Colonial BancGroup Reports Strong Capital Position and the Second Quarter Results

MONTGOMERY, Ala.--(BUSINESS WIRE)--The Colonial BancGroup, Inc. (NYSE: CNB) Chairman, CEO and President, Robert E. Lowder, announced today that the Company’s net loss for the quarter ended June 30, 2008 was $9 million, or $0.05 per diluted share. “The economic downturn that began to impact Colonial’s customers during 2007 has, as we expected, continued into 2008. As I have publicly stated on a number of occasions, we expected second quarter results to demonstrate an increase in charge-offs and problem assets because Colonial’s markets, which are located in some of the country’s fastest growth areas, have unfortunately been disproportionately affected by the housing downturn. As such, we are feeling the effects of the current economy. These results, while disappointing, were not unexpected,” said Mr. Lowder.

Colonial raised $333 million, net, in common equity in a public offering during the second quarter through the issuance of 43.7 million shares of common stock. The issuance was a proactive and prudent step to allow aggressive loan work out efforts while maintaining strong capital ratios. The key regulatory ratios at June 30, 2008, were Tier 1 Capital of 10.10%, Total Capital of 14.13% and Leverage Ratio of 7.38%, all of which are above the “well capitalized” regulatory minimums of 6%, 10% and 5%, respectively. “At these levels, Colonial has significant amounts of excess capital which, coupled with our reserves, will allow us to remain strong during this period of economic uncertainty. We also continue to produce significant operating earnings each quarter that are available to absorb credit costs. Colonial is on solid footing, and we do not expect to raise additional capital,” said Mr. Lowder.

“We believe that our experienced lending, credit and special assets teams have identified our credit problems, which for Colonial continue to be isolated in residential related construction property types. We are working diligently to resolve issues on a case by case basis. We are pleased to report that loans past due 30-89 days at June 30, 2008 were down 40% from March 31, 2008. Loans past due more than 90 days but still accruing interest decreased 56% from March 31, 2008 to $31.3 million, or 0.20% of total loans, at June 30, 2008,” said Mr. Lowder. Colonial’s net charge-offs were $73 million, or 1.85% of average loans, annualized, for the second quarter of 2008, compared to 0.84% annualized for the first quarter of 2008. The nonperforming assets ratio at June 30, 2008 was 2.62% compared to 1.65% at March 31, 2008, reflecting a $94 million increase in foreclosed assets, as the Company continues its aggressive collection efforts. Colonial strengthened the loan loss reserve during the second quarter to $247 million, or 1.60% of period end loans, compared to 1.50% of period end loans at March 31, 2008.

Total loans were $15.5 billion at June 30, 2008, a decrease from $16.1 billion at March 31, 2008. Construction loans declined by $395 million, or 26% annualized, from March 31, 2008 to June 30, 2008. Approximately $239 million of the decrease in construction loans from March 31, 2008 was in Florida and Georgia which are among the markets that have experienced the most stress.

“Colonial is in a strong liquidity position. The retail franchise provides the most important source of funding to the Company as it funds 70% of total assets. Average deposits for the second quarter of 2008 grew 15% over the second quarter of 2007 and 5% annualized over the first quarter of 2008. In addition to the Company’s strong retail franchise, estimated wholesale funding available to the Company from a variety of sources is over $5 billion at June 30, 2008,” said Mr. Lowder.

Core noninterest income for the second quarter of 2008 increased 8% annualized over the first quarter of 2008. Most of the increase was in mortgage banking fee income which increased $1.2 million, or 71% annualized, over the first quarter of 2008 as a result of increased sales of FHA and VA loans. Colonial opportunistically increased its mortgage origination staffing in 2007 to diversify its production to agency products which yielded higher volumes and margins in the second quarter of 2008. Colonial’s financial planning services fee income increased $249,000, or 21% annualized, over the first quarter of 2008, primarily from increased annuity sales.

Net interest income declined by $7.2 million from the first quarter of 2008 as the Company’s net interest margin contracted 6 basis points in the quarter. The full impact of the reductions in the prime and LIBOR rates that occurred in the first quarter, deposit migration to higher cost time deposits and the increase in nonearning assets negatively impacted the margin in the second quarter. The decline in rates on earning assets was partially offset by a 42 basis point decline in deposit and funding costs.

“In the perfect storm environment that has severely impacted the residential construction industry throughout Colonial’s footprint, we believe that healthy capital, liquidity and reserves will provide stability and soundness in a time of uncertainty and weakness. Colonial is positioned well in all of these critical areas to endure the current credit cycle,” concluded Mr. Lowder.

Colonial BancGroup operates 344 branches in Florida, Alabama, Georgia, Nevada and Texas with approximately $26 billion in assets. The Company’s common stock is traded on the New York Stock Exchange under the symbol CNB and is located online at www.colonialbank.com. In some newspapers, the stock is listed as ColBgp.

Colonial’s management will host a conference call on July 16, 2008 at 5:00 PM/ET to discuss the earnings results for the second quarter of 2008. Individuals are encouraged to listen to the live webcast of the presentation as well as view a slide presentation by visiting Colonial’s website at www.colonialbank.com. The webcast will be hosted under “Events and Presentations” located under the “Investor Relations” section of the website. To participate in the Q&A session of the conference call, dial (888) 602-6363 or (719) 234-0008 Toll International, (Leader: Lisa Free).

A replay of the conference call will be available beginning at 8:00 PM/ET on July 16, 2008 and ending at midnight on July 21, 2008 by dialing (888) 203-1112 (Domestic Toll-Free) or (719) 457-0820 (Toll International). The passcode for both numbers is 2881497.

This release includes “forward-looking statements” within the meaning of the federal securities laws. Words such as “believes,” “estimates,” “plans,” “expects,” “should,” “may,” “might,” “outlook,” “potential” and “anticipates,” the negative of these terms and similar expressions, as they relate to The Colonial BancGroup, Inc. (BancGroup) (including its subsidiaries or its management), are intended to identify forward-looking statements. The forward-looking statements in this release are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in or implied by such statements. In addition to factors mentioned elsewhere in this release 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:

• losses to our loan portfolio are greater than estimated or expected;
• an inability to raise additional capital on terms and conditions that are satisfactory;
• the impact of current economic conditions on our ability to borrow additional funds to meet our liquidity needs;
• economic conditions affecting real estate values and transactions in BancGroup’s market and/or general economic conditions, either nationally or regionally, that are less favorable then expected;
• changes in the interest rate environment which expand or reduce margins or adversely affect critical estimates as applied, projected returns on investments, and fair values of assets;
• deposit attrition, customer loss, or revenue loss in the ordinary course of business;
• increases in competitive pressure in the banking industry and from non-banks;
• costs or difficulties related to the integration of the businesses of BancGroup and institutions it acquires are greater than expected;
• the inability of BancGroup to realize elements of its strategic plans for 2008 and beyond;
• natural disasters in BancGroup’s primary market areas which result in prolonged business disruption or materially impair the value of collateral securing loans;
• management’s assumptions and estimates underlying critical accounting policies prove to be inadequate or materially incorrect or are not borne out by subsequent events;
• the impact of recent and future federal and state regulatory changes;
• current and future litigation, regulatory investigations, proceedings or inquiries;
• strategies to manage interest rate risk may yield results other than those anticipated;
• changes which may occur in the regulatory environment;
• a significant rate of inflation (deflation);
• unanticipated litigation or claims;
• acts of terrorism or war; and
• changes in the securities markets.

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

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES FINANCIAL HIGHLIGHTS (Unaudited)
Statement of Condition Summary     (Dollars in millions)			June 30, 2008		Mar 31, 2008		Dec 31, 2007		% Change Mar '08 to June '08		% Change Dec '07 to June '08
	Total assets		$ 26,031		$ 27,353		$ 25,976		-5%		0%
	Loans, net of unearned income		15,469		16,094		15,923		-4%		-3%
	Total securities		3,454		3,495		3,683		-1%		-6%
	Non-time deposits		8,965		9,578		9,772		-6%		-8%
	Total deposits		18,349		19,271		18,544		-5%		-1%
	Shareholders' equity		2,422		2,172		2,274		12%		7%

				Three Months Ended												Six Months Ended
Earnings Summary   (In thousands,    except per    share amounts)				June 30, 2008					Mar 31, 2008				% Change Mar '08 to June '08			June 30, 2008					June 30, 2007				% Change June '07 to June '08
Net Income:
		Net interest income		$	174,424				$	181,624			-4	%		$	356,048				$	370,162			-4	%
		Provision for loan losses			79,000					35,543			122	%			114,543					8,355			1271	%
		Core noninterest income (1)			52,698					51,672			2	%			104,370					99,159			5	%
		Securities and derivatives gains, net			3,025					6,075			-50	%			9,100					2,097			334	%
		Securities restructuring charges			-					-			0	%			-					(36,006	)		100	%
		Gain on sale of mortgage loans			-					-			0	%			-					3,850			-100	%
		Gain on sale of merchant services			-					-			0	%			-					4,900			-100	%
		Total noninterest income			55,723					57,747			-4	%			113,470					74,000			53	%
		Core noninterest expense (1)			159,506					157,810			1	%			317,316					267,627			19	%
		Severance expense			550					236			133	%			786					3,545			-78	%
		Merger related expenses			-					-			0	%			-					1,545			-100	%
		Net losses related to the early extinguishment of debt			4,111					5,932			-31	%			10,043					6,908			45	%
		Total noninterest expense			164,167					163,978			0	%			328,145					279,625			17	%
		Minority interest expense/REIT preferred dividends			5,336					5,336			0	%			10,672					2,312			362	%
		Income before tax			(18,356	)				34,514			-153	%			16,158					153,870			-89	%
		Income tax			(9,400	)				9,717			-197	%			317					51,272			-99	%
Net Income				$	(8,956	)			$	24,797			-136	%		$	15,841				$	102,598			-85	%
Earnings per share - Diluted				$	(0.05	)			$	0.16			-131	%		$	0.09				$	0.66			-86	%
Average diluted shares outstanding					188,915					157,528							173,072					154,336
Key Ratios:
		Tier I capital ratio			10.10	%	(2)			8.05	%		25	%			10.10	%	(2)			9.14	%		11	%
		Tangible capital ratio			6.60	%				5.33	%		24	%			6.60	%				6.93	%		-5	%
		Net interest margin			2.88	%				2.94	%		-2	%			2.91	%				3.56	%		-18	%
		Loans to deposits ratio			84.30	%				83.52	%		1	%			84.30	%				90.48	%		-7	%
		Dividends paid per common share		$	0.095				$	0.190			-50	%		$	0.285				$	0.375			-24	%
(1)		Represents non-GAAP measures.
(2)		Estimated