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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



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FORM 10-Q



QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



FOR THE QUARTERLY PERIOD ENDED September 30, 2004



COMMISSION FILE NUMBER 1-13508



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THE COLONIAL BANCGROUP, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                    
|-------------------------------------------------------------- |  | -----------------------------------
|DELAWARE                                                       |  | 63-0661573                         
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. EmployerIdentification No.)



One Commerce Street

Montgomery, Alabama 36104

(Address of principal executive offices)



(334) 240-5000

(Registrants telephone number)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to the filing requirements for at least the past 90 days.    YES  x    NO ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange
Act).    YES  x    NO ̈



Indicate the number of shares outstanding of each of the issuers
classes of common stock, as of the latest practicable date.



|                              |  |                                
|----------------------------- |  | -------------------------------
|Class                         |  | Outstanding at October 31, 2004
|Common Stock, $2.50 Par Value |  | 133,741,565                    



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



THE COLONIAL BANCGROUP, INC.



INDEX



|                              |  |                                                                                                                                                                                         |  |   
|----------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --
|                              |  | PageNumber                                                                                                                                                                             
|PART I. FINANCIAL INFORMATION |  |                                                                                                                                                                                        
|                              |  |                                                                                                                                                                                        
|Item 1.                       |  | Financial Statements (Unaudited)                                                                                                                                                        |  | 4 
|                              |  |                                                                                                                                                                                        
|                              |  | Condensed Consolidated Statements of Condition September 30, 2004 and December 31, 2003                                                                                                |  | 4 
|                              |  |                                                                                                                                                                                        
|                              |  | Condensed Consolidated Statements of IncomeNine months ended September 30, 2004 and September 30, 2003, and three months ended September 30, 2004 and September 30, 2003               |  | 5 
|                              |  |                                                                                                                                                                                        
|                              |  | Condensed Consolidated Statements of Comprehensive IncomeNine months ended September 30, 2004 and September 30, 2003, and three months ended September 30, 2004 and September 30, 2003 |  | 6 
|                              |  |                                                                                                                                                                                        
|                              |  | Condensed Consolidated Statement of Changes in Shareholders EquityNine months ended September 30, 2004                                                                                |  | 7 
|                              |  |                                                                                                                                                                                        
|                              |  | Condensed Consolidated Statements of Cash FlowsNine months ended September 30, 2004 and September 30, 2003                                                                             |  | 8 
|                              |  |                                                                                                                                                                                        
|                              |  | Notes to the Unaudited Condensed Consolidated Financial Statements September 30, 2004                                                                                                  |  | 9 
|                              |  |                                                                                                                                                                                        
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                                                                                                   |  | 18
|                              |  |                                                                                                                                                                                        
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                              |  | 33
|                              |  |                                                                                                                                                                                        
|Item 4.                       |  | Controls and Procedures                                                                                                                                                                 |  | 33
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                                                                                                        
|                              |  |                                                                                                                                                                                        
|Item 1.                       |  | Legal Proceedings                                                                                                                                                                       |  | 34
|                              |  |                                                                                                                                                                                        
|Item 2.                       |  | Changes in Securities and Use of Proceeds                                                                                                                                               |  | 34
|                              |  |                                                                                                                                                                                        
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                                                                                         |  | 34
|                              |  |                                                                                                                                                                                        
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                                                                                                     |  | 34
|                              |  |                                                                                                                                                                                        
|Item 5.                       |  | Other Information                                                                                                                                                                       |  | 34
|                              |  |                                                                                                                                                                                        
|Item 6.                       |  | Exhibits and Reports on Form 8-K                                                                                                                                                        |  | 34
|                              | 
|SIGNATURE                     |  | 35                                                                                                                                                                                     



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS

OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:



This report contains forward-looking statements within the meaning of the federal securities laws. The forward-looking statements in this
report are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by the statements. Factors that may cause actual results to differ materially from those contemplated by such
forward-looking statements include, among other things, the following possibilities: (i) an inability of the company to realize elements of its strategic plans for 2004 and beyond; (ii) increases in competitive pressure in the banking industry or
other factors that may reduce non-interest income; (iii) economic conditions affecting real estate values and transactions in BancGroups market and/or general economic conditions, either nationally or regionally, that are less favorable than
expected; (iv) expected cost savings from recent and future acquisitions are not fully realized; (v) adverse changes in the interest rate environment which may reduce or expand margins or adversely affect critical estimates as applied and projected
returns on investments; (vi) managements assumptions and estimates underlying critical accounting policies prove to be inadequate or materially incorrect or are not borne out by subsequent events; and (vii) changes which may occur in the
regulatory environment. When used in this report, the words believes, estimates, plans, expects, should, may, might, outlook, anticipates,
and similar expressions as they relate to BancGroup (including its subsidiaries) or its management are intended to identify forward-looking statements. Forward-looking statements speak only as to the date they are made. BancGroup does not undertake
to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made.



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PART I. FINANCIAL INFORMATION



Item 1. Financial Statements



THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(Unaudited)

(Dollars in thousands except share data)



|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                                                  |  | September 30,2004 |            |   | December 31,2003 |  
|ASSETS                                                                                                                                                                            |  |                   |            |   |                  |   |            |  
|Cash and due from banks                                                                                                                                                           |  | $                 | 335,836    |   |                  | $ | 329,152    |  
|Interest bearing deposits in banks                                                                                                                                                |  |                   | 11,308     |   |                  |   | 16,565     |  
|Federal funds sold and securities purchased under agreements to resell                                                                                                            |  |                   | 262,415    |   |                  |   |           |  
|Securities available for sale                                                                                                                                                     |  |                   | 3,520,259  |   |                  |   | 3,100,321  |  
|Investment securities (market value of $7,180 and $11,006, respectively)                                                                                                          |  |                   | 6,759      |   |                  |   | 10,387     |  
|Loans held for sale                                                                                                                                                               |  |                   | 508,317    |   |                  |   | 378,324    |  
|Total loans, net of unearned income:                                                                                                                                              |  |                   |            |   |                  |   |            |  
|Mortgage warehouse loans                                                                                                                                                          |  |                   | 1,050,990  |   |                  |   | 982,488    |  
|All other loans                                                                                                                                                                   |  |                   | 11,511,363 |   |                  |   | 10,606,407 |  
|Less: Allowance for loan losses                                                                                                                                                   |  |                   | (147,058   | ) |                  |   | (138,549   | )
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|Loans, net                                                                                                                                                                        |  |                   | 12,415,295 |   |                  |   | 11,450,346 |  
|Premises and equipment, net                                                                                                                                                       |  |                   | 268,249    |   |                  |   | 246,170    |  
|Goodwill                                                                                                                                                                          |  |                   | 349,030    |   |                  |   | 253,476    |  
|Other intangibles, net                                                                                                                                                            |  |                   | 43,530     |   |                  |   | 28,714     |  
|Bank owned life insurance                                                                                                                                                         |  |                   | 212,290    |   |                  |   | 182,857    |  
|Accrued interest and other assets                                                                                                                                                 |  |                   | 258,011    |   |                  |   | 276,990    |  
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|TOTAL ASSETS                                                                                                                                                                      |  | $                 | 18,191,299 |   |                  | $ | 16,273,302 |  
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|                                                                                                                                                                                  |  |                  
|LIABILITIES                                                                                                                                                                       |  |                   |            |   |                  |   |            |  
|Deposits:                                                                                                                                                                         |  |                   |            |   |                  |   |            |  
|Noninterest bearing demand deposits                                                                                                                                               |  | $                 | 2,364,758  |   |                  | $ | 2,021,901  |  
|Interest bearing demand deposits                                                                                                                                                  |  |                   | 4,213,962  |   |                  |   | 3,314,328  |  
|Savings deposits                                                                                                                                                                  |  |                   | 562,333    |   |                  |   | 531,419    |  
|Time deposits                                                                                                                                                                     |  |                   | 4,041,032  |   |                  |   | 3,900,944  |  
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|Total deposits                                                                                                                                                                    |  |                   | 11,182,085 |   |                  |   | 9,768,592  |  
|FHLB short-term borrowings                                                                                                                                                        |  |                   | 978,330    |   |                  |   | 1,162,240  |  
|Other short-term borrowings                                                                                                                                                       |  |                   | 2,260,891  |   |                  |   | 2,149,400  |  
|Subordinated debt                                                                                                                                                                 |  |                   | 278,225    |   |                  |   | 278,428    |  
|Junior subordinated debt                                                                                                                                                          |  |                   | 315,552    |   |                  |   | 299,917    |  
|FHLB long-term debt                                                                                                                                                               |  |                   | 1,434,966  |   |                  |   | 1,064,969  |  
|Other long-term debt                                                                                                                                                              |  |                   | 300,000    |   |                  |   | 300,000    |  
|Accrued expenses and other liabilities                                                                                                                                            |  |                   | 67,463     |   |                  |   | 71,451     |  
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|Total liabilities                                                                                                                                                                 |  |                   | 16,817,512 |   |                  |   | 15,094,997 |  
|Commitments and contingencies (Notes B and H)                                                                                                                                     |  |                   |            |   |                  |   |            |  
|                                                                                                                                                                                  |  |                  
|SHAREHOLDERS EQUITY                                                                                                                                                              |  |                   |            |   |                  |   |            |  
|Common stock, $2.50 par value; 200,000,000 shares authorized; 133,617,232 and 126,974,668 shares issued and outstanding at September 30, 2004
and December 31, 2003, respectively |  |                   | 334,043    |   |                  |   | 317,437    |  
|Additional paid in capital                                                                                                                                                        |  |                   | 333,791    |   |                  |   | 237,134    |  
|Retained earnings                                                                                                                                                                 |  |                   | 697,215    |   |                  |   | 625,326    |  
|Unearned compensation                                                                                                                                                             |  |                   | (648       | ) |                  |   | (1,134     | )
|Accumulated other comprehensive income (loss), net of taxes                                                                                                                       |  |                   | 9,386      |   |                  |   | (458       | )
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|Total shareholders equity                                                                                                                                                        |  |                   | 1,373,787  |   |                  |   | 1,178,305  |  
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                        |  | $                 | 18,191,299 |   |                  | $ | 16,273,302 |  
|                                                                                                                                                                                  |  |                   |            |   |                  |   |            |  



See Notes to the
Unaudited Condensed Consolidated Financial Statements



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands except per share amounts)



|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|--------------------------------------------------- |  | ------------------------------ | ------- | ------------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                                                    |  | Nine Months EndedSeptember 30, |         | Three Months EndedSeptember 30,
|                                                    |  | 2004                           |         | 2003                            |   | 2004    |  | 2003
|INTEREST INCOME:                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Interest and fees on loans                          |  | $                              | 500,068 |                                 | $ | 505,831 |  | $    | 175,699 |  | $ | 168,313
|Interest and dividends on securities                |  |                                | 112,506 |                                 |   | 79,617  |  |      | 39,406  |  |   | 26,896 
|Other interest                                      |  |                                | 1,297   |                                 |   | 545     |  |      | 806     |  |   | 133    
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Total interest income                               |  |                                | 613,871 |                                 |   | 585,993 |  |      | 215,911 |  |   | 195,342
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|INTEREST EXPENSE:                                   |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Interest on deposits                                |  |                                | 101,693 |                                 |   | 107,419 |  |      | 35,891  |  |   | 32,058 
|Interest on short-term borrowings                   |  |                                | 25,902  |                                 |   | 30,454  |  |      | 10,642  |  |   | 9,813  
|Interest on long-term debt                          |  |                                | 59,699  |                                 |   | 72,293  |  |      | 19,543  |  |   | 23,895 
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Total interest expense                              |  |                                | 187,294 |                                 |   | 210,166 |  |      | 66,076  |  |   | 65,766 
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|NET INTEREST INCOME                                 |  |                                | 426,577 |                                 |   | 375,827 |  |      | 149,835 |  |   | 129,576
|Provision for loan losses                           |  |                                | 21,606  |                                 |   | 28,176  |  |      | 7,153   |  |   | 9,306  
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Net Interest Income After Provision for Loan Losses |  |                                | 404,971 |                                 |   | 347,651 |  |      | 142,682 |  |   | 120,270
|NONINTEREST INCOME:                                 |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Service charges on deposit accounts                 |  |                                | 44,247  |                                 |   | 39,377  |  |      | 15,033  |  |   | 14,304 
|Financial planning services                         |  |                                | 10,137  |                                 |   | 11,525  |  |      | 3,030   |  |   | 3,764  
|Electronic banking                                  |  |                                | 9,149   |                                 |   | 7,632   |  |      | 3,157   |  |   | 2,489  
|Mortgage banking                                    |  |                                | 6,525   |                                 |   | 14,990  |  |      | 2,162   |  |   | 4,274  
|Securities gains, net                               |  |                                | 7,417   |                                 |   | 3,859   |  |      | 367     |  |   | 142    
|Other income                                        |  |                                | 26,532  |                                 |   | 22,713  |  |      | 9,311   |  |   | 8,796  
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Total noninterest income                            |  |                                | 104,007 |                                 |   | 100,096 |  |      | 33,060  |  |   | 33,769 
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|NONINTEREST EXPENSE:                                |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Salaries and employee benefits                      |  |                                | 160,492 |                                 |   | 145,625 |  |      | 55,509  |  |   | 50,295 
|Occupancy expense of bank premises, net             |  |                                | 37,634  |                                 |   | 32,996  |  |      | 13,305  |  |   | 11,344 
|Furniture and equipment expenses                    |  |                                | 28,599  |                                 |   | 27,564  |  |      | 9,857   |  |   | 9,248  
|Amortization of intangible assets                   |  |                                | 4,438   |                                 |   | 3,257   |  |      | 1,925   |  |   | 1,085  
|Merger related expenses                             |  |                                | 1,934   |                                 |   | 185     |  |      | 662     |  |   |       
|Loss on early extinguishment of debt                |  |                                | 6,183   |                                 |   |        |  |      |        |  |   |       
|Other expenses                                      |  |                                | 75,575  |                                 |   | 68,136  |  |      | 25,283  |  |   | 23,261 
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Total noninterest expense                           |  |                                | 314,855 |                                 |   | 277,763 |  |      | 106,541 |  |   | 95,233 
|INCOME BEFORE INCOME TAXES                          |  |                                | 194,123 |                                 |   | 169,984 |  |      | 69,201  |  |   | 58,806 
|Applicable income taxes                             |  |                                | 66,002  |                                 |   | 57,795  |  |      | 23,528  |  |   | 19,994 
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|NET INCOME                                          |  | $                              | 128,121 |                                 | $ | 112,189 |  | $    | 45,673  |  | $ | 38,812 
|                                                    |  |                                |         |                                 |   |         |  |      |         |  |   |        
|EARNINGS PER SHARE:                                 |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Basic                                               |  | $                              | 0.98    |                                 | $ | 0.90    |  | $    | 0.34    |  | $ | 0.31   
|Diluted                                             |  | $                              | 0.98    |                                 | $ | 0.90    |  | $    | 0.34    |  | $ | 0.31   
|AVERAGE NUMBER OF SHARES OUTSTANDING:               |  |                                |         |                                 |   |         |  |      |         |  |   |        
|Basic                                               |  |                                | 130,267 |                                 |   | 124,050 |  |      | 133,568 |  |   | 124,354
|Diluted                                             |  |                                | 131,405 |                                 |   | 124,826 |  |      | 134,730 |  |   | 124,997
|DIVIDENDS DECLARED PER SHARE                        |  | $                              | 0.435   |                                 | $ | 0.42    |  | $    | 0.145   |  | $ | 0.14   



See Notes to the
Unaudited Condensed Consolidated Financial Statements



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



|                                                                                                   |  |                                |   |  |                                 |   |  |           |   |  |          |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------------ | - |  | ------------------------------- | - |  | --------- | - |  | -------- | -
|                                                                                                   |  | Nine Months EndedSeptember 30, |   |  | Three Months EndedSeptember 30, |  
|                                                                                                   |  | 2004                           |   |  | 2003                            |   |  | 2004      |   |  | 2003     |  
|                                                                                                   |  | (Dollars in thousands)         |  
|NET INCOME                                                                                         |  | $128,121                       |   |  | $112,189                        |   |  | $  45,673 |   |  | $38,812  |  
|OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES:                                                   |  |                                |   |  |                                 |   |  |           |   |  |          |  
|Unrealized gains (losses) on securities available for sale arising during the period, net of taxes |  | 14,739                         |   |  | (24,224                         | ) |  | 62,184    |   |  | (33,583  | )
|Less: reclassification adjustment for net gains included in net income, net of taxes               |  | (4,895                         | ) |  | (2,547                          | ) |  | (242      | ) |  | (93      | )
|                                                                                                   |  |                                |   |  |                                 |   |  |           |   |  |          |  
|COMPREHENSIVE INCOME                                                                               |  | $137,965                       |   |  | $  85,418                       |   |  | $107,615  |   |  | $  5,136 |  
|                                                                                                   |  |                                |   |  |                                 |   |  |           |   |  |          |  







See Notes to the Unaudited Condensed Consolidated Financial Statements



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited)

(Dollars in thousands except share amounts)



|                                                                                |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   |       |   |  |   |           |  
|------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | ------- | ---------------- | - | ------- | -------------------- | - | ------- | ------------------------------------------ |  | - | ------------------------ | - |  | - | ----- | - |  | - | --------- | -
|                                                                                |  | Common Stock |  | AdditionalPaid InCapital |         | RetainedEarnings |   |         | UnearnedCompensation |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TotalShareholdersEquity |  
|                                                                                |  | Shares       |  | Amount                   |         |                  |   |         |                     
|Balance, December 31, 2003                                                      |  | 126,974,668  |  | $                        | 317,437 |                  | $ | 237,134 |                      | $ | 625,326 |                                            |  | $ | (1,134                   | ) |  | $ | (458  | ) |  | $ | 1,178,305 |  
|Shares issued under company plans                                               |  | 612,130      |  |                          | 1,530   |                  |   | 4,188   |                      |   |         |                                            |  |   | 486                      |   |  |   |       |   |  |   | 6,204     |  
|Issuance of shares for business combination                                     |  | 6,030,434    |  |                          | 15,076  |                  |   | 92,469  |                      |   |         |                                            |  |   |                          |   |  |   |       |   |  |   | 107,545   |  
|Net income                                                                      |  |              |  |                          |         |                  |   |         |                      |   | 128,121 |                                            |  |   |                          |   |  |   |       |   |  |   | 128,121   |  
|Cash dividends ($.435 per share)                                                |  |              |  |                          |         |                  |   |         |                      |   | (56,232 | )                                          |  |   |                          |   |  |   |       |   |  |   | (56,232   | )
|Change in unrealized gain (loss) on securities available for sale, net of taxes |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   | 9,844 |   |  |   | 9,844     |  
|                                                                                |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   |       |   |  |   |           |  
|Balance, September 30, 2004                                                     |  | 133,617,232  |  | $                        | 334,043 |                  | $ | 333,791 |                      | $ | 697,215 |                                            |  | $ | (648                     | ) |  | $ | 9,386 |   |  | $ | 1,373,787 |  
|                                                                                |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   |       |   |  |   |           |  





See Notes to the Unaudited Condensed Consolidated Financial Statements



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)



|                                                                                                          |  |                                |            |   |      |   |            |  
|--------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | - | ---- | - | ---------- | -
|                                                                                                          |  | Nine Months EndedSeptember 30, |           
|                                                                                                          |  | 2004                           |            |   | 2003 |  
|                                                                                                          |  | (Dollars in thousands)         |           
|NET CASH PROVIDED BY OPERATING ACTIVITIES                                                                 |  | $                              | 32,807     |   |      | $ | 125,883    |  
|Cash flows from investing activities:                                                                     |  |                                |            |   |      |   |            |  
|Proceeds from maturities and calls of securities available for sale                                       |  |                                | 311,859    |   |      |   | 1,084,832  |  
|Proceeds from sales of securities available for sale                                                      |  |                                | 1,143,993  |   |      |   | 740,176    |  
|Purchase of securities available for sale                                                                 |  |                                | (1,781,531 | ) |      |   | (2,113,723 | )
|Proceeds from maturities of investment securities                                                         |  |                                | 3,661      |   |      |   | 9,095      |  
|Net (increase) decrease in loans                                                                          |  |                                | (485,711   | ) |      |   | 268,904    |  
|Net cash received in bank acquisitions                                                                    |  |                                | 31,312     |   |      |   |           |  
|Capital expenditures                                                                                      |  |                                | (34,191    | ) |      |   | (28,815    | )
|Purchase of bank owned life insurance                                                                     |  |                                |           |   |      |   | (80,000    | )
|Proceeds from sale of other real estate owned                                                             |  |                                | 19,595     |   |      |   | 15,600     |  
|Proceeds from sale of fixed assets                                                                        |  |                                | 1,808      |   |      |   | 4,684      |  
|Other, net                                                                                                |  |                                | 3,110      |   |      |   | (6,090     | )
|                                                                                                          |  |                                |            |   |      |   |            |  
|NET CASH USED IN INVESTING ACTIVITIES                                                                     |  |                                | (786,095   | ) |      |   | (105,337   | )
|                                                                                                          |  |                                |            |   |      |   |            |  
|Cash flows from financing activities:                                                                     |  |                                |            |   |      |   |            |  
|Net increase (decrease) in demand, savings, and time deposits                                             |  |                                | 866,560    |   |      |   | (14,507    | )
|Net increase (decrease) in federal funds purchased, repurchase agreements and other short-term borrowings |  |                                | 398,731    |   |      |   | (376,043   | )
|Proceeds from issuance of long-term debt                                                                  |  |                                | 500,000    |   |      |   | 453,093    |  
|Repayment of long-term debt                                                                               |  |                                | (696,909   | ) |      |   | (86,046    | )
|Proceeds from issuance of common stock                                                                    |  |                                | 4,980      |   |      |   | 2,717      |  
|Dividends paid ($0.435 and $0.42 per share for 2004 and 2003, respectively)                               |  |                                | (56,232    | ) |      |   | (52,062    | )
|                                                                                                          |  |                                |            |   |      |   |            |  
|NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                                       |  |                                | 1,017,130  |   |      |   | (72,848    | )
|                                                                                                          |  |                                |            |   |      |   |            |  
|Net increase (decrease) in cash and cash equivalents                                                      |  |                                | 263,842    |   |      |   | (52,302    | )
|Cash and cash equivalents at beginning of year                                                            |  |                                | 345,717    |   |      |   | 419,421    |  
|                                                                                                          |  |                                |            |   |      |   |            |  
|Cash and cash equivalents at September 30                                                                 |  | $                              | 609,559    |   |      | $ | 367,119    |  
|                                                                                                          |  |                                |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                                         |  |                                |            |   |      |   |            |  
|Cash paid during the period for:                                                                          |  |                                |            |   |      |   |            |  
|Interest                                                                                                  |  | $                              | 191,641    |   |      | $ | 220,143    |  
|Income taxes                                                                                              |  |                                | 58,000     |   |      |   | 52,000     |  
|Non-cash investing activities:                                                                            |  |                                |            |   |      |   |            |  
|Transfer of loans to other real estate                                                                    |  | $                              | 11,532     |   |      | $ | 14,297     |  
|Recognition of the equity investments in the special purpose trusts                                       |  |                                |           |   |      |   | 8,598      |  
|Non-cash financing activities:                                                                            |  |                                |            |   |      |   |            |  
|Conversion of subordinated debentures to stock                                                            |  | $                              |           |   |      | $ | 3,023      |  
|Assets (non-cash) acquired in business combinations                                                       |  |                                | 724,216    |   |      |   |           |  
|Liabilities assumed in business combinations                                                              |  |                                | 647,983    |   |      |   |           |  
|Removal of the special purpose trusts preferred securities                                               |  |                                |           |   |      |   | 296,827    |  
|Recognition of the junior subordinated debts in the special purpose trusts                                |  |                                |           |   |      |   | 305,425    |  



See Notes to the
Unaudited Condensed Consolidated Financial Statements



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note A: Accounting Policies



The Colonial BancGroup, Inc. and its subsidiaries (variously referred to
herein as BancGroup, Colonial, or the Company) have not changed their accounting and reporting policies from those stated in the 2003 Annual Report on Form 10-K. These unaudited interim financial statements should
be read in conjunction with the audited financial statements and footnotes included in BancGroups 2003 Annual Report on Form 10-K.



In the opinion of BancGroup, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal
recurring accruals) necessary to present fairly BancGroups financial position as of September 30, 2004 and the results of operations and cash flows for the interim periods ended September 30, 2004 and 2003. All 2004 interim amounts are subject
to year-end audit, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the year.



Certain reclassifications have been made to the 2003 financial statements to conform to 2004 presentations.



Note B: Contingencies



BancGroup and its subsidiaries are from time to time defendants in legal actions and assertions from normal business
activities. Management does not anticipate that the ultimate liability arising from such matters outstanding at September 30, 2004 will have a materially adverse effect on BancGroups financial condition and results of operations as reported in
its financial statements.



Note C: Recent Accounting Pronouncements



In December 2003, the FASB issued a revision of SFAS No.
132, Employers Disclosures about Pensions and Other Postretirement Benefits. Most of the provisions of the revised statement were effective for fiscal years ending after December 15, 2003. The Statement requires more detailed
disclosures in annual financial statements about plan assets, investment strategies, benefit obligations, cash flows, and the assumptions used in accounting for the plans. For interim periods, the Statement requires disclosure of the total amount of
the net periodic benefit cost recognized for each period for which an income statement is presented, showing separately the components of the net periodic benefit cost. The Statement also requires interim disclosure of the total amount of employer
contributions paid, or expected to be paid, during the current fiscal year, if significantly different from amounts previously disclosed in the most recent annual financial statement. The interim period disclosure requirements are effective for
interim periods beginning after December 15, 2003. See Note K for disclosures related to the Companys defined benefit pension plan.



In December 2003, the American Institute of Certified Public Accountants (AICPA) issued Statement of Position (SOP) 03-3,
Accounting for Certain Loans or Debt Securities Acquired in a Transfer. This SOP addresses accounting for differences between contractual cash flows and cash flows expected to be collected from an investors initial investment in loans
or debt securities (loans) acquired in a transfer if those differences are attributable, at least in part, to credit quality. It applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase
business combination. This SOP limits the yield that may be accreted (accretable yield) to the excess of the investors estimate of undiscounted expected principal, interest, and other cash flows (cash flows expected at acquisition to be
collected) over the investors initial investment in the loan. This SOP requires that the excess of contractual cash flows over cash flows expected to be collected (nonaccretable difference) not be recognized as an adjustment of yield, loss
accrual, or valuation allowance. This SOP prohibits investors from displaying accretable yield and nonaccretable difference in the balance sheet. Subsequent increases in cash flows expected to be collected generally should be recognized
prospectively through adjustment of the loans yield over its remaining life. Subsequent decreases in cash flows expected to be collected should be recognized as a valuation allowance. This SOP prohibits carrying over or creation of



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



valuation allowances in the initial accounting of all loans acquired in a transfer that are within the scope of this SOP. This SOP is effective for loans
acquired in fiscal years beginning after December 15, 2004. Management will assess the impact this SOP could have on future acquisitions, results of operations, financial position, and liquidity.



In March 2004, the SEC issued Staff Accounting Bulletin (SAB)
105, Application of Accounting Principles to Loan Commitments, which addresses certain issues regarding the accounting for and disclosure of loan commitments relating to the origination of mortgage loans that will be held for resale. Such
commitments are considered derivatives under the provisions of SFAS No. 133, as amended by SFAS No. 149, and are therefore required to be recorded at fair value. SAB 105 stipulates that in recording these commitments no consideration should be given
to any expected future cash flows related to the associated servicing of the future loan. SAB 105 further stipulates that no other internally-developed intangible assets, such as customer relationship intangibles, should be recorded as part of the
loan commitment derivative. SAB 105 requires disclosure of accounting policies for loan commitment derivatives, including methods and assumptions used to estimate fair value and any associated economic hedging strategies. The provisions of SAB 105
were effective for loan commitment derivatives entered into after March 31, 2004. See Note I for further information about the Companys loan commitment derivatives. The adoption of SAB 105 did not have a material effect on BancGroups
financials.



In March 2004, the Emerging Issues Task Force
(EITF) reached a final consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary and Its Application to Certain Investments. The Issue applies to debt and equity securities within the scope of SFAS No. 115, certain debt and
equity securities within the scope of SFAS No. 124, and equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the equity method of accounting (i.e., cost method investments). Issue 03-1 outlines a three-step
model for assessing other-than-temporary impairment. The model involves first determining whether an investment is impaired, then evaluating whether the impairment is other-than-temporary, and if it is, recognizing an impairment loss equal to the
difference between the investments cost and its fair value. The model was to be applied prospectively to all current and future investments in interim or annual reporting periods beginning after June 15, 2004. However, in September 2004 the
FASB staff issued FASB Staff Position (FSP) EITF Issue 03-1-1 which delayed the effective date for the measurement and recognition guidance contained in Issue 03-1. The guidance for analyzing securities for impairment will be effective
with the final issuance of FSP EITF Issue 03-1-a. The disclosure guidance of Issue 03-1 remains effective and requires quantitative and qualitative disclosures for investments accounted for under SFAS No. 115 and SFAS No. 124 for the first annual
reporting period ending after December 15, 2003. In addition, disclosures related to cost method investments are effective for annual reporting periods ending after June 15, 2004. Comparative information for the periods prior to the period of
initial application is not required. See Note L for BancGroups disclosures under Issue 03-1.



Note D: Business Combinations



BancGroup completed the acquisition of P.C.B. Bancorp, Inc. (PCB) along with its wholly owned subsidiary banks on May 18, 2004. As of the closing date PCB had approximately $494 million in loans, $547 million in deposits and
$688 million in total assets. The results of operations for the acquisition are included in the consolidated financial statements since that date. PCB operated 16 full service branches in several counties in Florida. This acquisition was part of
BancGroups ongoing effort to expand operations in high growth regions.



Total consideration for the transaction was $143.2 million, consisting of 6,030,434 shares of BancGroup common stock valued at $104.1 million, $35.6 million in cash, and stock options valued at $3.5 million. This
consideration along with other direct acquisition costs and liabilities incurred led to a total acquisition cost of



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



approximately $148.0 million. The value of the common stock issued was determined based on the average market price of BancGroups common shares over
the five day period before and after the terms of the acquisition were agreed to and announced. The fair value of the stock options was determined based on the Black-Scholes option pricing model. The transaction resulted in approximately $95.4
million of goodwill and $19.3 million of core deposit intangibles.



The following table presents unaudited proforma results of operations for the nine and three months ended September 30, 2004 and 2003, as if the acquisition had occurred at January 1, 2003. Since no consideration is given to operational
efficiencies and expanded products and services, the proforma summary information does not necessarily reflect the results of operations as they actually would have been, if the acquisition had occurred at January 1, 2003:



|                    |  |                                          |         |                                 |   |         |  |      |         |  |   |        
|------------------- |  | ---------------------------------------- | ------- | ------------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                    |  | Nine Months EndedSeptember 30,           |         | Three Months EndedSeptember 30,
|                    |  | 2004                                     |         | 2003                            |   | 2004    |  | 2003
|                    |  | (unaudited)                             
|                    |  | (In thousands, except per share amounts)
|Net Interest Income |  | $                                        | 436,481 |                                 | $ | 395,815 |  | $    | 149,835 |  | $ | 136,211
|Net Income          |  |                                          | 129,582 |                                 |   | 116,623 |  |      | 45,673  |  |   | 40,376 
|Basic EPS           |  |                                          | 0.95    |                                 |   | 0.90    |  |      | 0.34    |  |   | 0.31   
|Diluted EPS         |  |                                          | 0.94    |                                 |   | 0.89    |  |      | 0.34    |  |   | 0.31   



In September 2004,
BancGroup announced the signing of a definitive agreement to acquire Union Bank of Florida (Union). Union operates 18 full service branches in Miami-Dade, Broward, and Palm Beach Counties. At September 30, 2004, Union had total assets of $1 billion,
loans of $639 million and deposits of $717 million. Total consideration for the transaction is approximately $233 million based on $20 per share of BancGroup stock. The aggregate consideration consists of approximately 75% cash and 25% stock,
subject to the limitation that BancGroup will issue no less than 2.65 million and no more than 3.24 million shares in the transaction. The transaction is expected to be completed in the first quarter of 2005.



Note E: Earnings Per Share



The following table reflects a reconciliation of the numerator and
denominator of the basic EPS computation to the numerator and denominator of the diluted EPS computation:



|                                |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|------------------------------- |  | ---------------------------------------- | ------- | -------------------------------- | ------- | --------------- | - | --------- |  | ------ | ------ | --------------- | ------- |  | - | ----
|                                |  | Nine Months Ended September 30,          |         | Three Months Ended September 30,
|                                |  | NetIncome                                |         | Shares                           |         | Per ShareAmount |   | NetIncome |  | Shares |        | Per ShareAmount
|                                |  | (In thousands, except per share amounts)
|2004                            |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|Basic EPS                       |  | $                                        | 128,121 |                                  | 130,267 |                 | $ | 0.98      |  | $      | 45,673 |                 | 133,568 |  | $ | 0.34
|Effect of dilutive instruments: |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|Options                         |  |                                          |        |                                  | 1,138   |                 |   |           |  |        |       |                 | 1,162   |  |   |     
|                                |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|Diluted EPS                     |  | $                                        | 128,121 |                                  | 131,405 |                 | $ | 0.98      |  | $      | 45,673 |                 | 134,730 |  | $ | 0.34
|                                |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|2003                            |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|Basic EPS                       |  | $                                        | 112,189 |                                  | 124,050 |                 | $ | 0.90      |  | $      | 38,812 |                 | 124,354 |  | $ | 0.31
|Effect of dilutive instruments: |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|Options                         |  |                                          |         |                                  | 423     |                 |   |           |  |        |        |                 | 643     |  |   |     
|Convertible debentures          |  |                                          | 57      |                                  | 353     |                 |   |           |  |        |       |                 |        |  |   |     
|                                |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     
|Diluted EPS                     |  | $                                        | 112,246 |                                  | 124,826 |                 | $ | 0.90      |  | $      | 38,812 |                 | 124,997 |  | $ | 0.31
|                                |  |                                          |         |                                  |         |                 |   |           |  |        |        |                 |         |  |   |     



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note F: Segment Information



Through its wholly owned subsidiary, Colonial Bank, BancGroup has one primary line of business, commercial banking. Colonial
Bank is a national bank that provides general banking services in 289 branches. Corporate/other includes the activities of the holding company, its debt instruments and the results of certain non-banking entities.



The following tables reflect the approximate amounts of consolidated revenue
and expense for the nine and three months ended September 30, 2004 and 2003 for each segment:



Segment Data



|                                     |  |                        |  |                  |   |  |                      
|------------------------------------ |  | ---------------------- |  | ---------------- | - |  | ---------------------
|                                     |  | Continuing Operations 
|                                     |  | CommercialBanking      |  | Corporate/Other* |   |  | ConsolidatedBancGroup
|                                     |  | (dollars in thousands)
|Nine Months Ended September 30, 2004 |  |                        |  |                  |   |  |                      
|Interest income                      |  | $613,871               |  | $               |   |  | $613,871             
|Interest expense                     |  | 179,783                |  | 7,511            |   |  | 187,294              
|Provision for loan losses            |  | 21,606                 |  |                 |   |  | 21,606               
|Noninterest income                   |  | 103,117                |  | 890              |   |  | 104,007              
|Noninterest expense                  |  | 311,107                |  | 3,748            |   |  | 314,855              
|                                     |  |                        |  |                  |   |  |                      
|Income (loss) before income taxes    |  | 204,492                |  | (10,369          | ) |  | 194,123              
|Income taxes                         |  | 69,018                 |  | (3,016           | ) |  | 66,002               
|                                     |  |                        |  |                  |   |  |                      
|Net income (loss)                    |  | $135,474               |  | $(7,353          | ) |  | $128,121             
|                                     |  |                        |  |                  |   |  |                      
|Nine Months Ended September 30, 2003 |  |                        |  |                  |   |  |                      
|Interest income                      |  | $585,975               |  | $      18        |   |  | $585,993             
|Interest expense                     |  | 204,698                |  | 5,468            |   |  | 210,166              
|Provision for loan losses            |  | 28,176                 |  |                 |   |  | 28,176               
|Noninterest income                   |  | 99,981                 |  | 115              |   |  | 100,096              
|Noninterest expense                  |  | 273,766                |  | 3,997            |   |  | 277,763              
|                                     |  |                        |  |                  |   |  |                      
|Income (loss) before income taxes    |  | 179,316                |  | (9,332           | ) |  | 169,984              
|Income taxes                         |  | 60,296                 |  | (2,501           | ) |  | 57,795               
|                                     |  |                        |  |                  |   |  |                      
|Net income (loss)                    |  | $119,020               |  | $(6,831          | ) |  | $112,189             
|                                     |  |                        |  |                  |   |  |                      



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



|                                      |  |                        |  |                  |   |  |                      
|------------------------------------- |  | ---------------------- |  | ---------------- | - |  | ---------------------
|                                      |  | Continuing Operations 
|                                      |  | CommercialBanking      |  | Corporate/Other* |   |  | ConsolidatedBancGroup
|                                      |  | (dollars in thousands)
|Three Months Ended September 30, 2004 |  |                        |  |                  |   |  |                      
|Interest income                       |  | $215,918               |  | $       (7       | ) |  | $215,911             
|Interest expense                      |  | 63,374                 |  | 2,702            |   |  | 66,076               
|Provision for loan losses             |  | 7,153                  |  |                 |   |  | 7,153                
|Noninterest income                    |  | 32,863                 |  | 197              |   |  | 33,060               
|Noninterest expense                   |  | 105,234                |  | 1,307            |   |  | 106,541              
|                                      |  |                        |  |                  |   |  |                      
|Income (loss) before income taxes     |  | 73,020                 |  | (3,819           | ) |  | 69,201               
|Income taxes                          |  | 24,644                 |  | (1,116           | ) |  | 23,528               
|                                      |  |                        |  |                  |   |  |                      
|Net income (loss)                     |  | $48,376                |  | $(2,703          | ) |  | $45,673              
|                                      |  |                        |  |                  |   |  |                      
|Three Months Ended September 30, 2003 |  |                        |  |                  |   |  |                      
|Interest income                       |  | $195,372               |  | $(30             | ) |  | $195,342             
|Interest expense                      |  | 63,885                 |  | 1,881            |   |  | 65,766               
|Provision for loan losses             |  | 9,306                  |  |                 |   |  | 9,306                
|Noninterest income                    |  | 33,567                 |  | 202              |   |  | 33,769               
|Noninterest expense                   |  | 93,710                 |  | 1,523            |   |  | 95,233               
|                                      |  |                        |  |                  |   |  |                      
|Income (loss) before income tax       |  | 62,038                 |  | (3,232           | ) |  | 58,806               
|Income taxes                          |  | 20,877                 |  | (883             | ) |  | 19,994               
|                                      |  |                        |  |                  |   |  |                      
|Net income (loss)                     |  | $41,161                |  | $(2,349          | ) |  | $38,812              
|                                      |  |                        |  |                  |   |  |                      

---

* Includes eliminations of certain intercompany
transactions.



Note G: Long-Term Borrowings



During the third quarter of 2004, the Company entered into interest rate
swap agreements to convert $175 million in existing FHLB advances to an average floating rate of three month LIBOR plus 1.108%. These advances originally had an average fixed rate of 4.85%.



During the second quarter of 2004, $300 million of FHLB advances were added
with maturities of three to five years, interest rates ranging from three month LIBOR plus 1.14% to 1.52% and caps on three month LIBOR ranging from 3% to 4%. In addition the Company entered into interest rate swap agreements in the second quarter
of 2004 to convert $300 million in existing FHLB advances to an average floating rate of three month LIBOR plus 1.18%. These advances originally had an average fixed rate of 5.07%.



During the first quarter of 2004, Colonial early extinguished $462 million in FHLB advances which bore interest at an
average rate of 4.37%. These advances were replaced with a $200 million short term FHLB advance at an interest rate of 1.15% and a $200 million 24 month FHLB advance at an interest rate of 1.84%. The early extinguishment of long-term FHLB advances
along with other debt extinguishment resulted in a net loss of $6.2 million in the first quarter of 2004.



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note H: Guarantees



Colonial Bank issues financial guarantees in the form of financial and performance standby letters of credit as part of its ongoing business
operations. Standby letters of credit are contingent commitments issued by Colonial Bank generally to guarantee the performance of a customer to a third party for which it receives a fee. A financial standby letter of credit is a commitment by
Colonial Bank to guarantee a customers repayment of an outstanding loan or debt instrument. In a performance standby letter of credit, Colonial Bank guarantees a customers performance under a contractual nonfinancial obligation. These
guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. At September 30, 2004, Colonial Bank had standby letters of credit outstanding with maturities ranging from less than one year to greater than 15 years. The maximum potential amount of future undiscounted
payments Colonial Bank could be required to make under outstanding standby letters of credit was $210 million. The fair value of the commitment typically approximates the fee received from the customer for issuing such commitments. These fees are
deferred and are recognized over the commitment period. The amount recorded as of September 30, 2004 was not material to the Companys consolidated balance sheet. The Company holds various assets as collateral supporting those commitments for
which collateral is deemed necessary.



Note I: Derivatives



BancGroup maintains positions in derivative financial instruments to
manage interest rate risk and facilitate asset/liability management strategies.



Fair Value Hedges:



At
September 30, 2004, BancGroup had interest rate swap positions on subordinated debt, junior subordinated debt, brokered CDs, long-term FHLB advances and fixed rate loans, which effectively converted their fixed rates to floating. The critical
terms of the interest rate swaps match the terms of the corresponding hedged items. There were no hedging gains and losses resulting from hedge ineffectiveness recognized for the nine months ended September 30, 2004 and 2003. The related balances of
all interest rate swaps as of September 30, 2004 and December 31, 2003 are shown below:



|                   |  |                 |         |            |   |        |                           |  |                                    
|------------------ |  | --------------- | ------- | ---------- | - | ------ | ------------------------- |  | -----------------------------------
|September 30, 2004
|Derivative Type    |  | Notional Amount |         | Fair Value |   |        | Asset or Liability Hedged
|                   |  | (In thousands)  |         |            |  
|Interest rate swap |  | $               | 250,000 |            | $ | 20,501 |                           |  | Fixed Rate Subordinated Debt       
|Interest rate swap |  |                 | 270,000 |            |   | 13,109 |                           |  | Fixed Rate Junior Subordinated Debt
|Interest rate swap |  |                 | 105,000 |            |   | 220    |                           |  | Fixed Rate Brokered CDs           
|Interest rate swap |  |                 | 575,000 |            |   | 17,299 |                           |  | Fixed Rate Long-Term FHLB Advances 
|Interest rate swap |  |                 | 6,433   |            |   | (56    | )                         |  | Fixed Rate Commercial Loans        
|                  
|December 31, 2003 
|Derivative Type    |  | Notional Amount |         | Fair Value |   |        | Asset or Liability Hedged
|                   |  | (In thousands)  |         |            |  
|Interest rate swap |  | $               | 250,000 |            | $ | 20,704 |                           |  | Fixed Rate Subordinated Debt       
|Interest rate swap |  |                 | 270,000 |            |   | 13,319 |                           |  | Fixed Rate Junior Subordinated Debt
|Interest rate swap |  |                 | 60,000  |            |   | (54    | )                         |  | Fixed Rate Brokered CDs           
|Interest rate swap |  |                 | 2,333   |            |   | (150   | )                         |  | Fixed Rate Commercial Loans        



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Commitments to Originate and Sell Mortgage Loans:



BancGroup, as part of its retail mortgage loan production activities,
routinely enters into short-term commitments to originate fixed rate loans. Most of the loans will be sold to third party correspondent banks upon closing. For those loans, BancGroup enters into individual forward sales commitments at the same time
the commitment to originate is finalized. While the forward sales commitments function as an economic hedge and effectively eliminate BancGroups financial risk of rate changes during the rate lock period, both the commitment to originate
mortgage loans that will be sold and the commitment to sell the mortgage loans are derivatives under the guidance of SFAS No. 133, the fair values of which are essentially equal and offsetting. The fair values are calculated based on changes in
market interest rates after the commitment date. The notional amounts of these mortgage loan origination commitments and the related forward sales commitments were $23.6 million at September 30, 2004. The unrealized gains/losses of the origination
and sales commitments were not material at September 30, 2004.



BancGroup has also executed individual forward sales commitments related to retail mortgage loans and short-term participations in mortgage loans, which are all classified as Mortgage Loans Held for Sale. The forward sales commitments
related to the short-term participations allow BancGroup to sell the mortgage loan participations to investor institutions for an amount equal to BancGroups original acquisition cost. Forward sales commitments function as an economic hedge and
mitigate BancGroups market risk on the retail mortgage loans and the short-term participations in loans. The notional values of the forward sales commitments on retail mortgage loans and short-term participations at September 30, 2004 were
$19.6 million and $488.7 million, respectively. Because the sales commitments are in place for such a short term, the unrealized gains/losses have been determined to be immaterial.



Options:



BancGroup from time to time enters into over-the-counter option contracts on bonds in its securities portfolio. SFAS No. 133 requires that the fair value
of these option contracts be recorded in the financial statements. However, there were no option contracts outstanding as of September 30, 2004 and December 31, 2003.



Note J: Stock-Based Compensation



SFAS No. 123, Accounting for Stock-Based Compensation, defines a fair value based method of accounting for an employee stock option or similar
equity instrument. However, SFAS No. 123 allows an entity to continue to measure compensation costs for those plans using the intrinsic value based method of accounting prescribed by APB Opinion No. 25, Accounting for Stock Issued to
Employees. Entities electing to remain with the accounting in Opinion No. 25 must make pro forma disclosures of net income and earnings per share as if the fair value based method of accounting defined in SFAS No. 123 had been applied. Under the
fair value based method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is usually the vesting period. Under the intrinsic value based method, compensation cost is the
excess, if any, of the quoted market price of the stock at the grant date or other measurement date over the amount an employee must pay to acquire the stock. BancGroup has elected to continue to measure compensation cost for its stock option plans
under the provisions in Opinion No. 25 and has calculated the fair value of outstanding options for purposes of pro forma disclosure utilizing the Black-Scholes method.



The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that 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 employee stock options have
characteristics significantly different from those of traded options, and because



15



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.



The
majority of the Companys options granted vest ratably over a period of five years; therefore for purposes of pro forma disclosures, the compensation expense related to these options has been allocated over the vesting period.



The Companys actual and pro forma information follows (in thousands
except per share data):



|                                                                                                                           |  |                                |         |   |                                 |   |         |      |  |   |        |   |  |   |        |  
|-------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ------------------------------- | - | ------- | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                           |  | Nine Months EndedSeptember 30, |         |   | Three Months EndedSeptember 30, |  
|                                                                                                                           |  | 2004                           |         |   | 2003                            |   |         | 2004 |  |   | 2003   |  
|Net income:                                                                                                                |  |                                |         |   |                                 |   |         |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                |  | $                              | 128,121 |   |                                 | $ | 112,189 |      |  | $ | 45,673 |   |  | $ | 38,812 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards,net of tax |  |                                | (1,023  | ) |                                 |   | (1,238  | )    |  |   | (292   | ) |  |   | (359   | )
|                                                                                                                           |  |                                |         |   |                                 |   |         |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                                       |  | $                              | 127,098 |   |                                 | $ | 110,951 |      |  | $ | 45,381 |   |  | $ | 38,453 |  
|                                                                                                                           |  |                                |         |   |                                 |   |         |      |  |   |        |   |  |   |        |  
|Basic earnings per share:                                                                                                  |  |                                |         |   |                                 |   |         |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                |  | $                              | 0.98    |   |                                 | $ | 0.90    |      |  | $ | 0.34   |   |  | $ | 0.31   |  
|Pro forma                                                                                                                  |  | $                              | 0.98    |   |                                 | $ | 0.89    |      |  | $ | 0.34   |   |  | $ | 0.31   |  
|Diluted earnings per share                                                                                                 |  |                                |         |   |                                 |   |         |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                |  | $                              | 0.98    |   |                                 | $ | 0.90    |      |  | $ | 0.34   |   |  | $ | 0.31   |  
|Pro forma                                                                                                                  |  | $                              | 0.97    |   |                                 | $ | 0.89    |      |  | $ | 0.34   |   |  | $ | 0.31   |  



Note K: Pension Plan



BancGroup and subsidiaries are participants in a pension
plan that covers most employees who have met certain age and length of service requirements. The plan provides benefits based on final average earnings, covered compensation, and years of benefit service. BancGroups policy is to contribute
annually an amount to adequately fund the plan. During the third quarter of 2004 the Company made a contribution to the plan in the amount of $7.6 million which is the total amount expected for the year. Actuarial computations for financial
reporting purposes are based on the projected unit credit method. Pension expense is recorded based on estimates until the final actuarially-determined cost is known. The components of the net periodic benefit cost for the interim periods ended
September 30, 2004 and 2003 are shown below:



|                                        |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |       |  
|--------------------------------------- |  | ------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ----- | -
|                                        |  | Nine Months Ended September 30, |        |   | Three MonthsEnded September 30, |  
|                                        |  | 2004                            |        |   | 2003                            |   |        | 2004 |  |   | 2003   |  
|                                        |  | (In thousands)                  |       
|Components of net periodic benefit cost |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |       |  
|Service cost                            |  | $                               | 4,230  |   |                                 | $ | 3,408  |      |  | $ | 1,295  |   |  | $ | 1,131 |  
|Interest cost                           |  |                                 | 2,822  |   |                                 |   | 2,476  |      |  |   | 867    |   |  |   | 812   |  
|Expected return on plan assets          |  |                                 | (3,031 | ) |                                 |   | (1,632 | )    |  |   | (1,010 | ) |  |   | (542  | )
|Amortization of transition asset        |  |                                 | (3     | ) |                                 |   | (3     | )    |  |   | (1     | ) |  |   | (1    | )
|Amortization of prior service cost      |  |                                 | 6      |   |                                 |   | 6      |      |  |   | 2      |   |  |   | 2     |  
|Amortization of actuarial loss          |  |                                 | 586    |   |                                 |   | 487    |      |  |   | 183    |   |  |   | 194   |  
|                                        |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |       |  
|Net periodic benefit cost               |  | $                               | 4,610  |   |                                 | $ | 4,742  |      |  | $ | 1,336  |   |  | $ | 1,596 |  
|                                        |  |                                 |        |   |                                 |   |        |      |  |   |        |   |  |   |       |  



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note L: Securities (Other than Temporary Impairment)



The following table reflects gross unrealized losses and market value,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at September 30, 2004.



|                                                   |  |                     |           |                  |                   |         |             |       |                  |         |  |             |        |                  |  |   |           |  |   |         |  
|-------------------------------------------------- |  | ------------------- | --------- | ---------------- | ----------------- | ------- | ----------- | ----- | ---------------- | ------- |  | ----------- | ------ | ---------------- |  | - | --------- |  | - | ------- | -
|                                                   |  | Less Than 12 months |           |                  | 12 months or more |         |             | Total |                 
|Description of Securities                          |  | MarketValue         |           | UnrealizedLosses |                   |         | MarketValue |       | UnrealizedLosses |         |  | MarketValue |        | UnrealizedLosses | 
|                                                   |  | (In thousands)      |          
|Direct obligations of U.S. government agencies     |  | $                   | 98,825    |                  | $                 | (1,175  | )           |       | $                | 71,955  |  | $           | (3,276 | )                |  | $ | 170,780   |  | $ | (4,451  | )
|Obligations of state and political subdivisions    |  |                     | 354       |                  |                   | (8      | )           |       |                  |        |  |             |       |                  |  |   | 354       |  |   | (8      | )
|Federal agency mortgage backed securities          |  |                     | 193,414   |                  |                   | (5,280  | )           |       |                  | 25,827  |  |             | (744   | )                |  |   | 219,241   |  |   | (6,024  | )
|Federal agency collateralized mortgage obligations |  |                     | 164,851   |                  |                   | (990    | )           |       |                  | 29,568  |  |             | (545   | )                |  |   | 194,419   |  |   | (1,535  | )
|Private collateralized mortgage obligations        |  |                     | 624,844   |                  |                   | (6,063  | )           |       |                  |        |  |             |       |                  |  |   | 624,844   |  |   | (6,063  | )
|                                                   |  |                     |           |                  |                   |         |             |       |                  |         |  |             |        |                  |  |   |           |  |   |         |  
|Total temporarily impaired securities              |  | $                   | 1,082,288 |                  | $                 | (13,516 | )           |       | $                | 127,350 |  | $           | (4,565 | )                |  | $ | 1,209,638 |  | $ | (18,081 | )
|                                                   |  |                     |           |                  |                   |         |             |       |                  |         |  |             |        |                  |  |   |           |  |   |         |  



The securities above
consist of government agency debentures, agency collateralized mortgage obligations (CMOs) and mortgage-backed securities, AAA-rated private CMOs and municipal obligations. As of September 30, 2004, there were 67 securities
carried at an unrealized loss. The losses were caused by changes in market interest rates. BancGroup expects to receive full payment of principal and interest on the securities. Additionally, BancGroup has the ability to retain these securities
until maturity when full repayment should be received.



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##### Table of Contents

Item 2. Managements Discussion And Analysis Of Financial Condition And Results Of Operations



Forward-Looking Statements:



This discussion and analysis contains statements that are considered forward-looking statements within the meaning of the federal securities
laws. See page 3 for additional information regarding forward-looking statements.



Critical Accounting Policies:



Accounting
policies considered relatively more critical due to either the subjectivity involved in the estimate and/or the potential impact that changes in the estimates can have on the reported financial results include the accounting for the allowance for
loan losses and the assessment of goodwill impairment. Information concerning these policies is included in the Critical Accounting Policies section of Managements Discussion and Analysis in BancGroups 2003 Annual Report on
Form 10-K. There were no significant changes in these accounting policies during the first nine months of 2004.



Business:



The principal activity of BancGroup is to supervise and coordinate the business of its subsidiaries and to provide them with capital and services.
BancGroup conducts its business primarily through its wholly owned subsidiary, Colonial Bank, N.A. (Colonial Bank).



Colonial Bank conducts a general commercial banking business and offers a variety of demand, savings and time deposit products as well as extensions of
credit through personal, commercial and mortgage loans within each of its market areas. Colonial Bank also provides additional services to its customers through cash management services, electronic banking services, credit card and merchant services
and financial planning services. Financial planning services include trust services, insurance sales and the sales of various types of investment products such as mutual funds, annuities, stocks, municipal bonds and U.S. government securities.



The following is a summary as of September 30, 2004 of assets,
deposits and branches attributable to each state:



|                |  |                  |   |  |                             |   |  |                    |   |  |                  
|--------------- |  | ---------------- | - |  | --------------------------- | - |  | ------------------ | - |  | -----------------
|                |  | % of TotalAssets |   |  | % of Core(non-time)Deposits |   |  | % of TotalDeposits |   |  | Number ofBranches
|Florida         |  | 48               | % |  | 56                          | % |  | 50                 | % |  | 123              
|Alabama         |  | 26               | % |  | 27                          | % |  | 33                 | % |  | 116              
|Georgia         |  | 8                | % |  | 5                           | % |  | 7                  | % |  | 22               
|Texas           |  | 6                | % |  | 5                           | % |  | 4                  | % |  | 12               
|Nevada          |  | 4                | % |  | 5                           | % |  | 4                  | % |  | 13               
|Corporate/Other |  | 8                | % |  | 2                           | % |  | 2                  | % |  | 3                



The Company is poised
to take advantage of growth opportunities because of its strategic locations in attractive markets in the United States, including Florida and Nevada. During the past few years Colonial has made a concerted effort to build a solid infrastructure and
transform its culture to one that is sales and service focused. The Company is just now beginning to reap the benefits from these strategic initiatives. Colonial is finding more opportunity to grow relationships with its existing customer base as
well as expand its presence in chosen markets in the fastest-growing areas of the country.



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##### Table of Contents

Financial Condition:



Changes in selected components of the Companys balance sheet from December 31, 2003 to September 30, 2004 are as follows:



|                                                        |  |                                                           |           |   |   |      |   
|------------------------------------------------------- |  | --------------------------------------------------------- | --------- | - | - | ---- | --
|                                                        |  | December 31, 2003to September 30, 2004Increase (Decrease) |          
|                                                        |  | Amount                                                    |           |   | % |     
|                                                        |  | (Dollars in thousands)                                    |          
|Securities available for sale and investment securities |  | $                                                         | 416,310   |   |   | 13.4 | % 
|Loans held for sale                                     |  |                                                           | 129,993   |   |   | 34.4 | % 
|Total loans, net:                                       |  |                                                           |           |   |   |      |   
|Mortgage warehouse loans                                |  |                                                           | 68,502    |   |   | 7.0  | % 
|All other loans, net of unearned income                 |  |                                                           | 904,956   |   |   | 8.5  | % 
|                                                        |  |                                                           |           |   |   |      |   
|Total loans, net of unearned income                     |  |                                                           | 973,458   |   |   | 8.4  | % 
|Total assets                                            |  |                                                           | 1,917,997 |   |   | 11.8 | % 
|Non-time deposits                                       |  |                                                           | 1,273,405 |   |   | 21.7 | % 
|Total deposits                                          |  |                                                           | 1,413,493 |   |   | 14.5 | % 
|Short-term borrowings                                   |  |                                                           | (72,419   | ) |   | (2.2 | )%
|Long-term debt                                          |  |                                                           | 385,429   |   |   | 19.8 | % 
|Shareholders equity                                    |  |                                                           | 195,482   |   |   | 16.6 | % 



Securities:



Securities increased $416 million, or 13.4%, from December 31, 2003.
Securities remained at approximately 19% of total assets at both September 30, 2004 and December 31, 2003. The yield on the securities portfolio was 4.48% for the nine months ended September 30, 2004 compared to 3.98% for the nine months ended
September 30, 2003. As of September 30, 2004 the Companys securities portfolio had an effective duration of 3.62 years. As a result of fluctuations in interest rates and the related effect on the market value of the securities portfolio,
the unrealized gains/losses on available for sale securities changed from a loss of $562,000 at December 31, 2003 to a gain of $14.4 million at September 30, 2004.



Loans and Mortgage Loans Held for Sale:



All other loans, net of unearned income, increased from December 31, 2003 to September 30, 2004 by $905 million, or 11% annualized (5% annualized
excluding the effects of the acquisition of PCB), primarily from the Companys Florida markets. Mortgage warehouse loan volume has a high degree of correlation with interest rate movements, which directly impact mortgage refinancing activity.
Mortgage warehouse loans increased $69 million from December 31, 2003 to September 30, 2004 as a result of demand for residential mortgages.



Loans held for sale increased $130 million from December 31, 2003, due to increased mortgage warehouse related activity. The purpose of the mortgage
warehouse component of loans held for sale is to accommodate the funding needs of mortgage company customers, therefore these balances fluctuate as demand for residential mortgages change.



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##### Table of Contents

The following table reflects the Companys loan mix.



Gross Loans By Category



|                                        |  |                        |            |   |                  |   |            |  
|--------------------------------------- |  | ---------------------- | ---------- | - | ---------------- | - | ---------- | -
|                                        |  | September 30,2004      |            |   | December 31,2003 |  
|                                        |  | (Dollars in thousands) |           
|Commercial, financial, and agricultural |  | $                      | 967,991    |   |                  | $ | 988,114    |  
|Commercial real estate:                 |  |                        |            |   |                  |   |            |  
|Owner-occupied commercial real estate   |  |                        | 1,007,715  |   |                  |   | 886,919    |  
|Other commercial real estate            |  |                        | 3,320,869  |   |                  |   | 3,294,006  |  
|                                        |  |                        |            |   |                  |   |            |  
|Total commercial real estate            |  |                        | 4,328,584  |   |                  |   | 4,180,925  |  
|Real estate-construction                |  |                        | 3,737,612  |   |                  |   | 3,134,366  |  
|Residential real estate                 |  |                        | 2,177,551  |   |                  |   | 1,987,697  |  
|Installment and consumer                |  |                        | 191,693    |   |                  |   | 217,100    |  
|Mortgage warehouse                      |  |                        | 1,050,990  |   |                  |   | 982,488    |  
|Other                                   |  |                        | 107,938    |   |                  |   | 98,221     |  
|                                        |  |                        |            |   |                  |   |            |  
|Total Loans                             |  |                        | 12,562,359 |   |                  |   | 11,588,911 |  
|Less: unearned income                   |  |                        | (6         | ) |                  |   | (16        | )
|                                        |  |                        |            |   |                  |   |            |  
|Net Loans                               |  | $                      | 12,562,353 |   |                  | $ | 11,588,895 |  
|                                        |  |                        |            |   |                  |   |            |  



Management believes
that its existing distribution of loans, whether grouped geographically, by industry, or by borrower, reduces BancGroups credit risk exposure. The current distribution of loans remains diverse in location, size, and collateral function. This
diversification, in addition to our emphasis on quality underwriting, serves to reduce the risk of losses. The following charts reflect the geographic diversity and property type distribution of construction and commercial real estate loans as of
September 30, 2004.



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##### Table of Contents

Geographic Diversity of Construction and Commercial Real Estate Loans



|                     |  |                        |           |           |        |                       |   |           |  |       
|-------------------- |  | ---------------------- | --------- | --------- | ------ | --------------------- | - | --------- |  | ------
|                     |  | Construction           |           | % ofTotal |        | CommercialReal Estate |   | % ofTotal
|                     |  | (Dollars in thousands)
|Average Loan Size    |  | $                      | 559       |           |        |                       | $ | 594       |  |       
|Geographic Diversity |  |                        |           |           |        |                       |   |           |  |       
|Florida              |  | $                      | 1,946,063 |           | 52.1%  |                       | $ | 2,200,079 |  | 50.8% 
|Alabama              |  |                        | 455,940   |           | 12.2%  |                       |   | 796,625   |  | 18.4% 
|Georgia              |  |                        | 474,868   |           | 12.7%  |                       |   | 449,262   |  | 10.4% 
|Texas                |  |                        | 418,737   |           | 11.2%  |                       |   | 258,911   |  | 6.0%  
|Nevada               |  |                        | 295,648   |           | 7.9%   |                       |   | 254,536   |  | 5.9%  
|Other                |  |                        | 146,356   |           | 3.9%   |                       |   | 369,171   |  | 8.5%  
|                     |  |                        |           |           |        |                       |   |           |  |       
|Total                |  | $                      | 3,737,612 |           | 100.0% |                       | $ | 4,328,584 |  | 100.0%
|                     |  |                        |           |           |        |                       |   |           |  |       



Property Type Distribution of
Construction and Commercial Real Estate Loans





|                                 |  |                                   |  |               
|-------------------------------- |  | --------------------------------- |  | --------------
|                                 |  | % of Property TypeDistribution to
|                                 |  | ConstructionPortfolio             |  | TotalPortfolio
|Residential Development and Lots |  | 24.3%                             |  | 7.2%          
|Land Only                        |  | 20.4%                             |  | 6.1%          
|Residential Home Construction    |  | 17.5%                             |  | 5.2%          
|Condominiums                     |  | 11.4%                             |  | 3.4%          
|Retail                           |  | 8.4%                              |  | 2.5%          
|Other*                           |  | 6.5%                              |  | 2.0%          
|Commercial Development           |  | 4.0%                              |  | 1.2%          
|Multi-Family                     |  | 3.8%                              |  | 1.1%          
|Office                           |  | 3.7%                              |  | 1.1%          
|                                 |  |                                   |  |               
|Total Construction               |  | 100.0%                            |  | 29.8%         
|                                 |  |                                   |  |               

|                             |  |                                   |  |               
|---------------------------- |  | --------------------------------- |  | --------------
|                             |  | % of Property TypeDistribution to
|                             |  | CommercialReal Estate             |  | TotalPortfolio
|Retail                       |  | 24.5%                             |  | 8.4%          
|Office                       |  | 17.6%                             |  | 6.1%          
|Multi-Family                 |  | 12.8%                             |  | 4.4%          
|Warehouse                    |  | 11.9%                             |  | 4.1%          
|Other*                       |  | 8.4%                              |  | 2.9%          
|Lodging                      |  | 7.8%                              |  | 2.7%          
|Healthcare                   |  | 7.6%                              |  | 2.6%          
|Church or School             |  | 4.3%                              |  | 1.5%          
|Recreation                   |  | 3.1%                              |  | 1.1%          
|Industrial                   |  | 2.0%                              |  | 0.7%          
|                             |  |                                   |  |               
|Total Commercial Real Estate |  | 100.0%                            |  | 34.5%         
|                             |  |                                   |  |               



---

|* | Other includes all loans in categories smaller than the lowest percentages shown above.
|- | ---------------------------------------------------------------------------------------



Selected Characteristics of the 75 Largest Construction and Commercial Real Estate Loans



|                                               |  |              |           |   |                       |   |         |  
|---------------------------------------------- |  | ------------ | --------- | - | --------------------- | - | ------- | -
|                                               |  | Construction |           |   | CommercialReal Estate |  
|75 Largest Loans Total (in thousands)          |  | $            | 1,182,388 |   |                       | $ | 744,087 |  
|% of 75 largest loans to category total        |  |              | 31.6      | % |                       |   | 17.2    | %
|Average Loan to Value Ratio (75 largest loans) |  |              | 68.2      | % |                       |   | 66.8    | %
|Average Debt Coverage Ratio (75 largest loans) |  |              | N/A       |   |                       |   | 1.42x   |  



Commercial real estate
and construction loans combined had growth, excluding acquisitions, of $485 million, or 6.6%, from December 31, 2003 to September 30, 2004. Geographically, the Florida locations continue to contribute most of the growth in these particular
portfolios. The acquisition of PCB in Florida in May 2004 contributed an additional $265 million to these portfolios. Colonial continues to focus its commercial real estate and construction growth efforts on high quality properties owned and/or
developed by experienced customers with whom we have established relationships. Substantially all construction and commercial real estate loans have personal guarantees of the principals involved.



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##### Table of Contents

Residential real estate loans represent approximately 17% of total loans at both September 30, 2004 and
December 31, 2003. Substantially all of these loans are adjustable rate first and second mortgages on single- family, owner-occupied properties, and therefore, have generally low credit risk and low interest rate sensitivity.



BancGroups mortgage warehouse lending division provides lines of credit
collateralized by residential mortgage loans to mortgage origination companies. Mortgage warehouse loans outstanding at September 30, 2004 and December 31, 2003 were $1.1 billion and $982 million, respectively, with unfunded commitments of $843
million and $915 million at September 30, 2004 and December 31, 2003, respectively.



The Company has 36 credits with total commitments (funded and unfunded) of $841 million that fall within the bank regulatory definition of a Shared National Credit (generally defined as a total loan
commitment in excess of $20 million that is shared by three or more lenders). At September 30, 2004, $458 million was funded under these commitments. The largest outstanding amount to any single borrower is approximately $81.5 million, with the
average funded credit being approximately $13.5 million.



Although by definition these commitments are considered Shared National Credits, BancGroups loan officers have established long-term relationships with most of these borrowers. These commitments are comprised of the following:



| |  | 76%mortgage warehouse lines to 20 large institutions
| | - | -----------------------------------------------------

| |  | 21%14 commercial real estate facilities to 13 companies with headquarters located within Colonials existing markets
| | - | ---------------------------------------------------------------------------------------------------------------------

| |  | 2%one operating facility to a large national corporation headquartered in Alabama
| | - | ----------------------------------------------------------------------------------

| |  | 1%one unfunded international letter of credit to a Latin American correspondent bank
| | - | -------------------------------------------------------------------------------------



Management believes that these are sound participations involving credits that are consistent with Colonial Banks
lending philosophy and meet its conservative underwriting guidelines.



Summary Of Loan Loss Experience



|                                                                         |  |                        |         |   |                  |   |         |  
|------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                         |  | September 30,2004      |         |   | December 31,2003 |  
|                                                                         |  | (Dollars in thousands) |        
|Allowance for loan lossesJanuary 1                                      |  | $                      | 138,549 |   |                  | $ | 135,265 |  
|Charge-offs:                                                             |  |                        |         |   |                  |   |         |  
|Commercial, financial, and agricultural                                  |  |                        | 9,524   |   |                  |   | 21,370  |  
|Real estatecommercial                                                   |  |                        | 6,140   |   |                  |   | 9,344   |  
|Real estateconstruction                                                 |  |                        | 2,564   |   |                  |   | 1,528   |  
|Real estateresidential                                                  |  |                        | 2,001   |   |                  |   | 5,297   |  
|Installment and consumer                                                 |  |                        | 1,666   |   |                  |   | 2,507   |  
|Other                                                                    |  |                        | 2,958   |   |                  |   | 1,381   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Total charge-offs                                                        |  |                        | 24,853  |   |                  |   | 41,427  |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Recoveries:                                                              |  |                        |         |   |                  |   |         |  
|Commercial, financial, and agricultural                                  |  |                        | 2,409   |   |                  |   | 2,052   |  
|Real estatecommercial                                                   |  |                        | 552     |   |                  |   | 874     |  
|Real estateconstruction                                                 |  |                        | 194     |   |                  |   | 197     |  
|Real estateresidential                                                  |  |                        | 301     |   |                  |   | 332     |  
|Installment and consumer                                                 |  |                        | 886     |   |                  |   | 1,334   |  
|Other                                                                    |  |                        | 557     |   |                  |   | 1,167   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Total recoveries                                                         |  |                        | 4,899   |   |                  |   | 5,956   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Net charge-offs                                                          |  |                        | 19,954  |   |                  |   | 35,471  |  
|Provision for loan losses                                                |  |                        | 21,606  |   |                  |   | 37,378  |  
|Allowance added from bank acquisitions                                   |  |                        | 6,857   |   |                  |   | 1,377   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Allowance for loan lossesend of period                                  |  | $                      | 147,058 |   |                  | $ | 138,549 |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Net charge-offs as a percentage of average net loans(annualized basis): |  |                        |         |   |                  |   |         |  
|Quarter to date                                                          |  |                        | 0.23    | % |                  |   | 0.30    | %
|Year to date                                                             |  |                        | 0.22    | % |                  |   | 0.31    | %



22



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##### Table of Contents

Nonperforming Assets:



BancGroup classifies problem loans into four categories: nonaccrual, past due, renegotiated and other potential problems. When management determines that
a loan no longer meets the criteria for a performing loan and full collection of principal or interest appears doubtful (even if all payments are current), the loan is placed on nonaccrual status. Loans are also placed on nonaccrual if the loan is
delinquent in principal or interest payments for 90 days or more, unless the loan is well secured and in the process of collection. BancGroups policy is also to charge off consumer installment loans 120 days past due unless they are in the
process of foreclosure and are adequately collateralized. Management closely monitors all problem loans.



|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                             |  | September 30,2004      |        |   | December 31,2003 |  
|                                                                                                                                                             |  | (Dollars in thousands) |       
|Aggregate loans for which interest is not being accrued                                                                                                      |  | $                      | 32,159 |   |                  | $ | 57,342 |  
|Aggregate loans renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial condition
of the borrower |  |                        | 233    |   |                  |   | 277    |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Total nonperforming loans*                                                                                                                                   |  |                        | 32,392 |   |                  |   | 57,619 |  
|Other real estate owned and repossessions                                                                                                                    |  |                        | 9,286  |   |                  |   | 17,821 |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Total nonperforming assets*                                                                                                                                  |  | $                      | 41,678 |   |                  | $ | 75,440 |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Aggregate loans contractually past due 90 days for which interest is being accrued                                                                           |  | $                      | 11,627 |   |                  | $ | 10,802 |  
|Net charge-offs quarter-to-date                                                                                                                              |  | $                      | 7,095  |   |                  | $ | 8,655  |  
|Net charge-offs year-to-date                                                                                                                                 |  | $                      | 19,954 |   |                  | $ | 35,471 |  
|Total nonperforming assets as a percent of net loans and other real estate                                                                                   |  |                        | 0.33   | % |                  |   | 0.65   | %
|Allowance as a percent of net loans                                                                                                                          |  |                        | 1.17   | % |                  |   | 1.20   | %
|Allowance as a percent of nonperforming assets*                                                                                                              |  |                        | 353    | % |                  |   | 184    | %
|Allowance as a percent of nonperforming loans*                                                                                                               |  |                        | 454    | % |                  |   | 240    | %

---

|* | Does not include loans contractually past due 90 days or more which are still accruing interest.
|- | ------------------------------------------------------------------------------------------------



The above nonperforming loans represent all material credits for which management has significant doubts as to the ability
of the borrowers to comply with the loan repayment terms. Management also expects that the resolution of these problem credits as well as other performing loans will not materially impact future operating results, liquidity or capital resources. The
balance of nonperforming assets declined $34 million, or 45%, during the nine months ended September 30, 2004 as a result of the resolution of problem assets through the sale of the loans or sale of underlying property, charge-off, and payoffs of a
number of larger assets including the sale of the Banks outstanding loans to Argentine Banks. The balance of nonperforming assets can fluctuate due to changes in economic conditions, nonperforming assets obtained in acquisitions, and the
disproportionate impact of larger assets. Colonial has historically and consistently experienced favorable levels of nonperforming assets. The recent improvements in nonperforming assets and other credit quality measures are the result of additional
improvements in collection, work-out and risk management efforts.



A loan is considered impaired if it is deemed probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. In addition to nonaccrual
loans, impaired loans may include past due loans that are well collateralized and in the process of collection. At September 30, 2004 and December 31, 2003, the recorded investment in loans considered impaired totaled approximately $33.8 million and
$59.9 million, respectively. The impaired loans were measured for impairment based primarily on the value of underlying collateral. The allowance related to impaired loans for September 30, 2004 and December 31, 2003 was $5.5 million and $15.6
million, respectively.



23



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##### Table of Contents

At September 30, 2004, impaired loans with an associated allowance totaled $13.1 million, while $20.7 million of impaired loans required no related allowance
due to their fully collateralized status. The amount of interest income recognized and foregone on nonaccrual loans was not significant for all respective periods.



In addition to the loans reported as nonperforming loans above, management has identified approximately $255.4 million
of loans which have been placed on a classified loan list. The status of all material loans is reviewed at least monthly by loan officers and quarterly by BancGroups centralized credit administration function. In connection with such reviews,
collateral values are updated where considered necessary. If collateral values are judged insufficient or other sources of repayment inadequate, the amount of reserve held is increased or the loan is reduced to estimated recoverable terms. At
September 30, 2004, substantially all of these loans are current (paying on or before payment due date or less than 30 days past due) with their existing repayment terms. Given the reserves and the ability of the borrowers to comply with the
existing repayment terms, management believes any exposure from these loans has been adequately addressed at the present time.



Interest Rate Sensitivity:



BancGroup has an Asset/Liability Management Committee (ALMCO), the objective of which is to optimize the net interest margin while assuming
reasonable business risks. ALMCOs goal is to minimize volatility in the net interest margin caused by changes in interest rates by taking an active role in managing the level, mix, repricing characteristics and maturities of assets and
liabilities. ALMCO monitors the projected impact of changes in interest rates on net interest income using income simulations under multiple rate scenarios.



The following table represents the output from the Companys simulation model based on the balance sheet at September 30, 2004, when the Fed Funds
Rate was 1.75%. The table measures the impact on net interest income, generated from the current balance sheet, of an immediate and sustained change in all market interest rates in 100 basis point increments for the 12 calendar months following the
date of the change. This twelve-month projection of net interest income under these scenarios is compared to the twelve-month net interest income projection with rates unchanged.



|                    |  |                |   |  |                                                                                                            |  
|------------------- |  | -------------- | - |  | ---------------------------------------------------------------------------------------------------------- | -
|                    |  | Fed Funds Rate |   |  | Percentage Change in12 Month ProjectedNet Interest Income vs.Net Interest
Incomeassuming no rate change(1) |  
|Basis Points change |  |                |   |  |                                                                                                            |  
|+200                |  | 3.75           | % |  | 1.48                                                                                                       | %
|+100                |  | 2.75           |   |  | 0.49                                                                                                       |  
|No Rate Change      |  | 1.75           |   |  |                                                                                                           |  
|100                |  | 0.75           |   |  | 2.04                                                                                                      |  

---

|(1) | The computation of prospective effects of hypothetical interest rate changes are based on numerous assumptions, including relative levels of market interest rates, estimates of
rates on loans and deposits given these rate changes, the ability to maintain interest rate floors on loans as market rates decline, deposit decay rates and loan/investment prepayments. Further, the computations do not take into account changes to
the slope of the yield curve, changes in the relative relationship of various market rates, changes in the volume or mix of asset and liabilities on the balance sheet nor do they contemplate any actions BancGroup could undertake in response to
changes in interest rates.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Liquidity:



A prominent focus of ALMCO is maintenance and management of adequate
liquidity. Liquidity is the ability of an organization to meet its financial commitments and obligations on a timely basis. These commitments and obligations include credit needs of customers, withdrawals by depositors, repayment of debt when due
and payment of operating expenses and dividends. Management of liquidity also includes management of funding sources and their utilization based on current, future and contingency needs.



24



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##### Table of Contents

Non-time deposit growth is a primary focus of BancGroups funding and liquidity strategy. Average
non-time deposits for the third quarter of 2004 increased $1.6 billion or 31% (23% excluding the impact of the PCB acquisition) over third quarter of 2003. Total average deposits for the third quarter of 2004 increased $1.8 billion or 20% (14%
excluding the impact of the PCB acquisition) over third quarter of 2003. These increases improved the percentage of average non-time deposits to average total deposits to 64% for the third quarter of 2004 compared to 58% for the third quarter of
2003.



The following table provides average non-time deposit
growth by state from third quarter 2003 to third quarter 2004:



|                       |  |     
|---------------------- |  | ----
|Florida (includes PCB) |  | 73% 
|Alabama                |  | 14% 
|Nevada                 |  | 7%  
|Georgia                |  | 4%  
|Texas                  |  | 0%  
|Other                  |  | 2%  
|                       |  |     
|                       |  | 100%



BancGroup continued to
lessen its short-term funding position due to the growth in average non-time deposits of $534 million in the third quarter of 2004 as compared to the second quarter of 2004. With this growth in deposits, BancGroup was able to reduce its average
short-term borrowings by $219 million in the third quarter of 2004 as compared to the second quarter of 2004. As a result, the companys average short-term wholesale funding improved to 19% of total funding sources for the year to date
September 30, 2004 compared to 22% for the year to date September 30, 2003.



As part of its planning for future funding needs, BancGroup has worked to expand the availability of short-term and long-term wholesale funding sources in addition to continued emphasis on deposit growth. Wholesale
funding sources include availability from the Federal Home Loan Bank of Atlanta, borrowings collateralized by securities, fed funds purchased and brokered CDs. Of total wholesale funding sources estimated to be available to the Company,
BancGroup utilized 54% at September 30, 2004 compared to 56% at September 30, 2003.



Capital Adequacy and Resources:



Management is
committed to maintaining capital at a level sufficient to protect shareholders and depositors, provide for reasonable growth and fully comply with all regulatory requirements. Managements strategy to achieve these goals is to retain sufficient
earnings while providing a reasonable return to shareholders in the form of dividends and return on equity. The Companys annual dividend payout ratio target range is 3545%. Dividend rates are determined by the Board of Directors in
consideration of several factors including current and projected capital ratios, liquidity and income levels and other financial institutions dividend yields and payment ratios.



The amount of a cash dividend, if any, rests within the discretion of the Board of Directors of BancGroup as well as upon
applicable statutory constraints such as the Delaware law requirement that dividends may be paid only out of capital surplus and net profits for the fiscal year in which the dividend is declared and the preceding fiscal year.



BancGroup also has access to equity capital markets through both public and
private issuances. Management considers these sources and related return in addition to internally generated capital in evaluating future expansion or acquisition opportunities.



The Federal Reserve Board has issued guidelines identifying minimum Tier I leverage ratios relative to total assets and
minimum capital ratios relative to risk-adjusted assets. The minimum leverage ratio is 3% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. A minimum leverage ratio of 4% is
required for all bank holding companies not meeting these criteria. Higher capital ratios may be required for any bank holding companies if warranted by its particular circumstance or risk profile. The minimum risk adjusted capital ratios
established by the Federal Reserve are 4% for Tier I and 8% for total capital. BancGroups actual capital ratios and the components of capital and risk adjusted asset information (subject to regulatory review) as of September 30, 2004 are
stated below:



25



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##### Table of Contents

|                                                                                                                                             |  |   |           
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----------
|Capital (dollars in thousands):                                                                                                              |  |  
|Tier I Capital:                                                                                                                              |  |   |           
|Shareholders equity (excluding unrealized gains/losses on securities available for sale and intangibles plus Trust Preferred
Securities)(1) |  | $ | 1,263,673 
|Tier II Capital:                                                                                                                             |  |   |           
|Allowable loan loss reserve                                                                                                                  |  |   | 147,058   
|Subordinated debt                                                                                                                            |  |   | 234,635   
|45% of net unrealized gains on available for sale equity securities                                                                          |  |   | 231       
|                                                                                                                                             |  |   |           
|Total Capital                                                                                                                                |  | $ | 1,645,597 
|                                                                                                                                             |  |   |           
|Risk-Adjusted Assets                                                                                                                         |  | $ | 13,747,030
|Quarterly average assets (excluding intangibles and unrealized gains/losses on securities available for sale)                                |  | $ | 17,397,362



|                              |  |                   |   |  |                  |  
|----------------------------- |  | ----------------- | - |  | ---------------- | -
|                              |  | September 30,2004 |   |  | December 31,2003 |  
|Tier I Leverage Ratio         |  | 7.26              | % |  | 7.50             | %
|Risk-Adjusted Capital Ratios: |  |                   |   |  |                  |  
|Tier I Capital Ratio          |  | 9.19              | % |  | 9.35             | %
|Total Capital Ratio           |  | 11.97             | % |  | 12.49            | %

---

|(1) | Due to the adoption of FIN 46, BancGroup no longer reflects trust preferred securities on its consolidated statement of condition, but rather reflects these securities as junior
subordinated debentures. However, under current regulatory guidelines, these securities continue to qualify for Tier 1 Capital treatment.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On November 2, 2004 BancGroup filed a registration statement on Form S-3 with the Securities and Exchange Commission (the SEC) to offer, on a
continuing or delayed basis, common stock, preference stock and/or debt securities. Once the registration statement has been declared effective by the SEC, and assuming any appropriate supplemental prospectus has been filed, the Company may, from
time to time, sell any combination of common stock, preference stock, or debt securities, in one or more offerings, up to a total dollar amount of $500 million. BancGroup expects to use the net proceeds it receives from any offering of these
securities to fund one or more acquisitions or for general corporate purposes, which may include funding its operating units and subsidiaries, financing business expansion, refinancing or extending the maturity of existing debt obligations,
investments at the holding company level and stock repurchases.



26



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##### Table of Contents

Average Volume and Rate



|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|---------------------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | -------- | ---- | ------- |  | ---- | ------------- |  | -------- | ---------- | ---- | - | ------- |  | ---- | -
|                                                                                               |  | Three Months Ended September 30, |           
|                                                                                               |  | 2004                             |            |          | 2003 |        
|                                                                                               |  | AverageVolume                    |            | Interest |      | Rate    |  |      | AverageVolume |  | Interest |            | Rate |  
|                                                                                               |  | (Dollars in thousands)           |           
|ASSETS:                                                                                        |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest earning assets:                                                                       |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|All other loans, net of unearned income(1)(4)                                                  |  | $                                | 11,344,719 |          | $    | 160,229 |  | 5.62 | %             |  | $        | 10,073,898 |      | $ | 145,035 |  | 5.72 | %
|Mortgage warehouse loans                                                                       |  |                                  | 1,035,679  |          |      | 10,544  |  | 4.05 | %             |  |          | 1,683,548  |      |   | 16,100  |  | 3.79 | %
|Loans held for sale                                                                            |  |                                  | 468,791    |          |      | 5,018   |  | 4.28 | %             |  |          | 605,562    |      |   | 7,301   |  | 4.82 | %
|Investment securities and securities available for sale and other short-term investments(2)(4) |  |                                  | 3,615,754  |          |      | 40,551  |  | 4.49 | %             |  |          | 2,758,311  |      |   | 27,457  |  | 3.98 | %
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest earning assets                                                                  |  |                                  | 16,464,943 |          | $    | 216,342 |  | 5.24 | %             |  |          | 15,121,319 |      | $ | 195,893 |  | 5.15 | %
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Non-earning assets(4)                                                                          |  |                                  | 1,265,714  |          |      |         |  |      |               |  |          | 1,162,627  |      |   |         |  |      |  
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total assets                                                                                   |  | $                                | 17,730,657 |          |      |         |  |      |               |  | $        | 16,283,946 |      |   |         |  |      |  
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|                                                                                               |  |                                  |            |          |      |        
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                          |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing liabilities:                                                                  |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing non-time deposits                                                             |  | $                                | 4,747,994  |          | $    | 10,847  |  | 0.91 | %             |  | $        | 3,433,979  |      | $ | 6,317   |  | 0.73 | %
|Time deposits                                                                                  |  |                                  | 4,002,410  |          |      | 25,044  |  | 2.49 | %             |  |          | 3,829,347  |      |   | 25,741  |  | 2.67 | %
|Short-term borrowings                                                                          |  |                                  | 2,987,370  |          |      | 10,642  |  | 1.42 | %             |  |          | 3,582,002  |      |   | 9,813   |  | 1.09 | %
|Long-term debt(4)                                                                              |  |                                  | 2,289,851  |          |      | 19,543  |  | 3.40 | %             |  |          | 2,258,749  |      |   | 23,895  |  | 4.20 | %
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest bearing liabilities                                                             |  |                                  | 14,027,625 |          | $    | 66,076  |  | 1.87 | %             |  |          | 13,104,077 |      | $ | 65,766  |  | 1.99 | %
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Noninterest bearing demand deposits                                                            |  |                                  | 2,273,263  |          |      |         |  |      |               |  |          | 1,941,749  |      |   |         |  |      |  
|Other liabilities(4)                                                                           |  |                                  | 107,009    |          |      |         |  |      |               |  |          | 131,777    |      |   |         |  |      |  
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities                                                                              |  |                                  | 16,407,897 |          |      |         |  |      |               |  |          | 15,177,603 |      |   |         |  |      |  
|Shareholders equity                                                                           |  |                                  | 1,322,760  |          |      |         |  |      |               |  |          | 1,106,343  |      |   |         |  |      |  
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities and shareholders equity                                                     |  | $                                | 17,730,657 |          |      |         |  |      |               |  | $        | 16,283,946 |      |   |         |  |      |  
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|                                                                                               |  |                                  |            |          |      |        
|RATE DIFFERENTIAL                                                                              |  |                                  |            |          |      |         |  | 3.37 | %             |  |          |            |      |   |         |  | 3.16 | %
|NET INTEREST INCOME AND NET YIELD ON INTEREST-EARNING ASSETS(3)                                |  |                                  |            |          | $    | 150,266 |  | 3.64 | %             |  |          |            |      | $ | 130,127 |  | 3.43 | %
|                                                                                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  

---

|(1) | Loans classified as non-accruing are included in the average volume calculation. Interest earned and average rates on non-taxable loans are reflected on a tax equivalent basis. This
interest is included in the total interest for loans. Tax equivalent interest earned is actual interest earned times 145%.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is equal to actual
interest earned times 145%. Tax equivalent average rate is tax equivalent interest earned divided by average volume.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Net interest income divided by average total interest-earning assets.
|--- | ---------------------------------------------------------------------



|(4) | Unrealized gains (losses) on available for sale securities and the adjustments for mark to market valuations have been classified in either nonearning assets or other liabilities.
All periods presented were changed to reflect this presentation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27



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##### Table of Contents

Average Volume and Rate



|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|---------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | -------- | ---- | ------- |  | ---- | ------------- |  | -------- | ---------- | ---- | - | ------- |  | ---- | -
|                                                                                               |  | Nine Months Ended September 30, |           
|                                                                                               |  | 2004                            |            |          | 2003 |        
|                                                                                               |  | AverageVolume                   |            | Interest |      | Rate    |  |      | AverageVolume |  | Interest |            | Rate |  
|                                                                                               |  | (Dollars in thousands)          |           
|ASSETS:                                                                                        |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest earning assets:                                                                       |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|All other loans, net of unearned income(1)(4)                                                  |  | $                               | 10,959,787 |          | $    | 453,935 |  | 5.53 | %             |  | $        | 9,994,465  |      | $ | 444,071 |  | 5.94 | %
|Mortgage warehouse loans                                                                       |  |                                 | 1,013,169  |          |      | 30,426  |  | 4.01 | %             |  |          | 1,585,351  |      |   | 47,248  |  | 3.98 | %
|Loans held for sale                                                                            |  |                                 | 443,810    |          |      | 15,986  |  | 4.80 | %             |  |          | 397,156    |      |   | 14,898  |  | 5.00 | %
|Investment securities and securities available for sale and other short-term investments(2)(4) |  |                                 | 3,422,798  |          |      | 114,941 |  | 4.48 | %             |  |          | 2,732,135  |      |   | 81,539  |  | 3.98 | %
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest earning assets                                                                  |  |                                 | 15,839,564 |          | $    | 615,288 |  | 5.19 | %             |  |          | 14,709,107 |      | $ | 587,756 |  | 5.34 | %
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Non-earning assets(4)                                                                          |  |                                 | 1,203,669  |          |      |         |  |      |               |  |          | 1,116,020  |      |   |         |  |      |  
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total assets                                                                                   |  | $                               | 17,043,233 |          |      |         |  |      |               |  | $        | 15,825,127 |      |   |         |  |      |  
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|                                                                                               |  |                                 |            |          |      |        
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                          |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing liabilities:                                                                  |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing non-time deposits                                                             |  | $                               | 4,326,000  |          | $    | 28,051  |  | 0.87 | %             |  | $        | 3,320,132  |      | $ | 20,254  |  | 0.82 | %
|Time deposits                                                                                  |  |                                 | 3,959,890  |          |      | 73,642  |  | 2.48 | %             |  |          | 4,030,425  |      |   | 87,165  |  | 2.89 | %
|Short-term borrowings                                                                          |  |                                 | 3,009,151  |          |      | 25,902  |  | 1.15 | %             |  |          | 3,271,525  |      |   | 30,454  |  | 1.24 | %
|Long-term debt(4)                                                                              |  |                                 | 2,259,352  |          |      | 59,699  |  | 3.53 | %             |  |          | 2,136,705  |      |   | 72,293  |  | 4.52 | %
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest bearing liabilities                                                             |  |                                 | 13,554,393 |          | $    | 187,294 |  | 1.85 | %             |  |          | 12,758,787 |      | $ | 210,166 |  | 2.20 | %
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Noninterest bearing demand deposits                                                            |  |                                 | 2,124,163  |          |      |         |  |      |               |  |          | 1,839,122  |      |   |         |  |      |  
|Other liabilities(4)                                                                           |  |                                 | 109,631    |          |      |         |  |      |               |  |          | 129,106    |      |   |         |  |      |  
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities                                                                              |  |                                 | 15,788,187 |          |      |         |  |      |               |  |          | 14,727,015 |      |   |         |  |      |  
|Shareholders equity                                                                           |  |                                 | 1,255,046  |          |      |         |  |      |               |  |          | 1,098,112  |      |   |         |  |      |  
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities and shareholders equity                                                     |  | $                               | 17,043,233 |          |      |         |  |      |               |  | $        | 15,825,127 |      |   |         |  |      |  
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|                                                                                               |  |                                 |            |          |      |        
|RATE DIFFERENTIAL                                                                              |  |                                 |            |          |      |         |  | 3.34 | %             |  |          |            |      |   |         |  | 3.14 | %
|NET INTEREST INCOME AND NET YIELD ON INTEREST-EARNING ASSETS(3)                                |  |                                 |            |          | $    | 427,994 |  | 3.61 | %             |  |          |            |      | $ | 377,590 |  | 3.43 | %
|                                                                                               |  |                                 |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  

---

|(1) | Loans classified as non-accruing are included in the average volume calculation. Interest earned and average rates on non-taxable loans are reflected on a tax equivalent basis. This
interest is included in the total interest for loans. Tax equivalent interest earned is actual interest earned times 145%.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is equal to actual
interest earned times 145%. Tax equivalent average rate is tax equivalent interest earned divided by average volume.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | Net interest income divided by average total interest-earning assets.
|--- | ---------------------------------------------------------------------



|(4) | Unrealized gains (losses) on available for sale securities and the adjustments for mark to market valuations have been classified in either nonearning assets or other liabilities.
All periods presented were changed to reflect this presentation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



28



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##### Table of Contents

Analysis of Interest Increases/(Decreases)



|                                                                                         |  |                                                       |        |   |                  |   |        |      |  |   |        |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------------------------- | ------ | - | ---------------- | - | ------ | ---- |  | - | ------ | -
|                                                                                         |  | Three Months EndedSeptember 30, 2004 Change from 2003 |       
|                                                                                         |  |                                                       |        |   | Attributed to(1) |  
|                                                                                         |  | Total                                                 |        |   | Volume           |   |        | Rate | 
|                                                                                         |  | (Dollars in thousands)                                |       
|INTEREST INCOME:                                                                         |  |                                                       |        |   |                  |   |        |      |  |   |        |  
|All other loans, net of unearned income                                                  |  | $                                                     | 15,194 |   |                  | $ | 17,720 |      |  | $ | (2,526 | )
|Mortgage warehouse loans                                                                 |  |                                                       | (5,556 | ) |                  |   | (6,584 | )    |  |   | 1,028  |  
|Loans held for sale                                                                      |  |                                                       | (2,283 | ) |                  |   | (1,528 | )    |  |   | (755   | )
|Investment securities and securities available for sale and other short-term investments |  |                                                       | 13,094 |   |                  |   | 9,296  |      |  |   | 3,798  |  
|                                                                                         |  |                                                       |        |   |                  |   |        |      |  |   |        |  
|Total interest income                                                                    |  |                                                       | 20,449 |   |                  |   | 18,904 |      |  |   | 1,545  |  
|                                                                                         |  |                                                       |        |   |                  |   |        |      |  |   |        |  
|                                                                                         |  |                                                       |       
|INTEREST EXPENSE:                                                                        |  |                                                       |        |   |                  |   |        |      |  |   |        |  
|Interest bearing non-time deposits                                                       |  |                                                       | 4,530  |   |                  |   | 2,762  |      |  |   | 1,768  |  
|Time deposits                                                                            |  |                                                       | (697   | ) |                  |   | 1,113  |      |  |   | (1,810 | )
|Short-term borrowings                                                                    |  |                                                       | 829    |   |                  |   | (1,803 | )    |  |   | 2,632  |  
|Long-term debt                                                                           |  |                                                       | (4,352 | ) |                  |   | 319    |      |  |   | (4,671 | )
|                                                                                         |  |                                                       |        |   |                  |   |        |      |  |   |        |  
|Total interest expense                                                                   |  |                                                       | 310    |   |                  |   | 2,391  |      |  |   | (2,081 | )
|                                                                                         |  |                                                       |        |   |                  |   |        |      |  |   |        |  
|Net interest income                                                                      |  | $                                                     | 20,139 |   |                  | $ | 16,513 |      |  | $ | 3,626  |  
|                                                                                         |  |                                                       |        |   |                  |   |        |      |  |   |        |  



|                                                                                         |  |                                                       |   |  |                  |   |  |          |  
|---------------------------------------------------------------------------------------- |  | ----------------------------------------------------- | - |  | ---------------- | - |  | -------- | -
|                                                                                         |  | Nine Months Ended September 30, 2004 Change from 2003 |  
|                                                                                         |  |                                                       |   |  | Attributed to(1) |  
|                                                                                         |  | Total                                                 |   |  | Volume           |   |  | Rate     |  
|                                                                                         |  | (Dollars in thousands)                                |  
|INTEREST INCOME:                                                                         |  |                                                       |   |  |                  |   |  |          |  
|All other loans, net of unearned income                                                  |  | $  9,864                                              |   |  | $41,379          |   |  | $(31,515 | )
|Mortgage warehouse loans                                                                 |  | (16,822                                               | ) |  | (17,137          | ) |  | 315      |  
|Loans held for sale                                                                      |  | 1,088                                                 |   |  | 1,698            |   |  | (610     | )
|Investment securities and securities available for sale and other short-term investments |  | 33,402                                                |   |  | 22,350           |   |  | 11,052   |  
|                                                                                         |  |                                                       |   |  |                  |   |  |          |  
|Total interest income                                                                    |  | 27,532                                                |   |  | 48,290           |   |  | (20,758  | )
|                                                                                         |  |                                                       |   |  |                  |   |  |          |  
|                                                                                         |  |                                                       |  
|INTEREST EXPENSE:                                                                        |  |                                                       |   |  |                  |   |  |          |  
|Interest bearing non-time deposits                                                       |  | 7,797                                                 |   |  | 6,575            |   |  | 1,222    |  
|Time deposits                                                                            |  | (13,523                                               | ) |  | (1,498           | ) |  | (12,025  | )
|Short-term borrowings                                                                    |  | (4,552                                                | ) |  | (2,387           | ) |  | (2,165   | )
|Long-term debt                                                                           |  | (12,594                                               | ) |  | 3,973            |   |  | (16,567  | )
|                                                                                         |  |                                                       |   |  |                  |   |  |          |  
|Total interest expense                                                                   |  | (22,872                                               | ) |  | 6,663            |   |  | (29,535  | )
|                                                                                         |  |                                                       |   |  |                  |   |  |          |  
|Net interest income                                                                      |  | $50,404                                               |   |  | $41,627          |   |  | $8,777   |  
|                                                                                         |  |                                                       |   |  |                  |   |  |          |  

---

|(1) | Increases (decreases) are attributed to volume changes and rate changes on the following basis: Volume Change equals change in volume times old rate. Rate Change equals change in
rate times old volume. The Rate/Volume Change equals change in volume times change in rate, and it is allocated between Volume Change and Rate Change at the ratio that the absolute value of each of those components bear to the absolute value of
their total.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Net Interest Income:



Net interest income represents the difference or spread between interest and fee income generated from earning assets and the interest expense paid on
deposits and borrowed funds. Interest rate volatility, which impacts the volume and mix of earning assets and interest bearing liabilities as well as their rates, can significantly impact net interest income.



Net interest income on a tax equivalent basis increased $20.1 million or
15.5% to $150.3 million for the quarter ended September 30, 2004 from $130.1 million for the quarter ended September 30, 2003. Net interest margin increased for the fourth consecutive quarter to 3.64% for the third quarter of 2004, an increase of 21
basis points from 3.43% for the third quarter of 2003.



Net
interest income on a tax equivalent basis increased $50.4 million or 13.3% to $428.0 million for the nine months ended September 30, 2004 from $377.6 million for the nine months ended September 30, 2003. Net interest margin improved 18 basis points
to 3.61% for the nine months ended September 30, 2004 compared to 3.43% for the same period in 2003.



The contributors to the increase in net interest income for both the quarter and nine months are reflected on the previous tables. The Federal Reserve
raised the target federal funds rate 50 basis points during the quarter in addition to a 25 basis point increase on June 30, 2004 which resulted in a 43 basis point increase in the average federal funds rate for the quarter. Colonial raised its
prime rate in conjunction with each increase in the target federal funds rate. In addition to rate changes, the primary contributors to the increase in net interest income were growth in earning assets, improved yield on securities, growth in
non-time deposits and lower funding costs partially offset by lower yields on all other loans.



For the third quarter 2004, as compared to the same period in 2003, average earning assets increased 8.9%, or $1.3 billion, to $16.5 billion compared to $15.1 billion for the third quarter 2003. This increase was due
to a $1.3 billion increase in average loans, excluding mortgage warehouse, and an $857.4 million increase in average securities, offset by a reduction in average mortgage warehouse loans of $647.9 million and a reduction in average loans held for
sale of $136.8 million. Overall for the third quarter 2004 versus 2003, the increase in net interest income attributable to higher earning assets was $18.9 million. For the nine months ended September 30, 2004, as compared to the same period in
2003, average earning assets increased 7.7% or $1.1 billion to $15.8 billion compared to $14.7 billion for the nine months ended September 30, 2003. This increase was due to a $965.3 million increase in average loans, excluding mortgage warehouse,
and a $690.7 million increase in average securities, offset by a reduction in average mortgage warehouse loans of $572.2 million. Overall for the nine months ended September 30, 2004 versus 2003, the increase in net interest income attributable to
higher earning assets was $48.3 million. Please refer to the Financial Condition section of this report for further discussion of these asset changes.



The yield on securities improved 51 basis points and 50 basis points while the yield on all other loans declined 10 basis points and 41 basis points for
the three and nine months ended September 30, 2004, respectively, compared to the same periods in 2003. The improvement in securities yields was partially the result of selling $710 million in securities with an average yield of 4.37% and
reinvesting in securities with an average yield of 4.62% during the first quarter of 2004. Lower premium amortization from slower mortgage prepayments and reinvesting investment portfolio cash flows in higher rate securities also contributed to the
improved yield. Loan yields declined during the first two quarters of 2004 due to the continued repricing of older fixed rate loans, but showed improvement in the third quarter of 2004 due to the increase in market rates. Approximately 76% of
Colonials loan portfolio is variable or adjustable rate and increases in rate when market rates rise. As a result of these changes the average yield on earning assets increased 9 basis points and declined 15 basis points for the three and nine
months ended September 30, 2004 as compared to the same periods in 2003.



Overall funding cost improved 12 basis points and 35 basis points for the third quarter and first nine months of 2004 compared to the same periods in 2003 primarily as a result of non-time deposit growth, repricing of
time deposits in a lower rate environment, and changes to the structure of various long term debt instruments. Average non-time deposits grew 31% and 25% for the three and nine months ended September 30, 2004 compared to the same periods in 2003. As
a result average non-time deposits were 64% and 62% of average total deposits for the third quarter and nine months ended September 30, 2004 compared to 58% and 56% for the same periods in



30



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##### Table of Contents

2003. The growth in low cost deposits has decreased the Companys dependence on borrowings whereby total average deposits comprise 68% of total funding
for the third quarter of 2004 compared to 61% for the third quarter of 2003. As a result average short-term borrowings decreased $595 million and $262 million for the three and nine months ended September 30, 2004 when compared to the same periods
of 2003. Increases in short-term rates resulted in an increase in the average rate on short-term borrowings of 33 basis points for the third quarter of 2004 compared to the same period in 2003. For the nine months ended September 30, 2004, the
average rate on short-term borrowings was 9 basis points lower than the same period last year. The cost of long term debt declined 80 basis points and 99 basis points for the three and nine months ended September 30, 2004, respectively, compared to
the same periods in 2003. This decline was primarily due to the conversion of fixed rates to floating rates on certain debt instruments through interest rate swaps. See Note G for further information regarding changes in long-term debt.



Loan Loss Provision:



The provision for loan losses for the quarter ended September 30, 2004 was $7.2 million compared to $9.3 million for the
same period in 2003. Year to date loan loss provision for 2004 was $21.6 million compared to $28.2 million in 2003. Net charge-offs were $7.1 million and $20.0 million, or 0.23% and 0.22% annualized as a percent of average net loans, for the three
and nine months ended September 30, 2004, respectively, compared to $10.3 million and $26.8 million, or 0.35% and 0.31% annualized as a percent of average net loans, for the same periods in 2003. Due to numerous factors including a lower charge-off
level, record low nonperforming loans, lower levels of impaired loans, and improvement in loans classified as potential problems, the Companys provision was lower than the prior year. See managements discussion of nonperforming assets
and summary of loan loss experience presented in the Financial Conditionsection of this report.



Noninterest Income:



Noninterest income, excluding securities gains and losses, decreased $934,000, or 3% for the three months ended September 30, 2004 compared to the same period in 2003, and remained relatively even for the nine months ended September 30,
2004 as compared to the same period in 2003. Sources of noninterest income include service charges on deposit accounts, financial planning services, electronic banking services, mortgage banking income and securities gains (losses).



Service charges on deposit accounts increased $729,000, or 5%, for the three
months ended September 30, 2004 over the same period in 2003 and $4.9 million, or 12%, for the nine months ended September 30, 2004 over 2003. These increases are primarily the result of growth in deposits of 20% since September 30, 2003 and an
increase in NSF fees.



Financial planning services revenues
decreased $734,000, or 20%, for the three months ended September 30, 2004 from the same period in 2003 and decreased $1.4 million, or 12%, for the nine months ended September 30, 2004 compared to the same period in 2003. The decreases are
primarily due to declines in sales of securities and annuity products and lower income from trust services.



Electronic banking revenues include fees from the Companys ATM network, business and personal check cards and internet banking. Noninterest income
from electronic banking services increased $668,000, or 27%, for the three months ended September 30, 2004, compared to the same period in 2003 and $1.5 million, or 20%, for the nine months ended September 30, 2004 compared to 2003. The increase for
both periods is primarily the result of deposit growth, increased check card activations and usage, an increase in Visas interchange fee rate, and an increase in usage of the Companys internet banking product.



Mortgage banking fees decreased $2.1 million, or 49%, for the three months
ended September 30, 2004 compared to the same period in 2003 and $8.5 million, or 57%, for the nine months ended September 30, 2004 compared to 2003. The decreases are a direct result of fluctuations in mortgage rates which resulted in less
refinancing activity than last year.



31



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##### Table of Contents

Securities gains were $367,000 for the three months ended September 30, 2004 compared to $142,000 for the
same period in 2003 and were $7.4 million for the nine months ended September 30, 2004 compared to $3.9 million for the same period in 2003. Refer to the Net Interest Income section for further discussion of the securities transactions.



Other income increased $515,000, or 6%, and $3.8 million, or
17%, for the three and nine months ended September 30, 2004 as compared to the same periods in 2003, respectively. The increase for the three months ended September 30, 2004 was primarily due to increases in income from association services and
BancGroups subsidiary Goldleaf Technologies, Inc. (Goldleaf). The increase for the nine months ended September 30, 2004 was primarily due to increases in income from bank-owned life insurance, Goldleaf and real estate joint
ventures.



Noninterest Expenses:



Noninterest expense increased $11.3 million, or 12%, for the three months
ended September 30, 2004 as compared to the same period in 2003. Noninterest expense, excluding loss on early extinguishment of debt of $6.2 million, increased $30.9 million, or 11%, for the nine months ended September 30, 2004 as compared to the
same period in 2003. Annualized noninterest expense excluding loss on early extinguishment of debt to average assets was 2.40% and 2.41% for the three and nine months ended September 30, 2004, respectively, as compared to 2.34% for the same periods
in 2003. BancGroup added 27 new branches to its franchise over the past 12 months  10 new branches and 17 acquired branches. These new locations and related acquisition expense increased noninterest expense by 7% over the third quarter of 2003
and 4% over the nine months ended September 30, 2004, as compared to 2003. The conversion of PCBs four banks to Colonials information technology systems was completed in the third quarter of 2004. The Company incurred $662,000 and $1.9
million in one time merger related expenses for the three and nine months ended September 30, 2004, respectively. The remaining increase relates to salaries and benefits, technology enhancements, and other miscellaneous operating expenses, such as
advertising and legal expense.



Salaries and benefits increased
$5.2 million, or 10%, and $14.9 million, or 10%, for the three and nine months ended September 30, 2004 as compared to the same periods in 2003, respectively. The increases resulted from new branches, the acquisition of PCB, normal salary increases,
the addition of employees in key strategic areas, an increase in health benefit costs and increased incentive plan compensation partially offset by a decrease in commissions due to the previously discussed reduction in mortgage banking and financial
planning services revenues.



Occupancy and equipment expense
increased $2.0 million, or 17%, and $4.6 million, or 14%, for the three and nine months ended September 30, 2004 as compared to the same periods in 2003, respectively. The increases are primarily the result of new branch openings and the acquisition
of PCB as previously discussed, as well as an investment in a new information technology center with expanded capacity and continued technology enhancements.



The increase in amortization of intangibles and merger related expenses are a direct result of the acquisition of PCB in May, 2004. Amortization of
intangibles increased $840,000 and $1.2 million for the three and nine months ended September 30, 2004 as compared to the same periods in 2003, respectively. Merger related expenses were $662,000 and $1.9 million for the three and nine months ended
September 30, 2004.



The $6.2 million loss on early
extinguishment of debt for the nine months ended September 30, 2004 was the result of the early payoff of FHLB advances and other borrowings. Refer to Note G for further information regarding changes in long-term debt.



32



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##### Table of Contents

The increases in other expense of $2.0 million and $7.4 million for the three and nine months ended
September 30, 2004 as compared to the same periods in 2003, respectively, were the result of the opening of new branches, acquisition of PCB, increases in communication expense, additional advertising expenses as a result of the Companys
emphasis on deposit growth as well as increases in normal operating expenses including legal fees, regulatory assessment fees and insurance.



Provision For Income Taxes:



BancGroups provision for income taxes is based on a 34.0% projected annual effective tax rate for the years 2004 and 2003. The provisions for income
taxes for the three months ended September 30, 2004 and 2003 were $23.5 million and $20.0 million respectively. The provisions for income taxes for the nine months ended September 30, 2004 and 2003 were $66.0 million and $57.8 million, respectively.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



The information required by this item is included in Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.



Item 4. Controls and Procedures



The Companys management, including the Chief Executive Officer and Chief Financial Officer, has evaluated the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities and Exchange Act of
1934, as amended) as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective. There
were no significant changes in internal control over financial reporting during the period covered by this report (including any corrective actions with regard to significant deficiencies or material weaknesses in the Companys internal
controls) that could significantly affect the disclosure controls and procedures since the date of the evaluation. See the certifications by the Companys Chief Executive Officer and Chief Financial Officer filed as Exhibits 31.1 and 31.2 to
this Report.



33



---

##### Table of Contents

PART II. OTHER INFORMATION



Item 1. Legal ProceedingsSee Notes to the Unaudited Condensed Consolidated Financial StatementsNote BContingencies



Item 2. Changes in Securities and Use of ProceedsN/A



Item 3. Defaults Upon Senior SecuritiesN/A



Item 4. Submission of Matters to a Vote of Security HoldersN/A



Item 5. Other InformationN/A



Item 6. Exhibits and Reports on Form 8-K



(a) Exhibits required by Item 601 of Regulation S-K



|        |  |                                                                       
|------- |  | ----------------------------------------------------------------------
|Exhibit |  |                                                                       
|31.1    |  | Rule 13a-14(a)/15d-14(a) Certifications of the Chief Executive Officer
|31.2    |  | Rule 13a-14(a)/15d-14(a) Certifications of the Chief Financial Officer
|32.1    |  | Rule 13a-14(b) Certifications of the Chief Executive Officer          
|32.2    |  | Rule 13a-14(b) Certifications of the Chief Financial Officer          



(b) Reports on Form
8-K



| | 1. | Form 8-Kwas furnished on October 19, 2004 as Regulation F-D Disclosure in regard to third quarter 2004 earnings.
| | -- | -----------------------------------------------------------------------------------------------------------------

| | 2. | Form 8-Kwas furnished on September 28, 2004 as Regulation F-D Disclosure in regard to BancGroups acquisition of Union Bank of Florida.
| | -- | ----------------------------------------------------------------------------------------------------------------------------------------



| | 3. | Form 8-Kwas furnished on September 1, 2004 as Regulation F-D Disclosure in regard to the resignation of the Companys Chief Operations Officer effective August 30, 2004.
| | -- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 4. | Form 8-Kwas furnished on July 19, 2004 as Regulation F-D Disclosure in regard to second quarter 2004 earnings.
| | -- | ---------------------------------------------------------------------------------------------------------------



34



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##### Table of Contents

SIGNATURE



Pursuant to the
requirements of Section 13 or 15(d) 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.



|                       |  |  |  |                              |  |                  |  |                                          
|---------------------- |  |  |  | ---------------------------- |  | ---------------- |  | -----------------------------------------
|                       |  |  |  | THE COLONIAL BANCGROUP, INC.
|                       |  |  | 
|Date: November 4, 2004 |  |  |  | By:                          |  | /S/ SHEILA MOODY
|                       |  |  |  |                              |  |                  |  | Sheila Moody Its Chief Accounting Officer



35