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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2008
|- | -------------------------------------------------------------------------------------------------------------------------------------

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
             TO             .
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------

COMMISSION FILE NUMBER: 1-13508





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. Employer Identification No.)



|                                         |  |           
|---------------------------------------- |  | ----------
|100 Colonial Bank Blvd. Montgomery, AL   |  | 36117     
|(Address of principal executive offices) |  | (Zip Code)

(334) 676-5000

(Registrants telephone number, including area code)

None

(Former name, former address and former fiscal year, if changed since last report)





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 a large accelerated filer, an accelerated filer, or a
non-accelerated filer. See definition of accelerated filer and large accelerated filer: in Rule 12b-2 of the Exchange Act. (Check One):

Large accelerated filer  x             Accelerated filer   ̈
            Non-accelerated filer   ̈

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

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 April 30, 2008
|Common Stock, $2.50 Par Value |  | 201,831,202                  









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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

INDEX



|                              |  |                                                                                                      |  |           
|----------------------------- |  | ---------------------------------------------------------------------------------------------------- |  | ----------
|                              |  |                                                                                                      |  | PageNumber
|PART I. FINANCIAL INFORMATION |  |                                                                                                     
|Item 1.                       |  | Financial Statements (Unaudited)                                                                     |  | 4         
|                              |  | Consolidated Statements of ConditionMarch 31, 2008 and December 31, 2007                            |  | 4         
|                              |  | Consolidated Statements of IncomeThree months ended March 31, 2008 and March 31, 2007               |  | 5         
|                              |  | Consolidated Statements of Comprehensive IncomeThree months ended March 31, 2008 and March 31, 2007 |  | 6         
|                              |  | Consolidated Statement of Changes in Shareholders EquityThree months ended March 31, 2008          |  | 7         
|                              |  | Consolidated Statements of Cash FlowsThree months ended March 31, 2008 and March 31, 2007           |  | 8         
|                              |  | Notes to the Unaudited Consolidated Financial StatementsMarch 31, 2008                              |  | 9         
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 23        
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                           |  | 47        
|Item 4.                       |  | Controls and Procedures                                                                              |  | 47        
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                     
|Item 1.                       |  | Legal Proceedings                                                                                    |  | 48        
|Item 1A.                      |  | Risk Factors                                                                                         |  | 48        
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                          |  | 49        
|Item 3.                       |  | Defaults Upon Senior Securities                                                                      |  | 49        
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                  |  | 49        
|Item 5.                       |  | Other Information                                                                                    |  | 49        
|Item 6.                       |  | Exhibits                                                                                             |  | 50        
|SIGNATURE                     |  | 51                                                                                                  



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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:

FORWARD-LOOKING STATEMENTS

This report and the information incorporated by reference contain forward-looking statements within the meaning of the
federal securities laws. Words such as believes, estimates, plans, expects, should, may, might, outlook, potential and
anticipates, the negative of these terms and similar expressions as they relate to BancGroup (including its subsidiaries and its management), are intended to identify forward-looking statements. 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.

In addition to factors mentioned elsewhere in this report or previously disclosed in BancGroups Securities and Exchange Commission (the SEC) reports (accessible on the SECs website at
www.sec.gov or on BancGroups website at www.colonialbank.com), the following factors, among others, could cause actual results to differ materially from forward-looking statements, and future results could differ materially from historical
performance. These factors are not exclusive:



| |  |  | losses in our loan portfolio are greater than estimated or expected;
| | - |  | --------------------------------------------------------------------



| |  |  | an inability to raise additional capital on terms and conditions that are satisfactory;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | the impact of current economic conditions on our ability to borrow additional funds to meet our liquidity needs;
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | 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;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in the interest rate environment which expand or reduce margins or adversely affect critical estimates as applied and projected returns on investments;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | deposit attrition, customer loss or revenue loss in the ordinary course of business;
| | - |  | ------------------------------------------------------------------------------------



| |  |  | increases in competitive pressure in the banking industry and from non-banks;
| | - |  | -----------------------------------------------------------------------------



| |  |  | costs or difficulties related to the integration of Bancgroups businesses and institutions it acquires are greater than expected;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Bancgroups inability to realize elements of its strategic plans for 2008 and beyond;
| | - |  | -------------------------------------------------------------------------------------



| |  |  | natural disasters in BancGroups primary market areas result in prolonged business disruption or materially impair the value of collateral securing loans;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | managements assumptions and estimates underlying critical accounting policies prove to be inadequate or materially incorrect or are not borne out by
subsequent events;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the impact of recent and future federal and state regulatory changes;
| | - |  | ---------------------------------------------------------------------



| |  |  | current or future litigation, regulatory investigations, proceedings or inquiries;
| | - |  | ----------------------------------------------------------------------------------



| |  |  | strategies to manage interest rate risk may yield results other than those anticipated;
| | - |  | ---------------------------------------------------------------------------------------



| |  |  | changes which may occur in the regulatory environment;
| | - |  | ------------------------------------------------------



| |  |  | a significant rate of inflation (deflation);
| | - |  | --------------------------------------------



| |  |  | unanticipated litigation or claims;
| | - |  | -----------------------------------



| |  |  | acts of terrorism or war; and
| | - |  | -----------------------------



| |  |  | changes in the securities markets.
| | - |  | ----------------------------------

Many of these factors are beyond BancGroups control. The reader is cautioned not to place undue reliance on any forward looking statements made by or on behalf of BancGroup. Any such statement speaks only as of the date the
statement was made or as of such date that may be referenced within the statement. BancGroup does not undertake any obligation to update or revise any forward-looking statements.



3



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##### Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CONDITION

(Unaudited)



|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                                                                                                                                                                                 |  | March 31,2008                       |            |   | December 31,2007 |  
|                                                                                                                                                                                                                 |  | (In thousands, except shareamounts) |           
|ASSETS                                                                                                                                                                                                           |  |                                     |            |   |                  |   |            |  
|Cash and due from banks                                                                                                                                                                                          |  | $                                   | 400,880    |   |                  | $ | 474,948    |  
|Interest bearing deposits in banks                                                                                                                                                                               |  |                                     | 1,375      |   |                  |   | 28,993     |  
|Federal funds sold                                                                                                                                                                                               |  |                                     | 9,821      |   |                  |   | 71,167     |  
|Securities purchased under agreements to resell                                                                                                                                                                  |  |                                     | 2,106,205  |   |                  |   | 2,049,664  |  
|Securities available for sale                                                                                                                                                                                    |  |                                     | 3,493,454  |   |                  |   | 3,681,282  |  
|Held to maturity securities (fair value: 2008, $1,360; 2007, $1,361)                                                                                                                                             |  |                                     | 1,200      |   |                  |   | 1,228      |  
|Loans held for sale                                                                                                                                                                                              |  |                                     | 2,951,777  |   |                  |   | 1,544,222  |  
|Total loans, net of unearned income:                                                                                                                                                                             |  |                                     | 16,094,478 |   |                  |   | 15,923,178 |  
|Less: Allowance for loan losses                                                                                                                                                                                  |  |                                     | (240,795   | ) |                  |   | (238,845   | )
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|Loans, net                                                                                                                                                                                                       |  |                                     | 15,853,683 |   |                  |   | 15,684,333 |  
|Premises and equipment, net                                                                                                                                                                                      |  |                                     | 509,164    |   |                  |   | 500,558    |  
|Goodwill                                                                                                                                                                                                         |  |                                     | 1,005,211  |   |                  |   | 1,008,168  |  
|Other intangible assets, net                                                                                                                                                                                     |  |                                     | 59,274     |   |                  |   | 63,437     |  
|Other real estate owned                                                                                                                                                                                          |  |                                     | 19,717     |   |                  |   | 15,760     |  
|Bank-owned life insurance                                                                                                                                                                                        |  |                                     | 480,722    |   |                  |   | 475,593    |  
|Accrued interest and other assets                                                                                                                                                                                |  |                                     | 460,264    |   |                  |   | 376,636    |  
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|Total                                                                                                                                                                                                            |  | $                                   | 27,352,747 |   |                  | $ | 25,975,989 |  
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                                                             |  |                                     |            |   |                  |   |            |  
|Deposits:                                                                                                                                                                                                        |  |                                     |            |   |                  |   |            |  
|Noninterest bearing transaction accounts                                                                                                                                                                         |  | $                                   | 3,050,729  |   |                  | $ | 2,988,457  |  
|Interest bearing transaction accounts                                                                                                                                                                            |  |                                     | 6,526,822  |   |                  |   | 6,783,116  |  
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|Total transaction accounts                                                                                                                                                                                       |  |                                     | 9,577,551  |   |                  |   | 9,771,573  |  
|Time deposits                                                                                                                                                                                                    |  |                                     | 7,828,384  |   |                  |   | 7,317,108  |  
|Brokered time deposits                                                                                                                                                                                           |  |                                     | 1,865,393  |   |                  |   | 1,455,586  |  
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|Total deposits                                                                                                                                                                                                   |  |                                     | 19,271,328 |   |                  |   | 18,544,267 |  
|Repurchase agreements                                                                                                                                                                                            |  |                                     | 540,589    |   |                  |   | 568,721    |  
|Federal funds purchased                                                                                                                                                                                          |  |                                     | 639,000    |   |                  |   |           |  
|Subordinated debt                                                                                                                                                                                                |  |                                     | 632,346    |   |                  |   | 386,434    |  
|Junior subordinated debt                                                                                                                                                                                         |  |                                     | 108,248    |   |                  |   | 108,256    |  
|Other long-term debt                                                                                                                                                                                             |  |                                     | 3,429,345  |   |                  |   | 3,529,146  |  
|Accrued expenses and other liabilities                                                                                                                                                                           |  |                                     | 266,816    |   |                  |   | 272,536    |  
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|Total liabilities                                                                                                                                                                                                |  |                                     | 24,887,672 |   |                  |   | 23,409,360 |  
|                                                                                                                                                                                                                 |  |                                    
|Minority interest/REIT preferred securities                                                                                                                                                                      |  |                                     | 293,058    |   |                  |   | 293,058    |  
|                                                                                                                                                                                                                 |  |                                    
|Contingencies and commitments (Note 8)                                                                                                                                                                           |  |                                     |            |   |                  |   |            |  
|Preferred stock, $2.50 par value; 50,000,000 shares authorized and none issued at both March 31, 2008 and December 31,
2007                                                                                      |  |                                     |           |   |                  |   |           |  
|Preference stock, $2.50 par value; 1,000,000 shares authorized and none issued at both March 31, 2008 and December 31,
2007                                                                                      |  |                                     |           |   |                  |   |           |  
|Common stock, $2.50 par value; 400,000,000 shares authorized; 168,063,887 and 167,407,169 shares issued and 158,097,161 and 157,440,442 shares
outstanding at March 31, 2008 and December 31, 2007, respectively |  |                                     | 420,160    |   |                  |   | 418,518    |  
|Additional paid in capital                                                                                                                                                                                       |  |                                     | 1,005,651  |   |                  |   | 1,004,888  |  
|Retained earnings                                                                                                                                                                                                |  |                                     | 1,089,011  |   |                  |   | 1,094,916  |  
|Treasury stock, at cost (9,966,727 shares at March 31, 2008 and December 31, 2007)                                                                                                                               |  |                                     | (240,336   | ) |                  |   | (240,336   | )
|Accumulated other comprehensive loss, net of taxes                                                                                                                                                               |  |                                     | (102,469   | ) |                  |   | (4,415     | )
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|Total shareholders equity                                                                                                                                                                                       |  |                                     | 2,172,017  |   |                  |   | 2,273,571  |  
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  
|Total                                                                                                                                                                                                            |  | $                                   | 27,352,747 |   |                  | $ | 25,975,989 |  
|                                                                                                                                                                                                                 |  |                                     |            |   |                  |   |            |  

See Notes to the Unaudited Consolidated Financial Statements



4



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                                                |  |                                          |         |      |   |         |  
|--------------------------------------------------------------- |  | ---------------------------------------- | ------- | ---- | - | ------- | -
|                                                                |  | Three Months Ended March 31,             |        
|                                                                |  | 2008                                     |         | 2007 |  
|                                                                |  | (In thousands, except per share amounts) |        
|Interest Income:                                                |  |                                          |         |      |   |         |  
|Interest and fees on loans                                      |  | $                                        | 301,640 |      | $ | 315,309 |  
|Interest and dividends on securities                            |  |                                          | 52,646  |      |   | 42,435  |  
|Interest on federal funds sold and other short-term investments |  |                                          | 29,251  |      |   | 19,136  |  
|                                                                |  |                                          |         |      |   |         |  
|Total interest income                                           |  |                                          | 383,537 |      |   | 376,880 |  
|                                                                |  |                                          |         |      |   |         |  
|Interest Expense:                                               |  |                                          |         |      |   |         |  
|Interest on deposits                                            |  |                                          | 137,506 |      |   | 133,085 |  
|Interest on short-term borrowings                               |  |                                          | 15,297  |      |   | 23,832  |  
|Interest on long-term debt                                      |  |                                          | 49,110  |      |   | 40,018  |  
|                                                                |  |                                          |         |      |   |         |  
|Total interest expense                                          |  |                                          | 201,913 |      |   | 196,935 |  
|                                                                |  |                                          |         |      |   |         |  
|Net Interest Income                                             |  |                                          | 181,624 |      |   | 179,945 |  
|Provision for loan losses                                       |  |                                          | 35,543  |      |   | 2,250   |  
|                                                                |  |                                          |         |      |   |         |  
|Net Interest Income After Provision for Loan Losses             |  |                                          | 146,081 |      |   | 177,695 |  
|                                                                |  |                                          |         |      |   |         |  
|Noninterest Income:                                             |  |                                          |         |      |   |         |  
|Service charges on deposit accounts                             |  |                                          | 19,228  |      |   | 17,679  |  
|Electronic banking                                              |  |                                          | 5,004   |      |   | 4,401   |  
|Other retail banking fees                                       |  |                                          | 2,548   |      |   | 3,612   |  
|                                                                |  |                                          |         |      |   |         |  
|Retail banking fees                                             |  |                                          | 26,780  |      |   | 25,692  |  
|Financial planning services                                     |  |                                          | 4,812   |      |   | 3,822   |  
|Mortgage banking origination and sales                          |  |                                          | 6,760   |      |   | 3,187   |  
|Mortgage warehouse fees                                         |  |                                          | 995     |      |   | 6,955   |  
|Bank-owned life insurance                                       |  |                                          | 5,120   |      |   | 4,955   |  
|Securities gains, net                                           |  |                                          | 6,075   |      |   | 981     |  
|Securities restructuring losses                                 |  |                                          |        |      |   | (36,006 | )
|Gain on sale of mortgage loans                                  |  |                                          |        |      |   | 3,850   |  
|Other income                                                    |  |                                          | 7,205   |      |   | 1,783   |  
|                                                                |  |                                          |         |      |   |         |  
|Total noninterest income                                        |  |                                          | 57,747  |      |   | 15,219  |  
|                                                                |  |                                          |         |      |   |         |  
|Noninterest Expense:                                            |  |                                          |         |      |   |         |  
|Salaries and employee benefits                                  |  |                                          | 73,667  |      |   | 69,554  |  
|Occupancy expense of bank premises, net                         |  |                                          | 23,055  |      |   | 18,505  |  
|Furniture and equipment expenses                                |  |                                          | 14,703  |      |   | 13,122  |  
|Professional services                                           |  |                                          | 5,638   |      |   | 4,100   |  
|FDIC insurance and other regulatory fees                        |  |                                          | 4,562   |      |   | 1,213   |  
|Electronic banking and other retail banking expenses            |  |                                          | 4,157   |      |   | 4,212   |  
|Amortization of intangible assets                               |  |                                          | 4,163   |      |   | 3,051   |  
|Communications                                                  |  |                                          | 2,819   |      |   | 2,991   |  
|Loss on equity investments                                      |  |                                          | 2,747   |      |   | 255     |  
|Loan and real estate related costs                              |  |                                          | 2,649   |      |   | 338     |  
|Postage and Courier                                             |  |                                          | 2,622   |      |   | 2,639   |  
|Advertising                                                     |  |                                          | 2,603   |      |   | 2,215   |  
|Travel                                                          |  |                                          | 1,439   |      |   | 1,739   |  
|Severance expense                                               |  |                                          | 236     |      |   | 3,025   |  
|Merger related expenses                                         |  |                                          |        |      |   | 429     |  
|Net losses related to the early extinguishment of debt          |  |                                          | 5,932   |      |   | 4,396   |  
|Other expenses                                                  |  |                                          | 12,986  |      |   | 6,357   |  
|                                                                |  |                                          |         |      |   |         |  
|Total noninterest expense                                       |  |                                          | 163,978 |      |   | 138,141 |  
|Minority interest expense/REIT preferred dividends              |  |                                          | 5,336   |      |   |        |  
|                                                                |  |                                          |         |      |   |         |  
|Income before income taxes                                      |  |                                          | 34,514  |      |   | 54,773  |  
|Applicable income taxes                                         |  |                                          | 9,717   |      |   | 18,294  |  
|                                                                |  |                                          |         |      |   |         |  
|Net Income                                                      |  | $                                        | 24,797  |      | $ | 36,479  |  
|                                                                |  |                                          |         |      |   |         |  
|Earnings per share:                                             |  |                                          |         |      |   |         |  
|Basic                                                           |  | $                                        | 0.16    |      | $ | 0.24    |  
|Diluted                                                         |  |                                          | 0.16    |      |   | 0.24    |  
|Average number of shares outstanding:                           |  |                                          |         |      |   |         |  
|Basic                                                           |  |                                          | 156,956 |      |   | 152,309 |  
|Diluted                                                         |  |                                          | 157,528 |      |   | 153,450 |  
|Dividends declared per share                                    |  | $                                        | 0.19    |      | $ | 0.1875  |  

See Notes to the Unaudited Consolidated Financial Statements



5



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



|                                                                                                                                                            |  |                             |         |   |      |   |       
|----------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------
|                                                                                                                                                            |  | Three Months EndedMarch 31,
|                                                                                                                                                            |  | 2008                        |         |   | 2007
|                                                                                                                                                            |  | (In thousands)             
|Net income                                                                                                                                                  |  | $                           | 24,797  |   |      | $ | 36,479
|Other comprehensive income, net of taxes:                                                                                                                   |  |                             |         |   |      |   |       
|Available for sale securities:                                                                                                                              |  |                             |         |   |      |   |       
|Unrealized (losses) gains arising during the period, net of income taxes of $64,567 and $(5,276) in 2008 and 2007,
respectively                             |  |                             | (96,001 | ) |      |   | 9,798 
|Less: reclassification adjustment for net (gains) losses included in net income, net of income taxes of $2,437 and $(12,259) in 2008 and 2007,
respectively |  |                             | (3,638  | ) |      |   | 22,766
|Cash flow hedging instruments:                                                                                                                              |  |                             |         |   |      |   |       
|Reclassification adjustment for losses included in net income, net of income taxes of $(853) in 2008 and 2007                                               |  |                             | 1,585   |   |      |   | 1,585 
|                                                                                                                                                            |  |                             |         |   |      |   |       
|Comprehensive (loss) income                                                                                                                                 |  | $                           | (73,257 | ) |      | $ | 70,628
|                                                                                                                                                            |  |                             |         |   |      |   |       

See Notes to the Unaudited Consolidated Financial Statements



6



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited)



|                                                                                                          |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   |           |  
|--------------------------------------------------------------------------------------------------------- |  | --------------------------------------------------- |  | ------------------------ | ------- |  | ------------- | --------- | - | ---------------- | - | -------- | ------------------------------------------ |  | - | ------------------------ | - |  | - | -------- | - |  | - | --------- | -
|                                                                                                          |  | Common Stock                                        |  | AdditionalPaid InCapital |         |  | TreasuryStock |           |   | RetainedEarnings |   |          | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TotalShareholdersEquity |  
|                                                                                                          |  | Shares                                              |  | Amount                   |         |  |               |           |  
|                                                                                                          |  | (In thousands, except shares and per share amounts) | 
|Balance, December 31, 2007                                                                                |  | 157,440,442                                         |  | $                        | 418,518 |  | $             | 1,004,888 |   |                  | $ | (240,336 | )                                          |  | $ | 1,094,916                |   |  | $ | (4,415   | ) |  | $ | 2,273,571 |  
|Adoption of EITF 06-4 and 06-10                                                                           |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   | (671                     | ) |  |   |          |   |  |   | (671      | )
|Shares issued under:                                                                                      |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   |           |  
|Directors plan                                                                                            |  | 12,339                                              |  |                          | 31      |  |               | 286       |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   | 317       |  
|Stock option plans                                                                                        |  | 50,700                                              |  |                          | 127     |  |               | 489       |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   | 616       |  
|Restricted stock plan, net                                                                                |  | 577,091                                             |  |                          | 1,443   |  |               | (1,443    | ) |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   |          |  
|Employee stock purchase plan                                                                              |  | 16,589                                              |  |                          | 41      |  |               | 174       |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   | 215       |  
|Tax benefit shortfall from stock based compensation                                                       |  |                                                     |  |                          |         |  |               | (31       | ) |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   | (31       | )
|Stock-based compensation expense                                                                          |  |                                                     |  |                          |         |  |               | 1,288     |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   | 1,288     |  
|Net income                                                                                                |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   | 24,797                   |   |  |   |          |   |  |   | 24,797    |  
|Cash dividends ($0.19 per share)                                                                          |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   | (30,031                  | ) |  |   |          |   |  |   | (30,031   | )
|Change in unrealized loss on securities available for sale, net of taxes and reclassification adjustments |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   |                          |   |  |   | (99,639  | ) |  |   | (99,639   | )
|Reclassification of cash flow hedging losses, net of taxes                                                |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   |                          |   |  |   | 1,585    |   |  |   | 1,585     |  
|                                                                                                          |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   |           |  
|Balance, March 31, 2008                                                                                   |  | 158,097,161                                         |  | $                        | 420,160 |  | $             | 1,005,651 |   |                  | $ | (240,336 | )                                          |  | $ | 1,089,011                |   |  | $ | (102,469 | ) |  | $ | 2,172,017 |  
|                                                                                                          |  |                                                     |  |                          |         |  |               |           |   |                  |   |          |                                            |  |   |                          |   |  |   |          |   |  |   |           |  

See Notes to the Unaudited Consolidated Financial Statements



7



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                                                                          |  |                             |            |   |      |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | - | ---- | - | -------- | -
|                                                                                                          |  | Three Months EndedMarch 31, |           
|                                                                                                          |  | 2008                        |            |   | 2007 |  
|                                                                                                          |  | (In thousands)              |           
|Cash flows from operating activities:                                                                     |  |                             |            |   |      |   |          |  
|Net income                                                                                                |  | $                           | 24,797     |   |      | $ | 36,479   |  
|Adjustments to reconcile net income to net cash from operating activities:                                |  |                             |            |   |      |   |          |  
|Depreciation, amortization and accretion                                                                  |  |                             | 14,626     |   |      |   | 9,785    |  
|Provision for loan losses                                                                                 |  |                             | 35,543     |   |      |   | 2,250    |  
|Deferred taxes                                                                                            |  |                             | 506        |   |      |   | (11,520  | )
|Securities gains, net                                                                                     |  |                             | (6,075     | ) |      |   | (981     | )
|Securities restructuring losses                                                                           |  |                             |           |   |      |   | 36,006   |  
|Gain on sale of mortgage loans                                                                            |  |                             |           |   |      |   | (3,850   | )
|(Gain) loss on sale of other assets                                                                       |  |                             | (3,099     | ) |      |   | 86       |  
|Net (increase) decrease in loans held for sale                                                            |  |                             | (1,407,555 | ) |      |   | 360,002  |  
|Decrease in interest and other receivables                                                                |  |                             | 11,646     |   |      |   | 213      |  
|Decrease (increase) in prepaids                                                                           |  |                             | 4,821      |   |      |   | (7,143   | )
|Increase in other assets                                                                                  |  |                             | (12,403    | ) |      |   | (4,845   | )
|Increase in accrued expenses & accounts payable                                                           |  |                             | 2,991      |   |      |   | 9,831    |  
|(Decrease) increase in accrued income taxes                                                               |  |                             | (8,086     | ) |      |   | 17,234   |  
|Increase in interest payable                                                                              |  |                             | 4,859      |   |      |   | 8,283    |  
|Excess tax benefit from stock based compensation                                                          |  |                             | (17        | ) |      |   | (237     | )
|Other, net                                                                                                |  |                             | (1,050     | ) |      |   | (2,102   | )
|                                                                                                          |  |                             |            |   |      |   |          |  
|Total adjustments                                                                                         |  |                             | (1,363,293 | ) |      |   | 413,012  |  
|                                                                                                          |  |                             |            |   |      |   |          |  
|Net cash from operating activities                                                                        |  |                             | (1,338,496 | ) |      |   | 449,491  |  
|                                                                                                          |  |                             |            |   |      |   |          |  
|Cash flows from investing activities:                                                                     |  |                             |            |   |      |   |          |  
|Proceeds from maturities and calls of securities available for sale                                       |  |                             | 26,289     |   |      |   | 49,492   |  
|Proceeds from sales of securities available for sale                                                      |  |                             | 227,491    |   |      |   | 163,829  |  
|Purchases of securities available for sale                                                                |  |                             | (225,955   | ) |      |   | (420,583 | )
|Proceeds from maturities of held to maturity securities                                                   |  |                             | 28         |   |      |   | 304      |  
|Increase in securities purchased under agreements to resell                                               |  |                             | (56,541    | ) |      |   | (721,673 | )
|Net (increase) decrease in loans excluding proceeds from sale of mortgage loans                           |  |                             | (210,572   | ) |      |   | 68,562   |  
|Proceeds from sale of mortgage loans                                                                      |  |                             |           |   |      |   | 493,101  |  
|Capital expenditures                                                                                      |  |                             | (24,180    | ) |      |   | (31,569  | )
|Proceeds from bank owned life insurance                                                                   |  |                             |           |   |      |   | 319      |  
|Proceeds from sale of other assets                                                                        |  |                             | 5,784      |   |      |   | 2,887    |  
|Net (contributions to) return of investment in affiliates                                                 |  |                             | (7,726     | ) |      |   | 558      |  
|                                                                                                          |  |                             |            |   |      |   |          |  
|Net cash from investing activities                                                                        |  |                             | (265,382   | ) |      |   | (394,773 | )
|                                                                                                          |  |                             |            |   |      |   |          |  
|Cash flows from financing activities:                                                                     |  |                             |            |   |      |   |          |  
|Net increase in demand, savings and time deposits                                                         |  |                             | 726,938    |   |      |   | 291,054  |  
|Net increase (decrease) in federal funds purchased, repurchase agreements and other short-term borrowings |  |                             | 610,868    |   |      |   | (685,891 | )
|Proceeds from issuance of long-term debt, net                                                             |  |                             | 242,273    |   |      |   | 600,000  |  
|Repayment of long-term debt                                                                               |  |                             | (110,050   | ) |      |   | (72,279  | )
|Purchase of common stock                                                                                  |  |                             |           |   |      |   | (7,490   | )
|Proceeds from issuance of common stock                                                                    |  |                             | 831        |   |      |   | 2,985    |  
|Excess tax benefit from stock-based compensation                                                          |  |                             | 17         |   |      |   | 237      |  
|Dividends paid                                                                                            |  |                             | (30,031    | ) |      |   | (28,678  | )
|                                                                                                          |  |                             |            |   |      |   |          |  
|Net cash from financing activities                                                                        |  |                             | 1,440,846  |   |      |   | 99,938   |  
|                                                                                                          |  |                             |            |   |      |   |          |  
|Net (decrease) increase in cash and cash equivalents                                                      |  |                             | (163,032   | ) |      |   | 154,656  |  
|Cash and cash equivalents at the beginning of the year                                                    |  |                             | 575,108    |   |      |   | 442,682  |  
|                                                                                                          |  |                             |            |   |      |   |          |  
|Cash and cash equivalents at March 31                                                                     |  | $                           | 412,076    |   |      | $ | 597,338  |  
|                                                                                                          |  |                             |            |   |      |   |          |  

See Notes to the Unaudited Consolidated Financial Statements



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Accounting Policies and Basis of Presentation

The accounting and reporting policies of The Colonial BancGroup, Inc. and its subsidiaries (referred to herein as BancGroup, Colonial, or the Company) are detailed in the Companys 2007 Annual Report on Form
10-K. As discussed more fully below, effective January 1, 2008 Colonial changed certain of those policies as a result of the adoption of new accounting standards. These unaudited interim financial statements should be read in conjunction with
the audited financial statements and footnotes included in BancGroups 2007 Annual Report on Form 10-K.

In the opinion of
BancGroups management, the accompanying unaudited consolidated financial statements contain all adjustments (consisting only of normal recurring accruals) necessary to present fairly BancGroups financial position as of March 31,
2008 and December 31, 2007 and the results of operations and cash flows for the interim periods ended March 31, 2008 and 2007. All 2008 interim amounts have not been audited, 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.

During the first quarter of 2008, inadvertent errors
relating to prior year financial statements, principally relating to the accounting for derivatives and the carrying value of loans held for sale, were identified. The effect of these errors, individually and in the aggregate, is not material to any
previously issued financial statements and is not expected to be material to our expected results of operations, financial position or cash flows for fiscal 2008. As a result, no adjustments to prior period amounts have been made. Adjustments for
the quarter ended March 31, 2008 were recorded that reduced net income by $4.0 million ($6.6 million pretax) and earnings per share by $0.02, representing the cumulative effect of these errors on prior periods.

Certain reclassifications were made to prior periods in order to conform to the current period presentation.

Fair Value Measurements

Effective
January 1, 2008, the Company adopted Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value, and expands disclosures about assets and
liabilities measured at fair value. The definition of fair value in SFAS 157 retains the notion of exchange price; however, it focuses on the price that would be received to sell the asset or paid to transfer the liability (an exit price), rather
than the price that would be paid to acquire the asset or received to assume the liability (an entry price). Under the Statement, a fair value measure should reflect all of the assumptions that market participants would use in pricing the asset or
liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance. To increase consistency and comparability in fair value
measures, SFAS 157 establishes a three-level fair value hierarchy to prioritize the inputs used in valuation techniques between observable inputs that reflect quoted prices in active markets (Level 1), inputs other than quoted prices that are
directly or indirectly observable for the asset or liability (Level 2) and unobservable data (Level 3). The Statement does not expand the use of fair value accounting in any new circumstances.

On February 12, 2008, the Financial Accounting Standards Board (FASB) issued FASB Staff Position (FSP) SFAS 157-2, Effective Date of FASB
Statement No. 157. This FSP permits delayed application of the provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to
fiscal years beginning after November 15, 2008.

The Company has elected to delay application of the provisions of SFAS 157 to
nonfinancial assets and liabilities under FSP SFAS 157-2. The major categories of assets and liabilities that are recognized or disclosed at fair value for which the provisions of SFAS 157 have not been applied include reporting units measured at
fair



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value in the first step of a goodwill impairment test under SFAS 142, Goodwill And Other Intangible Assets, and nonfinancial long-lived assets
measured at fair value for an impairment assessment under SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

The Companys adoption of SFAS 157 did not have an impact on BancGroups financial statements.

See Note 4, Fair
Value Measurements, for disclosures related to fair value measurements.

Loans Held for Sale

Loans held for sale include originated loans and acquired short-term participations in mortgage loans. Prior to January 1, 2008, loans held for sale
were carried at the lower of aggregate cost or market. As a result of adopting SFAS 157 on January 1, 2008, loans held for sale are now carried at the lower of aggregate cost or fair value. This change did not have a material impact on the
Companys financial statements.

Other Accounting Standards

The following is a list of other accounting standards which became effective as of January 1, 2008 but did not have a material impact on BancGroup
and did not change the accounting and reporting policies detailed in the Companys 2007 Annual Report on Form 10-K:



| |  |  | SFAS 159, The Fair Value Option for Financial Assets and Financial LiabilitiesSFAS 159 permits companies to elect to measure certain eligible items at
fair value. Subsequent unrealized gains and losses on those items will be reported in earnings. Upfront costs and fees related to those items will be reported in earnings as incurred and not deferred. As the Company did not elect to apply SFAS 159
to any of its existing eligible items as of January 1, 2008, the adoption of SFAS 159 did not have an impact on BancGroups financial statements. The Company may elect to apply SFAS 159 to certain newly recognized eligible items in the
future.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | FSP FIN 39-1, Amendment of FASB Interpretation No. 39FSP FIN 39-1 amends Interpretation No. 39 to permit a reporting entity to offset the
right to reclaim cash collateral (a receivable), or the obligation to return cash collateral (a payable), against derivative instruments executed with the same counterparty under the same master netting arrangement. The adoption of FSP FIN 39-1 did
not have a material impact on BancGroups financial statements.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Emerging Issues Task Force (EITF) 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance
ArrangementsEITF 06-4 stipulates that an agreement by the employer to share a portion of the proceeds of a life insurance policy with the employee during the postretirement period is a postretirement benefit arrangement for which a
liability must be recorded. As a result of adopting EITF 06-4 on January 1, 2008, BancGroup recognized an increase of $539,000 to the balance of other liabilities and a corresponding decrease to beginning retained earnings.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | EITF 06-10, Accounting for Collateral Assignment Split-Dollar Life Insurance ArrangementsEITF 06-10 stipulates that a liability should be recognized
for a postretirement benefit obligation associated with a collateral assignment arrangement if, on the basis of the substantive agreement with the employee, the employer has agreed to maintain a life insurance policy during the postretirement period
or provide a death benefit. The employer also must recognize and measure the associated asset on the basis of the terms of the collateral assignment arrangement. As a result of adopting EITF 06-10 on January 1, 2008, BancGroup recognized an
increase of $257,000 to the balance of other liabilities, an increase of $125,000 to the balance of other assets and a decrease of $132,000 to beginning retained earnings.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Statement 133 Implementation Issue E23, HedgingGeneral: Issues Involving the Application of the Shortcut Method under Paragraph 68Issue E23
amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities, to explicitly permit use of the shortcut method for hedging
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| | relationships in which: the interest rate swaps have a nonzero fair value at the inception of the hedging relationship, provided that this value is
attributable solely to a bid-ask spread; the settlement date of the hedged item is after the swap trade date, provided that these dates differ because of generally established conventions in the marketplace in which the transaction is executed. The
adoption of Issue E23 did not have an impact on BancGroups financial statements.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | SEC Staff Accounting Bulletin (SAB) No. 109, Written Loan Commitments Recorded at Fair Value Through EarningsSAB 109 requires that the expected
net future cash flows related to servicing of a loan be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The adoption of SAB 109 did not have a material impact on BancGroups
financial statements.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Note 2: Recent Accounting Standards

In December 2007, the FASB issued SFAS 141(R), Business Combinations,which is a revision of SFAS 141, Business Combinations. SFAS 141(R)
establishes principles and requirements for how an acquirer in a business combination: recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed and any noncontrolling interest in the acquiree;
recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase; and discloses information to enable users of the financial statements to evaluate the nature and financial effects of the business
combination. This Statement is effective for fiscal years beginning after December 15, 2008, and is to be applied prospectively. The Company is currently assessing the potential impact SFAS 141(R) will have on the financial statements.

In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements. SFAS 160 amends ARB 51,
Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. This Statement clarifies that a noncontrolling interest in a
subsidiary is an ownership interest in the consolidated entity that should be clearly reported as equity in the consolidated financial statements. Additionally, SFAS 160 requires that the amount of consolidated net income attributable to the parent
and to the noncontrolling interest be clearly identified and presented on the face of the consolidated statement of income. The provisions of this Statement are effective for fiscal years beginning on or after December 15, 2008, and earlier
application is prohibited. Prospective application of this Statement is required, except for the presentation and disclosure requirements which must be applied restrospectively. The Company is currently assessing the potential impact SFAS 160 will
have on the financial statements.

In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging
Activities. SFAS 161 amends SFAS 133, Accounting for Derivative Instruments and Hedging Activities,by requiring expanded disclosures about an entitys derivative instruments and hedging activities, but does not change SFAS
133s scope or accounting.This Statement requires enhanced disclosures about how and why an entity uses derivative instruments, how derivative instruments and related hedged items are accounted for under SFAS 133 and its related
interpretations, and how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows. To meet those objectives, this Statement requires qualitative disclosures about objectives and
strategies for using derivatives, quantitative disclosures in a tabular format about fair value amounts of and gains and losses on derivative instruments including specific disclosures regarding the location and amounts of derivative instruments in
the financial statements, and disclosures about credit-risk-related contingent features in derivative agreements. SFAS 161 also amends SFAS 107, Disclosures about Fair Value of Financial Instruments, to clarify that derivative instruments are
subject to the SFAS 107 concentration of credit-risk disclosures. The provisions of this Statement are effective for fiscal years beginning after November 15, 2008, and earlier application is permitted.



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Note 3: Supplemental Disclosure of Cash Flow Information



|                                             |  |                             |         |      |   |        
|-------------------------------------------- |  | --------------------------- | ------- | ---- | - | -------
|                                             |  | Three Months EndedMarch 31,
|                                             |  | 2008                        |         | 2007
|                                             |  | (In thousands)             
|Cash paid during the year for:               |  |                             |         |      |   |        
|Interest                                     |  | $                           | 194,926 |      | $ | 183,726
|Income taxes                                 |  |                             | 5,896   |      |   |       
|Non-cash investing and financing activities: |  |                             |         |      |   |        
|Transfer of loans to other real estate       |  | $                           | 11,036  |      | $ | 4,848  
|Assets acquired under capital leases         |  |                             |        |      |   | 2,117  
|Capital leases terminated                    |  |                             |        |      |   | 2,191  

Note 4: Fair Value Measurements

BancGroup adopted the provisions of SFAS 157 on January 1, 2008. In February 2008, the FASB issued an FSP which permits delayed application of the
provisions of SFAS 157 to nonfinancial assets and nonfinancial liabilities that are recognized or disclosed at fair value in the financial statements on a nonrecurring basis to fiscal years beginning after November 15, 2008. Since the Company
has elected to delay application of the provisions of SFAS 157 to nonfinancial assets and liabilities in scope of this FSP, the information disclosed below does not consider the impact that SFAS 157 would have on such nonfinancial assets and
liabilities. The major categories of assets and liabilities that are recognized or disclosed at fair value for which the provisions of SFAS 157 have not been applied include reporting units measured at fair value in the first step of a goodwill
impairment test under SFAS 142 and nonfinancial long-lived assets measured at fair value for an impairment assessment under SFAS 144.

SFAS
157 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. SFAS 157 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes
three levels of inputs that may be used to measure fair value:



|Level 1 | Quoted prices in active markets for identical assets or liabilities.
|------- | --------------------------------------------------------------------



|Level 2 | Directly or indirectly observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices that are observable for the asset or liability (for example, interest rates and yield curves observable at commonly quoted intervals, volatilities, prepayment speeds, loss severities,
credit risks, and default rates); or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Level 3 | Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities would include financial
instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A financial instruments categorization within the valuation hierarchy is based upon the lowest level of input that is
significant to the fair value measurement.



12



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##### Table of Contents

Assets and liabilities measured at fair value on a recurring basis are summarized below:



|                                 |  |                            |           |                                                          |   |                                           |  |                                        |           |  |   |  
|-------------------------------- |  | -------------------------- | --------- | -------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | --------- |  | - | -
|                                 |  |                            |           | Fair value measurements using:                          
|                                 |  | Fair value atMarch 31,2008 |           | Quotedprices inactivemarkets foridenticalassets(Level 1) |   | Significantotherobservableinputs(Level
2) |  | Significantunobservableinputs(Level
3)
|                                 |  | (In thousands)            
|Assets:                          |  |                            |           |                                                          |   |                                           |  |                                        |           |  |   |  
|Securities available for sale(1) |  | $                          | 3,253,480 |                                                          | $ | 2,890                                     |  | $                                      | 3,250,590 |  | $ | 
|Derivative assets                |  |                            | 6,147     |                                                          |   |                                          |  |                                        | 6,147     |  |   | 
|                                 |  |                            |           |                                                          |   |                                           |  |                                        |           |  |   |  
|Total                            |  | $                          | 3,259,627 |                                                          | $ | 2,890                                     |  | $                                      | 3,256,737 |  | $ | 
|                                 |  |                            |           |                                                          |   |                                           |  |                                        |           |  |   |  
|Liabilities:                     |  |                            |           |                                                          |   |                                           |  |                                        |           |  |   |  
|Derivative liabilities           |  | $                          | 10,733    |                                                          | $ |                                          |  | $                                      | 10,733    |  | $ | 



|(1) | Securities available for sale as of March 31, 2008 per the Consolidated Statements of Condition include $240 million in nonmarketable equity securities (Federal Reserve
Bank and Federal Home Loan Bank stock). As these securities are accounted for under the cost method, they are not included in the table above.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The valuation techniques used to measure fair value for the items in the table above are as follows:



| |  |  | Securities available for saleThe fair value of securities available for sale equals quoted market prices, if available. If quoted market prices are not
available, fair value is determined using quoted market prices for similar securities. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange. Level 2 securities include mortgage-backed securities, other
pass-through securities and collateralized mortgage obligations of government sponsored entities (GSEs) and private issuers and obligations of states and political subdivisions.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Derivative assets and liabilitiesFor derivatives traded in over-the-counter markets where quoted market prices are not readily available, fair value is
measured using models that primarily use market observable inputs, such as yield curves and option volatilities. For derivatives arising in the course of BancGroups commercial banking and mortgage origination activities, fair value is based on
changes in market prices of comparable securities traded in the market. Accordingly, these are classified as Level 2.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Certain other assets are measured at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. For
assets measured at fair value on a nonrecurring basis in the first quarter of 2008 that were still held in the balance sheet at quarter end, the following table provides the level of valuation assumptions used to determine each adjustment and the
carrying value of the related individual assets at quarter end.



|                    |  |                                   |           |                                                          |   |                                           |  |                                        |           |  |   |        
|------------------- |  | --------------------------------- | --------- | -------------------------------------------------------- | - | ----------------------------------------- |  | -------------------------------------- | --------- |  | - | -------
|                    |  | Carrying value at March 31, 2008:
|                    |  | Total                             |           | Quotedprices inactivemarkets foridenticalassets(Level 1) |   | Significantotherobservableinputs(Level 2) |  | Significantunobservableinputs(Level 3)
|                    |  | (In thousands)                   
|Loans held for sale |  | $                                 | 2,839,385 |                                                          | $ |                                          |  | $                                      | 2,839,385 |  | $ |       
|Loans               |  |                                   | 136,054   |                                                          |   |                                          |  |                                        | 7,519     |  |   | 128,535



13



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##### Table of Contents

The valuation techniques used to measure fair value for the items in the table above are as follows:



| |  |  | Loans held for saleLoans held for sale are carried at the lower of cost or fair value based on product pools. The fair value of loans held for sale is based
on what secondary markets are currently offering for portfolios with similar characteristics. Therefore, loans held for sale subjected to nonrecurring fair value adjustments are classified as Level 2.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | LoansNonrecurring fair value adjustments to loans reflect full or partial write-downs that are based on the loans observable market price or current
appraised value of the collateral in accordance with SFAS 114, Accounting by Creditors for Impairment of a Loan. Since the market for impaired loans is not active, loans subjected to nonrecurring fair value adjustments based on the
loans observable market price are generally classified as Level 2. Loans subjected to nonrecurring fair value adjustments based on the current appraised value of the collateral may be classified as Level 2 or Level 3 depending on the type of
asset and the inputs to the valuation. When appraisals are used to determine impairment and these appraisals are based on a market approach incorporating a dollar-per-square-foot multiple, the related loans are classified as Level 2. If the
appraisals require significant adjustments to market-based valuation inputs or apply an income approach based on unobservable cash flows to measure fair value, the related loans subjected to nonrecurring fair value adjustments are typically
classified as Level 3 due to the fact that Level 3 inputs are significant to the fair value measurement.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

During the
first quarter of 2008, BancGroup recognized losses related to certain assets that are measured at fair value on a nonrecurring basis (i.e. loans and loans held for sale). Approximately $38 million of losses related to loans were recognized as either
charge-offs or specific allocations of the allowance for loan losses. During the first quarter, the Company also recognized approximately $30 million of losses related to loans held for sale accounted for at the lower of cost or fair value. The
losses on loans held for sale were substantially offset by $28 million of gains on related call options and forward sales commitments that are measured at fair value on a recurring basis.

Note 5: Securities

The composition of the
Companys securities portfolio is reflected in the following table:



|                                                                      |  |                                 |           |                                    |   |          
|--------------------------------------------------------------------- |  | ------------------------------- | --------- | ---------------------------------- | - | ---------
|                                                                      |  | Carrying Value atMarch 31, 2008 |           | Carrying Value atDecember 31, 2007
|                                                                      |  | (In thousands)                 
|Securities available for sale:                                        |  |                                 |           |                                    |   |          
|Mortgage-backed securities and other pass-through securities of GSEs |  | $                               | 648,008   |                                    | $ | 655,636  
|Collateralized mortgage obligations                                   |  |                                 | 2,236,593 |                                    |   | 2,404,914
|Obligations of state and political subdivisions                       |  |                                 | 361,998   |                                    |   | 371,930  
|Federal Reserve and FHLB stock and other                              |  |                                 | 246,855   |                                    |   | 248,802  
|                                                                      |  |                                 |           |                                    |   |          
|Total securities available for sale                                   |  |                                 | 3,493,454 |                                    |   | 3,681,282
|                                                                      |  |                                 |           |                                    |   |          
|Held to maturity securities:                                          |  |                                 |           |                                    |   |          
|U.S. Treasury securities and obligations of GSEs                     |  |                                 | 500       |                                    |   | 500      
|Mortgage-backed securities of GSEs                                   |  |                                 | 458       |                                    |   | 486      
|Collateralized mortgage obligations                                   |  |                                 | 9         |                                    |   | 9        
|Obligations of state and political subdivisions                       |  |                                 | 233       |                                    |   | 233      
|                                                                      |  |                                 |           |                                    |   |          
|Total held to maturity securities                                     |  |                                 | 1,200     |                                    |   | 1,228    
|                                                                      |  |                                 |           |                                    |   |          
|Total securities                                                      |  | $                               | 3,494,654 |                                    | $ | 3,682,510
|                                                                      |  |                                 |           |                                    |   |          

During the first quarter of 2008, the Company sold approximately $217 million in securities and
purchased approximately $219 million in new securities, excluding transactions in Federal Home Loan Bank of Atlanta (FHLB) stock.



14



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##### Table of Contents

The following table reflects gross unrealized losses and fair values of available for sale and held to
maturity securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2008:



|                                                           |  |                     |           |                  |                   |          |             |       |                  |         |  |             |         |                  |  |   |           |  |   |          |  
|---------------------------------------------------------- |  | ------------------- | --------- | ---------------- | ----------------- | -------- | ----------- | ----- | ---------------- | ------- |  | ----------- | ------- | ---------------- |  | - | --------- |  | - | -------- | -
|                                                           |  | Less than 12 months |           |                  | 12 months or more |          |             | Total |                 
|                                                           |  | MarketValue         |           | UnrealizedLosses |                   |          | MarketValue |       | UnrealizedLosses |         |  | MarketValue |         | UnrealizedLosses | 
|                                                           |  | (In thousands)      |          
|Mortgage-backed and other pass-through securities of GSEs |  | $                   | 23,133    |                  | $                 | (204     | )           |       | $                | 12,886  |  | $           | (156    | )                |  | $ | 36,019    |  | $ | (360     | )
|Collateralized mortgage obligations                        |  |                     | 1,151,337 |                  |                   | (133,968 | )           |       |                  | 418,406 |  |             | (59,716 | )                |  |   | 1,569,743 |  |   | (193,684 | )
|Obligations of state and political subdivisions            |  |                     | 208,725   |                  |                   | (2,929   | )           |       |                  |        |  |             |        |                  |  |   | 208,725   |  |   | (2,929   | )
|Other                                                      |  |                     | 999       |                  |                   | (1       | )           |       |                  |        |  |             |        |                  |  |   | 999       |  |   | (1       | )
|                                                           |  |                     |           |                  |                   |          |             |       |                  |         |  |             |         |                  |  |   |           |  |   |          |  
|Subtotal, debt securities                                  |  |                     | 1,384,194 |                  |                   | (137,102 | )           |       |                  | 431,292 |  |             | (59,872 | )                |  |   | 1,815,486 |  |   | (196,974 | )
|Equity securities                                          |  |                     | 2,606     |                  |                   | (2,624   | )           |       |                  |        |  |             |        |                  |  |   | 2,606     |  |   | (2,624   | )
|                                                           |  |                     |           |                  |                   |          |             |       |                  |         |  |             |         |                  |  |   |           |  |   |          |  
|Total temporarily impaired securities                      |  | $                   | 1,386,800 |                  | $                 | (139,726 | )           |       | $                | 431,292 |  | $           | (59,872 | )                |  | $ | 1,818,092 |  | $ | (199,598 | )
|                                                           |  |                     |           |                  |                   |          |             |       |                  |         |  |             |         |                  |  |   |           |  |   |          |  

The debt securities above consist of collateralized mortgage obligations (CMOs) and
mortgage-backed securities of Government Sponsored Entities, AAA-rated private CMOs, obligations of state and political subdivisions and corporate bonds. As of March 31, 2008, there were 166 securities with an unrealized loss relating to
the level of interest rates prevailing in the market. Illiquid capital markets have negatively impacted the Companys highly-rated investment securities portfolio, which do not reflect the portfolios underlying performance. Because of the
creditworthiness of the issuers and because the future direction of interest rates is unknown, the impairments are deemed to be temporary. The severity and duration of such impairments are determined by the level of interest rates as well as the
illiquid capital markets. Additionally, BancGroup has the ability to retain these securities until recovery of unrealized loss or maturity when full repayment would be received.

The following table reflects gross unrealized losses and market values of BancGroups portfolio of securities, aggregated by category and length of
time that individual securities have been in a continuous unrealized loss position, at December 31, 2007.



|                                                           |  |                     |         |                  |                   |         |             |       |                  |         |  |             |         |                  |  |   |           |  |   |         |  
|---------------------------------------------------------- |  | ------------------- | ------- | ---------------- | ----------------- | ------- | ----------- | ----- | ---------------- | ------- |  | ----------- | ------- | ---------------- |  | - | --------- |  | - | ------- | -
|                                                           |  | Less than 12 months |         |                  | 12 months or more |         |             | Total |                 
|                                                           |  | MarketValue         |         | UnrealizedLosses |                   |         | MarketValue |       | UnrealizedLosses |         |  | MarketValue |         | UnrealizedLosses | 
|                                                           |  | (In thousands)      |        
|Mortgage-backed and other pass-through securities of GSEs |  | $                   | 105     |                  | $                 |        |             |       | $                | 44,720  |  | $           | (597    | )                |  | $ | 44,825    |  | $ | (597    | )
|Collateralized mortgage obligations                        |  |                     | 900,225 |                  |                   | (17,757 | )           |       |                  | 584,327 |  |             | (12,190 | )                |  |   | 1,484,552 |  |   | (29,947 | )
|Obligations of state and political subdivisions            |  |                     | 71,518  |                  |                   | (496    | )           |       |                  |        |  |             |        |                  |  |   | 71,518    |  |   | (496    | )
|                                                           |  |                     |         |                  |                   |         |             |       |                  |         |  |             |         |                  |  |   |           |  |   |         |  
|Subtotal, debt securities                                  |  |                     | 971,848 |                  |                   | (18,253 | )           |       |                  | 629,047 |  |             | (12,787 | )                |  |   | 1,600,895 |  |   | (31,040 | )
|Equity securities                                          |  |                     | 3,670   |                  |                   | (1,560  | )           |       |                  |        |  |             |        |                  |  |   | 3,670     |  |   | (1,560  | )
|                                                           |  |                     |         |                  |                   |         |             |       |                  |         |  |             |         |                  |  |   |           |  |   |         |  
|Total temporarily impaired securities                      |  | $                   | 975,518 |                  | $                 | (19,813 | )           |       | $                | 629,047 |  | $           | (12,787 | )                |  | $ | 1,604,565 |  | $ | (32,600 | )
|                                                           |  |                     |         |                  |                   |         |             |       |                  |         |  |             |         |                  |  |   |           |  |   |         |  

The securities above consist of collateralized mortgage obligations (CMOs) and
mortgage-backed and other pass-through securities of Government Sponsored Entities (GSEs), AAA-rated private CMOs, and obligations of state and political subdivisions. As of December 31, 2007, there were 129 securities carried at an
unrealized loss relating to the level of interest rates prevailing in the market. Because of the creditworthiness of the issuers



15



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##### Table of Contents

and because the future direction of interest rates is unknown, the impairments are deemed to be temporary. The severity and duration of such impairments are
determined by the level of interest rates set by the market. Additionally, BancGroup has the ability to retain these securities until recovery of the unrealized loss or maturity when full repayment would be received. There are also no known current
funding needs which would require their liquidation.

Note 6: Loans

A summary of the major categories of loans outstanding is shown in the table below:



|                                       |  |                |            |   |                  |   |            |  
|-------------------------------------- |  | -------------- | ---------- | - | ---------------- | - | ---------- | -
|                                       |  | March 31,2008  |            |   | December 31,2007 |  
|                                       |  | (In thousands) |           
|Commercial, financial and agricultural |  | $              | 1,792,340  |   |                  | $ | 1,506,986  |  
|Commercial real estate                 |  |                | 5,054,001  |   |                  |   | 5,012,773  |  
|Real estate construction               |  |                | 6,179,380  |   |                  |   | 6,296,262  |  
|Residential real estate                |  |                | 2,653,791  |   |                  |   | 2,673,823  |  
|Consumer and other                     |  |                | 434,006    |   |                  |   | 452,642    |  
|                                       |  |                |            |   |                  |   |            |  
|Total loans                            |  |                | 16,113,518 |   |                  |   | 15,942,486 |  
|Less: unearned income                  |  |                | (19,040    | ) |                  |   | (19,308    | )
|                                       |  |                |            |   |                  |   |            |  
|Total loans, net of unearned income    |  | $              | 16,094,478 |   |                  | $ | 15,923,178 |  
|                                       |  |                |            |   |                  |   |            |  

Note 7: Allowance for Loan Losses

An analysis of the allowance for loan losses is as follows:



|                            |  |                                  |         |  
|--------------------------- |  | -------------------------------- | ------- | -
|                            |  | Three Months EndedMarch 31, 2008 |        
|                            |  | (In thousands)                   |        
|Balance, January 1          |  | $                                | 238,845 |  
|Provision charged to income |  |                                  | 35,543  |  
|Loans charged off           |  |                                  | (35,090 | )
|Recoveries                  |  |                                  | 1,497   |  
|                            |  |                                  |         |  
|Balance, March 31           |  | $                                | 240,795 |  
|                            |  |                                  |         |  

Note 8: Commitments and Contingent Liabilities

Guarantees

Standby letters of credit are
contingent commitments issued by Colonial Bank, N.A. (Colonial Bank or the Bank) generally to guarantee the performance of a customer to a third party. 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 for which the Bank receives a fee.
These guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The Bank holds various assets as collateral supporting those commitments for which
collateral is deemed necessary. FIN 45 requires the fair value of these commitments to be recorded on the balance sheet. 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 amounts recorded for deferred fees as of March 31, 2008 and December 31, 2007 were $788,000 and $823,000, respectively. At March 31, 2008, Colonial Bank had standby
letters of credit outstanding with maturities of generally one year or less. The maximum potential amount of future undiscounted payments the Bank could be required to make under outstanding standby letters of credit at March 31, 2008 was $276
million.



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##### Table of Contents

Contingencies

BancGroup and its subsidiaries are, from time to time, defendants in legal actions arising from normal business activities. Management does not anticipate that the outcome of any litigation presently pending at
March 31, 2008 will have a material adverse effect on BancGroups consolidated financial statements or results of operations.

Note 9:
Derivatives

BancGroup maintains positions in derivative financial instruments to manage interest rate risk and facilitate
asset/liability management strategies. Derivatives are recorded at fair value in other assets or other liabilities.

Interest Rate Swaps

Fair Value Hedges

During the first quarter of 2008, BancGroup entered into interest rate swaps with an aggregate notional amount of $250 million to hedge fixed rate subordinated debt. The fair value of these swaps as of March 31, 2008 was approximately
$5.1 million. There were no hedging gains or losses resulting from hedge ineffectiveness recognized during the three months ended March 31, 2008 or March 31, 2007.

Cash Flow Hedges

During the second
quarter of 2006, the Company terminated interest rate swaps which were used as cash flow hedges of loans. The hedged forecasted transactions are still considered probable of occurring, therefore the net loss will remain in accumulated other
comprehensive loss and be reclassified into earnings in the same periods during which the hedged forecasted transactions affect earnings (ending in June of 2008). The estimated amount of losses to be reclassified into earnings within the next three
months is $1.6 million. There were no cash flow hedging gains or losses resulting from hedge ineffectiveness recognized for the three months ended March 31, 2008 or March 31, 2007.

Commitments to Originate and Sell Mortgage Loans

In connection with its retail mortgage loan production activities, the Company routinely enters into short-term commitments to fund residential mortgage loans (commonly referred to as interest rate locks). The Company utilizes forward sales
commitments to economically mitigate the risk of potential decreases in the value of the loans that would result from the exercise of the loan commitments. The notional amounts of these mortgage loan origination commitments and the related forward
sales commitments were approximately $41.6 million at March 31, 2008. The fair value of the origination commitments was a gain of approximately $603,000 at March 31, 2008, which was offset by a loss of approximately $603,000 on the related
sales commitments.

BancGroup has executed individual forward sales commitments on the retail portion of loans held for sale. The notional
value of these forward sales commitments at March 31, 2008 was $68.8 million, none of which was designated as a hedge. The fair value of the sales commitments was a gain of approximately $395,000 at March 31, 2008.

Options

Colonial sells call options related
to its interests in short-term participations in mortgage loans. Generally, the change in fair value of the participation interests offsets the change in fair value of the call options. The notional value of the call options at March 31, 2008
was $2.9 billion. The call options are not designated as hedges of the participation interests. The fair value of the call options was a loss of $10.1 million as of March 31, 2008.



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##### Table of Contents

BancGroup occasionally enters into over-the-counter option contracts on bonds in its securities
portfolio. However, there were no such option contracts outstanding at March 31, 2008.

Note 10: Short-Term Borrowings

Short-term borrowings are summarized as follows:



|                               |  |                |           |                  |   |        
|------------------------------ |  | -------------- | --------- | ---------------- | - | -------
|                               |  | March 31,2008  |           | December 31,2007
|                               |  | (In thousands)
|Federal funds purchased        |  | $              | 639,000   |                  | $ |       
|Repurchase agreements (retail) |  |                | 540,589   |                  |   | 568,721
|                               |  |                |           |                  |   |        
|Total                          |  | $              | 1,179,589 |                  | $ | 568,721
|                               |  |                |           |                  |   |        

Note 11: Long-Term Debt

Long-term debt is summarized as follows:



|                                      |  |                |           |                  |   |          
|------------------------------------- |  | -------------- | --------- | ---------------- | - | ---------
|                                      |  | March 31,2008  |           | December 31,2007
|                                      |  | (In thousands)
|Variable rate subordinated debentures |  | $              |          |                  | $ | 7,725    
|Subordinated notes                    |  |                | 632,346   |                  |   | 378,709  
|Junior subordinated debt              |  |                | 108,248   |                  |   | 108,256  
|FHLB borrowings                       |  |                | 3,414,450 |                  |   | 3,513,997
|Capital lease obligations             |  |                | 14,895    |                  |   | 15,149   
|                                      |  |                |           |                  |   |          
|Total                                 |  | $              | 4,169,939 |                  | $ | 4,023,836
|                                      |  |                |           |                  |   |          

During the first quarter of 2008, the Company issued $250 million of 8.875% subordinated notes due
March 15, 2038. The notes qualify as Tier II regulatory capital. Colonial may redeem the notes in whole or in part on or after March 15, 2013 in accordance with Federal Reserve guidelines. Colonial also paid off a $100 million FHLB
borrowing at a rate of 4.68%; redeemed $7.7 million of variable rate subordinated debentures; and repurchased $2 million of its 8% subordinated notes due March 15, 2009.

There have been no other material changes in BancGroups long-term debt. Refer to the Companys 2007 Annual Report on Form 10-K for additional
information.

Note 12: Pension Plan

BancGroup and its subsidiaries sponsor 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. On December 31, 2005, BancGroup closed the pension plan to new employees and set the compensation amount and years of service for the future benefits calculation for participants. Actuarial computations for financial reporting
purposes are based on the projected unit credit method. The measurement date is December 31. Based on current actuarial projections, BancGroup will not be required to make a contribution to the plan in 2008.



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##### Table of Contents

The following table reflects the components of net periodic benefit income:



|                                           |  |                             |        |   |      |   |        |  
|------------------------------------------ |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                           |  | Three Months EndedMarch 31, |       
|                                           |  | 2008                        |        |   | 2007 |  
|                                           |  | (In thousands)              |       
|Components of net periodic benefit income: |  |                             |        |   |      |   |        |  
|Interest cost                              |  | $                           | 929    |   |      | $ | 727    |  
|Expected return on plan assets             |  |                             | (1,529 | ) |      |   | (1,105 | )
|                                           |  |                             |        |   |      |   |        |  
|Net periodic benefit income                |  | $                           | (600   | ) |      | $ | (378   | )
|                                           |  |                             |        |   |      |   |        |  

Note 13: Stock-Based Compensation

Total compensation cost for stock-based compensation awards (both stock options and restricted stock awards) for the three months ended March 31,
2008 and 2007 was $1.3 million and $1.4 million, respectively. The related income tax benefit was $445,000 and $367,000, respectively.

The
following table summarizes BancGroups stock option activity since December 31, 2007:



|                                 |  |           |   |  |                                |      
|-------------------------------- |  | --------- | - |  | ------------------------------ | -----
|                                 |  | Options   |   |  | Weighted AverageExercise Price
|Outstanding at December 31, 2007 |  | 3,578,070 |   |  | $                              | 19.12
|                                 |  |           |   |  |                                |      
|Granted                          |  | 1,055,301 |   |  |                                | 11.37
|Exercised                        |  | (50,700   | ) |  |                                | 12.14
|Cancelled                        |  | (170,767  | ) |  |                                | 17.26
|                                 |  |           |   |  |                                |      
|Outstanding at March 31, 2008    |  | 4,411,904 |   |  | $                              | 17.42
|                                 |  |           |   |  |                                |      

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



|                                                |  |                                 
|----------------------------------------------- |  | --------------------------------
|                                                |  | Three months endedMarch 31, 2008
|Expected option term                            |  | 5.33 years                      
|Weighted average expected volatility            |  | 30.94%                          
|Weighted average risk-free interest rate        |  | 3.08%                           
|Weighted average expected annual dividend yield |  | 4.50%                           

The following table summarizes BancGroups restricted stock activity since December 31,
2007:



|                               |  |                 |   |  |                                       |      
|------------------------------ |  | --------------- | - |  | ------------------------------------- | -----
|                               |  | RestrictedStock |   |  | Weighted AverageGrant Date Fair Value
|Nonvested at December 31, 2007 |  | 518,166         |   |  | $                                     | 23.21
|                               |  |                 |   |  |                                       |      
|Granted                        |  | 596,303         |   |  |                                       | 11.29
|Vested                         |  |                |   |  |                                       |     
|Cancelled                      |  | (19,212         | ) |  |                                       | 13.27
|                               |  |                 |   |  |                                       |      
|Nonvested at March 31, 2008    |  | 1,095,257       |   |  | $                                     | 16.90
|                               |  |                 |   |  |                                       |      



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Note 14: 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:



|                                       |  |                                         |        |        |         |                 |   |     
|-------------------------------------- |  | --------------------------------------- | ------ | ------ | ------- | --------------- | - | ----
|                                       |  | Three Months Ended March 31,           
|                                       |  | Income                                  |        | Shares |         | Per ShareAmount
|                                       |  | (In thousands, except per shareamounts)
|2008                                   |  |                                         |        |        |         |                 |   |     
|Basic EPS                              |  |                                         |        |        |         |                 |   |     
|Income from continuing operations      |  | $                                       | 24,797 |        | 156,956 |                 | $ | 0.16
|Effect of dilutive instruments:        |  |                                         |        |        |         |                 |   |     
|Options and nonvested restricted stock |  |                                         |        |        | 572     |                 |   |     
|                                       |  |                                         |        |        |         |                 |   |     
|Diluted EPS                            |  | $                                       | 24,797 |        | 157,528 |                 | $ | 0.16
|                                       |  |                                         |        |        |         |                 |   |     
|2007                                   |  |                                         |        |        |         |                 |   |     
|Basic EPS                              |  |                                         |        |        |         |                 |   |     
|Income from continuing operations      |  | $                                       | 36,479 |        | 152,309 |                 | $ | 0.24
|Effect of dilutive instruments:        |  |                                         |        |        |         |                 |   |     
|Options and nonvested restricted stock |  |                                         |        |        | 1,141   |                 |   |     
|                                       |  |                                         |        |        |         |                 |   |     
|Diluted EPS                            |  | $                                       | 36,479 |        | 153,450 |                 | $ | 0.24
|                                       |  |                                         |        |        |         |                 |   |     

The above calculations exclude awards that could potentially dilute basic EPS in the future but
were antidilutive for the periods presented. The number of such awards excluded was approximately 3,692,000 and 1,692,000 for the three months ended March 31, 2008 and 2007, respectively.

Note 15: Income Taxes

In accordance with FIN 48,
BancGroup has recorded a liability for unrecognized tax benefits and the related interest and penalties at March 31, 2008 totaling $28.6 million compared to $26.6 million at December 31, 2007. While the Company expects to settle various
state tax audits within the next twelve months, the change in the unrecognized tax benefit is not expected to be material to the financial statements.

Note 16: Segment Information

The Company has six reportable segments for management reporting. Each regional bank segment
consists of commercial lending and full service branches in its geographic region with its own management team. The branches provide a full range of traditional banking products as well as financial planning and mortgage banking services. The
mortgage warehouse segment headquartered in Orlando, Florida provides funding to mortgage origination companies. The Company reports Corporate/Treasury/Other which includes the investment securities portfolio, nondeposit funding activities including
long-term debt, short-term liquidity and balance sheet risk management including derivative hedging activities, the parent companys activities, intercompany eliminations and certain support activities not currently allocated to the
aforementioned segments. In addition, Corporate/Treasury/Other includes income from bank-owned life insurance, income and expenses from various nonbank subsidiaries, joint ventures and equity investments, merger related expenses and the unallocated
portion of the Companys financial planning business.



20



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##### Table of Contents

The results for these segments are based on BancGroups management reporting process, which assigns
balance sheet and income statement items to each segment. Unlike financial reporting, there is no authoritative guidance for management reporting equivalent to generally accepted accounting principles. Colonial uses an internal funding methodology
to assign funding costs to assets and earning credits to liabilities as well as an internal capital allocation methodology with an offset in Corporate/Treasury/Other. The provision for loan losses included in each banking segment is based on their
actual net charge-off experience. The provision for loan losses included in the mortgage warehouse segment was based on an allocation of the Companys loan loss reserve. Certain back office support functions are allocated to each segment on the
basis most applicable to the function being allocated. The management reporting process measures the performance of the defined segments based on our management structure and is not necessarily comparable with similar information for other financial
services companies. If the management structure and/or allocation process changes, allocations, transfers and assignments may change.



|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|-------------------------------------------------------- |  | ------------------- | ---------- | - | ------------------------ | - | --------- | ------------------- |  | ------------------- | --------- |  | ------------------ | --------- | - | ----------------- | - | --------- | ----------------------- |  | - | --------------------- | - |  | - | --------- | - |  | - | ----------
|                                                         |  | FloridaRegionalBank |            |   | FloridaMortgageWarehouse |   |           | AlabamaRegionalBank |  | GeorgiaRegionalBank |           |  | NevadaRegionalBank |           |   | TexasRegionalBank |   |           | Corporate/TreasuryOther |  |   | ConsolidatedBancGroup
|                                                         |  | (In thousands)     
|Three Months Ended March 31, 2008                        |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income before intersegment income / expense |  | $                   | 74,223     |   |                          | $ | 66,269    |                     |  | $                   | 12,150    |  | $                  | 15,710    |   |                   | $ | 12,541    |                         |  | $ | 22,961                |   |  | $ | (22,230   | ) |  | $ | 181,624   
|Intersegment interest income / expense                   |  |                     | 2,548      |   |                          |   | (34,536   | )                   |  |                     | 18,991    |  |                    | (6,542    | ) |                   |   | (3,105    | )                       |  |   | (9,599                | ) |  |   | 32,243    |   |  |   |          
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income                                      |  |                     | 76,771     |   |                          |   | 31,733    |                     |  |                     | 31,141    |  |                    | 9,168     |   |                   |   | 9,436     |                         |  |   | 13,362                |   |  |   | 10,013    |   |  |   | 181,624   
|Provision for loan losses                                |  |                     | 23,122     |   |                          |   | 192       |                     |  |                     | 3,340     |  |                    | 5,898     |   |                   |   | 99        |                         |  |   | 492                   |   |  |   | 2,400     |   |  |   | 35,543    
|Noninterest income                                       |  |                     | 17,890     |   |                          |   | 2,671     |                     |  |                     | 13,456    |  |                    | 5,857     |   |                   |   | 1,611     |                         |  |   | 1,450                 |   |  |   | 14,812    |   |  |   | 57,747    
|Noninterest expense                                      |  |                     | 61,015     |   |                          |   | 7,573     |                     |  |                     | 21,874    |  |                    | 9,561     |   |                   |   | 6,841     |                         |  |   | 8,400                 |   |  |   | 48,714    |   |  |   | 163,978   
|Minority interest expense/REIT preferred dividends       |  |                     |           |   |                          |   |          |                     |  |                     |          |  |                    |          |   |                   |   |          |                         |  |   |                      |   |  |   | 5,336     |   |  |   | 5,336     
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Income/(loss) before income taxes                        |  | $                   | 10,524     |   |                          | $ | 26,639    |                     |  | $                   | 19,383    |  | $                  | (434      | ) |                   | $ | 4,107     |                         |  | $ | 5,920                 |   |  | $ | (31,625   | ) |  |   | 34,514    
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Income taxes                                             |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   | 9,717     
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Net Income                                               |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  | $ | 24,797    
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Total Assets                                             |  | $                   | 11,824,346 |   |                          | $ | 5,206,211 |                     |  | $                   | 4,284,929 |  | $                  | 1,391,314 |   |                   | $ | 1,052,215 |                         |  | $ | 1,685,262             |   |  | $ | 1,908,470 |   |  | $ | 27,352,747
|Total Deposits                                           |  | $                   | 10,232,132 |   |                          | $ | 730,536   |                     |  | $                   | 4,198,142 |  | $                  | 743,497   |   |                   | $ | 667,697   |                         |  | $ | 758,171               |   |  | $ | 1,941,153 |   |  | $ | 19,271,328
|                                                         |  |                     |            |   |                          |   |           |                    
|Three Months Ended March 31, 2007                        |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income before intersegment income / expense |  | $                   | 85,275     |   |                          | $ | 36,976    |                     |  | $                   | 20,712    |  | $                  | 20,147    |   |                   | $ | 13,324    |                         |  | $ | 22,659                |   |  | $ | (19,148   | ) |  | $ | 179,945   
|Intersegment interest income / expense                   |  |                     | (409       | ) |                          |   | (20,508   | )                   |  |                     | 14,837    |  |                    | (7,588    | ) |                   |   | (1,894    | )                       |  |   | (9,616                | ) |  |   | 25,178    |   |  |   |          
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income                                      |  |                     | 84,866     |   |                          |   | 16,468    |                     |  |                     | 35,549    |  |                    | 12,559    |   |                   |   | 11,430    |                         |  |   | 13,043                |   |  |   | 6,030     |   |  |   | 179,945   
|Provision for loan losses                                |  |                     | 445        |   |                          |   | (336      | )                   |  |                     | 531       |  |                    | 1,060     |   |                   |   | 27        |                         |  |   | 165                   |   |  |   | 358       |   |  |   | 2,250     
|Noninterest income                                       |  |                     | 17,998     |   |                          |   | 7,484     |                     |  |                     | 12,758    |  |                    | 2,296     |   |                   |   | 1,894     |                         |  |   | 1,649                 |   |  |   | (28,860   | ) |  |   | 15,219    
|Noninterest expense                                      |  |                     | 51,331     |   |                          |   | 2,102     |                     |  |                     | 20,620    |  |                    | 5,997     |   |                   |   | 6,042     |                         |  |   | 7,322                 |   |  |   | 44,727    |   |  |   | 138,141   
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Income/(loss) before income taxes                        |  | $                   | 51,088     |   |                          | $ | 22,186    |                     |  | $                   | 27,156    |  | $                  | 7,798     |   |                   | $ | 7,255     |                         |  | $ | 7,205                 |   |  | $ | (67,915   | ) |  |   | 54,773    
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Income taxes                                             |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   | 18,294    
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Net Income                                               |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  | $ | 36,479    
|                                                         |  |                     |            |   |                          |   |           |                     |  |                     |           |  |                    |           |   |                   |   |           |                         |  |   |                       |   |  |   |           |   |  |   |           
|Total Assets                                             |  | $                   | 10,774,886 |   |                          | $ | 2,223,589 |                     |  | $                   | 4,196,828 |  | $                  | 1,433,901 |   |                   | $ | 997,609   |                         |  | $ | 1,458,246             |   |  | $ | 1,986,843 |   |  | $ | 23,071,902
|Total Deposits                                           |  | $                   | 8,839,647  |   |                          | $ | 603,247   |                     |  | $                   | 4,127,336 |  | $                  | 825,143   |   |                   | $ | 748,835   |                         |  | $ | 671,145               |   |  | $ | 567,370   |   |  | $ | 16,382,723



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Note 17: Subsequent Events

Common Stock Offering

On April 25, 2008, the Company completed a public common stock offering of
43.75 million shares at $8.00 per share for $350 million. The Company received proceeds of $333 million, which is net of all expenses, commissions and underwriters discounts. The Company will use the proceeds for general corporate
purposes as well as investments in subsidiaries.

Dividend Reinvestment and Common Stock Purchase Plan

The Company has a dividend reinvestment and common stock purchase plan under which shareholders may automatically reinvest their cash dividends in shares
of common stock as well as make optional cash purchases of common stock. On April 16, 2008, the Companys Board of Directors approved the registration of 10 million additional shares that may be issued under this plan, bringing the
total authorized for issuance to 12 million shares. On May 2, 2008, the Company filed the related registration statement with the Securities and Exchange Commission, registering the new shares and amending the plan.

401(k) Plan

BancGroup also has a 401(k)
savings plan which provides certain retirement, death, disability and employment benefits to all eligible employees and qualifies as a deferred arrangement under Section 401(k) of the Internal Revenue Code. Participants make elective
contributions into a number of available investment options through payroll deductions, including the option to purchase BancGroup common stock. On April 16, 2008, the Companys Board of Directors approved the registration of
10 million additional shares of the Companys common stock that may be issued under this plan. On May 5, 2008, the Company filed the related registration statement with the Securities and Exchange Commission, registering the new
shares.



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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



Those accounting policies
involving significant estimates and assumptions by management which have, or could have, a material impact on the reported financial results are considered critical accounting policies. BancGroup recognizes the following as critical accounting
policies: Allowance for Loan Losses, Purchase Accounting and Goodwill, Income Taxes, Consolidations and Stock-Based Compensation. Information concerning these policies is included in the Critical Accounting Policies section of
Managements Discussion and Analysis in BancGroups 2007 Annual Report on Form 10-K.

EXECUTIVE OVERVIEW



The Colonial BancGroup, Inc. is a $27.4 billion
financial services company providing diversified services including retail and commercial banking, wealth management services, mortgage originations and insurance through its branch network, private banking offices or officers, ATMs and the internet
as well as other distribution channels to consumers and businesses. At March 31, 2008, BancGroups branch network consisted of 342 offices in Florida, Alabama, Georgia, Nevada and Texas.

Colonial reported net income of $24.8 million for the quarter ended March 31, 2008, compared to $36.5 million for the quarter ended March 31,
2007. The Company also reported earnings per diluted share of $0.16 for the quarter ended March 31, 2008 compared to $0.24 for the quarter ended March 31, 2007.

REVIEW OF RESULTS OF OPERATIONS



Net Interest Income

Net interest income is the Companys primary source of revenue. Net
interest income represents the difference 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. The net interest margin is fully tax equivalent net interest income expressed as a percentage of average earning assets for the period being measured.
The net interest margin is presented on a fully tax equivalent basis to consistently reflect income from taxable and tax-exempt loans and securities.

Beginning in late 2007 and early 2008, the yield curve returned to a more normalized level, although short-term Treasury yields remained below the Federal Reserves overnight borrowing rate for banks (the Federal
Funds rate). The Federal Funds rate for banks remained constant at 5.25% from June 2006 to September 2007. The Federal Reserve lowered the Federal Funds rate 300 basis points between September 2007 and March 2008 as follows: 50 basis points on
September 18, 2007; 25 basis points on October 31, 2007; 25 basis points on December 11, 2007; 75 basis points on January 22, 2008; 50 basis points on January 30, 2008 and 75 basis points on March 18, 2008. The
following table shows the Federal Funds rate and U.S. Treasury yield curve at each quarter end during the past five quarters.



23



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##### Table of Contents

LOGO

The Companys net interest income, on a tax equivalent basis, increased $3.1 million, or 1.7%, for the
three months ended March 31, 2008, as compared to the same period of the prior year. The increase in net interest income was primarily caused by an increase of $4 billion, or 19% in average earning assets. The yield on average earning assets
decreased 39 basis points more than the decrease in the rate on average interest bearing liabilities causing net interest margin to contract 52 basis points. The rapid reductions in the prime and LIBOR rates in the first quarter of 2008 repriced
approximately half of the Companys loan portfolio since the fourth quarter of 2007. Deposit costs did not decline in tandem with the decline in prime and LIBOR rates due to intense competition for deposit dollars from financial services
companies.



24



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##### Table of Contents

Interest Earning Assets

Average earning assets, as shown below, consist primarily of loans, securities and loans held for sale. For the three months ended March 31, 2008, approximately 64% of BancGroups average earning assets were
variable, adjustable or short-term in nature, and the rate of earnings on those assets change when market rates change.

LOGO

Average Funding

Average funding, as shown below, consists primarily of deposits and wholesale borrowings. Average funding grew $4.6 billion, or 20%, for the three months ended March 31, 2008, as compared to the same period of
the prior year.

LOGO



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##### Table of Contents

Average Volume and Rates

(Unaudited)



|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|----------------------------------------------------------------------------------------- |  | ---------------------------- | ---------- | -------- | ---- | ------- | ---- |  | ---- | ------------- |  | -------- | ---------- |  | ---- | ------- | - |  | ---- | -
|                                                                                          |  | Three Months Ended March 31, |           
|                                                                                          |  | 2008                         |            |          | 2007 |        
|                                                                                          |  | AverageVolume                |            | Interest |      |         | Rate |  |      | AverageVolume |  | Interest |            |  | Rate |        
|                                                                                          |  | (Dollars in thousands)       |           
|ASSETS:                                                                                   |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Loans, net of unearned income(2)                                                          |  | $                            | 15,994,073 |          | $    | 261,438 |      |  | 6.57 | %             |  | $        | 15,349,322 |  | $    | 293,474 |   |  | 7.74 | %
|Loans held for sale(2)                                                                    |  |                              | 3,160,736  |          |      | 40,397  |      |  | 5.14 | %             |  |          | 1,287,027  |  |      | 21,981  |   |  | 6.93 | %
|Securities(2)                                                                             |  |                              | 3,677,145  |          |      | 54,612  |      |  | 5.94 | %             |  |          | 3,265,920  |  |      | 43,005  |   |  | 5.27 | %
|Securities purchased under agreements to resell                                           |  |                              | 2,115,209  |          |      | 28,259  |      |  | 5.37 | %             |  |          | 1,058,496  |  |      | 17,964  |   |  | 6.87 | %
|Other interest earning assets                                                             |  |                              | 120,231    |          |      | 992     |      |  | 3.32 | %             |  |          | 97,005     |  |      | 1,171   |   |  | 4.90 | %
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total interest earning assets(3)                                                          |  |                              | 25,067,394 |          | $    | 385,698 |      |  | 6.18 | %             |  |          | 21,057,770 |  | $    | 377,595 |   |  | 7.25 | %
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Nonearning assets(2)                                                                      |  |                              | 2,582,448  |          |      |         |      |  |      |               |  |          | 1,996,179  |  |      |         |   |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total assets                                                                              |  | $                            | 27,649,842 |          |      |         |      |  |      |               |  | $        | 23,053,949 |  |      |         |   |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                     |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Interest bearing non-time deposits                                                        |  | $                            | 6,609,657  |          | $    | 32,634  |      |  | 1.99 | %             |  | $        | 6,313,784  |  | $    | 48,481  |   |  | 3.11 | %
|Time deposits(2)                                                                          |  |                              | 9,080,876  |          |      | 104,872 |      |  | 4.64 | %             |  |          | 6,872,764  |  |      | 84,603  |   |  | 4.99 | %
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total interest bearing deposits                                                           |  |                              | 15,690,533 |          |      | 137,506 |      |  | 3.52 | %             |  |          | 13,186,548 |  |      | 133,084 |   |  | 4.09 | %
|Repurchase agreements                                                                     |  |                              | 544,218    |          |      | 3,705   |      |  | 2.74 | %             |  |          | 763,461    |  |      | 8,555   |   |  | 4.54 | %
|Federal funds purchased and other short-term borrowings                                   |  |                              | 1,379,961  |          |      | 11,592  |      |  | 3.38 | %             |  |          | 1,164,191  |  |      | 15,277  |   |  | 5.32 | %
|Long-term debt(2)                                                                         |  |                              | 4,084,015  |          |      | 49,110  |      |  | 4.83 | %             |  |          | 2,925,030  |  |      | 40,018  |   |  | 5.53 | %
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total interest bearing liabilities                                                        |  |                              | 21,698,727 |          | $    | 201,913 |      |  | 3.74 | %             |  |          | 18,039,230 |  | $    | 196,934 |   |  | 4.42 | %
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Noninterest bearing demand deposits                                                       |  |                              | 3,067,214  |          |      |         |      |  |      |               |  |          | 2,780,374  |  |      |         |   |  |      |  
|Other liabilities(2)                                                                      |  |                              | 309,546    |          |      |         |      |  |      |               |  |          | 166,607    |  |      |         |   |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total liabilities                                                                         |  |                              | 25,075,487 |          |      |         |      |  |      |               |  |          | 20,986,211 |  |      |         |   |  |      |  
|Minority interest/REIT preferred securities                                               |  |                              | 293,058    |          |      |         |      |  |      |               |  |          | 0          |  |      |         |   |  |      |  
|Shareholders equity                                                                      |  |                              | 2,281,297  |          |      |         |      |  |      |               |  |          | 2,067,738  |  |      |         |   |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total liabilities and shareholders equity                                                |  | $                            | 27,649,842 |          |      |         |      |  |      |               |  | $        | 23,053,949 |  |      |         |   |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|RATE DIFFERENTIAL                                                                         |  |                              |            |          |      |         |      |  | 2.44 | %             |  |          |            |  |      |         |   |  | 2.83 | %
|NET INTEREST INCOME AND NET YIELD ON INTEREST EARNING ASSETS ON A TAX EQUIVALENT BASIS(3) |  |                              |            |          | $    | 183,785 |      |  | 2.94 | %             |  |          |            |  | $    | 180,661 |   |  | 3.46 | %
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Taxable equivalent adjustments(1):                                                        |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Loans                                                                                     |  |                              |            |          |      | (195    | )    |  |      |               |  |          |            |  |      | (146    | ) |  |      |  
|Securities                                                                                |  |                              |            |          |      | (1,966  | )    |  |      |               |  |          |            |  |      | (570    | ) |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total taxable equivalent adjustments                                                      |  |                              |            |          |      | (2,161  | )    |  |      |               |  |          |            |  |      | (716    | ) |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Net interest income                                                                       |  |                              |            |          | $    | 181,624 |      |  |      |               |  |          |            |  | $    | 179,945 |   |  |      |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|TOTAL AVERAGE DEPOSITS:                                                                   |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total interest bearing deposits                                                           |  | $                            | 15,690,533 |          | $    | 137,506 |      |  | 3.52 | %             |  | $        | 13,186,548 |  | $    | 133,084 |   |  | 4.09 | %
|Noninterest bearing demand deposits                                                       |  |                              | 3,067,214  |          |      |        |      |  |     |               |  |          | 2,780,374  |  |      |        |   |  |     |  
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  
|Total average deposits                                                                    |  | $                            | 18,757,747 |          | $    | 137,506 |      |  | 2.95 | %             |  | $        | 15,966,922 |  | $    | 133,084 |   |  | 3.38 | %
|                                                                                          |  |                              |            |          |      |         |      |  |      |               |  |          |            |  |      |         |   |  |      |  



|(1) | Interest earned and average rates on securities and loans exempt from income taxes are reflected on a fully tax equivalent basis using a federal income tax rate of 35%, net of
nondeductible interest expense.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) | Unrealized gains (losses) on available for sale securities, the adjustments for mark to market valuations on hedged assets and liabilities and lower of cost or fair value
adjustments have been classified in either other assets or other liabilities.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) | Net yield on interest earning assets is calculated by taking annualized fully tax equivalent net interest income divided by average total interest earning assets.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Analysis of Interest Increases (Decreases)

(Unaudited)



|                                                        |  |                                                             |         |   |                  |   |        |      |  |   |         |  
|------------------------------------------------------- |  | ----------------------------------------------------------- | ------- | - | ---------------- | - | ------ | ---- |  | - | ------- | -
|                                                        |  | Three Months Ended March 31,2008 Change from March 31, 2007 |        
|                                                        |  |                                                             |         |   | Attributed to(1) |  
|                                                        |  | Total                                                       |         |   | Volume           |   |        | Rate | 
|                                                        |  | (In thousands)                                              |        
|INTEREST INCOME:                                        |  |                                                             |         |   |                  |   |        |      |  |   |         |  
|Loans, net of unearned income                           |  | $                                                           | (32,036 | ) |                  | $ | 12,246 |      |  | $ | (44,282 | )
|Loans held for sale                                     |  |                                                             | 18,416  |   |                  |   | 24,097 |      |  |   | (5,681  | )
|Securities                                              |  |                                                             | 11,607  |   |                  |   | 6,137  |      |  |   | 5,470   |  
|Securities purchased under agreements to resell         |  |                                                             | 10,295  |   |                  |   | 14,210 |      |  |   | (3,915  | )
|Other interest earning assets                           |  |                                                             | (179    | ) |                  |   | 199    |      |  |   | (378    | )
|                                                        |  |                                                             |         |   |                  |   |        |      |  |   |         |  
|Total interest income                                   |  |                                                             | 8,103   |   |                  |   | 56,889 |      |  |   | (48,786 | )
|                                                        |  |                                                             |         |   |                  |   |        |      |  |   |         |  
|INTEREST EXPENSE:                                       |  |                                                             |         |   |                  |   |        |      |  |   |         |  
|Interest bearing non-time deposits                      |  |                                                             | (15,847 | ) |                  |   | 1,589  |      |  |   | (17,436 | )
|Time deposits                                           |  |                                                             | 20,269  |   |                  |   | 26,200 |      |  |   | (5,931  | )
|Repurchase agreements                                   |  |                                                             | (4,850  | ) |                  |   | (1,461 | )    |  |   | (3,389  | )
|Federal funds purchased and other short-term borrowings |  |                                                             | (3,685  | ) |                  |   | 1,884  |      |  |   | (5,569  | )
|Long-term debt                                          |  |                                                             | 9,092   |   |                  |   | 14,141 |      |  |   | (5,049  | )
|                                                        |  |                                                             |         |   |                  |   |        |      |  |   |         |  
|Total interest expense                                  |  |                                                             | 4,979   |   |                  |   | 42,353 |      |  |   | (37,374 | )
|                                                        |  |                                                             |         |   |                  |   |        |      |  |   |         |  
|Net interest income                                     |  | $                                                           | 3,124   |   |                  | $ | 14,536 |      |  | $ | (11,412 | )
|                                                        |  |                                                             |         |   |                  |   |        |      |  |   |         |  



|(1) | Increases (decreases) are attributed to volume changes and rate changes on the following basis: Volume Change = change in volume times old rate. Rate Change = change in rate times
old volume. The Rate/Volume Change = change in volume times change in rate, and is allocated to Volume Change.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Analysis of
Average Rates



|                              |  |                             |   |  |      |   |  |                     |   
|----------------------------- |  | --------------------------- | - |  | ---- | - |  | ------------------- | --
|                              |  | Three Months EndedMarch 31, |   |  |      |  
|                              |  | 2008                        |   |  | 2007 |   |  | Increase/(Decrease) |   
|Loans, net of unearned income |  | 6.57                        | % |  | 7.74 | % |  | (1.17               | )%
|Loans held for sale           |  | 5.14                        | % |  | 6.93 | % |  | (1.79               | )%
|Securities                    |  | 5.94                        | % |  | 5.27 | % |  | 0.67                | % 
|Other earning assets          |  | 5.26                        | % |  | 6.70 | % |  | (1.44               | )%
|Interest bearing deposits     |  | 3.52                        | % |  | 4.09 | % |  | (0.57               | )%
|Total deposits                |  | 2.95                        | % |  | 3.38 | % |  | (0.43               | )%
|Wholesale borrowings          |  | 4.31                        | % |  | 5.33 | % |  | (1.02               | )%
|Federal Funds rate            |  | 3.22                        | % |  | 5.25 | % |  | (2.03               | )%
|30-day LIBOR                  |  | 3.31                        | % |  | 5.32 | % |  | (2.01               | )%
|Wall Street Journal prime     |  | 6.22                        | % |  | 8.25 | % |  | (2.03               | )%

Interest income increased $8.1 million for the three months ended March 31, 2008, as compared
to the same period of the prior year. Average earning assets increased $4 billion while the yield earned on those assets decreased 107 basis points. The drivers of these changes are more fully described below.

For the three months ended March 31, 2008, interest income on loans decreased $32 million, as compared to the same period of the prior year. The
decrease was primarily due to the lowering of the Federal Funds, LIBOR and Treasury rates which resulted in the average yield earned on loans decreasing 117 basis points.



27



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##### Table of Contents

Interest income on loans held for sale increased $18.4 million for the three months ended March 31,
2008, as compared to the same period of the prior year. Loans held for sale is comprised of three elements: short-term participations in mortgage loans, retail mortgage loans and other loans held for sale. The primary driver of the increase in
interest income on loans held for sale was an average volume increase of $1.9 billion, or 146%, primarily from growth in the Companys mortgage warehouse division. The yield on loans held for sale is influenced by the prevailing market rates
which were lower in the three months ended March 31, 2008 than they were in the same period of the prior year.

Interest income on
securities increased $11.6 million for the three months ended March 31, 2008, as compared to the same period of the prior year. The increase was primarily the result of a 67 basis point increase in yield on the average balances as well as a
$411 million, or 12.6%, increase in average volume. The Company restructured its securities portfolio at the beginning of the second quarter of 2007, selling approximately one-third of the total portfolio and reinvesting into higher yielding
securities.

For the three months ended March 31, 2008, interest income from securities purchased under agreements to resell increased
$10 million, as compared to the same period of the prior year. The primary driver of the increase was a $1 billion, or 100%, increase in average volume. The growth in average volume was the result of growth in the Companys mortgage warehouse
division. The yield on securities purchased under agreements to resell is influenced by the prevailing market rates which were lower in the three months ended March 31, 2008 than they were in the same period of the prior year.

Interest expense increased approximately $5.0 million for the three months ended March 31, 2008, as compared to the same period of the prior year.
The increase in interest expense was primarily caused by an increase of $3.7 billion, or 20%, in total interest bearing liabilities which was partially offset by a 68 basis point decrease in the Companys average funding costs for interest
bearing liabilities to 3.74%. Including the impact of noninterest bearing deposits, which increased $287 million, average funding costs decreased 55 basis points to 3.28%. The drivers of the increase in funding costs are described below.

For the three months ended March 31, 2008, interest expense on interest bearing non-time deposits decreased $15.8 million while interest expense
on time deposits increased $20 million, as compared to the same period of the prior year. The decrease in interest expense for non-time deposits was due to a rate reduction of 112 basis points while the increase in interest expense on time deposits
was due to an increase in average volume of $2.2 billion. The growth of time deposits is attributable to customer preference for higher rate products, increased competition for deposits and increased use of brokered time deposits as a funding
source.

For the three months ended March 31, 2008, interest expense on wholesale borrowings increased $557,000, as compared to the
same period of the prior year. The increase in interest expense was primarily caused by an increase of $1.2 billion in average wholesale borrowings which was mitigated by a decrease of 102 basis points in the average rate on wholesale borrowings.
The decline in the cost of average wholesale borrowings was the result of the Company replacing higher rate short-term and long-term borrowings with lower cost long-term debt and the repricing of variable rate wholesale borrowings.

Loan Loss Provision

The real estate markets in the
U.S. have deteriorated at an accelerated pace over the past two quarters, resulting in increased credit losses for many financial institutions. Many banks, including Colonial, have taken steps to increase reserve levels in response to these changing
market conditions. Colonials provision for loan losses of $35.5 million for the three months ended March 31, 2008, exceeded net charge-offs by $2 million, increasing the Companys loan loss reserve to $241 million, or 1.50% of period
end loans at March 31, 2008. The Company recorded $2.3 million in provision for loan losses for the three months ended March 31, 2007, compared to $2.2 million in net charge-offs. Colonials loan loss reserve was $173 million, or
1.16% of period end loans at March 31, 2007.



28



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##### Table of Contents

Noninterest Income

The following table shows the dollar and percentage change in noninterest income by category for the three months ended March 31, 2008, compared to the same period of the prior year. Core noninterest income
increased $5.3 million, or 11.4%, for the three months ended March 31, 2008, as compared to the same period of the prior year.



|                                       |  |                             |        |      |                     |         |   |  |   |        |   |  |        |  
|-------------------------------------- |  | --------------------------- | ------ | ---- | ------------------- | ------- | - |  | - | ------ | - |  | ------ | -
|                                       |  | Three Months EndedMarch 31, |        |      | Increase (Decrease) |        
|                                       |  | 2008                        |        | 2007 |                     |         | $ |  |   | %      |  
|                                       |  | (Dollars in thousands)      |       
|Service charges on deposit accounts    |  | $                           | 19,228 |      | $                   | 17,679  |   |  | $ | 1,549  |   |  | 8.8    | %
|Electronic banking                     |  |                             | 5,004  |      |                     | 4,401   |   |  |   | 603    |   |  | 13.7   |  
|Other retail banking fees              |  |                             | 2,548  |      |                     | 3,612   |   |  |   | (1,064 | ) |  | (29.5  | )
|                                       |  |                             |        |      |                     |         |   |  |   |        |   |  |        |  
|Retail banking fees                    |  |                             | 26,780 |      |                     | 25,692  |   |  |   | 1,088  |   |  | 4.2    |  
|Financial planning services            |  |                             | 4,812  |      |                     | 3,822   |   |  |   | 990    |   |  | 25.9   |  
|Mortgage banking origination and sales |  |                             | 6,760  |      |                     | 3,187   |   |  |   | 3,573  |   |  | 112.1  |  
|Mortgage warehouse fees                |  |                             | 995    |      |                     | 6,955   |   |  |   | (5,960 | ) |  | (85.7  | )
|Bank-owned life insurance              |  |                             | 5,120  |      |                     | 4,955   |   |  |   | 165    |   |  | 3.3    |  
|Other income                           |  |                             | 7,205  |      |                     | 1,783   |   |  |   | 5,422  |   |  | 304.1  |  
|                                       |  |                             |        |      |                     |         |   |  |   |        |   |  |        |  
|Core noninterest income                |  |                             | 51,672 |      |                     | 46,394  |   |  |   | 5,278  |   |  | 11.4   |  
|Securities gains, net                  |  |                             | 6,075  |      |                     | 981     |   |  |   | 5,094  |   |  | 519.3  |  
|Securities restructuring charges       |  |                             |       |      |                     | (36,006 | ) |  |   | 36,006 |   |  | 100.0  |  
|Gain on sale of mortgage loans         |  |                             |       |      |                     | 3,850   |   |  |   | (3,850 | ) |  | (100.0 | )
|                                       |  |                             |        |      |                     |         |   |  |   |        |   |  |        |  
|Total noninterest income               |  | $                           | 57,747 |      | $                   | 15,219  |   |  | $ | 42,528 |   |  | 279.4  | %
|                                       |  |                             |        |      |                     |         |   |  |   |        |   |  |        |  

The increase in retail banking fees was primarily in service charges on deposit accounts which is
comprised of nonsufficient funds fees and service charges on consumer and commercial deposit accounts. Nonsufficient funds fees is the largest component of the increase and is primarily due to an increase in the number of customer accounts.

Electronic banking includes fees from Colonials ATM network, business and personal check card services and internet banking.
Noninterest income from electronic banking services increased primarily because of an increase in the number of Colonial customer accounts as well as the Companys focused efforts to increase customer check card usage and ATM network fees.

Other retail banking fees decreased for the three months ended March 31, 2008, compared to the same period of the prior year,
primarily due to lower official check commissions and the Companys sale of its merchant services contracts in April 2007. The decline in official check commissions was primarily due to a decrease in rate. Merchant services revenue declined due
to the Companys sale of contracts and the subsequent agent bank agreement with a third party service provider of merchant services. The outsourced relationship lowers Colonials inherent risk of providing merchant services while enabling
the Company to continue to offer those services to its customer base. The referral fees for new contracts are less than the previous fee income, but the Companys expenses and risks are also reduced.

Financial planning services include discount brokerage, investment sales, asset management, trust services and insurance sales including term, universal,
whole life and long-term care. Financial planning services revenue increased primarily due to fixed annuity sales, partially offset by a decline in the volume of insurance products sold and a decline in trust revenue.

Mortgage banking origination and sales revenue is derived from mortgage loans originated and subsequently sold in the secondary market. The Company does
not retain any servicing rights related to these loans. Mortgage banking origination and sales income increased 112.1% compared to the same period of the prior year, primarily



29



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##### Table of Contents

due to a team of experienced prime mortgage originators hired in late 2007. Sales volume in the first quarter of 2008 increased $80.3 million over the same
period of the prior year. In addition, profit margins improved due to a shift to higher margin FHA and VA products from other products.

Mortgage warehouse fees are comprised of three revenue streams: servicing and other fees associated with interests in mortgage warehouse assets sold to third-party commercial paper conduits (conduits), custodial fees associated with
mortgage document services for mortgage warehouse customers and syndication fees paid to the Company as agent or participant in mortgage warehouse syndicated loans. The decrease in mortgage warehouse fees for the three months ended March 31,
2008, as compared to the same period of the prior year, was primarily the result of lower servicing and other fees due to the discontinuation of sales of assets to third-party commercial paper conduits in early January 2008.

Income from bank-owned life insurance (BOLI) increased for the three months ended March 31, 2008, as compared to the same period of the prior year,
primarily due to the increased value of the policies and an additional day of interest in 2008.

Other income reflects revenues from joint
ventures, letter of credit fees, condo association coupon fees, gains on the sales of bank premises and several other small items. The increase for the three months ended March 31, 2008, as compared to the same period of the prior year, was
primarily from a $2.1 million gain on the sale of Visa, Inc. stock from an initial public offering, $1.6 million amortization of gains on the 2007 sale-leaseback of 56 bank locations, and $1.4 million due to fair value adjustments to derivatives
related to retail mortgages and short-term participations in mortgage loans held for sale portfolios.

The Companys decision to buy
and sell securities is based on its management of interest rate risk and projected liquidity and funding needs. In the first quarter of 2008, the Company recorded gains of $6.1 million from the sale of approximately $217 million in securities. In
the first quarter of 2007, the Company recognized gains of $981,000 on the sale of $163 million in securities and recognized an impairment loss of $36.0 million as the Company declared its intent to restructure its securities portfolio by selling
approximately $1.2 billion in available for sale securities. The securities were sold in April 2007.

The Company sold approximately $490
million of residential real estate loans in March 2007 and recognized a $3.9 million gain.



30



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##### Table of Contents

Noninterest Expense

The following table shows the dollar and percentage change in noninterest expense by category for the first quarter of 2008 compared to the same period in 2007. Core noninterest expense increased $27.5 million, or
21%, in the first quarter of 2008, as compared to the same period in 2007. Annualized core noninterest expense to average assets was 2.28% and 2.26% for the three months ended March 31, 2008 and 2007, respectively.



|                                                       |  |                             |         |                     |   |         |  |   |        |   |  |        |  
|------------------------------------------------------ |  | --------------------------- | ------- | ------------------- | - | ------- |  | - | ------ | - |  | ------ | -
|                                                       |  | Three Months EndedMarch 31, |         | Increase (Decrease) |  
|                                                       |  | 2008                        |         | 2007                |   | $       |  |   | %      |  
|                                                       |  | (Dollars in thousands)      |        
|Salaries and employee benefits                         |  | $                           | 73,667  |                     | $ | 69,554  |  | $ | 4,113  |   |  | 5.9    | %
|Occupancy expense of bank premises, net                |  |                             | 23,055  |                     |   | 18,505  |  |   | 4,550  |   |  | 24.6   |  
|Furniture and equipment expenses                       |  |                             | 14,703  |                     |   | 13,122  |  |   | 1,581  |   |  | 12.0   |  
|Professional services                                  |  |                             | 5,638   |                     |   | 4,100   |  |   | 1,538  |   |  | 37.5   |  
|FDIC insurance and other regulatory fees               |  |                             | 4,562   |                     |   | 1,213   |  |   | 3,349  |   |  | 276.1  |  
|Electronic banking and other retail banking expenses   |  |                             | 4,157   |                     |   | 4,212   |  |   | (55    | ) |  | (1.3   | )
|Amortization of intangible assets                      |  |                             | 4,163   |                     |   | 3,051   |  |   | 1,112  |   |  | 36.4   |  
|Communications                                         |  |                             | 2,819   |                     |   | 2,991   |  |   | (172   | ) |  | (5.8   | )
|Loss on equity investments                             |  |                             | 2,747   |                     |   | 255     |  |   | 2,492  |   |  | 977.3  |  
|Loan and other real estate related costs               |  |                             | 2,649   |                     |   | 338     |  |   | 2,311  |   |  | 683.7  |  
|Postage and courier                                    |  |                             | 2,622   |                     |   | 2,639   |  |   | (17    | ) |  | (0.6   | )
|Advertising                                            |  |                             | 2,603   |                     |   | 2,215   |  |   | 388    |   |  | 17.5   |  
|Travel                                                 |  |                             | 1,439   |                     |   | 1,739   |  |   | (300   | ) |  | (17.3  | )
|Other expenses                                         |  |                             | 12,986  |                     |   | 6,357   |  |   | 6,629  |   |  | 104.3  |  
|                                                       |  |                             |         |                     |   |         |  |   |        |   |  |        |  
|Core noninterest expense                               |  |                             | 157,810 |                     |   | 130,291 |  |   | 27,519 |   |  | 21.1   |  
|Severance expense                                      |  |                             | 236     |                     |   | 3,025   |  |   | (2,789 | ) |  | (92.2  | )
|Merger related expenses                                |  |                             |        |                     |   | 429     |  |   | (429   | ) |  | (100.0 | )
|Net losses related to the early extinguishment of debt |  |                             | 5,932   |                     |   | 4,396   |  |   | 1,536  |   |  | 34.9   |  
|                                                       |  |                             |         |                     |   |         |  |   |        |   |  |        |  
|Total noninterest expense                              |  | $                           | 163,978 |                     | $ | 138,141 |  | $ | 25,837 |   |  | 18.7   | %
|                                                       |  |                             |         |                     |   |         |  |   |        |   |  |        |  

Salaries and employee benefits increased for the three months ended March 31, 2008, as
compared to the same period of the prior year. The change was primarily due to increases in commissions and related benefits resulting from increased production in mortgage banking origination and sales as well as financial planning services.

The increases in occupancy and furniture and equipment expenses for the three months ended March 31, 2008, as compared to the same
period of the prior year, were primarily the result of increased rent expense, repairs and maintenance and property taxes. These increases are attributable to the net addition of 34 branches, as well as increased lease expense resulting from the
sale-leaseback of 56 properties in 2007. The increased occupancy expense from the sale-leaseback is more than offset by the amortization of deferred gains on the sales, which are included in noninterest income.

Professional fees increased for the three months ended March 31, 2008, as compared to the same period of the prior year, due to increased use of
outsourced technology related services and higher legal fees associated with lending related activities.

FDIC insurance and other
regulatory fees were higher for the three months ended March 31, 2008, as compared to the same period of the prior year, due to increases in deposits and assets on which they are based, as well as the depletion of Colonial Banks
assessment credits in 2007 which reduced prior years fees.

Amortization of intangible assets increased for the three months ended
March 31, 2008, as compared to the same period of the prior year, due to additional core deposit intangible assets recorded for the Commercial Bankshares, Inc. and Citrus & Chemical Bancorporation, Inc. acquisitions in 2007.



31



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##### Table of Contents

Loss on equity investments increased for the three months ended March 31, 2008, as compared to the
same period of the prior year, due primarily to impairment recognized on certain equity investments.

The increase in loan and other
related costs for the three months ended March 31, 2008, as compared to the same period of the prior year, were driven by higher expenses related to other real estate.

The increase in advertising expense for the three months ended March 31, 2008, as compared to the same period of the prior year, was primarily due
to increased marketing related to deposit promotions during the first quarter of 2008. Advertising expenses increased further during the first quarter of 2008 as a result of higher marketing costs associated with new branch openings.

Travel expenses decreased for the three months ended March 31, 2008, as compared to the same period of the prior year, due to increased focus on
reducing travel and entertainment expenses.

Other expenses increased for the three months ended March 31, 2008, as compared to the
same period of the prior year, due to fair value adjustments related to short-term participations in mortgage loans held for sale as well as increased subservicing fees associated with the increased balances of mortgage warehouse assets partially
offset by gains on the related call options and forward sales contracts.

Severance expense relates primarily to the reduction in force
efforts in 2007. This expense decreased significantly for first quarter of 2008.

Merger related expenses were incurred to integrate
Commercial Bankshares, Inc. and Citrus & Chemical Bancorporation, Inc. in 2007. The costs consisted of travel, training, marketing, retention bonuses and incremental charges related to the integration of the acquired banks.

During first quarter of 2008, the Company prepaid a $100 million Federal Home Loan Bank advance and incurred a $5.9 million net loss related to the early
extinguishment of debt. During the first quarter of 2007, the Company redeemed $70 million of trust preferred securities and incurred a $4.4 million net loss related to the early extinguishment of debt.

Provision for Income Taxes

BancGroups
provision for income taxes is based on an approximate 28.2% and 33.4% estimated effective tax rates for the three months ended March 31, 2008 and 2007, respectively. The effective tax rate was lower in the first quarter of 2008 primarily due to
increases in permanent exclusions and tax credits as a percentage of pretax income, as compared to the prior year. The provisions for income taxes for the three months ended March 31, 2008 and 2007 was $9.7 million and $18.3 million,
respectively.



32



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REVIEW OF STATEMENT OF CONDITION



Financial Condition

Changes in selected components of the Companys balance sheet from December 31, 2007 to March 31, 2008 are as follows:



|                                                |  |                        |            |                  |   |                     |  |   |           |   |  |       |  
|----------------------------------------------- |  | ---------------------- | ---------- | ---------------- | - | ------------------- |  | - | --------- | - |  | ----- | -
|                                                |  | March 31,2008          |            | December 31,2007 |   | Increase (Decrease) | 
|                                                |  |                        | $          |                  |   | %                   | 
|                                                |  | (Dollars in thousands) |           
|Securities purchased under agreements to resell |  | $                      | 2,106,205  |                  | $ | 2,049,664           |  | $ | 56,541    |   |  | 2.8   | %
|Securities                                      |  |                        | 3,494,654  |                  |   | 3,682,510           |  |   | (187,856  | ) |  | (5.1  | )
|Loans held for sale                             |  |                        | 2,951,777  |                  |   | 1,544,222           |  |   | 1,407,555 |   |  | 91.1  |  
|Loans, net of unearned income                   |  |                        | 16,094,478 |                  |   | 15,923,178          |  |   | 171,300   |   |  | 1.1   |  
|Goodwill                                        |  |                        | 1,005,211  |                  |   | 1,008,168           |  |   | (2,957    | ) |  | (0.3  | )
|Total assets                                    |  |                        | 27,352,747 |                  |   | 25,975,989          |  |   | 1,376,758 |   |  | 5.3   |  
|Non-time deposits                               |  |                        | 9,577,551  |                  |   | 9,771,573           |  |   | (194,022  | ) |  | (2.0  | )
|Total deposits                                  |  |                        | 19,271,328 |                  |   | 18,544,267          |  |   | 727,061   |   |  | 3.9   |  
|Short-term borrowings                           |  |                        | 1,179,589  |                  |   | 568,721             |  |   | 610,868   |   |  | 107.4 |  
|Long-term debt                                  |  |                        | 4,169,939  |                  |   | 4,023,836           |  |   | 146,103   |   |  | 3.6   |  
|Minority interest/REIT preferred securities     |  |                        | 293,058    |                  |   | 293,058             |  |   |          |   |  |      |  
|Shareholders equity                            |  |                        | 2,172,017  |                  |   | 2,273,571           |  |   | (101,554  | ) |  | (4.5  | )

Securities

The composition of the Companys securities portfolio is reflected in the following table:



|                                                                                                      |  |                                 |           |                                    |   |          
|----------------------------------------------------------------------------------------------------- |  | ------------------------------- | --------- | ---------------------------------- | - | ---------
|                                                                                                      |  | Carrying Value atMarch 31, 2008 |           | Carrying Value atDecember 31, 2007
|                                                                                                      |  | (In thousands)                 
|Securities available for sale:                                                                        |  |                                 |           |                                    |   |          
|Mortgage-backed securities and other pass-through securities of Government Sponsored Entities (GSEs) |  | $                               | 648,008   |                                    | $ | 655,636  
|Collateralized mortgage obligations                                                                   |  |                                 | 2,236,593 |                                    |   | 2,404,914
|Obligations of state and political subdivisions                                                       |  |                                 | 361,998   |                                    |   | 371,930  
|Federal Reserve and FHLB stock and other                                                              |  |                                 | 246,855   |                                    |   | 248,802  
|                                                                                                      |  |                                 |           |                                    |   |          
|Total securities available for sale                                                                   |  |                                 | 3,493,454 |                                    |   | 3,681,282
|                                                                                                      |  |                                 |           |                                    |   |          
|Held to maturity securities:                                                                          |  |                                 |           |                                    |   |          
|U.S. Treasury securities and obligations of GSEs                                                     |  |                                 | 500       |                                    |   | 500      
|Mortgage-backed securities of GSEs                                                                   |  |                                 | 458       |                                    |   | 486      
|Collateralized mortgage obligations                                                                   |  |                                 | 9         |                                    |   | 9        
|Obligations of state and political subdivisions                                                       |  |                                 | 233       |                                    |   | 233      
|                                                                                                      |  |                                 |           |                                    |   |          
|Total held to maturity securities                                                                     |  |                                 | 1,200     |                                    |   | 1,228    
|                                                                                                      |  |                                 |           |                                    |   |          
|Total securities                                                                                      |  | $                               | 3,494,654 |                                    | $ | 3,682,510
|                                                                                                      |  |                                 |           |                                    |   |          



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Securities by Credit Rating at March 31, 2008



|                                                           |  |                             |           |                                            |          |           |         |       |         |  |   |       |  |   |         |  |   |          
|---------------------------------------------------------- |  | --------------------------- | --------- | ------------------------------------------ | -------- | --------- | ------- | ----- | ------- |  | - | ----- |  | - | ------- |  | - | ---------
|                                                           |  | Government /GSE Obligations |           | Standard & Poors or EquivalentDesignation |          | Other     |         | Total
|                                                           |  |                             | AAA       |                                            | A-to AA+ |           | Unrated |       |        
|                                                           |  | (In thousands)             
|U.S. Treasury securities and obligations of GSEs          |  | $                           | 500       |                                            | $        |          |         | $     |        |  | $ |      |  | $ |        |  | $ | 500      
|Mortgage-backed and other pass-through securities of GSEs |  |                             | 648,466   |                                            |          |          |         |       |        |  |   |      |  |   |        |  |   | 648,466  
|Collateralized mortgage obligations                        |  |                             | 711,364   |                                            |          | 1,525,238 |         |       |        |  |   |      |  |   |        |  |   | 2,236,602
|Obligations of state and political subdivisions            |  |                             |          |                                            |          | 215,315   |         |       | 142,953 |  |   | 1,264 |  |   | 2,699   |  |   | 362,231  
|Federal Reserve and FHLB stock and other                   |  |                             |          |                                            |          |          |         |       | 3,991   |  |   |      |  |   | 242,864 |  |   | 246,855  
|                                                           |  |                             |           |                                            |          |           |         |       |         |  |   |       |  |   |         |  |   |          
|Total securities                                           |  | $                           | 1,360,330 |                                            | $        | 1,740,553 |         | $     | 146,944 |  | $ | 1,264 |  | $ | 245,563 |  | $ | 3,494,654
|                                                           |  |                             |           |                                            |          |           |         |       |         |  |   |       |  |   |         |  |   |          

Securities by Credit Rating at December 31, 2007



|                                                           |  |                             |           |                                            |          |           |         |       |       |  |   |       |  |   |         |  |   |          
|---------------------------------------------------------- |  | --------------------------- | --------- | ------------------------------------------ | -------- | --------- | ------- | ----- | ----- |  | - | ----- |  | - | ------- |  | - | ---------
|                                                           |  | Government /GSE Obligations |           | Standard & Poors or EquivalentDesignation |          | Other     |         | Total
|                                                           |  |                             | AAA       |                                            | A-to AA+ |           | Unrated |       |      
|                                                           |  | (In thousands)             
|U.S. Treasury securities and obligations of GSEs          |  | $                           | 500       |                                            | $        |          |         | $     |      |  | $ |      |  | $ |        |  | $ | 500      
|Mortgage-backed and other pass-through securities of GSEs |  |                             | 656,122   |                                            |          |          |         |       |      |  |   |      |  |   |        |  |   | 656,122  
|Collateralized mortgage obligations                        |  |                             | 703,876   |                                            |          | 1,701,047 |         |       |      |  |   |      |  |   |        |  |   | 2,404,923
|Obligations of state and political subdivisions            |  |                             |          |                                            |          | 368,048   |         |       | 2,321 |  |   | 1,794 |  |   |        |  |   | 372,163  
|Federal Reserve and FHLB stock and other                   |  |                             |          |                                            |          |          |         |       | 4,965 |  |   |      |  |   | 243,837 |  |   | 248,802  
|                                                           |  |                             |           |                                            |          |           |         |       |       |  |   |       |  |   |         |  |   |          
|Total securities                                           |  | $                           | 1,360,498 |                                            | $        | 2,069,095 |         | $     | 7,286 |  | $ | 1,794 |  | $ | 243,837 |  | $ | 3,682,510
|                                                           |  |                             |           |                                            |          |           |         |       |       |  |   |       |  |   |         |  |   |          

During the first quarter of 2008, the Company sold approximately $217 million in securities and
purchased approximately $219 million in new securities, excluding transactions in Federal Home Loan Bank of Atlanta (FHLB) stock.



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Mortgage Warehouse Assets

Colonial had a facility in which it sold certain mortgage warehouse loans and short-term participations reported as loans held for sale to a wholly-owned special purpose entity which then sold interests in those
assets to third-party commercial paper conduits (conduits). The Companys strong liquidity position enabled Colonial to reduce mortgage warehouse assets sold to $0, at which point the facility was terminated by its terms. The assets that had
been sold to the conduits had the same high quality credit characteristics as those on Colonials balance sheet.

A summary of the
major components of the mortgage warehouse divisions assets is shown in the table below:



|                                                 |  |                |           |                  |   |          
|------------------------------------------------ |  | -------------- | --------- | ---------------- | - | ---------
|                                                 |  | March 31,2008  |           | December 31,2007
|                                                 |  | (In thousands)
|Securities purchased under agreements to resell  |  | $              | 1,606,205 |                  | $ | 1,549,664
|Loans held for sale                              |  |                | 2,885,498 |                  |   | 1,484,502
|Mortgage warehouse loans                         |  |                | 598,021   |                  |   | 290,603  
|                                                 |  |                |           |                  |   |          
|Total mortgage warehouse assets on balance sheet |  |                | 5,089,724 |                  |   | 3,324,769
|Interests sold                                   |  |                |           |                  |   |          
|Loans held for sale                              |  |                |          |                  |   | 769,221  
|Mortgage warehouse loans                         |  |                |          |                  |   | 230,779  
|                                                 |  |                |           |                  |   |          
|Total mortgage warehouse assets under management |  | $              | 5,089,724 |                  | $ | 4,324,769
|                                                 |  |                |           |                  |   |          

Loans Held for Sale

Loans held for sale is comprised of three elements: short-term participations in mortgage loans, retail mortgages and other loans held for sale. Total loans held for sale at March 31, 2008 increased $1.4 billion,
or 91%, from December 31, 2007, primarily due to an increase in participations purchased by the mortgage warehouse division in the first quarter driven by customer demand and an increase in VA and FHA retail mortgages originated by Colonial.
Loans held for sale fluctuate as demand for residential mortgages changes and customer demands change.

Loans

As real estate markets in the U.S. have deteriorated over the past two quarters, the demand for loan products has declined. The impact has been most
noticeable in the residential construction market. The impact of the slowdown to Colonial is less demand for loans from customers who meet the Companys underwriting criteria. While loans in the mortgage warehouse division increased $307
million from December 31, 2007, total loans, net of unearned income, excluding the mortgage warehouse division, decreased $136 million, or 1%.



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Gross Loan Portfolio

LOGO

The following table shows the Companys loans by type at March 31, 2008 and December 31, 2007:



|                                       |  |                |            |   |                   |   |            |  
|-------------------------------------- |  | -------------- | ---------- | - | ----------------- | - | ---------- | -
|                                       |  | March 31, 2008 |            |   | December 31, 2007 |  
|                                       |  | (In thousands) |           
|Commercial, financial and agricultural |  | $              | 1,792,340  |   |                   | $ | 1,506,986  |  
|Commercial real estate                 |  |                | 5,054,001  |   |                   |   | 5,012,773  |  
|Real estate construction               |  |                | 6,179,380  |   |                   |   | 6,296,262  |  
|Residential real estate                |  |                | 2,653,791  |   |                   |   | 2,673,823  |  
|Consumer and other                     |  |                | 434,006    |   |                   |   | 452,642    |  
|                                       |  |                |            |   |                   |   |            |  
|Total loans                            |  |                | 16,113,518 |   |                   |   | 15,942,486 |  
|Less: unearned income                  |  |                | (19,040    | ) |                   |   | (19,308    | )
|                                       |  |                |            |   |                   |   |            |  
|Total loans, net of unearned income    |  | $              | 16,094,478 |   |                   | $ | 15,923,178 |  
|                                       |  |                |            |   |                   |   |            |  

Loans classified as commercial, financial and agricultural consist of secured and unsecured credit
lines and amortizing loans for various industrial, agricultural, commercial, financial, retail or service businesses, as well as mortgage warehouse lines of credit.

Commercial real estate loans are collateralized by real estate held for investment and business purposes. Included in commercial real estate are loans categorized as owner-occupied, which totaled $1.8 billion, or
10.9% of the total loan portfolio, at March 31, 2008.

Real estate construction loans are made to individuals, companies or developers
for use in the purchase or construction of commercial properties such as single and multi-family residential and non-residential real estate. These loans are repaid by the cash flows generated through the operation, sale or refinancing of the
underlying commercial property.

Residential real estate loans consist primarily of adjustable and fixed rate first mortgages on
single-family, owner-occupied properties.

Consumer and other loans include loans to individuals or businesses for various purposes that
may be unsecured or secured with assorted types of collateral such as cars, trucks, boats, stocks and depository accounts.



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Types of loans in this category include loans for investment purposes, vehicle purchases, purchases of personal property, personal expense loans and
overdrafts of deposit accounts. These loans are made to individuals and businesses such as financial institutions, municipalities and not-for-profit organizations.

Other Earning Assets

Other earning assets is comprised of interest bearing deposits in banks, federal funds sold and
securities purchased under agreements to resell. Total other earning assets decreased $32 million, or 2%, from December 31, 2007 to March 31, 2008, primarily from a decrease in federal funds sold offset by an increase in securities
purchased under agreements to resell.

Goodwill

BancGroup records goodwill in an amount equal to the excess of the cost of an acquisition over the fair value of the net assets acquired. During the first quarter of 2008, BancGroup continued to finalize the purchase accounting for
acquisitions that closed during 2007, thereby resulting in a $3 million reduction in goodwill from December 31, 2007. BancGroup tests goodwill for impairment on an annual basis, or more often if events or circumstances indicate that there may
be impairment. The challenging interest rate and credit environments that have persisted since late 2007 have impacted BancGroups results of operations and, should they persist, could impact the recoverability of the Companys goodwill,
particularly with respect to the Florida reporting units. BancGroup continues to monitor this matter and, based on current results and expectations, has determined that the fair value of its reporting units continues to exceed their carrying values.

Deposits

Total deposits increased
$727 million, or 4%, from December 31, 2007 to March 31, 2008. The increase was driven by time deposits which increased $921 million, or 10.5%, over that same time period. Refer to the Liquidity and Fundingsection of
Managements Discussion and Analysis for further information.

Wholesale Borrowings

Wholesale borrowings are comprised of short-term borrowings and long-term debt. Short-term borrowings consist of repurchase agreements and federal funds
purchased. Long-term debt consists of FHLB advances, subordinated debt, junior subordinated debt and capital lease obligations. Total short-term borrowings increased $611 million, or 107%, from December 31, 2007 to March 31, 2008. Asset
growth outpaced the growth in deposits during the quarter, resulting in an increase in short-term borrowings, primarily of Federal Funds Purchased, which increased by $639 million. Total long-term debt increased $146 million, or 4%, from
December 31, 2007 to March 31, 2008 as the Company issued $250 million of subordinated debt, which qualifies as Tier II regulatory capital, and paid off a $100 million FHLB borrowing and $7.7 million of variable rate subordinated debt.
Refer to Note 11, Long-Term Debt,for additional information.

RISK MANAGEMENT



Credit Risk Management

Colonial has some measure of credit risk in most of its primary banking activities, but the majority of this risk is associated with lending.
Colonials Credit Risk Management philosophy has historically been, and continues to be, focused on establishing and administering policies and procedures such that Colonials credit quality has outperformed Colonials peers in most
economic environments. Consistent with this philosophy, Colonial has maintained conservative underwriting and credit product standards and has generally avoided nontraditional credit products. The Companys credit risk management process is
centered on comprehensive credit and underwriting policies and procedures, a strong and effective loan approval process, continual audit and review functions and experienced credit professionals at the regional, business-line and BancGroup levels.
In



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addition, Colonial has a credit risk reporting and analysis group which falls under the supervision of the Chief Executive Officer. This group continually
evaluates changes in credit risk, monitors large concentrations and exposures of all types and locations and implements Colonial Banks allowance methodology. Colonial also has a special assets/collections group which is charged with minimizing
losses, maximizing recoveries and implementing strategies to reduce problem asset levels. In addition, the internal auditors and regulatory examiners review and perform detailed tests of the Companys credit risk management activities, such as
credit underwriting, loan administration and the allowance process. The overall goals of Colonials credit risk management activities include providing a sound basis for new credit extensions and early recognition of problems/risks so that
Colonial can maintain a high quality loan portfolio and achieve long-term earnings growth.

In addition to lending, credit risk is present
in Colonials securities portfolio, derivative instruments and certain deposit activities. The Companys treasury and deposit departments have credit risk management processes in place in order to manage credit risk in these activities.

Commercial Real Estate and Real Estate Construction Loan Categories

A large portion of BancGroups loans are secured by real estate, with commercial real estate and construction loans representing 31.4% and 38.3% of
total loans as of March 31, 2008, respectively. BancGroups commercial real estate and construction loans are spread geographically throughout Alabama, Florida and other areas including metropolitan Atlanta, Dallas, Reno and Las Vegas with
no more than 12.67% of total commercial real estate and construction loans in any one metropolitan statistical area (MSA). The Alabama economy generally experiences a slow but steady rate of growth, while BancGroups markets in Florida,
Georgia, Nevada and Texas have historically experienced higher rates of growth. Currently, Florida, metro Atlanta and Nevada are experiencing a slow-down in real estate markets due to over supply of houses in said markets as well as less demand for
real estate in the current environment. The collateral held in the commercial real estate and construction portfolios consists of various property types such as retail properties, 1-4 family residential developments and lots, office buildings, land
held for future development or construction, residential homes under construction, multi-family housing, condominium properties, warehouses, lodging and health service facilities. The relatively small average loan size and the application of
conservative underwriting guidelines further reduce risk. Colonial focuses its commercial real estate and construction lending efforts on high quality properties owned and/or developed by experienced customers with whom BancGroup has established
relationships. In addition to the subject properties, substantially all construction and commercial real estate loans have personal guarantees of the principals involved. The owner-occupied commercial real estate portfolio represented 34.8% of the
total commercial real estate portfolio outstanding at March 31, 2008. Owner-occupied real estate is primarily dependent on cash flows from operating businesses rather than on the sale or rental of the property; therefore, these loans generally
carry less risk than other commercial real estate loans.

Management believes that Colonials existing diversity of commercial real
estate and construction loans reduces BancGroups risk exposure. The current distribution remains diverse in location, size and collateral function. This diversification, in addition to Colonials emphasis on quality underwriting, serves
to reduce the risk of losses. The following charts reflect the geographic diversity and property type distribution of total construction and commercial real estate loans at March 31, 2008:



|                                               |  |                        |           |           |       |   |                       |   |           |  |       |  
|---------------------------------------------- |  | ---------------------- | --------- | --------- | ----- | - | --------------------- | - | --------- |  | ----- | -
|                                               |  | Construction           |           | % ofTotal |       |   | CommercialReal Estate |   | % ofTotal | 
|                                               |  | (Dollars in thousands) |          
|Average Loan Size                              |  | $                      | 1,057     |           |       |   |                       | $ | 694       |  |       |  
|Geographic Diversity (by property location)(1) |  |                        |           |           |       |   |                       |   |           |  |       |  
|Florida                                        |  | $                      | 2,973,466 |           | 48.1  | % |                       | $ | 3,237,770 |  | 64.1  | %
|Alabama                                        |  |                        | 622,560   |           | 10.1  | % |                       |   | 616,182   |  | 12.2  | %
|Georgia                                        |  |                        | 628,295   |           | 10.1  | % |                       |   | 331,965   |  | 6.5   | %
|Texas                                          |  |                        | 999,381   |           | 16.2  | % |                       |   | 309,982   |  | 6.1   | %
|Nevada                                         |  |                        | 511,473   |           | 8.3   | % |                       |   | 205,772   |  | 4.1   | %
|Other                                          |  |                        | 444,205   |           | 7.2   | % |                       |   | 352,330   |  | 7.0   | %
|                                               |  |                        |           |           |       |   |                       |   |           |  |       |  
|Total                                          |  | $                      | 6,179,380 |           | 100.0 | % |                       | $ | 5,054,001 |  | 100.0 | %
|                                               |  |                        |           |           |       |   |                       |   |           |  |       |  



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|                                 |  |                             |   |  |                |   |                             |                              |  |                                |   |  |                |  
|-------------------------------- |  | --------------------------- | - |  | -------------- | - | --------------------------- | ---------------------------- |  | ------------------------------ | - |  | -------------- | -
|                                 |  | Property TypeDistribution % |   |  |                |   | Property TypeDistribution % |                             
|                                 |  | ConstructionPortfolio       |   |  | TotalPortfolio |   |                             |                              |  | CommercialReal EstatePortfolio |   |  | TotalPortfolio |  
|Residential development and lots |  | 26.3                        | % |  | 10.1           | % |                             | Office                       |  | 23.2                           | % |  | 7.3            | %
|Residential land                 |  | 7.4                         | % |  | 2.8            | % |                             | Retail                       |  | 22.9                           | % |  | 7.2            | %
|Residential home construction    |  | 12.8                        | % |  | 4.9            | % |                             | Warehouse                    |  | 14.7                           | % |  | 4.6            | %
|Commercial development and lots  |  | 9.9                         | % |  | 3.8            | % |                             | Multi-Family                 |  | 8.6                            | % |  | 2.7            | %
|Commercial land                  |  | 16.4                        | % |  | 6.3            | % |                             | Healthcare                   |  | 6.9                            | % |  | 2.1            | %
|Condominium                      |  | 6.3                         | % |  | 2.4            | % |                             | Lodging                      |  | 5.0                            | % |  | 1.6            | %
|Retail                           |  | 5.9                         | % |  | 2.3            | % |                             | Church or School             |  | 3.9                            | % |  | 1.2            | %
|Multi-Family                     |  | 3.9                         | % |  | 1.5            | % |                             | Industrial                   |  | 2.6                            | % |  | 0.8            | %
|Office                           |  | 3.2                         | % |  | 1.2            | % |                             | Farm                         |  | 2.5                            | % |  | 0.8            | %
|Healthcare                       |  | 2.4                         | % |  | 0.9            | % |                             | Recreation                   |  | 0.8                            | % |  | 0.3            | %
|Other(2)                         |  | 5.5                         | % |  | 2.1            | % |                             | Other(2)                     |  | 8.9                            | % |  | 2.8            | %
|                                 |  |                             |   |  |                |   |                             |                              |  |                                |   |  |                |  
|Total Construction               |  | 100.0                       | % |  | 38.3           | % |                             | Total Commercial Real Estate |  | 100.0                          | % |  | 31.4           | %
|                                 |  |                             |   |  |                |   |                             |                              |  |                                |   |  |                |  



|(1) | No more than 12.67% of construction and commercial real estate loans are in any one MSA.
|--- | ----------------------------------------------------------------------------------------

|(2) | 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)          |  | $            | 1,404,281 |   |                       | $ | 856,242 |  
|% of 75 largest loans to category total        |  |              | 22.7      | % |                       |   | 16.9    | %
|Average Loan to Value Ratio (75 largest loans) |  |              | 70.5      | % |                       |   | 69.9    | %
|Average Debt Coverage Ratio (75 largest loans) |  |              | N/A       |   |                       |   | 1.51x   |  

Residential Construction Loan Category

The Companys residential construction portfolio consists of residential development and lots, residential land and residential home construction.
The majority of the Companys nonperforming assets and net charge-offs during the fourth quarter of 2007 and the first quarter of 2008 relate to residential construction loans. The loans are generally short-term, have the personal guarantees of
the borrowers and were underwritten such that each borrower has substantial equity in the project. The lack of real estate sales has caused liquidity issues for some of the Companys borrowers which has resulted in higher nonperforming loans
and losses than historical norms in the portfolio.



39



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##### Table of Contents

The following table and chart show the components of residential construction loans at March 31,
2008:

Residential Construction Loans



|        |  |                       |       |   |                           |   |                     |   |                     |  |                    |     |                        |   |      |  |              |     |                  |   |     |  |   |     |  |   |     |  |   |   
|------- |  | --------------------- | ----- | - | ------------------------- | - | ------------------- | - | ------------------- |  | ------------------ | --- | ---------------------- | - | ---- |  | ------------ | --- | ---------------- | - | --- |  | - | --- |  | - | --- |  | - | --
|        |  | TotalOutstanding      |       |   | Acquisitions &Development |   | BuilderLotInventory |   | Consumer-Owned Lots |  | ResidentialPresold |     | ResidentialSpeculative |   | Land |  | Condominiums |     | NationalBuilders
|        |  | Amount                |       | % |                           |   |                     |   |                     |  |                    |     |                       
|        |  | (Dollars in millions)
|Florida |  | $                     | 1,608 |   | 49                        | % |                     | $ | 568                 |  | $                  | 72  |                        | $ | 99   |  | $            | 113 |                  | $ | 214 |  | $ | 224 |  | $ | 298 |  | $ | 20
|Texas   |  |                       | 540   |   | 17                        |   |                     |   | 279                 |  |                    | 41  |                        |   | 5    |  |              | 17  |                  |   | 74  |  |   | 75  |  |   | 16  |  |   | 33
|Georgia |  |                       | 410   |   | 13                        |   |                     |   | 188                 |  |                    | 32  |                        |   | 2    |  |              | 30  |                  |   | 115 |  |   | 20  |  |   | 23  |  |   |  
|Alabama |  |                       | 393   |   | 12                        |   |                     |   | 126                 |  |                    | 32  |                        |   | 27   |  |              | 26  |                  |   | 151 |  |   | 24  |  |   | 7   |  |   |  
|Nevada  |  |                       | 204   |   | 6                         |   |                     |   | 80                  |  |                    | 1   |                        |   | 2    |  |              | 22  |                  |   | 25  |  |   | 49  |  |   | 25  |  |   |  
|Other   |  |                       | 110   |   | 3                         |   |                     |   | 32                  |  |                    | 2   |                        |   | 1    |  |              | 3   |                  |   | 3   |  |   | 48  |  |   | 21  |  |   |  
|        |  |                       |       |   |                           |   |                     |   |                     |  |                    |     |                        |   |      |  |              |     |                  |   |     |  |   |     |  |   |     |  |   |   
|Total   |  | $                     | 3,265 |   | 100                       | % |                     | $ | 1,273               |  | $                  | 180 |                        | $ | 136  |  | $            | 211 |                  | $ | 582 |  | $ | 440 |  | $ | 390 |  | $ | 53
|        |  |                       |       |   |                           |   |                     |   |                     |  |                    |     |                        |   |      |  |              |     |                  |   |     |  |   |     |  |   |     |  |   |   

Residential Construction Loans

LOGO

Other Loan Categories

The risks associated with loans classified as commercial, financial and agricultural are generally related to the earnings capacity of, and the cash flows generated from, the specific business activities of the
borrowers.

BancGroup has a history of successful residential real estate lending, and the asset quality ratios for residential real estate
loans remain favorable. The Company has conservative underwriting guidelines and has not offered any products targeting sub-prime borrowers and does not offer higher risk mortgage products such as option ARMS, pick a payment loans and
low or no documentation loans.

Regarding consumer and other loans, the principal source of repayment is the earning capacity of the
individual borrower and, on collateralized loans, the collateral serves as a secondary source of repayment.



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Allowance for Loan Losses

Managements ongoing evaluation of the adequacy of the allowance for loan losses considers both impaired and unimpaired loans and takes into consideration Colonials past loan loss experience, known and
inherent risks in the portfolio, existing adverse situations that may affect the borrowers ability to repay, estimated value of any underlying collateral, an analysis of existing guarantees and an analysis of current economic conditions.

Colonial, through its lending and credit functions, continuously reviews its loan portfolio for credit risk. Colonial employs an
independent credit review area that reviews the lending and credit functions to validate that credit risks are appropriately identified. The Company remains committed to the early recognition of problem loans and to ensuring an adequate level of
allowance to cover inherent losses. Using input from the credit risk identification process, the Companys credit risk management area analyzes and validates the Companys allowance for loan losses calculations. The analysis includes four
basic components: general allowances for loan pools, specific allowances for individual loans, allowances based on identified economic conditions and other risk factors and the overall allowance level (which gives rise to the unallocated component
of the allowance).

Management reviews the methodology, calculations and results and ensures that the calculations are appropriate and that
all material risk elements have been assessed in order to determine the appropriate level of allowance for the inherent losses in the loan portfolio at each quarter end. Past due balances, nonaccrual balances, and potential problem loan balances are
not absolute indicators of the losses inherent in the loan portfolio, but are considered in the overall evaluation of the adequacy of the allowance for loan losses. In addition, the allowance for loan losses methodology is discussed with and
reviewed by the Risk Committee of the Board of Directors on a quarterly basis.

The following table summarizes the Companys loan loss
experience for the periods ended March 31, 2008 and 2007:



|                                                                       |  |                    |         |   |               |   |         |  
|---------------------------------------------------------------------- |  | ------------------ | ------- | - | ------------- | - | ------- | -
|                                                                       |  | Three Months Ended |        
|                                                                       |  | March 31,2008      |         |   | March 31,2007 |  
|                                                                       |  | (In thousands)     |        
|Allowance for loan lossesJanuary 1                                    |  | $                  | 238,845 |   |               | $ | 174,850 |  
|Net charge-offs                                                        |  |                    | (33,593 | ) |               |   | (2,195  | )
|Provision for loan losses                                              |  |                    | 35,543  |   |               |   | 2,250   |  
|Reduction due to sale of mortgage loans originally held for investment |  |                    |        |   |               |   | (2,303  | )
|                                                                       |  |                    |         |   |               |   |         |  
|Allowance for loan lossesend of period                                |  | $                  | 240,795 |   |               | $ | 172,602 |  
|                                                                       |  |                    |         |   |               |   |         |  



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Analysis of Net Charge-Offs



|                                                                        |  |                        |        |   |      |   |       |  
|----------------------------------------------------------------------- |  | ---------------------- | ------ | - | ---- | - | ----- | -
|                                                                        |  | March 31               |       
|                                                                        |  | 2008                   |        |   | 2007 |  
|                                                                        |  | (Dollars in thousands) |       
|Charge-offs:                                                            |  |                        |        |   |      |   |       |  
|Commercial, financial and agricultural                                  |  | $                      | 2,262  |   |      | $ | 1,021 |  
|Commercial real estate                                                  |  |                        | 994    |   |      |   | 236   |  
|Real estate construction                                                |  |                        | 27,998 |   |      |   | 1,031 |  
|Residential real estate                                                 |  |                        | 1,460  |   |      |   | 213   |  
|Consumer and other                                                      |  |                        | 2,376  |   |      |   | 1,041 |  
|                                                                        |  |                        |        |   |      |   |       |  
|Total charge-offs                                                       |  |                        | 35,090 |   |      |   | 3,542 |  
|                                                                        |  |                        |        |   |      |   |       |  
|Recoveries:                                                             |  |                        |        |   |      |   |       |  
|Commercial, financial and agricultural                                  |  |                        | 270    |   |      |   | 485   |  
|Commercial real estate                                                  |  |                        | 81     |   |      |   | 22    |  
|Real estate construction                                                |  |                        | 277    |   |      |   | 39    |  
|Residential real estate                                                 |  |                        | 214    |   |      |   | 233   |  
|Consumer and other                                                      |  |                        | 655    |   |      |   | 568   |  
|                                                                        |  |                        |        |   |      |   |       |  
|Total recoveries                                                        |  |                        | 1,497  |   |      |   | 1,347 |  
|                                                                        |  |                        |        |   |      |   |       |  
|Net charge-offs:                                                        |  |                        |        |   |      |   |       |  
|Commercial, financial and agricultural                                  |  |                        | 1,992  |   |      |   | 536   |  
|Commercial real estate                                                  |  |                        | 913    |   |      |   | 214   |  
|Real estate construction                                                |  |                        | 27,721 |   |      |   | 992   |  
|Residential real estate                                                 |  |                        | 1,246  |   |      |   | (20   | )
|Consumer and other                                                      |  |                        | 1,721  |   |      |   | 473   |  
|                                                                        |  |                        |        |   |      |   |       |  
|Net charge-offs                                                         |  | $                      | 33,593 |   |      | $ | 2,195 |  
|                                                                        |  |                        |        |   |      |   |       |  
|Percent of net charge-offs to average loan category (annualized basis): |  |                        |        |   |      |   |       |  
|Commercial, financial and agricultural                                  |  |                        | 0.50   | % |      |   | 0.16  | %
|Commercial real estate                                                  |  |                        | 0.07   | % |      |   | 0.02  | %
|Real estate construction                                                |  |                        | 1.80   | % |      |   | 0.06  | %
|Residential real estate                                                 |  |                        | 0.19   | % |      |   |      |  
|Consumer and other                                                      |  |                        | 1.36   | % |      |   | 0.40  | %
|Total                                                                   |  |                        | 0.84   | % |      |   | 0.06  | %

Nonperforming Assets and Potential Problem Loans

Management maintains an aggressive nonaccrual and problem loan identification philosophy. Through the ongoing monitoring and review of all pools of risk
in the loan portfolio, this philosophy ensures that problem loans are identified quickly and the risk of loss is minimized.

Nonperforming
assets consists of loans on nonaccrual status, renegotiated loans, other real estate owned, repossessions and loans held for sale. When management determines that a loan no longer meets the criteria for a performing loan and collection of interest
appears doubtful, the loan is placed on nonaccrual status. Loans are generally placed on nonaccrual if full collection of principal and interest becomes unlikely (even if all payments are current) or 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 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 loans that are contractually 90 days past due, renegotiated or nonaccrual.

Other real estate owned includes real estate acquired through foreclosure or deed taken in lieu of foreclosure. These amounts are recorded at estimated fair value, less costs to sell the property, with any difference between the fair value
of the property and the carrying value of the loan being charged to the



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allowance for loan losses. Subsequent changes in fair value are reported as adjustments to the carrying amount, not to exceed the initial carrying value of
the assets at the time of transfer. Those subsequent changes, as well as any gains or losses recognized on the sale of these properties, are included in noninterest income or noninterest expense.



|                                                                                            |  |                        |         |   |                  |   |         |  
|------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                                            |  | March 31,2008          |         |   | December 31,2007 |  
|                                                                                            |  | (Dollars in thousands) |        
|Nonaccrual loans:                                                                           |  |                        |         |   |                  |   |         |  
|Commercial, financial and agricultural                                                      |  | $                      | 2,088   |   |                  | $ | 2,467   |  
|Commercial real estate                                                                      |  |                        | 14,447  |   |                  |   | 6,374   |  
|Real estate construction                                                                    |  |                        | 210,701 |   |                  |   | 96,397  |  
|Residential real estate                                                                     |  |                        | 18,359  |   |                  |   | 15,993  |  
|Consumer and other                                                                          |  |                        | 887     |   |                  |   | 655     |  
|                                                                                            |  |                        |         |   |                  |   |         |  
|Total nonaccrual loans                                                                      |  |                        | 246,482 |   |                  |   | 121,886 |  
|Renegotiated loans                                                                          |  |                        |        |   |                  |   |        |  
|                                                                                            |  |                        |         |   |                  |   |         |  
|Total nonperforming loans*                                                                  |  |                        | 246,482 |   |                  |   | 121,886 |  
|Other real estate owned and repossessions                                                   |  |                        | 19,831  |   |                  |   | 15,760  |  
|Loans held for sale                                                                         |  |                        |        |   |                  |   |        |  
|                                                                                            |  |                        |         |   |                  |   |         |  
|Total nonperforming assets*                                                                 |  | $                      | 266,313 |   |                  | $ | 137,646 |  
|                                                                                            |  |                        |         |   |                  |   |         |  
|Allowance as a percent of nonperforming assets*                                             |  |                        | 90      | % |                  |   | 174     | %
|Aggregate loans contractually past due 90 days or more for which interest is still accruing |  | $                      | 70,638  |   |                  | $ | 23,837  |  
|Net charge-offs quarter-to-date                                                             |  | $                      | 33,593  |   |                  | $ | 33,895  |  
|Net charge-offs year-to-date                                                                |  | $                      | 33,593  |   |                  | $ | 54,066  |  
|Total nonperforming assets* as a percent of net loans and other real estate                 |  |                        | 1.65    | % |                  |   | 0.86    | %
|Allowance as a percent of net loans                                                         |  |                        | 1.50    | % |                  |   | 1.50    | %
|Allowance as a percent of nonperforming loans*                                              |  |                        | 98      | % |                  |   | 196     | %



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

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. The increase in nonperforming assets in the first quarter of 2008 was primarily due to the downturn in the residential real estate market during the latter part of 2007 and the first quarter of 2008, which
negatively impacted the liquidity of a number of our borrowers. Refer to the Allowance for Loan Losses discussion in the Risk Management section of Managements Discussion and Analysis for additional information.

Included in nonperforming assets are loans that are considered impaired. Impaired loans totaled $235.2 million and $105.4 million at March 31, 2008,
and December 31, 2007 respectively. The related allowance for loan losses on impaired loans was $22.7 million at March 31, 2008 compared with $11.0 million at December 31, 2007. All of the impaired loans were on nonaccrual status.

In addition to nonperforming assets, the Company is aware of a number of potential problem loans where possible credit problems of
borrowers cause management to have concerns as to the ability of such borrowers to comply with present loan repayment terms and which may result in these loans being classified as nonperforming in the future. There were $542 million of potential
problem loans at March 31, 2008. Although these loans have been identified as potential problem loans, they may never become delinquent, nonperforming or impaired. Additionally, these loans are generally secured by commercial real estate or
other assets, thus reducing the potential for loss should they become nonperforming. Potential problem loans are considered in the determination of the adequacy of the allowance for loan losses.



43



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Asset/Liability Management

Asset/liability management (ALM) involves the evaluation, monitoring and management of interest rate risk, liquidity and funding. The Board of Directors has overall responsibility for Colonials ALM policies. To
ensure adherence to these policies, the Risk Committee of the Board of Directors establishes and monitors guidelines to control the sensitivity of earnings to changes in interest rates. The guidelines apply to both on and off-balance sheet
positions. The goal of the Risk Committee process is to maximize earnings while carefully controlling interest rate risk.

Interest Rate Risk

Interest rate risk, and its potential effect on earnings, is inherent in the operation of a financial institution. BancGroup is subject
to interest rate risk because:



| |  |  | Assets and liabilities may mature or re-price at different times (for example, if assets re-price faster than liabilities and interest rates are generally falling,
earnings will initially decline);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Assets and liabilities may re-price at the same time but by different amounts (for example, when the general level of interest rates is falling, Colonial Bank may
reduce rates paid on checking and savings deposit accounts by an amount that is less than the general decline in market interest rates);
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Short-term and long-term market interest rates may change by different amounts (for example, the shape of the yield curve may affect new loan yields and funding
costs differently); or
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change (for example, if long-term mortgage interest rates decline
sharply, mortgage-backed securities held in the securities available for sale portfolio may prepay significantly earlier than previously anticipatedwhich could reduce portfolio income). In addition, interest rates may have an indirect impact
on loan demand, credit losses, mortgage origination volume, the value of BancGroups pension asset/liability and other sources of earnings.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

ALM activities include lending, accepting and placing deposits, investing in securities, issuing debt and hedging interest rate risk. Sensitivity of earnings to interest rate changes arises when yields on assets
change in a different time period or in a different amount from interest cost on liabilities. To mitigate interest rate risk, the structure of the balance sheet is managed so that movements of interest rates on assets and liabilities are highly
correlated in a manner intended to allow Colonials interest bearing assets and liabilities to contribute to earnings even in periods of volatile interest rates.

Colonial employs the following measurement techniques in the management of interest rate risk: simulation of earnings and simulation of the economic value of equity. These techniques are complementary and are used in
concert to provide a comprehensive interest rate risk management capability.

Simulation of earnings is the primary tool used to measure
the sensitivity of earnings to interest rate changes. Using computer modeling techniques, Colonial is able to measure the potential impact of different interest rate assumptions on pre-tax earnings. All balance sheet positions, including derivative
financial instruments, are included in the model simulation.



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The following table represents the output from the Companys simulation model based on the balance
sheet at March 31, 2008, with comparable information for December 31, 2007. The table measures, consistently for both periods, the impact on net interest income of an immediate and sustained change in all market interest rates in 100 basis
point increments for the twelve 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 Changein 12 MonthProjectedNet InterestIncomeVersus Projected NetInterest Income Under NoRate Change(1) | 
|                    |  | March 31,2008  |  | December 31,2007                                                                                                  |  | March 31,2008 |   |  | December 31,2007 |   
|Basis Points Change |  |                |  |                                                                                                                   |  |               |   |  |                  |   
|+200                |  | 4.25           |  | 6.25                                                                                                              |  | 3.6           | % |  | 3.0              | % 
|+100                |  | 3.25           |  | 5.25                                                                                                              |  | 1.7           | % |  | 2.1              | % 
|No rate change      |  | 2.25           |  | 4.25                                                                                                              |  |              |   |  |                 |   
|-100                |  | 1.25           |  | 3.25                                                                                                              |  | 1.8           | % |  | (2.0             | )%



|(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 assets and liabilities on the balance sheet nor do they contemplate any actions BancGroup could undertake in response to
changes in interest rates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As shown in the table, the Company's balance sheet became liability sensitive in rates down from
December 31, 2007. On the asset side, an increase in the proportion of variable rate assets from December 31, 2007 to March 31, 2008 due to the increase in mortgage warehouse loans and loans held for sale increased asset sensitivity
as these balances were funded primarily with term deposits and overnight wholesale borrowings. Due to the significant drop in market rates of 200 basis points in the base scenario, mortgage warehouse asset rate floors are now either in the money or
close to their strike price which offsets and swings the sensitivity of the balance sheet structure in the down scenarios to be liability sensitive.

Liquidity and Funding

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. Maintaining and managing adequate liquidity and funding are other prominent focuses of ALM. The Company expects its liquidity needs to be met by deposit growth and through
wholesale funding sources.

Deposit growth remains a primary focus of BancGroups funding and liquidity strategy. Colonials
period end noninterest bearing deposits grew by $62 million, or 8% annualized over December 31, 2007. Total average deposits for the three months ended March 31, 2008, increased $2.8 billion, or 17%, over the same period of the prior year.
Excluding brokered deposits, total average deposits for the three months ended March 31, 2008 increased $1.6 billion, or 10%, over the same period of the prior year. With branches in four states where the population is expected to grow twice as
fast as the rest of the United States, retail deposits have been and are expected to continue to be a major component of BancGroups funding growth. However, intense competition for retail deposits has increased the cost of deposits above
certain wholesale sources.



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At March 31, 2008 and December 31, 2007, the Company had estimated wholesale funding available
to it in excess of $5 billion. BancGroup has worked to expand the availability of short-term and long-term wholesale funding sources to complement its core deposit base. The Company draws on a variety of funding sources to assist in funding earning
asset growth and managing deposit fluctuations. Federal funds lines and collateralized funding facilities are sources for short-term borrowings. Availability from the FHLB is also an important part of BancGroups wholesale funding. From time to
time, BancGroup has issued REIT preferred securities, subordinated debentures, subordinated notes and junior subordinated debt to provide both capital and funding.

Operational Risk Management

In providing banking services, Colonial processes cash, checks, wires and ACH transactions
which expose Colonial to operational risk. Controls over such processing activities are closely monitored to safeguard the assets of Colonial and its customers. However, from time to time, Colonial has incurred losses related to these processes and
there can be no assurance that such losses will not occur in the future.

Operational risk is the risk of losses attributable to human
error, systems failures, fraud or inadequate internal controls and procedures. This risk is mitigated through a system of internal controls that are designed to keep operational risk at levels appropriate to Colonials corporate standards in
view of the risks inherent in the markets in which Colonial operates. The system of internal controls includes policies and procedures that require the proper authorization, approval, documentation and monitoring of transactions. Each business unit
is responsible for complying with corporate policies and procedures. Colonials internal auditors monitor the overall effectiveness of the system of internal controls on an ongoing basis.

Colonial does not engage in business processes that are out of its primary areas of expertise but rather outsources non-core processing functions to
limit operational risk associated with non-core business.

Operational losses are monitored closely and historically have had no material
impact to earnings or capital.

CAPITAL MANAGEMENT



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. 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 bank dividend yields and payment ratios.

The amount of a cash dividend, if any, rests with the discretion of the Board of Directors 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.



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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 required for BancGroup is 4%. The minimum risk adjusted capital ratios established by the Federal Reserve are 4% for Tier I and 8% for total
capital. Higher capital ratios may be required by the Federal Reserve if warranted by the circumstance or risk profile. BancGroups actual capital ratios and the components of capital and risk adjusted asset information (subject to regulatory
review) are stated below:



|                                                           |  |                        |            |   |                  |   |            |  
|---------------------------------------------------------- |  | ---------------------- | ---------- | - | ---------------- | - | ---------- | -
|                                                           |  | March 31,2008          |            |   | December 31,2007 |  
|                                                           |  | (Dollars in thousands) |           
|Risk-Based Capital:                                        |  |                        |            |   |                  |   |            |  
|Shareholders equity                                       |  | $                      | 2,172,017  |   |                  | $ | 2,273,571  |  
|Unrealized losses on securities available-for-sale         |  |                        | 103,313    |   |                  |   | 3,673      |  
|Net impact of cash flow hedges and actuarial gains         |  |                        | (843       | ) |                  |   | 741        |  
|Qualifying minority interests in consolidated subsidiaries |  |                        | 293,917    |   |                  |   | 293,812    |  
|Qualifying trust preferred securities                      |  |                        | 105,000    |   |                  |   | 105,000    |  
|Intangible assets (net of allowed deferred taxes)          |  |                        | (1,046,453 | ) |                  |   | (1,053,822 | )
|Other adjustments                                          |  |                        | (4,278     | ) |                  |   | (3,304     | )
|                                                           |  |                        |            |   |                  |   |            |  
|Tier I Capital                                             |  |                        | 1,622,673  |   |                  |   | 1,619,671  |  
|                                                           |  |                        |            |   |                  |   |            |  
|Allowable loan loss and unfunded commitment reserves       |  |                        | 241,795    |   |                  |   | 239,845    |  
|Subordinated debt                                          |  |                        | 555,156    |   |                  |   | 310,805    |  
|                                                           |  |                        |            |   |                  |   |            |  
|Tier II Capital                                            |  |                        | 796,951    |   |                  |   | 550,650    |  
|                                                           |  |                        |            |   |                  |   |            |  
|Total Capital                                              |  | $                      | 2,419,624  |   |                  | $ | 2,170,321  |  
|                                                           |  |                        |            |   |                  |   |            |  
|Risk-Adjusted Assets                                       |  | $                      | 20,158,342 |   |                  | $ | 19,715,951 |  
|Quarterly Average Assets (for regulatory purposes)         |  | $                      | 26,600,393 |   |                  | $ | 24,266,011 |  
|                                                           |  |                        |            |   |                  |   |            |  
|Tier I Leverage Ratio                                      |  |                        | 6.10       | % |                  |   | 6.67       | %
|Risk-Adjusted Capital Ratios:                              |  |                        |            |   |                  |   |            |  
|Tier I Capital Ratio                                       |  |                        | 8.05       | % |                  |   | 8.22       | %
|Total Capital Ratio                                        |  |                        | 12.00      | % |                  |   | 11.01      | %

Common Stock Offering

On April 25, 2008, the Company completed a public common stock offering of 43.7 million shares at $8.00 per share for $350 million. The Company received proceeds of $333 million, which is net of all
expenses, commissions and underwriters discounts. The Company will use the proceeds for general corporate purposes as well as investments in subsidiaries.

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 quarter ended March 31, 2008 that has materially affected, or is reasonably likely to materially affect, the Companys disclosure controls and procedures. 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.



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PART II. OTHER INFORMATION



|Item 1. | Legal ProceedingsSee Notes to the Unaudited Consolidated Financial StatementsNote 8Commitments and Contingent Liabilities
|------- | ----------------------------------------------------------------------------------------------------------------------------



|Item 1A. | Risk Factors
|-------- | ------------

The Company has identified the
following additional risk factors that should be considered along with the risk factors included in BancGroups Annual Report on Form 10-K for the year ended December 31, 2007:

As a financial services company, our business and earnings are significantly affected by general business and economic conditions, particularly in the real estate industry, and accordingly, our business and
earnings could be harmed in the event of an economic slowdown or recession or a market downturn or disruption.

Our business and
earnings are sensitive to general business, economic and market conditions in the United States. These conditions include changes in short-term and long-term interest rates, inflation, deflation, fluctuation in the real estate and debt capital
markets, developments in national and regional economies and changes in government policies and regulations.

Our business and earnings are
particularly sensitive to economic and market conditions affecting the real estate industry because most of our loan portfolio consists of commercial real estate, construction and residential loans. While generally containing lower risk than
unsecured loans, commercial real estate and construction loans generally involve higher credit risk than conventional single-family residential loans. Such loans generally involve larger individual loan balances. In addition, real estate
construction loans may be affected to a greater extent than residential loans by adverse conditions in real estate markets or the economy because many real state construction borrowers ability to repay their loans is dependent on successful
development of their properties, as well as the factors affecting residential real estate borrowers. Risk of loss on a construction loan depends largely upon whether the initial estimate of the propertys value at completion of construction
equals or exceeds the cost of property construction (including interest) and the availability of permanent take-out financing. During the construction phase, a number of factors can result in delays and cost overruns. Construction and commercial
real estate loans also involve greater risk because they may not be fully amortizing over the loan period, but have a balloon payment due at maturity. A borrowers ability to make a balloon payment may depend on the borrower being able to
refinance the loan, timely sell the underlying property or liquidate other assets.

Any sustained period of weakness or weakening business
or economic conditions in the markets in which we do business or in related markets could result in a decrease in the demand for loans, a reduction in the value of the real estate assets securing loans that we hold or an increase in the number of
borrowers who become delinquent or default on their loans, any of which could adversely affect our results of operations and financial condition, including the value of our intangible assets. An increase in the number of delinquencies or defaults
could result in a higher level of nonperforming assets, net charge-offs and provision for loan losses, which could adversely affect our results of operations.

Our allowance for loan losses may not be adequate to cover actual loan losses, which may require us to take a charge to our earnings and adversely impact our financial condition and results of operations.

We maintain an allowance for estimated loan losses that we believe is adequate for absorbing any probable losses in our loan portfolio. Management
determines the provision for loan losses based upon an analysis of general market conditions, credit quality of our loan portfolio, and performance of our customers relative to their financial obligations with us. The amount of future losses is
susceptible to changes in economic, operating, and other conditions, including changes in interest rates that may be beyond our control and such losses may exceed the allowance for estimated loan losses. Although management believes that the
allowance for estimated loan losses is adequate to absorb any probable losses on existing loans that may become uncollectible, there can be no assurance that the allowance will prove sufficient to cover actual loan losses in the future. Significant
increases to the provisions for loan losses may be necessary if material adverse changes in general economic conditions occur



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or the performance of our loan portfolio deteriorates. Additionally, federal banking regulators, as an integral part of their supervisory function,
periodically review the allowance for estimated loan losses. If these regulatory agencies require us to increase the allowance for estimated loan losses, it could have a negative effect on our results of operations and financial condition.

We may be required to raise additional capital in the future, but that capital may not be available when it is needed, which could adversely affect
our financial condition and results of operations.

We are required by federal and state regulatory authorities to maintain adequate
levels of capital to support our operations. We anticipate that our current capital resources will satisfy our capital requirements for the foreseeable future. We may at some point, however, need to raise additional capital to maintain such levels
and/or support our growth.

Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that
time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital, if needed, on terms acceptable to us. If we cannot raise additional capital when needed, our ability
to further expand our operations could be materially impaired.

Conditions in the financial markets may limit our access to additional short-term
funding to meet our liquidity needs.

We anticipate that our current sources of liquidity, which include deposits, Federal Home Loan
Bank advances, cash on hand and short-term borrowings will remain adequate to meet our liquidity needs. However, the limited availability of liquidity as a result of the subprime mortgage crisis may require us to make short-term borrowings, if
needed, on terms and conditions that adversely affect our results of operations.



|Item 2. | Unregistered Sales of Equity Securities and Use of ProceedsIssuer purchases of equity securities
|------- | -------------------------------------------------------------------------------------------------



|                         |  |                                    |  |                                |       |                                                                                |           |                                                                                                              |   |           
|------------------------ |  | ---------------------------------- |  | ------------------------------ | ----- | ------------------------------------------------------------------------------ | --------- | ------------------------------------------------------------------------------------------------------------ | - | ----------
|Period                   |  | (a)Total Number ofShares Purchased |  | (b)Average PricePaid per Share |       | (c)Total Number ofSharesPurchased asPart of
PubliclyAnnounced Plansor Programs |           | (d)Maximum Number(or ApproximateDollar Value)
ofShares that MayYet Be PurchasedUnder the Plans orPrograms(1)
|2007 total               |  | 8,606,800                          |  | $                              | 24.26 |                                                                                | 8,606,800 |                                                                                                              | $ | 91,175,000
|                         |  |                                    |  |                                |       |                                                                                |           |                                                                                                              |   |           
|January 1March 31, 2008 |  |                                   |  | $                              |      |                                                                                |          |                                                                                                              | $ | 91,175,000
|                         |  |                                    |  |                                |       |                                                                                |           |                                                                                                              |   |           
|1stQuarter 2008 total    |  |                                   |  | $                              |      |                                                                                |          |                                                                                                              | $ | 91,175,000
|                         |  |                                    |  |                                |       |                                                                                |           |                                                                                                              |   |           
|Cumulative total         |  | 8,606,800                          |  | $                              | 24.26 |                                                                                | 8,606,800 |                                                                                                              | $ | 91,175,000
|                         |  |                                    |  |                                |       |                                                                                |           |                                                                                                              |   |           



|(1) | Information is as of the end of the period.
|--- | -------------------------------------------

In 2006, the
Company publicly announced two share repurchase programs to purchase shares of BancGroup Common Stock not to exceed a combined total of $150 million. The 2006 repurchase programs were completed in 2007. On June 11, 2007, the Company publicly
announced another share repurchase program to purchase shares of BancGroup Common Stock not to exceed $150 million, of which approximately $91.2 million has yet to be purchased. This program will terminate on the earlier of its completion or
June 8, 2009.



|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
|---------------- | ---------------



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|Item 6.    Exhibits | 
|------------------- | 

Exhibits required by Item 601 of Regulation
S-K



|        |  |                                                                                                                                                                                                                                                                                                          
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                          
|1.1     |  | Underwriting agreement dated February 28, 2008, between The Colonial BancGroup, Inc. and the underwriters, filed as exhibit 1.1 to the Registrants Current Report on Form 8-K, dated March
5, 2008, and incorporated herein by reference.                                                               
|        | 
|4.1     |  | Indenture from The Colonial BancGroup, Inc. to The Bank of New York Trust Company, N.A., Trustee, relating to the 8.875% Subordinated Notes due 2038 dated March 1, 2008, filed as exhibit 4.1 to
the Registrants Current Report on Form 8-K, dated March 5, 2008, and incorporated herein by reference.
|        | 
|4.2     |  | Form of the Subordinated Notes due 2038, filed as exhibit 4.2 to the Registrants Current Report on Form 8-K, dated March 5, 2008, and incorporated herein by reference.                                                                                                                                 
|        | 
|4.3     |  | Dividend Reinvestment and Common Stock Purchase Plan of Registrant dated May 2, 2008, filed as the Registrants Registration Statement on Form S-3 (File No. 333-150623), filed and made
effective May 2, 2008.                                                                                          
|        | 
|10.1    |  | The Colonial BancGroup, Inc. Stock Plan for Directors, as amended.                                                                                                                                                                                                                                       
|        | 
|10.2    |  | The Colonial BancGroup, Inc. Management Incentive Plan, as amended.                                                                                                                                                                                                                                      
|        | 
|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.                                                                                                                                                                                                                                            



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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, in the City of Montgomery, Alabama, on the 5th day of May, 2008.



THE COLONIAL BANCGROUP, INC.By:

/s/    SARAH H. MOORESarah H. Moore Chief Financial Officer




51