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, 2001.

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 will no longer be amortized but will be subject to annual impairment tests in accordance with the provisions of SFAS No. 142. Other intangible assets will 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.

        During the first quarter, the Company performed the first of the required impairment tests of goodwill as of January 1, 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 and is included in the Company’s reportable segments as follows: Commercial - - $58,276,000; Small Business - $48,340,000; Consumer - $100,001,000 and Investments and Public Funds - $8,000.

        On April 1, 2002, the Company purchased Friedler/LaRocca Financial Partners, L.L.C., a New Orleans based firm specializing in life insurance and other financial services for wealthy clients. Goodwill of $2,489,000 was recorded in the purchase transaction, and was added to the Commercial segment.

        The following table summarizes the purchase accounting intangible assets subject to amortization.

        The amortization expense of the purchase accounting intangibles for the three months ended June 30, 2002 and 2001 was $1,513,000 and $1,910,000, respectively and for the six months ended June 30, 2002 and 2001 was $3,097,000 and $3,891,000, respectively. Amortization expense for the remainder of 2002 is estimated to be $2,830,000. Estimated future amortization expense is as follows: 2003 - $5,008,000; 2004 - $4,335,000; 2005 - $3,741,000; 2006 -$2,217,000; 2007 - $719,000 and thereafter - $1,136,000. 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 $113,223,000 and $76,180,000 at June 30, 2002 and 2001, respectively. The carrying amounts are net of a reserve for temporary impairment of $17,001,000 and $3,225,000 at June 30, 2002 and 2001, respectively. Amortization expense of mortgage servicing rights totaled $7,219,000 and $3,069,000 for the three months ended June 30, 2002 and 2001, respectively, and $12,374,000 and $5,784,000 for the six months ended June 30, 2002 and 2001, respectively. Amortization expense includes additions to the impairment reserve of $1,700,000 in the second quarter of 2002 and $225,000 in the first quarter of 2001.

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. 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. Until October 1997, those options were granted under the 1987 Stock Option Plan; after October 1997, those options are granted under the 1993 Director Stock Option Plan. Other options granted under the 1987 Stock Option Plan, the Long-Term Incentive Plan and the 1993 Director 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 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 Director 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). 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 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 second quarter of 2002. During 1997, the 1987 Stock Option Plan was terminated; therefore, at June 30, 2002 there are no shares available for grant under this plan. The termination did not impact options outstanding under the 1987 Stock Option Plan. At June 30, 2002, all options outstanding are nonqualified. There are no shares available for grant under the 2001 Nonqualified Stock Option Plan.

        In addition to the above option activity in the plans, 16,995 shares of restricted stock were awarded under the Long-Term Incentive Plan during the second quarter of 2002.

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.

        The 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 1,991,672 and 2,336,915 for the three months ended June 30, 2002 and 2001, respectively and 2,030,204 and 2,374,203 for the six months ended June 30, 2002 and 2001, 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 June 30, 2002 and 2001 there were 135,000 antidilutive options outstanding with exercise prices ranging from $19.80 to $21.72 per option share, and 3,586,305 antidilutive options outstanding with exercise prices ranging from $16.09 to $21.72 per option share, respectively. During the six months ended June 30, 2002 and 2001 there were 218,500 antidilutive options outstanding with exercise prices ranging from $19.50 to $21.72 per option share, and 3,672,005 antidilutive options outstanding with exercise prices ranging from $15.13 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 that described in the December 31, 2001 Annual Report to Shareholders. There are no significant intersegment revenues.

        The following table presents selected financial information for each segment.