, including but not limited to unvested options, as required by
Section 13(b)(i)(4) of the HB Agreement and as provided in Section 5.4 of this
Agreement.

2. Change in Control Benefit. Change in Control payment calculated in accordance
with Section 13(b)(i) of the HB Agreement. Such amount will be deferred under
the HB Deferred Compensation Plan in accordance with Section 5.6 of this
Agreement.

3. Incentive Compensation. Earned but unpaid incentive compensation awarded as
set forth in Section 6(b) and 13(b)(2) of the HB Agreement, in accordance with
Section 5.2 of this Agreement. Such amount will be deferred under the HB
Deferred Compensation Plan.

4. Reimbursements. Reimbursement of expenses not yet reimbursed by Humboldt as
of the Effective Date, receipts for which have been provided to Umpqua no later
than 30 days after the Effective Date.

                                        1


                        EXHIBIT C - EMPLOYMENT AGREEMENT

                         DEFERRED COMPENSATION INTERESTS

The following amounts shall be deposited by Umpqua as of the Effective Date in
the Rabbi Trust referenced in Section 5.6 of this Agreement and maintained in
connection with the HB Deferred Compensation Plan.

1. Change in Control bonus under Section 13(b)(i) of the HB Agreement.

      Total amount of $525,000.

2. Earned but unpaid incentive compensation awarded as set forth in Section 6(b)
and 13(b)(2) of the HB Agreement, in accordance with Section 5.2 of this
Agreement.

3. Previously deferred amounts under the HB Deferred Compensation Plan.

      Total of $158,839 deferred as of March 10, 2004, which is as of that date
at $172,202.

                                        1


                        EXHIBIT D - EMPLOYMENT AGREEMENT

              EMPLOYMENT SEPARATION AGREEMENT AND RELEASE OF CLAIMS

      This is a confidential agreement between you, Patrick Rusnak, and us,
Umpqua Holdings Corporation. This agreement is dated for reference purposes
_____________, 20___, which is the date we delivered this agreement to you for
your consideration. For purposes of this Agreement Umpqua Holdings Corporation
together with each of its subsidiaries or affiliates is referred to as "Umpqua."

      1. TERMINATION OF EMPLOYMENT. Your employment terminates [or was
terminated] on _______________, 20___ (the "Separation Date").

      2. PAYMENTS. In exchange for your agreeing to the release of claims and
other terms in this agreement, we will pay you the Severance Benefit specified
in Section 9 or Section 10, as appropriate, of the Employment Agreement between
you and Umpqua Holdings Corporation dated March 13, 2004 (the "Employment
Agreement"). You acknowledge that we are not obligated to make these payments to
you unless you agree to comply with the terms of this agreement.

      3. COBRA CONTINUATION COVERAGE. Your normal employee participation in
Umpqua's group health coverage will terminate on the Separation Date.
Continuation of group health coverage thereafter will be made available to you
and your dependents pursuant to federal law (COBRA). As long as you timely elect
COBRA continuation coverage, Umpqua will waive the requirement that you pay for
the cost of continuation coverage through the Separation Date. Continuation of
group health coverage thereafter is entirely at your expense, as provided under
COBRA.

      4. TERMINATION OF BENEFITS. Except as provided in paragraph 3 above, your
participation in all employee benefit plans and programs ended on the Separation
Date. Your rights under any pension benefit or other plans in which you may have
participated will be determined in accordance with the written plan documents
governing those plans.

      5. FULL PAYMENT. You acknowledge having received full payment of all
compensation of any kind (including wages, salary, vacation, sick leave,
commissions, bonuses and incentive compensation) that you earned as a result of
your employment by us.

      6. NO FURTHER COMPENSATION. Any and all agreements to pay you bonuses or
other incentive compensation are terminated. You understand and agree that you
have no right to receive any further payments for bonuses or other incentive
compensation. We owe no further compensation or benefits of any kind, except as
described above.

      7. RELEASE OF CLAIMS.

      (a) You hereby release (i) Umpqua and its subsidiaries, affiliates, and
benefit plans, (ii) each of Umpqua's past and present shareholders, officers,
directors, agents, employees, representatives, administrators, fiduciaries and
attorneys, and (iii) the predecessors, successors, transferees and assigns of
each of the persons and entities described in this sentence, from any and all
claims of any kind, known or unknown, that arose on or before the date you
signed this agreement.

                                        1


      (b) The claims you are releasing include, without limitation, claims of
wrongful termination, claims of constructive discharge, claims arising out of
employment agreements, representations or policies related to your employment,
claims arising under federal, state or local laws or ordinances prohibiting
discrimination or harassment or requiring accommodation on the basis of age,
race, color, national origin, religion, sex, disability, marital status, sexual
orientation or any other status, claims of failure to accommodate a disability
or religious practice, claims for violation of public policy, claims of
retaliation, claims of failure to assist you in applying for future position
openings, claims of failure to hire you for future position openings, claims for
wages or compensation of any kind (including overtime claims), claims of
tortious interference with contract or expectancy, claims of fraud or negligent
misrepresentation, claims of breach of privacy, defamation claims, claims of
intentional or negligent infliction of emotional distress, claims of unfair
labor practices, claims arising out of any claimed right to stock or stock
options, claims for attorneys' fees or costs, and any other claims that are
based on any legal obligations that arise out of or are related to your
employment relationship with us.

      (c) You specifically waive any rights or claims that you may have under
the California Labor Code, the Civil Rights Act of 1964 (including Title VII of
that Act), the Equal Pay Act of 1963, the Age Discrimination in Employment Act
of 1967 (ADEA), the Americans with Disabilities Act of 1990 (ADA), the Fair
Labor Standards Act of 1938 (FLSA), the Family and Medical Leave Act of 1993
(FMLA), the Worker Adjustment and Retraining Notification Act (WARN), the
Employee Retirement Income Security Act of 1974 (ERISA), the National Labor
Relations Act (NLRA), and all similar federal, state and local laws.

      (d) You agree not to seek any personal recovery (of money damages,
injunctive relief or otherwise) for the claims you are releasing in this
agreement, either through any complaint to any governmental agency or otherwise.
You agree never to start any lawsuit or arbitration asserting any of the claims
you are releasing in this agreement. You represent and warrant that you have not
initiated any complaint, charge, lawsuit or arbitration involving any of the
claims you are releasing in this agreement. You agree not to apply for future
employment with Umpqua and that Umpqua has no obligation to consider you for
future employment.

      (e) You represent and warrant that you have all necessary authority to
enter into this agreement (including, if you are married, on behalf of your
marital community) and that you have not transferred any interest in any claims
to your spouse or to any third party.

      (f) This agreement does not affect your rights, if any, to receive pension
plan benefits, medical plan benefits, unemployment compensation benefits or
workers' compensation benefits. This agreement also does not affect your rights,
if any, under agreements, bylaw provisions, insurance or otherwise, to be
indemnified, defended or held harmless in connection with claims that may be
asserted against you by third parties.

      (g) You understand that you are releasing potentially unknown claims, and
that you have limited knowledge with respect to some of the claims being
released. You acknowledge that there is a risk that, after signing this
agreement, you may learn information that might have affected your decision to
enter into this agreement. You assume this risk and all other risks of any
mistake in entering into this agreement. You agree that this release is fairly
and knowingly made.

      (h) You are giving up all rights and claims of any kind, known or unknown,
except for the rights specifically given to you in this agreement.

                                       2


      8. NO ADMISSION OF LIABILITY. Neither this agreement nor the payments made
under this agreement are an admission of liability or wrongdoing by Umpqua.

      9. UMPQUA MATERIALS. You represent and warrant that you have, or no later
than the Separation Date will have, returned all keys, credit cards, documents
and other materials that belong to us.

      10. NONDISCLOSURE AGREEMENT. You will comply with the covenant regarding
confidential information in Section 13 of the Employment Agreement.

      11. NO DISPARAGEMENT. You may not disparage Umpqua or Umpqua's business or
products, and may not encourage any third parties to sue Umpqua.

      12. COOPERATION REGARDING OTHER CLAIMS. If any claim is asserted by or
against Umpqua as to which you have relevant knowledge, you will reasonably
cooperate with us in the prosecution or defense of that claim, including by
providing truthful information and testimony as reasonably requested by us.

      13. NO INTERFERENCE. You will not, apart from good faith competition,
interfere with Umpqua's relationships with customers, employees, vendors, or
others.

      14. INDEPENDENT LEGAL COUNSEL. You are advised and encouraged to consult
with an attorney before signing this agreement. You acknowledge that you have
had an adequate opportunity to do so.

      15. CONSIDERATION PERIOD. You have 21 days from the date this agreement is
given to you to consider this agreement before signing it. You may use as much
or as little of this 21-day period as you wish before signing. If you do not
sign and return this agreement within this 21-day period, you will not be
eligible to receive the benefits described in this agreement.

      16. REVOCATION PERIOD AND EFFECTIVE DATE. You have 7 calendar days after
signing this agreement to revoke it. To revoke this agreement after signing it,
you must deliver a written notice of revocation to Umpqua's President before the
7-day period expires. This agreement shall not become effective until the 8th
calendar day after you sign it. If you revoke this agreement it will not become
effective or enforceable and you will not be entitled to the benefits described
in this agreement.

      17. GOVERNING LAW. This agreement is governed by the laws of the State of
Oregon that apply to contracts executed and to be performed entirely within the
State of Oregon.

      18. DISPUTE RESOLUTION. Except where such matters are deemed governed by
ERISA and are subject to Section 7 above, the parties agree to submit any
dispute arising under this Agreement to final, binding, private arbitration in
Portland, Oregon. This includes not only disputes about the meaning or
performance of the Agreement, but disputes about its negotiation, drafting, or
execution. The dispute will be determined by a single arbitrator in accordance
with the then-existing rules of arbitration procedure of Multnomah County
Circuit Court, except that there shall be no right of de novo review in court
and the arbitrator may charge his or her standard arbitration fees rather than
the fees prescribed in the Multnomah County Circuit Court arbitration
procedures. The proceeding will be commenced by the filing of a civil complaint
in Multnomah County Circuit Court and a simultaneous request for transfer to
arbitration. The parties expressly agree that they may choose an arbitrator who
is not on the list provided by the Multnomah County Circuit Court Arbitration
Department, but if they are unable to agree upon the single

                                       3


arbitrator within ten days of receipt of the Arbitration Department list, they
will ask the Arbitration Department to make the selection for them. The
arbitrator will have full authority to determine all issues, including
arbitrability, to award any remedy, including permanent injunctive relief, and
to determine any request for costs and expenses in accordance with Section 19 of
this Agreement. The arbitrator's award may be reduced to final judgment in
Multnomah County Circuit Court. The complaining party shall bear the arbitration
expenses and may seek their recovery if it prevails. Notwithstanding any other
provision of this Agreement, an aggrieved party may seek a temporary restraining
order or preliminary injunction in Multnomah County Circuit Court to preserve
the status quo during the arbitration proceeding.

      19. ATTORNEYS' FEES. If either party institutes a proceeding to enforce
its rights under, or to recover damages for breach of, this agreement, the
prevailing party shall be awarded all costs and expenses of the proceeding,
including, but not limited to, attorneys' fees, filing and service fees, witness
fees, and arbitrator's fees. If arbitration is commenced, the arbitrator will
have full authority and complete discretion to determine the "prevailing party"
and the amount of costs and expenses to be awarded under this paragraph.

      20. FINAL AND COMPLETE AGREEMENT. This agreement is the final and complete
expression of all agreements between us on all subjects and supersedes and
replaces all prior discussions, representations, agreements, policies and
practices. You acknowledge you are not signing this agreement relying on
anything not set out herein.

UMPQUA HOLDINGS CORPORATION

By: ____________________________________
Ray Davis, Chief Executive Officer

I, THE UNDERSIGNED, HAVING BEEN ADVISED TO CONSULT WITH AN ATTORNEY, HEREBY
AGREE TO BE BOUND BY THIS AGREEMENT AND CONFIRM THAT I HAVE READ AND UNDERSTOOD
EACH PART OF IT.

________________________________________
Patrick Rusnak

________________________________________
Date

                                       4

EX-10.2

FORM OF NONQUALIFIED STOCK OPTION AGREEMENT

                                                                    EXHIBIT 10.2

                       NONQUALIFIED STOCK OPTION AGREEMENT

      This Nonqualified Stock Option Agreement is made and entered into pursuant
to the terms of the 2003 Stock Incentive Plan (the "Plan") adopted by the Board
of Directors and Shareholders of Umpqua Holdings Corporation (the "Company").
Unless otherwise defined herein, capitalized terms defined in this Nonqualified
Stock Option Agreement shall have the meanings as defined in the Plan.

THE "OPTIONEE"                                       PATRICK J. RUSNAK

NUMBER OF SHARES OF THE                              20,000
COMPANY'S COMMON STOCK

"EXERCISE PRICE" PER SHARE                           $22.15

"DATE OF GRANT"                                      07/09/2004

"EXPIRATION DATE"                                    07/09/2014

1. TERMS OF THE OPTION.

      1.1 Grant of Option. The Company hereby grants to the Optionee the right,
privilege, and option (the "Option") to purchase up to the number of shares of
Common Stock indicated above (the "Option Shares") at the Exercise Price
indicated above, subject to adjustment in accordance with the terms and
conditions of the Plan. The Option may only be exercised as to a whole number of
shares of Common Stock.

      1.2 Status of the Option as a Nonqualified Stock Option. It is intended by
the Company that the Option will not qualify as an incentive stock option within
the meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

      1.3 Limited Transferability of Option. The Option may be transferred by
gift to Permitted Transferees. "Permitted Transferees" includes the Optionee's
spouse, children or a trust for the exclusive benefit of any combination of the
Optionee, the Optionee's spouse and the Optionee's children. A transfer to a
Permitted Transfer will not be effective unless and until the Optionee and the
transferee of the Option execute and deliver to the Company a
Transfer/Assumption of Nonqualified Stock Option Agreement in the form requested
by the Company. Notwithstanding any transfer of the Option, the Optionee shall
remain liable to the Company for any income tax withholding amounts, which the
Bank is required to withhold at the time that the transferred Option is
exercised. Other than as set forth above, the Option and the rights of the
Optionee under this Nonqualified Stock Option Agreement may only be transferred
by will or by the laws of descent and distribution upon the death of Optionee.

      1.4 Reservation of Shares. The Company agrees that at all times there will
be reserved for issuance upon exercise of the Option such number of shares of
its Common Stock as is required for such issuance.

2. TIME OF EXERCISE OF OPTION.

                                       1


      2.1 When the Option Becomes Exercisable. Except as otherwise set forth in
Section 5.2 below, the Option may only be exercised in accordance with the
vesting schedule attached hereto (the "Vesting Schedule") and only to the extent
not previously exercised. In the event of certain changes in the capital
structure of the Company, the number of Option Shares vesting at any time as
indicated in the Vesting Schedule may be adjusted as determined appropriate by
the Committee.

      2.2 Effect of Unpaid Leaves of Absence. Unless the Committee at the time
of such leave determines otherwise, if at any time during the term of the
Option, the Optionee is on unpaid leave from the Company or any Subsidiary, the
Option may not be exercised during such unpaid leave and the dates contained in
the Vesting Schedule shall be extended by the length of such unpaid leave.

      2.3 Expiration and Termination of Option. The Option will expire upon the
close of business on the Expiration Date and may terminate earlier upon certain
events as set forth in Section 4 of this Nonqualified Stock Option Agreement. To
the extent that the Option has not been exercised prior to the Expiration Date
or any earlier termination, all further rights to purchase shares pursuant to
the Option will cease and terminate at such time.

3. OPTION EXERCISE PROCEDURES.

      3.1 Who May Exercise the Option. Only the Optionee (or, in the case of
exercise after death of the Optionee, by the executor, administrator, heir, or
legatee of the Optionee, as the case may be) or the Permitted Transferee may
exercise the Option.

      3.2 Notice of Exercise. A "Notice of Exercise" must be signed and
delivered to the Company's corporate Secretary or such other person as the
Company may designate at the Company's principal business office of the Company.
A copy of the Company's current form of Notice of Exercise is attached hereto.
The Company, however, reserves the right to revise its form of Notice of
Exercise from time-to-time as it determines to be appropriate. If, at the time
of the exercise of the Option, the Company does not have an effective
registration statement on file with the Securities and Exchange Commission that
covers the issuance of shares upon the exercise of the Option, the Notice of
Exercise will also contain certain representations from the Optionee as required
under applicable state and federal securities laws. A copy of the then-current
form of Notice of Exercise may be obtained at any time from the Company. A
notice will only be effective if submitted on the form in effect at the time of
such exercise.

      3.3 Payment of Exercise Price. The Notice of Exercise must indicate the
manner of payment of the Exercise Price for the number of shares so purchased.
Payment shall be made by cash, by the surrender to the Company for cancellation
of shares of Common Stock or other securities of the Company, based on the Fair
Market Value of the Common Stock, (provided that the surrendered shares of
Common Stock or other securities of the Company shall have been held by the
Optionee for not less than six months), such other valid consideration as the
Committee may, in its sole discretion, permit or any combination of the
foregoing.

      3.4 Payment of Tax Withholding. The Optionee shall pay or make adequate
provision for payment of Tax Withholding upon exercise of the Option. The notice
of exercise shall indicate the method of payment of Tax Withholding, which may
be accomplished by payment in cash, the Company withholding other amounts
payable by the Company to the Optionee, by the application of shares to be
received upon exercise of the Option based on Fair Market Value of the Common
Stock, the surrender of shares of Common Stock or other securities of the
Company based on the Fair Market Value of the Common Stock (provided that the
surrendered shares of Common Stock or other securities of the Company shall have
been held by the Optionee for not less than six months) or any combination of
the foregoing.

      3.5 Delivery of Shares Following Exercise. The Company will make delivery
of a certificate representing the Option Shares purchased within a reasonable
time after it receives the Notice of Exercise,

                                       2


payment in full of the Exercise Price of the Option Shares being purchased and
the payment or adequate provision for payment of Tax Withholding. However, if
any law or regulation requires the Company to take any action with respect to
the issuance of the Option Shares, including, without limitation, actions that
may be required for compliance with federal and state securities laws or the
listing requirements of any stock exchange upon which the Company's Common Stock
is then listed, then the date of delivery of such certificate may be extended
for the period necessary to take such action. The Optionee shall only become the
holder of such shares when the issuance of the shares is reflected on the
Company's stock transfer record, except that if the Option is exercised
conditioned on the occurrence of a Change of Control Transaction, as provided
for in Section 5.3 below, the Optionee shall be deemed a holder of such shares
as of the effective date of the Change of Control Transaction.

4. TERMINATION OF THE OPTION

      4.1 Effect of the Death of the Optionee. If the Optionee dies while an
employee of the Company or any Subsidiary, the Option will terminate one year
after the date of such death or, if sooner, upon the Expiration Date. In such
event, the Option may be exercised only to the extent the Optionee was entitled
to exercise the Option on the date of the Optionee's death and only by a
Permitted Transferee or the person or persons to whom the Optionee's rights
under the Option may pass by the Optionee's will or by the laws of descent and
distribution of the state or country of the Optionee's domicile at the time of
death.

      4.2 Effect of the Disability of the Optionee. If the Optionee's employment
by the Company or any Subsidiary terminates as a result of the Optionee becoming
Disabled (as defined in the Plan) while an employee of the Company or any
Subsidiary, the Option will terminate one year after the date of such
termination of employment or, if sooner, upon the Expiration Date. In such
event, the Option may be exercised only to the extent the Optionee or Permitted
Transferee was entitled to exercise the Option on the date of such termination.

      4.3 Effect of Termination of the Employment of the Optionee for Cause. If
the Optionee's employment with the Company or any Subsidiary is terminated for
"cause," the Option will terminate on the effective date of the termination of
the Optionee's employment and shall no longer be exercisable as to any of the
remaining Option Shares. "Cause" shall have the definition given in the
Optionee's employment, severance, or change in control agreement, if any, or if
the Optionee has no such agreement, "cause" shall be determined by the Company's
President or Board of Directors in their reasonable discretion.

      4.4 Effect of any other Termination of the Employment of the Optionee. If
the Optionee's employment with the Company or any Subsidiary terminates for any
reason other than the reasons set forth in Sections 4.1, 4.2 or 4.3 of this
Nonqualified Stock Option Agreement, the Option will terminate thirty (30) days
after the date of such termination of employment or, if sooner, upon the
Expiration Date. In such event, the Option may be exercised only to the extent
the Optionee or Permitted Transferee was entitled to exercise the Option on the
date of such termination.

      4.5 Effect of Change of Control Transaction. Notwithstanding the
provisions of Sections 2.3, 4.1, 4.2, 4.3 or 4.4, the Option may terminate upon
the earlier occurrence of a Change of Control Transaction as provided in Section
5.5 below.

5. EFFECT OF CHANGE OF CONTROL TRANSACTION

      5.1 Notice of Change of Control Transaction. The Company will provide the
Optionee with written notice of any Change of Control Transaction and will
undertake reasonable efforts to provide such notice at least fifteen (15) days
prior to the effective date of the Change of Control Transaction. Such notice
shall generally describe the expected Change of Control Transaction and the
anticipated effects of the transaction on the Optionee's rights under this
Nonqualified Stock Option Agreement.

                                       3


      5.2 Accelerated Vesting. Accelerated vesting upon the occurrence of a
Change of Control Transaction, if any, shall be as set forth in the Vesting
Schedule.

      5.3 Conditional Exercise and Deferred Payment. In anticipation of a Change
of Control Transaction, the Optionee shall be permitted to tender a notice of
exercise of the Option that is conditioned on the Change of Control Transaction
actually occurring and the Optionee shall not be required to tender payment of
the exercise price or amounts that the Company may be required to withhold for
tax purposes until after the occurrence of the Change of Control Transaction.

      5.4 Effect on Option Shares and Exercise Price. Following the occurrence
of any Change of Control Transaction, the Option shall be exercisable for the
number and kind of shares, other securities, debt instruments, cash or other
property for which the Option Shares would have been exchanged if they had been
outstanding at the time of the Change of Control Transaction. In addition, the
Exercise Price shall be adjusted such that the aggregate exercise price
following such Change of Control Transaction shall be equal to the product of
the Exercise Price per Share prior to the Change of Control Transaction
multiplied by the number of Option Shares that could be purchased under the
Option at such time without regard to the Vesting Schedule. The determination of
the Committee as to what, if any, adjustments need to be made to the Option
Shares and the Exercise Price and the extent thereof will be final and
conclusive and shall be binding upon the Optionee.

      5.5 Termination. The Option shall terminate effective as of the effective
date of a Change of Control Transaction, unless the terms and conditions of the
Change of Control Transaction provide for the assumption of the Plan and the
continuation of this Nonqualified Stock Option Agreement. Alternatively, the
terms and conditions of the Change of Control Transaction may provide for the
issuance to the Optionee by the Company's successor of a substitute option
granted under a plan adopted by such successor and, subject to Sections 5.2 and
5.4 above, containing terms and conditions substantially equivalent to the terms
and conditions of the Option.

6.    REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE OPTIONEE.

      6.1. No Effect on Employment. The Optionee understands and agrees that
nothing contained in this Nonqualified Stock Option Agreement will be construed
to limit or restrict the rights of the Company to terminate the employment of
the Optionee at any time, with or without cause, to change the duties of the
Optionee or to increase or decrease the Optionee's compensation. Without
limiting the foregoing, the Optionee understands and agrees that the vesting of
shares under this Nonqualified Stock Option Agreement is subject to and is
conditioned upon the continued employment of the Optionee by the Company or a
Subsidiary and that such employment can be terminated at any time by the Company
or its Subsidiary prior to some or all of the Option Shares vesting. In the
event of any such termination, the Optionee understands and agrees that the
Optionee shall have no right or claim, under contract, under any other legal
principle or under any equitable principle to any portion of the unvested Option
Shares.

      6.2 Rights Prior to Exercise of the Option. The Optionee understands and
agrees that the Optionee will have no rights as a shareholder in the Option
Shares, including, without limitation, the right to vote or receive dividends,
until the issuance of the shares is reflected in the Company's stock transfer
records.

      6.3 Tax Implications. The Optionee understands that, under federal, state
and local income tax laws as they currently exist, the exercise of the Option
will result in ordinary income to the Optionee in the amount by which the Fair
Market Value (as of the date of exercise) of the shares acquired upon exercise
exceeds the Exercise Price.

      6.4 Underwriter's Lock-up. The Optionee by accepting the Option agrees
that whenever the Company undertakes a firm underwritten public offering of its
securities and if requested by the managing

                                       4


underwriter in such offering, the Optionee will enter into an agreement not to
sell or dispose of any securities of the Company owned or controlled by the
Optionee provided that such restriction will not extend beyond twelve (12)
months from the effective date of the registration statement filed in connection
with such offering.

      6.5 Disclosures. The Optionee acknowledges receipt of a copy of the Plan
and certain related information and represents that the Optionee has fully
reviewed the terms and conditions of the Plan and this Nonqualified Stock Option
Agreement and has had opportunity to obtain the advice of counsel prior to
executing this Nonqualified Stock Option Agreement. The Optionee represents and
warrants that the Optionee is not relying upon any representations, agreements
or understandings of or with the Company except for those set forth in this
Nonqualified Stock Option Agreement.

7. MISCELLANEOUS PROVISIONS

      7.1 Binding Effect. This Nonqualified Stock Option Agreement will be
binding upon and inure to the benefit of the parties hereto and their heirs,
executors, administrators, successors, and assigns.

      7.2 Notices. All notices or other communications pursuant to this
Agreement shall be in writing and shall be deemed duly given if personally
delivered or if mailed by certified mail, return receipt requested, prepaid and
addressed to the address of the party as set forth in this Agreement or such
other address as such party shall have furnished to the other party in writing.

      7.3 Governing Law and Interpretation. This Nonqualified Stock Option
Agreement and the Option granted hereunder will be governed by the laws of the
State of Oregon as to all matters, including but not limited to matters of
validity, construction, effect, and performance, without giving effect to rules
of choice of law. This Nonqualified Stock Option Agreement hereby incorporates
by reference all of the provisions of the Plan and will in all respects be
interpreted and construed in such manner as to effectuate the intent of the
Plan. In the event of a conflict between the terms of this Nonqualified Stock
Option Agreement and the Plan, the terms of the Plan will prevail. All matters
of interpretation of the Plan and this Nonqualified Stock Option Agreement,
including the applicable terms and conditions and the definitions of the words,
will be determined in the sole and final discretion of the Committee or the
Company's Board of Directors.

      7.4. Arbitration. The parties agree to submit any dispute arising under
this Nonqualified Stock Option Agreement to final, binding, private arbitration
in Portland, Oregon. This includes not only disputes about the meaning or
performance of the Nonqualified Stock Option Agreement, but also disputes about
its negotiation, drafting, or execution. The dispute will be determined by a
single arbitrator in accordance with the then-existing rules of arbitration
procedure of Multnomah County, Oregon Circuit Court, except that there shall be
no right of de novo review in Circuit Court and the arbitrator may charge his or
her standard arbitration fees rather than the fees prescribed in the Multnomah
County Circuit Court arbitration procedures. The proceeding will be commenced by
the filing of a civil complaint in Multnomah County Circuit Court and a
simultaneous request for transfer to arbitration. The parties expressly agree
that they may choose an arbitrator who is not on the list provided by the
Multnomah County Circuit Court Arbitration Department, but if they are unable to
agree upon the single arbitrator within ten days of receipt of the Arbitration
Department list, they will ask the Arbitration Department to make the selection
for them. The arbitrator will have full authority to determine all issues,
including arbitrability, to award any remedy, including permanent injunctive
relief, and to determine any request for costs and expenses in accordance with
Section 7.5 of this Agreement. The arbitrator's award may be reduced to final
judgment in Multnomah County Circuit Court. The complaining party shall bear the
arbitration expenses and may seek their recovery if it prevails. Notwithstanding
any other provision of this Agreement, an aggrieved party may seek a temporary
restraining order or preliminary injunction in Multnomah County Circuit Court to
preserve the status quo during the arbitration proceeding.

                                       5


      7.5 Attorney Fees. If any suit, action, or proceeding is instituted in
connection with any controversy arising out of this Nonqualified Stock Option
Agreement or the enforcement of any right hereunder, the prevailing party will
be entitled to recover, in addition to costs, such sums as the court may adjudge
reasonable as attorney fees, including fees on any appeal.

UMPQUA HOLDINGS CORPORATION

By:_____________________________________________
   Raymond P. Davis, Chief Executive Officer

OPTIONEE:

_______________________________
Patrick J. Rusnak

Address:_______________________________________________

         ______________________________________________

                                        6


                       NONQUALIFIED STOCK OPTION AGREEMENT
                                VESTING SCHEDULE

Under the Nonqualified Stock Option Agreement to which this Vesting Schedule is
attached, Option Shares shall vest and the Option may be exercised only as the
number of Option Shares in accordance with the following schedule:



                             Number of                   Aggregate Number
Vesting Date              Shares Vesting                  of Vested Shares
- ------------              --------------                  ----------------
                                                   
07/09/2005                    4,000                            4,000
07/09/2006                    4,000                            8,000
07/09/2007                    4,000                           12,000
07/09/2008                    4,000                           16,000
07/09/2009                    4,000                           20,000


Upon the occurrence of a Change of Control Transaction, all unvested Option
Shares shall vest as of the effective date of the Change of Control Transaction
notwithstanding the terms of the Vesting Schedule unless, as an expressed term
of the Change of Control Transaction, adequate provision is made for the
continuation of the Option after the occurrence of the Change of Control
Transaction either through assumption of the Plan and this Nonqualified Stock
Option Agreement or through the granting to the Optionee by the Company's
successor of a substitute option granted under a plan adopted by such successor
and, subject to Section 5.4 of the Nonqualified Stock Option Agreement,
containing terms and conditions substantially equivalent to the terms and
conditions of the Option.

                                       7


                 NOTICE OF EXERCISE OF NONQUALIFIED STOCK OPTION

TO:               UMPQUA HOLDINGS CORPORATION (the "Company")

This Notice of Exercise serves as an irrevocable notice from the undersigned of
the undersigned's intent to exercise the Option granted under following
Nonqualified Stock Option Agreement to purchase shares of the Company's Common
Stock (all of which are vested under the Nonqualified Stock Option Agreement)
under and in accordance with the terms and conditions set forth in the Plan
under which the Option was granted and the terms of the written Nonqualified
Stock Option Agreement.

DATE OF GRANT OF THE OPTION                       _____________________,________

NUMBER OF SHARES BEING PURCHASED
THROUGH THE EXERCISE OF THE OPTION                ______________________________

EXERCISE PRICE PER SHARE                          $_____________________________

AGGREGATE EXERCISE PRICE                          $_____________________________

            (MUST EQUAL NUMBER OF SHARES MULTIPLIED BY EXERCISE PRICE PER SHARE)

METHOD OF PAYMENT (INDICATED SELECTED METHOD OR METHODS)

Exercise Price   Tax Withholding

______           _______            Cash Payment. My check is stapled to this
                                    notice.

______           _______            Delivery of certificate(s) representing
                                    shares of the Company's Common Stock that I
                                    have held for at least six months. The
                                    certificate(s) are duly endorsed for
                                    cancellation of that number of shares that
                                    have a fair market value as of the date of
                                    exercise equal to the aggregate exercise
                                    price less any cash payment enclosed.

______           _______            Delivery of an affidavit attesting to my
                                    ownership of _________ shares of the
                                    Company's Common Stock that I have held for
                                    at least six months. The shares which I
                                    currently own will not be cancelled but the
                                    new certificate representing the Option
                                    Shares being purchased by this exercise will
                                    be reduced by that number of shares that
                                    have a fair market value as of the date of
                                    exercise equal to the aggregate exercise
                                    price less any cash payment enclosed.

______           _______            Broker Assisted Cashless Exercise. I have
                                    instructed the following broker to wire
                                    transfer to the Company from my account an
                                    amount equal to the aggregate exercise price
                                    and/or Tax Withholding.

                                    Name of Broker:_____________________________
                                    Mailing Address:____________________________
                                    Telephone Number:___________________________
                                    Brokerage Account Number:___________________

____________________________________     _______________________________________
(signature of the Optionee)              (name of the Optionee, printed)

                                         _______________________________________
                                         (date of signing of notice of exercise)
_________________________________________
(mailing address for shareholder records)
                                         _______________________________________
                                         (The Optionee's social security number)

                                       8

EX-10.3

                                                                    EXHIBIT 10.3

                           UMPQUA HOLDINGS CORPORATION

                              EMPLOYMENT AGREEMENT

                                       FOR

                               ROBERT M. DAUGHERTY

                           DATED AS OF MARCH 13, 2004



                                TABLE OF CONTENTS



                                                                                   Page
                                                                                   ----
                                                                                
1.    PURPOSE OF AGREEMENT.......................................................   1
2.    TERM OF AGREEMENT..........................................................   1
3.    NO TERM OF EMPLOYMENT......................................................   1
4.    DUTIES; POSITION...........................................................   1
      4.1      Position..........................................................   1
      4.2      Obligations of Officer............................................   1
5.    COMPENSATION...............................................................   2
      5.1      Base Salary.......................................................   2
      5.2      Performance Bonus.................................................   2
      5.3      Vacation..........................................................   2
      5.4      Club Memberships..................................................   2
      5.5      Other Benefits....................................................   2
      5.6      Stock Options.....................................................   2
      5.7      Deferred Compensation.............................................   3
6.    TERMINATION................................................................   3
      6.1      For Cause.........................................................   3
      6.2      Without Cause.....................................................   3
      6.3      For Good Reason...................................................   3
      6.4      Death or Disability...............................................   4
      6.5      Resignation.......................................................   4
7.    DEFINITIONS................................................................   4
      7.1      Cause.............................................................   4
      7.2      Good Reason.......................................................   4
      7.3      Disability........................................................   5
      7.4      Change in Control.................................................   5
8.    PAYMENT UPON TERMINATION...................................................   6
9.    SEVERANCE BENEFIT..........................................................   6
10.   CHANGE IN CONTROL BENEFIT..................................................   6
11.   CHANGE IN CONTROL RETENTION BONUS..........................................   6
12.   EXECUTIVE SEVERANCE PLAN...................................................   7
      12.1     In General........................................................   7
      12.2     Administration of Executive Severance Plan........................   7
      12.3     Claims Procedures.................................................   7
13.   RESIGNATION PAYMENT........................................................   9
14.   CONFIDENTIAL INFORMATION...................................................   9
15.   DISPUTE RESOLUTION.........................................................  10
16.   NOTICES....................................................................  10
17.   GENERAL PROVISIONS.........................................................  11
      17.1     Governing Law.....................................................  11
      17.2     Saving Provision..................................................  11
      17.3     Survival Provision................................................  11


                                       i


                                                                                
      17.4     Counterparts......................................................  11
      17.5     Entire Agreement..................................................  11
      17.6     Previous Agreements...............................................  11
      17.7     Waiver............................................................  11
      17.8     Assignment........................................................  11
      17.9     Attorneys' Fees...................................................  12
18.   ADVICE OF COUNSEL..........................................................  12



Exhibit A - Employment Agreement - Performance Bonus Criteria
Exhibit B - Employment Agreement - Change In Control Bonus
Exhibit C - Employment Agreement - Deferred Compensation Interests
Exhibit D - Employment Agreement - Employment Separation Agreement and Release
                                   of Claims

                                       ii


                              EMPLOYMENT AGREEMENT

      This Employment Agreement (this "Agreement") by and between Umpqua
Holdings Corporation ("Umpqua") and Robert M. Daugherty ("Officer"), is dated
March 13, 2004. This Agreement is effective subject to and as of the closing of
the merger (the "Merger") between Umpqua and Humboldt Bancorp ("Humboldt")
pursuant to an Agreement and Plan of Reorganization dated March 13, 2004. The
closing date of the Merger is the "Effective Date."

      1. PURPOSE OF AGREEMENT. On the Effective Date, this Agreement shall
replace Officer's existing employment agreement with Humboldt dated April 15,
2002, as amended May 2, 2002 (the "HB Agreement"). Officer agrees that he will
not be entitled to any further benefits under the HB Agreement, except that
Officer is entitled to any benefit arising under the HB Agreement due to the
Merger and he will be entitled to those benefits without having to terminate his
employment with Umpqua as Humboldt's successor. Those benefits are listed on
Exhibit B. This Agreement sets forth the terms of Officer's employment with
Umpqua and provides Officer benefits in certain circumstances where Officer's
employment is terminated or another Change in Control (defined below) occurs.

      2. TERM OF AGREEMENT. This Agreement starts on the Effective Date and
expires on the third anniversary of the Effective Date.

      3. NO TERM OF EMPLOYMENT. Notwithstanding the term of this Agreement,
Umpqua may terminate Officer's employment at any time for any lawful reason or
for no reason at all, subject to the provisions of this Agreement.

      4. DUTIES; POSITION.

            4.1 Position. As of the Effective Date, Officer shall be employed as
President-Umpqua Bank California Region, and will perform such duties as may be
designated by Umpqua's board of directors (the "Board") or Umpqua's Chief
Executive Officer, to whom Officer will directly report (the "Supervisor").

            4.2 Obligations of Officer.

                  (a) Officer agrees that to the best of Officer's ability and
            experience, Officer will at all times loyally and conscientiously
            perform all of the duties and obligations required of Officer
            pursuant to the express and implicit terms of this Agreement and as
            directed by the Board or the Supervisor.

                                       1


                  (b) Officer shall devote Officer's entire working time,
            attention and efforts to Umpqua's business and affairs, shall
            faithfully and diligently serve Umpqua's interests and shall not
            engage in any business or employment activity that is not on
            Umpqua's behalf (whether or not pursued for gain or profit) except
            for (a) activities approved in writing in advance by the Board and
            (b) passive investments that do not involve Officer providing any
            advice or services to the businesses in which the investments are
            made.

      5. COMPENSATION. For all services performed under this Agreement, Umpqua
agrees to pay the following compensation and benefits:

            5.1 Base Salary. Officer's base salary (the "Base Salary") is the
same as Officer's base salary with Humboldt immediately prior to the Effective
Date and is subject to increase in Umpqua's sole discretion.

            5.2 Performance Bonus. Officer is entitled to receive an annual
performance bonus, which will be targeted at 45% of the Base Salary, provided
the performance criteria set forth in Exhibit A hereto are satisfied (the
"Performance Bonus"). For the fiscal year in which the Effective Date occurs,
Officer will be entitled to (1) any appropriately pro rated bonus due under the
HB Agreement for the period ending on the day prior to the Effective Date, and
(2) the Performance Bonus based on the actual Base Salary amount paid by Umpqua
to Officer in that fiscal year. If Officer's employment terminates on the third
anniversary of the Effective Date, the Performance Bonus for that year will be
pro rated.

            5.3 Vacation. Officer is entitled to four (4) weeks vacation per
year, to be used in accordance with Umpqua's vacation policy.

            5.4 Club Memberships. Umpqua will pay the cost of a membership in
the Sutter Club and of a golf membership in a country club mutually acceptable
to Umpqua and Officer in or around Sacramento, California.

            5.5 Other Benefits. Officer is entitled to participate, under the
terms of the respective plans, in other benefit plans and perquisites generally
available to Umpqua's executive officers, including, but not limited to, an auto
allowance of $750 per month.

            5.6 Stock Options. All outstanding stock options granted by Humboldt
to Officer prior to the Effective Date (the "Assumed Options") will be assumed
by Umpqua pursuant to the Plan of Merger. An option to purchase 27,600 shares of
Umpqua common stock (the "New Option") will be granted to Officer on the
Effective Date to cover those options referenced in Section 7(c) of the HB
Agreement that had not yet been granted as of the Effective Date. The option
will be a nonqualified option and will be subject to the terms and conditions of
Umpqua's 2003 Stock Incentive Plan and the stock

                                       2


option agreement evidencing such grant. The Assumed Options and the New Option
will all vest as of the Effective Date. Any other stock options granted to
Officer during the term of this Agreement will be subject to immediate vesting
upon a Change in Control.

            5.7 Deferred Compensation. Unless the Board in the future offers a
deferred compensation plan to its executive officers and except as set forth in
this subsection, Officer shall not be entitled to participate in a deferred
compensation plan with respect to future compensation. Umpqua will continue to
account for any of Officer's deferred compensation prior to and earned as of the
Effective Date, as listed on Exhibit C hereto, under the terms of Officer's
Deferred Compensation Agreement with Humboldt dated December 18, 2003 (the "HB
Deferred Compensation Plan"). Umpqua will continue to account for these
interests by assuming all of Humboldt's rights and obligations under the HB
Deferred Compensation Plan and preserving the distribution and other relevant
features of that plan for so long as Officer has an interest in that plan.
Umpqua will transfer such deferred amounts to a "Rabbi Trust" with an
independent institutional trustee and under terms and conditions reasonably
acceptable to Umpqua and Officer and without any costs to Umpqua. Officer will
pay the administrative and other costs incurred in connection with the Rabbi
Trust. The funds transferred to the Rabbi Trust will be credited with interest
at Umpqua's prime lending rate, plus 1%, as in effect from time to time. The
crediting of interest will be made monthly and the interest will compound
monthly. Upon Officer's retirement or other termination of employment, the Rabbi
Trust funds will no longer be credited with interest at Umpqua's prime lending
rate, plus 1%; instead, investment direction of such funds will be granted to
Officer or the rate paid on the account will be as mutually agreed. Funds in the
Rabbi Trust may be subject to forfeiture as provided in Section 13 of this
Agreement. Umpqua agrees to grant its consent to any amendments that are
required to be made to the HB Deferred Compensation Plan to give effect to the
intention of this Section and Exhibit C, after an opportunity to review any such
amendment.

      6. TERMINATION. Officer's employment may be terminated before the
expiration of this Agreement as described in this Section, in which event
Officer's compensation and benefits shall terminate except as otherwise provided
in this Agreement.

            6.1 For Cause. Upon Umpqua's termination of Officer for Cause (as
defined in Section 7.1 below) ("Termination For Cause").

            6.2 Without Cause. Upon Umpqua's termination of Officer without
Cause, with or without notice, at any time in Umpqua's sole discretion, for any
reason other than for Cause or for no reason ("Termination Without Cause"). A
Change in Control does not in itself constitute Termination Without Cause.

            6.3 For Good Reason. Upon Officer's termination of the employment
for Good Reason (as defined in Section 7.2 below) ("Termination For Good
Reason").

                                       3


            6.4 Death or Disability. Upon Officer's death or Disability (as
defined in Section 7.3 below).

            6.5 Resignation. Upon Officer's voluntary resignation without Good
Reason ("Resignation"), written notice of which Officer must give Umpqua at
least six (6) months in advance of Resignation.

      7. DEFINITIONS.

            7.1 Cause. For the purposes of this Agreement, "Cause" for Officer's
termination will exist upon the occurrence of one or more of the following
events:

                  (a) Dishonest or fraudulent conduct by Officer with respect to
            the performance of Officer's duties with Umpqua;

                  (b) Conduct by Officer that materially discredits Umpqua or
            any of its subsidiaries or is materially detrimental to the
            reputation of Umpqua or any of its subsidiaries, including but not
            limited to conviction or a plea of nolo contendere of Officer of a
            felony or crime involving moral turpitude;

                  (c) Officer's willful misconduct or gross negligence in
            performance of Officer's duties under this Agreement, including but
            not limited to Officer's refusal to comply in any material respect
            with the legal directives of the Board or the Supervisor, if such
            misconduct or negligence has not been remedied or is not being
            remedied to the Board's reasonable satisfaction within thirty (30)
            days after written notice, including a detailed description of the
            misconduct or negligence, has been delivered by the Board to
            Officer;

                  (d) An order or directive from a state or federal banking
            regulatory agency requesting or requiring removal of Officer or a
            finding by any such agency that Officer's performance threatens the
            safety or soundness of Umpqua or any of its subsidiaries; or

                  (e) Material breach of Officer's fiduciary duties to Umpqua if
            such breach has not been remedied or is not being remedied to the
            Board's reasonable satisfaction within thirty (30) days after
            written notice, including a detailed description of the breach, has
            been delivered by the Board to Officer.

            7.2 Good Reason. For purposes of this Agreement, "Good Reason" for
Officer's resignation of employment will exist upon the occurrence of one or
more of the following events, without Officer's consent, if Officer has informed
Umpqua in writing of the circumstances described below in this Section 7.2 that
could give rise to resignation for Good Reason and Umpqua has not removed the
circumstances within thirty (30) days of the written notice:

                                       4


                  (a) A reduction of Officer's Base Salary, unless the reduction
            is in connection with, and commensurate with, reductions in the
            salaries of all or substantially all executive officers of Umpqua;

                  (b) A material reduction in Executive's title or
            responsibilities;

                  (c) A relocation of Officer's principal office, such that
            Officer's one-way commute distance from the location of his office
            as of the Effective Date is increased by more than forty (40) miles;

                  (d) Failure of Umpqua's successor to assume and perform this
            Agreement; or

                  (e) Any material breach by Umpqua of this Agreement.

            7.3 Disability. For purposes of this Agreement, "Disability" shall
mean that (i) Officer has been unable to perform Officer's duties under this
Agreement as a result of Officer's incapacity due to physical or mental illness
for at least 90 consecutive calendar days or 150 calendar days during any
consecutive 12 month period and (ii) a physician selected by Umpqua and its
insurers and acceptable to Officer or Officer's legal representative (with such
agreement on acceptability of the physician not to be unreasonably withheld),
determines the incapacity to be (a) total and permanent and (b) prohibiting of
Officer's ability to perform the essential functions of Officer's position with
or without reasonable accommodation.

            7.4 Change in Control. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred when any of the following events take
place:

                  (a) Any person (including any individual or entity), or
            persons acting in concert, become(s) the beneficial owner of voting
            shares representing fifty percent (50%) or more of Umpqua.

                  (b) A majority of the Board is removed from office by a vote
            of the Umpqua's shareholders over the recommendation of the Board
            then serving.

                  (c) Umpqua is a party to a plan of merger or plan of exchange
            and upon consummation of such plan, the shareholders of Umpqua
            immediately prior to the transaction do not own or continue to own
            (i) at least forty percent (40%) of the shares of the surviving
            company (if the then current CEO of Umpqua continues as CEO of the
            surviving organization), or (ii) at least a majority of the shares
            of the surviving organization (if the then current CEO of Umpqua
            does not continue as CEO of the surviving organization).

                                       5



      8. PAYMENT UPON TERMINATION. Upon termination of Officer's employment for
any of the reasons set forth in Section 6 above, Officer will receive payment
for all Base Salary and benefits accrued as of the date of Officer's termination
("Earned Compensation"), which shall be paid by the end of the business day
following termination or sooner if required by applicable law.

      9. SEVERANCE BENEFIT. In the event of Termination Without Cause or
Termination for Good Reason, in addition to receiving Earned Compensation,
Officer will receive a severance benefit equal to nine (9) months Base Salary,
based on Officer's Base Salary just prior to termination (the "Severance
Benefit"). The Severance Benefit shall be paid in equal installments over the
number of months of continued base salary, starting on the next regular payday
following termination. Receipt of the Severance Benefit is conditioned on
Officer having executed the Separation Agreement in substantially the form
attached hereto as Exhibit D and the revocation period having expired without
Officer having revoked the Separation Agreement. Receipt and continued receipt
of the Severance Benefit is further conditioned on Officer not being in material
violation of any material term of this Agreement or in material violation of any
material term of the Separation Agreement. Officer shall not be required to
mitigate the amount of any payment under this Section (whether by seeking new
employment or otherwise) and no such payment shall be reduced by earnings that
Officer may receive from any other source.

      10. CHANGE IN CONTROL BENEFIT. After announcement of a proposed Change in
Control and for a period continuing for one year following a Change in Control,
in the event of Termination Without Cause or Termination for Good Reason,
instead of receiving the Severance Benefit set forth in Section 9 above, Officer
shall receive 24 months Base Salary, based on Officer's Base Salary just prior
to the termination of employment, as well as 200% of the bonus Officer received
in the previous year (the aforementioned Base Salary and bonus are collectively
referred to as the "Change in Control Benefit"). The Change in Control Benefit
shall be paid in equal installments over 24 months, starting on the next regular
payday following termination. Receipt of the Change in Control Benefit is
conditioned on Officer having executed the Separation Agreement in substantially
the form attached hereto as Exhibit D and the revocation period having expired
without Officer having revoked the Separation Agreement. Receipt and continued
receipt of the Change in Control Benefit is further conditioned on Officer not
being in material violation of any material term of this Agreement or in
material violation of any material term of the Separation Agreement. Officer
shall not be required to mitigate the amount of any payment under this Section
(whether by seeking new employment or otherwise) and no such payment shall be
reduced by earnings that Officer may receive from any other source.

      11. CHANGE IN CONTROL RETENTION BONUS. If Officer remains employed for 12
months following a Change in Control, in addition to Officer's applicable base
salary and bonus during that 12 month period, Officer will receive 12 months
Base Salary and 50% of the bonus Officer received in the previous year (the
aforementioned Base Salary and bonus are collectively referred to as the
"Retention Bonus"). The Retention Bonus shall be paid in equal installments over
12 months, starting on the next regular payday following the first anniversary
of the Change in Control. If Officer receives a

                                       6


benefit under this Section 11, such benefit shall cease when Officer begins to
receive any further benefit under Section 10.

      12. EXECUTIVE SEVERANCE PLAN.

            12.1 In General. Those provisions of this Agreement (including this
Section 12) related to the Severance Benefit set forth in Section 9 and Change
in Control Benefit set forth in Section 10 constitute part of the terms of the
Umpqua Holdings Corporation Executive Severance Plan (the "Executive Severance
Plan") with respect to the Officer, and such terms and the general terms of the
Executive Severance Plan established by Umpqua shall comprise the entirety of
the Executive Severance Plan as it applies to Officer. Umpqua intends for the
Plan to be considered a welfare benefit plan within the meaning of Section 3(1)
of the Employee Retirement Income Security Act ("ERISA"), and a plan which is
unfunded and maintained by the Umpqua solely for the purpose of providing
benefits for a select group of management or highly compensated employees within
the meaning of ERISA Regulation Section 2520.104-24. A copy of the Executive
Severance Plan will be furnished to the Officer upon request.

            12.2 Administration of Executive Severance Plan. Umpqua's Chief
Executive Officer and Human Resources Director are each plan administrators (the
"Plan Administrator") of the Executive Severance Plan and the Plan Administrator
shall have the discretionary authority to administer and construe the terms of
the Executive Severance Plan, including the authority to decide if Officer is
entitled to the Severance Benefit or Change in Control Benefit and the authority
to determine if there is Termination for Cause or Termination for Good Reason.

            12.3 Claims Procedures. Officer may file a claim for a payment under
the Executive Severance Plan by filing a written request for such a payment with
the Plan Administrator. If the Plan Administrator prescribes a form for such a
claim, the claim must be filed on such form. The claim should be sent to the
attention of the Plan Administrator of the Executive Severance Plan at the
address set forth for Umpqua in Section 19.

      If the Plan Administrator denies the claim, in whole or in part, the Plan
Administrator shall notify the Officer within 90 days of the Plan
Administrator's receipt of the claim, unless the Plan Administrator determines
that special circumstances require an extension of time for processing the
claim. If the Plan Administrator determines that an extension of time is
required, written notice of the extension shall be furnished to Officer prior to
the termination of the initial 90-day period. Such extension notice shall
indicate the special circumstances and the date by which the Plan Administrator
expects to issue a determination with respect to the claim. The period of the
extension will not exceed 90 days beyond the termination of the original 90-day
period. If the Plan Administrator does not provide written notice, Officer may
deem the claim denied and seek review according to the appeals procedures set
forth below.

      The notice of denial of Officer's claim shall state:

                                       7


      a.    the specific reasons for the denial,

      b.    specific references to pertinent provisions of the Executive
            Severance Plan on which the denial was based;

      c.    a description of any additional material or information needed for
            Officer to perfect Officer's claim and an explanation of why the
            material or information is needed, and

      d.    a statement (1) that the Officer may request a review upon written
            application to the Plan Administrator, review or receive (free of
            charge) pertinent Plan documents and records, and submit issues and
            comments in writing, (2) that any appeal that Officer wishes to make
            of the adverse determination must be in writing to the Plan
            Administrator within sixty (60) days after Officer receives notice
            of denial of benefits, and (3) that Officer may bring a civil action
            under ERISA Section 502(a) following an adverse benefit
            determination upon review.

The notice of denial of benefits shall specify that Officer must forward any
appeal to the Plan Administrator at the address provided in such notice. The
notice may state that failure to appeal the action to the Plan Administrator in
writing within the sixty (60) day period will render the determination final,
binding and conclusive.

If Officer appeals to the Plan Administrator, Officer may submit in writing
whatever issues and comments Officer believes to be pertinent. The Plan
Administrator shall reexamine all facts related to the appeal and make a final
determination about whether the denial of benefits is justified under the
circumstances. The Plan Administrator shall advise Officer in writing of:

      a.    its decision on appeal,

      b.    the specific reasons for the decision,

      c.    the specific provisions of the Plan on which the decision is based,
            and

      d.    Officer's right to receive, upon request and free of charge,
            reasonable access to, and copies of, all relevant documents and
            records.

Notice of the Plan Administrator's decision shall be given within sixty (60)
days of Officer's written request for review, unless additional time is required
due to special circumstances. In no event shall the Plan Administrator render a
decision on an appeal later than one hundred twenty (120) days after receiving a
request for a review. If the Plan Administrator fails to provide a decision with
respect to Officer's appeal within the 60 (or, if applicable, 120) day period
Officer may deem his or her appeal denied and may pursue the arbitration remedy
set forth below.

      In the event that Officer fails to pursue his or her administrative
remedies as set forth above within the specified periods, Officer shall have no
further right to the benefits subject to

                                       8


Officer's claim and agrees by executing this Agreement that he or she shall have
no right to pursue such claim in arbitration or in a court of law.

      For purposes of this Claims Procedure under the Executive Severance Plan,
Officer may act through a representative authorized in writing to act on his
behalf, provided that such authorization is furnished to the Plan Administrator.

      In the event that Umpqua denies Officer's appeal of the denial of his or
her claim, in whole or in part, Umpqua and Officer may agree to submit the Plan
Administrator's decision to binding arbitration in lieu of Officer's right to
pursue Officer's claim in any court of law.

      13. RESIGNATION PAYMENT.

            13.1 Payment due to Resignation or Termination with Cause. If during
the one year period beginning on the Effective Date, Officer terminates his
employment by Resignation or is terminated for Cause, Officer will forfeit
$250,000 of his interest in the HB Deferred Compensation Plan and agrees to
instruct the trustee of the Rabbi Trust to transfer such funds to Umpqua.

            13.2 Reasonableness of Termination Payment. Officer acknowledges and
agrees that Officer's failure to fulfill the full three-year commitment to
Umpqua will deprive it of his unique abilities and experience with Humboldt. The
parties agree that the actual monetary damage to Umpqua that is likely to result
due to Termination is difficult to predict; however, the parties agree that the
amount of damage that would result will likely be most significant in the first
year of employment because Umpqua will not have had time to familiarize itself
with the California Region's employees and customers and integrate the
California Region's operations into existing Umpqua operations. The parties,
therefore, agree that the forfeiture amount set forth in Section 13.1 above is
reasonable and not a penalty in light of the aforementioned considerations and
the difficulties of proof of the actual damages that would be incurred by
Umpqua.

      14. CONFIDENTIAL INFORMATION. The parties acknowledge that in the course
of Officer's duties, Officer will have access to and become familiar with
certain proprietary and confidential information of Umpqua and its subsidiaries
not known by its actual or potential competitors. Officer acknowledges that such
information constitutes valuable, special, and unique assets of Umpqua's
business, even though such information may not be of a technical nature and may
not be protected under trade secret or related laws. Officer agrees to hold in a
fiduciary capacity and not use for Officer's benefit, nor reveal, communicate,
or divulge during the period of Officer's employment with Umpqua or at any time
thereafter, and in any manner whatsoever, any such data and confidential
information of any kind, nature, or description concerning any matters affecting
or relating to Umpqua's business, its customers, or its services, including
information developed by Employee, alone or with others, or entrusted to Umpqua
by its customers or others, to any person, firm, entity, or company other than
Umpqua or persons, firms, entities, or companies designated by Umpqua. Officer
agrees that all memoranda, notes, records, papers, customer files, and other
documents,

                                       9


and all copies thereof relating to Umpqua's operations or business, or matters
related to any of Umpqua's customers, some of which may be prepared by Officer,
and all objects associated therewith in any way obtained by Officer, shall be
Umpqua's property ("Umpqua Property"). Upon termination or at Umpqua's request,
Officer shall promptly return all the Umpqua Property to Umpqua.

      15. DISPUTE RESOLUTION. Except where such matters are deemed governed by
ERISA and are subject to Section 12 above, the parties agree to submit any
dispute arising under this Agreement to final, binding, private arbitration in
Portland, Oregon. This includes not only disputes about the meaning or
performance of the Agreement, but disputes about its negotiation, drafting, or
execution. The dispute will be determined by a single arbitrator in accordance
with the then-existing rules of arbitration procedure of Multnomah County
Circuit Court, except that there shall be no right of de novo review in court
and the arbitrator may charge his or her standard arbitration fees rather than
the fees prescribed in the Multnomah County Circuit Court arbitration
procedures. The proceeding will be commenced by the filing of a civil complaint
in Multnomah County Circuit Court and a simultaneous request for transfer to
arbitration. The parties expressly agree that they may choose an arbitrator who
is not on the list provided by the Multnomah County Circuit Court Arbitration
Department, but if they are unable to agree upon the single arbitrator within
ten days of receipt of the Arbitration Department list, they will ask the
Arbitration Department to make the selection for them. The arbitrator will have
full authority to determine all issues, including arbitrability, to award any
remedy, including permanent injunctive relief, and to determine any request for
costs and expenses in accordance with Section 17.9 of this Agreement. The
arbitrator's award may be reduced to final judgment in Multnomah County Circuit
Court. The complaining party shall bear the arbitration expenses and may seek
their recovery if it prevails. Notwithstanding any other provision of this
Agreement, an aggrieved party may seek a temporary restraining order or
preliminary injunction in Multnomah County Circuit Court to preserve the status
quo during the arbitration proceeding.

      16. NOTICES. All notices, requests, demands, and other communications
provided for by this Agreement will be in writing and shall be deemed sufficient
upon receipt, when delivered personally or by a nationally-recognized delivery
service (such as Federal Express), or three (3) business days after being
deposited in the U.S. mail as certified mail, return receipt requested, with
postage prepaid, if such notice is addressed to the party to be notified at such
party's address as set forth below or as subsequently modified by written
notice.

              To Umpqua:  Umpqua Holdings Corporation
                          200 SW Market Street
                          Suite 1900
                          Portland, Oregon 97201
                          Attention: Raymond P. Davis, Chief Executive Officer

              To Officer: Robert Daugherty
                          9320 Los Lagos Circle South
                          Granite Bay, CA 95746

                                       10


      17. GENERAL PROVISIONS.

            17.1 Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by federal ERISA, as it relates
to the Severance Benefit and Change in Control Benefit as discussed in Section
12 above, and otherwise by the laws of the State of Oregon.

            17.2 Saving Provision. If any part of this Agreement is held to be
unenforceable, it shall not affect any other part. If any part of this Agreement
is held to be unenforceable as written, it shall be enforced to the maximum
extent allowed by applicable law.

            17.3 Survival Provision. The confidential information and dispute
resolution provisions of this Agreement shall survive after termination of this
Agreement, and shall be enforceable regardless of any claim Employee may have
against Umpqua. Also, if any benefits provided in Sections 9, 10, or 11 of this
Agreement are still owed, or claims pursuant to Section 12, 13, or 14 are still
pending, at the time of termination of this Agreement, this Agreement shall
continue in force, with respect to those obligations or claims, until such
benefits are paid in full or claims are resolved in full.

            17.4 Counterparts. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.

            17.5 Entire Agreement. This Agreement constitutes the sole agreement
of the parties regarding Officer's benefits in the event of termination or
Change in Control and together with Umpqua's employee handbook governs the terms
of Officer's employment. Where there is a conflict between the employee handbook
and this Agreement, the terms of this Agreement shall govern.

            17.6 Previous Agreements. This Agreement replaces in its entirety
the HB Agreement and supersedes all prior oral and written agreements between
the Officer and Umpqua, or any affiliates or representatives of Umpqua regarding
the subject matters set forth herein.

            17.7 Waiver. No waiver of any provision of this Agreement shall be
valid unless in writing, signed by the party against whom the waiver is sought
to be enforced. The waiver of any breach of this Agreement or failure to enforce
any provision of this Agreement shall not waive any later breach.

            17.8 Assignment. Officer shall not assign or transfer any of
Officer's rights pursuant to this Agreement, wholly or partially, to any other
person or to delegate the performance of its duties under the terms of

                                       11


this Agreement. The rights and obligations of Umpqua under this Agreement shall
inure to the benefit of and be binding in each and every respect upon the direct
and indirect successors and assigns of Umpqua, regardless of the manner in which
the successors or assigns succeed to the interests or assets of Umpqua. This
Agreement shall not be terminated by the voluntary or involuntary dissolution of
Umpqua, by any merger, consolidation or acquisition where Umpqua is not the
surviving corporation, by any transfer of all or substantially all of Umpqua's
assets, or by any other change in Umpqua's structure or the manner in which
Umpqua's business or assets are held. Officer's employment shall not be deemed
terminated upon the occurrence of one of the foregoing events. In the event of
any merger, consolidation or transfer of assets, this Agreement shall be binding
upon and shall inure to the benefit of the surviving corporation or the
corporation to which the assets are transferred.

            17.9 Attorneys' Fees. If either party institutes a proceeding to
enforce its rights under, or to recover damages for breach of, this Agreement,
the prevailing party shall be awarded all costs and expenses of the proceeding,
including, but not limited to, attorneys' fees, filing and service fees, witness
fees, and arbitrator's fees. If arbitration is commenced, the arbitrator will
have full authority and complete discretion to determine the "prevailing party"
and the amount of costs and expenses to be awarded under this paragraph.

      18. ADVICE OF COUNSEL. OFFICER ACKNOWLEDGES THAT, IN EXECUTING THIS
AGREEMENT, OFFICER HAS HAD THE OPPORTUNITY TO SEEK THE ADVICE OF INDEPENDENT
LEGAL COUNSEL, AND HAS READ AND UNDERSTOOD ALL OF THE TERMS AND PROVISIONS OF
THIS AGREEMENT. THIS AGREEMENT SHALL NOT BE CONSTRUED AGAINST ANY PARTY BY
REASON OF THE DRAFTING OR PREPARATION HEREOF.

                           UMPQUA HOLDINGS CORPORATION

                           By:
                               _________________________________________________
                               Raymond P. Davis, Chief Executive Officer

                           OFFICER

                               _________________________________________________
                               Robert M. Daugherty

                                       12


                        EXHIBIT A - EMPLOYMENT AGREEMENT

                           PERFORMANCE BONUS CRITERIA

Officer shall be entitled to the Performance Bonus if the following criteria are
met for the given fiscal year by the Umpqua bank branches in California
excluding any branch acquisitions after the Effective Date (the "California
Region"):

2004

- -     Net Income. Pre-Tax Net Income from the California Region for the period
      from January 1, 2004 to December 31, 2004 equals $1.06 per share
      (excluding impact of merger-related expenses) on Humboldt's fully diluted
      shares outstanding as of the Effective Date.

- -     Integration/Synergy. Accomplishment of the following integration/synergy
      goals by December 31, 2004:

         [To be determined by Umpqua and Officer prior to the Effective Date].

- -     Growth. Accomplishment by the California Region of the following growth
      goals for the period of January 1, 2004 (based on pro forma inclusion of
      Feather River) to December 31, 2004.

            Increase in Core Deposits by 8%

            Increase in loans by 10%

Subsequent Years

Performance Bonus criteria for 2005, 2006, and 2007 to be determined by Umpqua
and Officer by January 1 of the respective year.

                                        1


                        EXHIBIT B - EMPLOYMENT AGREEMENT

                             CHANGE IN CONTROL BONUS

1. Special Incentive Bonus. Special Incentive Bonus as set forth in Section
7(b)(ii)(2) and (3) of the HB Agreement, provided the requisite stock price
targets are satisfied. Such amount, if any, will be deferred in accordance with
Section 5.7 of this Agreement.

2. Accelerated Option Granting. Accelerated grant of options scheduled to be
granted January 1, 2005 under Section 7(c) of the HB Agreement. Such grant will
be made by Umpqua in accordance with Section 5.6 of this Agreement.

3. Accelerated Vesting of Options. Full vesting of all unvested equity-based
compensation, including but not limited to those stock options in item 2 above,
as required by Section 14(b)(i)(4) of the HB Agreement and as provided in
Section 5.6 of this Agreement.

4. Change in Control Benefit. Change in Control payment calculated in accordance
with Section 14(b)(i)(1) of the HB Agreement. Such amount will be deferred under
the HB Deferred Compensation Plan in accordance with Section 5.7 of this
Agreement.

5. Incentive Compensation. Earned but unpaid incentive compensation awarded as
set forth in Section 7(b)(i) and 14(b)(2) of the HB Agreement, in accordance
with Section 5.2 of this Agreement. Such amount will be deferred under the HB
Deferred Compensation Plan.

6. Reimbursements. Reimbursement of expenses not yet reimbursed by Humboldt as
of the Effective Date, receipts for which have been provided to Umpqua no later
30 days after the Effective Date.

                                        1


                        EXHIBIT C - EMPLOYMENT AGREEMENT

                         DEFERRED COMPENSATION INTERESTS

The following amounts shall be deposited by Umpqua as of the Effective Date in
the Rabbi Trust referenced in Section 5.7 of the Agreement and maintained in
connection with the HB Deferred Compensation Plan.

1. Special Incentive Bonus amount under Section 7(b)(ii)(2) of the HB Agreement,
provided the requisite stock price target is satisfied.

            Total possible amount: $100,000

2. Special Incentive Bonus amount under Section 7(b)(ii)(3) of the HB Agreement,
provided the requisite stock price target is satisfied.

            Total possible amount: $100,000

3. Change in Control bonus under Section 14(b)(i)(1) of the HB Agreement.

            Total amount of $901,084.

4. Earned but unpaid incentive compensation awarded as set forth in Section
7(b)(i) and Section 14(b)(2) of the HB Agreement, in accordance with Section 5.2
of this Agreement.

5. Previously deferred amounts under the HB Deferred Compensation Plan.

            Total of $173,306 deferred as of March 10, 2004, which is as of that
date at $175,000.

                                        1


                        EXHIBIT D - EMPLOYMENT AGREEMENT

              EMPLOYMENT SEPARATION AGREEMENT AND RELEASE OF CLAIMS

      This is a confidential agreement between you, Robert Daugherty, and us,
Umpqua Holdings Corporation. This agreement is dated for reference purposes
_____________, 20___, which is the date we delivered this agreement to you for
your consideration. For purposes of this Agreement Umpqua Holdings Corporation
together with each of its subsidiaries or affiliates is referred to as "Umpqua."

      1. TERMINATION OF EMPLOYMENT. Your employment terminates [or was
terminated] on _______________, 20___ (the "Separation Date").

      2. PAYMENTS. In exchange for your agreeing to the release of claims and
other terms in this agreement, we will pay you the Severance Benefit specified
in Section 9 or Section 10, as appropriate, of the Employment Agreement between
you and Umpqua Holdings Corporation dated March 13, 2004 (the "Employment
Agreement"). You acknowledge that we are not obligated to make these payments to
you unless you agree to comply with the terms of this agreement.

      3. COBRA CONTINUATION COVERAGE. Your normal employee participation in
Umpqua's group health coverage will terminate on the Separation Date.
Continuation of group health coverage thereafter will be made available to you
and your dependents pursuant to federal law (COBRA). As long as you timely elect
COBRA continuation coverage, Umpqua will waive the requirement that you pay for
the cost of continuation coverage through the Separation Date. Continuation of
group health coverage thereafter is entirely at your expense, as provided under
COBRA.

      4. TERMINATION OF BENEFITS. Except as provided in paragraph 3 above, your
participation in all employee benefit plans and programs ended on the Separation
Date. Your rights under any pension benefit or other plans in which you may have
participated will be determined in accordance with the written plan documents
governing those plans.

      5. FULL PAYMENT. You acknowledge having received full payment of all
compensation of any kind (including wages, salary, vacation, sick leave,
commissions, bonuses and incentive compensation) that you earned as a result of
your employment by us.

      6. NO FURTHER COMPENSATION. Any and all agreements to pay you bonuses or
other incentive compensation are terminated. You understand and agree that you
have no right to receive any further payments for bonuses or other incentive
compensation. We owe no further compensation or benefits of any kind, except as
described above.

      7. RELEASE OF CLAIMS.

      (a) You hereby release (i) Umpqua and its subsidiaries, affiliates, and
benefit plans, (ii) each of Umpqua's past and present shareholders, officers,
directors, agents, employees, representatives, administrators, fiduciaries and
attorneys, and (iii) the predecessors, successors, transferees and assigns of
each of the persons and entities described in this sentence, from any and all
claims of any kind, known or unknown, that arose on or before the date you
signed this agreement.

                                        1


      (b) The claims you are releasing include, without limitation, claims of
wrongful termination, claims of constructive discharge, claims arising out of
employment agreements, representations or policies related to your employment,
claims arising under federal, state or local laws or ordinances prohibiting
discrimination or harassment or requiring accommodation on the basis of age,
race, color, national origin, religion, sex, disability, marital status, sexual
orientation or any other status, claims of failure to accommodate a disability
or religious practice, claims for violation of public policy, claims of
retaliation, claims of failure to assist you in applying for future position
openings, claims of failure to hire you for future position openings, claims for
wages or compensation of any kind (including overtime claims), claims of
tortious interference with contract or expectancy, claims of fraud or negligent
misrepresentation, claims of breach of privacy, defamation claims, claims of
intentional or negligent infliction of emotional distress, claims of unfair
labor practices, claims arising out of any claimed right to stock or stock
options, claims for attorneys' fees or costs, and any other claims that are
based on any legal obligations that arise out of or are related to your
employment relationship with us.

      (c) You specifically waive any rights or claims that you may have under
the California Labor Code, the Civil Rights Act of 1964 (including Title VII of
that Act), the Equal Pay Act of 1963, the Age Discrimination in Employment Act
of 1967 (ADEA), the Americans with Disabilities Act of 1990 (ADA), the Fair
Labor Standards Act of 1938 (FLSA), the Family and Medical Leave Act of 1993
(FMLA), the Worker Adjustment and Retraining Notification Act (WARN), the
Employee Retirement Income Security Act of 1974 (ERISA), the National Labor
Relations Act (NLRA), and all similar federal, state and local laws.

      (d) You agree not to seek any personal recovery (of money damages,
injunctive relief or otherwise) for the claims you are releasing in this
agreement, either through any complaint to any governmental agency or otherwise.
You agree never to start any lawsuit or arbitration asserting any of the claims
you are releasing in this agreement. You represent and warrant that you have not
initiated any complaint, charge, lawsuit or arbitration involving any of the
claims you are releasing in this agreement. You agree not to apply for future
employment with Umpqua and that Umpqua has no obligation to consider you for
future employment.

      (e) You represent and warrant that you have all necessary authority to
enter into this agreement (including, if you are married, on behalf of your
marital community) and that you have not transferred any interest in any claims
to your spouse or to any third party.

      (f) This agreement does not affect your rights, if any, to receive pension
plan benefits, medical plan benefits, unemployment compensation benefits or
workers' compensation benefits. This agreement also does not affect your rights,
if any, under agreements, bylaw provisions, insurance or otherwise, to be
indemnified, defended or held harmless in connection with claims that may be
asserted against you by third parties.

      (g) You understand that you are releasing potentially unknown claims, and
that you have limited knowledge with respect to some of the claims being
released. You acknowledge that there is a risk that, after signing this
agreement, you may learn information that might have affected your decision to
enter into this agreement. You assume this risk and all other risks of any
mistake in entering into this agreement. You agree that this release is fairly
and knowingly made.

      (h) You are giving up all rights and claims of any kind, known or unknown,
except for the rights specifically given to you in this agreement.

                                        2


      8. NO ADMISSION OF LIABILITY. Neither this agreement nor the payments made
under this agreement are an admission of liability or wrongdoing by Umpqua.

      9. UMPQUA MATERIALS. You represent and warrant that you have, or no later
than the Separation Date will have, returned all keys, credit cards, documents
and other materials that belong to us.

      10. NONDISCLOSURE AGREEMENT. You will comply with the covenant regarding
confidential information in Section 13 of the Employment Agreement.

      11. NO DISPARAGEMENT. You may not disparage Umpqua or Umpqua's business or
products, and may not encourage any third parties to sue Umpqua.

      12. COOPERATION REGARDING OTHER CLAIMS. If any claim is asserted by or
against Umpqua as to which you have relevant knowledge, you will reasonably
cooperate with us in the prosecution or defense of that claim, including by
providing truthful information and testimony as reasonably requested by us.

      13. NO INTERFERENCE. You will not, apart from good faith competition,
interfere with Umpqua's relationships with customers, employees, vendors, or
others.

      14. INDEPENDENT LEGAL COUNSEL. You are advised and encouraged to consult
with an attorney before signing this agreement. You acknowledge that you have
had an adequate opportunity to do so.

      15. CONSIDERATION PERIOD. You have 21 days from the date this agreement is
given to you to consider this agreement before signing it. You may use as much
or as little of this 21-day period as you wish before signing. If you do not
sign and return this agreement within this 21-day period, you will not be
eligible to receive the benefits described in this agreement.

      16. REVOCATION PERIOD AND EFFECTIVE DATE. You have 7 calendar days after
signing this agreement to revoke it. To revoke this agreement after signing it,
you must deliver a written notice of revocation to Umpqua's President before the
7-day period expires. This agreement shall not become effective until the 8th
calendar day after you sign it. If you revoke this agreement it will not become
effective or enforceable and you will not be entitled to the benefits described
in this agreement.

      17. GOVERNING LAW. This agreement is governed by the laws of the State of
Oregon that apply to contracts executed and to be performed entirely within the
State of Oregon.

      18. DISPUTE RESOLUTION. Except where such matters are deemed governed by
ERISA and are subject to Section 7 above, the parties agree to submit any
dispute arising under this Agreement to final, binding, private arbitration in
Portland, Oregon. This includes not only disputes about the meaning or
performance of the Agreement, but disputes about its negotiation, drafting, or
execution. The dispute will be determined by a single arbitrator in accordance
with the then-existing rules of arbitration procedure of Multnomah County
Circuit Court, except that there shall be no right of de novo review in court
and the arbitrator may charge his or her standard arbitration fees rather than
the fees prescribed in the Multnomah County Circuit Court arbitration
procedures. The proceeding will be commenced by the filing of a civil complaint
in Multnomah County Circuit Court and a simultaneous request for transfer to
arbitration. The parties expressly agree that they may choose an arbitrator who
is not on the list provided by the Multnomah County Circuit Court Arbitration
Department, but if they are unable to agree upon the single

                                       3


arbitrator within ten days of receipt of the Arbitration Department list, they
will ask the Arbitration Department to make the selection for them. The
arbitrator will have full authority to determine all issues, including
arbitrability, to award any remedy, including permanent injunctive relief, and
to determine any request for costs and expenses in accordance with Section 19 of
this Agreement. The arbitrator's award may be reduced to final judgment in
Multnomah County Circuit Court. The complaining party shall bear the arbitration
expenses and may seek their recovery if it prevails. Notwithstanding any other
provision of this Agreement, an aggrieved party may seek a temporary restraining
order or preliminary injunction in Multnomah County Circuit Court to preserve
the status quo during the arbitration proceeding.

      19. ATTORNEYS' FEES. If either party institutes a proceeding to enforce
its rights under, or to recover damages for breach of, this agreement, the
prevailing party shall be awarded all costs and expenses of the proceeding,
including, but not limited to, attorneys' fees, filing and service fees, witness
fees, and arbitrator's fees. If arbitration is commenced, the arbitrator will
have full authority and complete discretion to determine the "prevailing party"
and the amount of costs and expenses to be awarded under this paragraph.

      20. FINAL AND COMPLETE AGREEMENT. This agreement is the final and complete
expression of all agreements between us on all subjects and supersedes and
replaces all prior discussions, representations, agreements, policies and
practices. You acknowledge you are not signing this agreement relying on
anything not set out herein.

UMPQUA HOLDINGS CORPORATION

By: ____________________________________
Ray Davis, Chief Executive Officer

I, THE UNDERSIGNED, HAVING BEEN ADVISED TO CONSULT WITH AN ATTORNEY, HEREBY
AGREE TO BE BOUND BY THIS AGREEMENT AND CONFIRM THAT I HAVE READ AND UNDERSTOOD
EACH PART OF IT.

_________________________________________
Robert Daugherty
_________________________________________
Date

                                       4

EX-10.4

                                                                    EXHIBIT 10.4

                           UMPQUA HOLDINGS CORPORATION

                           DEFERRED COMPENSATION PLAN

                                 TRUST AGREEMENT

                          Effective as of July 10, 2004


                           UMPQUA HOLDINGS CORPORATION

                           DEFERRED COMPENSATION PLAN

                                 TRUST AGREEMENT

                          EFFECTIVE AS OF JULY 10, 2004

                                TABLE OF CONTENTS

                                                                                 
                                    ARTICLE 1
                             ESTABLISHMENT OF TRUST
1.1      TRUST DEPOSITS.........................................................    1
1.2      IRREVOCABILITY.........................................................    1
1.3      GRANTOR TRUST..........................................................    2
1.4      TRUST ASSETS...........................................................    2
1.5      ACCEPTANCE OF TRUST....................................................    2

                                    ARTICLE 2
                         PLAN AS PART OF TRUST AGREEMENT
2.1      INCORPORATION BY REFERENCE.............................................    2
2.2      BENEFIT PROVISIONS.....................................................    2
2.3      AMENDMENT OF PLAN......................................................    2
2.4      SEPARATE PLAN SUB-ACCOUNTS.............................................    2
2.5      CONFLICTS WITH TRUST...................................................    3
2.6      TRUSTEE RELIANCE.......................................................    3

                                    ARTICLE 3
                 PAYMENTS TO PLAN PARTICIPANTS AND BENEFICIARIES
3.1      PAYMENT SCHEDULE AND TAXES.............................................    3
3.2      ENTITLEMENT TO BENEFITS................................................    4
3.3      PAYMENTS BY SPONSOR OR SUBSIDIARIES....................................    4

                                    ARTICLE 4
                TRUSTEE RESPONSIBILITY WHEN SPONSOR IS INSOLVENT
4.1      CESSATION OF PAYMENTS ON SPONSOR INSOLVENCY............................    4
4.2      CLAIMS OF CREDITORS....................................................    4
4.3      RECOMMENCEMENT OF PAYMENTS.............................................    5

                                    ARTICLE 5
                               PAYMENTS TO SPONSOR
5.1      PAYMENTS TO THE SPONSOR................................................    5



                                       i


                                                                                
                                    ARTICLE 6
                              INVESTMENT AUTHORITY
6.1      TRUSTEE AUTHORITY......................................................    6
6.2      INVESTMENT OPTION......................................................    7

                                    ARTICLE 7
                              DISPOSITION OF INCOME
7.1      DISPOSITION OF INCOME..................................................    8

                                    ARTICLE 8
                              ACCOUNTING BY TRUSTEE
8.1      ACCOUNTING BY TRUSTEE..................................................    8

                                    ARTICLE 9
                          RESPONSIBILITY OF THE TRUSTEE
9.1      PRUDENT PERSON.........................................................    9
9.2      TRUSTEE INDEMNIFICATION................................................    9
9.3      LEGAL COUNSEL..........................................................    9
9.4      HIRING AGENTS..........................................................    9
9.5      TRUSTEE POWERS.........................................................    9
9.6      LIMITATION ON POWERS...................................................   10

                                   ARTICLE 10
                        FEES AND EXPENSES OF THE TRUSTEE
10.1     TRUSTEE EXPENSES AND FEES..............................................   10

                                   ARTICLE 11
                     RESIGNATION AND REMOVAL OF THE TRUSTEE
11.1     TRUSTEE RESIGNATION....................................................   10
11.2     TRUSTEE REMOVAL........................................................   10
11.3     TRANSFER OF ASSETS.....................................................   10
11.4     APPOINTMENT OF SUCCESSOR...............................................   10

                                   ARTICLE 12
                            APPOINTMENT OF SUCCESSOR
12.1     APPOINTMENT OF SUCCESSOR...............................................   10
12.2     TERMINATION............................................................   11

                                   ARTICLE 13
                            AMENDMENT OR TERMINATION
13.1     AMENDMENT..............................................................   11
13.2     TERMINATION............................................................   11
13.3     GOVERNING LAW..........................................................   11
13.4     SUCCESSOR AND ASSIGNS..................................................   11
13.5     TRUSTEE'S SUCCESSORS...................................................   11


                                       ii


                           UMPQUA HOLDINGS CORPORATION

                           DEFERRED COMPENSATION PLAN

                                 TRUST AGREEMENT

                                    RECITALS

      THIS TRUST AGREEMENT is made and entered into effective as of July 10,
2004 by and between Umpqua Holdings Corporation (the "Sponsor"), which, as
successor in interest by merger, sponsors the Humboldt Bancorp Deferred
Compensation Plan (the "Plan"), and Wells Fargo Bank, a national banking
association (the "Trustee").

      The Sponsor has established the Plan. The Plan is intended to be a "top
hat plan" (i.e., an unfunded plan of deferred compensation maintained for
members of a select group of management or highly compensated employees of
subsidiaries of the Sponsor under sections 201(2), 301(a)(3) and 401(a)(1) of
the Employee Retirement Income Security Act of 1974 ("ERISA"). The Plan's
accounts represent the deferred compensation interests of Robert M. Daugherty
under a Deferred Compensation Agreement dated December 18, 2003, as amended, and
under an Employment Agreement dated March 13, 2004 (collectively, the "Daugherty
Agreements"), and of Patrick J. Rusnak under a Deferred Compensation Agreement
dated December 29, 2000, as amended, and under an Employment Agreement dated
March 13, 2004 (collectively, the "Rusnak Agreements").

      The Sponsor wishes to establish an irrevocable trust fund for the purpose
of providing a source from which to pay benefits under the Plan, the trust fund
being subject to the claims of the Sponsor's creditors in the event of the
Sponsor's bankruptcy or insolvency. Contributions to the trust fund shall be
held by the Trustee and invested, reinvested and distributed in accordance with
the provisions of this Trust Agreement.

      The Trust established by this Trust Agreement is intended to be a "grantor
trust," with the result that the corpus and income of the trust are treated for
tax purposes as assets and income of the Sponsor.

      Accordingly, the Sponsor and the Trustee, intending to be legally bound,
declare and agree as follows.

                                    ARTICLE 1

                             ESTABLISHMENT OF TRUST

      1.1 TRUST DEPOSITS. The Sponsor shall deposit with the Trustee, in trust,
certain funds, as required under the Plan, which funds shall be held,
administered and disposed of by the Trustee as provided in this Trust Agreement.

      1.2 IRREVOCABILITY. The Trust shall be irrevocable.

                                       1


      1.3 GRANTOR TRUST. The Trust is intended to be a grantor trust, of which
the Sponsor is the grantor, within the meaning of sub-part E, part I, subchapter
J, chapter 1, subtitle A of the Internal Revenue Code of 1986, as amended, and
shall be construed accordingly.

      1.4 TRUST ASSETS. The principal of the Trust, and any earnings, shall be
held separate and apart from other funds of the Sponsor and shall be used
exclusively for the uses and purposes of the Plan and general insolvency
creditors of the Sponsor as set forth in this Trust Agreement.

      1.5 ACCEPTANCE OF TRUST. The Trustee accepts the Trust established under
this Trust Agreement, and it agrees to discharge and perform fully and
faithfully all of the duties and obligations imposed upon it under this Trust
Agreement.

                                    ARTICLE 2

                         PLAN AS PART OF TRUST AGREEMENT

      2.1 INCORPORATION BY REFERENCE. The Plan (including the deferred
compensation provisions of the Daugherty Agreements and the Rusnak Agreements)
is expressly incorporated into this Trust Agreement and made a part of this
Trust Agreement with the same force and effect as if the Plan had been fully set
forth within this Trust Agreement. A copy of the Plan has been delivered to the
Trustee. All terms defined in the Plan shall have the same meanings when used in
this Trust Agreement unless expressly provided to the contrary. The Sponsor
shall deliver to the Trustee copies of all amendments to the Plan made after the
date of this Trust Agreement. It is expressly understood, however, that the
Trustee is not considered a party to the Plan and that the Sponsor will retain
the full responsibility for the interpretation and implementation of Plan
provisions.

      2.2 BENEFIT PROVISIONS. The terms of the Plan shall govern the amount,
form and timing of benefit payments under the Plan and a Plan participant or
beneficiary may make application for payment directly to the Sponsor who shall
have sole responsibility for determining a participant's or beneficiary's
eligibility for payment.

      2.3 AMENDMENT OF PLAN. The incorporation of the Plan into this Trust shall
not affect the provisions of the Plan concerning the amendment or termination of
the Plan.

      2.4 SEPARATE PLAN SUB-ACCOUNTS. The Trustee shall establish and maintain
separate accounts within the trust for each participant, based on instructions
it receives from the sponsor or its designee. Also based on instructions it
receives from the Sponsor or its designee, the Trustee shall establish and
maintain separate sub-accounts to show separately the participant's deferred
signing bonus account and employer discretionary contribution account. Each
sub-account will separately account for deemed earnings and losses credited or
debited to that sub-account, and the applicable deemed investments of that
sub-account, based on information provided to the Trustee by the Sponsor or its
designee. The Trustee shall have no obligation to verify any information
provided by the sponsor or its designee under this section, and will be entitled
to rely on that information.

                                       2


      2.5 CONFLICTS WITH TRUST. If any provision of the Plan is inconsistent
with any provision of this Trust, the terms of this Trust shall control.

      2.6 TRUSTEE RELIANCE. Any direction received by the Trustee from the
Sponsor or its representatives concerning the Trustee's receipt, holding,
disposition, investment, or other treatment of the assets of the Trust shall
conclusively be deemed to be in accordance with the terms of the applicable
Plan, and the Trustee shall be entitled to rely, and shall be held harmless by
the Sponsor in relying, on the propriety of the direction.

                                    ARTICLE 3

                 PAYMENTS TO PLAN PARTICIPANTS AND BENEFICIARIES

      3.1 PAYMENT SCHEDULE AND TAXES. The Sponsor shall deliver to the Trustee a
schedule (the "Payment Schedule") that indicates the amounts payable in respect
of the Plan participant upon his or her becoming entitled to receive a
distribution from the Plan and that provides the form in which the amounts are
to be paid (as provided for and available under the Plan) and the time of
commencement for the payment of the amounts. Except as otherwise provided in
this Trust Agreement, the Trustee shall make payments to the Plan participant or
his or her beneficiaries in accordance with the Payment Schedule. The Sponsor
shall provide the Trustee with all the information necessary to permit the
Trustee to make distributions from the Trust and to withhold all taxes required
by law from those distributions. As directed by the Sponsor, the Trustee shall
make provision for the withholding of all taxes required by law. The Trustee or
its agent shall prepare all tax returns, withholding statements and other tax
materials. Trustee shall not be liable for payment of any tax assessed under any
existing or future law against the assets of the Trust. With respect to any
income tax on the earnings of the assets of the Trust, the taxes shall be paid
by Sponsor. While a participant is employed by Sponsor or one of its affiliated
companies, such taxes shall be borne by Sponsor; after the participant is no
longer an employee of Sponsor or any of its affiliated companies, the amount of
such taxes shall be deducted from the assets held in the Trust for the benefit
of such participant. In the case of benefit distributions, which are taxable as
income from wages, the Sponsor shall calculate and provide to Trustee an
itemization of all required taxes required to be withheld from such
distributions as wages. The Trustee shall deduct from each benefit distribution
and send to Sponsor the tax amount calculated by Sponsor. The Sponsor will remit
such taxes to the appropriate tax authority.

      3.2 ENTITLEMENT TO BENEFITS. The entitlement of the Plan participant or
his or her beneficiaries to benefits under the Plan shall be determined under
the terms of the Plan, and any claim for Plan benefits shall be considered and
reviewed under the procedures set out in the Plan.

      3.3 PAYMENTS BY SPONSOR OR SUBSIDIARIES. The Sponsor may make payment of
benefits directly to the Plan participant or his or her beneficiaries as they
become due under the terms of the Plan. The Sponsor shall notify the Trustee of
its decision to make payment of benefits directly prior to the time amounts are
payable to the Plan participant or his or her beneficiaries.

                                       3


                                    ARTICLE 4

                TRUSTEE RESPONSIBILITY WHEN SPONSOR IS INSOLVENT

      4.1 CESSATION OF PAYMENTS ON SPONSOR INSOLVENCY. The Trustee shall cease
payment of benefits to participants and beneficiaries under the Plan if the
Sponsor is Insolvent. The Sponsor shall be considered "Insolvent" for purposes
of this Trust Agreement if : (i) the Sponsor is unable to pay its debts as they
become due; or (ii) the Sponsor is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.

      4.2 CLAIMS OF CREDITORS. At all times during the continuance of this
Trust, the principal and income of the Trust shall be subject to claims of
general creditors of the Sponsor under federal and state law as set forth below.

            (a) The Board of Directors and the chief executive officer of the
Sponsor shall have the duty to inform the Trustee in writing of the Sponsor's
Insolvency. If a person claiming to be a creditor of the Sponsor alleges in
writing to the Trustee that the Sponsor has become Insolvent, the Trustee shall
determine whether the Sponsor is Insolvent and, pending a determination, the
Trustee shall discontinue payment of benefits to Plan participants and
beneficiaries.

            (b) Unless the Trustee has actual knowledge of the Sponsor's
Insolvency, or has received notice from the Sponsor or a person claiming to be a
creditor alleging that the Sponsor is Insolvent, the Trustee shall have no duty
to inquire whether the Sponsor is Insolvent. The Trustee may in all events rely
on any evidence concerning the Sponsor's solvency as may be furnished to the
Trustee and that provides the Trustee with a reasonable basis for making a
determination concerning the Sponsor's solvency.

            (c) If at any time the Trustee has determined that the Sponsor is
Insolvent, the Trustee shall discontinue payments to participants and
beneficiaries of the Plan and shall hold the assets of the Trust for the benefit
of the Sponsor's general creditors. Nothing in this Trust Agreement shall in any
way diminish any rights of any participant or beneficiary of the Plan to pursue
his or her rights as a general creditor of the Sponsor with respect to benefits
due under the Plan or otherwise.

            (d) The Trustee shall resume the payment of benefits to the Plan
participants and beneficiaries in accordance with the terms of this Trust
Agreement only after the Trustee has determined that the Sponsor is not
Insolvent (or is no longer Insolvent).

            (e) Except as expressly provided in this Trust Agreement, the
Sponsor shall have no right or power to direct the Trustee to return to the
Sponsor or to divert to others any of the Trust assets before all payments of
benefits have been made to all participants and beneficiaries of the Plan (or to
the Sponsor, in the case of the inability to locate a payee under the terms of a
Plan) pursuant to the terms of the Plan.

            (f) If the Trustee makes payments from the Trust for the benefit of
the general creditors of the Sponsor under this Section and assets remain in the
Trust after a payment of assets to the general creditors of the Sponsor under
this Section, each Plan participant's allocable deemed

                                       4


interest in Trust assets following cessation of payments to the general
creditors of the Sponsor shall equal the value of the aggregate assets of the
Trust immediately following the date the Trustee last makes a payment for the
benefit of the Sponsor's general creditors multiplied by a fraction, the
numerator of which is the value of the participant's account on the date the
Trustee deems the Sponsor to be Insolvent and ceases payments to the Plan
participants and their beneficiaries less payments made to or on behalf of the
participant under the Plan since that date (whether or not directly from the
Trust) and the denominator of which is the value of all Plan participants'
accounts on the date the Trustee deems the Sponsor to be Insolvent and ceases
payments to Plan participants and their beneficiaries less the aggregate amount
of payments made to or on behalf of all participants under the Plan since that
date (whether or not from the Trust).

      4.3 RECOMMENCEMENT OF PAYMENTS. If the Trustee discontinues payments from
the Trust to the participant or his or her beneficiaries pursuant to Section 4.1
and subsequently resumes payments, the first payments following the
discontinuance shall include the aggregate amount of all payments which would
have been made to the participant or his or her beneficiaries (together with the
deemed earnings or losses on the payments under the terms of the Plan) in
accordance with the Plan during the period of discontinuance, less the aggregate
amount of payments, if any, made to the participant or his or her beneficiaries
by the Sponsor or any of its subsidiaries in lieu of the payments provided for
under this Trust Agreement during any period of discontinuance. Sponsor shall
inform Trustee of any payments made by Sponsor during any period of
discontinuance and shall instruct Trustee regarding the appropriate amount of
the first payment due each Plan participant or beneficiary following a period of
discontinuance.

                                    ARTICLE 5

                               PAYMENTS TO SPONSOR

      5.1 PAYMENTS TO THE SPONSOR. Except as provided in this Trust Agreement or
in the Plan, the Sponsor shall have no right or power to direct the Trustee to
return to the Sponsor or to divert to others any of the Trust assets before all
payments of benefits have been made to Plan participants and beneficiaries
pursuant to the terms of the Plan.

                                    ARTICLE 6

                              INVESTMENT AUTHORITY

      6.1 TRUSTEE AUTHORITY. All administrative rights associated with assets of
the Trust shall be exercised by the Trustee or the person designated by the
Trustee, and shall in no event be exercisable by or rest with any Plan
participant or beneficiary or the Sponsor. The Trustee shall have the following
powers with respect to securities and other assets at any time held by it and
constituting the Trust, those powers, subject to Section 6.2, to be exercised by
it in its sole discretion:

            (a) To purchase or subscribe for and invest in any securities, but
not including, any securities of the Trustee or any affiliate of the Trustee,
and to retain those securities in the Trust. The term "securities" shall be
deemed to include, but not be limited to, common and preferred stocks,
mortgages, debentures, bonds, notes or other evidences of indebtedness, and
other forms of

                                       5


securities, including those issued by the Sponsor or sold by employees
participating under the Plan; provided, however, that no stock, securities or
evidence of indebtedness of said Sponsor or employees shall be acquired by or
held unless the Trustee is so directed by the Sponsor.

                  The Trustee is authorized to invest and reinvest all or a
portion of the Trust in shares of any open-ended investment fund or company,
including but not limited to, any fund or company which is managed by an
affiliate of the Trustee or provides other services to such company and receives
compensation for the services provided.

            (b) To sell, transfer and convey for cash or on credit, convert,
redeem, exchange for other securities, or otherwise to dispose of any securities
at any time held by it.

            (c) To exercise any conversion privilege and/or subscription right
available in connection with any securities at any time held by it; to oppose or
to consent to the reorganization, consolidation, merger, or readjustment of the
finances of any corporation, company or association or to the sale, mortgage,
pledge or lease of the property of any corporation, company or association, or
to the sale, mortgage, pledge or lease of any of the securities which may at any
time be held by it, and to do any act with reference thereto, including the
exercise of options, the making of agreements or subscriptions and the payment
of expenses, assessments or subscriptions, which may be deemed necessary or
advisable in connection therewith, and to hold and retain any securities which
it may so acquire.

            (d) To vote, personally or by general or limited proxy, any
securities which may be held by it at any time and, similarly, to exercise,
personally or by general or limited proxy, any right appurtenant to any
securities held by it at any time.

            (e) To register any securities held by it hereunder in its own name
or in the name of a nominee, or in any form permitting title to pass by
delivery, providing the records of the Trustee shall clearly indicate the
ownership of any asset of the Trust.

            (f) To make, execute and deliver any and all mortgages, contracts,
consents, waivers, releases or other instruments in writing necessary or proper
for the accomplishment of any of its powers.

            (g) To invest and reinvest all or any portion of the Trust in units
of participation in one or more common, collective or commingled trust funds
that may be established and maintained by the Trustee or other trustee. Any
common, collective or commingled trust fund may be specifically designated for
investment in guaranteed investment contracts.

            (h) To invest any part or all of the Trust (including idle cash
balances) in certificates of deposit, demand or time deposits, savings accounts,
money market accounts or similar investments of the Trustee or of any affiliate
of the Trustee, which bear a reasonable rate of interest.

      6.2 INVESTMENT OPTION. Under the terms of the Plan, the Daugherty
Agreements and the Rusnak Agreements, and for so long as a participant remains
employed by the Sponsor or an affiliate, the Trust account established for that
participant will hold a certificate of deposit issued by

                                       6


Umpqua Bank. That certificate shall accrue interest equal to Umpqua Bank's prime
lending rate plus 1% as in effect from time to time and may mature no earlier
than the participant's termination of employment. Effective with a participant's
termination of employment with the Sponsor and its affiliates, the participant
may elect to allow his certificate of deposit to mature. In this event the
participant will be permitted to direct the investment of his Trust account.
Such account will be credited with whatever earnings are generated by the
investments selected by the participant. Alternatively, the participant may
elect not to have the certificate of deposit mature in which case the rate and
maturity of the certificate will be negotiated by the Sponsor and the
participant.

                                    ARTICLE 7

                              DISPOSITION OF INCOME

      7.1 DISPOSITION OF INCOME. During the term of this Trust, all income
received by the Trust shall be accumulated and reinvested, and ultimately
distributed, as provided in this Trust Agreement and in the Plan.

                                    ARTICLE 8

                              ACCOUNTING BY TRUSTEE

      8.1 ACCOUNTING BY TRUSTEE. The Trustee shall keep accurate and detailed
records of all investments, receipts, disbursements, and all other transactions
required to be made, including any specific records as shall be agreed upon in
writing between the Sponsor and the Trustee. Within ninety (90) days following
the close of each calendar year and within ninety (90) days after the removal or
resignation of the Trustee, the Trustee shall deliver to the Sponsor a written
account of its administration of the Trust during the year or during the period
from the close of the last preceding year to the date of the removal or
resignation, setting forth all investments, receipts, disbursements and other
transactions effected by it, including a description of all securities and
investments purchased and sold with the cost or net proceeds of the purchases or
sales (accrued interest paid or receivable being shown separately), and showing
all cash, securities and other property held in the Trust at the end of the year
or as of the date of removal or resignation, as the case may be.

            The Sponsor may approve the accounting by written approval delivered
to the Trustee. The Trustee shall deem failure by the Sponsor to approve or
disapprove an accounting within 60 days after receipt of such accounting an
approval of it.

            The assets of the Trust shall be valued at their fair market values
on the date of valuation, as determined by the Trustee based upon such sources
of information, as it may deem reliable. The Sponsor shall instruct the Trustee
as to the value of assets for which the market value is not readily obtainable
by the Trustee. If the Sponsor fails to provide such values, the Trustee may
take whatever action it deems reasonable, including employment of attorneys,
appraisers or other professionals, the expense of which will be an expense of
the administration of the Trust.

            If the Sponsor directs the Trustee to perform separate recordkeeping
with respect to assets of the Trust attributable to each Plan participant's
proportionate interest in the Plan, the

                                       7


proportionate interest shall be based on the amount of each contribution to the
Trust that the Sponsor specifies in writing to the Trustee is attributable to
the Plan account(s) of the Participant and for earnings or losses of the Trust
credited or debited, as applicable, to the Plan account(s) and attributable to
the performance of the investments of the Trust attributable to the Plan
account(s) (either based on each the participant's proportionate interest in the
entire Trust fund or in separate investment funds established under the Trust
for participant investment direction). In such a case, the Trustee periodically
shall deliver to the Sponsor a written account of its administration of the
Trust setting forth the value of each participant's account(s) as of the
beginning and end of the period. Trust assets attributable to a Plan
participant's Plan account(s) shall be maintained merely as book entries under a
single Trust account maintained hereunder, and no assets or funds shall be
required to be paid to, held in or invested in any separate Trust account apart
from any other assets or funds of the Trust.

                                    ARTICLE 9

                          RESPONSIBILITY OF THE TRUSTEE

      9.1 PRUDENT PERSON. The Trustee shall act with the care, skill, prudence
and diligence under the circumstances then prevailing that a prudent person
acting in like capacity and familiar with such matters would use in the conduct
of an enterprise of a like character and with like aims; provided, however, that
the Trustee shall incur no liability to any person for any action taken pursuant
to a direction, request or approval given by the Sponsor which is contemplated
by, and in conformity with, the terms of the Plan or this Trust and is given in
writing by the Sponsor. In the event of a dispute between the Sponsor and a
party, the Trustee may apply to a court of competent jurisdiction to resolve the
dispute.

      9.2 TRUSTEE INDEMNIFICATION.

            (a) If the Trustee undertakes or defends any litigation arising in
connection with this Trust, the Trustee will be indemnified from the Trust
against the Trustee's costs, expenses and liabilities (including, without
limitation, attorneys' fees and expenses) relating thereto and to be primarily
liable for the payments.

            (b) The Trustee will be indemnified from the Trust, to the fullest
extent permitted under applicable law, for any and all liabilities of any kind
incurred by the Trustee in connection with the Plan and Trust (i) relating to
periods of time prior to the Trustee's becoming Trustee or (ii) relating to
periods of time while the Trustee is Trustee, but not related to the Trustee's
negligence, willful misconduct, or breach of its fiduciary duties.

      9.3 LEGAL COUNSEL. The Trustee may consult with legal counsel (who may
also be counsel for the Sponsor generally) with respect to any of its duties or
obligations hereunder.

      9.4 HIRING AGENTS. The Trustee may hire agents, accountants, actuaries,
investment advisors, financial consultants or other professionals to assist it
in performing any of its duties or obligations hereunder and rely upon advice
given by those professionals.

                                       8


      9.5 TRUSTEE POWERS. The Trustee shall have, without exclusion, all powers
conferred on trustees by applicable law, unless expressly provided otherwise in
this Trust Agreement; provided, however, that if an insurance policy is ever
held as an asset of the Trust, the Trustee shall have no power to name a
beneficiary of the policy other than the Trust, to assign the policy (as
distinct from conversion of the policy to a different form) other than to a
successor trustee, or to loan to any person the proceeds of any borrowing
against the policy.

      9.6 LIMITATION ON POWERS. The Trustee shall not have any power that could
give this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of IRS Regulations Section 301.7701-2.

                                   ARTICLE 10

                        FEES AND EXPENSES OF THE TRUSTEE

      10.1 TRUSTEE EXPENSES AND FEES. All expenses of administering the Plan and
the Trust and all Trustee's fees and expenses with respect to which the Trustee
is entitled to compensation or reimbursement shall be paid from the Trust and
charged against each Plan participant's interest in the Trust, pro rata based
upon the relative value of each participant's interest in the Trust as of the
Trust valuation date next preceding the applicable payment or charge.

                                   ARTICLE 11

                     RESIGNATION AND REMOVAL OF THE TRUSTEE

      11.1 TRUSTEE RESIGNATION. The Trustee may resign at any time by written
notice to the Sponsor.

      11.2 TRUSTEE REMOVAL. The Trustee may be removed by the Sponsor at any
time upon written notice to the Trustee.

      11.3 TRANSFER OF ASSETS. Upon resignation or removal of the Trustee and
appointment of a successor trustee, all assets shall promptly be transferred to
the successor Trustee.

      11.4 APPOINTMENT OF SUCCESSOR. If the Trustee resigns or is removed, a
successor shall be appointed, in accordance with the following Section, by the
effective date of resignation or removal. If no appointment has been made, the
Trustee may apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of the Trustee in connection with
the proceeding shall be allowed as administrative expenses of the Trust.

                                       9


                                   ARTICLE 12

                            AMENDMENT OR TERMINATION

      12.1 AMENDMENT. This Trust Agreement may be amended by a written
instrument executed by the Trustee and the Sponsor. No amendment shall conflict
with the terms of the Plan or shall make the Trust revocable after it has become
irrevocable in accordance herewith.

      12.2 TERMINATION. The Trust shall not terminate until the date on which
all Plan participants and beneficiaries no longer are entitled to benefits
pursuant to the terms of the Plan. Upon termination of the Trust, any assets
remaining in the Trust shall be returned to the Sponsor.

                                   ARTICLE 13

                                  MISCELLANEOUS

      13.1 VALIDITY OF PROVISIONS. Any provision of this Trust Agreement
prohibited by law shall be ineffective to the extent of any the prohibition,
without invalidating the remaining provisions of this Trust Agreement.

      13.2 NO ASSIGNMENT OF BENEFITS. Benefits payable to a Plan participant or
beneficiary under this Trust Agreement may not be anticipated, assigned (either
at law or in equity), alienated, pledged, encumbered or subjected to attachment,
garnishment, levy, execution or other legal or equitable process.

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

      13.4 SUCCESSOR AND ASSIGNS. This Agreement shall be binding upon and inure
to the benefit of the Sponsor and the Trustee and their respective successors
and assigns.

      13.5 TRUSTEE'S SUCCESSORS. Any corporation into which the Trustee may be
merged or with which it may be consolidated, or any corporation resulting from
any merger reorganization or consolidation to which the Trustee may be a party,
or any corporation to which all or substantially all of the trust business of
the Trustee may be transferred, shall be the successor of the Trustee hereunder
without the execution or filing of any instrument or the performance of any act.

                                       10


      IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the
parties hereto, effective as of _____________, 2004.

ATTEST/WITNESS:                             UMPQUA HOLDINGS CORPORATION

________________________                    By:_________________________________

Print Name:                                 Print Name:_________________________

                                            Date:_______________________________

                                            WELLS FARGO BANK, N.A., TRUSTEE

                                            By: ________________________________

                                            Print Name:_________________________

                                            Date:_______________________________

                                            By: ________________________________

                                            Print Name: ________________________

                                            Date: ______________________________

                                       11

EX-31.1

                                                                    EXHIBIT 31.1

                                  Certification
                                       of
   Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002

I, Raymond P. Davis, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Umpqua Holdings
Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15(e)) and have:

      a) Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

      b) Evaluated the effectiveness of the registrant's disclosure controls and
      procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is likely to
      materially affect the registrant's internal control over financial
      reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

      a) All significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting, which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant's internal control
      over financial reporting.

Date: November 9, 2004

                                          /s/ Raymond P. Davis
                                          -------------------------------------
                                          Raymond P. Davis
                                          President and Chief Executive Officer

EX-31.2

                                                                    EXHIBIT 31.2

                                  Certification
                                       of
   Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002

I, Daniel A. Sullivan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Umpqua Holdings
Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as
of, and for, the periods presented in this report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15e and 15d-15(e)) and have:

      a) Designed such disclosure controls and procedures, or caused such
      disclosure controls and procedures to be designed under our supervision,
      to ensure that material information relating to the registrant, including
      its consolidated subsidiaries, is made known to us by others within those
      entities, particularly during the period in which this report is being
      prepared;

      b) Evaluated the effectiveness of the registrant's disclosure controls and
      procedures and presented in this report our conclusions about the
      effectiveness of the disclosure controls and procedures, as of the end of
      the period covered by this report based on such evaluation; and

      c) Disclosed in this report any change in the registrant's internal
      control over financial reporting that occurred during the registrant's
      most recent fiscal quarter (the registrant's fourth fiscal quarter in the
      case of an annual report) that has materially affected, or is likely to
      materially affect the registrant's internal control over financial
      reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of registrant's board of directors
(or persons performing the equivalent function):

      a) All significant deficiencies and material weaknesses in the design or
      operation of internal control over financial reporting, which are
      reasonably likely to adversely affect the registrant's ability to record,
      process, summarize and report financial information; and

      b) Any fraud, whether or not material, that involves management or other
      employees who have a significant role in the registrant's internal control
      over financial reporting.

Date: November 9, 2004

                                                    /s/ Daniel A. Sullivan
                                                    ----------------------------
                                                    Daniel A. Sullivan
                                                    Executive Vice President
                                                    Chief Financial Officer
                                                    Principal Accounting Officer

EX-32

                                                                      EXHIBIT 32

                                  CERTIFICATION
                                       OF
               CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

               UNDER SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

This certification is given by the undersigned Chief Executive Officer and Chief
Financial Officer of Umpqua Holdings Corporation (the "registrant") pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. Each of the undersigned hereby
certifies, with respect to the registrant's quarterly report on Form 10-Q for
the period ended September 30, 2004 as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), that:

      (1) The Report fully complies with the requirements of section 13(a) or
      15(d) of the Securities Exchange Act of 1934; and

      (2) The information contained in the Report fairly presents, in all
      material respects, the financial condition and result of operations of the
      registrant

/s/ Raymond P. Davis
- -----------------------------
Raymond P. Davis
President and Chief Executive Officer
Umpqua Holdings Corporation

/s/ Daniel A. Sullivan
- -----------------------------
Daniel A. Sullivan
Executive Vice President and
Chief Financial Officer
Umpqua Holdings Corporation

November 9, 2004

EX-99.1

                                                                    EXHIBIT 99.1

                                  RISK FACTORS

      The following summarizes certain risks which management believes are
specific to our business. This should not be viewed as including all risks.

MERGER WITH HUMBOLDT BANCORP

      On July 9, 2004, Humboldt Bancorp merged with and into Umpqua Holdings and
on July 10, 2004, Humboldt Bank merged with and into Umpqua Bank. The merger is
expected to generate after-tax cost savings and expense reductions of
approximately 23% of Humboldt's projected 2004 non-interest expense when fully
phased-in. The expense reductions are intended to be achieved by eliminating
duplicative technology, operations, outside services, redundant staff, facility
consolidations and purchasing efficiencies. The combined company may fail to
realize some or all or the anticipated cost savings and other benefits of the
transaction. See Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Non-interest Expense."

UMPQUA IS PURSUING AN AGGRESSIVE GROWTH STRATEGY WHICH MAY PLACE HEAVY DEMANDS
ON ITS MANAGEMENT RESOURCES.

      Umpqua is a dynamic organization that is one of the fastest-growing
community financial services organizations in the United States. We merged with
VRB Bancorp in December 2000, increasing our assets from approximately $435
million to $785 million; acquired Linn-Benton Bank and merged with Independent
Financial Network, Inc. in December 2001, to add approximately $550 million in
assets; and merged with Centennial Bancorp in November 2002 to add approximately
$800 million in assets. In July 2004, we merged with Humboldt Bancorp and we
continue to explore other merger and acquisition opportunities. We expect that a
substantial amount of management's attention and effort will be directed at
deriving the benefits and efficiencies expected from past and future mergers. We
have announced our intent to open new stores in Oregon, Washington and
California, to continue our growth strategy. If we pursue our strategy too
aggressively, or if factors beyond management's control divert attention away
from our integration plans, management may become over-taxed and we might be
unable to realize some or all of the anticipated benefits. Moreover, the
combined Company is dependent on the efforts of key personnel to achieve the
synergies associated with our acquisitions. The loss of one or more of our key
persons could have a material adverse effect upon our ability to achieve the
anticipated benefits.

THE REMODELING OF OUR BRANCHES MAY NOT BE COMPLETED SMOOTHLY OR WITHIN BUDGET,
WHICH COULD RESULT IN REDUCED EARNINGS.

      Umpqua Bank has transformed itself from a traditional community bank into
a community-oriented financial services retailer through a series of mergers and
acquisitions in the past few years. In pursuing this strategy, we have remodeled
many of the bank branches to resemble retail stores that include distinct
physical areas or boutiques such as a "serious about service center," an
"investment opportunity center" and "a computer cafe." Remodeling involves
significant expenses, disrupts banking activities during the remodeling period,
and presents a new look and feel to the banking services and products being
offered. There is a risk that remodeling costs will exceed forecasted budgets
and that there may be delays in completing the remodels, which could cause
confusion and disruption in the business of those branches.

INVOLVEMENT IN NON-BANK BUSINESSES MAY INVOLVE UNIQUE RISKS.



      We have a licensed retail broker-dealer subsidiary, Strand, Atkinson,
Williams & York, Inc. Retail brokerage operations present special risks not
borne by community banks. For example, the brokerage industry is subject to
fluctuations in the stock market that may have a significant adverse impact on
transaction fees, customer activity and investment portfolio gains and losses.
Likewise, additional or modified regulations may affect our banking, investment
banking and brokerage operations. A decline in fees and commissions or losses
suffered in the investment portfolio could adversely affect the subsidiary's
contribution to the income of the holding company, and might increase the
subsidiary's capital needs. Strand Atkinson is subject to claim arbitration risk
arising from customers who claim their investments were not suitable or that
their portfolios were too actively traded. These risks increase when the market,
as a whole, declines. The risks associated with retail brokerage may not be
supported by the income generated by those operations. As we continue to grow,
we may acquire other financial services companies whose successful integration
is not assured and may present additional management challenges and new risks to
us. See Management's Discussion and Analysis of Financial Condition and Results
of Operations - "Non-interest Income."

THE MAJORITY OF UMPQUA BANK'S ASSETS ARE LOANS, WHICH IF NOT PAID WOULD RESULT
IN LOSSES TO THE COMPANY.

      Umpqua Bank, like other lenders, is subject to credit risk, which is the
risk of losing principal and/or interest due to borrowers' failure to repay
loans in accordance with their terms. Although we have established underwriting
and documentation criteria and most loans are secured by collateral, a downturn
in the economy or the real estate market in our market areas or a rapid increase
in interest rates could have a negative effect on collateral values and
borrowers' ability to repay. To the extent loans are not serviced by borrowers,
the loans are placed on non-accrual, thereby reducing interest income. To the
extent loan charge-offs exceed expectations, additional amounts must be added to
the allowance for credit losses, which reduces income.

      Although management believes that our allowance for loan losses and
reserve for unfunded commitments at September 30, 2004 is adequate, no assurance
can be given that an additional provision for credit losses will not be
required. See Management's Discussion and Analysis of Financial Condition and
Results of Operations - "Allowance for Loan Losses and Unfunded Commitments,"
Provision for Loan Losses" and "Asset Quality."

A RAPID CHANGE IN INTEREST RATES COULD MAKE IT DIFFICULT TO MAINTAIN OUR CURRENT
INTEREST INCOME SPREAD AND COULD RESULT IN REDUCED EARNINGS.

      Our earnings are largely derived from net interest income, which is
interest income and fees earned on loans and investments, less interest paid on
deposits and other borrowings. Interest rates are highly sensitive to many
factors that are beyond the control of our management, including general
economic conditions and the policies of various governmental and regulatory
authorities. As interest rates change, net interest income is affected. With
fixed rate assets (such as fixed rate loans) and liabilities (such as
certificates of deposit), the effect on net interest income depends on the
maturity of the asset or liability. Although we strive to minimize interest rate
risk through asset/liability management policies, from time to time maturities
are not balanced. For example, the rapid drop in short term interest rates
during 2002 made it difficult to reduce interest expense as rapidly as interest
income fell on loans contractually tied to prime rate. More recently, in
mid-2003, the rapid increase in long-term home mortgage rates caused a reduction
in refinance activity and the sale of some previously "locked" loans at a loss.
Any rapid increase in interest rates in the future could result in interest
expense increasing faster than interest income because of fixed rate loans and
longer-term investments. Further, substantially higher interest rates generally
reduce loan demand and may result in lower loan totals. An unanticipated rapid
decrease or increase in interest rates could have an adverse effect on the
spreads between the interest rates earned on assets and the rates of interest
paid on liabilities, and therefore on the level of net interest income. See
Management's Discussion and Analysis of Financial Condition and Results of
Operations - "Asset/Liability Management."



THE VOLATILITY OF OUR MORTGAGE BANKING BUSINESS CAN ADVERSELY AFFECT EARNINGS.

      Changes in interest rates greatly affect the mortgage banking business.
One of the principal risks in this area is prepayment of mortgages and their
effect on mortgage servicing rights ("MSR"). We can mitigate this risk by
purchasing financial instruments, such as fixed rate investment securities and
interest rate contracts, which tend to increase in value when long-term interest
rates decline. The success of this strategy, however, depends on management's
judgments regarding the amount, type and mix of MSR risk management instruments
that we believe are appropriate to manage the changes in the fair value of our
MSR asset. If these decisions and strategies are not successful, our net income
could be adversely affected. See Management's Discussion and Analysis of
Financial Condition and Results of Operations - "Mortgage Servicing Rights."

OUR BANKING AND BROKERAGE OPERATIONS ARE SUBJECT TO EXTENSIVE GOVERNMENT
REGULATIONS, WHICH HAS INCREASED AND CAN BE EXPECTED TO BECOME MORE BURDENSOME,
INCREASE OUR COSTS AND/OR MAKE US LESS COMPETITIVE.

      We and our subsidiaries are subject to extensive regulation under federal
and state laws. These laws and regulations are intended primarily to protect
customers, depositors and the deposit insurance fund, rather than shareholders.
Umpqua Bank is a state chartered commercial bank subject to regulations and
supervision by the Administrator of the Division of Finance and Corporate
Securities of the State of Oregon, the Washington Department of Financial
Institutions, the California Department of Financial Institutions and by the
Federal Deposit Insurance Corporation, which insures bank deposits. Strand,
Atkinson, Williams & York, Inc. is subject to extensive regulation by the SEC
and the National Association of Securities Dealers, Inc. We are subject to
regulation and supervision by the Board of Governors of the Federal Reserve
System, the SEC and the Nasdaq. Federal and state regulations place banks at a
competitive disadvantage compared to less regulated competitors such as finance
companies, credit unions, mortgage banking companies and leasing companies.
Although we have been able to compete effectively in our market area in the
past, there can be no assurance that we will be able to continue to do so.
Further, future changes in federal and state banking regulations could adversely
affect our operating results and ability to continue to compete effectively.

THE FINANCIAL SERVICES INDUSTRY IS HIGHLY COMPETITIVE.

      We face significant competition in attracting and retaining deposits and
making loans as well as in providing other financial services throughout our
market area. We face pricing competition for loans and deposits. We also face
competition with respect to customer convenience, product lines, accessibility
of service and service capabilities. Our most direct competition comes from
other banks, brokerages, mortgage companies and savings institutions. We also
face competition from credit unions, government-sponsored enterprises, mutual
fund companies, insurance companies and other non-bank businesses.