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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q/A

(Amendment No. 1)



x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES
EXCHANGE ACT OF 1934



For the quarterly period ended
March 31, 2005



OR



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from                      to



Commission file number: 1-13508



THE COLONIAL BANCGROUP, INC.

(Exact
name of registrant as specified in its charter)



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



|                                         |  |           
|---------------------------------------- |  | ----------
|One Commerce Street Montgomery, Alabama  |  | 36104     
|(Address of principal executive offices) |  | (Zip Code)



(334) 240-5000

(Registrants telephone number, including area code)



(None)

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



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



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated
filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.    Large accelerated filer x    Accelerated
filer ̈Non-accelerated filer ̈



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



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



|                                        |  |                              
|--------------------------------------- |  | -----------------------------
|Class                                   |  | Outstanding at April 30, 2005
|Common Stock, $2.50 par value per share |  | 145,721,956 shares           



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Explanatory Note



The Colonial BancGroup, Inc. (BancGroup, Colonial or the Company) is filing this amendment to its Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005 to amend and restate financial statements and other financial information filed with the Securities and Exchange Commission (SEC). This amendment is being filed to correct errors in the
originally filed Quarterly Report on Form 10-Q related to the Companys derivative accounting under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities(SFAS No.
133).



In 2005 and prior years, the Company entered into
interest rate swap agreements on brokered certificates of deposit (CD swaps) and junior subordinated debt (junior subordinated debt swaps) that were accounted for as fair value hedges under SFAS No. 133. The Company elected a method of fair value
hedge accounting, commonly referred to as the abbreviated method of hedge accounting described in paragraph 65 of SFAS No. 133, which allowed the Company to assume no ineffectiveness in these transactions as long as critical terms did
not change. The Company recently concluded that the CD swaps and junior subordinated debt swaps did not qualify for these methods in the periods covered by this restatement. In retrospect, the CD swaps did not comply due to the death puts contained
in the brokered CDs, which allow the estate of the CD holder to require the bank to redeem the CD in the event of the CD holders death. In addition, the junior subordinated debt swaps did not comply due to interest deferral features present in
the junior subordinated debt. Hedge accounting under SFAS No. 133 is not allowed retrospectively because the hedge documentation required for the long-haul method was not in place at the inception of the hedge. Eliminating the application of fair
value hedge accounting reverses the fair value adjustments that have been made to the brokered certificates of deposit and junior subordinated debt and results in all fair value changes for the interest rate swaps being recognized in noninterest
income. Additionally, the net cash settlement payments received during each of the affected periods for these interest rate swaps were reclassified from interest expense on brokered certificates of deposit and junior subordinated debt to noninterest
income. Adjustments were also made for other non-significant items.



The effect this restatement had on earnings for the affected periods is as follows:



|                           |  |                       |        |   |                |   |       
|-------------------------- |  | --------------------- | ------ | - | -------------- | - | ------
|                           |  | For the Quarter Ended
|                           |  | March 31, 2005        |        |   | March 31, 2004
|                           |  | (In thousands)       
|                           |  |                       |        |   |               
|Interest expense           |  | $                     | 3,684  |   |                | $ | 4,591 
|Noninterest income         |  |                       | (2,848 | ) |                |   | 10,955
|Noninterest expense        |  |                       | 213    |   |                |   | 499   
|Provision for income taxes |  |                       | (2,442 | ) |                |   | 2,123 
|                           |  |                       |        |   |                |   |       
|Net income                 |  | $                     | (4,303 | ) |                | $ | 3,742 
|                           |  |                       |        |   |                |   |       
|Diluted earnings per share |  | $                     | (0.03  | ) |                | $ | 0.03  



In addition, the
following Items have changed: Item 1, Item 2 and Item 4. For additional information on the restatement see Note A, Restatement, in the Notes to the Unaudited Condensed Consolidated Financial Statements.



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



INDEX



|                              |  |                                                                                                                |  |           
|----------------------------- |  | -------------------------------------------------------------------------------------------------------------- |  | ----------
|                              |  |                                                                                                                |  | PageNumber
|PART I. FINANCIAL INFORMATION |  |                                                                                                               
|                              |  |                                                                                                               
|Item 1.                       |  | Financial Statements (Unaudited)                                                                               |  | 2         
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of ConditionMarch 31, 2005 and December 31, 2004                            |  | 2         
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of IncomeThree months ended March 31, 2005 and March 31, 2004               |  | 3         
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Comprehensive IncomeThree months ended March 31, 2005 and March 31, 2004 |  | 4         
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statement of Changes in Shareholders EquityThree months ended March 31, 2005          |  | 5         
|                              |  |                                                                                                               
|                              |  | Condensed Consolidated Statements of Cash FlowsThree months ended March 31, 2005 and March 31, 2004           |  | 6         
|                              |  |                                                                                                               
|                              |  | Notes to the Unaudited Condensed Consolidated Financial StatementsMarch 31, 2005                              |  | 7         
|                              |  |                                                                                                               
|Item 2.                       |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                          |  | 20        
|                              |  |                                                                                                               
|Item 3.                       |  | Quantitative and Qualitative Disclosures About Market Risk                                                     |  | 34        
|                              |  |                                                                                                               
|Item 4.                       |  | Controls and Procedures                                                                                        |  | 34        
|                              | 
|PART II. OTHER INFORMATION    |  |                                                                                                               
|                              |  |                                                                                                               
|Item 1.                       |  | Legal Proceedings                                                                                              |  | 35        
|                              |  |                                                                                                               
|Item 2.                       |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                    |  | 35        
|                              |  |                                                                                                               
|Item 3.                       |  | Defaults Upon Senior Securities                                                                                |  | 35        
|                              |  |                                                                                                               
|Item 4.                       |  | Submission of Matters to a Vote of Security Holders                                                            |  | 35        
|                              |  |                                                                                                               
|Item 5.                       |  | Other Information                                                                                              |  | 35        
|                              |  |                                                                                                               
|Item 6.                       |  | Exhibits                                                                                                       |  | 35        
|                              | 
|SIGNATURE                     |  | 36                                                                                                            



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CAUTIONARY STATEMENT PURSUANT TO SAFE HARBOR PROVISIONS

OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995:



FORWARD-LOOKING STATEMENTS



This report and the information incorporated by reference include forward-looking statements within the meaning of the federal securities
laws. Words such as believes, estimates, plans, expects, should, may, might, outlook, and anticipates, and similar expressions, as they
relate to BancGroup (including its subsidiaries or its management), are intended to identify forward-looking statements. The forward-looking statements in these reports are subject to risks and uncertainties that could cause actual results to differ
materially from those expressed in or implied by the statements. In addition to factors mentioned elsewhere in this report or previously disclosed in BancGroups SEC reports (accessible on the SECs website at www.sec.gov or on
BancGroups website at www.colonialbank.com), the following factors, among others, could cause actual results to differ materially from forward-looking statements and future results could differ materially from historical performance.
These factors are not exclusive:



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



| |  |  | increases in competitive pressure in the banking industry;
| | - |  | ----------------------------------------------------------



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



| |  |  | the inability of BancGroup to realize elements of its strategic plans for 2005 and beyond;
| | - |  | ------------------------------------------------------------------------------------------



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



| |  |  | 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 then expected;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



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



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



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



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



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



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



1



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##### Table of Contents

PART I. FINANCIAL INFORMATION



|Item 1. | Financial Statements (Unaudited)
|------- | --------------------------------



THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(Unaudited)



|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------ | ---------- | - | --------------------------- | - | ---------- | -
|                                                                                                                                                                              |  | March 31,2005 (Restated) |            |   | December 31,2004 (Restated) |  
|                                                                                                                                                                              |  | (Dollars in thousands)   |           
|ASSETS                                                                                                                                                                        |  |                          |            |   |                             |   |            |  
|Cash and due from banks                                                                                                                                                       |  | $                        | 414,831    |   |                             | $ | 296,889    |  
|Interest bearing deposits in banks                                                                                                                                            |  |                          | 9,509      |   |                             |   | 3,828      |  
|Federal funds sold                                                                                                                                                            |  |                          | 133,214    |   |                             |   | 82,160     |  
|Securities purchased under agreements to resell                                                                                                                               |  |                          | 385,937    |   |                             |   | 221,491    |  
|Securities available for sale                                                                                                                                                 |  |                          | 3,689,652  |   |                             |   | 3,647,402  |  
|Investment securities (market value: 2005, $5,229; 2004, $6,503)                                                                                                              |  |                          | 4,952      |   |                             |   | 6,152      |  
|Loans held for sale                                                                                                                                                           |  |                          | 648,643    |   |                             |   | 678,496    |  
|Total loans, net of unearned income:                                                                                                                                          |  |                          |            |   |                             |   |            |  
|Mortgage warehouse loans                                                                                                                                                      |  |                          | 663,619    |   |                             |   | 1,114,923  |  
|All other loans                                                                                                                                                               |  |                          | 12,759,922 |   |                             |   | 11,742,888 |  
|Less:                                                                                                                                                                         |  |                          |            |   |                             |   |            |  
|Allowance for loan losses                                                                                                                                                     |  |                          | (153,634   | ) |                             |   | (148,802   | )
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|Loans, net                                                                                                                                                                    |  |                          | 13,269,907 |   |                             |   | 12,709,009 |  
|Premises and equipment, net                                                                                                                                                   |  |                          | 278,791    |   |                             |   | 270,236    |  
|Goodwill                                                                                                                                                                      |  |                          | 499,722    |   |                             |   | 352,536    |  
|Other intangibles, net                                                                                                                                                        |  |                          | 60,800     |   |                             |   | 41,604     |  
|Other real estate owned                                                                                                                                                       |  |                          | 8,229      |   |                             |   | 9,865      |  
|Bank-owned life insurance                                                                                                                                                     |  |                          | 335,353    |   |                             |   | 315,739    |  
|Accrued interest and other assets                                                                                                                                             |  |                          | 262,978    |   |                             |   | 261,203    |  
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|Total                                                                                                                                                                         |  | $                        | 20,002,518 |   |                             | $ | 18,896,610 |  
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                                                                                          |  |                          |            |   |                             |   |            |  
|Deposits:                                                                                                                                                                     |  |                          |            |   |                             |   |            |  
|Noninterest bearing transaction accounts                                                                                                                                      |  | $                        | 2,958,496  |   |                             | $ | 2,468,529  |  
|Interest bearing transaction accounts                                                                                                                                         |  |                          | 5,308,417  |   |                             |   | 5,077,509  |  
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|Total transaction accounts                                                                                                                                                    |  |                          | 8,266,913  |   |                             |   | 7,546,038  |  
|Time                                                                                                                                                                          |  |                          | 4,716,950  |   |                             |   | 4,317,657  |  
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|Total deposits                                                                                                                                                                |  |                          | 12,983,863 |   |                             |   | 11,863,695 |  
|Short-term borrowings                                                                                                                                                         |  |                          | 3,009,567  |   |                             |   | 3,258,935  |  
|Subordinated debt                                                                                                                                                             |  |                          | 266,551    |   |                             |   | 273,598    |  
|Junior subordinated debt                                                                                                                                                      |  |                          | 302,382    |   |                             |   | 302,412    |  
|Other long-term debt                                                                                                                                                          |  |                          | 1,716,474  |   |                             |   | 1,684,947  |  
|Accrued expenses and other liabilities                                                                                                                                        |  |                          | 98,111     |   |                             |   | 114,732    |  
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|Total liabilities                                                                                                                                                             |  |                          | 18,376,948 |   |                             |   | 17,498,319 |  
|                                                                                                                                                                              |  |                         
|Contingencies and commitments (Notes C and I)                                                                                                                                 |  |                          |            |   |                             |   |            |  
|                                                                                                                                                                              |  |                         
|Preference stock, $2.50 par value; 1,000,000 shares authorized and none issued at March 31, 2005 and December 31, 2004,
respectively                                          |  |                          |           |   |                             |   |           |  
|                                                                                                                                                                              |  |                         
|Common Stock, $2.50 par value; 200,000,000 shares authorized; 145,627,339 and 133,823,776 shares issued and outstanding at March 31, 2005 and
December 31, 2004, respectively |  |                          | 364,068    |   |                             |   | 334,559    |  
|Additional paid in capital                                                                                                                                                    |  |                          | 561,701    |   |                             |   | 343,694    |  
|Retained earnings                                                                                                                                                             |  |                          | 757,434    |   |                             |   | 729,715    |  
|Unearned compensation                                                                                                                                                         |  |                          | (7,329     | ) |                             |   | (449       | )
|Accumulated other comprehensive loss, net of taxes                                                                                                                            |  |                          | (50,304    | ) |                             |   | (9,228     | )
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|Total shareholders equity                                                                                                                                                    |  |                          | 1,625,570  |   |                             |   | 1,398,291  |  
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  
|Total                                                                                                                                                                         |  | $                        | 20,002,518 |   |                             | $ | 18,896,610 |  
|                                                                                                                                                                              |  |                          |            |   |                             |   |            |  



See Notes to the
Unaudited Condensed Consolidated Financial Statements



2



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                                                |  |                                         |         |   |                |   |        
|--------------------------------------------------------------- |  | --------------------------------------- | ------- | - | -------------- | - | -------
|                                                                |  | Three Months EndedMarch 31,            
|                                                                |  | 2005(Restated)                          |         |   | 2004(Restated)
|                                                                |  | (In thousands, except pershare amounts)
|Interest Income:                                                |  |                                         |         |   |                |   |        
|Interest and fees on loans                                      |  | $                                       | 207,255 |   |                | $ | 158,236
|Interest and dividends on securities                            |  |                                         | 43,466  |   |                |   | 35,439 
|Interest on federal funds sold and other short-term investments |  |                                         | 3,143   |   |                |   | 79     
|                                                                |  |                                         |         |   |                |   |        
|Total interest income                                           |  |                                         | 253,864 |   |                |   | 193,754
|                                                                |  |                                         |         |   |                |   |        
|Interest Expense:                                               |  |                                         |         |   |                |   |        
|Interest on deposits                                            |  |                                         | 46,855  |   |                |   | 33,978 
|Interest on short-term borrowings                               |  |                                         | 18,648  |   |                |   | 6,496  
|Interest on long-term debt                                      |  |                                         | 25,403  |   |                |   | 24,764 
|                                                                |  |                                         |         |   |                |   |        
|Total interest expense                                          |  |                                         | 90,906  |   |                |   | 65,238 
|                                                                |  |                                         |         |   |                |   |        
|Net Interest Income                                             |  |                                         | 162,958 |   |                |   | 128,516
|Provision for loan losses                                       |  |                                         | 5,929   |   |                |   | 7,934  
|                                                                |  |                                         |         |   |                |   |        
|Net Interest Income After Provision for Loan Losses             |  |                                         | 157,029 |   |                |   | 120,582
|                                                                |  |                                         |         |   |                |   |        
|Noninterest Income:                                             |  |                                         |         |   |                |   |        
|Service charges on deposit accounts                             |  |                                         | 13,632  |   |                |   | 14,185 
|Financial planning services                                     |  |                                         | 3,892   |   |                |   | 3,124  
|Electronic banking                                              |  |                                         | 3,499   |   |                |   | 2,812  
|Mortgage banking                                                |  |                                         | 2,021   |   |                |   | 1,990  
|Mortgage warehouse fees                                         |  |                                         | 783     |   |                |   | 244    
|Securities (losses) gains, net                                  |  |                                         | (1,155  | ) |                |   | 7,442  
|Bank-owned life insurance                                       |  |                                         | 3,404   |   |                |   | 2,231  
|Net cash settlement of swap derivatives                         |  |                                         | 3,496   |   |                |   | 4,182  
|Change in fair value of swap derivatives                        |  |                                         | (6,344  | ) |                |   | 7,773  
|Other income                                                    |  |                                         | 8,523   |   |                |   | 4,675  
|                                                                |  |                                         |         |   |                |   |        
|Total noninterest income                                        |  |                                         | 31,751  |   |                |   | 48,658 
|                                                                |  |                                         |         |   |                |   |        
|Noninterest Expense:                                            |  |                                         |         |   |                |   |        
|Salaries and employee benefits                                  |  |                                         | 60,988  |   |                |   | 50,700 
|Occupancy expense of bank premises, net                         |  |                                         | 14,028  |   |                |   | 12,108 
|Furniture and equipment expenses                                |  |                                         | 9,714   |   |                |   | 9,259  
|Professional services                                           |  |                                         | 4,435   |   |                |   | 4,223  
|Amortization of intangible assets                               |  |                                         | 2,305   |   |                |   | 1,123  
|Advertising                                                     |  |                                         | 2,228   |   |                |   | 2,351  
|Communications                                                  |  |                                         | 2,509   |   |                |   | 2,475  
|Merger related expenses                                         |  |                                         | 1,138   |   |                |   | 82     
|Net losses related to the early extinguishment of debt          |  |                                         | 2,290   |   |                |   | 6,183  
|Other expenses                                                  |  |                                         | 17,193  |   |                |   | 15,607 
|                                                                |  |                                         |         |   |                |   |        
|Total noninterest expense                                       |  |                                         | 116,828 |   |                |   | 104,111
|                                                                |  |                                         |         |   |                |   |        
|Income before income taxes                                      |  |                                         | 71,952  |   |                |   | 65,129 
|Applicable income taxes                                         |  |                                         | 23,764  |   |                |   | 22,273 
|                                                                |  |                                         |         |   |                |   |        
|Net Income                                                      |  | $                                       | 48,188  |   |                | $ | 42,856 
|                                                                |  |                                         |         |   |                |   |        
|Earnings per share:                                             |  |                                         |         |   |                |   |        
|Basic                                                           |  | $                                       | 0.35    |   |                | $ | 0.34   
|Diluted                                                         |  | $                                       | 0.34    |   |                | $ | 0.34   
|Average number of shares outstanding:                           |  |                                         |         |   |                |   |        
|Basic                                                           |  |                                         | 138,683 |   |                |   | 127,066
|Diluted                                                         |  |                                         | 140,280 |   |                |   | 128,029
|Dividends declared per share                                    |  | $                                       | 0.1525  |   |                | $ | 0.145  





See Notes to the Unaudited Condensed Consolidated Financial Statements



3



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



|                                                                                                                                                                  |  |                             |         |   |                |   |        |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | -------------- | - | ------ | -
|                                                                                                                                                                  |  | Three Months EndedMarch 31, |        
|                                                                                                                                                                  |  | 2005(Restated)              |         |   | 2004(Restated) |  
|                                                                                                                                                                  |  | (Dollars in thousands)      |        
|Net income                                                                                                                                                        |  | $                           | 48,188  |   |                | $ | 42,856 |  
|Other comprehensive income, net of taxes:                                                                                                                         |  |                             |         |   |                |   |        |  
|Unrealized (losses) gains on securities available for sale arising during the period, net of income taxes of $(22,522) and $18,187 in 2005 and
2004, respectively |  |                             | (41,827 | ) |                |   | 34,046 |  
|Reclassification adjustments for net losses/(gains) included in net income, net of income taxes of $(404) and $2,530 in 2005 and 2004,
respectively               |  |                             | 751     |   |                |   | (4,912 | )
|                                                                                                                                                                  |  |                             |         |   |                |   |        |  
|Comprehensive income                                                                                                                                              |  | $                           | 7,112   |   |                | $ | 71,990 |  
|                                                                                                                                                                  |  |                             |         |   |                |   |        |  



See Notes to the
Unaudited Condensed Consolidated Financial Statements



4



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY

(Unaudited)



|                                                                         |  |                                                  |  |                          |         |                            |   |         |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   |           |  
|------------------------------------------------------------------------ |  | ------------------------------------------------ |  | ------------------------ | ------- | -------------------------- | - | ------- | -------------------- | - | ------- | --------------------------------- |  | - | ---------------------------------- | - |  | - | ------- | - |  | - | --------- | -
|                                                                         |  | Common Stock                                     |  | AdditionalPaid InCapital |         | RetainedEarnings(Restated) |   |         | UnearnedCompensation |   |         | AccumulatedOtherComprehensiveLoss |  |   | TotalShareholdersEquity(Restated) |  
|                                                                         |  | Shares                                           |  | Amount                   |         |                            |   |         |                     
|                                                                         |  | (Dollars in thousands, except per share amounts) | 
|Balance, December 31, 2004                                               |  | 133,823,776                                      |  | $                        | 334,559 |                            | $ | 343,694 |                      | $ | 729,715 |                                   |  | $ | (449                               | ) |  | $ | (9,228  | ) |  | $ | 1,398,291 |  
|Shares issued under:                                                     |  |                                                  |  |                          |         |                            |   |         |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   |           |  
|Directors plan                                                           |  | 39,895                                           |  |                          | 100     |                            |   | 585     |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   | 685       |  
|Stock option plans                                                       |  | 92,941                                           |  |                          | 232     |                            |   | 865     |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   | 1,097     |  
|Stock bonus plan, net                                                    |  | 359,600                                          |  |                          | 899     |                            |   | 6,339   |                      |   |         |                                   |  |   | (7,217                             | ) |  |   |         |   |  |   | 21        |  
|Employee Stock Purchase Plan                                             |  | 7,725                                            |  |                          | 19      |                            |   | 138     |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   | 157       |  
|Settlement of forward equity sales agreement                             |  | 8,400,000                                        |  |                          | 21,000  |                            |   | 158,580 |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   | 179,580   |  
|Issuance of shares for business combination                              |  | 2,903,402                                        |  |                          | 7,259   |                            |   | 51,500  |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   | 58,759    |  
|Amortization of unearned compensation                                    |  |                                                  |  |                          |         |                            |   |         |                      |   |         |                                   |  |   | 337                                |   |  |   |         |   |  |   | 337       |  
|Net income                                                               |  |                                                  |  |                          |         |                            |   |         |                      |   | 48,188  |                                   |  |   |                                    |   |  |   |         |   |  |   | 48,188    |  
|Cash dividends ($.1525 per share)                                        |  |                                                  |  |                          |         |                            |   |         |                      |   | (20,469 | )                                 |  |   |                                    |   |  |   |         |   |  |   | (20,469   | )
|Change in unrealized loss on securities available for sale, net of taxes |  |                                                  |  |                          |         |                            |   |         |                      |   |         |                                   |  |   |                                    |   |  |   | (41,076 | ) |  |   | (41,076   | )
|                                                                         |  |                                                  |  |                          |         |                            |   |         |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   |           |  
|Balance, March 31, 2005                                                  |  | 145,627,339                                      |  | $                        | 364,068 |                            | $ | 561,701 |                      | $ | 757,434 |                                   |  | $ | (7,329                             | ) |  | $ | (50,304 | ) |  | $ | 1,625,570 |  
|                                                                         |  |                                                  |  |                          |         |                            |   |         |                      |   |         |                                   |  |   |                                    |   |  |   |         |   |  |   |           |  





See Notes to the Unaudited Condensed Consolidated Financial Statements



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW

(Unaudited)



|                                                                                                          |  |                             |           |   |                 |   |          |  
|--------------------------------------------------------------------------------------------------------- |  | --------------------------- | --------- | - | --------------- | - | -------- | -
|                                                                                                          |  | Three Months EndedMarch 31, |          
|                                                                                                          |  | 2005 (Restated)             |           |   | 2004 (Restated) |  
|                                                                                                          |  | (Dollars in thousands)      |          
|Net cash flows from operating activities                                                                  |  | $                           | 62,193    |   |                 | $ | 43,382   |  
|Cash flows from investing activities:                                                                     |  |                             |           |   |                 |   |          |  
|Proceeds from maturities and calls of securities available for sale                                       |  |                             | 105,717   |   |                 |   | 73,028   |  
|Proceeds from sales of securities available for sale                                                      |  |                             | 417,121   |   |                 |   | 737,805  |  
|Purchases of securities available for sale                                                                |  |                             | (319,004  | ) |                 |   | (667,928 | )
|Proceeds from maturities of investment securities                                                         |  |                             | 1,204     |   |                 |   | 1,658    |  
|Increase in securities purchased under agreements to resell                                               |  |                             | (164,446  | ) |                 |   |         |  
|Net increase in loans                                                                                     |  |                             | (347,617  | ) |                 |   | (237,207 | )
|Proceeds from sale of interests in mortgage warehouse loans                                               |  |                             | 434,976   |   |                 |   |         |  
|Acquisition, net of cash acquired                                                                         |  |                             | (152,987  | ) |                 |   |         |  
|Capital expenditures                                                                                      |  |                             | (6,586    | ) |                 |   | (14,948  | )
|Proceeds from sale of other real estate owned                                                             |  |                             | 2,385     |   |                 |   | 1,212    |  
|Proceeds from sale of premises and equipment and other assets                                             |  |                             | 1,845     |   |                 |   | 10       |  
|                                                                                                          |  |                             |           |   |                 |   |          |  
|Net cash flows from investing activities                                                                  |  |                             | (27,392   | ) |                 |   | (106,370 | )
|                                                                                                          |  |                             |           |   |                 |   |          |  
|Cash flows from financing activities:                                                                     |  |                             |           |   |                 |   |          |  
|Net increase in demand, savings, and time deposits                                                        |  |                             | 489,967   |   |                 |   | 286,874  |  
|Net (decrease) increase in federal funds purchased, repurchase agreements and other short-term borrowings |  |                             | (399,336  | ) |                 |   | 96,586   |  
|Proceeds from issuance of long-term debt                                                                  |  |                             | 250,000   |   |                 |   | 200,000  |  
|Repayment of long-term debt                                                                               |  |                             | (361,120  | ) |                 |   | (517,643 | )
|Proceeds from issuance of common stock                                                                    |  |                             | 1,254     |   |                 |   | 1,866    |  
|Proceeds from settlement of forward equity sales agreement                                                |  |                             | 179,580   |   |                 |   |         |  
|Dividends paid ($0.1525 and $0.145 per share for 2005 and 2004, respectively)                             |  |                             | (20,469   | ) |                 |   | (18,418  | )
|                                                                                                          |  |                             |           |   |                 |   |          |  
|Net cash flows from financing activities                                                                  |  |                             | 139,876   |   |                 |   | 49,265   |  
|                                                                                                          |  |                             |           |   |                 |   |          |  
|Net increase (decrease) in cash and cash equivalents                                                      |  |                             | 174,677   |   |                 |   | (13,723  | )
|Cash and cash equivalents at beginning of year                                                            |  |                             | 382,877   |   |                 |   | 345,717  |  
|                                                                                                          |  |                             |           |   |                 |   |          |  
|Cash and cash equivalents at March 31                                                                     |  | $                           | 557,554   |   |                 | $ | 331,994  |  
|                                                                                                          |  |                             |           |   |                 |   |          |  
|Supplemental disclosure of cash flow information:                                                         |  |                             |           |   |                 |   |          |  
|Cash paid during the year for:                                                                            |  |                             |           |   |                 |   |          |  
|Interest                                                                                                  |  | $                           | 90,085    |   |                 | $ | 67,996   |  
|Income taxes                                                                                              |  |                             | 300       |   |                 |   |         |  
|Non-cash investing and financing activities:                                                              |  |                             |           |   |                 |   |          |  
|Transfer of loans to other real estate                                                                    |  | $                           | 1,258     |   |                 | $ | 2,582    |  
|Assets (non-cash) acquired in business combination                                                        |  |                             | 1,159,590 |   |                 |   |         |  
|Liabilities assumed in business combination                                                               |  |                             | 947,844   |   |                 |   |         |  



See Notes to the
Unaudited Condensed Consolidated Financial Statements



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



Note A: Restatement



The
Colonial BancGroup, Inc. is restating its financial statements and other financial information to correct errors related to the Companys derivative accounting under Statement of Financial Accounting Standards No. 133, Accounting for
Derivative Instruments and Hedging Activities (SFAS No. 133).



In 2005 and prior years, the Company entered into interest rate swap agreements on brokered certificates of deposit (CD swaps) and junior subordinated debt (junior subordinated debt swaps) that were accounted for as
fair value hedges under SFAS No. 133. The Company elected a method of fair value hedge accounting, commonly referred to as the abbreviated method of hedge accounting described in paragraph 65 of SFAS No. 133, which allowed the Company to
assume no ineffectiveness in these transactions as long as critical terms did not change. The Company recently concluded that the CD swaps and junior subordinated debt swaps did not qualify for these methods in the periods covered by this
restatement. In retrospect, the CD swaps did not comply due to the death puts contained in the brokered CDs, which allow the estate of the CD holder to require the bank to redeem the CD in the event of the CD holders death. In addition, the
junior subordinated debt swaps did not comply due to interest deferral features present in the junior subordinated debt. Hedge accounting under SFAS No. 133 is not allowed retrospectively because the hedge documentation required for the long-haul
method was not in place at the inception of the hedge. Eliminating the application of fair value hedge accounting reverses the fair value adjustments that have been made to the brokered certificates of deposit and junior subordinated debt and
results in all fair value changes for the interest rate swaps being recognized in noninterest income. Additionally, the net cash settlement payments received during each of the affected periods for these interest rate swaps were reclassified from
interest expense on brokered certificates of deposit and junior subordinated debt to noninterest income. Adjustments were also made for other non-significant items.



The following tables reflect a summary of both the originally reported and the restated amounts:



Consolidated Statements of Condition:



|                                       |  |                         |            |                   |   |                         |  |             |            |  |   |           
|-------------------------------------- |  | ----------------------- | ---------- | ----------------- | - | ----------------------- |  | ----------- | ---------- |  | - | ----------
|                                       |  | March 31, 2005          |            | December 31, 2004
|                                       |  | AsPreviouslyReported(1) |            | As Restated       |   | AsPreviouslyReported(1) |  | As Restated
|                                       |  | (In thousands)         
|Accrued interest and other assets      |  | $                       | 261,669    |                   | $ | 262,978                 |  | $           | 261,743    |  | $ | 261,203   
|Total assets                           |  |                         | 20,001,209 |                   |   | 20,002,518              |  |             | 18,897,150 |  |   | 18,896,610
|                                       |  |                         |            |                  
|Time deposits                          |  |                         | 4,713,230  |                   |   | 4,716,950               |  |             | 4,315,645  |  |   | 4,317,657 
|Total deposits                         |  |                         | 12,980,143 |                   |   | 12,983,863              |  |             | 11,861,683 |  |   | 11,863,695
|Junior subordinated debt               |  |                         | 308,952    |                   |   | 302,382                 |  |             | 313,213    |  |   | 302,412   
|Accrued expenses and other liabilities |  |                         | 99,675     |                   |   | 98,111                  |  |             | 111,159    |  |   | 114,732   
|Total liabilities                      |  |                         | 18,376,012 |                   |   | 18,376,948              |  |             | 17,503,535 |  |   | 17,498,319
|                                       |  |                         |            |                  
|Retained earnings                      |  |                         | 757,061    |                   |   | 757,434                 |  |             | 725,039    |  |   | 729,715   
|Total shareholders equity             |  | $                       | 1,625,197  |                   | $ | 1,625,570               |  | $           | 1,393,615  |  | $ | 1,398,291 

---

|(1) | Certain reclassifications were made to previously reported balances in order to be consistent with current presentation.
|--- | ------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Consolidated Statements of Income (by quarter):



|                                                            |  |                                          |         |            |                                          |         |                      |  |             |         |  |   |         |  
|----------------------------------------------------------- |  | ---------------------------------------- | ------- | ---------- | ---------------------------------------- | ------- | -------------------- |  | ----------- | ------- |  | - | ------- | -
|                                                            |  | Three Months Ended March 31,             |        
|                                                            |  | 2005                                     |         |            | 2004                                     |        
|                                                            |  | AsPreviouslyReported                     |         | AsRestated |                                          |         | AsPreviouslyReported |  | As Restated |        
|                                                            |  | (In thousands, except per share amounts) |        
|Net interest income                                         |  | $                                        | 166,642 |            | $                                        | 162,958 |                      |  | $           | 133,107 |  | $ | 128,516 |  
|Provision for loan losses                                   |  |                                          | 5,929   |            |                                          | 5,929   |                      |  |             | 7,934   |  |   | 7,934   |  
|Noninterest Income:                                         |  |                                          |         |            |                                          |         |                      |  |             |         |  |   |         |  
|Net cash settlement of interest rate swap derivatives       |  |                                          |        |            |                                          | 3,496   |                      |  |             |        |  |   | 4,182   |  
|Change in fair value of interest rate swap derivatives      |  |                                          |        |            |                                          | (6,344  | )                    |  |             |        |  |   | 7,773   |  
|Other noninterest income                                    |  |                                          | 34,599  |            |                                          | 34,599  |                      |  |             | 37,703  |  |   | 36,703  |  
|                                                            |  |                                          |         |            |                                          |         |                      |  |             |         |  |   |         |  
|Total noninterest income                                    |  |                                          | 34,599  |            |                                          | 31,751  |                      |  |             | 37,703  |  |   | 48,658  |  
|Noninterest expense                                         |  |                                          | 116,615 |            |                                          | 116,828 |                      |  |             | 103,612 |  |   | 104,111 |  
|                                                            |  |                                          |         |            |                                          |         |                      |  |             |         |  |   |         |  
|Income before income taxes                                  |  |                                          | 78,697  |            |                                          | 71,952  |                      |  |             | 59,264  |  |   | 65,129  |  
|Applicable income taxes                                     |  |                                          | 26,206  |            |                                          | 23,764  |                      |  |             | 20,150  |  |   | 22,273  |  
|                                                            |  |                                          |         |            |                                          |         |                      |  |             |         |  |   |         |  
|Net income                                                  |  | $                                        | 52,491  |            | $                                        | 48,188  |                      |  | $           | 39,114  |  | $ | 42,856  |  
|                                                            |  |                                          |         |            |                                          |         |                      |  |             |         |  |   |         |  
|Diluted earnings per share:                                 |  |                                          |         |            |                                          |         |                      |  |             |         |  |   |         |  
|Net income                                                  |  | $                                        | 0.37    |            | $                                        | 0.34    |                      |  | $           | 0.31    |  | $ | 0.34    |  
|Impact of accounting correction                             |  |                                          |         |            | $                                        | (0.03   | )                    |  |             |         |  | $ | 0.04    |  
|Impact of other non-significant adjustments                 |  |                                          |         |            | $                                        |        |                      |  |             |         |  | $ | (0.01   | )
|Average diluted shares outstanding                          |  |                                          | 140,280 |            |                                          | 140,280 |                      |  |             | 128,029 |  |   | 128,029 |  
|Consolidated Statements of Changes in Shareholders
Equity: | 
|                                                            |  |                                          |         |            | For the Three Months EndedMarch 31, 2005 |        
|                                                            |  |                                          |         |            |                                          |         | AsPreviouslyReported |  | As Restated |        
|                                                            |  |                                          |         |            | (In thousands)                           |        
|Balance, beginning of period                                |  |                                          | $       | 1,393,615  |                                          | $       | 1,398,291            | 
|Increase attributable to net income                         |  |                                          |         | 52,491     |                                          |         | 48,188               | 
|Balance, end of period                                      |  |                                          | $       | 1,625,197  |                                          | $       | 1,625,570            | 



In addition, the
following Notes to the Unaudited Condensed Consolidated Financial Statements have been restated: E, F, G, J, and K.



Note B: Accounting Policies



The accounting and reporting policies of The Colonial BancGroup, Inc. and its subsidiaries (variously referred to herein as BancGroup,
Colonial, or the Company) are as stated in the 2004 Annual Report on Form 10-K/A. The Company adopted additional policies as noted below with respect to Sales and Servicing of Financial Assets and Loans Held for Sale as a
result of 2005 business activities. These unaudited interim financial statements should be read in conjunction with the audited financial statements and footnotes included in BancGroups 2004 Annual Report on Form 10-K/A.



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



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 March 31, 2005 and December 31, 2004 and the results of operations and cash flows for the interim periods
ended March 31, 2005 and 2004. All 2005 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.



Sales and Servicing of Financial Assets



The Company has a facility in which it sells certain mortgage warehouse
loans and mortgage loans held for sale to a wholly-owned special purpose entity (SPE) which then sells interests in those assets to third-party commercial paper conduits. These transactions provide a source of liquidity for the Company and allow the
Company to utilize its balance sheet capacity and capital for higher-yielding assets while continuing to manage the customer relationships.



Under the provisions of Statement of Financial Accounting Standards (SFAS) No. 140, any retained interests resulting from sales of financial assets should
be recognized at the time of sale. Retained interests include such items as servicing assets or liabilities, subordinated tranches, interest-only strips, and cash reserve accounts. The previous carrying amount of the assets sold should be allocated
between the retained interests and the assets sold based on each components fair value in relation to the total fair value at the date of sale. Any gain or loss recognized from the sale would depend in part on the allocation of value to the
assets sold and interests retained.



Based on the structure of
these transactions, the Companys only retained interest is the assets retained in the SPE as a first risk of loss position. The Company does retain servicing responsibilities for the assets sold and receives a servicing fee as compensation.
However, due to the short-term nature of these assets and the Companys conclusion that the fee represents adequate compensation as a servicer, no servicing asset or liability is recorded. At the time of sale, the previous carrying amount of
the assets is allocated between the interests sold and interests retained based on their relative fair values, which approximate cost because of the short-term and floating-rate nature of these assets. The sales price equals the Companys
carrying amount for the assets sold, thus no gain or loss is recorded at the time of sale.



The Company provides credit enhancements to these transactions by maintaining assets in the SPE as a first risk of loss position to the interests sold to the commercial paper conduits. This credit risk is reviewed
quarterly, and a reserve for loss exposure is maintained in the allowance for loan losses. The Company also provides a liquidity backstop facility to the commercial paper conduits. The Company, under this facility, may be required to purchase assets
from the conduits in certain limited circumstances, including the conduits inability to place commercial paper. Colonial includes this liquidity risk in its liquidity risk analysis to ensure that it would have sufficient sources of liquidity.



Loans Held for Sale



Effective January 1, 2005, the Company began using forward sales commitments
as fair value hedges of its short-term participations in mortgage loans which are included in loans held for sale on the consolidated balance sheet. Prior to January 1, 2005, all loans held for sale were carried at the lower of aggregate cost or
market. After January 1, 2005, the carrying values of these hedged short-term participations are adjusted for changes in fair value. The fair values are calculated based on changes in market interest rates during the periods that the participations
have been on the balance sheet. See Note J for discussion of the derivatives associated with this hedging strategy.



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note C: Contingencies



BancGroup and its subsidiaries are from time to time defendants in legal actions from normal business activities. Management
does not anticipate that the ultimate liability arising from litigation outstanding at March 31, 2005 will have a materially adverse effect on BancGroups financial condition.



Note D: Recent Accounting Standards



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. 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. The changes required by this SOP are not expected to have a material impact on the
Companys financial statements. With respect to the acquisition of Union Bank discussed in Note E, there were no loans which fell within the scope of this SOP.



In March 2004, the Emerging Issues Task Force (EITF) reached a final consensus on Issue 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 115, certain debt and equity securities within the scope of SFAS 124, and equity securities that are not
subject to the scope of SFAS 115 and not accounted for under the equity method of accounting (i.e., cost method investments). Issue 03-1 outlines a three-step model for assessing other-than-temporary impairment. The model involves first determining
whether an investment is impaired, then evaluating whether the impairment is other-than-temporary, and if it is, recognizing an impairment loss equal to the difference between the investments cost and its fair value. The model was to be
applied prospectively to all current and future investments in interim or annual reporting periods beginning after June 15, 2004. However, in September 2004 the Financial Accounting Standards Board (FASB) staff issued FASB Staff Position (FSP) EITF
Issue 03-1-1 which delayed the effective date for the measurement and recognition guidance contained in Issue 03-1. The guidance for analyzing securities for impairment will be effective with the final issuance of FSP EITF Issue 03-1-a. The
disclosure guidance of Issue 03-1 remains effective and requires quantitative and qualitative disclosures for investments accounted for under SFAS 115 and SFAS 124 for the first annual reporting period ending after December 15, 2003. In addition,
disclosures related to cost method investments are effective for annual reporting periods ending after June 15, 2004. Comparative information for the periods prior to the period of initial application is not required. See Note M for BancGroups
disclosures under Issue 03-1. The changes required by this EITF Issue are not expected to have a material impact on the Companys financial statements.



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



On December 16, 2004, the FASB issued SFAS 123(R), Share-Based Payment, which is a revision of
SFAS 123, Accounting for Stock-Based Compensation. SFAS 123(R) supersedes APB Opinion 25, Accounting for Stock Issued to Employees, and amends SFAS 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar
to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. SFAS 123(R) was originally
effective for interim or annual periods beginning after June 15, 2005. However, in April 2005 the Securities and Exchange Commission (SEC) amended this requirement allowing companies to adopt the standard at the beginning of their next fiscal year
that begins after June 15, 2005. Early adoption will be permitted in periods in which financial statements have not yet been issued. SFAS 123(R) permits public companies to adopt its requirements using one of two methods:



| |  |  | A modified prospective method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based
payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | A modified retrospective method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the
amounts previously recognized under SFAS 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company plans to adopt SFAS 123(R) on January 1, 2006 using the modified
prospective method.



As permitted by SFAS 123, the Company
currently accounts for share-based payments to employees using Opinion 25s intrinsic value method and, as such, generally recognizes no compensation cost for employee stock options. Accordingly, the adoption of SFAS 123(R)s fair value
method will have an impact on the Companys results of operations, although it will have no material impact on its overall financial position. The impact of adopting SFAS 123(R) cannot be predicted at this time because it will depend on levels
of share-based payments granted in the future. However, had the Company adopted SFAS 123(R) in prior periods, the impact of that standard would likely have approximated the impact of SFAS 123 as described in the disclosure of pro forma net income
and earnings per share included in Note K.



In March 2005, the
SEC issued Staff Accounting Bulletin (SAB) No. 107, Share-Based Payment, which provides interpretive guidance on various issues in SFAS 123(R), particularly valuation methodologies and the selection of assumptions. This SAB also discusses the
SEC staffs expectations regarding disclosures in Managements Discussion and Analysis related to share-based payment transactions, as well as the interaction of SFAS 123(R) with existing SEC guidance, such as that dealing with disclosure
of non-GAAP financial measures.



Note E: Business Combinations



Union Bank Acquisition



BancGroup completed the acquisition of UB Financial Corporations
wholly-owned subsidiary, Union Bank of Florida (Union), a Florida state chartered bank, on February 10, 2005. The acquisition enhances BancGroups geographic position and expands BancGroups banking operations within existing locations in
Florida, primarily the Dade, Broward and Palm Beach markets. Unions results of operations were included in BancGroups consolidated financial results beginning February 11, 2005.



Total consideration for the transaction was $233.5 million, consisting of
2,903,402 shares of BancGroup common stock valued at $58.8 million and $174.7 million in cash. This consideration along with other direct



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



acquisition costs and liabilities incurred led to a total acquisition cost of approximately $240.0 million. The value of the common stock issued was
determined based on the average market price of BancGroups shares over the five day period beginning two days before and ending two days after February 3, 2005, the measurement date for this transaction. The purchase price was preliminarily
allocated to the assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The final allocation of the purchase price will be adjusted after completion of additional analysis relating to the fair values of
Unions tangible and identifiable intangible assets and liabilities.



The following table presents unaudited proforma results of operations for the three months ended March 31, 2005 and 2004, as if the acquisition had occurred at January 1, 2004. 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, 2004:



|                    |  |                                         |         |                 |   |        
|------------------- |  | --------------------------------------- | ------- | --------------- | - | -------
|                    |  | Three Months EndedMarch 31,            
|                    |  | 2005 (Restated)                         |         | 2004 (Restated)
|                    |  | (unaudited)                            
|                    |  | (In thousands, exceptper share amounts)
|Net Interest Income |  | $                                       | 167,045 |                 | $ | 136,290
|Net Income          |  |                                         | 48,547  |                 |   | 46,356 
|Basic EPS           |  |                                         | 0.35    |                 |   | 0.36   
|Diluted EPS         |  |                                         | 0.34    |                 |   | 0.35   



First Federal Savings Bank of
Lake County Acquisition



On January 18, 2005, Colonial
announced the signing of a definitive agreement to acquire First Federal Savings Bank of Lake County (FFLC) for approximately $232 million. Under the terms of the agreement, FFLC shareholders will elect either two shares of Colonial stock or $42 in
cash for each FFLC share they own. The cash consideration will be capped at approximately 35% of the transaction. FFLC is headquartered in Leesburg, Florida, and had total assets of $1.1 billion, total deposits of $835 million and total loans of
$919 million at March 31, 2005. FFLC currently operates 16 full-service offices in Lake, Sumter, Citrus and Marion counties in Central Florida. The transaction is expected to close during the second quarter of 2005.



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note F: Earnings Per Share



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



|                                |  |                                         |        |        |         |                           |   |     
|------------------------------- |  | --------------------------------------- | ------ | ------ | ------- | ------------------------- | - | ----
|                                |  | Three Months Ended March 31,           
|                                |  | NetIncome(Restated)                     |        | Shares |         | Per ShareAmount(Restated)
|                                |  | (in thousands, exceptper share amounts)
|2005                            |  |                                         |        |        |         |                           |   |     
|Basic EPS                       |  | $                                       | 48,188 |        | 138,683 |                           | $ | 0.35
|Effect of dilutive instruments: |  |                                         |        |        |         |                           |   |     
|Options                         |  |                                         |        |        | 1,597   |                           |   |     
|                                |  |                                         |        |        |         |                           |   |     
|Diluted EPS                     |  | $                                       | 48,188 |        | 140,280 |                           | $ | 0.34
|                                |  |                                         |        |        |         |                           |   |     
|2004                            |  |                                         |        |        |         |                           |   |     
|Basic EPS                       |  | $                                       | 42,856 |        | 127,066 |                           | $ | 0.34
|Effect of dilutive instruments: |  |                                         |        |        |         |                           |   |     
|Options                         |  |                                         |        |        | 963     |                           |   |     
|                                |  |                                         |        |        |         |                           |   |     
|Diluted EPS                     |  | $                                       | 42,856 |        | 128,029 |                           | $ | 0.34
|                                |  |                                         |        |        |         |                           |   |     



The above calculations
exclude options that could potentially dilute basic EPS in the future but were antidilutive for the periods presented. The number of such options excluded was 492,000 and 16,000 at March 31, 2005 and 2004, respectively.



Note G: Segment Information



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



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



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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|-------------------------------------------------------- |  | -------------------------------- | --------- | ------------------------- | - | --------- | ------------------- |  | ------------------- | --------- |  | ------------------ | --------- | - | ----------------- | - | ------- | ------------------------ |  | - | --------------------- | - |  | - | --------- | - |  | - | ----------
|                                                         |  | FloridaRegionalBank              |           | FloridaMortgage Warehouse |   |           | AlabamaRegionalBank |  | GeorgiaRegionalBank |           |  | NevadaRegionalBank |           |   | TexasRegionalBank |   |         | Corporate/Treasury Other |  |   | ConsolidatedBancGroup
|                                                         |  | (Dollars in thousands, restated)
|Three Months Ended March 31, 2005                        |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income before intersegment income / expense |  | $                                | 71,737    |                           | $ | 23,359    |                     |  | $                   | 30,472    |  | $                  | 15,597    |   |                   | $ | 11,339  |                          |  | $ | 13,950                |   |  | $ | (3,496    | ) |  | $ | 162,958   
|Intersegment interest income / expense                   |  |                                  | 1,664     |                           |   | (8,486    | )                   |  |                     | 8,258     |  |                    | (3,051    | ) |                   |   | (1,135  | )                        |  |   | (3,344                | ) |  |   | 6,094     |   |  |   |          
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income                                      |  |                                  | 73,401    |                           |   | 14,873    |                     |  |                     | 38,730    |  |                    | 12,546    |   |                   |   | 10,204  |                          |  |   | 10,606                |   |  |   | 2,598     |   |  |   | 162,958   
|Provision for loan losses                                |  |                                  | 3,520     |                           |   | (1,063    | )                   |  |                     | 1,702     |  |                    | 150       |   |                   |   | 426     |                          |  |   | 570                   |   |  |   | 624       |   |  |   | 5,929     
|Noninterest income                                       |  |                                  | 10,895    |                           |   | 1,176     |                     |  |                     | 11,453    |  |                    | 2,045     |   |                   |   | 1,162   |                          |  |   | 1,179                 |   |  |   | 3,841     |   |  |   | 31,751    
|Noninterest expense                                      |  |                                  | 45,771    |                           |   | 1,593     |                     |  |                     | 26,968    |  |                    | 6,813     |   |                   |   | 5,746   |                          |  |   | 6,643                 |   |  |   | 23,294    |   |  |   | 116,828   
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Income/(loss) before income taxes                        |  | $                                | 35,005    |                           | $ | 15,519    |                     |  | $                   | 21,513    |  | $                  | 7,628     |   |                   | $ | 5,194   |                          |  | $ | 4,572                 |   |  | $ | (17,479   | ) |  |   | 71,952    
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Income taxes                                             |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   | 23,764    
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Net Income                                               |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  | $ | 48,188    
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Total Assets                                             |  | $                                | 7,988,907 |                           | $ | 1,727,435 |                     |  | $                   | 3,991,503 |  | $                  | 1,354,484 |   |                   | $ | 781,147 |                          |  | $ | 1,112,352             |   |  | $ | 3,046,690 |   |  | $ | 20,002,518
|Total Deposits                                           |  | $                                | 6,723,797 |                           | $ | 377,521   |                     |  | $                   | 3,790,326 |  | $                  | 749,694   |   |                   | $ | 539,972 |                          |  | $ | 491,644               |   |  | $ | 310,909   |   |  | $ | 12,983,863
|                                                         |  |                                  |           |                           |   |           |                     | 
|Three Months Ended March 31, 2004                        |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income before intersegment income / expense |  | $                                | 51,694    |                           | $ | 12,984    |                     |  | $                   | 29,405    |  | $                  | 13,343    |   |                   | $ | 9,782   |                          |  | $ | 10,517                |   |  | $ | 791       |   |  | $ | 128,516   
|Intersegment interest income / expense                   |  |                                  | 2,224     |                           |   | (1,944    | )                   |  |                     | 8,932     |  |                    | (875      | ) |                   |   | (982    | )                        |  |   | (1,562                | ) |  |   | (5,793    | ) |  |   |          
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Net interest income                                      |  |                                  | 53,918    |                           |   | 11,040    |                     |  |                     | 38,337    |  |                    | 12,468    |   |                   |   | 8,800   |                          |  |   | 8,955                 |   |  |   | (5,002    | ) |  |   | 128,516   
|Provision for loan losses                                |  |                                  | 3,540     |                           |   | 219       |                     |  |                     | 2,300     |  |                    | 338       |   |                   |   | 376     |                          |  |   | 470                   |   |  |   | 691       |   |  |   | 7,934     
|Noninterest income                                       |  |                                  | 9,082     |                           |   | 612       |                     |  |                     | 11,791    |  |                    | 1,868     |   |                   |   | 1,227   |                          |  |   | 1,440                 |   |  |   | 22,638    |   |  |   | 48,658    
|Noninterest expense                                      |  |                                  | 35,342    |                           |   | 1,443     |                     |  |                     | 28,451    |  |                    | 6,758     |   |                   |   | 5,569   |                          |  |   | 6,363                 |   |  |   | 20,185    |   |  |   | 104,111   
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Income/(loss) before income taxes                        |  | $                                | 24,118    |                           | $ | 9,990     |                     |  | $                   | 19,377    |  | $                  | 7,240     |   |                   | $ | 4,082   |                          |  | $ | 3,562                 |   |  | $ | (3,240    | ) |  |   | 65,129    
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Income taxes                                             |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   | 22,273    
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Net Income                                               |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  | $ | 42,856    
|                                                         |  |                                  |           |                           |   |           |                     |  |                     |           |  |                    |           |   |                   |   |         |                          |  |   |                       |   |  |   |           |   |  |   |           
|Total Assets                                             |  | $                                | 5,518,763 |                           | $ | 1,467,983 |                     |  | $                   | 3,839,772 |  | $                  | 1,319,676 |   |                   | $ | 741,546 |                          |  | $ | 952,432               |   |  | $ | 2,651,472 |   |  | $ | 16,491,644
|Total Deposits                                           |  | $                                | 4,481,307 |                           | $ | 233,748   |                     |  | $                   | 3,630,150 |  | $                  | 727,745   |   |                   | $ | 412,919 |                          |  | $ | 469,425               |   |  | $ | 250,015   |   |  | $ | 10,205,309



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Note H: Long-Term Borrowings



In March 2005, Colonial prepaid $200 million in long-term Federal Home Loan Bank advances bearing interest at a weighted
average rate of 4.98% resulting in a prepayment fee for the early extinguishment of debt of $2.29 million. The advances were refinanced with shorter term borrowings at lower rates.



Note I: Guarantees



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 Company
holds various assets as collateral supporting those commitments for which collateral is deemed necessary. FASB Interpretation No. 45, Guarantors Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others, requires the fair value of these commitments to be recorded on the balance sheet. The fair value of the commitment typically approximates the fee received from the customer for issuing such commitments. These fees are
deferred and are recognized over the commitment period. The amount recorded for deferred fees as of March 31, 2005 was not material to the Companys consolidated balance sheet. At March 31, 2005, Colonial Bank had standby letters of credit
outstanding with maturities ranging from less than one year up to 16 years. The maximum potential amount of future undiscounted payments the Company could be required to make under outstanding standby letters of credit was $203 million.



Note J: Derivatives



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



Interest Rate Swaps



At March 31, 2005, BancGroup had interest rate swap positions on subordinated debt, junior subordinated debt, brokered CDs, long-term FHLB advances and
commercial loans. The fair value and related notional amounts (in thousands) of all interest rate swaps by category as of March 31, 2005 are shown below:



|                                                    |  |                          |         |            |   |        |  
|--------------------------------------------------- |  | ------------------------ | ------- | ---------- | - | ------ | -
|                                                    |  | March 31, 2005(Restated) |        
|                                                    |  | Notional Amount          |         | Fair Value |  
|Fair Value Hedges                                   |  |                          |         |            |   |        |  
|Interest rate swaps hedging long-term FHLB advances |  | $                        | 575,000 |            | $ | (2,126 | )
|Interest rate swaps hedging subordinated debt       |  |                          | 250,000 |            |   | 8,826  |  
|Interest rate swaps hedging loans                   |  |                          | 5,802   |            |   | 137    |  
|                                                    |  |                          |         |            |   |        |  
|                                                    |  | $                        | 830,802 |            | $ | 6,837  |  
|                                                    |  |                          |         |            |   |        |  
|Nonhedging Derivatives                              |  |                          |         |            |   |        |  
|Interest rate swaps on junior subordinated debt     |  | $                        | 270,000 |            | $ | 6,570  |  
|Interest rate swaps on brokered CDs                 |  |                          | 145,000 |            |   | (3,720 | )
|                                                    |  |                          |         |            |   |        |  
|                                                    |  | $                        | 415,000 |            | $ | 2,850  |  
|                                                    |  |                          |         |            |   |        |  



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



Fair Value Hedges



The Company enters into fair value hedges to effectively convert the interest rates of certain instruments from fixed to floating. The critical terms of
the interest rate swaps match the terms of the corresponding hedged items. There were no hedging gains and losses resulting from hedge ineffectiveness recognized for the three months ended March 31, 2005 and 2004.



Nonhedging Derivatives



For derivatives not designated as hedging instruments, all changes in fair value are recognized in earnings during the
period of change. The net cash settlement of these derivatives is included in noninterest income.



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 loans. Most of the loans
will be sold to third parties upon closing. For those loans, the Company 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 offset
and effectively eliminate the Company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, 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 $24.1 million at March 31, 2005. The unrealized gains/losses of the origination and sales commitments were not material at March 31, 2005.



BancGroup has also executed individual forward sales commitments related to short-term participations in mortgage loans and retail mortgage loans, which
are all classified as loans held for sale. The forward sales commitments related to the short-term participations allow the Company to sell the loan participations to investor institutions for an amount equal to the Companys original
acquisition cost. The Company has designated these commitments as fair value hedges of the short-term participations. The forward sales commitments on retail mortgage loans function as an economic offset and mitigate the Companys market risk
on these loans. The notional values of the forward sales commitments on short-term participations and retail mortgage loans at March 31, 2005 were $611.1 million and $26.1 million, respectively. The fair value of the forward sales commitments on the
short-term participations was a loss of $248,000 at March 31, 2005, which was offset by a gain of $248,000 on the short-term participations. The fair value of the sales commitments on retail mortgage loans was immaterial.



Options



BancGroup occasionally enters into over-the-counter option contracts on bonds in its securities portfolio. SFAS 133 requires
that the fair value of these option contracts be recorded in the financial statements. However, there were no option contracts outstanding at March 31, 2005.



Note K: 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



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



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):



|                                                                                                                            |  |                             |        |   |                 |   |        |  
|--------------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------ | - | --------------- | - | ------ | -
|                                                                                                                            |  | Three Months EndedMarch 31, |       
|                                                                                                                            |  | 2005(Restated)              |        |   | 2004 (Restated) |  
|Net income:                                                                                                                 |  |                             |        |   |                 |   |        |  
|As reported                                                                                                                 |  | $                           | 48,188 |   |                 | $ | 42,856 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax |  |                             | (395   | ) |                 |   | (359   | )
|                                                                                                                            |  |                             |        |   |                 |   |        |  
|Pro forma net income                                                                                                        |  | $                           | 47,793 |   |                 | $ | 42,497 |  
|                                                                                                                            |  |                             |        |   |                 |   |        |  



|                           |  |                             |      |                |   |     
|-------------------------- |  | --------------------------- | ---- | -------------- | - | ----
|                           |  | Three Months EndedMarch 31,
|                           |  | 2005(Restated)              |      | 2004(Restated)
|Basic earnings per share:  |  |                             |      |                |   |     
|As reported                |  | $                           | 0.35 |                | $ | 0.34
|Pro forma                  |  | $                           | 0.34 |                | $ | 0.33
|Diluted earnings per share |  |                             |      |                |   |     
|As reported                |  | $                           | 0.34 |                | $ | 0.34
|Pro forma                  |  | $                           | 0.34 |                | $ | 0.33



Note L: 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. Actuarial computations for financial
reporting purposes are



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THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



based on the projected unit credit method. The measurement date is March 31. Based on current actuarial projections, BancGroup will not be required to make a
contribution to the plan in 2005. However, BancGroup assesses the funded status of the plan quarterly and may, at its discretion, make contributions even when not required. Currently, BancGroup does not expect to make a material contribution during
2005.



Employee pension benefit plan status at March 31:



|                                        |  |                             |        |   |      |   |        |  
|--------------------------------------- |  | --------------------------- | ------ | - | ---- | - | ------ | -
|                                        |  | Three Months EndedMarch 31, |       
|                                        |  | 2005                        |        |   | 2004 |  
|                                        |  | (In thousands)              |       
|Components of net periodic benefit cost |  |                             |        |   |      |   |        |  
|Service cost                            |  | $                           | 1,845  |   |      | $ | 1,414  |  
|Interest cost                           |  |                             | 1,156  |   |      |   | 936    |  
|Expected return on plan assets          |  |                             | (1,220 | ) |      |   | (1,011 | )
|Amortization of transition asset        |  |                             |       |   |      |   | (1     | )
|Amortization of prior service cost      |  |                             | 2      |   |      |   | 2      |  
|Amortization of actuarial loss          |  |                             | 312    |   |      |   | 187    |  
|                                        |  |                             |        |   |      |   |        |  
|Net quarterly benefit cost              |  | $                           | 2,095  |   |      | $ | 1,527  |  
|                                        |  |                             |        |   |      |   |        |  



Note M: Securities



The following table reflects gross unrealized losses and market value,
aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at March 31, 2005.



|                                                                             |  |                     |           |                  |                   |         |             |       |                  |         |  |             |         |                  |  |   |           |  |   |         |  
|---------------------------------------------------------------------------- |  | ------------------- | --------- | ---------------- | ----------------- | ------- | ----------- | ----- | ---------------- | ------- |  | ----------- | ------- | ---------------- |  | - | --------- |  | - | ------- | -
|                                                                             |  | 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 |  | $                   | 17,688    |                  | $                 | (381    | )           |       | $                | 165,833 |  | $           | (9,332  | )                |  | $ | 183,521   |  | $ | (9,713  | )
|Federal Agency mortgage-backed securities                                    |  |                     | 65,300    |                  |                   | (1,049  | )           |       |                  | 191,915 |  |             | (10,886 | )                |  |   | 257,215   |  |   | (11,935 | )
|Federal Agency collateralized mortgage obligations                           |  |                     | 989,114   |                  |                   | (20,433 | )           |       |                  | 80,296  |  |             | (2,904  | )                |  |   | 1,069,410 |  |   | (23,337 | )
|Private collateralized mortgage obligations                                  |  |                     | 1,617,120 |                  |                   | (29,279 | )           |       |                  | 249,495 |  |             | (7,906  | )                |  |   | 1,866,615 |  |   | (37,185 | )
|Corporate notes                                                              |  |                     | 2,021     |                  |                   | (8      | )           |       |                  |        |  |             |        |                  |  |   | 2,021     |  |   | (8      | )
|                                                                             |  |                     |           |                  |                   |         |             |       |                  |         |  |             |         |                  |  |   |           |  |   |         |  
|Total temporarily impaired securities                                        |  | $                   | 2,691,243 |                  | $                 | (51,150 | )           |       | $                | 687,539 |  | $           | (31,028 | )                |  | $ | 3,378,782 |  | $ | (82,178 | )
|                                                                             |  |                     |           |                  |                   |         |             |       |                  |         |  |             |         |                  |  |   |           |  |   |         |  



The securities above
consist of Treasury notes and government agency debentures, agency collateralized mortgage obligations (CMOs) and mortgage-backed securities, AAA-rated private CMOs, and corporate notes. As of March 31, 2005, there were 178 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



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##### Table of Contents

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES



NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS(Continued)



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 would require their liquidation.



Note N: Sales and Servicing of Financial Assets



During the first quarter of 2005, the Company structured a facility in which it sold certain mortgage warehouse loans and mortgage loans held for sale to
a wholly-owned SPE which then sold interests in those assets to third-party commercial paper conduits. Refer to Note B for further information regarding accounting for these transactions.



Total cash proceeds from the sales of interests in these assets to the conduits during the first quarter of 2005 were $750
million, attributable to $435 million of mortgage warehouse loans and $315 million of loans held for sale. Based on the structure of these transactions, the Companys only retained interest is the assets retained in the SPE as a first risk of
loss position. No gain or loss was recorded at the time of sale. The Company receives servicing income based on a percentage of the outstanding balance of assets sold. During the first quarter of 2005, the Company accrued approximately $400,000 of
noninterest income related to these transactions, of which $188,000 was servicing income, but no cash was received.



The following table presents a summary of the components of managed financial assets, representing both owned and sold assets, along with quantitative
information about delinquencies and net credit losses:



|                         |  |                      |            |                                  |   |                |  |                  |            |  |   |      
|------------------------ |  | -------------------- | ---------- | -------------------------------- | - | -------------- |  | ---------------- | ---------- |  | - | -----
|                         |  | As of March 31, 2005 |            | Three Months EndedMarch 31, 2005
|                         |  | PrincipalBalance     |            | Loans past due30 days or more    |   | AverageBalance |  | Net CreditLosses
|                         |  | (In thousands)      
|Loans                    |  |                      |            |                                  |   |                |  |                  |            |  |   |      
|Assets managed           |  | $                    | 13,858,517 |                                  | $ | 62,795         |  | $                | 13,225,137 |  | $ | 7,015
|less: interests sold     |  |                      | 434,976    |                                  |   |               |  |                  | 38,712     |  |   |     
|                         |  |                      |            |                                  |   |                |  |                  |            |  |   |      
|Assets held in portfolio |  | $                    | 13,423,541 |                                  | $ | 62,795         |  | $                | 13,186,425 |  | $ | 7,015
|                         |  |                      |            |                                  |   |                |  |                  |            |  |   |      
|Loans held for sale      |  |                      |            |                                  |   |                |  |                  |            |  |   |      
|Assets managed           |  | $                    | 963,667    |                                  | $ |               |  | $                | 756,110    |  | $ |     
|less: interests sold     |  |                      | 315,024    |                                  |   |               |  |                  | 36,288     |  |   |     
|                         |  |                      |            |                                  |   |                |  |                  |            |  |   |      
|Assets held in portfolio |  | $                    | 648,643    |                                  | $ |               |  | $                | 719,822    |  | $ |     
|                         |  |                      |            |                                  |   |                |  |                  |            |  |   |      



Note O: Variable Interest Entities



As discussed in Note N, the Company sells certain
financial assets to a wholly-owned SPE which then sells interests in those assets to third-party commercial paper conduits. While the Company has a variable interest in these conduits, it is not considered to be the primary beneficiary, as the
Company does not retain the majority of the expected losses or returns. The third-party conduits had approximately $27.4 billion in capital outstanding at March 31, 2005. The Companys maximum exposure to loss at March 31, 2005 as a result of
its involvement with these non-consolidated conduits is $50 million, which is the amount that would be paid by the Company in the event of credit-related defaults.



There has been no material change in the Companys other variable interest entities. Refer to the Companys 2004
Annual Report on Form 10-K/A for additional information.



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##### Table of Contents

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



RESTATEMENT



The Colonial BancGroup, Inc. is restating its financial statements and other financial information to correct errors related to the Companys
derivative accounting under Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133).



In 2005 and prior years, the Company entered into interest rate swap agreements on brokered certificates of deposit (CD
swaps) and junior subordinated debt (junior subordinated debt swaps) that were accounted for as fair value hedges under SFAS No. 133. The Company elected a method of fair value hedge accounting, commonly referred to as the
abbreviated method of hedge accounting described in paragraph 65 of SFAS No. 133, which allowed the Company to assume no ineffectiveness in these transactions as long as critical terms did not change. The Company recently
concluded that the CD swaps and junior subordinated debt swaps did not qualify for these methods in the periods covered by this restatement. In retrospect, the CD swaps did not comply due to the death puts contained in the brokered CDs, which allow
the estate of the CD holder to require the bank to redeem the CD in the event of the CD holders death. In addition, the junior subordinated debt swaps did not comply due to interest deferral features present in the junior subordinated debt.
Hedge accounting under SFAS No. 133 is not allowed retrospectively because the hedge documentation required for the long-haul method was not in place at the inception of the hedge. Eliminating the application of fair value hedge accounting
reverses the fair value adjustments that have been made to the brokered certificates of deposit and junior subordinated debt and results in all fair value changes for the interest rate swaps being recognized in noninterest income. Additionally, the
net cash settlement payments received during each of the affected periods for these interest rate swaps were reclassified from interest expense on brokered certificates of deposit and junior subordinated debt to noninterest income. Adjustments were
also made for other non-significant items.



For additional
information on the restatement see Note A, Restatement, in the Notes to the Unaudited Condensed Consolidated Financial Statements.



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##### Table of Contents

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 1 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 2004 Annual Report on Form 10-K/A. There were no significant changes in these accounting policies during the first three months of 2005.



Overview



The Colonial BancGroup, Inc. is a $20 billion financial services company providing diversified services including retail and
commercial banking, wealth management services, mortgage banking and insurance through its branch network, private banking offices or officers, ATMs and the internet as well as other distribution channels to consumers and businesses. At March 31,
2005, BancGroups branch network consisted of 306 offices in Florida, Alabama, Georgia, Nevada, Tennessee and Texas.



BancGroup is primarily a Florida bank with more of its assets in Florida than in any other state. The following is a summary of approximate assets,
deposits and branches by state as of March 31, 2005 on a pro forma basis with the FFLC acquisition which is anticipated to close in the second quarter of 2005.



|                |  |                   |  |                               |  |         
|--------------- |  | ----------------- |  | ----------------------------- |  | --------
|                |  | % of total Assets |  | % of total Deposits(Restated) |  | Branches
|Florida         |  | 52%               |  | 58%                           |  | 159     
|Alabama         |  | 19%               |  | 27%                           |  | 115     
|Georgia         |  | 6%                |  | 5%                            |  | 20      
|Texas           |  | 5%                |  | 4%                            |  | 12      
|Nevada          |  | 4%                |  | 4%                            |  | 13      
|Corporate/Other |  | 14%               |  | 2%                            |  | 3       
|                |  |                   |  |                               |  |         
|Total           |  | 100%              |  | 100%                          |  | 322     
|                |  |                   |  |                               |  |         



BancGroup reported
record net income for the quarter ended March 31, 2005 of $48.2 million, a 12% increase over the $42.9 million recorded for the same period of the previous year. Diluted earnings per share was $0.34 per share for the quarter ended March 31, 2005 and
2004.



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##### Table of Contents

Financial Condition



Changes in selected components of the Companys balance sheet from December 31, 2004 to March 31, 2005 (as restated) are as follows:



|                                                        |  |                                                       |           |   |        
|------------------------------------------------------- |  | ----------------------------------------------------- | --------- | - | -------
|                                                        |  | December 31, 2004to March 31, 2005 Increase(Decrease)
|                                                        |  | Amount                                                |           | %
|                                                        |  | (Dollars in thousands)                               
|Securities available for sale and investment securities |  | $                                                     | 41,050    |   | 1.1%   
|Loans held for sale                                     |  |                                                       | (29,853)  |   | (4.4)% 
|Total loans, net:                                       |  |                                                       |           |   |        
|Mortgage warehouse loans                                |  |                                                       | (451,304) |   | (40.5)%
|All other loans, net of unearned income                 |  |                                                       | 1,017,034 |   | 8.7%   
|                                                        |  |                                                       |           |   |        
|Total loans, net of unearned income                     |  |                                                       | 565,730   |   | 4.4%   
|Total assets                                            |  |                                                       | 1,105,908 |   | 5.9%   
|Non-time deposits                                       |  |                                                       | 720,875   |   | 9.6%   
|Total deposits                                          |  |                                                       | 1,120,168 |   | 9.4%   
|Short-term borrowings                                   |  |                                                       | (249,368) |   | (7.7)% 
|Long-term debt                                          |  |                                                       | 24,450    |   | 1.1%   
|Shareholders equity                                    |  |                                                       | 227,279   |   | 16.3%  



Securities



Securities available for sale and investment securities totaled $3.69
billion or 18.5% of total assets at March 31, 2005 compared to $3.65 billion or 19.3% of total assets at December 31, 2004. At March 31, 2005, the Companys securities had an effective duration of 3.98 years. Approximately $40.6 million in
securities were sold during the quarter at a net realized loss of approximately $1.2 million. Unrealized net losses on securities available for sale changed from a pretax loss of $14.2 million at December 31, 2004 to a pretax loss of $77.4 million
at March 31, 2005 due to increases in market rates.



Loans and Loans Held
for Sale



To increase sources of liquidity, Colonial
entered into a transaction during the first quarter of 2005 whereby interests in certain assets generated by its mortgage warehouse lending unit are sold to third-party conduits financed by the issuance of asset backed commercial paper. This
transaction allows Colonial to continue to manage its customer relationships while increasing balance sheet capacity for higher yielding assets. At March 31, 2005, Colonial had sold interests in its mortgage warehouse loans and loans held for sale
of $435 million and $315 million, respectively, and had unused funding capacity of $250 million. Mortgage warehouse loans ended the quarter at $664 million compared to $1.1 billion at the end of 2004.



Loans held for sale is made up of three components: mortgage warehouse,
retail mortgages, and non-mortgage loans held for sale. Total loans held for sale decreased $30 million from December 31, 2004 primarily due to a decrease of $45 million in the mortgage warehouse component as a result of the previously discussed
sale. The purpose of the mortgage warehouse component of loans held for sale is to accommodate the funding needs of mortgage company customers, therefore these balances as well as the retail mortgage balances fluctuate as demand for residential
mortgages changes.



Total loans, excluding mortgage warehouse
lending, increased by $1.0 billion from the end of 2004. Excluding the Union Bank acquisition and mortgage warehouse lending, total loans grew $366 million or 12.5% annualized from the end of 2004. This growth was spread geographically with 48% from
Florida, 24% from



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##### Table of Contents

Alabama, 14% from Georgia, 15% from Texas, 3% from other offset by a 4% decline in Nevada. The Nevada region experienced unusually large payoffs in
commercial real estate in the first quarter.



The following table reflects the
Companys loan mix.



Gross Loans By Category



|                                        |  |                        |            |                  |   |           
|--------------------------------------- |  | ---------------------- | ---------- | ---------------- | - | ----------
|                                        |  | March 31,2005          |            | December 31,2004
|                                        |  | (Dollars in thousands)
|Commercial, financial, and agricultural |  | $                      | 1,079,178  |                  | $ | 1,007,686 
|Real estate-commercial                  |  |                        | 4,465,887  |                  |   | 4,265,700 
|Real estate-construction                |  |                        | 4,535,815  |                  |   | 3,925,972 
|Residential-real estate                 |  |                        | 2,376,828  |                  |   | 2,223,889 
|Consumer                                |  |                        | 188,042    |                  |   | 187,315   
|Mortgage warehouse                      |  |                        | 663,619    |                  |   | 1,114,923 
|Other                                   |  |                        | 114,172    |                  |   | 132,326   
|                                        |  |                        |            |                  |   |           
|Total loans, net of unearned income     |  | $                      | 13,423,541 |                  | $ | 12,857,811
|                                        |  |                        |            |                  |   |           



Management believes
that its existing distribution of commercial real estate and construction loans, whether grouped geographically, by industry, or by borrower, reduces BancGroups risk exposure. The current distribution of commercial real estate and construction
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 at March 31, 2005.



|                     |  |                        |           |           |        |                       |   |           |  |       
|-------------------- |  | ---------------------- | --------- | --------- | ------ | --------------------- | - | --------- |  | ------
|                     |  | Construction           |           | % ofTotal |        | CommercialReal Estate |   | % ofTotal
|                     |  | (Dollars in thousands)
|Average Loan Size    |  | $                      | 675       |           |        |                       | $ | 622       |  |       
|Geographic Diversity |  |                        |           |           |        |                       |   |           |  |       
|Florida              |  | $                      | 2,450,539 |           | 54.0%  |                       | $ | 2,394,194 |  | 53.6% 
|Alabama              |  |                        | 525,877   |           | 11.6%  |                       |   | 771,021   |  | 17.3% 
|Georgia              |  |                        | 510,016   |           | 11.2%  |                       |   | 472,236   |  | 10.6% 
|Texas                |  |                        | 497,638   |           | 11.0%  |                       |   | 266,617   |  | 6.0%  
|Nevada               |  |                        | 340,794   |           | 7.5%   |                       |   | 223,740   |  | 5.0%  
|Other                |  |                        | 210,951   |           | 4.7%   |                       |   | 338,079   |  | 7.5%  
|                     |  |                        |           |           |        |                       |   |           |  |       
|Total                |  | $                      | 4,535,815 |           | 100.0% |                       | $ | 4,465,887 |  | 100.0%
|                     |  |                        |           |           |        |                       |   |           |  |       



|                                 |  |                                   |  |                |  |                                   |  |                       |  |               
|-------------------------------- |  | --------------------------------- |  | -------------- |  | --------------------------------- |  | --------------------- |  | --------------
|                                 |  | % of Property TypeDistribution to |  |                |  | % of Property TypeDistribution to
|                                 |  | ConstructionPortfolio             |  | TotalPortfolio |  |                                   |  | CommercialReal Estate |  | TotalPortfolio
|Residential Development and Lots |  | 26.7%                             |  | 9.0%           |  | Retail                            |  | 25.6%                 |  | 8.4%          
|Land Only                        |  | 19.6%                             |  | 6.6%           |  | Office                            |  | 18.9%                 |  | 6.3%          
|Residential Home Construction    |  | 17.4%                             |  | 5.9%           |  | Multi-Family                      |  | 12.3%                 |  | 4.1%          
|Condominium                      |  | 11.5%                             |  | 3.9%           |  | Warehouse                         |  | 11.9%                 |  | 4.0%          
|Retail                           |  | 8.1%                              |  | 2.7%           |  | Other*                            |  | 9.0%                  |  | 3.0%          
|Other*                           |  | 5.8%                              |  | 2.0%           |  | Healthcare                        |  | 7.1%                  |  | 2.4%          
|Commercial Development           |  | 4.5%                              |  | 1.5%           |  | Lodging                           |  | 7.0%                  |  | 2.3%          
|Office                           |  | 3.9%                              |  | 1.3%           |  | Church or School                  |  | 3.8%                  |  | 1.3%          
|Multi-Family                     |  | 2.5%                              |  | 0.9%           |  | Recreation                        |  | 2.9%                  |  | 1.0%          
|                                 |  |                                   |  |                |  |                                   |  |                       |  |               
|                                 |  |                                   |  |                |  | Industrial                        |  | 1.5%                  |  | 0.5%          
|                                 |  |                                   |  |                |  |                                   |  |                       |  |               
|Total Construction               |  | 100.0%                            |  | 33.8%          |  | Total Commercial Real Estate      |  | 100.0%                |  | 33.3%         
|                                 |  |                                   |  |                |  |                                   |  |                       |  |               

---

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



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##### Table of Contents

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



|                                               |  |              |           |   |                       |   |         |  
|---------------------------------------------- |  | ------------ | --------- | - | --------------------- | - | ------- | -
|                                               |  | Construction |           |   | CommercialReal Estate |  
|75 Largest Loans Total (in thousands)          |  | $            | 1,205,073 |   |                       | $ | 780,699 |  
|% of 75 largest loans to category total        |  |              | 26.6      | % |                       |   | 17.5    | %
|Average Loan to Value Ratio (75 largest loans) |  |              | 69.1      | % |                       |   | 67.7    | %
|Average Debt Coverage Ratio (75 largest loans) |  |              | N/A       |   |                       |   | 1.38    | x



Commercial real estate
and construction loans combined had growth, excluding acquisitions, of $332 million or 4.1% from December 31, 2004 to March 31, 2005. Geographically, the Florida locations continue to contribute most of the growth in these particular portfolios. The
acquisition of Union in Florida in February 2005 contributed an additional $478 million to these portfolios. Colonial continues to focus its commercial real estate and construction growth efforts on high quality properties owned and/or developed by
experienced customers with whom we have established relationships. Substantially all construction and commercial real estate loans have personal guarantees of the principals involved.



Residential real estate loans represent approximately 18% and 17% of total loans at March 31, 2005 and December 31, 2004,
respectively. These loans are primarily adjustable rate first and second mortgages on single-family, owner-occupied properties.



BancGroups mortgage warehouse lending division provides lines of credit collateralized by residential mortgage loans to mortgage origination
companies. Mortgage warehouse loans outstanding at March 31, 2005 and December 31, 2004 were $664 million and $1.1 billion with unfunded commitments of $702 million and $771 million, respectively.



The Company has 46 credits with commitments (funded and unfunded) of $885
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). The largest outstanding amount to any
single borrower is $81 million (which is a mortgage warehouse lending credit), with the smallest credit being approximately $20,000. At March 31, 2005, $550 million of these commitments were funded.



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:



| |  |  | 65% - mortgage warehouse lines to 19 large institutions,
| | - |  | --------------------------------------------------------



| |  |  | 33% - 26 commercial real estate credit facilities to companies with headquarters located within Colonials existing markets, and
| | - |  | --------------------------------------------------------------------------------------------------------------------------------



| |  |  | 2% - one operating facility to a large national insurance company.
| | - |  | ------------------------------------------------------------------



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



24



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##### Table of Contents

Summary Of Loan Loss Experience



|                                                                         |  |                        |         |   |               |   |         |  
|------------------------------------------------------------------------ |  | ---------------------- | ------- | - | ------------- | - | ------- | -
|                                                                         |  | Three Months Ended     |        
|                                                                         |  | March 31,2005          |         |   | March 31,2004 |  
|                                                                         |  | (Dollars in thousands) |        
|Allowance for loan lossesJanuary 1                                      |  | $                      | 148,802 |   |               | $ | 138,549 |  
|Charge-offs:                                                             |  |                        |         |   |               |   |         |  
|Commercial, financial, and agricultural                                  |  |                        | 5,425   |   |               |   | 1,627   |  
|Real estatecommercial                                                   |  |                        | 2,253   |   |               |   | 2,450   |  
|Real estateconstruction                                                 |  |                        | 1,372   |   |               |   | 86      |  
|Real estateresidential                                                  |  |                        | 577     |   |               |   | 696     |  
|Consumer                                                                 |  |                        | 541     |   |               |   | 540     |  
|Other                                                                    |  |                        | 361     |   |               |   | 1,898   |  
|                                                                         |  |                        |         |   |               |   |         |  
|Total charge-offs                                                        |  |                        | 10,529  |   |               |   | 7,297   |  
|                                                                         |  |                        |         |   |               |   |         |  
|Recoveries:                                                              |  |                        |         |   |               |   |         |  
|Commercial, financial, and agricultural                                  |  |                        | 1,741   |   |               |   | 483     |  
|Real estatecommercial                                                   |  |                        | 886     |   |               |   | 135     |  
|Real estateconstruction                                                 |  |                        | 1       |   |               |   | 50      |  
|Real estateresidential                                                  |  |                        | 151     |   |               |   | 125     |  
|Consumer                                                                 |  |                        | 341     |   |               |   | 283     |  
|Other                                                                    |  |                        | 394     |   |               |   | 214     |  
|                                                                         |  |                        |         |   |               |   |         |  
|Total recoveries                                                         |  |                        | 3,514   |   |               |   | 1,290   |  
|                                                                         |  |                        |         |   |               |   |         |  
|Net charge-offs                                                          |  |                        | 7,015   |   |               |   | 6,007   |  
|Provision for loan losses                                                |  |                        | 5,929   |   |               |   | 7,934   |  
|Allowance added from bank acquisitions                                   |  |                        | 5,918   |   |               |   |        |  
|                                                                         |  |                        |         |   |               |   |         |  
|Allowance for loan lossesend of period                                  |  | $                      | 153,634 |   |               | $ | 140,476 |  
|                                                                         |  |                        |         |   |               |   |         |  
|Net charge-offs as a percentage of average net loans(annualized basis): |  |                        |         |   |               |   |         |  
|Quarter to date                                                          |  |                        | 0.21    | % |               |   | 0.21    | %
|Year to date                                                             |  |                        | 0.21    | % |               |   | 0.21    | %



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 to charge off consumer installment loans 120 days past due unless they are in the process of foreclosure and are adequately collateralized. Management closely monitors all loans that are
contractually 90 days past due, renegotiated or nonaccrual. These loans are summarized as follows:



|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------- | ------ | - | ---------------- | - | ------ | -
|                                                                                                                                                             |  | March 31,2005          |        |   | December 31,2004 |  
|                                                                                                                                                             |  | (Dollars in thousands) |       
|Aggregate loans for which interest is not being accrued                                                                                                      |  | $                      | 28,996 |   |                  | $ | 26,983 |  
|Aggregate loans renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial condition
of the borrower |  |                        | 182    |   |                  |   | 191    |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Total nonperforming loans*                                                                                                                                   |  |                        | 29,178 |   |                  |   | 27,174 |  
|Other real estate owned and repossessions                                                                                                                    |  |                        | 8,229  |   |                  |   | 9,865  |  
|Loans held for sale                                                                                                                                          |  |                        | 1,262  |   |                  |   |       |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Total nonperforming assets*                                                                                                                                  |  | $                      | 38,669 |   |                  | $ | 37,039 |  
|                                                                                                                                                             |  |                        |        |   |                  |   |        |  
|Allowance as a percent of nonperforming assets*                                                                                                              |  |                        | 397    | % |                  |   | 402    | %



25



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##### Table of Contents

|                                                                                   |  |                        |       |   |                  |   |        |  
|---------------------------------------------------------------------------------- |  | ---------------------- | ----- | - | ---------------- | - | ------ | -
|                                                                                   |  | March 31,2005          |       |   | December 31,2004 |  
|                                                                                   |  | (Dollars in thousands) |      
|Aggregate loans contractually past due 90 days for which interest is being accrued |  | $                      | 5,651 |   |                  | $ | 8,096  |  
|Net charge-offs quarter-to-date                                                    |  | $                      | 7,015 |   |                  | $ | 3,644  |  
|Net charge-offs year-to-date                                                       |  | $                      | 7,015 |   |                  | $ | 23,598 |  
|Total nonperforming assets as a percent of net loans and other real estate         |  |                        | 0.29  | % |                  |   | 0.29   | %
|Allowance as a percent of net loans                                                |  |                        | 1.14  | % |                  |   | 1.16   | %
|Allowance as a percent of nonperforming loans*                                     |  |                        | 527   | % |                  |   | 548    | %

---

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



Fluctuations from year to year in the balances of nonperforming assets are attributable to several factors including
changing economic conditions in various markets, nonperforming assets obtained in various acquisitions and the disproportionate impact of larger (over $5,000,000) individual credits.



In addition to the loans reported as nonperforming loans above, management, through its loan officers, internal credit
review staff and external examinations by regulatory agencies, has identified approximately $252.7 million of loans, which have been placed on a classified loan list excluding nonaccrual, other real estate, repossessions and loans that are
contractually 90 days past due. The status of all material classified loans is reviewed at least monthly by loan officers, quarterly by BancGroups centralized credit administration function and annually by regulatory agencies. In connection
with such reviews, collateral values are updated where considered necessary as loans are deemed impaired. If collateral values are judged insufficient or other sources of repayment are deemed inadequate, the amount of reserve held is increased or
the loan is reduced to estimated recoverable amounts. As of March 31, 2005, substantially all of these classified loans are current 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 demonstrated 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.



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.



A loan is considered impaired, based on current information and events, if it is 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. As mentioned previously, Colonials credit risk management area performs detailed verification and testing to ensure appropriate identification
of impaired loans and that proper reserves are held on these loans. The recorded investment in impaired loans at March 31, 2005 and December 31, 2004 was $25.4 million and $24.8 million, respectively, and these loans had a corresponding valuation
allowance of $4.5 million and $8.0 million, respectively.



Asset/Liability
Management



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



26



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##### Table of Contents

Interest Rate Sensitivity



Interest rate risk, and its potential effects on earnings, are inherent in the operations of a financial institution. We are
subject to interest rate risk because:



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



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



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



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



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



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



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



The following table represents the output from the Companys simulation model based on the balance sheet at March 31, 2005, when the Fed Funds Rate was 2.75%. The table measures the impact on net interest income of an immediate and
sustained change in all market interest rates in 100 basis point increments for the twelve calendar months following the date of the change. This twelve-month projection of net interest income under these scenarios is compared to the twelve-month
net interest income projection with rates unchanged.



|                    |  |              |   |  |                                                                                                                     |  
|------------------- |  | ------------ | - |  | ------------------------------------------------------------------------------------------------------------------- | -
|                    |  | FedFundsRate |   |  | Percentage Changein 12 MonthProjected NetInterest Income vs.Net InterestIncome
assumingno rate change(1) (Restated) |  
|Basis Points change |  |              |   |  |                                                                                                                     |  
|+200                |  | 4.75         | % |  | 3.0                                                                                                                 | %
|+100                |  | 3.75         |   |  | 2.1                                                                                                                 |  
|No Rate Change      |  | 2.75         |   |  |                                                                                                                    |  
|-100                |  | 1.75         |   |  | (2.5                                                                                                                | )

---

|(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
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



27



---

##### Table of Contents

| | loans as market rates decline, deposit decay rates and loan/investment prepayments. Further, the computations do not take into account changes to the slope
of the yield curve, changes in the relative relationship of various market rates, changes in the volume or mix of asset and liabilities on the balance sheet nor do they contemplate any actions BancGroup could undertake in response to changes in
interest rates.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Liquidity



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



Deposit growth is a primary focus of BancGroups funding and liquidity
strategy. Colonials average non-time deposits grew by $1.8 billion, or 30% (19% excluding acquisitions) over the first quarter of 2004. Total average deposits for the first quarter of 2005 increased $2.4 billion or 24% (15% excluding
acquisitions) over the first quarter of 2004. These increases improved the percentage of total average deposits to total average liabilities to 69% for the first quarter of 2005 compared to 67% for the first quarter of 2004.



As part of its planning for future funding needs, BancGroup has worked to
expand the availability of wholesale funding sources in addition to continued emphasis on deposit growth and the sale of interests in mortgage warehouse loans. Wholesale funding sources include availability from the Federal Home Loan Bank of
Atlanta, borrowings collateralized by securities and loans, fed funds purchased and brokered CDs. Of total wholesale funding sources estimated to be available to the Company, BancGroup utilized 50% at March 31, 2005 compared to 51% at March
31, 2004.



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 dividend payout target range is 35-45% of net income. Dividend rates are determined by the Board of Directors in consideration of several factors including current and
projected capital ratios, liquidity and income levels and other bank dividend yields and payment ratios.



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



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



The Federal Reserve Board has issued guidelines identifying minimum Tier I leverage ratios relative to total assets and
minimum capital ratios relative to risk-adjusted assets. The minimum leverage ratio is 3% for bank holding companies that meet certain specified criteria, including that they have the highest regulatory rating. A minimum leverage ratio of 4% is
required for all bank holding companies not meeting these criteria. Higher capital ratios may be required for any bank holding company 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



28



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##### Table of Contents

total capital. BancGroups actual capital ratios and the components of capital and risk adjusted asset information (subject to regulatory review) as of
March 31, 2005 are stated below:



|                                                                                                                                             |  |                         |           
|-------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------------- | ----------
|Capital                                                                                                                                      |  | (In thousands,restated)
|Tier I Capital:                                                                                                                              |  |                         |           
|Shareholders equity (excluding unrealized gains/losses on securities available for sale and intangibles plus Trust Preferred
Securities)(1) |  | $                       | 1,406,972 
|Tier II Capital:                                                                                                                             |  |                         |           
|Allowable loan loss reserve                                                                                                                  |  |                         | 153,634   
|Subordinated debt                                                                                                                            |  |                         | 214,635   
|45% of net unrealized gains on available for sale equity securities                                                                          |  |                         | 522       
|                                                                                                                                             |  |                         |           
|Total Capital                                                                                                                                |  | $                       | 1,775,763 
|                                                                                                                                             |  |                         |           
|Risk-Adjusted Assets                                                                                                                         |  | $                       | 15,981,737
|Quarterly average assets (excluding intangibles and unrealized gains/losses on securities available for sale)                                |  | $                       | 19,068,751



|                              |  |                          |   |  |                             |  
|----------------------------- |  | ------------------------ | - |  | --------------------------- | -
|                              |  | March 31,2005 (Restated) |   |  | December 31,2004 (Restated) |  
|Tier I Leverage Ratio         |  | 7.38                     | % |  | 7.16                        | %
|Risk-Adjusted Capital Ratios: |  |                          |   |  |                             |  
|Tier I Capital Ratio          |  | 8.80                     | % |  | 8.80                        | %
|Total Capital Ratio           |  | 11.11                    | % |  | 11.39                       | %

---

|(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.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 26.6% or $34.3
million to $163.4 million for the quarter ended March 31, 2005 from $129.0 million for the quarter ended March 31, 2004.



The Average Volume and Rates and Analysis of Interest Increases/(Decreases) tables present the individual components of net
interest income and the net interest margin. Discussion of the changes in these components is provided following the tables.



29



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##### Table of Contents

Average Volume and Rates

(Unaudited)



|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|----------------------------------------------------------- |  | -------------------------------- | ---------- | -------- | ---- | ------- |  | ---- | ------------- |  | -------- | ---------- | ---- | - | ------- |  | ---- | -
|                                                            |  | Three Months Ended March 31,     |           
|                                                            |  | 2005                             |            |          | 2004 |        
|                                                            |  | AverageVolume                    |            | Interest |      | Rate    |  |      | AverageVolume |  | Interest |            | Rate |  
|                                                            |  | (Dollars in thousands, restated) |           
|ASSETS:                                                     |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest earning assets(1):                                 |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|All other loans, net of unearned income(2)                  |  | $                                | 12,216,381 |          | $    | 186,468 |  | 6.18 | %             |  | $        | 10,590,340 |      | $ | 145,189 |  | 5.51 | %
|Mortgage warehouse loans                                    |  |                                  | 970,044    |          |      | 11,367  |  | 4.75 | %             |  |          | 883,301    |      |   | 8,631   |  | 3.93 | %
|Loans held for sale(2)                                      |  |                                  | 719,822    |          |      | 9,531   |  | 5.29 | %             |  |          | 335,875    |      |   | 4,512   |  | 5.37 | %
|Investment securities and securities available for sale(2)  |  |                                  | 3,840,355  |          |      | 43,755  |  | 4.56 | %             |  |          | 3,150,977  |      |   | 35,848  |  | 4.55 | %
|Other interest earning assets                               |  |                                  | 330,781    |          |      | 3,143   |  | 3.85 | %             |  |          | 28,556     |      |   | 79      |  | 1.11 | %
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest earning assets                               |  |                                  | 18,077,383 |          | $    | 254,264 |  | 5.68 | %             |  |          | 14,989,049 |      | $ | 194,259 |  | 5.20 | %
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Non-earning assets(2)                                       |  |                                  | 1,521,357  |          |      |         |  |      |               |  |          | 1,142,137  |      |   |         |  |      |  
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total assets                                                |  | $                                | 19,598,740 |          |      |         |  |      |               |  | $        | 16,131,186 |      |   |         |  |      |  
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|LIABILITIES AND SHAREHOLDERS EQUITY:                       |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing liabilities:                               |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Interest bearing non-time deposits                          |  | $                                | 5,207,921  |          | $    | 14,328  |  | 1.12 | %             |  | $        | 4,107,877  |      | $ | 8,501   |  | 0.83 | %
|Time deposits                                               |  |                                  | 4,539,549  |          |      | 32,527  |  | 2.91 | %             |  |          | 3,921,025  |      |   | 25,478  |  | 2.61 | %
|Short-term borrowings                                       |  |                                  | 3,259,642  |          |      | 18,647  |  | 2.32 | %             |  |          | 2,631,120  |      |   | 6,495   |  | 0.99 | %
|Long-term debt(2)                                           |  |                                  | 2,312,930  |          |      | 25,404  |  | 4.44 | %             |  |          | 2,222,432  |      |   | 24,764  |  | 4.48 | %
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total interest bearing liabilities                          |  |                                  | 15,320,042 |          | $    | 90,906  |  | 2.40 | %             |  |          | 12,882,454 |      | $ | 65,238  |  | 2.04 | %
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Noninterest bearing demand deposits                         |  |                                  | 2,644,307  |          |      |         |  |      |               |  |          | 1,933,555  |      |   |         |  |      |  
|Other liabilities(2)                                        |  |                                  | 118,265    |          |      |         |  |      |               |  |          | 114,476    |      |   |         |  |      |  
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities                                           |  |                                  | 18,082,614 |          |      |         |  |      |               |  |          | 14,930,485 |      |   |         |  |      |  
|Shareholders equity                                        |  |                                  | 1,516,126  |          |      |         |  |      |               |  |          | 1,200,701  |      |   |         |  |      |  
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|Total liabilities and shareholders equity                  |  | $                                | 19,598,740 |          |      |         |  |      |               |  | $        | 16,131,186 |      |   |         |  |      |  
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  
|RATE DIFFERENTIAL                                           |  |                                  |            |          |      |         |  | 3.28 | %             |  |          |            |      |   |         |  | 3.16 | %
|NET INTEREST INCOME AND NETYIELD ON INTEREST-EARNING ASSETS |  |                                  |            |          | $    | 163,358 |  | 3.64 | %             |  |          |            |      | $ | 129,021 |  | 3.45 | %
|                                                            |  |                                  |            |          |      |         |  |      |               |  |          |            |      |   |         |  |      |  

---

|(1) | Interest earned and average rates on obligations of states and political subdivisions are reflected on a tax equivalent basis. Tax equivalent interest earned is: actual interest
earned times 145%. The taxable equivalent adjustment has given effect to the disallowance of interest expense deductions, for federal income tax purposes, related to certain tax-free assets.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



30



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##### Table of Contents

Analysis of Interest Increases/(Decreases)

(Unaudited)



|                                                        |  |                                                             |        |                  |   |        |  |   |        |  
|------------------------------------------------------- |  | ----------------------------------------------------------- | ------ | ---------------- | - | ------ |  | - | ------ | -
|                                                        |  | Three Months Ended March 31,2005 Change from March 31, 2004 |       
|                                                        |  |                                                             |        | Attributed to(1) |  
|                                                        |  | Total                                                       |        | Volume           |   | Rate   | 
|                                                        |  | (Dollars in thousands, restated)                            |       
|INTEREST INCOME:                                        |  |                                                             |        |                  |   |        |  |   |        |  
|All other loans, net of unearned income                 |  | $                                                           | 41,279 |                  | $ | 23,036 |  | $ | 18,243 |  
|Mortgage warehouse loans                                |  |                                                             | 2,736  |                  |   | 876    |  |   | 1,860  |  
|Loans held for sale                                     |  |                                                             | 5,019  |                  |   | 5,087  |  |   | (68    | )
|Investment securities and securities available for sale |  |                                                             | 7,907  |                  |   | 7,828  |  |   | 79     |  
|Other interest earning assets                           |  |                                                             | 3,064  |                  |   | 2,485  |  |   | 579    |  
|                                                        |  |                                                             |        |                  |   |        |  |   |        |  
|Total interest income                                   |  |                                                             | 60,005 |                  |   | 39,312 |  |   | 20,693 |  
|                                                        |  |                                                             |        |                  |   |        |  |   |        |  
|INTEREST EXPENSE:                                       |  |                                                             |        |                  |   |        |  |   |        |  
|Interest bearing deposits                               |  |                                                             | 5,827  |                  |   | 2,528  |  |   | 3,299  |  
|Time deposits                                           |  |                                                             | 7,049  |                  |   | 4,078  |  |   | 2,971  |  
|Short-term borrowings                                   |  |                                                             | 12,152 |                  |   | 1,835  |  |   | 10,317 |  
|Long-term debt                                          |  |                                                             | 640    |                  |   | 887    |  |   | (247   | )
|                                                        |  |                                                             |        |                  |   |        |  |   |        |  
|Total interest expense                                  |  |                                                             | 25,668 |                  |   | 9,328  |  |   | 16,340 |  
|                                                        |  |                                                             |        |                  |   |        |  |   |        |  
|Net interest income                                     |  | $                                                           | 34,337 |                  | $ | 29,984 |  | $ | 4,353  |  
|                                                        |  |                                                             |        |                  |   |        |  |   |        |  

---

|(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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



For the first quarter 2005, as
compared to the same period in 2004, average earning assets increased 20.6% or $3.1 billion to $18.1 billion compared to $15.0 billion for the first quarter 2004. This increase was due to a $1.7 billion increase in average loans, a $384 million
increase in average loans held for sale and a $689.4 million increase in the average investment portfolio. Overall for the first quarter 2005 versus 2004, the increase in interest income was $60.0 million.



Net interest margin increased for the 6thconsecutive quarter to 3.64% or 19 basis points over 3.45% in the first quarter of 2004. The average yield on interest earning assets increased 48
basis points, while the average cost of interest-bearing liabilities increased 36 basis points compared to the first quarter of 2004.



Between March of 2004 and March of 2005, the Federal Reserve raised the target federal funds rate seven times for a total increase of 175 basis points.
Colonial raised its prime rate in conjunction with each increase in the target federal funds rate.



Approximately 80% of Colonials loan portfolio is variable or adjustable rate and increases in rate when market rates rise. As a result, loan yields,
excluding mortgage warehouse loans and loans held for sale, increased 67 basis points during the first quarter of 2005 over the first quarter of 2004 while the yield on mortgage warehouse loans increased 82 basis points.



The yield on loans held for sale decreased 8 basis points due to the impact
of demand on this product. The average yield on securities remained relatively constant at 4.56% in the first quarter of 2005 compared to 4.55% in the first quarter of 2004.



As discussed previously, in March 2005, Colonial sold interests in certain mortgage warehouse loans and loans held for sale
to commercial paper conduits. As a result of this transaction, average mortgage warehouse



31



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##### Table of Contents

loans decreased $39 million and loans held for sale decreased $36 million for the quarter. The transaction decreased net interest income by approximately
$433,000, which was substantially offset by an increase in noninterest income of approximately $400,000. The transaction had minimal impact on net interest margin during the quarter due to the short duration it was outstanding, but is expected to be
accretive to the margin during the rest of 2005.



The overall
funding costs increase of 36 basis points from the first quarter 2004 was primarily due to a 133 basis point increase in the rate on short-term borrowings as a result of the previously mentioned increases in the target federal funds rate. The
average rate on interest bearing deposits increased 25 basis points over the first quarter 2004.



Total average deposits growth of $2.4 billion or 24.4% ($1.5 billion or 15.5% excluding acquisitions) over the first quarter of 2004 has lessened the
Companys dependence on borrowings, which contributes favorably to Colonials risk profile and is expected to assist in containing funding costs in a rising rate environment.



In March 2005, Colonial prepaid $200 million in long-term Federal Home Loan Bank (FHLB) advances bearing interest at a
weighted average rate of 4.98% resulting in a prepayment fee of $2.29 million reflected as net losses on the early extinguishment of debt. The advances were refinanced with shorter term borrowings at lower rates. In the first quarter of 2004,
Colonial recognized $6.2 million in net losses on the early extinguishment of $462 million in FHLB advances which bore interest at an average rate of 4.37%.



Loan Loss Provision



The provision for loan losses for the three months ended March 31, 2005 was $5.9 million compared to $7.9 million for the same period in 2004. Net
charge-offs were $7.0 million, or 0.21% annualized as a percent of average net loans, for the three months ended March 31, 2005 compared to $6.0 million, or 0.21% annualized as a percent of average net loans, for the same period in 2004. Less
provision was required in the quarter due to the resolution of several impaired credits which had necessitated higher reserve levels.



Noninterest Income



Noninterest income, excluding gains/losses on securities and derivatives and the net cash settlement of derivatives, increased $6.5 million, or 22.2%, for
the three months ended March 31, 2005 compared to the same period in 2004. Sources of noninterest income include service charges on deposit accounts, financial planning services, electronic banking services, mortgage banking, securities
losses/gains, net cash settlements of swap derivatives, and changes in fair value of swap derivatives.



Service charges on deposit accounts decreased $553,000, or 3.9%, for the three months ended March 31, 2005 over the same period in 2004. These decreases
are primarily the result of a reduction of non sufficient funds fees and a higher percentage of commercial deposit fees paid by balance in the first quarter of 2005 than in the prior year.



Financial planning services include discount brokerage, investment sales,
asset management, trust services and insurance sales including term, universal, whole life and long-term care. Total financial planning services income increased $768,000, or 24.6%, for the three months ended March 31, 2005 from the same period in
2004. This increase is primarily due to increased sales of securities and annuity products, as well as increased revenues from trust services which more than offset declines in insurance sales.



Electronic banking services enable our customers to bank when and where they
want. Electronic banking includes an ATM network, business and personal check cards and internet banking with bill pay service. Noninterest income from electronic banking services increased $687,000, or 24.4%, for the three months ended March 31,
2005, compared to the same period in 2004. This increase is primarily the result of deposit growth, increased check card activities and usage, an increase in Visas interchange fee rate, and an increase in usage of the Companys internet
banking product.



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Net losses on the sale of securities for the quarter ended March 31, 2005 were $1.2 million compared to a
net gain of $7.4 million for the same period in 2004.



The
change in fair value of swap derivatives for the quarter ended March 31, 2005 decreased $14.1 million compared to the same period in 2004 due to changes in interest rates underlying the swap derivatives.



Income from bank owned life insurance and other income increased $1.2 million
and $3.8 million, respectively, for the three months ended March 31, 2005 as compared to the same period in 2004. The increase in other income was primarily from letter of credit fees, mortgage warehouse lending fees, customer and official check
fees, the sale of the Companys interest in the PULSE network and income from BancGroups joint ventures and Goldleaf Technologies subsidiary.



Noninterest Expense



Noninterest expense, excluding losses on the early extinguishment of debt of $2.3 million and $6.2 million for the first quarter of 2005 and 2004,
respectively, increased $16.6 million or 17.0% for the quarter ended March 31, 2005 as compared to the same period in 2004. Annualized noninterest expense, excluding net losses on the early extinguishment of debt, to average assets reached its
lowest level since the fourth quarter of 2002 at 2.34% for the three months ended March 31, 2005, as compared to 2.43% for the same period in 2004. From the first quarter of 2004 to the end of the first quarter of 2005, BancGroup added 42 new
locations, nine new branches and 33 branches through acquisitions. The impact of new branches and acquisition related expenses increased total noninterest expense 8% from the first quarter of 2004. The remaining increase includes investments in our
people, product and service offerings and technology.



Salaries
and benefits increased $10.3 million for the three months ended March 31, 2005 over the same period in 2004. The salary and employee benefits increase resulted from new branches, normal salary increases, addition of employees in key strategic areas,
increases in health benefit costs and increased incentive plan compensation.



Occupancy and equipment expense for the three months ended March 31, 2005 increased $2.4 million when compared to the same period in 2004. The increase was primarily the result of new branches, as well as additional
occupancy and equipment expenses from expansion of operational support functions and continued technology enhancements.



The increase in amortization of intangible assets was due to the acquisition of Union Bank in February 2005 and P.C.B. Bancorp, Inc. in May 2004. Merger
related expenses of $1.1 million for the quarter ended March 31, 2005 were also the result of the Union Bank acquisition. Refer to Note E for further discussion of the Union Bank acquisition.



The $2.3 million and $6.2 million in net losses on the early extinguishment
of debt for the quarter ended March 31, 2005 and 2004, respectively, was a result of the early payoff of FHLB advances and other borrowings. Refer to the Net Interest Income section for further discussion.



The increase in other expense of $1.6 million for the three months ended
March 31, 2005 over the same period in 2004 was primarily the result of new branches and expenses of various equity investments, as well as a net increase in normal operating expenses.



Provision For Income Taxes



BancGroups provision for income taxes is based on an approximate 33.0% and 34.2%, estimated annual effective tax rates for the years ended 2005 and
2004, respectively. The provisions for income taxes for the three months ended March 31, 2005 and 2004 were $23.8 million and $22.3 million, respectively.



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



(a) Restatement.



In the course of regular review procedures, our accounting staff identified errors with respect to the Companys use of hedge accounting for certain
transactions in accordance with generally accepted accounting principles, including Statement of Financial Accounting Standards No. 133 (SFAS 133) and its related interpretations. The errors were in accounting for interest rate swaps for
brokered certificates of deposit and junior subordinated debt. Upon initial application these swaps were viewed as eligible for the abbreviated method of documenting effectiveness of the swaps as hedges. Because these swaps were
retrospectively determined not to qualify for the abbreviated method of documentation, we were required to, but did not, test periodically for effectiveness. Adjustments to correct the accounting for these transactions are included in
our restated consolidated financial statements.



The accounting
staff reported their findings to management, to PricewaterhouseCoopers LLP and to the Audit Committee of the Board of Directors. After initial discussions with the Audit Committee, management reviewed these matters in further detail, and after
completing its analysis on December 29, 2005, recommended to the Audit Committee and the Executive Committee of the Board of Directors that previously reported financial results be restated to reflect correction of these errors. The Executive
Committee of the Board of Directors and the Audit Committee of the Board of Directors determined at their joint meeting on December 29, 2005, that previously reported results for The Colonial BancGroup Inc.s Annual Report on Form 10-K for the
year ended December 31, 2004 and Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2005 should be restated to eliminate hedge accounting for these swaps and, in light of the restatement, that the financial
statements and other information referred to above should no longer be relied upon.



(b) Evaluation of Disclosure Controls and Procedures



In connection with the restatement, under the direction of our Chief Executive Officer and Chief Financial Officer, we reevaluated our disclosure controls and procedures as of March 31, 2005. We identified a material weakness in our
internal control over financial reporting with respect to accounting for hedge transactions.



Solely as a result of this material weakness, we concluded that our disclosure controls and procedures were not effective as of March 31, 2005.



(c) Changes in Internal Control over Financial Reporting



As previously reported, there was no change in our internal control over financial reporting during the quarter ended March
31, 2005, that materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.



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PART II. OTHER INFORMATION



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



|Item 2. | Unregistered Sales of Equity Securities and Use of ProceedsN/A
|------- | ---------------------------------------------------------------



On February 10, 2005, BancGroup issued 2,903,402 shares of its common stock to UB Financial Corporation
as partial consideration for all of the shares of Union Bank of Florida. When issued, these shares had not been registered with the Securities Exchange Commission or with any state securities department. The BancGroup common stock was issued
pursuant to the exemption afforded under Section 4(2) of the Securities Act of 1933, as amended. The acquisition of Union Bank of Florida is more fully described in Note E to the Financial Statements included within this report. The BancGroup common
stock was subsequently registered for a possible public distribution by UB Financial Corporation or its shareholders on a Registration Statement on Form S-3 (File No. 333-121707) which became effective on February 11, 2005.



|Item 3. | Defaults Upon Senior SecuritiesN/A
|------- | -----------------------------------



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



|Item 5. | Other InformationN/A
|------- | ---------------------



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



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          



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SIGNATURE



Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Montgomery, Alabama, on the13thday of February, 2006.





|                             |  |                                       
|---------------------------- |  | --------------------------------------
|THE COLONIAL BANCGROUP, INC.
|                             | 
|By:                          |  | /s/    SARAH H.
MOORE                 
|                             |  | Sarah H. Moore Chief Financial Officer



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