##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



---



FORM 10-Q



---



QUARTERLY REPORT UNDER SECTION 13 OR
15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



FOR THE QUARTERLY PERIOD ENDED June 30, 2004



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.)



One Commerce Street

Montgomery, Alabama 36104

(Address of principle executive offices)



(334) 240-5000

(Registrants telephone number)



---



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



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



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



|                              |  |                             
|----------------------------- |  | ----------------------------
|Class                         |  | Outstanding at July 31, 2004
|Common Stock, $2.50 Par Value |  | 133,563,802                 



---



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



THE COLONIAL BANCGROUP, INC.



INDEX



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



2



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS

OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:



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



3



---

##### Table of Contents

PART I. FINANCIAL INFORMATION



Item 1. Financial Statements (Unaudited)



THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(Unaudited)

(Dollars in thousands except share data)



|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | ---------- | - | ----------------- | - | ---------- | -
|                                                                                                                                                                             |  | June 30, 2004 |            |   | December 31, 2003 |  
|ASSETS                                                                                                                                                                       |  |               |            |   |                   |   |            |  
|Cash and due from banks                                                                                                                                                      |  | $             | 357,862    |   |                   | $ | 329,152    |  
|Interest-bearing deposits in banks                                                                                                                                           |  |               | 10,912     |   |                   |   | 16,565     |  
|Federal funds sold and securities purchased under agreements to resell                                                                                                       |  |               | 37,144     |   |                   |   |           |  
|Securities available for sale                                                                                                                                                |  |               | 3,338,855  |   |                   |   | 3,100,321  |  
|Investment securities (market value of $7,782 and $11,006, respectively)                                                                                                     |  |               | 7,377      |   |                   |   | 10,387     |  
|Loans held for sale                                                                                                                                                          |  |               | 545,905    |   |                   |   | 378,324    |  
|Total loans, net of unearned income:                                                                                                                                         |  |               |            |   |                   |   |            |  
|Mortgage warehouse loans                                                                                                                                                     |  |               | 1,041,070  |   |                   |   | 982,488    |  
|All other loans                                                                                                                                                              |  |               | 11,264,957 |   |                   |   | 10,606,407 |  
|Less: Allowance for loan losses                                                                                                                                              |  |               | (147,000   | ) |                   |   | (138,549   | )
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|Loans, net                                                                                                                                                                   |  |               | 12,159,027 |   |                   |   | 11,450,346 |  
|Premises and equipment, net                                                                                                                                                  |  |               | 270,282    |   |                   |   | 246,170    |  
|Goodwill                                                                                                                                                                     |  |               | 348,465    |   |                   |   | 253,476    |  
|Other intangibles, net                                                                                                                                                       |  |               | 46,916     |   |                   |   | 28,714     |  
|Bank owned life insurance                                                                                                                                                    |  |               | 209,955    |   |                   |   | 182,857    |  
|Accrued interest and other assets                                                                                                                                            |  |               | 260,319    |   |                   |   | 276,990    |  
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|TOTAL ASSETS                                                                                                                                                                 |  | $             | 17,593,019 |   |                   | $ | 16,273,302 |  
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|LIABILITIES                                                                                                                                                                  |  |               |            |   |                   |   |            |  
|Deposits:                                                                                                                                                                    |  |               |            |   |                   |   |            |  
|Noninterest bearing deposits                                                                                                                                                 |  | $             | 2,336,072  |   |                   | $ | 2,021,901  |  
|Interest bearing deposits                                                                                                                                                    |  |               | 4,036,973  |   |                   |   | 3,314,328  |  
|Savings deposits                                                                                                                                                             |  |               | 550,909    |   |                   |   | 531,419    |  
|Time deposits                                                                                                                                                                |  |               | 3,962,168  |   |                   |   | 3,900,944  |  
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|Total deposits                                                                                                                                                               |  |               | 10,886,122 |   |                   |   | 9,768,592  |  
|FHLB short-term borrowings                                                                                                                                                   |  |               | 1,051,330  |   |                   |   | 1,162,240  |  
|Other short-term borrowings                                                                                                                                                  |  |               | 1,991,243  |   |                   |   | 2,149,400  |  
|Subordinated debt                                                                                                                                                            |  |               | 270,536    |   |                   |   | 278,428    |  
|Junior subordinated debt                                                                                                                                                     |  |               | 309,324    |   |                   |   | 299,917    |  
|FHLB long-term debt                                                                                                                                                          |  |               | 1,427,326  |   |                   |   | 1,064,969  |  
|Other long-term debt                                                                                                                                                         |  |               | 300,000    |   |                   |   | 300,000    |  
|Accrued expenses and other liabilities                                                                                                                                       |  |               | 73,643     |   |                   |   | 71,451     |  
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|Total liabilities                                                                                                                                                            |  |               | 16,309,524 |   |                   |   | 15,094,997 |  
|Commitments and contingencies (Notes B and H)                                                                                                                                |  |               |            |   |                   |   |            |  
|                                                                                                                                                                             |  |              
|SHAREHOLDERS EQUITY                                                                                                                                                         |  |               |            |   |                   |   |            |  
|Common stock, $2.50 par value; 200,000,000 shares authorized; 133,440,337 and 126,974,668 shares issued and outstanding at June 30, 2004 and
December 31, 2003, respectively |  |               | 333,601    |   |                   |   | 317,437    |  
|Additional paid in capital                                                                                                                                                   |  |               | 332,629    |   |                   |   | 237,134    |  
|Retained earnings                                                                                                                                                            |  |               | 670,908    |   |                   |   | 625,326    |  
|Unearned compensation                                                                                                                                                        |  |               | (1,087     | ) |                   |   | (1,134     | )
|Accumulated other comprehensive loss, net of taxes                                                                                                                           |  |               | (52,556    | ) |                   |   | (458       | )
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|Total shareholders equity                                                                                                                                                   |  |               | 1,283,495  |   |                   |   | 1,178,305  |  
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  
|TOTAL LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                   |  | $             | 17,593,019 |   |                   | $ | 16,273,302 |  
|                                                                                                                                                                             |  |               |            |   |                   |   |            |  



See Notes to the
Unaudited Condensed Consolidated Financial Statements



4



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(Dollars in thousands except per share amounts)



|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|--------------------------------------------------- |  | ------------------------- | ------- | -------------------------- | - | ------- |  | - | ------- | - |  | - | -------
|                                                    |  | Six Months Ended June 30, |         | Three Months EndedJune 30,
|                                                    |  | 2004                      |         | 2003                       |   | 2004    |  |   | 2003   
|INTEREST INCOME:                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Interest and fees on loans                          |  | $                         | 324,369 |                            | $ | 337,518 |  | $ | 166,133 |   |  | $ | 170,323
|Interest and dividends on securities                |  |                           | 73,100  |                            |   | 52,721  |  |   | 37,661  |   |  |   | 25,509 
|Other interest                                      |  |                           | 491     |                            |   | 412     |  |   | 412     |   |  |   | 200    
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Total interest income                               |  |                           | 397,960 |                            |   | 390,651 |  |   | 204,206 |   |  |   | 196,032
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|INTEREST EXPENSE:                                   |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Interest on deposits                                |  |                           | 65,802  |                            |   | 75,361  |  |   | 33,402  |   |  |   | 35,968 
|Interest on short-term borrowings                   |  |                           | 15,260  |                            |   | 20,641  |  |   | 8,213   |   |  |   | 10,857 
|Interest on long-term debt                          |  |                           | 40,156  |                            |   | 48,398  |  |   | 18,956  |   |  |   | 24,058 
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Total interest expense                              |  |                           | 121,218 |                            |   | 144,400 |  |   | 60,571  |   |  |   | 70,883 
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|NET INTEREST INCOME                                 |  |                           | 276,742 |                            |   | 246,251 |  |   | 143,635 |   |  |   | 125,149
|Provision for loan losses                           |  |                           | 14,453  |                            |   | 18,870  |  |   | 6,519   |   |  |   | 10,810 
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Net Interest Income After Provision for Loan Losses |  |                           | 262,289 |                            |   | 227,381 |  |   | 137,116 |   |  |   | 114,339
|NONINTEREST INCOME:                                 |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Service charges on deposit accounts                 |  |                           | 29,214  |                            |   | 25,073  |  |   | 15,029  |   |  |   | 13,360 
|Financial planning services                         |  |                           | 7,107   |                            |   | 7,761   |  |   | 3,983   |   |  |   | 3,493  
|Electronic banking                                  |  |                           | 5,992   |                            |   | 5,143   |  |   | 3,180   |   |  |   | 2,710  
|Mortgage banking                                    |  |                           | 4,363   |                            |   | 10,716  |  |   | 2,373   |   |  |   | 6,126  
|Securities gains (losses), net                      |  |                           | 7,050   |                            |   | 3,717   |  |   | (392    | ) |  |   | 1,947  
|Other income                                        |  |                           | 17,221  |                            |   | 13,917  |  |   | 9,071   |   |  |   | 7,807  
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Total noninterest income                            |  |                           | 70,947  |                            |   | 66,327  |  |   | 33,244  |   |  |   | 35,443 
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|NONINTEREST EXPENSE:                                |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Salaries and employee benefits                      |  |                           | 104,983 |                            |   | 95,330  |  |   | 54,283  |   |  |   | 48,172 
|Occupancy expense of bank premises, net             |  |                           | 24,329  |                            |   | 21,652  |  |   | 12,391  |   |  |   | 11,026 
|Furniture and equipment expenses                    |  |                           | 18,742  |                            |   | 18,316  |  |   | 9,483   |   |  |   | 9,435  
|Amortization of intangible assets                   |  |                           | 2,513   |                            |   | 2,172   |  |   | 1,390   |   |  |   | 1,086  
|Merger related expenses                             |  |                           | 1,272   |                            |   | 185     |  |   | 1,190   |   |  |   | 62     
|Loss on early extinguishment of debt                |  |                           | 6,183   |                            |   |        |  |   |        |   |  |   |       
|Other expenses                                      |  |                           | 50,292  |                            |   | 44,875  |  |   | 25,965  |   |  |   | 22,808 
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Total noninterest expense                           |  |                           | 208,314 |                            |   | 182,530 |  |   | 104,702 |   |  |   | 92,589 
|                                                    |  |                           |         |                           
|INCOME BEFORE INCOME TAXES                          |  |                           | 124,922 |                            |   | 111,178 |  |   | 65,658  |   |  |   | 57,193 
|Applicable income taxes                             |  |                           | 42,474  |                            |   | 37,801  |  |   | 22,324  |   |  |   | 19,446 
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|NET INCOME                                          |  | $                         | 82,448  |                            | $ | 73,377  |  | $ | 43,334  |   |  | $ | 37,747 
|                                                    |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|EARNINGS PER SHARE:                                 |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Basic                                               |  | $                         | 0.64    |                            | $ | 0.59    |  | $ | 0.33    |   |  | $ | 0.30   
|Diluted                                             |  | $                         | 0.64    |                            | $ | 0.59    |  | $ | 0.33    |   |  | $ | 0.30   
|AVERAGE NUMBER OF SHARES OUTSTANDING:               |  |                           |         |                            |   |         |  |   |         |   |  |   |        
|Basic                                               |  |                           | 128,598 |                            |   | 123,896 |  |   | 130,130 |   |  |   | 124,055
|Diluted                                             |  |                           | 129,726 |                            |   | 124,540 |  |   | 131,228 |   |  |   | 124,721
|DIVIDENDS DECLARED PER SHARE                        |  | $                         | 0.29    |                            | $ | 0.28    |  | $ | 0.145   |   |  | $ | 0.14   



See Notes to the
Unaudited Condensed Consolidated Financial Statements



5



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



|                                                                                                   |  |                          |         |   |                            |   |        |      |  |   |         |   |  |   |        |  
|-------------------------------------------------------------------------------------------------- |  | ------------------------ | ------- | - | -------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                                                                   |  | Six Months EndedJune 30, |         |   | Three Months EndedJune 30, |  
|                                                                                                   |  | 2004                     |         |   | 2003                       |   |        | 2004 |  |   | 2003    |  
|                                                                                                   |  | (Dollars in thousands)   |        
|NET INCOME                                                                                         |  | $                        | 82,448  |   |                            | $ | 73,377 |      |  | $ | 43,334  |   |  | $ | 37,747 |  
|OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAXES:                                                   |  |                          |         |   |                            |   |        |      |  |   |         |   |  |   |        |  
|Unrealized (losses)/gains on securities available for sale arising during the period, net of taxes |  |                          | (47,445 | ) |                            |   | 9,359  |      |  |   | (81,491 | ) |  |   | 19,618 |  
|Less: reclassification adjustment for net (gains)/losses included in net income, net of taxes      |  |                          | (4,653  | ) |                            |   | (2,454 | )    |  |   | 259     |   |  |   | (1,286 | )
|                                                                                                   |  |                          |         |   |                            |   |        |      |  |   |         |   |  |   |        |  
|COMPREHENSIVE INCOME                                                                               |  | $                        | 30,350  |   |                            | $ | 80,282 |      |  | $ | (37,898 | ) |  | $ | 56,079 |  
|                                                                                                   |  |                          |         |   |                            |   |        |      |  |   |         |   |  |   |        |  







See Notes to the Unaudited Condensed Consolidated Financial Statements



6



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited)

(Dollars in thousands except share amounts)



|                                                                         |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   |         |   |  |   |           |  
|------------------------------------------------------------------------ |  | ------------ |  | ------------------------ | ------- | ---------------- | - | ------- | -------------------- | - | ------- | ------------------------------------------ |  | - | ------------------------ | - |  | - | ------- | - |  | - | --------- | -
|                                                                         |  | Common Stock |  | AdditionalPaid InCapital |         | RetainedEarnings |   |         | UnearnedCompensation |   |         | AccumulatedOtherComprehensiveIncome (Loss) |  |   | TotalShareholdersEquity |  
|                                                                         |  | Shares       |  | Amount                   |         |                  |   |         |                     
|Balance, December 31, 2003                                               |  | 126,974,668  |  | $                        | 317,437 |                  | $ | 237,134 |                      | $ | 625,326 |                                            |  | $ | (1,134                   | ) |  | $ | (458    | ) |  | $ | 1,178,305 |  
|Shares issued under company plans                                        |  | 435,235      |  |                          | 1,088   |                  |   | 3,026   |                      |   |         |                                            |  |   | 47                       |   |  |   |         |   |  |   | 4,161     |  
|Issuance of shares for business combination                              |  | 6,030,434    |  |                          | 15,076  |                  |   | 92,469  |                      |   |         |                                            |  |   |                          |   |  |   |         |   |  |   | 107,545   |  
|Net income                                                               |  |              |  |                          |         |                  |   |         |                      |   | 82,448  |                                            |  |   |                          |   |  |   |         |   |  |   | 82,448    |  
|Cash dividends ($.29 per share)                                          |  |              |  |                          |         |                  |   |         |                      |   | (36,866 | )                                          |  |   |                          |   |  |   |         |   |  |   | (36,866   | )
|Change in unrealized loss on securities available for sale, net of taxes |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   | (52,098 | ) |  |   | (52,098   | )
|                                                                         |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   |         |   |  |   |           |  
|Balance, June 30, 2004                                                   |  | 133,440,337  |  | $                        | 333,601 |                  | $ | 332,629 |                      | $ | 670,908 |                                            |  | $ | (1,087                   | ) |  | $ | (52,556 | ) |  | $ | 1,283,495 |  
|                                                                         |  |              |  |                          |         |                  |   |         |                      |   |         |                                            |  |   |                          |   |  |   |         |   |  |   |           |  







See Notes to the Unaudited Condensed Consolidated Financial Statements



7



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)



|                                                                                               |  |                           |            |   |      |   |            |  
|---------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | - | ---- | - | ---------- | -
|                                                                                               |  | Six Months Ended June 30, |           
|                                                                                               |  | 2004                      |            |   | 2003 |  
|                                                                                               |  | (Dollars in thousands)    |           
|NET CASH USED IN OPERATING ACTIVITIES                                                          |  | $                         | (48,279    | ) |      | $ | (52,214    | )
|Cash flows from investing activities:                                                          |  |                           |            |   |      |   |            |  
|Proceeds from maturities and calls of securities available for sale                            |  |                           | 218,814    |   |      |   | 771,810    |  
|Proceeds from sales of securities available for sale                                           |  |                           | 935,924    |   |      |   | 482,532    |  
|Purchase of securities available for sale                                                      |  |                           | (1,392,601 | ) |      |   | (1,347,940 | )
|Proceeds from maturities of investment securities                                              |  |                           | 3,037      |   |      |   | 6,971      |  
|Net increase in loans                                                                          |  |                           | (215,806   | ) |      |   | (85,143    | )
|Net cash received in bank acquisitions                                                         |  |                           | 31,312     |   |      |   |           |  
|Capital expenditures                                                                           |  |                           | (26,885    | ) |      |   | (17,397    | )
|Purchase of bank owned life insurance                                                          |  |                           |           |   |      |   | (80,000    | )
|Proceeds from sale of other real estate owned                                                  |  |                           | 1,941      |   |      |   | 9,008      |  
|Proceeds from sale of fixed assets                                                             |  |                           | 981        |   |      |   |           |  
|Other, net                                                                                     |  |                           | 1,650      |   |      |   | 247        |  
|                                                                                               |  |                           |            |   |      |   |            |  
|NET CASH USED IN INVESTING ACTIVITIES                                                          |  |                           | (441,633   | ) |      |   | (259,912   | )
|                                                                                               |  |                           |            |   |      |   |            |  
|Cash flows from financing activities:                                                          |  |                           |            |   |      |   |            |  
|Net increase (decrease) in demand, savings, and time deposits                                  |  |                           | 570,378    |   |      |   | (178,583   | )
|Net increase in federal funds purchased, repurchase agreements and other short-term borrowings |  |                           | 150,083    |   |      |   | 490,290    |  
|Proceeds from issuance of long-term debt                                                       |  |                           | 500,000    |   |      |   |           |  
|Repayment of long-term debt                                                                    |  |                           | (636,909   | ) |      |   | (58,014    | )
|Proceeds from issuance of common stock                                                         |  |                           | 3,427      |   |      |   | 869        |  
|Dividends paid ($0.29 and $0.28 per share for 2004 and 2003, respectively)                     |  |                           | (36,866    | ) |      |   | (34,657    | )
|                                                                                               |  |                           |            |   |      |   |            |  
|NET CASH PROVIDED BY FINANCING ACTIVITIES                                                      |  |                           | 550,113    |   |      |   | 219,905    |  
|                                                                                               |  |                           |            |   |      |   |            |  
|Net increase (decrease) in cash and cash equivalents                                           |  |                           | 60,201     |   |      |   | (92,221    | )
|Cash and cash equivalents at beginning of year                                                 |  |                           | 345,717    |   |      |   | 419,421    |  
|                                                                                               |  |                           |            |   |      |   |            |  
|Cash and cash equivalents at June 30                                                           |  | $                         | 405,918    |   |      | $ | 327,200    |  
|                                                                                               |  |                           |            |   |      |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                                              |  |                           |            |   |      |   |            |  
|Cash paid during the period for:                                                               |  |                           |            |   |      |   |            |  
|Interest                                                                                       |  | $                         | 127,715    |   |      | $ | 153,899    |  
|Income taxes                                                                                   |  |                           | 36,000     |   |      |   | 31,000     |  
|Non-cash investing activities:                                                                 |  |                           |            |   |      |   |            |  
|Transfer of loans to other real estate                                                         |  | $                         | 11,010     |   |      | $ | 8,496      |  
|Non-cash financing activities:                                                                 |  |                           |            |   |      |   |            |  
|Conversion of subordinated debentures to stock                                                 |  | $                         |           |   |      | $ | 3,023      |  
|Assets (non-cash) acquired in business combinations                                            |  |                           | 723,751    |   |      |   |           |  
|Liabilities assumed in business combinations                                                   |  |                           | 647,518    |   |      |   |           |  



See Notes to the
Unaudited Condensed Consolidated Financial Statements



8



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note A: Accounting Policies



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



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



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



Note B: Contingencies



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



Note C: Recent Accounting Pronouncements



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



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



9



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



This SOP prohibits carrying over or creation of valuation allowances in the initial accounting of all loans acquired in a transfer that are
within the scope of this SOP. The prohibition of the valuation allowance carryover applies to the purchase of an individual loan, a pool of loans, a group of loans, and loans acquired in a purchase business combination. This SOP is effective for
loans acquired in fiscal years beginning after December 15, 2004. Management will assess the impact this SOP could have on future acquisitions, results of operations, financial position, and liquidity.



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



In March 2004, the Emerging Issues Task Force
(EITF) reached a final consensus on Issue No. 03-1, The Meaning of Other-Than-Temporary and Its Application to Certain Investments. The Issue applies to debt and equity securities within the scope of SFAS No. 115, certain debt and equity
securities within the scope of SFAS No. 124, and equity securities that are not subject to the scope of SFAS No. 115 and not accounted for under the equity method of accounting (i.e., cost method investments). Issue 03-1 outlines a three-step model
for assessing other-than-temporary impairment. The model involves first determining whether an investment is impaired, then evaluating whether the impairment is other-than-temporary, and if it is, recognizing an impairment loss equal to the
difference between the investments cost and its fair value. The model is to be applied prospectively to all current and future investments in interim or annual reporting periods beginning after June 15, 2004. Quantitative and qualitative
disclosures for investments accounted for under SFAS No. 115 and SFAS No. 124 are effective for the first annual reporting period ending after December 15, 2003. Disclosures related to cost method investments are effective for annual reporting
periods ending after June 15, 2004. Comparative information for the periods prior to the period of initial application is not required. The implementation of Issue 03-1 did not have a material effect on BancGroups financials.



Note D: Business Combinations



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



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



10



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



approximately $147.5 million. The value of the common stock issued was determined based on the average market price of BancGroups common shares over
the five day period before and after the terms of the acquisition were agreed to and announced. The fair value of the stock options was determined based on the Black-Scholes option pricing model. The transaction resulted in approximately $94.9
million of goodwill and $19.3 million of core deposit intangibles.



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



|                    |  |                                         |         |                            |   |         |  |      |         |  |   |        
|------------------- |  | --------------------------------------- | ------- | -------------------------- | - | ------- |  | ---- | ------- |  | - | -------
|                    |  | Six Months Ended June 30,               |         | Three Months EndedJune 30,
|                    |  | 2004                                    |         | 2003                       |   | 2004    |  | 2003
|                    |  | (unaudited)                            
|                    |  | (In thousands, except per share amount)
|Net Interest Income |  | $                                       | 286,646 |                            | $ | 259,604 |  | $    | 146,962 |  | $ | 131,804
|Net Income          |  |                                         | 83,909  |                            |   | 76,247  |  |      | 42,026  |  |   | 39,133 
|Basic EPS           |  |                                         | 0.62    |                            |   | 0.59    |  |      | 0.31    |  |   | 0.30   
|Diluted EPS         |  |                                         | 0.62    |                            |   | 0.58    |  |      | 0.31    |  |   | 0.30   



Note E: Earnings Per Share



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



|                                |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|------------------------------- |  | ---------------------------------------- | ------ | --------------------------- | ------- | --------------- | - | --------- |  | ------ | ------ | --------------- | ------- |  | - | ----
|                                |  | Six Months Ended June 30,                |        | Three Months Ended June 30,
|                                |  | NetIncome                                |        | Shares                      |         | Per ShareAmount |   | NetIncome |  | Shares |        | Per ShareAmount
|                                |  | (in thousands, except per share amounts)
|2004                            |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|Basic EPS                       |  | $                                        | 82,448 |                             | 128,598 |                 | $ | 0.64      |  | $      | 43,334 |                 | 130,130 |  | $ | 0.33
|Effect of dilutive instruments: |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|Options                         |  |                                          |        |                             | 1,128   |                 |   |           |  |        |        |                 | 1,098   |  |   |     
|                                |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|Diluted EPS                     |  | $                                        | 82,448 |                             | 129,726 |                 | $ | 0.64      |  | $      | 43,334 |                 | 131,228 |  | $ | 0.33
|                                |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|2003                            |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|Basic EPS                       |  | $                                        | 73,377 |                             | 123,896 |                 | $ | 0.59      |  | $      | 37,747 |                 | 124,055 |  | $ | 0.30
|Effect of dilutive instruments: |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|Options                         |  |                                          |        |                             | 291     |                 |   |           |  |        |        |                 | 395     |  |   |     
|Convertible debentures          |  |                                          | 57     |                             | 353     |                 |   |           |  |        | 20     |                 | 271     |  |   |     
|                                |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     
|Diluted EPS                     |  | $                                        | 73,434 |                             | 124,540 |                 | $ | 0.59      |  | $      | 37,767 |                 | 124,721 |  | $ | 0.30
|                                |  |                                          |        |                             |         |                 |   |           |  |        |        |                 |         |  |   |     



11



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note F: Segment Information



Through its wholly owned subsidiary, Colonial Bank, BancGroup has one primary line of business, commercial banking. Colonial
Bank is a national bank that provides general banking services in 297 branches throughout six states. The Company also has approximately $12 million invested in certain non-banking entities, including $3.9 million in residential real estate
developments and $8.1 million in a company providing internet and automated clearing house (ACH) services to banks.



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



Segment Data



|                                  |  |                        |         |                  |   |        |                       |  |   |        
|--------------------------------- |  | ---------------------- | ------- | ---------------- | - | ------ | --------------------- |  | - | -------
|                                  |  | Continuing Operations 
|                                  |  | CommercialBanking      |         | Corporate/Other* |   |        | ConsolidatedBancGroup
|                                  |  | (dollars in thousands)
|Six Months Ended June 30, 2004    |  |                        |         |                  |   |        |                       |  |   |        
|Interest income                   |  | $                      | 397,953 |                  | $ | 7      |                       |  | $ | 397,960
|Interest expense                  |  |                        | 116,409 |                  |   | 4,809  |                       |  |   | 121,218
|Provision for loan losses         |  |                        | 14,453  |                  |   |       |                       |  |   | 14,453 
|Noninterest income                |  |                        | 70,254  |                  |   | 693    |                       |  |   | 70,947 
|Noninterest expense               |  |                        | 205,873 |                  |   | 2,441  |                       |  |   | 208,314
|                                  |  |                        |         |                  |   |        |                       |  |   |        
|Income/(loss) before income taxes |  |                        | 131,472 |                  |   | (6,550 | )                     |  |   | 124,922
|Income taxes                      |  |                        | 44,374  |                  |   | (1,900 | )                     |  |   | 42,474 
|                                  |  |                        |         |                  |   |        |                       |  |   |        
|Net income (loss)                 |  | $                      | 87,098  |                  | $ | (4,650 | )                     |  | $ | 82,448 
|                                  |  |                        |         |                  |   |        |                       |  |   |        
|Six Months Ended June 30, 2003    |  |                        |         |                  |   |        |                       |  |   |        
|Interest income                   |  | $                      | 390,602 |                  | $ | 49     |                       |  | $ | 390,651
|Interest expense                  |  |                        | 140,812 |                  |   | 3,588  |                       |  |   | 144,400
|Provision for loan losses         |  |                        | 18,870  |                  |   |       |                       |  |   | 18,870 
|Noninterest income                |  |                        | 66,414  |                  |   | (87    | )                     |  |   | 66,327 
|Noninterest expense               |  |                        | 180,055 |                  |   | 2,475  |                       |  |   | 182,530
|                                  |  |                        |         |                  |   |        |                       |  |   |        
|Income/(loss) before income taxes |  |                        | 117,279 |                  |   | (6,101 | )                     |  |   | 111,178
|Income taxes                      |  |                        | 39,423  |                  |   | (1,622 | )                     |  |   | 37,801 
|                                  |  |                        |         |                  |   |        |                       |  |   |        
|Net income (loss)                 |  | $                      | 77,856  |                  | $ | (4,479 | )                     |  | $ | 73,377 
|                                  |  |                        |         |                  |   |        |                       |  |   |        

---

|* | Includes eliminations of certain intercompany transactions.
|- | -----------------------------------------------------------



12



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



|                                  |  |                        |         |                  |   |        |                       |  |   |        
|--------------------------------- |  | ---------------------- | ------- | ---------------- | - | ------ | --------------------- |  | - | -------
|                                  |  | Continuing Operations 
|                                  |  | CommercialBanking      |         | Corporate/Other* |   |        | ConsolidatedBancGroup
|                                  |  | (dollars in thousands)
|Three Months Ended June 30, 2004  |  |                        |         |                  |   |        |                       |  |   |        
|Interest income                   |  | $                      | 204,199 |                  | $ | 7      |                       |  | $ | 204,206
|Interest expense                  |  |                        | 58,130  |                  |   | 2,441  |                       |  |   | 60,571 
|Provision for loan losses         |  |                        | 6,519   |                  |   |       |                       |  |   | 6,519  
|Noninterest income                |  |                        | 32,793  |                  |   | 451    |                       |  |   | 33,244 
|Noninterest expense               |  |                        | 103,522 |                  |   | 1,180  |                       |  |   | 104,702
|                                  |  |                        |         |                  |   |        |                       |  |   |        
|Income/(loss) before income taxes |  |                        | 68,821  |                  |   | (3,163 | )                     |  |   | 65,658 
|Income taxes                      |  |                        | 23,303  |                  |   | (979   | )                     |  |   | 22,324 
|                                  |  |                        |         |                  |   |        |                       |  |   |        
|Net income (loss)                 |  | $                      | 45,518  |                  | $ | (2,184 | )                     |  | $ | 43,334 
|                                  |  |                        |         |                  |   |        |                       |  |   |        

|                                 |  |                        |         |                  |   |        |                       |  |   |        
|-------------------------------- |  | ---------------------- | ------- | ---------------- | - | ------ | --------------------- |  | - | -------
|                                 | 
|                                 |  | Continuing Operations 
|                                 |  | CommercialBanking      |         | Corporate/Other* |   |        | ConsolidatedBancGroup
|                                 |  | (dollars in thousands)
|Three Months Ended June 30, 2003 |  |                        |         |                  |   |        |                       |  |   |        
|Interest income                  |  | $                      | 196,008 |                  | $ | 24     |                       |  | $ | 196,032
|Interest expense                 |  |                        | 69,168  |                  |   | 1,715  |                       |  |   | 70,883 
|Provision for loan losses        |  |                        | 10,810  |                  |   |       |                       |  |   | 10,810 
|Noninterest income               |  |                        | 35,457  |                  |   | (14    | )                     |  |   | 35,443 
|Noninterest expense              |  |                        | 91,436  |                  |   | 1,153  |                       |  |   | 92,589 
|                                 |  |                        |         |                  |   |        |                       |  |   |        
|Income/(loss) before income tax  |  |                        | 60,051  |                  |   | (2,858 | )                     |  |   | 57,193 
|Income taxes                     |  |                        | 20,204  |                  |   | (758   | )                     |  |   | 19,446 
|                                 |  |                        |         |                  |   |        |                       |  |   |        
|Net income (loss)                |  | $                      | 39,847  |                  | $ | (2,100 | )                     |  | $ | 37,747 
|                                 |  |                        |         |                  |   |        |                       |  |   |        

* Includes eliminations of certain intercompany transactions.



Note G: Long-Term Borrowings



During the second quarter of 2004, FHLB advances totaling $103 million
matured and $300 million were added. The additional $300 million in FHLB advances had maturities of 3 to 5 years, interest rates ranging from three month LIBOR plus 1.14% to 1.52% and contained caps on three month LIBOR ranging from 3% to 4%. In
addition the Company entered into interest rate swaps in the second quarter of 2004 to convert the fixed interest rates on $300 million in existing FHLB advances bearing interest at an average rate of 5.07% to an average floating rate of three month
LIBOR plus 1.18%.



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



13



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note H: Guarantees



Colonial Bank issues financial guarantees in the form of financial and performance standby letters of credit as part of its ongoing business
operations. Standby letters of credit are contingent commitments issued by Colonial Bank generally to guarantee the performance of a customer to a third party. 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 it receives a fee. These
guarantees are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. At June 30, 2004, Colonial Bank had standby letters of credit outstanding with maturities ranging from less than one year to greater than fifteen years. The maximum potential amount of future undiscounted
payments Colonial Bank could be required to make under outstanding standby letters of credit was $215 million. The fair value of the commitment typically approximates the fee received from the customer for issuing such commitments. These fees are
deferred and are recognized over the commitment period. The amount recorded as of June 30, 2004 was not material to the Companys consolidated balance sheet. The Company holds various assets as collateral supporting those commitments for which
collateral is deemed necessary.



Note I: Derivatives



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



Fair Value Hedges:



At
June 30, 2004, BancGroup had interest rate swap positions on subordinated debt, junior subordinated debt, brokered CDs, long-term FHLB advances and fixed rate loans, which effectively converted their fixed rates to floating. The critical terms
of the interest rate swaps match the terms of the corresponding hedged items. All components of each interest rate swaps gain or loss are included in the assessment of hedge effectiveness. There were no hedging gains and losses resulting from
hedge ineffectiveness recognized for the six months ended June 30, 2004 and 2003. The notional values of the interest rate swaps were $250 million for the subordinated debt, $270 million for the junior subordinated debt, $105 million for the
brokered CDs, $400 million for the FHLB advances, and $7.2 million for the fixed rate loans as of June 30, 2004.



Commitments to Originate and Sell Mortgage Loans:



BancGroup, as part of its retail mortgage loan production activities, routinely enters into short-term commitments to originate fixed rate loans. Most of
the loans will be sold to third party correspondent banks upon closing. For those loans, BancGroup enters into individual forward sales commitments at the same time the commitment to originate is finalized. While the forward sales commitments
function as an economic hedge and effectively eliminate BancGroups financial risk of rate changes during the rate lock period, both the commitment to originate mortgage loans that will be sold and the commitment to sell the mortgage loans are
derivatives under the guidance of SFAS No. 133, the fair values of which are essentially equal and offsetting. The fair values are calculated based on changes in market interest rates after the commitment date. The notional amounts of these mortgage
loan origination commitments and the related forward sales commitments were $27.2 million at June 30, 2004. The unrealized gains/losses of the origination and sales commitments were not material at June 30, 2004.



14



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



BancGroup has also executed individual forward sales commitments related to retail mortgage loans and
short-term participations in mortgage loans, which are all classified as Mortgage Loans Held for Sale. The forward sales commitments related to the short-term participations allow BancGroup to sell the mortgage loan participations to investor
institutions for an amount equal to BancGroups original acquisition cost. Forward sales commitments function as an economic hedge and mitigate BancGroups market risk on the retail mortgage loans and the short-term participations in
loans. The notional values of the forward sales commitments on retail mortgage loans and short-term participations at June 30, 2004 were $16.9 million and $525.1 million, respectively. Because the sales commitments are in place for such a short
term, the unrealized gains/losses have been determined to be immaterial.



Options:



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



15



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note J: Stock-Based Compensation



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



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



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



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



|                                                                                                                            |  |                          |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ------ | - | -------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                                                                                                            |  | Six Months EndedJune 30, |        |   | Three Months EndedJune 30, |  
|                                                                                                                            |  | 2004                     |        |   | 2003                       |   |        | 2004 |  |   | 2003   |  
|Net income:                                                                                                                 |  |                          |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                 |  | $                        | 82,448 |   |                            | $ | 73,377 |      |  | $ | 43,334 |   |  | $ | 37,747 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax |  |                          | (730   | ) |                            |   | (878   | )    |  |   | (371   | ) |  |   | (410   | )
|                                                                                                                            |  |                          |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Pro forma net income                                                                                                        |  | $                        | 81,718 |   |                            | $ | 72,499 |      |  | $ | 42,963 |   |  | $ | 37,337 |  
|                                                                                                                            |  |                          |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|Basic earnings per share:                                                                                                   |  |                          |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                 |  | $                        | 0.64   |   |                            | $ | 0.59   |      |  | $ | 0.33   |   |  | $ | 0.30   |  
|Pro forma                                                                                                                   |  | $                        | 0.64   |   |                            | $ | 0.59   |      |  | $ | 0.33   |   |  | $ | 0.30   |  
|Diluted earnings per share                                                                                                  |  |                          |        |   |                            |   |        |      |  |   |        |   |  |   |        |  
|As reported                                                                                                                 |  | $                        | 0.64   |   |                            | $ | 0.59   |      |  | $ | 0.33   |   |  | $ | 0.30   |  
|Pro forma                                                                                                                   |  | $                        | 0.63   |   |                            | $ | 0.58   |      |  | $ | 0.33   |   |  | $ | 0.30   |  



16



---

##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note K: Pension Plan



BancGroup and subsidiaries are participants in a pension plan that covers most employees who have met certain age and length of service requirements.
The plan provides benefits based on final average earnings, covered compensation, and years of benefit service. BancGroups policy is to contribute annually an amount that can be deducted for federal income tax purposes using the frozen entry
age actuarial method. The Company assesses its funded position quarterly. Actuarial computations for financial reporting purposes are based on the projected unit credit method. Pension expense is recorded based on estimates until the final
actuarially-determined cost is known. The components of the net periodic benefit cost for the interim periods ended June 30, 2004 and 2003 are shown below:



|                                        |  |                           |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|--------------------------------------- |  | ------------------------- | ------ | - | -------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ----- | -
|                                        |  | Six Months Ended June 30, |        |   | Three MonthsEnded June 30, |  
|                                        |  | 2004                      |        |   | 2003                       |   |        | 2004 |  |   | 2003   |  
|                                        |  | (In thousands)            |       
|Components of net periodic benefit cost |  |                           |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Service cost                            |  | $                         | 2,935  |   |                            | $ | 2,277  |      |  | $ | 1,521  |   |  | $ | 1,104 |  
|Interest cost                           |  |                           | 1,955  |   |                            |   | 1,664  |      |  |   | 1,019  |   |  |   | 807   |  
|Expected return on plan assets          |  |                           | (2,021 | ) |                            |   | (1,090 | )    |  |   | (1,010 | ) |  |   | (545  | )
|Amortization of transition asset        |  |                           | (2     | ) |                            |   | (2     | )    |  |   | (1     | ) |  |   | (1    | )
|Amortization of prior service cost      |  |                           | 4      |   |                            |   | 4      |      |  |   | 2      |   |  |   | 2     |  
|Amortization of actuarial loss          |  |                           | 403    |   |                            |   | 293    |      |  |   | 216    |   |  |   | 142   |  
|                                        |  |                           |        |   |                            |   |        |      |  |   |        |   |  |   |       |  
|Net periodic benefit cost               |  | $                         | 3,274  |   |                            | $ | 3,146  |      |  | $ | 1,747  |   |  | $ | 1,509 |  
|                                        |  |                           |        |   |                            |   |        |      |  |   |        |   |  |   |       |  



Note L: Securities (Other than
Temporary Impairment)



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



|                                                                             |  |                     |           |                  |                   |         |             |  |                  |   |             |   |                  |  |   |           |  |   |         |  
|---------------------------------------------------------------------------- |  | ------------------- | --------- | ---------------- | ----------------- | ------- | ----------- |  | ---------------- | - | ----------- | - | ---------------- |  | - | --------- |  | - | ------- | -
|                                                                             |  | Less Than 12 months |           |                  | 12 months or more |         | Total       | 
|Description of Securities                                                    |  | MarketValue         |           | UnrealizedLosses |                   |         | MarketValue |  | UnrealizedLosses |   | MarketValue |   | UnrealizedLosses | 
|                                                                             |  | (In thousands)      |          
|U.S. treasury obligations and direct obligations of U.S. government agencies |  | $                   | 180,292   |                  | $                 | (13,060 | )           |  | $                |  |             | $ |                 |  | $ | 180,292   |  | $ | (13,060 | )
|Obligations of state and political subdivisions                              |  |                     | 4,804     |                  |                   | (46     | )           |  |                  |  |             |   |                 |  |   | 4,804     |  |   | (46     | )
|Federal agency mortgage backed securities                                    |  |                     | 259,396   |                  |                   | (15,306 | )           |  |                  |  |             |   |                 |  |   | 259,396   |  |   | (15,306 | )
|Federal agency collateralized mortgage obligations                           |  |                     | 1,262,292 |                  |                   | (37,139 | )           |  |                  |  |             |   |                 |  |   | 1,262,292 |  |   | (37,139 | )
|Private collateralized mortgage obligations                                  |  |                     | 952,198   |                  |                   | (23,783 | )           |  |                  |  |             |   |                 |  |   | 952,198   |  |   | (23,783 | )
|                                                                             |  |                     |           |                  |                   |         |             |  |                  |   |             |   |                  |  |   |           |  |   |         |  
|Subtotal, debt securities                                                    |  | $                   | 2,658,982 |                  | $                 | (89,334 | )           |  | $                |  |             | $ |                 |  | $ | 2,658,982 |  | $ | (89,334 | )
|                                                                             |  |                     |           |                  |                   |         |             |  |                  |   |             |   |                  |  |   |           |  |   |         |  
|Total temporarily impaired securities                                        |  | $                   | 2,658,982 |                  | $                 | (89,334 | )           |  | $                |  |             | $ |                 |  | $ | 2,658,982 |  | $ | (89,334 | )
|                                                                             |  |                     |           |                  |                   |         |             |  |                  |   |             |   |                  |  |   |           |  |   |         |  



17



---

##### Table of Contents

The securities above consist of government agency debentures, agency collateralized mortgage obligations
(CMOs) and mortgage-backed securities, AAA-rated private CMOs and municipal obligations. As of June 30, 2004, there were 154 securities carried at an unrealized loss relating to the level of interest rates prevailing in the market.
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 set
by the market. Additionally, BancGroup has the ability to retain these securities until maturity when full repayment would be received. There are also no known current funding needs which could require their liquidation.



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



Forward-Looking Statements:



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



Critical Accounting Policies:



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



Overview:



Colonial
BancGroup is a $17.6 billion financial services company providing diversified financial services including retail banking, commercial banking, insurance, and mortgage banking services through its branch network, private banking officers, ATMs and
the internet as well as other distribution channels to consumers and businesses. Colonials branch network currently consists of 297 branch offices in Florida, Alabama, Georgia, Nevada, Tennessee and Texas. Colonial remains committed to a
strategy of building a solid franchise in growth markets.



The
following is a summary as of June 30, 2004 of assets, deposits and branches by state:



|                |  |                   |   |  |                              |   |  |                     |   |  |                   
|--------------- |  | ----------------- | - |  | ---------------------------- | - |  | ------------------- | - |  | ------------------
|                |  | % of Total Assets |   |  | % of Core(non-time) Deposits |   |  | % of Total Deposits |   |  | Number of Branches
|Florida         |  | 48                | % |  | 55                           | % |  | 49                  | % |  | 124               
|Alabama         |  | 27                | % |  | 28                           | % |  | 34                  | % |  | 126               
|Georgia         |  | 9                 | % |  | 5                            | % |  | 7                   | % |  | 22                
|Texas           |  | 6                 | % |  | 6                            | % |  | 4                   | % |  | 12                
|Nevada          |  | 5                 | % |  | 5                            | % |  | 4                   | % |  | 13                
|Corporate/Other |  | 5                 | % |  | 1                            | % |  | 2                   | % |  |                  



BancGroup reported net
income for the six months and quarter ended June 30, 2004 of $82.4 and $43.3 million, a 12% and 15% increase over the $73.4 and $37.7 million recorded for the same periods of the previous year, respectively. Diluted earnings per share for the six
months and quarter ended June 30, 2004 were $0.64 and $0.33 per share compared to $0.59 and $0.30 per share for the six months and quarter ended June 30, 2003, an 8% and 10% increase, respectively.



18



---

##### Table of Contents

Financial Condition



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



|                                                        |  |                                                        |           |   |   |      |   
|------------------------------------------------------- |  | ------------------------------------------------------ | --------- | - | - | ---- | --
|                                                        |  | December 31, 2003 to June 30, 2004 Increase (Decrease) |          
|                                                        |  | Amount                                                 |           |   | % |     
|                                                        |  | (Dollars in thousands)                                 |          
|Loans held for sale                                     |  | $                                                      | 167,581   |   |   | 44.3 | % 
|Mortgage warehouse loans                                |  |                                                        | 58,582    |   |   | 6.0  | % 
|All other loans, net of unearned income                 |  |                                                        | 658,550   |   |   | 6.2  | % 
|                                                        |  |                                                        |           |   |   |      |   
|Total loans, net of unearned income                     |  |                                                        | 717,132   |   |   | 6.2  | % 
|Securities available for sale and investment securities |  |                                                        | 235,524   |   |   | 7.6  | % 
|Total assets                                            |  |                                                        | 1,319,717 |   |   | 8.1  | % 
|Non-time deposits                                       |  |                                                        | 1,056,306 |   |   | 18.0 | % 
|Total deposits                                          |  |                                                        | 1,117,530 |   |   | 11.4 | % 
|Short-term borrowings                                   |  |                                                        | (269,067  | ) |   | (8.1 | )%
|Long-term debt                                          |  |                                                        | 363,872   |   |   | 18.7 | % 
|Shareholders equity                                    |  |                                                        | 105,190   |   |   | 8.9  | % 



Securities:



Securities increased $236 million, or 7.6%, from December 31, 2003.
Securities increased at the same rate as total assets and remained at 19% of total assets at both June 30, 2004 and December 31, 2003. As a result of increasing interest rates and the related effect on the market value of the securities portfolio,
unrealized losses on available for sale securities were $80.9 million at June 30, 2004 compared to $562,000 at December 31, 2003. BancGroup has the ability to retain these securities until maturity when full repayment would be received. Refer to
Note L for additional information.



Loans and Mortgage Loans Held for Sale:



All other loans, net of unearned income, increased $659
million, or 6.2%, from December 31, 2003. The increase in loans from December 31, 2003 is primarily the result of the acquisition of PCB in May 2004 which accounted for $494 million of the increase with the remaining growth coming from the
Companys banking markets. Mortgage warehouse loan volume has a high degree of correlation with interest rate movements which directly impact mortgage refinancing activity. Mortgage warehouse loans increased $59 million from December 31, 2003
to June 30, 2004 as a result of a decline in mortgage rates in mid-March 2004.



Loans held for sale increased $168 million from December 31, 2003, with $167 million from mortgage warehouse related activity. The purpose of the mortgage warehouse component of held for sale is to accommodate the
funding needs of its mortgage company customers, therefore these balances fluctuate with customer demand.



19



---

##### Table of Contents

The following table reflects the Companys loan mix.



Gross Loans By Category



|                                        |  |                        |            |   |                  |   |            |  
|--------------------------------------- |  | ---------------------- | ---------- | - | ---------------- | - | ---------- | -
|                                        |  | June 30, 2004          |            |   | December 31,2003 |  
|                                        |  | (Dollars in thousands) |           
|Commercial, financial, and agricultural |  | $                      | 989,135    |   |                  | $ | 988,114    |  
|Commercial real estate:                 |  |                        |            |   |                  |   |            |  
|Owner-occupied commercial real estate   |  |                        | 1,011,376  |   |                  |   | 886,919    |  
|Other commercial real estate            |  |                        | 3,316,267  |   |                  |   | 3,294,006  |  
|                                        |  |                        |            |   |                  |   |            |  
|Total commercial real estate            |  |                        | 4,327,643  |   |                  |   | 4,180,925  |  
|Real estate-construction                |  |                        | 3,525,469  |   |                  |   | 3,134,366  |  
|Residential real estate                 |  |                        | 2,108,336  |   |                  |   | 1,987,697  |  
|Installment and consumer                |  |                        | 201,552    |   |                  |   | 217,100    |  
|Mortgage warehouse                      |  |                        | 1,041,070  |   |                  |   | 982,488    |  
|Other                                   |  |                        | 112,831    |   |                  |   | 98,221     |  
|                                        |  |                        |            |   |                  |   |            |  
|Total Loans                             |  |                        | 12,306,036 |   |                  |   | 11,588,911 |  
|Less: unearned income                   |  |                        | (9         | ) |                  |   | (16        | )
|                                        |  |                        |            |   |                  |   |            |  
|Net Loans                               |  | $                      | 12,306,027 |   |                  | $ | 11,588,895 |  
|                                        |  |                        |            |   |                  |   |            |  



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



Geographic Diversity of Construction and Commercial Real
Estate Loans



|                     |  |                        |           |           |       |   |                       |   |           |  |       |  
|-------------------- |  | ---------------------- | --------- | --------- | ----- | - | --------------------- | - | --------- |  | ----- | -
|                     |  | Construction           |           | % ofTotal |       |   | CommercialReal Estate |   | % ofTotal | 
|                     |  | (Dollars in thousands) |          
|Average Loan Size    |  | $                      | 585       |           |       |   |                       | $ | 614       |  |       |  
|Geographic Diversity |  |                        |           |           |       |   |                       |   |           |  |       |  
|Florida              |  | $                      | 1,850,276 |           | 52.5  | % |                       | $ | 2,130,593 |  | 49.2  | %
|Alabama              |  |                        | 401,642   |           | 11.4  | % |                       |   | 874,972   |  | 20.2  | %
|Georgia              |  |                        | 439,699   |           | 12.4  | % |                       |   | 462,678   |  | 10.7  | %
|Nevada               |  |                        | 320,835   |           | 9.1   | % |                       |   | 264,912   |  | 6.1   | %
|Texas                |  |                        | 408,512   |           | 11.6  | % |                       |   | 248,010   |  | 5.8   | %
|Other                |  |                        | 104,505   |           | 3.0   | % |                       |   | 346,478   |  | 8.0   | %
|                     |  |                        |           |           |       |   |                       |   |           |  |       |  
|Total                |  | $                      | 3,525,469 |           | 100.0 | % |                       | $ | 4,327,643 |  | 100.0 | %
|                     |  |                        |           |           |       |   |                       |   |           |  |       |  



20



---

##### Table of Contents

Property Type Distribution of Construction and Commercial Real Estate Loans



|                                 |  |                                    |   |  |                |   |                                   |                              |  |                       |   |  |                |  
|-------------------------------- |  | ---------------------------------- | - |  | -------------- | - | --------------------------------- | ---------------------------- |  | --------------------- | - |  | -------------- | -
|                                 |  | % of Property Type Distribution to |   |  |                |   | % of Property TypeDistribution to |                             
|Property Distribution            |  | ConstructionPortfolio              |   |  | TotalPortfolio |   |                                   |                              |  | CommercialReal Estate |   |  | TotalPortfolio |  
|Residential Development and Lots |  | 23.3                               | % |  | 6.7            | % |                                   | Retail                       |  | 23.8                  | % |  | 8.4            | %
|Land Only                        |  | 21.6                               | % |  | 6.2            | % |                                   | Office                       |  | 17.2                  | % |  | 6.0            | %
|Residential Home Construction    |  | 16.0                               | % |  | 4.6            | % |                                   | Multi-Family                 |  | 12.7                  | % |  | 4.5            | %
|Condominiums                     |  | 11.1                               | % |  | 3.2            | % |                                   | Warehouse                    |  | 11.6                  | % |  | 4.1            | %
|Retail                           |  | 8.5                                | % |  | 2.4            | % |                                   | Other*                       |  | 10.0                  | % |  | 3.5            | %
|Other*                           |  | 7.8                                | % |  | 2.2            | % |                                   | Lodging                      |  | 7.7                   | % |  | 2.7            | %
|Multi-Family                     |  | 5.2                                | % |  | 1.5            | % |                                   | Healthcare                   |  | 7.5                   | % |  | 2.7            | %
|Office                           |  | 3.8                                | % |  | 1.1            | % |                                   | Church or School             |  | 3.9                   | % |  | 1.4            | %
|Commercial Development           |  | 2.7                                | % |  | 0.8            | % |                                   | Recreation                   |  | 3.3                   | % |  | 1.1            | %
|                                 |  |                                    |   |  |                |   |                                   |                              |  |                       |   |  |                |  
|                                 |  |                                    |   |  |                |   |                                   | Industrial                   |  | 2.3                   | % |  | 0.8            | %
|                                 |  |                                    |   |  |                |   |                                   |                              |  |                       |   |  |                |  
|Total Construction               |  | 100.0                              | % |  | 28.7           | % |                                   | Total Commercial Real Estate |  | 100.0                 | % |  | 35.2           | %
|                                 |  |                                    |   |  |                |   |                                   |                              |  |                       |   |  |                |  

---

|* | 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)          |  | $            | 1,131,597 |   |                       | $ | 734,887 |  
|% of 75 largest loans to category total        |  |              | 32.1      | % |                       |   | 17.0    | %
|Average Loan to Value Ratio (75 largest loans) |  |              | 68.0      | % |                       |   | 68.7    | %
|Average Debt Coverage Ratio (75 largest loans) |  |              | N/A       |   |                       |   | 1.38    | x



Commercial real estate
and construction loans combined had growth, excluding acquisitions, of $273 million, or 3.7%, from December 31, 2003 to June 30, 2004. The growth was diverse as far as product type. Geographically, the Florida locations continue to contribute most
of the growth in these particular portfolios in line with our strategic plans. The acquisition of PCB in Florida in May 2004 contributed an additional $265 million to these portfolios in the second quarter. Colonial continues to focus its commercial
real estate and construction growth efforts on high quality properties owned and/or developed by experienced customers with whom we have established relationships. Substantially all construction and commercial real estate loans have personal
guarantees of the principals involved.



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



BancGroups mortgage warehouse lending division provides lines of credit collateralized by residential mortgage loans to mortgage origination companies, predominantly in the Southeast. Mortgage warehouse loans outstanding at June 30,
2004 and December 31, 2003 were $1.0 billion and $982 million, respectively, with unfunded commitments of $841 million and $915 million at June 30, 2004 and December 31, 2003, respectively.



The Company has 35 credits with total commitments (funded and unfunded) of
$842 million that fall within the bank regulatory definition of a Shared National Credit (generally defined as a total loan commitment in excess of $20 million that is shared by three or more lenders). At June 30, 2004, $443 million was
funded under these commitments. The largest outstanding amount to any single borrower is approximately $71 million, with the average credit being approximately $12.7 million.



21



---

##### Table of Contents

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



| |  | 75%mortgage warehouse lines to 19 large institutions,
| | - | ------------------------------------------------------



| |  | 22%14 commercial real estate facilities to 12 companies with headquarters located within Colonials existing markets,
| | - | ----------------------------------------------------------------------------------------------------------------------



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



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



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



Summary Of Loan Loss Experience



|                                                                         |  |                        |         |   |                  |   |         |  
|------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ---------------- | - | ------- | -
|                                                                         |  | June 30,2004           |         |   | December 31,2003 |  
|                                                                         |  | (Dollars in thousands) |        
|Allowance for loan lossesJanuary 1                                      |  | $                      | 138,549 |   |                  | $ | 135,265 |  
|Charge-offs:                                                             |  |                        |         |   |                  |   |         |  
|Commercial, financial, and agricultural                                  |  |                        | 6,034   |   |                  |   | 21,370  |  
|Real estatecommercial                                                   |  |                        | 2,949   |   |                  |   | 9,344   |  
|Real estateconstruction                                                 |  |                        | 2,049   |   |                  |   | 1,528   |  
|Real estateresidential                                                  |  |                        | 1,394   |   |                  |   | 5,297   |  
|Installment and consumer                                                 |  |                        | 1,087   |   |                  |   | 2,507   |  
|Other                                                                    |  |                        | 2,484   |   |                  |   | 1,381   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Total charge-offs                                                        |  |                        | 15,997  |   |                  |   | 41,427  |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Recoveries:                                                              |  |                        |         |   |                  |   |         |  
|Commercial, financial, and agricultural                                  |  |                        | 1,557   |   |                  |   | 2,052   |  
|Real estatecommercial                                                   |  |                        | 313     |   |                  |   | 874     |  
|Real estateconstruction                                                 |  |                        | 53      |   |                  |   | 197     |  
|Real estateresidential                                                  |  |                        | 204     |   |                  |   | 332     |  
|Installment and consumer                                                 |  |                        | 603     |   |                  |   | 1,334   |  
|Other                                                                    |  |                        | 408     |   |                  |   | 1,167   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Total recoveries                                                         |  |                        | 3,138   |   |                  |   | 5,956   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Net charge-offs                                                          |  |                        | 12,859  |   |                  |   | 35,471  |  
|Provision for loan losses                                                |  |                        | 14,453  |   |                  |   | 37,378  |  
|Allowance added from bank acquisitions                                   |  |                        | 6,857   |   |                  |   | 1,377   |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Allowance for loan lossesend of period                                  |  | $                      | 147,000 |   |                  | $ | 138,549 |  
|                                                                         |  |                        |         |   |                  |   |         |  
|Net charge-offs as a percentage of average net loans(annualized basis): |  |                        |         |   |                  |   |         |  
|Quarter to date                                                          |  |                        | 0.23    | % |                  |   | 0.30    | %
|Year to date                                                             |  |                        | 0.22    | % |                  |   | 0.31    | %



22



---

##### Table of Contents

Nonperforming Assets



BancGroup classifies problem loans into four categories: nonaccrual, past due, renegotiated and other potential problems. When management determines that
a loan no longer meets the criteria for a performing loan and 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 also to charge off consumer
installment loans 120 days past due unless they are in the process of foreclosure and are adequately collateralized. Management closely monitors all problem loans.



|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                             |  | June 30,2004           |        |   | December 31,2003 |  
|                                                                                                                                                             |  | (Dollars in thousands) |       
|Aggregate loans for which interest is not being accrued                                                                                                      |  | $                      | 34,994 |   |                  | $ | 57,342 |  
|Aggregate loans renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial condition
of the borrower |  |                        | 248    |   |                  |   | 277    |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Total nonperforming loans*                                                                                                                                   |  |                        | 35,242 |   |                  |   | 57,619 |  
|Other real estate owned and repossessions                                                                                                                    |  |                        | 11,084 |   |                  |   | 17,821 |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Total nonperforming assets*                                                                                                                                  |  | $                      | 46,326 |   |                  | $ | 75,440 |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Aggregate loans contractually past due 90 days for which interest is being accrued                                                                           |  | $                      | 11,537 |   |                  | $ | 10,802 |  
|Net charge-offs quarter-to-date                                                                                                                              |  | $                      | 6,852  |   |                  | $ | 8,655  |  
|Net charge-offs year-to-date                                                                                                                                 |  | $                      | 12,859 |   |                  | $ | 35,471 |  
|Total nonperforming assets as a percent of net loans and other real estate                                                                                   |  |                        | 0.38   | % |                  |   | 0.65   | %
|Allowance as a percent of net loans                                                                                                                          |  |                        | 1.19   | % |                  |   | 1.20   | %
|Allowance as a percent of nonperforming assets*                                                                                                              |  |                        | 317    | % |                  |   | 184    | %
|Allowance as a percent of nonperforming loans*                                                                                                               |  |                        | 417    | % |                  |   | 240    | %

---

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



The above nonperforming loans represent all material credits for which management has significant doubts as to the ability
of the borrowers to comply with the loan repayment terms. Management also expects that the resolution of these problem credits as well as other performing loans will not materially impact future operating results, liquidity or capital resources. The
balance of nonperforming assets declined $29 million, or 39%, during the six months ended June 30, 2004 due to the sale, charge-off, and payoff of a number of larger assets including the sale of the Banks outstanding loans to Argentine Banks.
The balance of nonperforming assets can fluctuate due to changes in economic conditions, nonperforming assets obtained in acquisitions, and the disproportionate impact of larger assets. Colonial has historically and consistently experienced
favorable levels of nonperforming assets. The recent improvements in nonperforming assets and other credit quality measures are the result of additional improvements in collection, work-out and risk management efforts.



A loan is considered impaired if it is deemed probable that the Company will
be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. In addition to nonaccrual loans, impaired loans may include past due loans that are well collateralized and in
the process of collection. At June 30, 2004 and December 31, 2003, the recorded investment in loans for which impairment has been recognized totaled approximately $39.8 million and $59.9 million, respectively. The impaired loans were measured for
impairment based primarily on the value of underlying collateral. The allowance related to impaired loans for June 30, 2004 and December 31, 2003 was $10.7 million and $15.6 million, respectively. At June 30, 2004, impaired loans with an associated
allowance totaled $24.5 million, while $15.3 million of impaired loans required no related allowance due to their fully collateralized status. The amount



23



---

##### Table of Contents

of interest income recognized and foregone on nonaccrual loans was not significant for all respective periods.



In addition to the loans reported as nonperforming loans above, management
has identified approximately $288.9 million of loans which have been placed on a classified loan list. The status of all material loans is reviewed at least monthly by loan officers and quarterly by BancGroups centralized credit administration
function. In connection with such reviews, collateral values are updated where considered necessary. If collateral values are judged insufficient or other sources of repayment inadequate, the amount of reserve held is increased or the loan is
reduced to estimated recoverable terms. At June 30, 2004, substantially all of these loans are current (paying on or before payment due date or less than 30 days past due) with their existing repayment terms. Management believes that classification
of such loans well in advance of their reaching a delinquent status allows the Company the greatest flexibility in correcting problems and providing adequate reserves. Given the reserves and the ability of the borrowers to comply with the existing
repayment terms, management believes any exposure from these loans has been adequately addressed at the present time.



Interest Rate Sensitivity:



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



On June 30, 2004 the Federal Reserve (Fed) increased the Fed Funds rate from 1.00% to 1.25%. In addition, an improved employment picture is leading the
market to believe that the Fed may continue to increase the Fed Funds rate at a moderate pace during the second half of the year. As noted in the chart below, the Company would expect slight accretion if the Fed maintains its expected course.



The following table represents the output from the
Companys simulation model based on the balance sheet at June 30, 2004, when the Fed Funds Rate was 1.25%. The table measures the impact on net interest income, generated from the current balance sheet, of an immediate and sustained change in
all market interest rates in 100 basis point increments for the 12 calendar months following the date of the change. This twelve-month projection of net interest income under these scenarios is compared to the twelve-month net interest income
projection with rates unchanged.



|                    |  |              |   |  |                                                                                                          |  
|------------------- |  | ------------ | - |  | -------------------------------------------------------------------------------------------------------- | -
|                    |  | FedFundsRate |   |  | Percentage Changein 12 MonthProjected NetInterest Income vs.Net InterestIncome assumingno rate change(1) |  
|Basis Points change |  |              |   |  |                                                                                                          |  
|+200                |  | 3.25         | % |  | 2.4                                                                                                      | %
|+100                |  | 2.25         |   |  | 0.8                                                                                                      |  
|No Rate Change      |  | 1.25         |   |  |                                                                                                         |  
|-100                |  | 0.25         |   |  | 1.4                                                                                                      |  

---

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



24



---

##### Table of Contents

Liquidity:



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



Non time deposit growth is a primary focus of BancGroups funding and liquidity strategy. Average non-time deposits for the second quarter of 2004
increased $1.3 billion or 26% (22% excluding the impact of the PCB acquisition) over the second quarter of 2003. The introduction in August 2003 and the continued promotion of a new money market account contributed $832 million of the increase. The
acquisition of PCB resulted in $194 million in average non-time deposits for the second quarter of 2004. In contrast, average time deposits decreased $45 million from the second quarter of 2004 compared to the second quarter of 2003. These changes
improved the percentage of average non-time deposits to average total deposits to 62% for the second quarter of 2004 compared to 56% for the second quarter of 2003.



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



|                       |  |     |  
|---------------------- |  | --- | -
|Florida (includes PCB) |  | 65  | %
|Alabama                |  | 20  | %
|Nevada                 |  | 6   | %
|Georgia                |  | 5   | %
|Texas                  |  | 3   | %
|Other                  |  | 1   | %
|                       |  |     |  
|                       |  | 100 | %



BancGroup lessened its
short term funding position by adding $300 million of FHLB advances in the second quarter of 2004 with maturities of 3 to 5 years at floating rates. With this increase in long term funding and record total deposits at June 30, 2004 of $10.9 billion,
short term wholesale funding improved to 18.7% of total funding sources at June 30, 2004 compared to 26.9% at June 30, 2003.



As part of its planning for future funding needs, BancGroup has worked to expand the availability of short-term and long-term wholesale funding sources in
addition to continued emphasis on deposit growth. Wholesale funding sources include availability from the Federal Home Loan Bank of Atlanta, borrowings collateralized by securities, fed funds purchased and brokered CDs. Of total wholesale
funding sources estimated to be available to the Company, BancGroup utilized 54% at June 30, 2004 compared to 66% at June 30, 2003.



Capital Adequacy and Resources:



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



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



25



---

##### Table of Contents

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



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



|                                                                                                                                             |  |   |           
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | - | ----------
|Capital (dollars in thousands):                                                                                                              |  |  
|Tier I Capital:                                                                                                                              |  |   |           
|Shareholders equity (excluding unrealized gains/losses on securities available for sale and intangibles plus Trust Preferred
Securities)(1) |  | $ | 1,232,709 
|Tier II Capital:                                                                                                                             |  |   |           
|Allowable loan loss reserve                                                                                                                  |  |   | 147,000   
|Subordinated debt                                                                                                                            |  |   | 234,635   
|45% of net unrealized gains on available for sale equity securities                                                                          |  |   | 12        
|                                                                                                                                             |  |   |           
|Total Capital                                                                                                                                |  | $ | 1,614,356 
|                                                                                                                                             |  |   |           
|Risk-Adjusted Assets                                                                                                                         |  | $ | 13,170,513
|Quarterly average assets (excluding intangibles and unrealized gains/losses on securities available for sale)                                |  | $ | 16,895,145



|                              |  |              |   |  |                  |  
|----------------------------- |  | ------------ | - |  | ---------------- | -
|                              |  | June 30,2004 |   |  | December 31,2003 |  
|Tier I Leverage Ratio         |  | 7.30         | % |  | 7.50             | %
|Risk-Adjusted Capital Ratios: |  |              |   |  |                  |  
|Tier I Capital Ratio          |  | 9.36         | % |  | 9.35             | %
|Total Capital Ratio           |  | 12.26        | % |  | 12.49            | %

---

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



26



---

##### Table of Contents

Average Volume and Rate

(unaudited)



|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|------------------------------------------------------------------------------------------- |  | --------------------------- | ---------- | -------- | ---- | ------- |  | ---- | ------------- |  | -------- | ---------- | ---- | - | ------- |  | ---- | -
|                                                                                            |  | Three Months Ended June 30, |           
|                                                                                            |  | 2004                        |            |          | 2003 |        
|                                                                                            |  | AverageVolume               |            | Interest |      | Rate    |  |      | AverageVolume |  | Interest |            | Rate |  
|                                                                                            |  | (Dollars in thousands)      |           
|ASSETS:                                                                                     |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest earning assets:                                                                    |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|All other loans, net of unearned income(1)                                                  |  | $                           | 10,940,598 |          | $    | 148,516 |  | 5.46 | %             |  | $        | 10,008,446 |      | $ | 150,977 |  | 6.12 | %
|Mortgage warehouse loans                                                                    |  |                             | 1,120,277  |          |      | 11,251  |  | 4.04 | %             |  |          | 1,592,472  |      |   | 14,492  |  | 3.60 | %
|Loans held for sale                                                                         |  |                             | 526,491    |          |      | 6,456   |  | 4.90 | %             |  |          | 364,505    |      |   | 4,982   |  | 5.47 | %
|Investment securities and securities available for sale and other short-term investments(2) |  |                             | 3,434,358  |          |      | 38,463  |  | 4.48 | %             |  |          | 2,745,904  |      |   | 26,173  |  | 3.81 | %
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest earning assets                                                               |  |                             | 16,021,724 |          | $    | 204,686 |  | 5.13 | %             |  |          | 14,711,327 |      | $ | 196,624 |  | 5.35 | %
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Non-earning assets                                                                          |  |                             | 1,238,559  |          |      |         |  |      |               |  |          | 1,114,053  |      |   |         |  |      |  
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total assets                                                                                |  | $                           | 17,260,283 |          |      |         |  |      |               |  | $        | 15,825,380 |      |   |         |  |      |  
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                       |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing liabilities:                                                               |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing non-time deposits                                                          |  | $                           | 4,320,746  |          | $    | 9,254   |  | 0.86 | %             |  | $        | 3,306,725  |      | $ | 7,004   |  | 0.85 | %
|Time deposits                                                                               |  |                             | 3,954,689  |          |      | 24,148  |  | 2.46 | %             |  |          | 3,999,866  |      |   | 28,964  |  | 2.90 | %
|Short-term borrowings                                                                       |  |                             | 3,205,953  |          |      | 8,213   |  | 1.03 | %             |  |          | 3,373,589  |      |   | 10,857  |  | 1.29 | %
|Long-term debt                                                                              |  |                             | 2,296,243  |          |      | 18,956  |  | 3.32 | %             |  |          | 2,108,847  |      |   | 24,058  |  | 4.56 | %
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest bearing liabilities                                                          |  |                             | 13,777,631 |          | $    | 60,571  |  | 1.77 | %             |  |          | 12,789,027 |      | $ | 70,883  |  | 2.22 | %
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Noninterest bearing demand deposits                                                         |  |                             | 2,166,471  |          |      |         |  |      |               |  |          | 1,846,827  |      |   |         |  |      |  
|Other liabilities                                                                           |  |                             | 75,206     |          |      |         |  |      |               |  |          | 86,737     |      |   |         |  |      |  
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities                                                                           |  |                             | 16,019,308 |          |      |         |  |      |               |  |          | 14,722,591 |      |   |         |  |      |  
|Shareholders equity                                                                        |  |                             | 1,240,975  |          |      |         |  |      |               |  |          | 1,102,789  |      |   |         |  |      |  
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities and shareholders equity                                                  |  | $                           | 17,260,283 |          |      |         |  |      |               |  | $        | 15,825,380 |      |   |         |  |      |  
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|RATE DIFFERENTIAL                                                                           |  |                             |            |          |      |         |  | 3.36 | %             |  |          |            |      |   |         |  | 3.13 | %
|NET INTEREST INCOME AND NET YIELD ON INTEREST-EARNING ASSETS(3)                             |  |                             |            |          | $    | 144,115 |  | 3.61 | %             |  |          |            |      | $ | 125,741 |  | 3.42 | %
|                                                                                            |  |                             |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  

---

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

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

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



27



---

##### Table of Contents

Average Volume and Rate

(unaudited)



|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|------------------------------------------------------------------------------------------- |  | ------------------------- | ---------- | -------- | ---- | ------- |  | ---- | ------------- |  | -------- | ---------- | ---- | - | ------- |  | ---- | -
|                                                                                            |  | Six Months Ended June 30, |           
|                                                                                            |  | 2004                      |            |          | 2003 |        
|                                                                                            |  | AverageVolume             |            | Interest |      | Rate    |  |      | AverageVolume |  | Interest |            | Rate |  
|                                                                                            |  | (Dollars in thousands)    |           
|ASSETS:                                                                                     |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest earning assets:                                                                    |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|All other loans, net of unearned income(1)                                                  |  | $                         | 10,765,744 |          | $    | 293,706 |  | 5.48 | %             |  | $        | 9,953,583  |      | $ | 302,317 |  | 6.04 | %
|Mortgage warehouse loans                                                                    |  |                           | 1,001,789  |          |      | 19,882  |  | 3.99 | %             |  |          | 1,535,438  |      |   | 27,867  |  | 3.61 | %
|Loans held for sale                                                                         |  |                           | 431,183    |          |      | 10,968  |  | 5.09 | %             |  |          | 291,226    |      |   | 7,597   |  | 5.22 | %
|Investment securities and securities available for sale and other short-term investments(2) |  |                           | 3,316,166  |          |      | 74,390  |  | 4.49 | %             |  |          | 2,742,185  |      |   | 54,082  |  | 3.98 | %
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest earning assets                                                               |  |                           | 15,514,882 |          | $    | 398,946 |  | 5.16 | %             |  |          | 14,522,432 |      | $ | 391,863 |  | 5.43 | %
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Non-earning assets                                                                          |  |                           | 1,180,865  |          |      |         |  |      |               |  |          | 1,069,484  |      |   |         |  |      |  
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total assets                                                                                |  | $                         | 16,695,747 |          |      |         |  |      |               |  | $        | 15,591,916 |      |   |         |  |      |  
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY:                                                       |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing liabilities:                                                               |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing non-time deposits                                                          |  | $                         | 4,112,686  |          | $    | 17,204  |  | 0.84 | %             |  | $        | 3,262,264  |      | $ | 13,937  |  | 0.86 | %
|Time deposits                                                                               |  |                           | 3,937,965  |          |      | 48,598  |  | 2.48 | %             |  |          | 4,132,626  |      |   | 61,424  |  | 3.00 | %
|Short-term borrowings                                                                       |  |                           | 3,020,162  |          |      | 15,260  |  | 1.02 | %             |  |          | 3,113,713  |      |   | 20,641  |  | 1.34 | %
|Long-term debt                                                                              |  |                           | 2,278,967  |          |      | 40,156  |  | 3.54 | %             |  |          | 2,120,105  |      |   | 48,398  |  | 4.60 | %
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest bearing liabilities                                                          |  |                           | 13,349,780 |          | $    | 121,218 |  | 1.83 | %             |  |          | 12,628,708 |      | $ | 144,400 |  | 2.30 | %
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Noninterest bearing demand deposits                                                         |  |                           | 2,048,794  |          |      |         |  |      |               |  |          | 1,786,958  |      |   |         |  |      |  
|Other liabilities                                                                           |  |                           | 76,356     |          |      |         |  |      |               |  |          | 82,322     |      |   |         |  |      |  
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities                                                                           |  |                           | 15,474,930 |          |      |         |  |      |               |  |          | 14,497,988 |      |   |         |  |      |  
|Shareholders equity                                                                        |  |                           | 1,220,817  |          |      |         |  |      |               |  |          | 1,093,928  |      |   |         |  |      |  
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities and shareholders equity                                                  |  | $                         | 16,695,747 |          |      |         |  |      |               |  | $        | 15,591,916 |      |   |         |  |      |  
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|RATE DIFFERENTIAL                                                                           |  |                           |            |          |      |         |  | 3.33 | %             |  |          |            |      |   |         |  | 3.13 | %
|NET INTEREST INCOME AND NET YIELD ON INTEREST-EARNING ASSETS(3)                             |  |                           |            |          | $    | 277,728 |  | 3.59 | %             |  |          |            |      | $ | 247,463 |  | 3.42 | %
|                                                                                            |  |                           |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  

---

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

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

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



28



---

##### Table of Contents

Analysis of Interest Increases/(Decreases)

(Unaudited)



|                                                                                         |  |                                                  |         |   |                  |   |        |      |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ------------------------------------------------ | ------- | - | ---------------- | - | ------ | ---- |  | - | ------- | -
|                                                                                         |  | Three Months Ended June 30, 2004Change from 2003 |        
|                                                                                         |  |                                                  |         |   | Attributed to(1) |  
|                                                                                         |  | Total                                            |         |   | Volume           |   |        | Rate | 
|                                                                                         |  | (Dollars in thousands)                           |        
|INTEREST INCOME:                                                                         |  |                                                  |         |   |                  |   |        |      |  |   |         |  
|All other loans, net of unearned income                                                  |  | $                                                | (2,461  | ) |                  | $ | 14,158 |      |  | $ | (16,619 | )
|Mortgage warehouse loans                                                                 |  |                                                  | (3,241  | ) |                  |   | (4,764 | )    |  |   | 1,523   |  
|Loans held for sale                                                                      |  |                                                  | 1,474   |   |                  |   | 2,032  |      |  |   | (558    | )
|Investment securities and securities available for sale and other short-term investments |  |                                                  | 12,290  |   |                  |   | 7,222  |      |  |   | 5,068   |  
|                                                                                         |  |                                                  |         |   |                  |   |        |      |  |   |         |  
|Total interest income                                                                    |  |                                                  | 8,062   |   |                  |   | 18,648 |      |  |   | (10,586 | )
|                                                                                         |  |                                                  |         |   |                  |   |        |      |  |   |         |  
|INTEREST EXPENSE:                                                                        |  |                                                  |         |   |                  |   |        |      |  |   |         |  
|Interest bearing deposits                                                                |  |                                                  | 2,250   |   |                  |   | 2,155  |      |  |   | 95      |  
|Time deposits                                                                            |  |                                                  | (4,816  | ) |                  |   | (331   | )    |  |   | (4,485  | )
|Short-term borrowings                                                                    |  |                                                  | (2,644  | ) |                  |   | (525   | )    |  |   | (2,119  | )
|Long-term debt                                                                           |  |                                                  | (5,102  | ) |                  |   | 1,957  |      |  |   | (7,059  | )
|                                                                                         |  |                                                  |         |   |                  |   |        |      |  |   |         |  
|Total interest expense                                                                   |  |                                                  | (10,312 | ) |                  |   | 3,256  |      |  |   | (13,568 | )
|                                                                                         |  |                                                  |         |   |                  |   |        |      |  |   |         |  
|Net interest income                                                                      |  | $                                                | 18,374  |   |                  | $ | 15,392 |      |  | $ | 2,982   |  
|                                                                                         |  |                                                  |         |   |                  |   |        |      |  |   |         |  



Analysis of Interest
Increases/(Decreases)

(Unaudited)



|                                                                                         |  |                                                |         |   |                  |   |         |      |  |   |         |  
|---------------------------------------------------------------------------------------- |  | ---------------------------------------------- | ------- | - | ---------------- | - | ------- | ---- |  | - | ------- | -
|                                                                                         |  | Six Months Ended June 30, 2004Change from 2003 |        
|                                                                                         |  |                                                |         |   | Attributed to(1) |  
|                                                                                         |  | Total                                          |         |   | Volume           |   |         | Rate | 
|                                                                                         |  | (Dollars in thousands)                         |        
|INTEREST INCOME:                                                                         |  |                                                |         |   |                  |   |         |      |  |   |         |  
|All other loans, net of unearned income                                                  |  | $                                              | (8,611  | ) |                  | $ | 21,843  |      |  | $ | (30,454 | )
|Mortgage warehouse loans                                                                 |  |                                                | (7,985  | ) |                  |   | (10,581 | )    |  |   | 2,596   |  
|Loans held for sale                                                                      |  |                                                | 3,371   |   |                  |   | 3,569   |      |  |   | (198    | )
|Investment securities and securities available for sale and other short-term investments |  |                                                | 20,308  |   |                  |   | 12,627  |      |  |   | 7,681   |  
|                                                                                         |  |                                                |         |   |                  |   |         |      |  |   |         |  
|Total interest income                                                                    |  |                                                | 7,083   |   |                  |   | 27,458  |      |  |   | (20,375 | )
|                                                                                         |  |                                                |         |   |                  |   |         |      |  |   |         |  
|INTEREST EXPENSE:                                                                        |  |                                                |         |   |                  |   |         |      |  |   |         |  
|Interest bearing deposits                                                                |  |                                                | 3,267   |   |                  |   | 3,577   |      |  |   | (310    | )
|Time deposits                                                                            |  |                                                | (12,826 | ) |                  |   | (2,742  | )    |  |   | (10,084 | )
|Short-term borrowings                                                                    |  |                                                | (5,381  | ) |                  |   | (593    | )    |  |   | (4,788  | )
|Long-term debt                                                                           |  |                                                | (8,242  | ) |                  |   | 3,450   |      |  |   | (11,692 | )
|                                                                                         |  |                                                |         |   |                  |   |         |      |  |   |         |  
|Total interest expense                                                                   |  |                                                | (23,182 | ) |                  |   | 3,692   |      |  |   | (26,874 | )
|                                                                                         |  |                                                |         |   |                  |   |         |      |  |   |         |  
|Net interest income                                                                      |  | $                                              | 30,265  |   |                  | $ | 23,766  |      |  | $ | 6,499   |  
|                                                                                         |  |                                                |         |   |                  |   |         |      |  |   |         |  

---

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



29



---

##### Table of Contents

Net Interest Income:



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



Net interest income on a tax equivalent basis increased $18.4 million or
14.6% to $144.1 million for the quarter ended June 30, 2004 from $125.7 million for the quarter ended June 30, 2003. Net interest margin increased for the third consecutive quarter to 3.61% for the second quarter of 2004, an increase of 19 basis
points from 3.42% for the second quarter of 2003.



Net interest
income on a tax equivalent basis increased $30.3 million or 12.2% to $277.7 million for the six months ended June 30, 2004 from $247.4 million for the six months ended June 30, 2003. Net interest margin improved 17 basis points to 3.59% for the six
months ended June 30, 2004 compared to 3.42% for the same period in 2003.



The contributors to the increase in net interest income for both the quarter and six months are reflected on the previous tables. The primary contributors were growth in earning assets, improved yield on securities,
growth in non-time deposits and lower funding costs partially offset by lower yields on all other loans and loans held for sale.



For the second quarter 2004, as compared to the same period in 2003, average earning assets increased 8.9% or $1.3 billion, including $266 million from
the PCB acquisition, to $16 billion compared to $14.7 billion for the second quarter 2003. This increase was due to a $932.2 million increase in average loans, excluding mortgage warehouse, and a $688.5 million increase in average securities, offset
by a reduction in average mortgage warehouse loans of $472.2 million. Overall for the second quarter 2004 versus 2003, the increase in net interest income attributable to higher earning assets was $18.6 million. For the six months ended June 30,
2004, as compared to the same period in 2003, average earning assets increased 6.8% or $1.0 billion to $15.5 billion compared to $14.5 billion for the six months ended June 30, 2003. This increase was due to an $812.2 million increase in average
loans, excluding mortgage warehouse, and a $574 million increase in average securities, offset by a reduction in average mortgage warehouse loans of $533.6 million. Overall for the six months ended June 30, 2004 versus 2003, the increase in net
interest income attributable to higher earning assets was $27.5 million. Please refer to the Financial Condition section of this report for further discussion of these asset changes.



The yield on securities improved 67 basis points and 51 basis points while
the yield on all other loans declined 66 basis points and 56 basis points for the three and six months ended June 30, 2004, respectively, compared to the same periods in 2003. The improvement in securities yields was partially the result of the sale
in the first quarter of $710 million in securities with an average yield of 4.37% and reinvestment in securities with an average yield of 4.62%, as well as the impact of lower premium amortization from slower mortgage prepayments and higher
reinvestment rates on investment portfolio cash flows. Loan yields continued to decline in the second quarter due to the continued repricing of older fixed rate loans. As a result of these changes the average yield on earning assets declined 22
basis points and 27 basis points for the three and six months ended June 30, 2004 compared to the same periods in 2003.



Overall funding cost improved 45 basis points and 47 basis points for the second quarter and first six months of 2004 compared to the same periods in 2003
primarily as a result of: non-time deposit growth; repricing of time deposits and short term borrowings in a lower rate environment; and changes to the structure of various long term debt instruments. Average non-time deposits grew 26% and 22% for
the three and six months ended June 30, 2004 compared to the same periods in 2003. Growth in non-time deposits was partially offset by a decline in time deposits due to lower customer demand for these types of deposits. As a result average non-time
deposits were 62% and 61% of average total deposits for the second quarter and six months ended June 30, 2004 compared to 56% and 55% for the same periods in 2003. The cost of long term debt declined 124 basis points and 106 basis points for the
three and six months ended June 30, 2004, respectively, compared to the same



30



---

##### Table of Contents

periods in 2003. This decline was primarily due to the conversion of fixed rates to floating rates on certain debt instruments through interest rate swaps as
well as the addition of floating rate instruments in the second quarter of 2004. Please refer to Note G of this report for further discussion of changes in long term debt.



Loan Loss Provision:



The provision for loan losses for the quarter ended June 30, 2004 was $6.5 million compared to $10.8 million for the same period in 2003. Year to date
loan loss provision for 2004 was $14.5 million compared to $18.9 million in 2003. Net charge-offs were $6.9 million and $12.9 million, or 0.23% and 0.22% annualized as a percent of average net loans, for the three and six months ended June 30, 2004,
respectively, and $10.9 million and $16.5 million, or 0.37% and 0.29%, for the same periods in 2003. Due to numerous factors including a lower charge-off level, lower levels of impaired loans, and improvement in loans classified as other potential
problems, the Companys reserve methodology resulted in a lower provision as compared to the prior year.



At June 30, 2004 BancGroup had a 417% reserve coverage of nonperforming loans compared to 240% at December 31, 2003 and 210% at June 30, 2003.
Nonperforming assets as a percent of net loans and other real estate was 0.38% at June 30, 2004 compared to 0.65% at December 31, 2003 and 0.71% at June 30, 2003. See managements discussion of nonperforming assets and summary of loan losses
presented in the Financial Conditionsection of this report.



Noninterest Income:



Noninterest income,
excluding securities gains and losses, remained even for the three months ended June 30, 2004 compared to the same period in 2003, and increased $1.3 million, or 2.1%, for the six months ended June 30, 2004 as compared to the same period in 2003.
Sources of noninterest income include service charges on deposit accounts, financial planning services, electronic banking services, mortgage banking income and securities gains (losses).



Service charges on deposit accounts increased $1.7 million, or 12.5%, for the three months ended June 30, 2004 over the same
period in 2003 and $4.1 million, or 16.5%, for the six months ended June 30, 2004 over 2003. These increases are primarily the result of growth in deposits of 19% since June 30, 2003 and an increase in NSF fees.



Financial planning services revenue increased $490,000, or 14.0%, for the
three months ended June 30, 2004 from the same period in 2003 and decreased $654,000, or 8.4%, for the six months ended June 30, 2004 over 2003. This increase for the three months ended June 30, 2004 is the result of an increase in sales of annuity
products partially offset by a decrease in security sales and a decrease in trust service revenue. The decrease for the six months ended June 30, 2004 is primarily the result of a decline in sales of investment and annuity products that occurred in
the first quarter of 2004 and lower income from trust services in the first and second quarters of 2004 as compared to the same periods in 2003.



Electronic banking revenues include fees from the Companys ATM network, business and personal check cards and internet banking. Noninterest income
from electronic banking services increased $470,000, or 17.3%, for the three months ended June 30, 2004, compared to the same period in 2003 and $849,000, or 16.5%, for the six months ended June 30, 2004 compared to 2003. The increase for both
periods is primarily the result of deposit growth, increased check card activations and usage driven by the Say Credit ATM receipt promotion and the Visa rewards programs, and an increase in usage of the Companys internet banking
product.



Mortgage banking fees decreased $3.8 million, or
61.3%, for the three months ended June 30, 2004 compared to the same period in 2003 and $6.4 million, or 59.3%, for the six months ended June 30, 2004 compared to 2003. The decreases are a direct result of the increase in mortgage rates which
resulted in a drop off in refinancing activity as compared to last year.



31



---

##### Table of Contents

Securities gains for the six months ended June 30, 2004 were $7.1 million compared to $3.7 million for
the same period in 2003. Securities losses were $392,000 for the three months ended June 30, 2004 compared to securities gains of $1.9 million for the same period in 2003. Refer to the Net Interest Income section for further discussion of the
securities transactions.



Other income increased $1.3 million,
or 16.2%, and $3.3 million, or 23.7%, for the three and six months ended June 30, 2004 as compared to the same periods in 2003, respectively. The increase for the three months ended June 30, 2004 includes an increase in income from bank-owned life
insurance of $669,000, and an increase in income from real estate joint ventures of $870,000. The increase for the six months ended June 30, 2004 includes an increase in income from bank-owned life insurance of $1.7 million, and an increase in
income from real estate joint ventures of $1.3 million.



Noninterest
Expenses:



Noninterest expense increased $12.1 million, or
13.1%, for the three months ended June 30, 2004 as compared to the same period in 2003. Noninterest expense, excluding loss on early extinguishment of debt of $6.2 million, increased $19.6 million, or 10.7%, for the six months ended June 30, 2004 as
compared to the same period in 2003. Annualized noninterest expense excluding loss on early extinguishment of debt to average assets was 2.43% and 2.42% for the three and six months ended June 30, 2004, respectively, as compared to 2.34% for the
same periods in 2003. BancGroup added 30 new branches to its franchise over the past 12 months - 13 new branches and 17 acquired branches. These new locations and related acquisition expense increased noninterest expense by 6% over the second
quarter of 2003 and 4% over the six months ended June 30, 2004, as compared to 2003. The remaining increase relates to salaries and benefits, technology enhancements, and other miscellaneous operating expenses, such as advertising and legal expense.
Three of PCBs four banks were converted to Colonials information technology systems on June 24, 2004. The fourth PCB bank is expected to be integrated into Colonials operating systems in August. The Company incurred approximately
$1.2 million in one time merger related expenses in the second quarter and anticipates approximately $750,000 in additional one time expenses to be recorded in the third quarter of 2004. Full cost savings from integration should be realized during
the fourth quarter of 2004.



Salaries and benefits increased
$6.1 million, or 12.7%, and $9.7 million, or 10.1%, for the three and six months ended June 30, 2004 as compared to the same periods in 2003, respectively. The increases resulted from new branch openings, the acquisition of PCB, normal salary
increases, addition of employees in key strategic areas, increase in health benefit costs and increased incentive plan compensation partially offset by a decrease in commissions due to a reduction in mortgage banking and financial planning services
revenue previously discussed.



Occupancy and equipment expense
increased $1.4 million, or 6.9%, and $3.1 million, or 7.8%, for the three and six months ended June 30, 2004 as compared to the same periods in 2003, respectively. The increases are primarily the result of new branch openings and the acquisition of
PCB as previously discussed, as well as an investment in a new information technology center with expanded capacity and continued technology enhancements.



The increase in amortization of intangibles and merger related expenses are a direct result of the acquisition of PCB in May, 2004. Amortization of
intangibles increased $304,000, or 28.0%, and $341,000, or 16.7%, for the three and six months ended June 30, 2004 as compared to the same periods in 2003, respectively. Merger related expenses increased $1.1 million for both the three and six
months ended June 30, 2004 as compared to the same periods in 2003.



The $6.2 million loss on early extinguishment of debt for the six months ended June 30, 2004 was the result of the early payoff of FHLB advances and other borrowings. Refer to the Net Interest Income section for further discussion.



32



---

##### Table of Contents

The remaining increases in other expense of $3.2 million and $5.4 million for the three and six months
ended June 30, 2004 as compared to the same periods in 2003, respectively, are the result of the opening of new branches, acquisition of PCB, additional advertising expenses as a result of the Companys emphasis on deposit growth as well as
increases in normal operating expenses including legal fees, regulatory assessment fees and other real estate expenses.



Provision For Income Taxes:



BancGroups provision for income taxes is based on an approximate 34.0% estimated annual effective tax rate for the years 2004 and 2003. The
provisions for income taxes for the three months ended June 30, 2004 and 2003 were $22.3 million and $19.4 million respectively. The year to date provisions for income taxes ended June 30, 2004 and 2003 were $42.5 million and $37.8 million,
respectively.



Item 3. Quantitative and Qualitative Disclosures About Market Risk



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



Item 4. Controls and Procedures



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



33



---

##### Table of Contents

PART II. OTHER INFORMATION



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



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



Item 3. Defaults Upon Senior SecuritiesN/A



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



On April 21, 2004, the annual meeting of the shareholders of Colonial BancGroup was held. The only matter considered was the election of directors. The following table lists what directors were elected, the votes cast
for them or withheld and the percentage of the votes cast for such directors out of the total of votes cast.



The following directors were elected for a term expiring in 2007:



|                       |  |             |  |           |  |            
|---------------------- |  | ----------- |  | --------- |  | -----------
|                       |  | For         |  | Withheld  |  | Percent for
|Robert S. Craft        |  | 106,922,875 |  | 1,759,985 |  | 98.4       
|Hubert L. Harris, Jr.  |  | 107,687,990 |  | 994,870   |  | 99.1       
|Clinton O. Holdbrooks  |  | 105,737,682 |  | 2,945,178 |  | 97.4       
|Harold D. King         |  | 105,721,232 |  | 2,961,628 |  | 97.3       
|Robert E. Lowder       |  | 106,744,843 |  | 1,938,017 |  | 98.2       
|John C. H. Miller, Jr. |  | 104,099,997 |  | 4,582,863 |  | 95.9       
|James W. Rane          |  | 107,654,568 |  | 1,028,292 |  | 99.1       



In addition to the
foregoing, the following directors will continue to serve:



Directors whose terms expire in 2006: Lewis E. Beville, Jerry J. Chesser, John Ed Mathison, Joe D. Mussafer, Frances E. Roper and Edward V. Welch.



Directors whose terms expire in 2005: William Britton, Augustus K. Clements, III, Patrick F. Dye, Milton E. McGregor, William E. Powell, III and Simuel
Sippial.



Item 5. Other InformationN/A



Item 6. Exhibits and Reports on Form 8-K



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



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



(b) Reports on Form
8-K



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



2. Form 8-Kwas furnished on April 21, 2004 as Regulation F-D Disclosure in regard to presentations made by management at the Registrants annual shareholders meeting.



3. Form 8-Kwas furnished on April 16, 2004 as Regulation F-D Disclosure in regard to first quarter 2004 earnings.



34



---

##### Table of Contents

SIGNATURE



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     |  |                              |  |                                          
|-------------------- |  | ---------------------------- |  | -----------------------------------------
|                     |  | THE COLONIAL BANCGROUP, INC.
|                     |  |                             
|Date: August 6, 2004 |  | By:                          |  | /s/    SHEILA MOODY                      
|                     |  |                              |  | Sheila Moody Its Chief Accounting Officer



35