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See notes to consolidated financial statements.

See notes to consolidated financial statements.

Notes to Consolidated Financial Statements

Hibernia Corporation and Subsidiaries
Unaudited

Note 1
Basis of Presentation

        The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles. In the opinion of management, all adjustments (consisting of normal accruals) considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and notes included in Hibernia Corporation’s Annual Report on Form 10-K for the year ended December 31, 2002.

Note 2
Goodwill and Other Intangible Assets

        Effective January 1, 2002 the Company adopted the requirements of Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible Assets.” Under the new rules, goodwill and intangible assets deemed to have indefinite lives are no longer amortized but are subject to annual impairment tests in accordance with the provisions of SFAS No. 142. Other intangible assets continue to be amortized over their useful lives. The Company applied the new rules regarding accounting for goodwill and other intangible assets beginning in the first quarter of 2002.

        The Company performed the first of the required impairment tests of goodwill as of January 1, 2002 and its annual impairment tests as of September 30, 2003 and 2002. The results of these tests did not indicate impairment of the Company’s recorded goodwill. The carrying amount of goodwill not subject to amortization totaled $206,625,000 at January 1, 2002, which was net of accumulated amortization of $66,914,000. On April 1, 2002, goodwill of $2,489,000 was recorded and added to the Consumer segment as a result of the purchase of Friedler/LaRocca Financial Partners, L.L.C. At September 30, 2003, goodwill totaled $209,114,000 and is included in the Company’s reportable segments as follows: Consumer — $102,490,000; Small Business — $48,340,000; Commercial — $58,276,000 and Investments and Public Funds — $8,000.

        The Company records purchase accounting intangible assets that consist of core deposit intangibles, trust intangibles and insurance customer lists intangibles, which are subject to amortization. These include both contractual and noncontractual customer relationships. The core deposit and trust intangibles reflect the value of deposit and trust customer relationships which arose from the purchases of financial institutions. The insurance customer lists intangibles represent the purchase of customer lists and contracts from individual insurance agents or agencies. The following table summarizes the Company’s purchase accounting intangible assets subject to amortization.

        The amortization expense of the purchase accounting intangibles for the three months ended September 30, 2003 and 2002 was $1,240,000 and $1,453,000, respectively and for the nine months ended September 30, 2003 and 2002 was $3,864,000 and $4,550,000, respectively. Amortization expense for the remainder of 2003 is estimated to be $1,190,000. Estimated future amortization expense is as follows: 2004 — $4,387,000; 2005 — $3,794,000; 2006 — $2,270,000; 2007 -$771,000; 2008 — $605,000 and thereafter — $786,000. These estimates do not assume the addition of any new purchase accounting intangibles.

        Also included in intangible assets are capitalized mortgage servicing rights with net carrying amounts of $123,065,000 and $109,414,000 at September 30, 2003 and 2002, respectively. The carrying amounts are net of a reserve for temporary impairment of $27,621,000 and $30,500,000 at September 30, 2003 and 2002, respectively. Amortization expense of mortgage servicing rights totaled $9,262,000 and $8,028,000 for the three months ended September 30, 2003 and 2002, respectively and $35,716,000 and $18,702,000 for the nine months ended September 30, 2003 and 2002, respectively. A $27,500,000 reversal of a portion of the reserve for temporary impairment of mortgage servicing rights was recorded in the third quarter of 2003. An expense of $13,499,000 was recorded for the three months ended September 30, 2002, and net expenses of $15,000,000 and $15,199,000 were recorded for the nine months ended September 30, 2003 and 2002, respectively. In the third and second quarters of 2003, the Company reclassified $5,951,000 and $19,928,000, respectively, of its reserve for the temporary impairment of mortgage servicing rights from temporary to permanent.

Note 3
Employee Benefit Plans

        The Company’s stock option plans provide incentive and nonqualified options to various key employees and non-employee directors. The Company’s practice has been to grant options at no less than the fair market value of the stock at the date of grant. Until October 1997, options granted to non-employee directors were granted under the 1987 Stock Option Plan; after October 1997 through January 2003, those options were granted under the 1993 Directors’ Stock Option Plan. Under those plans, options granted to non-employee directors upon inception of service as a director and certain options granted to directors who retire as employees vest in six months. Other options granted to directors and options granted to employees under the 1987 Stock Option Plan, the Long-Term Incentive Plan and the 1993 Directors’ Stock Option Plan generally become exercisable in the following increments: 50% after the expiration of two years from the date of grant, an additional 25% three years from the date of grant and the remaining 25% four years from the date of grant. In the first quarter of 2001, an option was granted to a former chief executive officer, prior to his separation from the Company, under an individual stock option plan referred to as the 2001 Nonqualified Stock Option Plan.

        Options granted to employees and directors under the plans described above generally become immediately exercisable if the holder of the option dies while the option is outstanding. Options granted under the 1987 Stock Option Plan generally expire 10 years from the date granted unless the holder leaves the employ of the Company other than through retirement, death or disability, in which case the options expire at the date of termination. Options granted under the Long-Term Incentive Plan and the 1993 Directors’ Stock Option Plan generally expire 10 years from the date of grant, although they may expire earlier if the holder dies, retires, becomes permanently disabled or leaves the employ of the Company (in which case the options expire at various times ranging from 90 days to 12 months).

        In the second quarter of 2003, shareholders approved the 2003 Long-Term Incentive Compensation Plan (2003 Plan). The 2003 Plan supersedes and replaces the Company’s Long-Term Incentive Plan and replaces the 1993 Directors’ Stock Option Plan. Existing options granted under these plans remain outstanding under the original terms of the plans. Options that are granted under the 2003 Plan to employees with a vesting schedule that is based on length of service (as opposed to performance measures) generally are exercisable in the same increments as those issued under the Long-Term Incentive Plan, although they may vest earlier in the event of termination of employment as a result of death, disability or retirement or in the event of a change in control of the Company. Options issued under the 2003 Plan generally expire 10 years from the date of grant, although they may expire earlier if (i) the holder leaves the employ or service of the Company other than through retirement, death or disability, in which case vested options expire in 90 days (or at original expiration date, if earlier), or (ii) the holder retires, dies or becomes disabled, in which case vested options expire in 3 years (or at the original expiration date, if earlier). Unvested options are forfeited upon termination.

        The option granted under the 2001 Nonqualified Stock Option Plan expires January 31, 2006, unless the holder dies, in which case the option expires one year following the date of death (but not later than January 31, 2006). All options vest immediately upon a change of control of the Company. Shares to be issued upon the exercise of the option granted under the 2001 Nonqualified Stock Option Plan are to be issued out of the Company’s treasury stock.

        The following tables summarize the option activity in the plans during the third quarter of 2003. In the first quarter of 2003, the 1993 Directors’ Stock Option Plan was terminated in accordance with the terms of the plan. During 1997, the 1987 Stock Option Plan was terminated in accordance with the terms of the plan. At September 30, 2003, there are no shares available for grant under the 1987 Stock Option Plan, the Long-Term Incentive Plan, the 1993 Directors’ Stock Option Plan and the 2001 Nonqualified Stock Option Plan. All options outstanding at September 30, 2003 are nonqualified.

        In addition to the above option activity in the plans, 8,200 shares of restricted stock were awarded under the 2003 Long-Term Incentive Compensation Plan during the third quarter of 2003.

        The following pro forma information was determined as if the Company had accounted for stock options using the fair-value-based method as defined in SFAS No. 123, in which the estimated fair value of the options granted is amortized to expense over the options’ vesting period. The fair value of the options was estimated using the Black-Scholes option valuation model.

        The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Because the Company’s stock options have characteristics significantly different from those of traded options, and because the changes in the subjective input assumptions can materially affect the fair value estimate, in management’s opinion the existing models do not necessarily provide a reliable single measure of the fair value of its employee and director stock options.

Note 4
Net Income Per Common Share

        The following sets forth the computation of net income per common share and net income per common share — assuming dilution.

        Weighted average shares outstanding exclude average common shares held by the Company’s Employee Stock Ownership Plan which have not been committed to be released. These shares totaled 1,593,169 and 1,914,182 for the three months ended September 30, 2003 and 2002, respectively and 1,648,222 and 1,991,105 for the nine months ended September 30, 2003 and 2002, respectively.

        Options with an exercise price greater than the average market price of the Company’s Class A Common Stock for the periods presented are antidilutive and, therefore, are not included in the computation of net income per common share — assuming dilution. During the three months ended September 30, 2003 and 2002 there were 66,500 antidilutive options outstanding (which had exercise prices ranging from $20.22 to $21.72 per option share), and 65,000 antidilutive options outstanding (which had exercise prices ranging from $20.22 to $21.72 per option share), respectively. During the nine months ended September 30, 2003 and 2002 there were 225,000 antidilutive options outstanding (which had exercise prices ranging from $18.89 to $21.72 per option share) and 218,500 antidilutive options outstanding (which had exercise prices ranging from $19.50 to $21.72 per option share), respectively.

Note 5
Segment Information

        The Company’s segment information is presented by line of business. Each line of business is a strategic unit that provides various products and services to groups of customers that have certain common characteristics. The basis of segmentation and the accounting policies used by each segment are consistent with those described in the December 31, 2002 Annual Report to Shareholders and “Segment Results” in Management’s Discussion and Analysis. There are no significant intersegment revenues.

        The following table presents selected financial information for each segment.

        The following is a reconciliation of segment totals to consolidated totals.

Note 6
Impact of Recently Issued Accounting Standards

        In November 2002, the Financial Accounting Standards Board (FASB) issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” This interpretation requires additional disclosure of obligations under certain guarantees and requires the guarantor to recognize, at inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. The disclosure requirements were effective for financial statements for the periods ending after December 15, 2002. The recognition and measurement provisions of the interpretation were applicable on a prospective basis to guarantees issued or modified after December 31, 2002, and were applied beginning January 1, 2003.

        The Company issues letters of credit and financial guarantees (standby letters of credit) whereby it agrees to honor certain financial commitments in the event its customers are unable to perform. The majority of the standby letters of credit consist of performance guarantees. Some letters of credit result in the recording of customer acceptance liabilities. Customer acceptance liabilities are recorded when funds are payable to another financial institution on behalf of the Company’s customer. At the time the amount is determined to be payable (due to a triggering event such as delivery of goods), a liability is recorded to reflect the amount payable, offset with a receivable from the customer. Prior to the triggering event, the contractual amount of the agreement is included in the letters of credit amounts. Collateral requirements are similar to those for funded transactions and are established based on management’s credit assessment of the customer. Management conducts regular reviews of all outstanding standby letters of credit and customer acceptances, and the results of these reviews are considered in assessing the adequacy of the Company’s reserve for loan losses. The Company had contractual amounts of standby letters of credit of $523,249,000 and $397,488,000 at September 30, 2003 and 2002, respectively, and customer acceptance liabilities of $99,000 at September 30, 2003. The fair value of the liability undertaken in issuing guarantees since January 1, 2003 was $2,543,000 at September 30, 2003 and is included in other liabilities. At September 30, 2003, standby letters of credit had expiration dates ranging from 2003 through 2010.

        In January 2003, the FASB issued Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities.” This interpretation addresses consolidation by business enterprises of certain variable interest entities in which they have controlling financial interests. This interpretation applied immediately to any variable interest entities created after January 31, 2003, and was effective July 1, 2003 for variable interests acquired prior to February 1, 2003. Although the effective date was later delayed, the Company adopted the requirements of FIN 46 effective July 1, 2003, with no impact on the financial condition or operating results of the Company. The interpretation of FIN 46 and its application to various transaction types and structures are evolving. Management will continue to monitor these emerging issues.

        In April 2003, the FASB issued SFAS No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments and for hedging activities under SFAS No. 133. This statement is effective for contracts entered into or modified and for hedging relationships designated after June 30, 2003. Application of this statement did not have a material impact on the financial condition or operating results of the Company.

        In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. This statement was effective July 1, 2003 and did not have a material impact on the financial condition or operating results of the Company.