Dear Shareholder:

One of the most challenging banking years in memory, 2007 clearly demonstrated the value of our company’s stability. While so many banks were suffering as a result of their sub-prime lending exposure and other risky investments, Colonial steered clear of these problems. And, our management dealt head-on with the declining housing market’s effect on our loan portfolio.

Granted, we are not immune to the downturn in the housing market and its effect on borrowers. Successfully preparing for the down times requires making the right decisions when times are good. We were not involved in sub-prime lending. We did not take undue credit risk in our investment portfolio and, consequently, we have not experienced losses that can result from these risky investments.

When it comes to lending and investing, we are and always have been a conservative institution. Our focus has been on making sound decisions, maintaining strong credit quality, and executing the blocking and tackling of service-based banking.

Financial Results for 2007

Looking back at 2007, we achieved many positive milestones and experienced some market-related challenges. Through it all, we continued to do the work necessary to ensure the success of our company through this and future economic cycles.

Net income for the year was $180.9 million, or $1.17 per diluted share. Although these results reflect a decline from 2006 earnings, there were several positive highlights from 2007, as well as some strategic actions undertaken to better position the company in the current financial environment.

We reached a new milestone in asset size, as we ended the year with approximately $26 billion in total assets. This places us in the top 25 among non-foreign-owned financial institutions in the United States.

Also, I am happy to report good progress on our efforts to increase revenues from fee-based services. Core noninterest income for 2007 grew a significant 15% over 2006 with retail banking fees, mortgage banking revenues and financial planning services income leading the way. Core noninterest income to average assets increased to 0.88% from 0.82% in 2006. While it is pleasing to see this increase, we can still improve and we plan to continue the strong emphasis on fee-based products and services.

We continued to make solid progress building out our retail banking franchise. Most notable were our ­acquisitions of Commercial Bankshares, Inc. (Commercial Bank), and Citrus & Chemical Bancorporation, Inc. (Citrus & Chemical), both of which strengthened our presence in Florida by adding 23 full-service branches in valuable markets.

Commercial Bank was located in Miami-Dade and Broward counties of Florida, and it is interesting to note that the population in the three-county area of Miami-Dade, Broward and Palm Beach is greater than the ­population of the entire state of Alabama. Citrus & Chemical was located in Polk County, a high-growth corridor between Orlando and Tampa, which is ­projected to increase in ­pop­ulation by 14% over the next five years. In addition to these acquired branches, we opened 19 de novo branches in Florida, Georgia, Texas and Nevada. We now have a banking franchise with 338 retail branch locations in some of the fastest ­growing areas of the country.

Total loans were $15.9 billion at Dec. 31, 2007, compared to $15.5 billion at Dec. 31, 2006, a 3% increase, attributed mostly to acquisitions. Slowing the loan growth was a strategic decision for the company given the current economic situation. However, our lending staff is not just sitting idle. All levels of the organization, and most importantly our commercial lenders, are focused on raising deposits. Including the impact from acquisitions, we experienced strong deposit growth of 15% over 2006.

Preserving Our Credit Quality

There are a number of other notable 2007 achievements. But what may be most important is what we didn’t do; namely, take risks with our loan and investment portfolios.

As I previously mentioned, 2007 was a turbulent year in the financial markets. Throughout the year, most notably the latter half of 2007, we saw the residential housing market exhibit signs of weakness. This was not a surprise to us. Through our regional management teams and our local boards of directors, we were kept abreast of the over-exuberance in homebuilding in some of our market areas. Unlike many large banks, we continue to listen closely to our local advisory boards. We place great importance and trust in these business and civic leaders. Their insight is instrumental in helping us build our business and, more importantly, avoid pitfalls.

As a result, in 2006, we began to tighten underwriting criteria and put limits on new residential construction loans. However, several of our customers were negatively impacted by the economic slowdown and could not continue to pay their debts. Thus, our net charge-offs for the year were $54 million, or 0.35% of average loans.

Also, nonperforming assets increased at year-end to $138 million, which was 0.86% of net loans. While these results are outside of our historical credit quality targets, they are not outside of our expectations in light of the turbulent economy.

We went through our entire loan portfolio with a fine-toothed comb to identify any and all potential trouble spots, and began to take quick action to resolve issues. I, along with other senior managers, have constantly been in our markets, meeting with our bankers and customers to get a sense of what is happening on the ground in real time.

In consideration of the current economic conditions and after undertaking a comprehensive review of our loan portfolio in every market, Colonial made additional provisions to build our loan loss reserves to 1.50% of loans. We believe that by increasing our loan loss reserves to that level, Colonial is well-positioned to handle the continued weakness in the housing sector.

Prepared for 2008

While we experienced increases in nonperforming assets and net charge-offs in 2007, we entered 2008 without off-balance sheet issues or liquidity shortages that are severely impacting many other banks our size and larger. Having solid capital levels and a strong loan loss reserve fortifies our balance sheet and gives us room to absorb what may come from an economic downturn.

And, while several other financial institutions have been reducing their dividends, Colonial increased our dividend for the 18^th consecutive year to an estimated $0.76 per share. We believe in paying dividends to our shareholders, and thanks to our ability to maintain healthy capital levels, we can do just that.

We still have our work cut out for us, as do all banks, but my confidence in our future is high. My confidence stems from knowing that we are managing this company the right way. We have experienced bankers who have a solid handle on our loan portfolio. We operate in some of the top growth markets in the country. We have the proven strength to get through this tough environment and continue to succeed when conditions improve.

As always, we are grateful for your ongoing support.

Robert E. Lowder
Chairman of the Board,
Chief Executive Officer and President