DBRS Rates Colonial BancGroup, Inc. at BBB

Dominion Bond Rating Service (“DBRS”) has today assigned ratings to Colonial BancGroup, Inc. and its banking subsidiary, Colonial Bank, N.A., as indicated above. The trend for all ratings is Stable.

The ratings of Colonial BancGroup, Inc. (“Colonial” or the “Company”) reflect an expanding five-state community banking franchise with a growing revenue and earnings base, improving funding and liquidity profile, consistent net interest margin (NIM), and sustained excellent asset quality. Colonial’s large commercial real estate (CRE) exposure, less-diversified revenue base, substantial – albeit declining – reliance on wholesale funding, and weaker-than-peer-group-average capitalization are also incorporated into the ratings.

DBRS notes that the Company has transformed itself into a Florida growth franchise from a small Alabama bank over the past ten years. Through numerous small acquisitions and solid organic growth Colonial has built a good consumer deposit presence in Florida’s highly competitive South, Central, and West Coast areas, and has risen to an impressive fifth-ranked market share in Florida, behind much larger regional and national competitors. The growing deposit base has improved Colonial’s core funding profile, NIM, and liquidity; however, its dependence on wholesale funding is still somewhat high relative to many of its peers as loan growth has also been healthy during this period.

Colonial’s earnings are driven by a growing deposit base and a CRE-dominated loan portfolio. Credit quality has remained excellent over the past ten years despite economic and real estate cycles, numerous acquisitions, and expansion into new markets; this attests to the Company’s disciplined underwriting practices and conservative management style. The loan portfolio, however, is less granular than those of many of its peers because of several bulky relationships. As well, the loan portfolio has a high concentration in construction and other CRE loans. Because of this heavy concentration in the CRE sector, Colonial could potentially suffer both material revenue declines and loan losses in case of a market correction. DBRS notes that this type of downturn could lead to negative ratings pressure.

Primary challenges for Colonial are to diversify its revenue base, strengthen its profitability, and build capital levels similar to those of its peers. DBRS believes that the Company will continue to grow net interest income in the near term, and that fees and commissions from Colonial’s developing consumer banking business will be slower as this ongoing initiative will require time and investment to make a more materially significant contribution. In addition, DBRS does not expect capital levels to change significantly due to Colonial’s likely appetite for further acquisitions to broaden and build out its franchise.

Headquartered in Montgomery, Alabama, the Colonial BancGroup, Inc. is a publicly traded (NYSE: CNB) financial holding company engaged in commercial banking, retail banking, and wealth management services, with a particular focus on real estate lending. The holding company operates a single operating bank subsidiary, Colonial Bank, N.A., under a U.S. national bank charter, with a majority of its branches and deposits in the state of Florida. With US$21 billion in assets and nearly US$2 billion in equity, as of June 30, 2005, the Company is the fifth-largest bank in Florida as ranked by deposit share and the 51st-largest bank holding company in the U.S. as of March 31, 2005. Colonial had 4,741 employees, 308 branches, and 324 automatic teller machines in the states of Florida, Alabama, Georgia, Nevada, and Texas as of June 30, 2005.