Colonial BancGroup Reports Strong Capital Position and the Second Quarter Results

Business Wire,  July 16, 2008  

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SUMMARY OF SECOND QUARTER 2008 RESULTS:

* Significantly increased capital in the second quarter to very strong levels: Tier 1 Capital of 10.10%, Total Risk Based Capital of 14.13% and Leverage Ratio of 7.38%

* Net loss of $0.05 per share in the quarter

* Aggressively managing problem loans: charged off $73 million in the second quarter and increased foreclosed assets by $94 million bringing nonperforming assets to 2.62% of loans and other real estate

* Strengthened loan loss reserve to 1.60% of net loans at 6/30/08 compared to 1.50% at 3/31/08

* Reduced assets by $1.3 billion: $670 million in mortgage warehouse assets and $608 million in regional bank loans in the second quarter

* Board of directors approved a $0.095 per share dividend for the third quarter, unchanged from the second quarter

* Average deposit growth was 15% over the 2Q07 and 5% annualized over the 1Q08

* Strong liquidity position: over $5 billion of excess borrowing capacity

* Book value per share and tangible common book value per share were $12.00 and $6.72, respectively at 6/30/08

MONTGOMERY, Ala. -- 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.