DBRS Confirms Colonial BancGroup, Inc. at BBB; Revises Trend to Stable

DBRS has today confirmed the ratings of Colonial BancGroup, Inc. (Colonial or the Company) and its operating bank subsidiary, Colonial Bank, N.A. At the same time, DBRS revised the trend to Stable from Positive for all of Colonial’s ratings. The rating action follows a detailed review of the Company’s operating results and financial fundamentals.

The revised trend reflects DBRS’s expectations that the more severe than anticipated real estate disruption in the housing and mortgage markets will continue to negatively impact Colonial’s credit quality and earnings capacity over the near term. However, DBRS credits the Company’s experienced management with a conservative approach to underwriting and the long track record of solid performance throughout various economic, real estate and interest rate environments. This experience has translated into sound credit quality over the past decade. Furthermore, Colonial’s current asset quality remains sound and potential related losses are somewhat offset by reserves and earnings capacity.

DBRS expects that over the near to intermediate term, the challenging housing markets may pressure Colonial’s earnings capacity and capital retention, due to the potential for higher levels of contributions to loan loss reserves. Furthermore, DBRS anticipates that loan growth will moderate somewhat and place additional pressure on future earnings growth.

Today’s ratings confirmation reflects Colonial’s sound, albeit modestly deteriorating asset quality, relatively healthy loan and deposit growth, and disciplined expense management. Ratings also take into account Colonial’s outsized real-estate concentration with large top lending relationships, narrow business focus and below-peer capitalization.

Earnings remain dominated by loan-driven net interest income supplemented with fairly moderate contributions from more stable fee income-related products. Colonial’s tangible capitalization remains below peer level as a result of its acquisition strategy, which adds a significant layer of goodwill and core deposit intangibles onto its balance sheet.

Positive rating momentum may result from improved core earnings metrics and fee income contribution, ongoing stable asset quality metrics, and the continued success in growing the Company’s deposit franchise. Negative rating pressure could result from higher loan concentration levels, a significant deterioration in asset quality, or capital depletion.

Colonial BancGroup, Inc., a diversified financial services company headquartered in Montgomery, Alabama, reported $24.5 billion in assets, $17 billion in deposits and $2.2 billion in shareholders’ equity at September 30, 2007.

Note:
All figures are in U.S. dollars unless otherwise noted.