COLONIAL BANCGROUP INC, S-4, 1995-07-21

COLONIAL BANCGROUP INC
S-4, 1995-07-21
STATE COMMERCIAL BANKS

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<PAGE> 1

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D. C. 20549

---------------------------

FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

---------------------------

THE COLONIAL BANCGROUP, INC.
(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
Delaware 6711 63-0661573
(State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Identification No.)
Classification Code Number)
</TABLE>

ONE COMMERCE STREET, SUITE 800
MONTGOMERY, ALABAMA 36104 (334) 240-5000
(Address of principal executive offices) (Telephone No.)

---------------------------------

W. FLAKE OAKLEY, IV
SECRETARY
POST OFFICE BOX 1108
MONTGOMERY, ALABAMA 36102
(Name and address of agent for service)

Copies to:

<TABLE>
<S> <C>
MICHAEL D. WATERS, ESQUIRE R. EUGENE CLENNEY, JR., ESQUIRE
MILLER, HAMILTON, SNIDER & ODOM, L.L.C. JOHNSTON, HINESLEY, FLOWERS & CLENNEY, P.C.
ONE COMMERCE STREET, SUITE 802 291 NORTH OATES STREET
P. O. BOX 19 DOTHAN, ALABAMA 36303-4555
MONTGOMERY, ALABAMA 36101-0019
</TABLE>

Approximate date of commencement of proposed sale to the public: As soon
as practicable after the effective date of this Registration Statement.

If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]

CALCULATION OF REGISTRATION FEE (1)
<TABLE>
<CAPTION>
============================================================================================================
Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of
of Securities to be Registered Offering Price Per Aggregate Offering Registration Fee
Registered Unit Price
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par
value $2.50 per 354,430(2) Not Applicable $4,371,343(1) $1,507.36
share
============================================================================================================
</TABLE>

(1) Calculated pursuant to Rule 457(f)(2) and (3) based upon book value of
company acquired at March 31, 1995, less $3,000,000 cash to be paid by
the Registrant.

(2) Represents the maximum number of shares. The actual number of shares
to be issued may vary based upon the market price of registrant's
securities at closing.

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON EACH SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE
REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(a), MAY DETERMINE.

<PAGE> 2

THE COLONIAL BANCGROUP, INC.
CROSS REFERENCE SHEET
TO ITEMS IN FORM S-4

<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS OR OTHER
- -------------------------------- ------------------------------
LOCATION IN REGISTRATION STATEMENT
----------------------------------
<S> <C>
Item 1. Forepart of Registration Statement Facing page,
and Outside Front Cover Page of Cross Reference Sheet,
Prospectus Outside front cover page of
Prospectus

Item 2. Inside Front and Outside Back "AVAILABLE INFORMATION,"
Cover Pages of Prospectus Inside front cover page of Pros-
pectus, "DOCUMENTS INCOR-
PORATED BY REFERENCE,"
"TABLE OF CONTENTS"

Item 3. Risk Factors, Ratio of Earnings "SUMMARY," Cover Page of Pros-
to Fixed Charges and Other pectus, "PER SHARE
Information DATA," "APPROVAL OF THE
MERGER," "PRO FORMA
FINANCIAL INFORMATION"
AND "SELECTED FINANCIAL
DATA"

Item 4. Terms of the Transaction "APPROVAL OF THE
MERGER," "DOCUMENTS
INCORPORATED BY
REFERENCE"

Item 5. Pro Forma Financial Information "PER SHARE DATA,"
"CONDENSED PRO FORMA
STATEMENTS OF CONDITION,"
AND "CONDENSED PRO FORMA
STATEMENTS OF INCOME"

Item 6. Material Contacts with the Company "APPROVAL OF THE MERGER --
Reasons for and Background of
the Merger," "Interests of Certain
Persons in the Merger"

</TABLE>

<PAGE> 3

<TABLE>
<S> <C> <C>
Item 7. Additional Information Required for Not Applicable
Reoffering by Persons and Parties
Deemed to be Underwriters

Item 8. Interests of Named Experts and "LEGAL OPINIONS"
Counsel

Item 9. Disclosure of Commission Position Not Applicable; See Items
on Indemnification for Securities 20 and 22 below
Act Liabilities

Item 10. Information with Respect to S-3 "DOCUMENTS INCORPORAT-
Registrants ED BY REFERENCE," "BUSI-
NESS OF BANCGROUP - Man-
agement Information"

Item 11. Incorporation of Certain Information "DOCUMENTS INCORPORATED
by Reference BY REFERENCE"

Item 12. Information with Respect to S-2 or Not Applicable
S-3 Registrants -- Item 12(b)

Item 13. Incorporation of Certain Information Not Applicable
by Reference

Item 14. Information with Respect to Not Applicable
Registrants Other Than S-3 or S-2
Registrants

Item 15. Information with Respect to S-3 Not Applicable
Companies

Item 16. Information with Respect to S-2 or Not Applicable
S-3 Companies

Item 17. Information with Respect to "BUSINESS OF THE BANK,"
Companies Other than S-3 or S-2 "FINANCIAL STATEMENTS"
Companies

Item 18. Information if Proxies, Consents or "INTRODUCTION," "BUSINESS
Authorizations are to be Solicited OF BANCGROUP - Voting
Securities and Principal
Stockholders," "Security Ownership
of Management," "Management
Information"

</TABLE>

<PAGE> 4

<TABLE>
<S> <C> <C>
Item 19. Information if Proxies, Consents or Not Applicable
Authorizations are not to be
Solicited or in an Exchange Offer

Item 20. Indemnification of Directors and PART II, Item 20
Officers

Item 21. Exhibits and Financial Statement PART II, Item 21
Schedules

Item 22. Undertakings PART II, Item 22

</TABLE>

<PAGE> 5

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
P. O. BOX 66
ARITON, ALABAMA 36311
(334) 762-2321

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _______________, 1995

NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the
"Special Meeting") of Farmers and Merchants Bank, Ariton, Alabama (the "Bank")
will be held at 101 Main Street, Ariton, Alabama 36311 on _______________,
1995, at 1:30 p.m., local time, for the following purposes:

1. Merger. To consider and vote upon the proposed merger (the
"Merger") of the Bank with and into Colonial Bank ("Colonial
Bank"), a subsidiary of The Colonial BancGroup, Inc.
("BancGroup"), in accordance with an Agreement and Plan of
Merger, dated as of May 19, 1995 (the "Agreement"). Pursuant
to the Agreement, Colonial Bank will be the surviving
corporation in the Merger, and each share of common stock of
the Bank outstanding at the time of the Merger will be
converted into the right to receive shares of Common Stock of
BancGroup and cash, with cash also paid in lieu of fractional
shares, as described more fully in the accompanying Joint
Proxy Statement and Prospectus. The Agreement is attached to
the Joint Proxy Statement and Prospectus as Appendix A.

2. Other Matters. To transact such other business as may
properly come before the Special Meeting or any adjournments
thereof.

The Board of Directors of the Bank is not aware of any other
business to come before the Special Meeting.

The board of directors of the Bank has fixed the close of business on
_______________, 1995, as the record date for the determination of stockholders
entitled to notice of and to vote at the Special Meeting. Only holders of
record of common stock of the Bank at the close of business on that date will
be entitled to notice of and to vote at the Special Meeting or any adjournments
thereof.

Under Alabama law, holders of common stock of the Bank are eligible to
exercise dissenters' rights of appraisal in connection with the Merger, as
described more fully in the accompanying Joint Proxy Statement and Prospectus.

You are requested to complete and sign the enclosed form of Proxy
which is solicited by the board of directors of the Bank and to mail it
promptly in the enclosed envelope. The Proxy may be revoked at any time by
filing with the Secretary of the Bank a written

<PAGE> 6

revocation, by executing a later dated Proxy, or by attending the Special
Meeting and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS

Marion J. Sanders
Secretary

Ariton, Alabama
_______________, 1995

<PAGE> 7
JOINT PROXY STATEMENT AND PROSPECTUS

COLONIAL BANCGROUP

COMMON STOCK

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA

SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON

_______________, 1995

This Joint Proxy Statement and Prospectus (the "Prospectus") relates
to the proposed merger (the "Merger") of Farmers and Merchants Bank, Ariton,
Alabama (the "Bank") with and into Colonial Bank ("Colonial Bank"), a
wholly-owned subsidiary bank of The Colonial BancGroup, Inc. ("BancGroup") and
is furnished to the Bank's stockholders on or about the date set forth below.
In connection with the Merger, BancGroup will issue shares of its Common Stock
and also pay cash to the holders of the outstanding shares of common stock of
the Bank. The number of shares to be issued to the stockholders of the Bank
will depend upon the market value of such shares, subject to maximum and
minimum amounts to be issued. See "APPROVAL OF THE MERGER -- Conversion of
Bank Shares." The shares of Common Stock of BancGroup are listed on the New
York Stock Exchange. The closing price per share of such stock as of
_______________, 1995, was $__________.

Consummation of the Merger requires, among other things, the
affirmative vote of the holders of at least two-thirds of the outstanding
shares of common stock of the Bank.

<PAGE> 8
BancGroup has filed a Registration Statement pursuant to the
Securities Act of 1933, as amended, to register the shares of its Common Stock,
par value $2.50 per share, to be issued in connection with the Merger described
herein. This document constitutes a Proxy Statement of the Bank in connection
with stockholder approval of the Merger described herein and a Prospectus of
BancGroup with respect to the Common Stock to be issued in the Merger.

THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS APPROVAL OF
THE MERGER.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, NOR HAS SUCH COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.

THE SHARES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION.

The office and mailing address of the Bank are 101 Main Street, P.O.
Box 66, Ariton, Alabama 36311 (telephone 334-762-2321), and the principal
office and mailing address of BancGroup are Colonial Financial Center, One
Commerce Street, Post Office Box 1108, Montgomery, Alabama 36192 (telephone
334-240-5000).

The date of this Prospectus is _______________, 1995.

<PAGE> 9

AVAILABLE INFORMATION

BancGroup is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports, and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other filings made by BancGroup, including
proxy and information statements, can be inspected and copied at the public
reference facilities of the Commission, Judiciary Plaza, 450 Fifth Street,
N.W., Room 1024, Washington, D.C. 20549, and at certain regional offices:
Seven World Trade Center, 13th Floor, New York, New York 10048; Citicorp
Center, 500 West Madison Street, suite 1400, Chicago, Illinois 60661-2511; 1401
Brickell Avenue, Suite 200, Miami, Florida 33131; 1801 California Street, Suite
4800, Denver, Colorado 80202-2648; 5670 Wilshire Boulevard, 11th Floor, Los
Angeles, California 90036-3648. Copies of such material can be obtained from
the Public Reference Section of the Commission at prescribed rates.

BancGroup's Common Stock is listed for trading on the New York Stock
Exchange (the "NYSE"). Reports, including proxy and information statements, of
BancGroup and other information may be inspected at the NYSE, 20 Broad Street,
New York, New York 10005.

BancGroup has filed with the Commission a Registration Statement under
the Securities Act of 1933, as amended, to register the shares of Common Stock
of BancGroup being offered in connection with the Merger. This Prospectus
omits certain information contained in the Registration Statement and exhibits
thereto. Such Registration Statement, including the exhibits thereto, can be
inspected at the Public Reference Section of the

<PAGE> 10
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such
Registration Statement can be obtained at prescribed rates from the Commission
at that address.

DOCUMENTS INCORPORATED BY REFERENCE

THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM THE PERSON SPECIFIED BELOW. IN ORDER TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE RECEIVED BY BANCGROUP NO LATER THAN FIVE
BUSINESS DAYS PRIOR TO THE SPECIAL MEETING.

The following documents filed by BancGroup with the Commission are
hereby incorporated by reference into this Prospectus:

(1) BancGroup's annual report on Form 10-K for the fiscal year
ended December 31, 1994;

(2) BancGroup's quarterly report on Form 10-Q for the quarter
ended March 31, 1995;

(3) BancGroup's report on Form 8-K dated February 21, 1995;

(4) BancGroup's report on Form 8-K/A dated April 21, 1995;

(5) BancGroup's report on Form 8-K dated July 10, 1995; and

(6) BancGroup's Form 8-A dated November 22, 1994, effective
February 22, 1995, containing a description of BancGroup's
common stock.

All documents filed by BancGroup pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 after the date of this
Prospectus and prior to the

<PAGE> 11
Special Meeting shall be deemed incorporated by reference in the Prospectus and
made a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated or deemed incorporated herein by reference
will be deemed to be modified or superseded for the purpose of this Prospectus
to the extent that a statement contained herein or in the other subsequently
filed document which also is or is deemed to be, incorporated herein by
reference modifies or supersedes such statement. Any such statement so
modified or superseded will not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.

BancGroup has entered into the Agreement with the Bank regarding the
Merger described herein. Various provisions of the Agreement are summarized or
referred to in this Prospectus, and the Agreement is incorporated by reference
into this Prospectus and attached hereto at Appendix A.

BancGroup will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, on the request of any
such person, a copy of any and all of the documents which have been
incorporated herein by reference but not delivered herewith (other than the
exhibits to such documents). Such request, in writing or by telephone, should
be directed to W. Flake Oakley, IV, Secretary, The Colonial BancGroup, Inc.,
One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36192 (telephone
334-240-5000).

<PAGE> 12
TABLE OF CONTENTS

<TABLE>
<CAPTION>
CAPTION PAGE
<S> <C>
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Record Date; Shares Entitled to Vote; Vote Required for the Merger . . . . . . . . . . . . . . . . . . . . . . . .
Solicitation; Voting and Revocation of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPROVAL OF THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reasons for and Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conversion of Bank Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Possible Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conditions of Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Conduct of Business Pending the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Resale of BancGroup Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COMPARATIVE MARKET PRICES AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BancGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BANCGROUP CAPITAL STOCK AND DEBENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preference Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1985 Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1986 Debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

COMPARATIVE RIGHTS OF STOCKHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Director Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Removal of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preemptive Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors' Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

<PAGE> 13
<TABLE>
<S> <C>
Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special Meetings of Stockholders; Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mergers, Share Exchanges and Sales of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amendment of Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rights of Dissenting Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Antitakeover Statutes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of Merger on Bank Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed Pro Forma Statement of Condition (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Condensed Pro Forma Statement of Income (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data (1994-1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Quarterly Financial Data 1994-1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Interim Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FARMERS AND MERCHANTS BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data (1994-1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Interim Financial Data (Unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition and Results of
Operations for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . .

BUSINESS OF BANCGROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proposed Affiliate Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Voting Securities and Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Regulatory Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

BUSINESS OF THE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ADJOURNMENT OF SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
</TABLE>

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<TABLE>
<S> <C>
INDEPENDENT ACCOUNTANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

APPENDIX A -- Agreement and Plan of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1

APPENDIX B -- Alabama Statute Regarding Dissenters' Rights of Appraisal . . . . . . . . . . . . . . . . . . . . . . B-1
</TABLE>

NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY
SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL THE SECURITIES COVERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY
PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER. THE DELIVERY OF THIS
PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO ITS DATE.

<PAGE> 15
SUMMARY

The following provides a summary of information included in this
Prospectus. The summary is qualified in its entirety by the more detailed
information appearing elsewhere herein, the Appendices hereto and the documents
incorporated herein by reference. Stockholders of the Bank are urged to read
this document in full.

GENERAL

This Prospectus relates to the issuance of shares of BancGroup Common
Stock and the offer of cash pursuant to the Merger of the Bank with Colonial
Bank. Colonial Bank will be the surviving corporation in the Merger. See
"APPROVAL OF THE MERGER."

The Merger will be presented for approval at the Special Meeting of
the stockholders of the Bank to be held on _______________, _______________,
1995, at 1:30 p.m., local time, at 101 Main Street, Ariton, Alabama 36311.
See "INTRODUCTION."

TERMS OF THE MERGER

Upon the date of consummation of the Merger (the "Effective Date") and
subject to certain conditions, holders of the Bank's common stock will be
entitled to receive both shares of BancGroup Common Stock and cash. Each
outstanding share of Bank common stock shall be converted into the number of
shares, or such fractions of a share, of BancGroup Common Stock which shall be
equal to $7,000,000 divided by the total number of shares of Bank common stock
outstanding divided by the Market Value. The "Market Value" shall represent
the per share market value of the BancGroup Common Stock at the Effective

<PAGE> 16
Date and shall be determined by calculating the average of the closing prices
of the Common Stock of BancGroup as reported by the New York Stock Exchange
("NYSE") on each of the 10 trading days ending on the trading day immediately
preceding the Effective Date. In addition, BancGroup will pay an aggregate of
$3,000,000 in cash for the outstanding shares of Bank common stock, with
$535.71 in cash to be paid for each one share of Bank common stock assuming
5,600 shares of Bank common stock outstanding. The amount of cash to be paid
will not vary. (The BancGroup Common Stock to be issued and cash to be
exchanged for Bank common stock as stated above is sometimes referred to as the
"Merger Consideration.")

No fractions of shares of Common Stock will be issued. To the extent
cash is paid in lieu of fractional shares, the cash will be paid based upon the
Market Value.

Notwithstanding the foregoing, the maximum number of shares of Common
Stock that BancGroup shall be required to issue in the Merger shall be 354,430,
and the minimum number of such shares that BancGroup shall be required to issue
shall be 256,881. Thus, as an illustration only, if the Market Value is $24,
and assuming 5,600 shares of Bank common stock outstanding, then each one share
of Bank common stock shall be converted into 52.08 shares of BancGroup Common
Stock (i.e., $7,000,000 divided by 5,600 divided by the Market Value). A
stockholder of the Bank holding 123 shares of Bank common stock would be
entitled to receive in the aggregate 6,405.84 shares of BancGroup Common Stock
(123 multiplied by 52.08). Fractions of shares will not be issued, and a total
of 6405 shares of BancGroup Common Stock would actually be issued to such
stockholder, with the .84 of a share of BancGroup Common Stock converted to
cash equal to $20.16 ($24

<PAGE> 17
multiplied by .84). In addition, such stockholder would be paid $65,892.33 in
cash for such shareholder's 123 shares of Bank common stock (123 multiplied by
$535.71).

See "APPROVAL OF THE MERGER."

The market price of BancGroup Common Stock as reported on the NYSE as
of ________, 1995 was $______ per share. If the Market Value of such stock at
the Effective Date is $27.25 per share or higher, only the minimum of 256,881
shares of BancGroup Common Stock (plus cash) will be issued in the Merger.
Hence, to the extent that the Market Value exceeds $27.25, the value of the
256,881 shares to be issued will exceed $7,000,000. See, "APPROVAL OF THE
MERGER -- Conversion of Bank Shares." BancGroup also has the right to
terminate the Merger if the Market Value exceeds $27.25. See "APPROVAL OF THE
MERGER -- Conditions of Consummation of the Merger."

Except as stated above, no adjustments will be made to the number of
shares of BancGroup Common Stock to be issued in the Merger based upon the
operating results, financial condition or other factors relating to either the
Bank or BancGroup. The actual number of shares to be issued will depend upon
the Market Value of the Common Stock at the time of the Effective Date of the
Merger and will be subject to the maximum and minimum number of shares to be
issued. Subject to such maximum and minimum numbers, the aggregate number of
shares of Common Stock will increase as the Market Value of such shares at the
Effective Date of the Merger falls and will decrease as the Market Value
increases. See "APPROVAL OF THE MERGER -- Conversion of Bank Shares" and " --
Certain Federal Income Tax Consequences."

Bank stockholders will be given notice of consummation of the Merger
within seven (7) business days after the Effective Date of the Merger.
Certificates for the BancGroup Common Stock will not be distributed until
stockholders surrender their certificates representing Bank common stock.
Shares issued upon consummation of the Merger, however, may be traded prior to
receipt of certificates. See "APPROVAL OF THE MERGER -- Conversion of Bank
Shares."

<PAGE> 18
INTEREST OF CERTAIN PERSONS IN THE MERGER

The Agreement provides that prior to the Effective Date, the Bank shall
pay to or for the benefit of its employees the Bank's 1995 earnings, subject to
the prior approval of BancGroup. The costs incurred by the Bank in connection
with the Merger and certain other costs will be deducted against the Bank's
earnings for this purpose. See "APPROVAL OF THE MERGER -- Interest of Certain
Persons in the Merger" and "Conduct of Business Pending the Merger."

REASONS FOR THE MERGER

Management of the Bank believes that pending interstate banking
legislation will result in a fewer number of banks competing in a given market
area, and the Bank's inability to compete with larger, better capitalized Banks
in its market area will put the Bank at a competitive disadvantage. Management
of the Bank also believes that continued compliance with state and federal
regulatory requirements, and upgrading customer services to compete with
existing and anticipated competitors, will necessitate additional personnel and
overhead costs, both of which may materially reduce the Bank's profitability.
See "APPROVAL OF THE MERGER -- Reasons for and Background of Merger."

VOTE REQUIRED

The Merger (item 1 on the proxy card) requires the approval of the
holders of at least two-thirds of the outstanding shares of common stock of the
Bank. Only those stockholders of the Bank who were stockholders of record at
the close of business on _______________, 1995, are entitled to notice of and
to vote at the Special Meeting. The

<PAGE> 19
Bank's directors and executive officers own in the aggregate 2113 shares
representing 37.73% of the outstanding shares of common stock of the Bank and
have agreed to vote for the Merger. Certain persons affiliated with the Bank's
directors and executive officers own, with such directors and executive
officers, in excess of 66 2/3% of the Bank's outstanding shares. Directors and
executive officers of BancGroup beneficially own in the aggregate 2,098,835
shares representing 16.72% of the outstanding shares of Common Stock of
BancGroup, but no vote of BancGroup's stockholders is required for the Merger.
See "INTRODUCTION" and "BUSINESS OF THE BANK - Principal Stockholders," and
"Security Ownership of Mangagement."

Proxies should be submitted in the envelope enclosed herewith.
Stockholders of the Bank submitting proxies may revoke their proxies by giving
notice of such revocation in writing to the person named in the Notice of
Special Meeting of Stockholders, by executing and delivering a proxy bearing a
later date, or by attending the Special Meeting and voting in person. Because
approval of the Merger requires the approval of at least a majority of the
outstanding shares of common stock of the Bank, failure to submit a proxy or
failure to vote in person at the Special Meeting will have the same effect as a
negative vote, except with respect to dissenters' appraisal rights. See
"INTRODUCTION -- Solicitation, Voting and Revocation of Proxies."

RIGHTS OF DISSENTING STOCKHOLDERS

Any stockholder of the Bank may dissent from the Merger and obtain the
value of his Bank common stock in cash if such stockholder (1) delivers notice
in writing to the Bank

<PAGE> 20
before the vote is taken at the Special Meeting that he intends to seek a cash
payment if the Merger is consummated and (2) does not vote in favor of the
Merger. If the Merger is authorized at the Special Meeting, Colonial Bank will
deliver a written dissenters' notice within 10 days of the Effective Date of
the Merger to all holders of Bank common stock who have provided notice that
they intend to seek payment. Stockholders wishing to exercise appraisal rights
must follow properly all requirements for the exericse of such rights as set
forth in Alabama law, Title 10, chapter 28, article 13 contained at Appendix B
hereto. See "APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders."

Any stockholder who properly exercises appraisal rights and receives
fair market value for his shares will encounter income tax treatment different
than the treatment for stockholders who do not exercise appraisal rights. See
"APPROVAL OF THE MERGER -- Certain Federal Income Tax Consequences."

For certain information concerning dissenting stockholders' rights,
voting at the Special Meeting, and management of BancGroup and the Bank, see
"APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders," "-- Conversion
of Bank Shares"; "INTRODUCTION -- Solicitation, Voting and Revocation of
Proxies," "-- Record Date; Shares Entitled to Vote; Vote Required"; "BUSINESS
OF BANCGROUP -- Voting Securities and Principal Stockholders," "-- Security
Ownership of Management," and "BUSINESS OF THE BANK -- Principal Holders of
Common Stock," and "-- Security Ownership of Management."

<PAGE> 21
CONDITIONS OF CONSUMMATION

The Merger is subject to approval by the requisite vote of holders of
at least two-thirds of the outstanding shares of common stock of the Bank, and
certain other conditions. The Merger must be approved by the Alabama State
Banking Department (the "Alabama Department"), the Board of Governors of the
Federal Reserve System (the "Federal Reserve") and the Federal Deposit
Insurance Corporation ("FDIC"). Applications have been filed with these
agencies. It is anticipated that the foregoing conditions, as well as certain
other conditions contained in the Agreement, will be satisfied, but the
Agreement states that the Bank and BancGroup may waive all conditions to their
obligations to consummate the Merger, except that the conditions of the
requisite approvals of regulatory authorities and stockholder approval of the
Merger may not be waived. Either BancGroup or the Bank may terminate the
Merger if the Merger is not consummated by January 31, 1996. See "APPROVAL OF
THE MERGER -- Conditions of Consummation of the Merger."

In addition, the boards of directors of BancGroup and the Bank may
amend or terminate the Agreement before or after approval by the stockholders
of the Bank. No amendments will be made to the Agreement which would alter the
Merger Consideration or which, in the opinion of the board of directors of the
Bank, would adversely affect the rights of the stockholders of the Bank. Any
amendments to the Agreement which in the opinion of the board of directors of
the Bank would have a material adverse effect upon the stockholders of the Bank
would be submitted to the Bank's stockholders for approval. Such amendments
could require the filing of an amendment of the Registration Statement, of
which this Prospectus forms a part, with the Commission. BancGroup may
terminate the

<PAGE> 22
Agreement and abandon the Merger if the Market Value of the BancGroup Common
Stock as determined prior to the Effective Date is greater than $27.25. The
Bank may terminate the Agreement and abandon the Merger if the Market Value is
less than $19.75.

See "APPROVAL OF THE MERGER -- Conditions of Consummation of the Merger."

BUSINESS OF THE BANK

The Bank is an Alabama state banking corporation which was organized,
and began business, in 1949. The Bank conducts a full service commercial
banking business through three branches, all of which are located in Dale
County, Alabama (two of which are in Ozark and one of which is in Ariton). As
of April 30, 1995, the Bank had assets of approximately $51,500,000, net loans
of approximately $23,000,000, and twenty-four full-time employees.
Approximately 40% of the Bank's loan portfolio is comprised of residential real
estate loans, the predominant portion of which pertain to residential real
property located in Dale County, Alabama. The balance of the Bank's loan
portfolio is divided approximately evenly between consumer and commercial
loans. The Bank's growth in loans over the past several years has been
concentrated in residential real estate loans. The lending activities of the
Bank are dependant upon the demands within the local markets of its branches.
Based on this demand, loans collateralized by residential real estate have been
the fastest growing component of the Bank's loan portfolio. See "BUSINESS OF
THE BANK."

<PAGE> 23
BUSINESS OF BANCGROUP

BancGroup is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended. It was organized in 1974 under the laws of
Delaware. BancGroup operates as its wholly-owned subsidiary Colonial Bank
which conducts a full service commercial banking business in the state of
Alabama through 95 banking offices. BancGroup also has a wholly-owned bank
subsidiary in Tennessee, The Colonial Bank of Tennessee, which conducts a
general commercial banking business through four offices located in that state.
BancGroup's loan portfolio is comprised primarily of commercial real estate
loans (27%) and residential real estate loans (41%), a significant portion of
which is located within the State of Alabama. BancGroup's growth in loans over
the past several years has been concentrated in commercial and residential real
estate loans. The lending activities of Colonial Bank are dependent upon the
demands within the local markets of its branches. Based on this demand, loans
collateralized by commercial and residential real estate have been the fastest
growing component of Colonial Bank's loan portfolio. BancGroup has entered
into an agreement to acquire a financial institution in Georgia and, thus, to
expand its banking activities into that state. See "BUSINESS OF BANCGROUP."

LENDING ACTIVITIES

BancGroup, through the branches and offices of its subsidiary banks,
makes loans for a range of business and personal uses in response to local
demands for credit. Loans are concentrated in Alabama and Tennessee and are
dependent upon economic conditions

<PAGE> 24
in those states. Alabama has historically been a slow growth state. The
following broad categories of loans have varying risks and underwriting
standards.

- Real Estate-Commercial -- Loans classified as commercial
real estate loans are loans which are collateralized by real
estate and substantially dependent upon cash flow from income-
producing improvements attached to the real estate. For
BancGroup, these primarily consist of apartments, hotels,
office buildings, shopping centers, amusement/recreational
facilities, one to four family residential housing
developments, and health service facilities.

Loans within this category are underwritten based on projected
cash flows and loan-to-appraised-value ratios of 80% or less.
The risks associated with commercial real estate loans are
primarily dependent upon real estate values in local market
areas, the equity investments of borrowers, and the borrowers'
experience and expertise. BancGroup has diversified its
portfolio of commercial real estate loans with less than 10%
of its total loan portfolio concentrated in any of the
above-mentioned industries.

- Real Estate-Construction -- Construction loans include loans
to finance single family and multi-family residential as well
as nonresidential real estate. Loan values for these loans
are from 80% to 85% of

<PAGE> 25
completed appraised values. The principal risks associated
with these loans are related to the borrowers' ability to
complete the project and local market demand, the sales
market, presales or preleasing, and permanent loan
commitments. BancGroup evaluates presale requirements,
preleasing rates, permanent loan take-out commitments, as well
as other factors in underwriting construction loans.

- Real Estate-Residential -- These loans consist of loans made
to finance one to four family residences and home equity loans
on residences. BancGroup may loan up to 95% of appraised
value on these loans without other collateral or security.
The principal risks associated with one to four family
residential loans are the borrowers' debt coverage ratios and
real estate values.

- Commercial, Financial, and Agricultural -- Loans classified as
commercial, financial, and agricultural consist of secured and
unsecured credit lines and equipment loans for various
industrial, agricultural, commercial, retail, or service
businesses.

The risk associated with loans in this category are generally
related to the earnings capacity and cash flows generated from
the individual business activities of the borrowers.
Collateral consists primarily of

<PAGE> 26
business equipment, inventory, and accounts receivables with
loan-to-value ratios of less than 80%. Credit may be extended
on an unsecured basis or in excess of 80% of collateral value
in circumstances as described in the paragraph below.

- Installment and Consumer -- Installment and consumer loans are
loans to individuals for various purposes. Automobile loans
and unsecured loans make up the majority of these loans. The
principal source of repayment is the earnings capacity of the
individual borrowers as well as the value of the collateral.
Installment and consumer loans are sometimes made on an
unsecured basis or with loan-to-value ratios in excess of 80%.

Collateral values referenced above are monitored by loan officers
through property inspections, reference to broad measures of market values, as
well as current experience with similar properties or collateral. Loans with
loan-to-value ratios in excess of 80% have potentially higher risks which are
offset by other factors including the borrower's or guarantors' credit
worthiness, the borrower's other banking relationships, the bank's lending
experience with the borrower, and any other potential sources of repayment.

Colonial Bank and The Colonial Bank of Tennessee fund loans primarily
with customer deposits approximately 10% of which are considered more rate
sensitive or volatile than other deposits.

<PAGE> 27
COMMON STOCK OF THE BANK

The holders of common stock of the Bank are entitled to dividends as
and when declared by the board of directors out of funds legally available
therefor, to one vote for each share held on matters submitted to a vote of
stockholders, and, in the event of liquidation, to the net assets remaining
after satisfaction of all liabilities. As of April 30, 1995, the Bank had
5,600 shares of its common stock outstanding and 52 stockholders of record.
See "COMPARATIVE RIGHTS OF STOCKHOLDERS."

COMMON STOCK OF BANCGROUP-CERTAIN ANTITAKEOVER PROVISIONS

BancGroup is authorized to issue 44,000,000 shares of its Common
Stock, of which on April 30, 1995, 12,219,699 shares were issued and
outstanding. Further, up to 766,229 shares of Common Stock are issuable upon
conversion of certain debentures of BancGroup and 233,424 shares may be issued
under BancGroup's stock option plans. BancGroup has authorized 1,000,000
shares of Preference Stock, none of which has been issued. Certain provisions
of BancGroup's Restated Certificate of Incorporation and bylaws may have the
effect of preventing, delaying or deferring a change in control of BancGroup.
Among other things, these provisions include the election of the BancGroup
board of directors on a classified basis, supermajority votes of stockholders
to approve certain business combinations, and the inability of stockholders to
call special meetings or to act by written consent.

See "BANCGROUP CAPITAL STOCK AND DEBENTURES," and "COMPARATIVE RIGHTS
OF STOCKHOLDERS."

<PAGE> 28
CERTAIN INCOME TAX CONSEQUENCES

No ruling with respect to the federal income tax consequences of the
Merger to the Bank's stockholders will be requested from the Internal Revenue
Service (the "IRS"). BancGroup and the Bank have received an opinion from
counsel to BancGroup, Miller, Hamilton, Snider & Odom, L.L.C., Mobile, Alabama,
that, among other things, a stockholder of the Bank who exchanges shares of
Bank common stock for BancGroup Common Stock and cash shall recognize gain, if
any, but only in an amount not in excess of the sum of such cash received.
Also, stockholders of the Bank will also recognize gain to the extent such
stockholders receive cash in lieu of fractional shares of BancGroup Common
Stock or who receive cash pursuant to the exercise of their dissenting
stockholders' rights. See "APPROVAL OF THE MERGER - Certain Federal Income Tax
Consequences."

ACCOUNTING TREATMENT

The acquisition of the Bank will be treated as a "purchase"
transaction by BancGroup. Accordingly, the purchase price will be assigned to
the fair value of the net tangible assets acquired and any purchase price in
excess thereof will be assigned to intangibles. The valuation of intangibles,
if any, will be made as of the Effective Date of the Merger. Intangibles,
approximating $2,946,000, will be amortized by charges or credits to future
earnings over a period approximating 20 years.

<PAGE> 29
RECENT PER SHARE MARKET PRICE

THE BANK. There is no established public trading market for the
common stock of the Bank. To the knowledge of the Bank, 31 shares of Bank
common stock have been sold during the last two fiscal years at prices ranging
from $350 to $800 per share. The most recent sale occurred on May 18, 1993
when 6 shares sold at $350 per share.

BANCGROUP. BancGroup Common Stock is listed for trading on the NYSE
under the symbol "CNB."

The following table indicates the high and low closing prices of the
Common Stock as reported on the NYSE and on the NASDAQ System for the last two
full fiscal years. Prior to February 21, 1995, BancGroup had two classes of
Common Stock outstanding, Class A and Class B. Class B was not publicly
traded. Class A was traded as a NASDAQ security.

<TABLE>
<CAPTION>
PRICE OF COMMON STOCK

HIGH LOW
<S> <C> <C>
1993
First Quarter 23 20
Second Quarter 23 1/2 19
Third Quarter 22 20
Fourth Quarter 21 3/4 18

1994
First Quarter 20 1/4 18
Second Quarter 25 19 1/4
Third Quarter 24 3/4 22
Fourth Quarter 23 3/4 19 1/2

1995
First Quarter (1) 23 5/8 19 1/2
Second Quarter 27 1/2 23 1/8
</TABLE>

<PAGE> 30

(1) Trading on the NYSE commenced on February 24, 1995.

On May 18, 1995, the business day immediately prior to the public
announcement of the Merger, the closing price of the Common Stock on the NYSE
was $24.875 per share. The following table presents the market value of
BancGroup Common Stock on May 18, 1995, and the market value and equivalent per
share value of the Bank common stock on that date:

<TABLE>
<CAPTION>
======================================================================================================
Equivalent
BancGroup Bank BancGroup
Common Stock Common Stock Common Stock
(Per Share) (Per Share) (Per Share)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Comparative Market Value $24.875(1) $713(2) $1,250(3)
======================================================================================================
</TABLE>

(1) Closing price as reported by the NYSE.
(2) There is no established public trading market for the common
stock of the Bank. The value shown is the weighted average price at which
shares of common stock were sold on the last sale of which management of the
Bank is aware.
(3) If the Merger had closed on, May 18, 1995, 50.2513 (1,250 divided
by 24.875) shares of BancGroup Common Stock would have been exchanged for each
one share of the Bank common stock. In addition, $535.71 in cash would also
have been paid for such share, resulting in a total merger consideration of
$1,785.71 per share.

See "COMPARATIVE MARKET PRICES AND DIVIDENDS."

CERTAIN LEGAL RESTRICTIONS ON ACQUISITIONS OF CONTROL

Certain restrictions under Delaware law prevent a person who
beneficially owns 15% or more of BancGroup's Common Stock from engaging in a
"business combination" with BancGroup unless certain conditions are satisfied.
Also, the Change in Bank Control Act

<PAGE> 31
of 1978 prohibits a person from acquiring "control" of BancGroup unless certain
notice provisions with the Federal Reserve Board have been satisfied.

BancGroup's Restated Certificate of Incorporation and bylaws also
contain provisions which may deter or prevent a takeover of BancGroup that is
not supported by BancGroup's board of directors. These provisions include (1)
a classified board of directors, (2) supermajority vote requirements for
certain "business combinations" that exceed the provisions of Delaware law
described above, (3) flexibility for the board to consider non-economic and
other factors in evaluating a "business combination," (4) inability of
stockholders to call special meetings and act by written consent, and (5)
certain advance notice provisions for the conduct of business at stockholder
meetings.

See "COMPARATIVE RIGHTS OF STOCKHOLDERS."

PER SHARE DATA

The table on the following page presents on a per share basis the book
value, cash dividends and income from continuing operations of BancGroup and
the Bank on a historical basis and on a pro forma equivalent basis reflecting
the March 31, 1995 acquisition of Brundidge Banking Company and assuming the
acquisition of the Bank and Mt. Vernon Financial. Certain information from
the table has been taken from the condensed proforma statements of condition
and income included elsewhere in this document. The table should be read in
conjunction with those proforma statements.

BancGroup's historical financial information has been restated to give
effect to the February 17, 1995 acquisition of Colonial Mortgage Company and
its parent, both entities under common control. The combination is accounted
for in a manner similar to a pooling of interests, accordingly BancGroup's
historical financial information has been restated to give retroactive effect
to the combination (filed on Form 8-K, July 10, 1995 incorporated by reference
into this prospectus).

<PAGE> 32

<TABLE>
<CAPTION>
PER SHARE DATA Three months Year
Ended Ended
March 31, 1995 1994(a)
--------------------------
<S> <C> <C>
BANCGROUP-HISTORICAL (RESTATED):
Net Income
Primary $ 0.69 $ 2.28
Fully diluted 0.67 2.23

Book value at end of period 16.82 16.08

Dividends per share:
Common Stock 0.225
Common A 0.80
Common B 0.40

BANCGROUP AND COMPLETED ACQUISITIONS (BRUNDIDGE BANKING COMPANY)
PRO FORMA COMBINED:
Net Income
Primary 0.69 2.26
Fully diluted 0.67 2.22

FARMERS AND MERCHANTS BANK:
Net Income
Historical
Primary 40.18 144.29

Pro forma equivalent assuming acquisition of Farmers and Merchants Bank Only (b):
Primary 32.11 104.58
Fully diluted 31.19 102.29

Pro forma equivalent assuming acquisition of Farmers and Merchants Bank and
Mt. Vernon Financial (b):
Primary 31.65 104.58
Fully diluted 30.73 102.75

Book value at end of period
Historical 1,316.31 1,311.14
Pro forma equivalent assuming acquisition of Farmers and Merchants Bank Only (b) 781.17 N/A
Pro forma equivalent assuming acquisition of Farmers and Merchants Bank and
Mt. Vernon Financial (b) 798.60 N/A

Dividends per share
Historical (c) 35.00 35.00
Pro forma equivalent assuming acquisition of Farmers and Merchants Bank Only (b) 10.32 36.70
Pro forma equivalent assuming acquisition of Farmers and Merchants Bank and
Mt. Vernon Financial (b) 10.32 36.70

BANCGROUP-PRO FORMA COMBINED (FARMERS AND MERCHANTS BANK ONLY):
Net Income:
Primary 0.70 2.28
Fully diluted 0.68 2.23

Book value at end of period 17.03 N/A

BANCGROUP-PRO FORMA COMBINED (FARMERS AND MERCHANTS BANK AND MT. VERNON FINANCIAL)
Net Income
Primary 0.69 2.28
Fully diluted 0.67 2.24

Book value at end of period 17.41 N/A
</TABLE>

26
<PAGE> 33

N/A Not applicable due to pro forma balance sheet being presented only at March
31, 1995 which assumes the transanction was consummated on the latest
balance sheet date in accordance with Rule 11.02(b) of Regulation S-X.

(a) Per share data of Colonial BancGroup, Inc. is for the year ended December
31, 1994 (as restated). Per share data of Farmers and Merchants Bank is
for the year ended December 31, 1994.

(b) Pro forma equivalent per share amounts are calculated by multiplying the
pro forma combined total income per share and the pro forma combined total
book value per share of BancGroup by the conversion ratio so that the per
share amounts are equated to the respective values for one share of Farmers
and Merchants Bank. For the purposes of these pro forma equivalent per
share amounts, a 45.87 BancGroup common stock share conversion ratio is
utilized. The ratio is based on the 10-day average market price of
Colonial BancGroup, Inc. common stock of $27.275 at July 5, 1995 and the
stated 256,881 minimum shares to be issued. In addition, Farmers and
Merchants Bank shareholders are to receive $535.71 per share in cash.

(c) Pro forma equivalent dividends per share are shown at BancGroup's Common
Stock dividend per share rate multiplied by the 45.87 conversion ratio per
share of Farmers and Merchants Bank common stock (see note (b)). BancGroup
presently contemplates that dividends will be declared in the future.
However, the payment of cash dividends is subject to BancGroup's actual
results of operations as well as certain other internal and external
factors. Accordingly, there is no assurance that cash dividends will either
be declared and paid in the future, or, if declared and paid, that such
dividends will approximate the pro forma amounts indicated.

(d) Farmers and Merchants Bank has paid dividends as follows:

<TABLE>
<CAPTION>
Per share Total
-----------------------------------------------------------------------------
<S> <C> <C>
Year ended December 31, 1993 $25 $140,000
Year ended December 31, 1994 $35 $196,000
Quarter ended March 31, 1995 $35 $196,000
</TABLE>

BancGroup permitted the Bank to pay a dividend of $17.50 per share
effective for Stockholders of record June 30, 1995. This dividend will be
counted as part of the dividend that may be paid by the Bank immediately prior
to the Effective Date. See "APPROVAL OF THE MERGER."

27
<PAGE> 34
INTRODUCTION

GENERAL

This Prospectus is being furnished to the stockholders of the Bank in
connection with the solicitation of proxies by the board of directors of the
Bank for use at a Special Meeting of stockholders to be held at 101 Main
Street, Ariton, Alabama 36311 on _______________, 1995, at 1:30 p.m., local
time, and at any adjournments thereof (the "Special Meeting"), as stated in the
accompanying Notice of Special Meeting of Stockholders and described herein.
The purpose of the Special Meeting is to consider and vote upon the proposed
merger of the Bank with and into Colonial Bank. Colonial Bank will be the
surviving corporation in the Merger.

This Prospectus is also furnished by BancGroup in connection with the
offer of shares of BancGroup Common Stock to be issued in the Merger. No vote
of BancGroup stockholders is required to approve the Merger.

The board of directors of the Bank believes that the Merger is in the
best interests of the Bank and its stockholders and unanimously recommends that
stockholders vote "FOR" the Merger (item 1 on the proxy card). Each member of
the board of directors of the Bank has separately agreed with BancGroup to vote
his or her shares in favor of the Merger.

RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE MERGER

Shares of common stock, par value $100 per share, are the only
securities of the Bank issued and outstanding. The close of business on
_______________, 1995, has been

<PAGE> 35
fixed by the board of directors of the Bank as the record date for
determination of stockholders entitled to vote at the Special Meeting. There
were 52 record holders of Bank common stock as of such date. On that date,
there were outstanding 5,600 shares of common stock of the Bank, each entitled
to one vote per share.

Approval of the Merger requires the affirmative vote of at least
two-thirds of the outstanding shares of common stock of the Bank. Each share
is entitled to one vote.

Assuming that (i) no dissenters' rights of appraisal are exercised in
connection with the Merger and (ii) a Market Value of BancGroup's Common Stock
of $27.275 (10 day average at July 5, 1995) per share, upon consummation of the
Merger (a) 256,881 shares of BancGroup Common Stock will be issued and
$3,000,000 in cash will in the aggregate be paid in connection with the Merger
and (b) former holders of Bank common stock will hold 256,881 shares, or 2%, of
the BancGroup Common Stock then outstanding.

Under Alabama law, stockholders of the Bank will have dissenters'
rights of appraisal with respect to the Merger. It is a condition to
consummation of the Merger that the holders of not more than 10% of the shares
of the Bank's common stock exercise dissenters' appraisal rights. This
condition may be waived by BancGroup. The condition was placed in the
Agreement by BancGroup to limit the amount of cash that BancGroup might have to
pay in the Merger in case a larger number of shareholders of the Bank exercise
dissenters' rights of appraisal. See "APPROVAL OF THE MERGER -- Rights of
Dissenting Stockholders."

If the Merger is approved at the Special Meeting, the Bank is expected
to merge with and into Colonial Bank promptly after the other conditions to the
Agreement are satisfied.

29
<PAGE> 36
See "APPROVAL OF THE MERGER -- Conditions of Consummation of the Merger." If
the Merger is not approved at the Special Meeting and it becomes reasonably and
objectively certain that stockholder approval cannot be obtained or the other
conditions to the Agreement are not satisfied, the Bank will continue to
operate in the foreseeable future as an independent bank, and the Merger will
be terminated.

THE BOARD OF DIRECTORS OF THE BANK URGES THE STOCKHOLDERS OF THE BANK
TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND
UNANIMOUSLY RECOMMENDS THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN
FAVOR OF THE MERGER.

SOLICITATION, VOTING AND REVOCATION OF PROXIES

In addition to soliciting proxies by mail, directors, officers, and
other employees of the Bank, without receiving special compensation therefor,
may solicit proxies from the Bank's stockholders by telephone, by telegram or
in person. Arrangements will also be made with brokerage firms and other
custodians, nominees and fiduciaries, if any, to forward solicitation materials
to any beneficial owners of shares of common stock of the Bank held of record
by such persons

The cost of assembling and mailing this Prospectus and other materials
furnished to stockholders of the Bank and all other expenses of solicitation,
including the expenses of brokers, custodians, nominees, and other fiduciaries
who, at the request of the Bank, mail material to or otherwise communicate with
beneficial owners of the shares held by them,

30
<PAGE> 37
will be paid by the Bank. Expenses incident to the registration of the
securities to be issued in connection with the Merger will be paid by
BancGroup.

Each proxy which is solicited on behalf of the Bank, as stated on such
proxy, permits each record holder of common stock of the Bank to vote on the
Merger. Where a stockholder specifies his choice on the proxy with respect to
the Merger, the shares represented by the proxy will be voted in accordance
with such specification. IF NO SUCH SPECIFICATION IS MADE, THE SHARES WILL BE
VOTED IN FAVOR OF THE MERGER. Properly executed proxies will be voted in
accordance with the determination of a majority of the board of directors of
the Bank as to any other matter which may properly come before the Special
Meeting. The enclosed proxy card should be returned in the accompanying
envelope.

Proxies marked as abstentions and shares held in street name which
have been designated by brokers on proxy cards as not voted will not be counted
as votes cast. Such proxies will be counted for purposes of determining a
quorum at the Special Meeting. Stockholders who execute proxies retain the
right to revoke them at any time. However, abstentions and broker non-votes
will have the same effect as a "no" vote respecting stockholder approval of the
Merger.

A proxy may be revoked prior to its exercise by: (i) filing with the
Bank a written notice of revocation at any time prior to the vote at the
Special Meeting; (ii) delivering to the Bank a duly executed proxy bearing a
later date; or (iii) attending the Special Meeting and voting in person.

31
<PAGE> 38
The board of directors of the Bank is not aware of any business to be
acted upon at the Special Meeting other than consideration of the Merger
described herein.

VOTING EFFECT OF MERGER

Assuming a Market Value of BancGroup Common Stock of $27.275 (10 day
average at July 10, 1995), 256,881 shares of BancGroup Common Stock would be
distributed to the stockholders of the Bank pursuant to the Merger.
Accordingly, the 256,881 shares of Common Stock to be issued in the Merger
will represent 2% of the total number of shares of Common Stock outstanding
following the Merger.

APPROVAL OF THE MERGER

THE FOLLOWING DESCRIPTIONS WHICH, IN THE OPINION OF BANCGROUP AND THE
BANK, CONTAIN A FAIR SUMMARY OF ALL MATERIAL PROVISIONS OF THE AGREEMENT AND
PLAN OF MERGER, ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO THE AGREEMENT
ATTACHED HERETO AS APPENDIX A, AND CERTAIN PROVISIONS OF ALABAMA LAW RELATING
TO THE RIGHTS OF DISSENTING STOCKHOLDERS, A COPY OF WHICH IS ATTACHED HERETO AS
APPENDIX B. ALL BANK STOCKHOLDERS ARE URGED TO READ THE AGREEMENT AND THE
OTHER APPENDICES IN THEIR ENTIRETY.

GENERAL

The board of directors of the Bank has agreed that, subject to
stockholder ratification and confirmation, receipt of necessary regulatory
approval and certain other conditions described below at "Conditions of
Consummation of the Merger," the Bank will merge with

32
<PAGE> 39
and into Colonial Bank, a wholly-owned subsidiary of BancGroup. Upon
completion of the Merger, the corporate existence of the Bank will cease, and
Colonial Bank will succeed to the business formerly conducted by the Bank.

In the event there is an insufficient number of shares of Bank common
stock present in person or by proxy at the Special Meeting to approve the
Merger, the board of directors of the Bank intends to adjourn the Special
Meeting. Any such adjournment will require the affirmative vote of a majority
of shares present at the Special Meeting. The effect of any such adjournment
would be to permit the Bank to continue to solicit additional proxies for
approval of the Merger. While such an adjournment would not invalidate any
proxies previously filed, including those filed by stockholders voting against
the Merger, it would give the Bank the opportunity to solicit additional
proxies in favor of the Merger.

REASONS FOR AND BACKGROUND OF THE MERGER

Management of the Bank believes that pending interstate banking
legislation will result in a fewer number of banks competing in a given market
area, and the Bank's inability to compete with larger, better capitalized Banks
in its market area will put the Bank at a competititve disadvantage.
Management of the Bank also believes that continued compliance with state and
federal regulatory requirements, and upgrading customer services to compete
with existing and anticipated competitors, will necessitate additional
personnel and overhead costs, both of which may materially reduce the Bank's
profitability.

33
<PAGE> 40
The Merger will also enable BancGroup to expand its banking operations
in southeast Alabama in locations where BancGroup has not previously had branch
banking offices.

INTERESTS OF CERTAIN PERSONS IN THE MERGER

The Agreement provides that at the Effective Date, the Bank shall pay
to or for the benefit of its employees the Bank's 1995 earnings through the end
of the month immediately prior to the Effective Date. For this purpose, the
Bank's "1995 earnings" shall mean earnings from normal and customary operations
of the Bank determined in accordance with Generally Accepted Accounting
Principles ("GAAP"). The Bank shall provide to BancGroup income statements
sufficient to show the calculation of 1995 earnings. In addition to any
expenses which may for purposes of GAAP reduce 1995 earnings, any expenses
incurred by the Bank in connection with (i) the Merger (including but not
limited to, attorney and auditing fees and expenses, printing, mailing, and
travel costs) and (ii) certain assets (estimated to be $9,598.05), shall
be accrued and included in calculating 1995 earnings. Before making such
payments to its employees, however, the Bank shall provide in writing to
BancGroup a list of all employees of the Bank who are recommended by the Bank
to receive such payments, showing the name of the employee and the employee's
position and years of service at the Bank, the amount recommended to be
received by or paid for the benefit of the employee, and the method by which
the Bank proposes to make such payment and the reasons for such

34
<PAGE> 41
payment, including the method of payment, as to each employee. For this
purpose, the "method" of payment may be in the form of a retention agreement
payment, a cash bonus, a profit sharing plan contribution or other similar
award and may vary for each employee. BancGroup shall have the right to
approve or modify the payments for each employee and the employees to whom
payments will be made, and the Bank shall only make such payments, including
any modifications, as are approved in writing by BancGroup. No payments shall
be made if such payments would fail to be deductible for federal income tax
purposes by virtue of section 280G of the Code.

The Agreement also prohibits the Bank from granting increases in the rate
of compensation payable to any of the Bank's officers or employees without the
prior written consent of BancGroup. BancGroup has permitted the Bank to
increase the monthly salaries of Christopher K. Wilson and D. Kyser Wilson by
$7500 each, effective June 1, 1995. See "Conduct of Business Pending the
Merger."

CONVERSION OF BANK SHARES

On the effective date of the Merger (the "Effective Date"), each share
of the Bank's common stock outstanding and held of record by Bank stockholders
shall be converted into both shares of BancGroup Common Stock and cash. Each
outstanding share of Bank common stock shall be converted into the number of
shares, or such fractions of a share, of BancGroup Common Stock which shall be
equal to $7,000,000 divided by the total number of shares of Bank common stock
outstanding divided by the Market Value. The "Market Value" shall represent
the per share market value of the BancGroup Common Stock at the

35
<PAGE> 42
Effective Date and shall be determined by calculating the average of the
closing prices of the Common Stock of BancGroup as reported by the NYSE on each
of the 10 trading days ending on the trading day immediately preceding the
Effective Date. In addition, BancGroup will pay an aggregate of $3,000,000 in
cash for the outstanding shares of Bank common stock, with $535.71 in cash to
be paid for each one share of Bank common stock assuming 5,600 shares of Bank
common stock outstanding. The amount of cash to be paid will not vary. (The
BancGroup Common Stock to be issued and cash to be paid in exchange for Bank
common stock as stated above is sometimes referred to as the "Merger
Consideration.")

No fractional shares of BancGroup Common Stock will be issued, and
each stockholder of the Bank having a fractional interest arising upon the
conversion or exchange of the Bank common stock into BancGroup Common Stock
will, at the time of surrender of the certificates representing the Bank common
stock, be paid by BancGroup an amount of cash equal to the value of such
fractional interest based on the fair market value of such fractional share.
Fair market value for this purpose shall be the Market Value as defined above.
Such fair market value will, therefore, represent the same value that such
fractional interest would have been entitled to receive in BancGroup Common
Stock.

As an example, if the market Value is $24, and assuming 5,600 shares
of Bank common stock outstanding, then each one share of Bank common stock
shall be converted into 52.08 shares of BancGroup Common Stock (i.e.,
$7,000,000 divided by 5,600 divided

36
<PAGE> 43
by the Market Value). A shareholder of the Bank holding 123 shares of Bank
common stock would be entitled to receive in the aggregate 6,405.84 shares of
BancGroup Common Stock (123 multiplied by 52.08). Fractions of shares will not
be issued. Thus, a total of 6,405 shares of BancGroup Common Stock would
actually be issued to such stockholder, with the .84 of a share of BancGroup
Common Stock converted to cash equal to $20.16 ($24 multiplied by .84). In
addition, such stockholder would be paid $65,892.33 in cash for such
stockholder's 123 shares of Bank common stock.

The Market price of the BancGroup Common Stock as reported on the NYSE
as of ___________, 1995 was $_______ per share. If the Market Value of such
stock at the Effective Date is $27.25 per share or higher, only the minimum of
256,881 shares of BancGroup Common Stock (plus cash) will be issued in the
Merger. Hence, to the extent that the Market Value exceeds $27.25, the value
of the 256,881 shares to be issued will exceed $7,000,000. See, "APPROVAL OF
THE MERGER -- Conversion of Bank Shares." BancGroup also has the right to
terminate the Merger if the Market Value exceeds $27.25. See "APPROVAL OF THE
MERGER -- Conditions of Consummation of the Merger."

If any stockholder of the Bank exercises dissenters' rights of
appraisal and receives cash for Bank common stock held, the number of shares of
BancGroup Common Stock to be issued in the Merger will be adjusted to reduce
such shares based upon the conversion of such Bank common stock into cash.

Upon the Effective Date and subject to the conditions described at
"Conditions of Consummation of the Merger," the Bank's stockholders will
automatically, and without further action by such stockholders or by BancGroup,
become owners of BancGroup Common Stock as described herein. Outstanding
certificates representing shares of the common stock of the Bank shall
represent shares of Common Stock of BancGroup. Thereafter, upon surrender of
the certificates formerly representing shares of Bank common stock, the holder
will be entitled to receive certificates for the Common Stock of BancGroup and
the cash payment to which such person is entitled. Dividends on the shares of
BancGroup Common Stock will accumulate without interest and will not be
distributed to any former stockholder of the Bank unless and until such
stockholder surrenders for cancellation his certificate for Bank common stock.
No interest will be paid on the cash to

37
<PAGE> 44
be distributed in the Merger. Shares issued upon consummation of the Merger,
however, may be traded following the Effective Date and prior to receipt of
certificates representing such shares. Trust Company Bank, Atlanta, Georgia,
transfer agent for BancGroup Common Stock, will act as the Exchange Agent with
respect to the shares of Bank common stock surrendered in connection with the
Merger.

A detailed explanation of these arrangements will be mailed to Bank
stockholders within seven (7) business days following the Effective Date.
Stock certificates should not be sent to the Exchange Agent until such notice
is received.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of certain anticipated material
federal income tax consequences of the Merger to the Bank and the Bank
stockholders who are citizens of the United States. It does not discuss all
the tax consequences that may be relevant to the Bank stockholders entitled to
special treatment under the Internal Revenue Code of 1986, as amended (the
"Code") (such as insurance companies, dealers in securities, tax-exempt
organizations or foreign persons) or to Bank stockholders who acquired their
Bank common stock pursuant to the exercise of employee stock options or
otherwise as compensation. The summary set forth below does not purport to be
a complete analysis of all potential tax effects of the transactions
contemplated by the Agreement or the Merger itself. EACH BANK STOCKHOLDER IS
URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE EFFECT OF
SUCH FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ON HIS OR HER OWN PARTICULAR
FACTS

38
<PAGE> 45
AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX
CONSEQUENCES ARISING OUT OF THE MERGER.

No ruling has been or will be requested from the Internal Revenue
Service ("IRS") as to any of the federal income tax effects to the Bank
stockholders of the Merger or the federal income tax effects to the Bank.
Instead, the Bank is relying upon an opinion of BancGroup's special counsel,
Miller, Hamilton, Snider & Odom, L.L.C., as to the federal income tax
consequences of the Merger to the Bank stockholders and to the Bank.

Based upon the opinion of Miller, Hamilton, Snider & Odom, L.L.C.,
which relies upon various representations and is subject to various assumptions
and qualifications, including that the Merger is consummated in the manner and
according to the terms provided in the Agreement, the following federal income
tax consequences to the Bank stockholders and to the Bank will result from the
Merger. The tax opinion is based upon certain assumptions, including the
assumption that the Bank has no knowledge of any plan or intention on the part
of the Bank stockholders to sell or dispose of BancGroup Common Stock that
would reduce their holdings to the number of shares having in the aggregate a
fair market value of less than 50% of the total fair market value of the Bank
common stock outstanding immediately before the Merger. The following presents
a summary of that opinion:

1. The Merger will qualify as a reorganization within the meaning
of Section 368(a) of the Code;

2. No gain or loss will be recognized by the Bank as a result of
the Merger;

39
<PAGE> 46
3. A Bank stockholder who exchanges shares of Bank common stock
for a combination of BancGroup common stock and cash, as
described in the Agreement, shall recognize gain, if any, but
in an amount not in excess of the sum of such cash received.
The amount of the gain realized will be the excess of (a) the
sum of (i) the amount of cash received and (ii) the fair
market value of shares of BancGrop common stock received, over
(b) the tax basis of the shares of Bank common stock exchanged
therefor. No loss shall be recognized. Any gain recognized
by stockholders of the Bank will be characterized as capital
gain if the Bank common stock is a capital asset in the hands
of such stockholders and their receipt of the cash does not
have "the effect of the distribution of a dividend" within the
meaning of Section 356(a)(2) of the Code, as interpreted by
the United States Supreme Court in Commission v. Clark, 489
U.S. 726 (1989). Pursuant to Clark, a Bank stockholder will
be treated as if the stockholder received only BancGroup
Common Stock and then BancGrop redeemed a portion of such
common stock for the amount of cash that was actually issued.
If that hypothetical redemption satisfies any of the tests of
Section 302(b) of the Code, then the hypothetical redemption
will be treated as an exchange. Otherwise, the receipt of the
cash will be treated as a dividend under Section 356(a)(2) of
the Code. Bank stockholders should be able to satisfy one or
more of the tests of Section 302(b) of the Code. However, the
application of such provision is dependent on each
stockholder's particular facts and

40
<PAGE> 47
circumstances and is affected by the attribution rules of
Section 318 of the Code. Consequently, stockholders should
seek independent tax advice as to the tax effect of the
merger, including the receipt of the cash, to them.

4. The payment of cash to a Bank stockholder in lieu of a
fractional share of BancGroup common stock as part of the
Merger will be treated as if the fractional share was
delivered to the stockholder and then redeemed by BancGroup,
with the tax effect of such deemed redemption being determined
under Section 302(b) of the Code;

5. A Bank stockholder who dissents and receives only cash
pursuant to the appraisal rights will recognize gain or loss.
Such gain or loss will, in general, be treated as capital gain
or loss, measured by the difference between the amount of cash
received and the tax basis of the shares of Bank common stock
converted, if the shares of Bank Common Stock were held as
capital assets. However, a Bank stockholder who receives only
cash may need to consider the effects of Sections 302 and 318
of the Code in determining the federal income tax consequences
of the transaction.

6. The basis of the BancGroup common stock (including any
fractional share) received by a Bank stockholder in the Merger
will be the same as the basis of the Bank common stock
surrendered in exchange therefor, decreased by the amount of
cash received, and increased by the amount treated as a
dividend and the amount of gain recognized on the exchange.

41
<PAGE> 48
7. The holding period of the BancGroup common stock received by a
Bank stockholder in the Merger will include the holding period
of the Bank common stock surrendered in exchange therefor,
provided such shares of Bank common stock were capital assets
or property described under Section 1231 of the Code in the
hands of the Bank stockholder on the day of the Merger, and
otherwise will begin on the date following the date of the
Merger.

If the assumption stated above, that there is no plan or intention by
the Bank stockholders to sell of dispose of BancGroup common stock that would
reduce their holdings to the number of shares, with an aggreate fair market
value of at least 50 percent of the total fair market value of Bank common
stock outstanding immediately before the Merger were to be incorrect, then
counsel would not be able to opine that the Merger is a tax-free reorganization
under the Code. Accordingly, the Merger must satisfy the "continuity of
interest" requirement contained in Treasury Regulations and in judicial
authority. The IRS has stated that, for ruling purposes, for mergers to
qualify as tax-free reorganizations, the stockholders of the acquired
corporation must receive and retain stock of the acquiror equal to 50 percent
of the aggregate value of the acquired corporation immediately before the
Merger.

The opinion of Miller, Hamilton, Snider & Odom, L.L.C., is based
entirely upon the Code, regulations now in effect thereunder, current
administrative rulings and practice, and judicial authority, all of which are
subject to change. Unlike a ruling from the IRS, an

42
<PAGE> 49
opinion of counsel is not binding on the IRS and there can be no assurance, and
none is hereby given, that the IRS will not take a position contrary to one or
more positions reflected herein or that the opinion will be upheld by the
courts if challenged by the IRS.

OTHER POSSIBLE CONSEQUENCES

If the Merger becomes effective, the stockholders of the Bank, an
Alabama state banking corporation, will exchange their shares of common stock
for securities in a Delaware business corporation.

The state tax consequences, where applicable, of owning stock of a
Delaware business corporation may be different from those of owning shares of
an Alabama state banking corporation.

For a discussion of the differences, if any, in the rights,
preferences, and privileges attaching to Bank common stock as compared with
BancGroup Common Stock, see "COMPARATIVE RIGHTS OF STOCKHOLDERS."

CONDITIONS OF CONSUMMATION OF THE MERGER

Consummation of the Merger is subject to a number of conditions. The
Agreement must be approved by the affirmative vote of the holders of at least
two-thirds of the outstanding shares of common stock of the Bank.

The Merger must be approved by the Alabama State Banking Department
(the "Alabama Department"), the Board of Governors of the Federal Reserve
System (the "Federal Reserve") and the Federal Deposit Insurance Corporation
("FDIC"). Applications for approval have been filed with these agencies. Any
of these agencies might refuse or

43
<PAGE> 50
revoke approval or condition approval on one or more of the parties agreeing to
take some action such as making some change in operations. The Merger may not
be consummated for 15 days after the approval of the Merger by the Federal
Reserve. During such period, the United States Department of Justice, should
it object to the Merger for antitrust reasons, may challenge the consummation
of the Merger.

The obligations of the Bank and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the absence of pending or threatened
litigation with a view to restraining or prohibiting consummation of the Merger
or in which it is sought to obtain divestiture, rescission or damages in
connection with the Merger, (ii) the absence of any investigation by any
governmental agency which might result in any such proceeding, (iii)
consummation of the Merger no later than January 31, 1996, and (iv) receipt of
a favorable opinion of counsel to BancGroup regarding certain federal income
tax consequences of the Merger.

The mutual obligations of the Bank and BancGroup to consummate the
Merger are further conditioned upon, among other things, (i) the accuracy in
all material respects of the representations and warranties of the Bank and
BancGroup contained in the Agreement, and the performance by the Bank and
BancGroup of all covenants and agreements of the Bank and BancGroup; (ii) the
absence of any material adverse changes in the results of operations and
financial condition of the Bank and BancGroup or their subsidiaries since March
31, 1995, except as may be disclosed in the Agreement; and (iii) in the case of
BancGroup's obligations, receipt by BancGroup of certain undertakings from

44
<PAGE> 51
holders of the Bank common stock who may be deemed to be "affiliates" of the
Bank pursuant to the rules of the Securities and Exchange Commission (the
"Commission").

It is anticipated that the foregoing conditions, as well as certain
other conditions contained in the Agreement, such as the receipt of
certificates of officers of each party as to compliance with the Agreement,
will be satisfied, but the Agreement states that the Bank and BancGroup may
waive all conditions to their obligations to consummate the Merger, but the
conditions of the requisite approvals of regulatory authorities and Bank
stockholder approval of the Merger may not be waived. In making any decisions
regarding a waiver of one or more conditions to consummation of the Merger or
an amendment of the Agreement, the board of directors of the Bank would be
subject to fiduciary duty standards imposed upon such board by relevant law
that would require such boards to act in the best interests of their respective
stockholders.

In addition, the boards of directors of BancGroup and the Bank may
amend or terminate the Agreement before or after approval by the stockholders
of the Bank. No amendments will be made to the Agreement which would alter the
Merger Consideration or which, in the opinion of the board of directors of the
Bank would adversely affect the rights of the stockholders of the Bank. Any
amendments to the Agreement which in the opinion of the board of directors of
the Bank would have a material adverse effect upon the stockholders of the Bank
would be submitted to the Bank's stockholders for approval. Such amendments
could require the filing of an amendment of the Registration Statement, of
which this Prospectus forms a part, with the Commission.

45
<PAGE> 52
BancGroup may terminate the Agreement and abandon the Merger if the
Market Value of the BancGroup Common Stock as determined prior to the Effective
Date is greater than $27.25. The Bank may terminate the Agreement and abandon
the Merger if the Market Value is less than $19.75.

CONDUCT OF BUSINESS PENDING THE MERGER

The Agreement contains certain restrictions on the conduct of the
business of the Bank pending consummation of the Merger. In particular, prior
to the Effective Date, the Agreement prohibits the Bank from taking any of the
following actions, subject to certain limited exceptions previously agreed to
by the parties, without the prior written approval of BancGroup:

(i) Issuing, delivering or agreeing to issue or deliver any stock,
bonds or other corporate securities (whether authorized and
unissued or held in the treasury);

(ii) Borrowing or agreeing to borrow any funds or incurring or
becoming subject to, any liability (absolute or contingent)
except borrowings, obligations and liabilities incurred in the
ordinary course of business and consistent with past practice;

(iii) Paying any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or
shown on the most recent balance sheet and current liabilities
incurred since that date in the ordinary course of business
and consistent with past practice;

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<PAGE> 53
(iv) Except as stated below, declaring or making or agreeing to
declare or make, any payment of dividends or distributions of
any assets of any kind whatsoever to stockholders, or
purchasing or redeeming or agreeing to purchase or redeem, any
of its outstanding securities;

(v) Except in the ordinary course of business, selling or
transferring or agreeing to sell or transfer, any of its
assets, property or rights or cancelling, or agreeing to
cancel, any debts or claims;

(vi) Except in the ordinary course of business, entering or
agreeing to enter into any agreement or arrangement granting
any preferential rights to purchase any of its assets,
property or rights or requiring the consent of any party to
the transfer and assignment of any of its assets, property or
rights;

(vii) Suffering any losses or waiving any rights of value which in
the aggregate are material;

(viii) Except in the ordinary course of business, making or
permitting any amendment or termination of any contract,
agreement or license to which it is a party if such amendment
or termination is material considering its business as a
whole;

(ix) Making any accrual or arrangement for or payment of bonuses or
special compensation of any kind or any severance or
termination pay to any present or former officer or employee
except that accruals for

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<PAGE> 54
bonuses to be paid in accordance with normal and usual
practice may be made in case the Merger is not consummated;

(x) Except in accordance with normal and usual practice,
increasing the rate of compensation payable to or to become
payable to any of its officers or employees or making any
material increase in any profit-sharing, bonus, deferred
compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or
with any of its officers or employees;

(xi) Failing to operate its business in the ordinary course so as
to preserve its business intact and to preserve the goodwill
of its customers and others with whom it has business
relations; and

(xii) Entering into any other material transaction other than in the
ordinary course of business.

Notwithstanding clause (iv) above, the Bank may declare and pay a
dividend immediately prior to the Effective Date which may be equal to the
amount of the dividend paid for 1994 prorated for the number of months,
including fractions of a month, from January 1, 1995, to the Effective Date.
Hence, the prorated dividend shall be calculated on the basis of the amount of
the 1994 dividend, divided by 12, and multiplied by the number of months from
January 1, 1995, to the Effective Date, including fractions of a month.

BancGroup permitted the Bank to pay a dividend of $17.50 per share
effective for stockholders of record on June 30, 1995. This dividend will be
counted as part of the dividend that may be paid by the Bank immediately prior
to the Effective Date as described in the preceding paragraph. BancGroup

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<PAGE> 55
also permitted the Bank to contribute $50,000 to the Bank's profit sharing plan
as of June 30, 1995, and BancGroup permitted increases in the salaries of
Christopher K. Wilson and D. Kyser Wilson commencing June 1, 1995, in the
amount of $7500 per month each. See "Interest of Certain Persons in the
Merger."

Until the termination of the Agreement, neither the Bank nor any of
its directors or officers (or any person representing any of the foregoing)
shall solicit or encourage inquiries or proposals with respect to, furnish any
information relating to or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or of a substantial portion of
the assets of, or of a substantial equity interest in, the Bank or any business
combination involving the Bank other than as contemplated by the Agreement.
The Bank will notify BancGroup immediately if any such inquiries or proposals
are received by the Bank, if any such information is requested from the Bank,
or if any such negotiations or discussions are sought to be initiated with the
Bank. The Bank shall instruct its officers, directors, agents or affiliates or
their subsidiaries to refrain from doing any of the above; provided, however,
that nothing contained in the Agreement shall be deemed to prohibit any officer
or director of such party from fulfilling his fiduciary duty or from taking any
action that is required by law.

RIGHTS OF DISSENTING STOCKHOLDERS

Title 10, chapter 2B, article 13 of the Alabama Code (1975) provides
for rights of appraisal for the value of the shares of a stockholder of record
who (i) has delivered notice in writing to the Bank before the vote is taken
that he intends to seek a cash payment if the

49
<PAGE> 56
Merger is consummated and (ii) does not vote in favor of the Merger. Within
ten (10) days after the Merger, Colonial Bank, as the corporation surviving the
Merger, will send to each stockholder who has given such notice to the Bank a
dissenter's notice (the "Dissenter's Notice") stating, among other things, a
date not less than thirty (30) days nor more than sixty (60) days after the
date of the Dissenter's Notice by which the stockholder must submit a written
payment demand. Within twenty (20) days after making such payment demand, the
stockholders shall submit the certificates representing shares in the Bank to
Colonial Bank for notation thereon that such demand has been made.

As soon as the proposed corporate action is taken, or upon the receipt
of a payment demand by the stockholders, Colonial Bank will offer to pay each
dissenter the amount which Colonial Bank estimates to be the fair value of the
shares, plus accrued interest, and each dissenter may agree to accept such
offer of payment. Upon receiving payment, such dissenter ceases to have any
interest in the shares. If a dissenting stockholder is dissatisfied with
Colonial Bank's offer of payment, the stockholder may notify Colonial Bank in
writing within 30 days after Colonial Bank's offer of his or her own estimate
of the fair value plus interest and demand such payment, or such dissenter may
simply reject Colonial Bank's offer and demand payment of the fair value.

A record stockholder may assert dissenters' rights as to fewer than
all shares registered in such holder's name, but only if the record holder
dissents with respect to all shares beneficially owned by any one beneficial
stockholder and provides written notice to the Bank of the name and address of
each person on whose behalf the dissenting rights are asserted. A "beneficial
shareholder" is defined by title 10, chapter 2B, article 13 of the

50
<PAGE> 57
Alabama Code as the "person who is a beneficial owner of shares held in a
voting trust or by a nominee as the record shareholder." For these purposes,
"shareholder" and "stockholder" have the same meaning. The rights of a partial
dissenter are determined as if the shares as to which such holder dissents and
other shares held by the holder are registered in different names of
stockholders. Thus, if a beneficial stockholder owns shares of Bank common
stock through a bank, broker, or other nominee, such beneficial stockholder may
assert dissenters' rights, but only if the bank, broker or nominee dissents
with respect to all shares beneficially owned by such stockholder through the
bank, broker or nominee and provides the Bank with the name and address of each
such person wishing to assert dissenters' rights. The beneficial stockholder
must submit to the Bank the consent of the record stockholder, i.e., the bank,
broker or nominee holding for the dissenting beneficial stockholder, not later
than the time the dissenting beneficial stockholder asserts dissenters rights.

If Colonial Bank fails to make an offer to a dissenting stockholder
within 60 days after the date set for demanding payment, the stockholder may
notify Colonial Bank of his or her own fair value and demand payment. If the
dissenting stockholder and Colonial Bank cannot agree upon the fair value, plus
interest, to be paid for shares that are the subject of the demand, then
Colonial Bank shall convene a proceeding in the Circuit Court of Dale County
within 60 days of the payment demand to have the fair value of the shares plus
accrued interest determined. If Colonial Bank does not commence the proceeding
within 60 days and the stockholder's account still remains unsettled, Colonial
Bank must pay each dissenter the amount of money demanded. In any court
proceeding, the court shall

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<PAGE> 58
assess costs against Colonial Bank except that the court may assess costs
against all or some of the dissenting stockholders if the court finds the
dissenters acted arbitrarily, vexatiously, or not in good faith in demanding
payment.

A stockholder who dissents and obtains payment under these procedures
may not challenge the Merger unless the Merger is unlawful or fraudulent with
respect to the stockholder or the Bank.

FAILURE OF A STOCKHOLDER TO COMPLY WITH ANY REQUIREMENTS OF THE
PROVISIONS RELATING TO DISSENTER'S RIGHTS OF APPRAISAL WILL RESULT IN A
FORFEITURE BY SUCH STOCKHOLDER OF APPRAISAL RIGHTS.

References herein to applicable statutes are summaries of portions
thereof and do not purport to be complete and are qualified in their entirety
by reference to applicable law. Title 10, section 2B, article 13 of the
Alabama Code (1975) is attached hereto as Appendix B. STOCKHOLDERS SHOULD READ
APPENDIX B CAREFULLY.

RESALE OF BANCGROUP COMMON STOCK

The issuance of the shares of BancGroup Common Stock pursuant to the
Merger has been registered under the Securities Act of 1933 (the "Securities
Act") and the shares so issued may be traded without restriction, except that
such registration does not cover resales by persons ("Affiliates") receiving
such Common Stock who may be deemed to control or be controlled by, or be under
common control with, the Bank at the time of the Special Meeting. Rule 145
promulgated by the Commission under the Securities Act restricts the resale of
Common Stock received in the Merger by Affiliates.

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<PAGE> 59
The Bank will provide BancGroup with such information as may be
reasonably necessary to determine the identity of those persons (primarily
officers, directors and principal stockholders) who may be deemed to be
Affiliates. The Bank will also obtain from each such person a written
undertaking to the effect that no sale or transfer will be made of any shares
of Common Stock by such person except pursuant to Rule 145 of the Commission or
pursuant to an effective registration or an exemption from registration under
the Securities Act. Receipt of such an undertaking is a condition to
BancGroup's obligation to close the Merger. If such certificates are not
received and BancGroup waives receipt of such condition, the certificates for
the shares of Common Stock to be issued to such person will contain an
appropriate restrictive legend and appropriate stock transfer orders will be
given to BancGroup's stock transfer agent.

ACCOUNTING TREATMENT

The acquisition of the Bank will be treated as a "purchase"
transaction by BancGroup. Accordingly, the purchase price will be assigned to
the fair value of the net tangible assets acquired and any purchase price in
excess thereof will be assigned to intangibles. The valuation of intangibles,
if any, will be made as of the Effective Date of the Merger. Intangibles, in
the approximate amount of $2,946,000, will be amortized by charges or credits
to future earnings over a period approximately twenty years.

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<PAGE> 60
COMPARATIVE MARKET PRICES AND DIVIDENDS

BANCGROUP

BancGroup Common Stock is listed for trading on the New York Stock
Exchange ("NYSE"). The Common Stock was first listed on the NYSE on February
24, 1995. Prior to February 21, 1995, BancGroup had two classes of common
stock outstanding, Class A and Class B. The Class B was not publicly traded.
The Class A Common Stock was traded in the over-the-counter market and quoted
on the NASDAQ National Market System. The Class A and Class B Common Stock
were reclassified into one class of Common Stock on February 21, 1995, and the
Class A Common Stock ceased to be quoted on NASDAQ on February 24, 1995.

The following table shows the dividends paid per share and indicates
the high and low closing prices for the Common Stock as reported by the NASDAQ
National Market System up to February 24, 1995, and the same information
reported by the NYSE for the Common Stock commencing February 24, 1995.

<TABLE>
<CAPTION>
Price and Dividends Paid
------------------------

Dividends
High Low (per share)
---- --- -----------
<S> <C> <C> <C> <C>
1993 - 1st Quarter 23 20 $0.17
2nd Quarter 23 1/2 19 0.18
3rd Quarter 22 20 0.18
4th Quarter 21 3/4 18 0.18

1994 - 1st Quarter 20 1/4 18 0.20
2nd Quarter 25 19 1/4 0.20
3rd Quarter 24 3/4 22 0.20
4th Quarter 23 3/4 19 1/2 0.20

1995 - 1st Quarter 23 5/8 19 1/2 0.225
2nd Quarter 27 1/2 23 1/8 0.225
</TABLE>

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<PAGE> 61
On May 18, 1995, the business day immediately prior to the public
announcement of the Merger, the closing price as reported on the NYSE of the
Common Stock was 24.875 per share.

At December 31, 1995, BancGroup's banking subsidiaries accounted for
approximately 99.98% of BancGroup's consolidated assets. BancGroup derives
substantially all of its income from dividends received from Colonial Bank.
Various statutory provisions limit the amount of dividends the subsidiary banks
may pay without regulatory approval. In addition, federal statutes restrict
the ability of subsidiary banks to make loans to BancGroup, and regulatory
policies may also restrict such dividends.

THE BANK

There is no organized public market for the Bank's common stock. To
the knowledge of the Bank, 31 shares of Bank common stock have been sold during
the last two fiscal years. The most recent sale took place on May 18, 1993
when 6 shares were sold at a price of $350 per share.

The Bank has paid cash dividends at the rate of $35 per share annually
for the last two years, and it paid a dividend of $17.50 per share effective
June 30, 1995. The Agreement contains certain restrictions on the Bank's right
to pay dividends prior to consummation of the Merger. See "APPROVAL OF THE
MERGER-Conduct of Business Pending the Merger."

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<PAGE> 62
The Agreement provides that the Bank shall not pay dividends prior to
the Effective Date except that the Bank may declare and pay a dividend
immediately prior to the Effective Date which may be equal to the amount of the
dividend paid for 1994 prorated for the number of months, including fractions
of a month, from January 1, 1995, to the Effective Date. Such prorated
dividend shall be calculated on the basis of the amount of the 1994 dividend,
divided by 12, and multiplied by the number of months from January 1, 1995, to
the Effective Date, including fractions of a month. BancGroup permitted the
Bank to pay a dividend of $17.50 per share as of June 30, 1995. This dividend
will be counted as part of the dividend that may be paid by the Bank
immediately prior to the Effective Date.

BANCGROUP CAPITAL STOCK AND DEBENTURES

BancGroup's authorized capital stock consists of 44,000,000 shares of
its Common Stock, par value $2.50 per share, and 1,000,000 shares of its
Preference Stock, par value $2.50 per share. As of April 30, 1995, there were
issued and outstanding a total of 12,219,699 shares of Common Stock. No shares
of Preference Stock are issued and outstanding. Also, BancGroup issued in 1985
$7,500,000 in principal amount of its 12 3/4% Convertible Subordinated
Debentures due 2000, Series A (the "1985 Debentures") of which $7,494,000 are
currently outstanding and are convertible at any time into 410,622 shares of
Common Stock subject to adjustment, and BancGroup issued in 1986 $28,750,000 in
principal amount of its 7 1/2% Convertible Subordinated Debentures due 2011
(the "1986 Debentures") of which $9,964,000 are currently outstanding and are
convertible at any time into 355,607 shares of Common Stock, subject to
adjustment. There are 233,424 shares of Common Stock subject to issue under
BancGroup's stock option plans.

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<PAGE> 63
The following statements with respect to Common Stock and Preference
Stock are brief summaries of material provisions of Delaware law and the
Restated Certificate of Incorporation (the "Certificate"), as amended, of
BancGroup, do not purport to be complete and are qualified in their entirety by
reference to the foregoing.

COMMON STOCK

Dividends. Subject to the rights of holders of BancGroup's Preference
Stock, if any, to receive certain dividends prior to the declaration of
dividends on shares of Common Stock, when and as dividends, payable in cash,
stock or other property, are declared by the BancGroup board of directors, the
holders of Common Stock are entitled to share ratably in such dividends.

Voting Rights. Each holder of Common Stock has one vote for each
share held on matters presented for consideration by the stockholders.

Preemptive Rights. The holders of Common Stock have no preemptive
rights to acquire any additional shares of BancGroup.

Issuance of Stock. The BancGroup Certificate authorizes the BancGroup
board to issue authorized shares of Common Stock without stockholder approval.
However, BancGroup's Common Stock is listed on the NYSE, which requires
stockholder approval of the issuance of additional shares of Common Stock under
certain circumstances.

Liquidation Rights. In the event of liquidation, dissolution or
winding-up of BancGroup, whether voluntary or involuntary, the holders of
Common Stock will be entitled to share ratably in any of its assets or funds
that are available for distribution to its

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<PAGE> 64
stockholders after the satisfaction of its liabilities (or after adequate
provision is made therefor) and after preferences of any outstanding Preference
Stock.

PREFERENCE STOCK

BancGroup's Preference Stock may be issued from time to time as a
class without series, or if so determined by the BancGroup board of directors,
either in whole or in part in one or more series. The voting rights, and such
designations, preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations or restrictions
thereof, if any, including, but not limited to, the dividend rights, conversion
rights, redemption rights and liquidation preferences, if any, of any wholly
unissued series of BancGroup Preference Stock (or of the entire class of
BancGroup Preference Stock if none of such shares has been issued), the number
of shares constituting any such series and the terms and conditions of the
issue thereof may be fixed by resolution of the BancGroup board of directors.
BancGroup Preference Stock may have a preference over the Common Stock with
respect to the payment of dividends and the distribution of assets in the event
of the liquidation or winding-up of BancGroup and such other preferences as may
be fixed by the BancGroup board.

1985 DEBENTURES

BancGroup issued in 1985 its 12 3/4% Convertible Subordinated
Debentures due 2000, Series A in the total principal amount of $7,500,000. The
1985 Debentures were

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<PAGE> 65
issued under a trust indenture (the "1985 Indenture") between BancGroup and Sun
Bank, National Association, Orlando, Florida, as trustee.

The 1985 Debentures will mature on December 15, 2000, and are
convertible into shares of BancGroup Common Stock at the option of a holder
thereof prior to December 15, 2000, at the conversion price of $18.25 principal
amount of the 1985 Debentures for each share of BancGroup Common Stock. The
conversion price is, however, subject to adjustment upon the occurrence of
certain events as described in the 1985 Indenture. In the event all of the
outstanding 1985 Debentures are converted into shares of BancGroup Common Stock
in accordance with the 1985 Indenture, a total of 410,622 shares of such Common
Stock will be issued. The 1985 Debentures are redeemable, in whole or in part,
at the option of BancGroup, commencing on December 17, 1995, at a redemption
price equal to the face value of the 1985 Debentures plus accrued interest to
the date fixed for redemption. The payment of principal and interest on the
1985 Debentures is subordinate, to the extent provided in the 1985 Indenture,
to the prior payment when due of all Superior Indebtedness of BancGroup.
"Superior Indebtedness" is defined as the principal of and unpaid interest on
all indebtedness of BancGroup to contract creditors. The 1985 Debentures rank
pari passu (i.e., equally) with the 1986 Debentures.

1986 DEBENTURES

BancGroup issued in 1986 its 7 1/2% Convertible Subordinated
Debentures due 2011 in the total principal amount of $28,750,000. The 1986
Debentures were issued under a

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<PAGE> 66
trust indenture (the "1986 Indenture") between BancGroup and Trust Company
Bank, Atlanta, Georgia, as trustee.

The 1986 Debentures will mature on March 31, 2011, and are convertible
at any time into shares of BancGroup Common Stock at the option of a holder
thereof, at the conversion price of $28 principal amount of the 1986 Debentures
for each share of BancGroup Common Stock. The conversion price is, however,
subject to adjustment upon the occurrence of certain events as described in the
1986 Indenture. In the event all of the outstanding 1986 Debentures are
converted into shares of BancGroup Common Stock in accordance with the 1986
Indenture, a total of 355,607 shares of such Common Stock will be issued. The
1986 Debentures are redeemable, in whole or in part, at the option of BancGroup
at certain premiums until 1996, when the redemption price shall be equal to
100% of the face amount of the 1986 Debentures plus accrued interest. The
payment of principal and interest on the 1986 Debentures is subordinate, to the
extent provided in the 1986 Indenture, to the prior payment when due of all
Senior Indebtedness of BancGroup. "Senior Indebtedness" is defined as any
indebtedness of BancGroup for money borrowed, or any indebtedness incurred in
connection with an acquisition or with a merger or consolidation, outstanding
on the date of execution of the 1986 Indenture as originally executed, or
thereafter created, incurred or assumed, and any renewal, extension,
modification or refunding thereof, for the payment of which BancGroup (which
term does not include BancGroup's consolidated or unconsolidated subsidiaries)
is at the time of determination responsible or liable as obligor, guarantor or
otherwise. Senior Indebtedness does not include (i) indebtedness as to which,
in the instrument creating or evidencing the

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<PAGE> 67
same or pursuant to which the same is outstanding, it is provided that such
indebtedness is subordinate in right of payment to any other indebtedness of
BancGroup, (ii) indebtedness which by its terms states that such indebtedness
is subordinate to or equally subordinate with the 1986 Debentures, and (iii)
the indebtedness created by BancGroup's 1985 Debentures. The 1986 Debentures
rank pari passu (i.e., equally) with the 1985 Debentures.

At March 31, 1995, BancGroup's Superior Indebtedness as defined in the
1985 Indenture and Senior Indebtedness as defined in the 1986 Indenture
aggregated approximately $421.6 million. Such debt includes all short-term
debt consisting of federal funds purchased, securities purchased under
repurchase agreements and borrowings with the Federal Home Loan Bank but
excludes all federally-insured deposits. BancGroup may from time to time incur
additional indebtedness constituting such Superior or Senior Indebtedness. The
1985 Indenture and the 1986 Indenture do not limit the amount of Superior or
Senior Indebtedness, as the case may be, which BancGroup may incur, nor do such
indentures prohibit BancGroup from creating liens on its property for any
purpose.

CHANGES IN CONTROL

Certain provisions of the BancGroup Certificate and bylaws may have
the effect of preventing, discouraging or delaying any change in control of
BancGroup. The authority of the BancGroup board of directors to issue
BancGroup Preference Stock with such rights and privileges, including voting
rights, as it may deem appropriate may enable the BancGroup board to prevent a
change in control despite a shift in ownership of the BancGroup Common Stock.
See "General" and "Preference Stock." In addition, the

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<PAGE> 68
BancGroup board's power to issue additional shares of BancGroup Common Stock
may help delay or deter a change in control by increasing the number of shares
needed to gain control. See "Common Stock." The following provisions also may
deter any change in control of BancGroup.

Classified Board. BancGroup's board of directors is classified into
three classes, as nearly equal in number as possible, with the members of each
class elected to three-year terms. Thus, one-third of BancGroup's board of
directors is elected by stockholders each year. With this provision, two
annual elections of directors are required in order to change a majority of the
board of directors. There are currently 18 directors of BancGroup. This
provision of BancGroup's Certificate also stipulates that (i) directors can be
removed only for cause upon a vote of 80% of the voting power of the
outstanding shares entitled to vote in the election of directors, voting as a
class, (ii) vacancies in the board may only be filled by a majority vote of the
directors remaining in office, (iii) the maximum number of directors shall be
fixed by resolution of the board of directors, and (iv) the provisions relating
to the classified board can only be amended by the affirmative vote of the
holders of at least 80% of the voting power of the outstanding shares entitled
to vote in the election of directors, voting as a class.

Business Combinations. Certain "Business Combinations" of BancGroup
with a "Related Person" may only be undertaken with the affirmative vote of at
least 75% of the outstanding shares of "Voting Stock," plus the affirmative
vote of at least 67% of the outstanding shares of Voting Stock, not counting
shares owned by the Related Person, unless the Continuing Directors of
BancGroup approve such Business Combination. A

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"Related Person" is a person, or group, who owns or acquires 10% or more of the
outstanding shares of Common Stock, provided that no person shall be a Related
Person if such person would have been a Related Person on the date of approval
of this provision by BancGroup's board of directors, i.e., April 20, 1994. An
effect of this provision may be to exclude Robert E. Lowder or certain members
of his family from the definition of Related Person. A "Continuing Director"
is a director who was a member of the board of directors immediately prior to
the time a person became a Related Person. This provision may not be amended
without the affirmative vote of the holders of at least 75% of the outstanding
shares of Voting Stock, plus the affirmative vote of the outstanding shares of
at least 67% of the outstanding Voting Stock, excluding shares held by a
Related Person. This provision may have the effect of giving the incumbent
board of directors a veto over a merger or other Business Combination that
could be desired by a majority of BancGroup's stockholders. The current board
of directors of BancGroup owns approximately 16% of the outstanding shares of
common stock of BancGroup.

Board Evaluation of Mergers. BancGroup's Certificate permits the
board of directors to consider certain factors such as the character and
financial stability of the other party, the projected social, legal, and
economic effects of a proposed transaction upon the employees, suppliers,
regulatory agencies and customers and communities of BancGroup, and other
factors when considering whether BancGroup should undertake a merger, sale of
assets, or other similar transaction with another party. This provision may
not be amended except by the affirmative vote of at least 80% of the
outstanding shares of common stock. This provision may give greater latitude
to the board of directors in terms

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<PAGE> 70
of the factors which the board may consider in recommending or rejecting a
merger or other Business Combination of BancGroup.

Director Authority. BancGroup's Certificate prohibits stockholders
from calling special stockholders' meetings and acting by written consent. It
also provides that only BancGroup's board of directors has the authority to
undertake certain actions with respect to governing BancGroup such as
appointing committees, electing officers, and establishing compensation of
officers, and it allows the board to act by majority vote.

Bylaw Provisions. BancGroup's bylaws provide that stockholders
wishing to propose nominees for the board of directors or other business to be
taken up at an annual meeting of BancGroup stockholders must comply with
certain advance written notice provisions. These bylaw provisions are intended
to provide for the more orderly conduct of stockholder meetings but could make
it more difficult for stockholders to nominate directors or introduce business
at stockholder meetings.

Delaware Business Combination Statute. Subject to some exceptions,
Delaware law prohibits BancGroup from entering into certain "business
combinations" (as defined) involving persons beneficially owning 15% or more of
the outstanding BancGroup Common Stock (or who is an affiliate of BancGroup and
has over the past three years beneficially owned 15% or more of such stock)
(either, for the purpose of this paragraph, an "Interested Stockholder"),
unless the BancGroup board has approved either (i) the business combination or
(ii) prior to the stock acquisition by which such person's beneficial ownership
interest reached 15% (a "Stock Acquisition"), the Stock Acquisition. The
prohibition lasts for three years from the date of the Stock Acquisition.
Notwithstanding

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the preceding, Delaware law allows BancGroup to enter into a business
combination with an Interested Stockholder if (i) the business combination is
approved by the BancGroup board of directors and authorized by an affirmative
vote of at least 66 2/3% of the outstanding voting stock of BancGroup which is
not owned by the Interested Stockholder or (ii) upon consummation of the
transaction which resulted in the stockholder becoming an Interested
Stockholder, such stockholder owned at least 85% of the outstanding stock of
BancGroup (excluding BancGroup stock held by officers and directors of
BancGroup or by certain BancGroup stock plans). These provisions of Delaware
law apply simultaneously with the provisions of BancGroup's Certificate
relating to business combinations with a related person, described above at
"Business Combinations," but they are generally less restrictive than
BancGroup's Certificate.

Control Acquisitions. As it relates to BancGroup, the Change in Bank
Control Act of 1978 prohibits a person or group of persons from acquiring
"control" of a bank holding company unless the Federal Reserve Board has been
given 60 days' prior written notice of such proposed acquisition and within
that time period the Federal Reserve Board has not issued a notice disapproving
the proposed acquisition or extending for up to another 30 days the period
during which such a disapproval may be issued. An acquisition may be made
prior to the expiration of the disapproval period if the Federal Reserve Board
issues written notice of its intent not to disapprove the action. Under a
rebuttable presumption established by the Federal Reserve Board, the
acquisition of more than 10% of a class of voting stock of a bank holding
company with a class of securities registered under Section 12 of the Exchange
Act, such as BancGroup, would, under the circumstances set forth in

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the presumption, constitute the acquisition of control. The receipt of
revocable proxies, provided the proxies terminate within a reasonable time
after the meeting to which they relate, is not included in determining
percentages for change in control purposes.

COMPARATIVE RIGHTS OF STOCKHOLDERS

If the Merger is consummated, all stockholders of the Bank, other than
those exercising dissenters' rights of appraisal, will become holders of
BancGroup Common Stock. The rights of the holders of the common stock of the
Bank who become holders of the Common Stock of BancGroup following the Merger
will be governed by BancGroup's Certificate and bylaws, as well as the laws of
Delaware, the state in which BancGroup is incorporated.

The following summary compares the rights of common stockholders of
the Bank with the rights of the holders of the Common Stock of BancGroup. For
a more complete description of the rights of the holders of BancGroup Common
Stock, see "BANCGROUP CAPITAL STOCK AND DEBENTURES."

The following information is qualified in its entirety by BancGroup's
Certificate and bylaws, and the Bank's Articles of Incorporation and bylaws,
the Delaware General Corporation Law (the "Delaware GCL") and the Alabama
Business Corporation Act (the "Alabama Act").

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DIRECTOR ELECTIONS

The Bank. The Bank's directors are elected for terms of one
year, or until the election and qualification of their successors. There is no
cumulative voting in the election of directors.

BancGroup. BancGroup's directors are elected to terms of three
years with approximately one-third of the board to be elected annually. There
is no cumulative voting in the election of directors. See "BANCGROUP CAPITAL
STOCK AND DEBENTURES -- Changes in Control -- Classified Board."

REMOVAL OF DIRECTORS

The Bank. Any director of the Bank may be removed with or
without cause at any regular or special meeting of the Bank's stockholders.

BancGroup. The BancGroup Certificate provides that a director
may be removed from office, but only for cause and by the affirmative vote of
the holders of at least 80% of the voting shares then entitled to vote at an
election of directors.

AUTHORIZED CAPITAL STOCK

The Bank. The Bank's Articles of Incorporation, as amended,
authorize the issuance of up to 5,600 shares of common stock $100.00 per share
par value, of which 5,600 shares were issued and outstanding as of April 30,
1995.

BancGroup. The BancGroup Certificate authorizes the issuance of
up to 44,000,000 shares of Common Stock, of which 12,219,699 shares were issued
and outstanding as of

67
<PAGE> 74
April 30, 1995, and up to 1,000,000 shares of Preference Stock, $2.50 par value
per share, of which no shares are issued and outstanding. The Preference Stock
is issuable in series, each series having such rights and preferences as the
BancGroup board may fix and determine by resolution.

VOTING

The Bank. Each stockholder is entitled to one vote for each
share of common stock held, and holders are not entitled to cumulative voting
rights in the election of Directors.

BancGroup. Each stockholder is entitled to one vote for each
share of Common Stock held, and such holders are not entitled to cumulative
voting rights in the election of directors.

PREEMPTIVE RIGHTS

The Bank. The holders of the Bank's common stock have no
preemptive rights to acquire any additional shares of Bank common stock or any
other shares of Bank capital stock.

BancGroup. The holders of BancGroup Common Stock have no
preemptive rights to acquire any additional shares of BancGroup Common Stock
or any other shares of BancGroup capital stock.

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<PAGE> 75
DIRECTORS' LIABILITY

The Bank. Each director of the Bank has the rights, duties,
privileges and immunities provided under the Alabama Act. Neither the Bank's
Articles of Incorporation nor its bylaws provide for other or additional
standards regarding directors' liability.

BancGroup. The BancGroup Certificate provides that a director of
BancGroup will have no personal liability to BancGroup or its stockholders for
monetary damages for breach of fiduciary duty as a director except (i) for any
breach of the director's duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) for the payment of
certain unlawful dividends and the making of certain stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. This provision would absolve directors of personal
liability for negligence in the performance of duties, including gross
negligence. It would not permit a director to be exculpated, however, for
liability for actions involving conflicts of interest or breaches of the
traditional "duty of loyalty" to BancGroup and its stockholders, and it would
not affect the availability of injunctive or other equitable relief as a
remedy.

INDEMNIFICATION

The Bank. Sections 10-2B-8.50 through 10-2B-8.58 of the Alabama
Act contain detailed and comprehensive provisions providing for the
indemnification of directors and officers of Alabama corporations against
expenses, judgments, fines and settlements in connection with litigation.
Under these provisions, other than actions brought by or in the right of the
Bank, indemnification is available if it is determined that the proposed

69
<PAGE> 76
indemnitee acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the Bank, and with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful.

To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), he must be indemnified against expenses (including
attorney fees) actually and reasonably incurred by him in connection therewith.

There are no provisions in the Bank's Articles of Incorporation or
bylaws concerning indemnification of officers or directors, nor does the Bank
have any indemnification agreements in place with any officers or directors.

BancGroup. Section 145 of the Delaware GCL contains detailed and
comprehensive provisions providing for indemnification of directors and
officers of Delaware corporations against expenses, judgments, fines and
settlements in connection with litigation. Under the Delaware GCL, other than
an action brought by or in the right of BancGroup, such indemnification is
available if it is determined that the proposed indemnitee acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of BancGroup and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his conduct was unlawful. In
actions brought by or in the right of BancGroup, such indemnification is
limited to expenses (including attorneys' fees) actually and reasonably
incurred in the defense or settlement of such action if the indemnitee acted in
good faith and in a manner he or she reasonably believed to be in or not
opposed to the best interests of BancGroup and except that no indemnification
shall be

70
<PAGE> 77
made in respect of any claim, issue or matter as to which such person has been
adjudged to be liable to BancGroup unless and only to the extent that the
Delaware Court of Chancery or the court in which the action was brought
determines upon application that in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses as
the court deems proper.

To the extent that the proposed indemnitee has been successful on the
merits or otherwise in defense of any action, suit or proceeding (or any claim,
issue or matter therein), such person must be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection therewith.

In addition, BancGroup maintains an officers' and directors' insurance
policy and a separate indemnification agreement pursuant to which certain
officers and all directors of BancGroup would be entitled to indemnification
against certain liabilities, including reimbursement of certain expenses.

SPECIAL MEETINGS OF STOCKHOLDERS; ACTION WITHOUT A MEETING

The Bank. Under the Bank's bylaws, a special meeting of the Bank's
stockholders may only be called by the President, a majority of the members of
the board of directors, or by holders of majority of the issued and outstanding
shares of the Bank's common stock.

Any action required or permitted by the Constitution of Alabama or by
the Alabama Act to be taken at a stockholders meeting may be taken without a
meeting if the action is taken by all stockholders entitled to vote on the
action. The action must be evidenced by one or more written consents
describing the action taken, signed by all stockholders entitled

71
<PAGE> 78
to vote on the action, and delivered to the corporation for inclusion in the
minutes or filing with the corporate records.

BancGroup. Under the BancGroup Certificate, a special meeting of
BancGroup's stockholders may only be called by a majority of the BancGroup
board of directors or by the chairman of the board of directors of BancGroup.
Holders of BancGroup Common Stock may not call special meetings or act by
written consent.

MERGERS, SHARE EXCHANGES AND SALES OF ASSETS

The Bank. The Alabama Act provides that, unless the Alabama Act or
Articles of Incorporation require a greater or lesser vote or vote by a voting
group, or the corporation's board of directors require a greater vote or vote by
a voting group, a plan of merger or share exchange must be approved by each
voting group entitled to vote separately on the plan by two-thirds of all votes
entitled to be cast on the plan by voting groups. In no case however, may the
vote required for stockholder approval be set at less than a majority of the
votes entitled to be cast on the plan by each voting group.

The Bank's Articles of Incorporation do not specify the required
stockholder approval percentage for mergers and sales of substantially all of
the property of the Bank. Therefore, any merger or sale of substantially all
of the Bank's assets must be approved by holders of at least two-thirds of the
outstanding stock of the Bank.

The Alabama Act also provides that action by stockholders of a
corporation that is the surviving corporation need not approve the merger if
the following four requirements are met:

72
<PAGE> 79
1. The Articles of Incorporation of the surviving corporation
will not differ from the Articles before the merger;

2. Each stockholder of the surviving corporation with outstanding
shares immediately before the effective date of the merger
will hold the same number of shares, with identical
designations, preferences, limitations and relative rights,
immediately after the merger;

3. The number of voting shares outstanding immediately after the
merger, plus the number of voting shares issuable as a result
of the merger, will not exceed by more than 20% the total
number of voting shares of the surviving corporation
outstanding immediately before the merger ("voting shares"
means shares that entitle holders to vote unconditionally in
the election of directors); and

4. The number of participating shares outstanding immediately
after the merger, plus the number of participating shares
issuable as a result of the merger, will not exceed by more
than 20% the total number of participating shares outstanding
immediately before the merger ("participating shares" means
shares that entitle holders to participate without limitation
and distributions).

BancGroup. The Delaware GCL provides that mergers and sales of
substantially all of the property of a corporation must be approved by a
majority of the outstanding stock of the corporation entitled to vote thereon.
The Delaware GCL law also provides, however, that the stockholders of the
corporation surviving a merger need not approve the transaction if: (i) the
agreement of merger does not amend in any respect the certificate of

73
<PAGE> 80
incorporation of such corporation; (ii) each share of stock of such corporation
outstanding immediately prior to the effective date of the merger is to be an
identical outstanding or treasury share of the surviving corporation after the
effective date of the merger; and (iii) either no shares of common stock of the
surviving corporation and no shares, securities or obligations convertible into
such stock are to be issued or delivered under the plan of merger, or the
authorized unissued shares or the treasury shares of common stock of the
surviving corporation to be issued or delivered under the plan of merger plus
those initially issuable upon conversion of any other shares, securities or
obligations to be issued or delivered under such plan do not exceed 20% of the
shares of common stock of such corporation outstanding immediately prior to the
effective date of the merger. See also "BANCGROUP CAPITAL STOCK AND DEBENTURES
- -- Changes in Control" for a description of the statutory provisions and the
provisions of the BancGroup Certificate relating to changes of control of
BancGroup. See "Antitakeover Statutes" for a description of additional
restrictions on business combination transactions.

AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS

The Bank. Under the Alabama Act, a corporation's board of directors
may propose one or more amendments to the Articles of Incorporation for
submission to the stockholders for their approval. For the amendment to be
adopted, the board of directors must recommend the amendment to the stockholders
unless the board of directors determines that, because of conflict of interest
or other special circumstances, it should make no recommendation and
communicates the basis for its determination to the

74
<PAGE> 81
stockholders with the amendment. Unless the Articles of Incorporation or the
board of directors requires a greater vote or vote by voting groups, the
amendment, to be adopted, must be approved by a majority of the votes entitled
to be cast on the amendment.

The Bank's Articles of Incorporation do not require a greater vote for
approval of amendments to the Bank's Articles of Incorporation, so the holders
of a majority of the shares entitled to vote on such an amendment would be
sufficient to approve any proposed amendment.

The Bank's bylaws provide that they may be abridged, altered, amended,
added to or repealed by the holders of a majority of the issued and outstanding
stock at any regular or special stockholders meeting.

BancGroup. Under the Delaware GCL, a corporation's certificate of
incorporation may be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon, and a majority of
the outstanding stock of each class entitled to vote as a class, unless the
certificate requires the vote of a larger portion of the stock. The BancGroup
Certificate requires "supermajority" shareholder approval to amend or repeal
any provision of, or adopt any provision inconsistent with, certain provisions
in the BancGroup Certificate governing (i) the election or removal of
directors, (ii) business combinations between BancGroup and a Related Person,
and (iii) board of directors evaluation of business combination procedures.
See "BANCGROUP CAPITAL STOCK AND DEBENTURES -- Changes in Control."

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<PAGE> 82
As is permitted by the Delaware GCL, the Certificate gives the board
of directors the power to adopt, amend or repeal the bylaws. The stockholders
entitled to vote have concurrent power to adopt, amend or repeal the BancGroup
bylaws.

RIGHTS OF DISSENTING STOCKHOLDERS

The Bank. Stockholders of Alabama corporations may exercise dissenters
rights of appraisal and be paid cash for their shares if they object to certain
transactions such as mergers, or the sale of all or substantially all of the
assets of the corporation, and follow certain procedures. For a description of
such appraisal rights, see "APPROVAL OF THE MERGER - Rights of Dissenting
Stockholders."

BancGroup. Under the Delaware GCL, a stockholder has the right, in
certain circumstances, to dissent from certain corporate transactions (such as
a merger but not a sale of assets) and receive the fair market value (excluding
any appreciation or depreciation as a consequence or in expectation of the
transaction) of his shares in cash in lieu of the consideration he otherwise
would have received in the transaction. Such fair value is determined by the
Delaware Court of Chancery if a petition for appraisal is timely filed.
Appraisal rights are not available, however, to stockholders of a corporation
(i) if the shares are listed on a national securities exchange (as is BancGroup
Common Stock) or quoted on the NASDAQ National Market System, or held of record
by more than 2,000 stockholders (as is BancGroup Common Stock), and (ii)
stockholders are permitted by the terms of the merger or consolidation to
accept in exchange for their shares (a) shares of stock of the surviving or
resulting corporation, (b) shares of stock of another corporation listed on a

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<PAGE> 83
national securities exchange or held of record by more than 2,000 stockholders,
(c) cash in lieu of fractional shares of such stock, or (d) any combination
thereof. Stockholders are not permitted appraisal rights in a merger if such
corporation is the surviving corporation and no vote of its stockholders is
required.

ANTITAKEOVER STATUTES

The Bank. Alabama does not have a business combination statute that
may have anti-takeover effects.

BancGroup. As a Delaware corporation, BancGroup is subject to the
business combination statute described under the heading "BANCGROUP CAPITAL
STOCK AND DEBENTURES -- Changes in Control -- Control Acquisitions."

PREFERRED STOCK

The Bank. The Bank's Articles of Incorporation do not authorize any
class of capital stock other than common stock.

BancGroup. The BancGroup Certificate authorizes the issuance of
1,000,000 shares of Preference Stock from time to time by resolution of the
BancGroup board of directors. Currently, no shares of Preference Stock are
issued and outstanding. See "BANCGROUP CAPITAL STOCK AND DEBENTURES --
Preference Stock."

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<PAGE> 84
DIVIDENDS

The Bank. The Alabama Act provides that, subject to any restrictions
in the corporation's Articles of Incorporation, distributions may be made from
the corporation's assets so long as (i) any such distribution would not render
the corporation unable to pay its debts as they become due in the usual course
of business and (ii) the corporation's total assets would not be less than the
sum of its total liabilities after giving effect to the distribution.

BancGroup. The Delaware GCL provides that subject to any restrictions
in the corporation's certificate of incorporation, dividends may be declared
from the corporation's surplus or, if there is no surplus, from its net profits
for the fiscal year in which the dividend is declared and the preceding fiscal
year. Dividends may not be declared, however, if the corporation's capital has
been diminished to an amount less than the aggregate amount of all capital
represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets. Substantially all of the funds
available for the payment of dividends by BancGroup are derived from its
subsidiary banks. There are various regulatory limitations on the ability of
BancGroup's subsidiary banks to pay dividends to BancGroup. See "BUSINESS OF
BANCGROUP -- Certain Regulatory Considerations."

EFFECT OF THE MERGER ON BANK STOCKHOLDERS

As of April 30, 1995, the number of stockholders of record of the Bank
was 52 and the number of shares of common stock outstanding was 5,600. As of
that date, BancGroup had 12,219,699 shares of Common Stock outstanding with
5,268 stockholders of record.

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<PAGE> 85
Assuming at the Effective Date a 10-day average market price per share
of the BancGroup Common Stock of $27.275, an aggregate amount of 256,881 shares
of BancGroup Common Stock would be distributed to the stockholders of the Bank
pursuant to the Merger. These shares would represent 2% of the total shares of
Common Stock outstanding after the Merger.

The issuance of the Common Stock pursuant to the Merger will reduce
the percentage interest of the Common Stock currently held by each principal
stockholder and each director and officer of BancGroup. Such reduction will
not be material. See "BUSINESS OF BANCGROUP -- Voting Securities and Principal
Stockholders."

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<PAGE> 86
The Colonial BancGroup, Inc. and subsidiaries
Condensed Pro Forma Statement of Condition (Unaudited)
(In Thousands)

The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of March 31, 1995 (as restated),
(ii) the condensed statement of condition of Farmers and Merchants Bank as of
March 31, 1995, (iii) the condensed consolidated statement of condition of Mt.
Vernon Financial and subsidiaries as of March 31, 1995, (iv) adjustments to
give effect to the proposed acquisition of Farmers and Merchants Bank and Mt.
Vernon Financial and subsidiaries, and (iv) the proforma combined condensed
statement of condition of BancGroup and subsidiaries as if such acquisitions
had occurred on March 31, 1995 on a purchase accounting basis.

These pro forma statements should be read in conjunction with the accompanying
notes and the separate consolidated statements of condition of BancGroup and
subsidiaries (as restated), incorporated by reference herein, and the
statements of condition of Farmers and Merchants Bank, included elsewhere
herein. The pro forma information provided below may not be indicative of
future results.

<TABLE>
<CAPTION>
March 31, 1995

(Dollars in Thousands) Farmers and
Colonial Bancgroup Merchants Adjustments/
Assets: (restated)(1) Bank (Deductions) Subtotal
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash and due from banks $ 120,749 $ 1,697 $(3,000)(1) $ 119,446

Interest-bearing deposits 2,481 2,481
Federal funds sold 1,480 1,065 2,545
Securities available for sale 83,239 83,239
Investment securities 334,817 22,250 (328)(1) 356,739
Mortgage loans held for sale 61,428 61,428
Loans, net of unearned income 2,255,258 24,860 2,280,118
Less: Allowance for possible loan losses (34,095) (270) (34,365)
---------- ------- ------- ----------
Loans, net 2,221,163 24,590 2,245,753
Premises and equiment, net 47,248 515 (67)(1) 47,696
Excess of cost over tangible and
intangible assets acquired, net 18,635 2,946 (1) 21,581
Purchased mortgage servicing rights 57,299 57,299
Other real estate owned 8,611 8,611
Accrued interest and other assets 57,504 735 188 (1) 58,427

---------- ------- ------- ----------
Total Assets $3,014,654 $50,852 $ (261) $3,065,245
========== ======= ======= ==========

Liabilities and Shareholders' Equity:

Deposits $2,295,341 $43,338 $2,338,679
FHLB short-term borrowings 310,000 310,000
Other short-term borrowings 112,748 112,748
Subordinated debt 17,458 17,458
Other long-term debt 25,290 25,290
Other liabilities 48,483 143 $ 104 (1) 48,730
---------- ------- ------- ----------
Total liabilities 2,809,320 43,481 104 2,852,905

Common Stock 30,521 560 (560)(1) 31,163
642 (1)
Additional paid in capital 115,672 560 (560)(1) 122,036
6,364 (1)

Retained earnings 60,677 6,251 (6,251)(1) 60,677
Unrealized loss on securities (1,536) (1,536)
---------- ------- ------- ----------
Total equity 205,334 7,371 (365) 212,340

Total liabilities and equity $3,014,654 $50,852 $ (261) $3,065,245
========== ======= ======= ==========

<CAPTION>
(Dollars in Thousands) Pro Forma
Mt. Vernon Adjustments/ Combined
Assets: Financial (Deductions) Total
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash and due from banks $ 1,094 $ 408 (2) $ 119,194
(1,754)(2)
Interest-bearing deposits 2,481
Federal funds sold 7,765 10,310
Securities available for sale 2,200 85,439
Investment securities 356,739
Mortgage loans held for sale 21,726 83,154
Loans, net of unearned income 157,778 525 (2) 2,438,421
Less: Allowance for possible loan losses (550) (34,915)
-------- ------- ----------
Loans, net 157,228 525 2,403,506
Premises and equiment, net 4,228 51,924
Excess of cost over tangible and
intangible assets acquired, net 4,604 (2) 26,185
Purchased mortgage servicing rights 1,362 678 (2) 59,339
Other real estate owned 8,611
Accrued interest and other assets 2,173 (66)(2) 60,915
381 (2)

-------- ------- ----------
Total Assets $197,776 $ 4,776 $3,267,797
======== ======= ==========

Liabilities and Shareholders' Equity:

Deposits $134,204 $2,472,883
FHLB short-term borrowings 44,000 354,000
Other short-term borrowings 1,365 114,113
Subordinated debt 17,458
Other long-term debt 25,290
Other liabilities 7,976 $ 396 (2) 57,102
-------- ------- ----------
Total liabilities 187,545 396 3,040,846

Common Stock 7 (7)(2) 32,595
1,432 (2)
Additional paid in capital 4,174 (4,174)(2) 135,215
13,179 (2)

Retained earnings 6,050 (6,050)(2) 60,677
Unrealized loss on securities (1,536)
-------- ------- ----------
Total equity 10,231 4,380 226,951

Total liabilities and equity $197,776 $ 4,776 $3,267,797
======== ======= ==========
</TABLE>

(1) Restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company and of its parent.

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<PAGE> 87
Pro Forma Adjustments (In Thousands):

Farmers & Merchants Bank

(1) To assign the amount by which the estimated value of the investment in
Farmers & Merchants Bank is in excess of the historical carrying amount of
the net assets acquired, based on the estimated fair value of such net
assets and to record the investment in Farmers & Merchants Bank by the
issuance of approximately 256,881 shares of BancGroup Common Stock for all
of the outstanding 5,600 shares of Farmers & Merchants Bank as follows:

<TABLE>
<S> <C>
Equity in carrying value of net assets of Farmers & Merchants Bank $ 7,371

Adjustments to state assets at fair value:
Write-down fixed assets (67)
Write-down investment securities (328)
Acquisition accruals:
Miscellaneous legal, accounting, supplies, etc. (104)

Tax effect of purchase adjustments 188
Goodwill 2,946
-------
Total adjustments to assets, liabilities and equity 2,635

Adjusted equity in carrying value of net assets $10,006
=======

Allocated as follows:
Par Value of 256,881 shares issued for all outstanding shares
of Farmers & Merchants Bank $ 642

Estimated amount in excess of par value of 256,881 shares of
BancGroup Common Stock issued for Farmers & Merchants
Bank outstanding shares at an assumed market
value of $27.275 per share (10 day average at July 5, 1995) 6,364

Cash of approximately $535.71 per share paid to Farmers &
Merchants Bank shareholders 3,000
-------

Total purchase price $10,006
=======
</TABLE>

Mt. Vernon Financial

(2) To assign the amount by which the estimated value of the investment in Mt.
Vernon Financial is in excess of the historical carrying amount of the net
assets acquired, based on the estimated fair value of such net assets and
to record the investment in Mt. Vernon Financial by the issuance of
approximately 572,993 shares of BancGroup Common Stock for all of the
outstanding 711,036 shares of Mt. Vernon Financial and 66,411 shares from
the exercise of stock options as follows:

<TABLE>
<S> <C> <C>
Equity in carrying value of net assets $10,231
Exercise of incentive stock options representing 66,411 shares of Mt. Vernon
Financial common stock 408
-------
Total equity in Mt. Vernon Financial 10,639

Adjustments to state assets at fair value:
Write-down other assets (66)
Write-up loan portfolio 525
Write-up purchase mortgage servicing rights 678

Cash paid for nonqualified stock options outstanding (1,754)

Acquisition accruals:
Buyout data processing agreement (92)
Employee severance agreements (175)
Miscellaneous legal, accounting, suuplies, etc. (129)
----
Total acquisition accruals recorded (396)

Tax effect of purchase adjustments 381
Goodwill 4,604
-------
Total adjustments to assets, liabilities and equity 3,972

Adjusted equity in carrying value of net assets $14,611
=======

Allocated as follows:
Par Value of 572,993 shares issued for all outstanding shares
of Mt. Vernon Financial and exercise of stock options $ 1,432

Estimated amount in excess of par value of 572,993 shares of
BancGroup Common Stock issued for Mt. Vernon Financial
outstanding shares and exercise of stock options at an assumed
market value of $25.50 per share (20 day average at June 20, 1995) 13,179
-------

Total purchase price $14,611
=======
</TABLE>

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<PAGE> 88
Condensed Pro Forma Statement of Income (Unaudited)

The following summaries include (i) the condensed consolidated statements of
income of Colonial BancGroup and subsidiaries for the three months ended March
31, 1995 (as restated) and the year ended December 31, 1994 (as restated), (ii)
the condensed statements of income of Brundidge Banking Company for the three
months ended March 31, 1995 and for the year ended December 31, 1994
(acquisition completed on March 31, 1995), (iii) the condensed statements of
income of Farmers and Merchants Bank for the three months ended March 31, 1995
and for the year ended December 31, 1994, (iv) the condensed consolidated
statements of income of Mt. Vernon Financial for the three months ended March
31, 1995 and for the year ended December 31, 1994, (v) adjustments to give
effect to the completed acquisition of Brundidge Banking Company and the
proposed acquisition of Farmers and Merchants Bank and Mt. Vernon Financial,
and (vi) the pro forma combined condensed consolidated statements of income of
BancGroup and subsidiaries (as restated) as if such acquisitions had occurred
on January 1, 1994.

These pro forma statements should be read in conjunction with the accompanying
notes and the separate consolidated statements of income of BancGroup and
subsidiaries (as restated), incorporated by reference herein, and the
statements of income of Farmers and Merchants Bank, included elsewhere herein.
The pro forma information provided below may not necessarily be indicative of
future results.

<TABLE>
<CAPTION>
Three Months Ended March 31, 1995

Adjustments/
(Deductions)
(Dollars in Thousands Applicable to
except per share amounts) Colonial BancGroup Brundidge Brundidge Farmers and
(restated)(1) Banking Company Banking Company Subtotal Merchants Bank
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 54,009 $ 1,076 $ 40 (1) $ 55,125 $ 938
Interest expense 26,831 503 27,334 376
-----------------------------------------------------------------------------------------------

Net interest income before
provision for loan losses 27,178 573 40 27,791 562

Provision for loan losses 1,067 19 1,086
-----------------------------------------------------------------------------------------------

Net interest income after
provision for loan losses 26,111 554 40 26,705 562
-----------------------------------------------------------------------------------------------

Noninterest income 10,864 70 10,934 51

Noninterest expense 24,203 375 33 (1) 24,611 281
-----------------------------------------------------------------------------------------------

Income before income taxes 12,772 249 7 (1) 13,028 332

Income taxes 4,471 14 4,485 107
-----------------------------------------------------------------------------------------------

Net Income $ 8,301 $ 249 $ (7) $ 8,543 $ 225
===============================================================================================

Average primary shares outstanding 12,049,000 49,898 (49,898) 12,305,517 5,600
256,517
Average fully-diluted shares
outstanding 12,818,000 49,898 (49,898) 13,074,517 5,600
256,517
Earnings per share:
Net Income:
Primary $ 0.69 $ 4.99 $ 0.69 $ 40.18
Fully diluted $ 0.67 $ 4.99 $ 0.67 $ 40.18

<CAPTION>
Adjustments/ Adjustments/
(Deductions) (Deductions)
(Dollars in Thousands Applicable to Applicable to Pro Forma
except per share amounts) Farmers and Mt. Vernon Mt. Vernon Combined
Merchants Bank Subtotal Financial Financial Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 16 (2) $ 56,079 $ 3,694 $ (26)(3) $ 59,747
Interest expense 27,710 2,226 29,936
----------------------------------------------------------------------------------

Net interest income before
provision for loan losses 16 28,369 1,468 (26) 29,811

Provision for loan losses 1,086 1,086
----------------------------------------------------------------------------------

Net interest income after
provision for loan losses 16 27,283 1,468 (26) 28,725
----------------------------------------------------------------------------------

Noninterest income 10,985 350 11,335

(8)(2) 31 (3)
Noninterest expense 37 (2) 24,921 1,211 58 (3) 26,221
----------------------------------------------------------------------------------

Income before income taxes (13) 13,347 607 (115) 13,839

Income taxes 9 (2) 4,601 252 (20)(3) 4,833
----------------------------------------------------------------------------------

Net Income $ (22) $ 8,746 $ 355 $ (95) $ 9,006
==================================================================================

Average primary shares outstanding (5,600) 12,562,398 711,036 (711,036) 13,135,391
256,881 572,993
Average fully-diluted shares
outstanding (5,600) 13,331,398 811,932 (811,932) 13,904,391
256,881 572,993
Earnings per share:
Net Income:
Primary $ 0.70 $ 0.50 $ 0.69
Fully diluted $ 0.68 $ 0.44 $ 0.67
</TABLE>

(1) Restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company and of its parent.

82
<PAGE> 89

<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1994

Adjustments/
(Deductions)
(Dollars in Thousands Applicable to
except per share amounts) Colonial BancGroup Brundidge Brundidge Farmers and
(restated) (1) Banking Company Banking Company Subtotal Merchants Bank
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 187,230 $ 4,306 $ 160 (1) $ 191,696 $ 3,492
Interest expense 82,549 1,921 84,470 1,352
-----------------------------------------------------------------------------------------------

Net interest income before
provision for loan losses 104,681 2,385 160 107,226 2,140

Provision for loan losses 6,481 151 6,632 79
-----------------------------------------------------------------------------------------------

Net interest income after
provision for loan losses 98,200 2,234 160 100,594 2,061
-----------------------------------------------------------------------------------------------

Noninterest income 44,243 341 44,584 259

Noninterest expense 100,791 1,904 130 (1) 102,825 1,153
-----------------------------------------------------------------------------------------------

Income before income taxes 41,652 671 30 42,353 1,167

Income taxes 14,342 207 56 (1) 14,605 359
-----------------------------------------------------------------------------------------------

Net Income $ 27,310 $ 464 $ (26) $ 27,748 $ 808
===============================================================================================

Average primary shares outstanding 11,996,000 49,898 (49,898) 12,252,517 5,600
256,517
Average fully-diluted shares
outstanding 12,763,000 49,898 (49,898) 13,019,517 5,600
256,517
Earnings per share:
Net income:
Primary $ 2.28 $ 9.30 $ 2.26 $144.29
Fully diluted $ 2.23 $ 9.30 $ 2.22 $144.29

<CAPTION>
Adjustments/ Adjustments/
(Deductions) (Deductions)
(Dollars in Thousands Applicable to Applicable to Pro Forma
except per share amounts) Farmers and Mt. Vernon Mt. Vernon Combined
Merchants Bank Subtotal Financial Financial Total
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest income $ 66 (2) $ 195,254 $ 11,921 $ (105)(3) $ 207,070
Interest expense 85,822 6,064 91,886
----------------------------------------------------------------------------------

Net interest income before
provision for loan losses 66 109,432 5,857 (105) 115,184

Provision for loan losses 6,711 6,711
----------------------------------------------------------------------------------

Net interest income after
provision for loan losses 66 102,721 5,857 (105) 108,473
----------------------------------------------------------------------------------

Noninterest income 44,843 1,504 46,347

(34)(2) 122 (3)
Noninterest expense 147 (2) 104,091 4,589 230 (3) 109,032
----------------------------------------------------------------------------------

Income before income taxes (47) 43,473 2,772 (457) 45,788

Income taxes 35 (2) 14,999 980 (79)(3) 15,900
----------------------------------------------------------------------------------

Net Income $ (82) $ 28,474 $ 1,792 $ (378) $ 29,888
==================================================================================

Average primary shares outstanding (5,600) 12,509,398 738,326 (738,326) 13,082,391
256,881 572,993
Average fully-diluted shares
outstanding (5,600) 13,276,398 835,630 (835,630) 13,849,391
256,881 572,993
Earnings per share:
Net income:
Primary $ 2.28 $ 2.43 $ 2.28
Fully diluted $ 2.23 $ 2.14 $ 2.24
</TABLE>

(1) Restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company and of its parent.

83
<PAGE> 90
<TABLE>
<CAPTION>
Pro Forma Adjustments: March 31 December 31
(In thousands) 1995 1994
--------------------------
<S> <C> <C>
Adjustments Applicable to completed acquisition of
Brundidge Banking Company:

(1) To amortize the assignment of estimated fair value in excess
of the carrying amount of assets acquired. The amortization
consists of the following:

Decrease in income:
Amortization of goodwill (20 year period) $ (33) $(130)

Increase in income:
Amortization of write-down on securities (3 year period) 40 160
--------------------------

Net increase in income before taxes 7 30

Tax effect of the pro forma adjustments (other than
goodwill amortization) contained in Note (1) (14) (56)
--------------------------

Net decrease in income $ (7) $ (26)
--------------------------

Adjustments Applicable to Farmers & Merchants Bank :

(2) To amortize the assignment of estimated fair value in excess
of the carrying amount of assets acquired. The amortization
consists of the following:

Decreases in income:
Amortization of goodwill (20 year period) $ (37) $(147)

Increases in income:
Amortization of write-down of investment securities (5 year period) 16 66
--------------------------

Total (21) (81)
--------------------------

Decrease in expense:
Reversal of depreciation on premises and equiment written
down at acquisition (2 year period) 8 34
--------------------------

Net decrease in income before taxes (13) (47)

Tax effect of the pro forma adjustments (other than
goodwill amortization) contained in Note (3) (9) (35)
--------------------------

Net decrease in income $ (22) $ (82)
--------------------------

Adjustments Applicable to Mt. Vernon Financial:

(3) To amortize the assignment of estimated fair value in excess
of the carrying amount of assets acquired. The amortization
consists of the following:

Decrease in income:
Amortization of write-up of purchased mortgage servicing
rights (5.5 year period) $ (31) $(122)
Amortization of write-up of loan portfolio (5 year period) (26) (105)

Amortization of goodwill (20 year period) (58) (230)
--------------------------

Net decrease in income before taxes (115) (457)

Tax benefit of the pro forma adjustments (other than
goodwill amortization) contained in Note (2) 20 79
--------------------------

Net decrease in income $ (95) $(378)
--------------------------
</TABLE>

84
<PAGE> 91

SUMMARY OF FUTURE ADJUSTMENTS

Assuming that the actual purchase accounting adjustments approximate such
adjustments used in preparing the March 31, 1995 pro forma statement of
condition, (assuming that the acquisitions had taken place December 31, 1994)
the anticipated effect of purchase accounting adjustments for the acquisition
of Farmers and Merchants Bank and Mt. Vernon Financial and the completed
acquisition of Brundidge Banking Company would be as follows:

<TABLE>
<CAPTION>
Years Ending December 31,
-----------------------------------------
1995 1996 1997 1998 1999
-----------------------------------------
<S> <C> <C> <C> <C> <C>
Amortization of goodwill $(507) $(507) $(507) $(507) $(507)

Amortization of write-up of loan portfolio (105) (105) (105) (105) (105)

Amortization of write-up of purchased mortgage
servicing rights (122) (122) (122) (122) (122)
-----------------------------------------

Total charges to earnings (734) (734) (734) (734) (734)

Amortization of write-down of fixed assets 34 34

Amortization of write-down of securities 226 226 226 66 66
-----------------------------------------

Total credits to earnings 260 260 226 66 66
-----------------------------------------

Net charges to future earnings
before income taxes (474) (474) (508) (668) (668)

Tax benefit of net charges to future earnings (12) (12) - 56 56
-----------------------------------------

Net charges to future earnings $(486) $(486) $(508) $(612) $(612)
-----------------------------------------

Applicable to:

Brundidge Banking Company $ (26) $ (26) $ (26) $(130) $(130)

Merchants and Farmers Bank (82) (82) (104) (104) (104)

Mt. Vernon Financial (378) (378) (378) (378) (378)
-----------------------------------------

Net charges to future earnings $(486) $(486) $(508) $(612) $(612)
-----------------------------------------
</TABLE>

85
<PAGE> 92
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- -------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(as restated)*
<TABLE>
<CAPTION>
For the years ended
December 31, 1994, 1993, 1992, 1991 and 1990
(In thousands, except per share amounts)

1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income $187,230 $141,572 $130,624 $138,969 $137,343
Interest expense 82,549 59,517 60,576 81,486 88,102
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 104,681 82,055 70,048 57,483 49,241
Provision for possible loan losses 6,481 7,945 7,979 6,364 6,306
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
possible loan losses 98,200 74,110 62,069 51,119 42,935
Noninterest income 44,243 40,433 34,727 31,271 28,547
Noninterest expense 100,791 86,520 75,529 65,996 61,435
- -----------------------------------------------------------------------------------------------------------------------
Income before income taxes 41,652 28,023 21,267 16,394 10,047
Applicable income taxes 14,342 8,886 5,715 4,175 1,782
- -----------------------------------------------------------------------------------------------------------------------
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes 27,310 19,137 15,552 12,219 8,265
Extraordinary items, net of income taxes -- (463) -- 831 1,385
Cumulative effect of a change in
accounting for income taxes -- 3,219 -- -- --
- -----------------------------------------------------------------------------------------------------------------------
Net income $ 27,310 $ 21,893 $ 15,552 $ 13,050 $ 9,650
=======================================================================================================================

EARNINGS PER COMMON SHARE
Income before extraordinary items
and the cumulative effect of a change in
accounting for income taxes:
Primary $ 2.28 $ 2.01 $ 1.72 $ 1.37 $ 0.94
Fully-diluted $ 2.23 $ 1.96 $ 1.71 $ 1.37 $ 0.94
Net income:
Primary $ 2.28 $ 2.30 $ 1.72 $ 1.47 $ 1.10
Fully-diluted $ 2.23 $ 2.21 $ 1.71 $ 1.47 $ 1.10
Average shares outstanding:
Primary 11,996 9,530 9,016 8,905 8,792
Fully-diluted 12,763 10,623 10,327 10,247 10,095

Cash dividends per common share:(1)
Class A $ 0.80 $ 0.71 $ 0.67 $ 0.63 $ 0.60
Class B $ 0.40 $ 0.31 $ 0.27 $ 0.23 $ 0.20
=======================================================================================================================
</TABLE>

* As restated to give effect to the February 17, 1995 acquisition of Colonial
Mortgage Company, an entity under common control, which was accounted for
in a manner similar to a pooling of interests; restated BancGroup financial
statements were filed on July 10, 1995 on Form 8-K and are incorporated by
reference to this prospectus.

(1) On February 21, 1995, the Class A and Class B Common Stock were
reclassified into one class of Common Stock.

86
<PAGE> 93

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA CONTINUED
(as restated)*
<TABLE>
<CAPTION>
For the years ended
December 31, 1994, 1993, 1992, 1991 and 1990
(In thousands, except per share amounts)

1994 1993(1) 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
At year-end:
Total assets $2,838,343 $2,822,521 $1,796,246 $1,687,177 $1,568,216
Loans, net of unearned income 2,093,703 1,771,989 1,172,151 1,093,728 1,062,798
Mortgage loans held for sale 60,536 361,496 144,215 105,219 31,069
Deposits 2,171,464 2,190,998 1,493,479 1,452,344 1,339,918
Long-term debt 69,043 57,397 22,979 27,225 29,397
Shareholders' equity 191,551 172,764 100,406 88,429 78,412
Average daily balances:
Total assets $2,726,710 $2,119,660 $1,764,397 $1,643,622 $1,532,863
Interest-earning assets 2,458,568 1,871,254 1,540,926 1,450,115 1,355,059
Loans, net of unearned income 1,906,385 1,315,910 1,136,124 1,094,096 1,016,826
Mortgage loans held for sale 131,121 241,683 118,510 65,373 28,525
Deposits 2,158,532 1,644,658 1,476,668 1,403,538 1,309,395
Shareholders' equity 182,823 119,790 94,833 84,423 75,371
Book value per share at year-end $ 16.08 $ 14.64 $ 11.27 $ 10.00 $ 8.92
Tangible book value per share at year-end 14.71 13.25 10.60 9.21 8.12
======================================================================================================================

SELECTED RATIOS
Income before extraordinary items and the
cumulative effect of a change in accounting
for income taxes to:
Average assets 1.00% 0.90% 0.88% 0.74% 0.54%
Average shareholders' equity 14.94 15.98 16.40 14.47 10.97
Net income to:
Average assets 1.00 1.03 0.88 0.79 0.63
Average shareholders' equity 14.94 18.28 16.40 15.46 12.80
Efficiency ratio 66.68 69.50 70.64 72.52 76.69
Dividend payout ratio 27.21 25.33 26.85 31.60 44.00
Average equity to average total assets 6.70 5.65 5.37 5.14 4.92
Total nonperforming assets to
net loans, other real estate and repossessions 0.91 1.31 1.34 1.07 1.49
Net charge-offs to average loans 0.09 0.33 0.47 0.51 0.49
Allowance for possible loan losses to
total loans (net of unearned income) 1.60 1.62 1.60 1.48 1.42
Allowance for possible loan losses to
nonperforming loans 314% 347% 246% 246% 132%
======================================================================================================================
</TABLE>

87
<PAGE> 94
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
- --------------------------------------------------------------------------------
SELECTED QUARTERLY FINANCIAL DATA 1994-1993
(as restated)*
<TABLE>
<CAPTION>

(In thousands, except per share amounts)

1994 1993
----------------------------------------- -----------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income $50,870 $47,180 $45,779 $43,401 $38,269 $37,524 $35,361 $30,418
Interest expense 23,341 20,439 19,915 18,854 15,922 15,824 14,855 12,916
- -----------------------------------------------------------------------------------------------------------------------
Net interest income 27,529 26,741 25,864 24,547 22,347 21,700 20,506 17,502
Provision for loan losses 1,767 1,818 1,448 1,448 2,333 2,061 2,263 1,288
- -----------------------------------------------------------------------------------------------------------------------
Net interest income after
provision for loan losses 25,762 24,923 24,416 23,099 20,014 19,639 18,243 16,214
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes 6,644 7,078 6,740 6,848 4,688 5,223 5,202 4,024
Net income $ 6,644 $ 7,078 $ 6,740 $ 6,848 $ 4,688 $ 4,760 $ 5,202 $ 7,243(1)
- -----------------------------------------------------------------------------------------------------------------------
Per common share:
Income before
extraordinary items and
the cumulative effect of
a change in accounting
for income taxes
Primary $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.54 $ 0.54 $ 0.44
Fully-diluted 0.54 0.58 0.55 0.56 0.47 0.53 0.52 0.43
Net income
Primary $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.49 $ 0.54 $ 0.80
Fully-diluted 0.54 0.58 0.55 0.56 0.47 0.48 0.52 0.74
=======================================================================================================================
</TABLE>

(1) SFAS 109 was adopted in the first quarter of 1993.

88
<PAGE> 95

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES
SELECTED INTERIM FINANCIAL DATA (Unaudited)

(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
% Change
March 31, Dec. 31, March 31, March 31,
1995* 1994* 1994* 1995 to 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Condition Summary

Total assets.............................. $3,014,654 $2,838,343 $2,797,486 8%
Loans, net of unearned income............. 2,255,258 2,093,703 1,831,507 23%
Total earnings assets..................... 2,738,703 2,561,379 2,587,174 6%
Deposits.................................. 2,295,341 2,171,464 2,176,037 5%
Shareholders' equity...................... 205,334 191,551 178,554 15%
Book value per share...................... $16.82 $16.08 $15.08 12%
- -------------------------------------------------------------------------------------------

<CAPTION>
Three Months Ended
March 31,
1995* 1994* % Change
---------- ---------- ---------
<S> <C> <C>
Earnings Summary

Net interest income (taxable equivalent).. $27,779 $25,027 11%
Provision for loan losses................. 1,067 1,448 -26%
Noninterest income........................ 10,864 11,222 -3%
Noninterest expense....................... 24,203 23,975 1%
Net income................................ 8,301 6,848 21%

Average primary shares outstanding........ 12,049 11,957
Average fully diluted shares outstanding.. 12,818 12,730

Per common share:
Fully-diluted earnings:
Net Income.............................. $ 0.67 $ 0.56 20%

Dividends:
Common Stock............................ 0.225 N/A
Class A................................. N/A 0.20
Class B................................. N/A 0.10

- -------------------------------------------------------------------------------------------

Selected Ratios

Return on average assets 1.18% 1.03%
Return on average equity 17.16% 15.80%

Efficiency ratio 62.63% 66.14%
Equity to assets 6.81% 6.38%
Total capital 8.43% 7.98%
Tangible leverage 6.46% 6.05%

- -------------------------------------------------------------------------------------------
</TABLE>
*As restated

89
<PAGE> 96
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
Financial Condition December 31,
----------------------
1994 1993
---- ----
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Total amount of:
Assets $51,007 $48,733
Investments (1) 26,059 27,316
Loans receivable 23,661 20,085
Deposits 43,561 41,782
Retained Earnings 6,222 5,610
- ------------------------------------------------------------------------------------------------------------------
Number of full service facilities 3 3
</TABLE>

- ---------------------------------------------------------------------
(1) Consists of federal funds sold, marketable securities, and cash.

<TABLE>
<CAPTION>
Operating Data Year Ended December 31,
------------------------------------
1994 1993 1992
---- ---- ----
(Unaudited) (Unaudited)
(Dollars in thousands)
<S> <C> <C> <C>
Interest and dividend income $3,585 $3,574 $3,788
Interest expense 1,352 1,320 1,614
------ ------ ------
Net interest income before loan losses 2,233 2,254 2,174
Provision for loan losses 80 68 232
------ ------ ------
Net interest income after loan loss provision 2,153 2,186 1,942
Gain (loss) on sales of securities, net (22) 35 (45)
Other income 189 220 160
Other expenses 1,153 1,123 1,073
Income tax expense 359 416 297
------ ------ ------
Net earnings $ 808 $ 902 $ 687
====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
Selected Statistical Data
December 31,
----------------------
1994 1993
---- ----
(Unaudited)
<S> <C> <C>
Return on assets (net earnings divided by average total assets) 1.62% 1.86%
Equity-to-assets ratio (average equity divided by average total assets) 14.76% 13.18%
Allowance for possible loan losses as a percent of total loans (net of unearned) 1.14% 1.32%
Cash dividends per share $ 35.00 $ 25.00
Dividend payout ratio (dividends declared per share divided by net income per share) 24.26% 15.52%
Earnings per share $144.28 $161.08
</TABLE>

90
<PAGE> 97

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

INTRODUCTION

The following discussion and financial information is presented to aid
in the understanding of the current financial position and results of
operations of Farmers and Merchants Bank, Ariton, Alabama (the "Bank") and
should be read in conjunction with the Financial Statements and Notes. With
respect to the figures for the years ended December 31, 1993 and 1992 and for
the three month periods ended March 31, 1995 and 1994, which are unaudited, in
the opinion of management all adjustments (none of which were other than normal
recurring adjustments) necessary for a fair statement of such results for such
periods have been included. The Bank operates three banking locations in Dale
County, Alabama. The operations center is in Ariton with two branch locations
in Ozark.

AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 1994 AND 1993
FINANCIAL CONDITION

ASSETS. The total assets of the Bank were $51,007,623 at December 31,
1994, a $2,274,708 increase from the 1993 year end assets of $48,732,915. At
December 31, 1994, earning assets totaled $48,208,258, or 94.51%, of total
assets, compared to $45,917,025, or 94.22%, at December 31, 1993.

The Bank's investment securities portfolio decreased from $24,006,839
at December 31, 1993 to $22,437,021 at year end 1994. A growing loan demand
was primarily responsible for the decrease in 1994.

During 1994, the average yield on federal funds sold, a liquid,
overnight investment source for excess funds, increased from an average rate of
3.16% in 1993 to an average of 4.53%. Consequently, excess funds were moved
into federal funds on a short-term basis. The volume of federal funds sold at
December 31, 1994 therefore increased 17.90% to $1,840,000 from $1,560,000 at
year end 1993.

Total loans, net of unearned income, increased by $3,576,126 during
1994, or 17.8% from the December 31, 1993 total of $20,085,111. Commercial
loans increased $1,122,806 or 22.1%. Installment loans increased $2,439,797 or
15.9%. This increase was caused by the upturn in interest rates in 1994. As
rates bottomed out and turned upward consumers entered the market to take
advantage of the historically low interest rates. Also, several large
commercial loans were made during 1994 to local governments.

Loans are reviewed on a regular basis and are placed on non-accrual
status when, in the opinion of management, the collection of additional
interest is doubtful. Generally, this occurs when either principal or interest
is 90 days or more past due. Interest accrued and unpaid at the time a loan is
placed on non-accrual status is charged against interest income. Subsequent
payments are either applied to the outstanding principal balance or recorded as
interest income, depending on the assessment of the ultimate collectibility of
the loan. The Bank had no loans on non-accrual status at December 31, 1994 or
1993.

91
<PAGE> 98
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

The Bank strives to maintain the allowance for loan losses at an
appropriate level determined by management based on its analysis of the loan
portfolio, in order to provide for possible future loan losses. Management's
analysis takes into consideration such factors as current and expected economic
conditions, historical loss experience, levels of non-accruing loans and loan
delinquencies. In addition, there can be no assurance that regulators, in
reviewing the loan portfolio, will not request the Bank to increase
significantly its allowance for loan losses, thereby negatively impacting the
financial condition and earnings. Management considers the current allowance
for loan losses adequate to absorb potential losses in the loan portfolio.

The allowance for loan losses at year end were $270,000 and $265,075
for 1994 and 1993, respectively, with the corresponding ratios of allowance to
total loans being 1.13% and 1.30%. Net charge-offs totaled $74,683 and
$29,715 in 1994 and 1993, respectively, representing .32% and .15% of net
loans.

DEPOSITS. The Bank relies primarily on its deposits to fund loans and
other investments, rather than on purchased or borrowed funds. Total deposits
at December 31, 1994 were $43,560,999, an increase of $1,779,236 or 4.26% from
December 31, 1993. The majority of this increase is the rollover of interest
earned from interest bearing deposits. Demand, savings, and time deposit
accounts at December 31, 1994 were $17,671,258, $2,859,157, and $23,030,584,
respectively, representing increases of $1,278,251, $373,581, and $127,404 from
December 31, 1993, respectively.

LIQUIDITY. Liquidity refers to the ability of the Bank to meet the
borrowing needs and withdrawal demands of its customers, while also providing
funds for operating expenses and its own cash flow requirements. The Bank
achieves its desired liquidity from management of both assets and liabilities.
In the ordinary course of business, the Bank's cash flows are generated from
interest and fee income, as well as from loan repayments and the maturity or
sales of other earning assets. In addition, liquidity is continuously provided
through the acquisition of new deposits or the rollover of matured deposits.

The Bank is typically a seller of federal funds but may, during
occasional short-term peaks in loan demand or temporary fluctuations in
liquidity factors, purchase federal funds or borrow from a correspondent bank
to meet its cash needs. A continuing flow of funds from maturing investment
securities is available for cash needs or for reinvestment to maintain a
desired liquidity position. At December 31, 1994, approximately 7.64% of the
total securities portfolio will mature within one year. A relatively stable
flow of deposits also enhances the Bank's liquidity.

The Bank's 1994 year end liquid assets, consisting primarily of cash
on hand and on deposit in other institutions and federal funds sold, totaled
$3,622,296 compared to $3,309,327 at year end 1993. Management considers the
Bank's liquidity sources to be adequate to meet its current and projected
needs.

CAPITAL. Capital is a measure of the Bank's financial soundness and
viability. The Bank is committed to maintaining a strong capital position to
protect shareholders and depositors, provide for reasonable growth, and fully
comply with all regulatory requirements while paying consistent dividends to
its shareholders.

The Bank's capital at December 31, 1994 totaled $7,342,396 compared
to $6,730,404 in 1993. This growth in the Bank's capital has been through the
retention of internally generated earnings. Frequently, capital is expressed
as a percent of assets to measure financial strength. At year end 1994 and
1993, these ratios were 14.39% and 13.81%, respectively.

92
<PAGE> 99
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Risk-based capital regulations adopted by banking regulators require
the Bank to achieve and maintain specified ratios of capital to risk-weighted
assets. The risk-based capital rules weigh assets and off-balance sheet
obligations at 0%, 20%, 50% or 100%, depending upon the risk classification of
the asset or obligation. A minimum risk-based capital ratio of 8.00% is
required, with one-half, or 4.00%, of the amount in the form of core capital
(consisting primarily of shareholders' equity, less goodwill). Furthermore,
the federal regulatory agencies have adopted minimum leverage ratio rules that
require bank holding companies and banks to maintain a ratio of core capital to
total assets of at least 3.00%; provided, however, that only the strongest bank
holding companies and banks are to be permitted to operate at or near such
minimum level of capital. All other bank holding companies and banks will be
expected to maintain a cushion of at least 1.00% to 2.00% above the minimum
ratio. At December 31, 1994, the Bank satisfied all regulatory capital
requirements. The table below summarizes the Bank's compliance with the
capital standards.

RISK BASED CAPITAL RATIOS AND LEVERAGE RATIOS AS OF DECEMBER 31, 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<S> <C> <C>
RISKED BASED CAPITAL RATIOS
- ---------------------------
Tier 1 capital $ 7,342 30.24
Tier 1 capital - minimum required 971 4.00
---------- -----
Excess $ 6,371 26.24

Total capital $ 7,612 31.35
Total capital - minimum required 1,942 8.00
---------- -----
Excess $ 5,670 23.35

Net risk-weighted assets $ 24,280
----------

LEVERAGE RATIOS
- ---------------
Total tier 1 capital $ 7,342 14.65
Minimum leverage requirement 1,504 3.00
---------- -----
Excess $ 5,838 11.65
----------

Average total assets, net of all goodwill $ 50,127
----------
</TABLE>

RESULTS OF OPERATIONS

In 1994, the Bank recorded net income of $807,992, which represents a
10.43% decrease from 1993 net income of $902,029 and a 17.64% increase over
1992 net income of $696,830. Earnings per share were $144.28, $161.08 and
$122.65, respectively, for the three years ended December 31, 1994, 1993 and
1992.

NET INTEREST INCOME. By the nature of its business, the largest
portion of the Bank's income is derived primarily from net interest income.
Net interest income is the difference between interest income, earned primarily
on loans and investment securities, and interest expense, which is paid on
deposits and other interest-bearing liabilities. Many factors influence net
interest income, including fluctuations in interest rates and changes in the
volume and mix of earning assets and interest-bearing liabilities.

The table on Exhibit A details the distribution of average assets,
liabilities and shareholders' equity, with the interest rate differentials for
the Bank for the three years ended December 31, 1994, 1993 and 1992.

93
<PAGE> 100
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Interest income for 1994 of $3,492,245 represents a .65% decrease over
1993 interest income of $3,515,006. The decrease in income occurred despite an
increase in the volume of earning assets of $2,291,233 from 1993 to 1994.
This decrease in income was due mainly to decreased yields on investment
securities. This was due to many high interest securities being called in
1993. The proceeds from the called securities was invested at lower rates and
used to meet increased loan demand.

Interest income on loans and investments represents the largest source
of revenue for the Bank. In 1994, interest income on loans grew to $1,898,069,
compared to $1,793,641 in 1993. The increase in interest income on loans was
the result primarily of the increase in the volume of loans from $20,350,185 in
1993 to $23,931,237 in 1994. This increase in loans was offset somewhat by a
lower yield on the loan portfolio. These lower yields were the result of loan
customers refinancing high interest loans along with other high interest loans
maturing.

Interest rates on federal funds sold, a liquid investment source for
excess funds, increased from an average rate of 3.16% in 1993 to 4.53% in 1994.
Interest income on federal funds sold totaled $48,602 for 1994, a 27.51%
increase from $38,115 in 1993.

The volume of the investment securities decreased $1,695,487 in 1994,
or 6.72%, from the previous year as funds were used for increased loan demand.
Also, slightly lower yields were reflected in the securities portfolio due to
the fact that some high yield securities were called in the previous year. This
decreased volume and lower yields on securities caused interest income on
securities to decrease $137,676, or 8.18%, in 1994.

Interest expense is the Bank's largest single expense category. In
1994, interest expense totaled $1,351,844, a 2.43% increase from the 1993
interest expense of $1,319,797. This increase was due to the increased volume
of deposits and slightly higher rates. The volume of deposits in 1994 increased
$1,779,236 to $43,560,999.

The resulting net interest income for 1994 was $2,140,401, a 2.50%
decrease from the 1993 net interest income of $2,195,227. This decrease was
due to the fact that interest bearing liabilities reprice at a faster rate than
interest earning assets. This would lead to lower earnings in a time of
increasing interest rates.

In 1993, interest income on earning assets decreased from $3,741,545
in 1992 to $3,515,006. The volume of earning assets increased in 1993,
$2,305,082, or 5.29%, from the 1992 volume of $43,611,943. However, this
increase in earning assets was offset by a decrease in yields from 8.58% in
1992 to 7.66% in 1993. A $615,672, or 1.50%, increase in the volume of deposit
accounts in 1993 was offset partially by a drop in interest rates. Interest
expense decreased from $1,614,201 to $1,319,779. The resulting net interest
income for 1993 was $2,195,227, compared to $2,127,344 for 1992.

PROVISION FOR LOAN LOSSES. The provision for loan losses in 1994 was
$79,608, compared to $67,542 in 1993 and $231,970 in 1992. The large provision
in 1992 was the result of a large charge-off. The purpose of the provision for
loan losses is to replace reductions to the allowance for loan losses caused by
actual charge-offs and to establish adequate reserves for the growth of the
loan portfolio. The allowance for loan losses represents the estimated
uncollectible amount of loans included in the Bank's loan portfolio and is
available to absorb potential losses from any category of loans.

NON-INTEREST INCOME. Non-interest income is generated by various
financial services and activities. As pressures on net interest income
continue, expansion of these services and the related fee income is of great
importance to the future profitability of the Bank. Among these are deposit
service charges, safe deposit box rent and net gains on the sale of investment
securities.

94
<PAGE> 101
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

Total non-interest income decreased $54,409 in 1994 to $259,419. This
was primarily due to net securities and other gains and losses for 1994 being
a loss of $22,578 compared to a gain of $35,097 in 1993. The large gain in
1993 was the result of securities being called as a result of the lower market
interest rates. As deposits increased in 1994, service charges on deposit
accounts also increased, from $240,889 in 1993 to $278,703.

In 1993, non-interest income was $313,868, a $152,156 increase over
1992. In 1993, net gains on the sale of investment securities and other gains
totaled $35,097, compared to a loss of $44,708 in 1992.

NON-INTEREST EXPENSE. Total non-interest expense for 1994 totaled
$1,152,877, compared to $1,123,144 for the previous year. Salaries and
employee benefits in 1994 were $602,311, compared to $577,703 in 1993, a 4.26%
increase. This increase was consistent with the increase in inflation.

For the year 1993, non-interest expense increased to $1,123,144, from
$1,073,547 for the previous year. All other expenses remained relatively
stable in 1993 compared to 1992.

INCOME TAX EXPENSE. Income before taxes for 1994 was $1,167,335, a
11.53% decrease from the 1993 income before taxes of $1,318,369. Income before
taxes for 1992 totaled $983,499. The income tax expense expressed as a percent
of income before taxes was 30.78%, 31.58% and 30.16% for 1994, 1993 and 1992,
respectively. Income tax expense for 1994 totaled $359,343, compared to
$416,340 for 1993 and $296,669 for 1992. Provision for income taxes includes
deferred taxes on temporary differences between income tax and financial
accounting. In addition, interest income on loans and securities of $183,102,
$204,494, and $215,426 for 1994, 1993, and 1992, respectively, is exempt from
federal income tax expense.

NEW ACCOUNTING STANDARDS

The Financial Accounting Standards Board (FASB) issued Financial
Accounting Statement No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (FAS 115). The Bank elected to adopt FAS 115 as of
December 31, 1993. The Bank has classified all securities as held to maturity.
Therefore all securities are recorded at amortized cost.

Financial Accounting Statement No. 109, "Accounting for Income Taxes"
(FAS 109), was issued by the FASB. FAS 109 changes the method of accounting
for income taxes from the deferred method to the asset and liability method of
accounting for income taxes. As permitted under the new rules, The Bank
adopted FAS 109 as of December 31, 1993 and the prior years financial
statements have not been restated. The cumulative effect of adopting FAS 109
was not material.

IMPACT OF INFLATION AND CHANGING PRICES

The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results without
considering changes in the relative purchasing power of money over time due to
inflation.

The majority of assets and liabilities of a financial institution are
monetary in nature and therefore differ greatly from most commercial and
industrial companies that have significant investments in fixed assets or
inventories. However, inflation does have an important impact on the growth of
total assets and creates the need to generate more equity capital in order to
maintain an appropriate equity to assets ratio. Another significant effect on
inflation is on non-interest expenses, which tend to rise during periods of
inflation.

95
<PAGE> 102
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

The Bank's profitability, like that of most financial institutions,
is dependent to a large extent upon its net interest income. Management
believes, therefore, that changes in interest rates have a more significant
impact on a financial institution's performance than the effects of general
levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the price of goods and services, since
such prices are affected by inflation. Whenever interest-earning assets
reprice to market interest rates at a different pace than interest-bearing
liabilities, net interest income performance will be affected favorably or
unfavorably during periods of changes in general interest rates. In a volatile
interest rate environment, liquidity and the maturity structure of the Bank's
assets and liabilities are critical to the maintenance of acceptable
performance levels. Prevailing interest rates during 1994 increased at a
moderate rate. While the Bank is unable to predict future changes in market
rates of interest, an upward trend in interest rates would tend to have a
negative effect on the Bank's net interest margin, as the Bank's
interest-bearing liabilities are scheduled to reprice at more current intervals
than its interest-earning assets.

96
<PAGE> 103
EXHIBIT A
FARMERS AND MERCHANTS BANK, INC.

AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 and 1992
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
1994 1993
------------------------------ ------------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans, net $21,982 $1,898 8.63% $19,175 $1,794 9.36%
Investment Securities 23,664 1,546 6.53% 24,379 1,683 6.90%
Federal funds sold 1,253 49 3.91% 1,811 38 2.10%
------------------------------ ------------------------------
Total interest earning assets 46,899 3,493 7.45% 45,365 3,515 7.75%
------------------------------ ------------------------------
Non-interest earning assets:
Cash and due from banks 1,645 1,757
Bank premises and equipment (net) 551 589
Other assets 801 884
------- -------
Total non-interest earning assets 2,997 3,230
------- -------
Total assets $49,896 $48,595
======= =======

LIABILITIES
Interest bearing liabilities:
Interest bearing demand deposits $37,353 1,352 3.62% $36,991 1,320 3.57%
------------------------------ ------------------------------
Total interest bearing liabilities 37,353 1,352 3.62% 36,991 1,320 3.57%
------------------------------ ------------------------------
Non-interest bearing liabilities:
Non-interest bearing demand deposits 4,829 4,909
Other liabilities 350 291
------- -------
Total non-interest bearing liabilities 5,179 5,200
------- -------
Total liabilities 42,532 42,191
------- -------
Shareholders' Equity 7,364 6,404
------- -------
Total liabilities and shareholders'
equity $49,896 $48,595
======= =======
Net interest income $2,141 $2,195
====== ======
Net yield on interest earning assets 3.83% 4.18%
==== ====

<CAPTION>
1992
-------------------------------
AVERAGE YIELD/
BALANCE INTEREST RATE
-------------------------------
<S> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans, net $17,209 $1,842 10.70%
Investment Securities 23,847 1,838 7.71%
Federal funds sold 1,792 61 3.40%
------------------------------
Total interest earning assets 42,848 3,741 8.73%
------------------------------
Non-interest earning assets:
Cash and due from banks 2,087
Bank premises and equipment (net) 621
Other assets 1,010
-------
Total non-interest earning assets 3,718
-------
Total assets $46,566
=======

LIABILITIES
Interest bearing liabilities:
Interest bearing demand deposits $36,268 1,614 4.45%
------------------------------
Total interest bearing liabilities 36,268 1,614 4.45%
------------------------------
Non-interest bearing liabilities:
Non-interest bearing demand deposits 4,042
Other liabilities 310
-------
Total non-interest bearing liabilities 4,352
-------
Total liabilities 40,620
-------
Shareholders' Equity 5,946
-------
Total liabilities and shareholders'
equity $46,566
=======
Net interest income $2,127
======
Net yield on interest earning assets 4.28%
=====

</TABLE>

97
<PAGE> 104

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA

SELECTED INTERIM FINANCIAL DATA

<TABLE>
<CAPTION>
Financial Condition Data March 31,
---------------------
1995 1994
---- ----
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Total amount of:
Assets $50,852 $49,362
Investments (1) 25,012 27,611
Loans receivable 24,590 20,349
Deposits 43,338 42,426
Retained earnings 6,251 5,660
- --------------------------------------------------------------------------------------------------
Number of full service customer facilities 3 3
</TABLE>

- ---------------------------------------------------------------------
(1) Consists of federal funds sold, marketable securities, and cash.

<TABLE>
<CAPTION>
Operating Data Three months ended March 31,
----------------------------
1995 1994
---- ----
(Unaudited)
(Dollars in thousands)
<S> <C> <C>
Interest and dividend income $938 $851
Interest expense 376 323
---- ----
Net interest income before loan loss provision 562 528
Provision for loan loss 0 0
Noninterest income 50 67
Noninterest expense 281 259
---- ----
Income before income taxes 331 336
Provision for income taxes 106 90
---- ----
Net earnings $225 $246
==== ====
</TABLE>

<TABLE>
<CAPTION>
Per Share Data Three months ended March 31,
----------------------------
1995 1994
---- ----
(Unaudited)
<S> <C> <C>
Net income $40.17 $43.86
Dividends paid 35.00 35.00
</TABLE>

98
<PAGE> 105
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION

COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994:

FINANCIAL CONDITION

ASSETS. Total assets increased $629,105 from $48,732,915 at 1993
year end to $49,362,020 at March 31, 1994. This increase was primarily due to
an increase in investments and loans of $1,132,099 and a decrease in cash and
federal funds sold of $573,280 during the three month period. Total assets
decreased $155,797 from $51,007,623 at 1994 year end to $50,851,826 at March
31, 1995. Total loans, net of unearned income, increased by $929,184, while
cash, investment securities, and federal funds sold decreased by $1,046,925.

LIABILITIES. Total liabilities were $42,581,979 at March 31, 1994, a
$579,468 increase from 1993 year end and were $43,480,483 at March 31, 1995, a
$184,744 decrease from 1994 year end. The increase at March 31, 1994 is
primarily attributable to the increase in deposits of $2,803,886. The
decrease at March 31, 1995 was due to decreases in the amount of time deposits.

CAPITAL. Capital at March 31, 1994 totaled $6,780,041, a $49,637
increase from the 1993 year end capital of $6,730,404. The net increase
consists of net income of $245,637 and decreases due to cash dividends paid of
$196,000. Capital at March 31, 1995 totaled $7,371,343, a $28,947 increase
from the 1994 year end capital of $7,342,396. The net increase consists of net
income of $245,637 and decreases due to cash dividends paid of $196,000.

RESULTS OF OPERATIONS

SUMMARY. The Bank's net income decreased $20,690 from $245,637 or
$43.86 per share to $224,947 or $40.17 per share for the three months ended
March 31, 1994 and 1995, respectively. The decrease is primarily attributable
to increases in other operating expenses and provision for taxes. The tax
provision increased from $ 90,000 for the three months ended March 31, 1994 to
$106,500 for the same period in 1995.

NET INTEREST INCOME. Net interest income increased from $527,675 in
the first three months of 1994 to $561,539 in the same period of 1995. The
increase is primarily attributable to volume increases and rate increases on
loans. Interest earning assets increased $778,265 to $46,695,290 in the first
three months of 1994 and decreased $25,477 to $48,170,648 in the same period of
1995. Interest bearing liabilities increased $671,535 to $37,535,396 in the
first three months of 1994 and decreased $37,610 for the same period of 1995.

PROVISION FOR LOAN LOSSES. No provision for loan losses had been
recorded in the first three months of 1995 or 1994, as there had been no
significant loans charged off during this period. Asset quality has remained
consistently strong, however, management continues to establish reserves on a
conservative basis to protect future capital.

99
<PAGE> 106
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
MANAGEMENT'S DISCUSSION AND ANALYSIS, CONTINUED

NON-INTEREST INCOME. For the three month period ended March 31, 1995
non-interest income decreased $16,078 to $50,462 compared to the three months
ended March 31, 1994. The decrease is primarily due to the decrease in service
charges and other fees as a result of lower deposits.

NON-INTEREST EXPENSE. Non-interest expense increased $21,976 to
$280,554 for the first three months of 1995 from $258,578 for the same period
in 1994.

PROVISION FOR INCOME TAXES. The provision for income taxes for the
three months ended March 31, 1995 and 1994 was $106,500 and 90,000,
respectively. The income tax expense expressed as a percent of income before
income taxes was 32.13% for 1995 and 26.81% for 1994.

100
<PAGE> 107
BUSINESS OF BANCGROUP

PROPOSED AFFILIATE BANK

BancGroup has entered into a definitive agreement dated as of May 4,
1995, to acquire Mt. Vernon Financial Corporation ("Financial") Dunwoody,
Georgia. Financial is a Georgia corporation and is a holding company for Mt.
Vernon Federal Savings Bank. Financial will merge with BancGroup, and
following such merger, the name of Mt. Vernon Savings Bank, which will be a
wholly-owned subsidiary of BancGroup doing business in the Atlanta, Georgia
area, will be changed to Colonial Bank. Based on the market price of BancGroup
Common Stock as of June 20, 1995, a total of 572,993 shares of Common Stock
of BancGroup will be offered to the stockholders of Financial. The actual
number of shares of BancGroup Common Stock to be issued in this transaction
will depend upon the market value of such Common Stock at the time of the
Merger, but the number of shares shall not be greater than 769,018 nor less
than 521,834. This transaction is subject to, among other things, approval by
the stockholders of Financial and approval by appropriate regulatory
authorities. At March 31, 1995, Financial had assets of $198 million, deposits
of $134 million and stockholders' equity of $10 million. See "THE COLONIAL
BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma Statements of Condition
(Unaudited)."

101
<PAGE> 108
VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS

As of April 30, 1995, BancGroup had issued and outstanding 12,219,699
shares of Common Stock with 5,268 stockholders of record. Each such share is
entitled to one vote. In addition, as of that date, 233,424 shares of Common
Stock were subject to options pursuant to BancGroup's stock option plans and up
to 766,229 shares of Common Stock were issuable upon conversion of BancGroup's
1985 and 1986 Debentures. There are currently 44,000,000 shares of Common
Stock authorized.

On February 21, 1995, BancGroup concluded a reclassification of its
Class A and Class B Common Stock into one class of Common Stock. The
reclassification was approved by BancGroup's stockholders on December 8, 1994.
On February 24, 1995, the Common Stock of BancGroup was listed for trading on
the New York Stock Exchange.

The following table shows those persons who are known to BancGroup to
be beneficial owners as of April 30, 1995, of more than five percent of
BancGroup's outstanding Common Stock.

<TABLE>
<CAPTION>
SHARES OF BANCGROUP BENEFICIALLY OWNED

PERCENTAGE
COMMON OF CLASS
NAME AND ADDRESS STOCK OUTSTANDING(1)
- ----------------------------------------------------------------------------------
<S> <C> <C>
Robert E. Lowder(2) 1,435,030 11.43%
Post Office Box 1108
Montgomery, AL 36101

James K. Lowder 1,099,253 8.76%
Post Office Box 250
Montgomery, AL 36142

Thomas H. Lowder 1,072,707 8.55%
Post Office Box 11687
Birmingham, AL 35202
</TABLE>

102
<PAGE> 109
- ---------------------

(1) Percentages are calculated assuming the issuance of 233,424 shares
of Common Stock pursuant to BancGroup's stock option plans and assuming the
issuance of 96,430 shares of Common Stock into which BancGroup's 1985 and 1986
debentures beneficially owned by directors, officers or principal stockholders
are convertible.

(2) Robert E. Lowder is the brother of James K. and Thomas H. Lowder.
Robert E. Lowder disclaims any beneficial ownership interest in the shares
owned by his brothers. Robert E. Lowder's mother, Catherine K. Lowder, owns
85,442 shares of Common Stock. Mr. Lowder disclaims any beneficial interest in
such shares.

SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates for each director, executive officer,
and executive officers and directors of BancGroup as a group the number of
shares of outstanding Common Stock of BancGroup beneficially owned as of April
30, 1995.

<TABLE>
<CAPTION>
SHARES OF BANCGROUP BENEFICIALLY OWNED

PERCENTAGE
COMMON OF CLASS
NAME STOCK OUTSTANDING(1)
- -----------------------------------------------------------------------------
<S> <C> <C>
DIRECTORS
Young J. Boozer 6,623(2) *
William Britton 6,808 *
Jerry J. Chesser 72,536 *
Augustus K. Clements, III 7,708 *
Robert S. Craft 5,997 *
Patrick F. Dye 24,832(3) *
Clinton O. Holdbrooks 145,538(4) 1.16%
D. B. Jones 9,168 *
Harold D. King** 77,099(4) *
Robert E. Lowder** 1,435,030(5) 11.43%
John Ed Mathison 13,978 *
Milton E. McGregor 0 *
John C. H. Miller, Jr. 11,174 *
Joe D. Mussafer 10,000 *
William E. Powell, III 6,232 *
Jack H. Rainer 1,345 *
Frances E. Roper 180,934 1.44%
Ed V. Welch 29,411 *
</TABLE>

103
<PAGE> 110
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
<S> <C> <C>
Alan T. Romanchuck 23,421(6) *
Young J. Boozer, III 22,168(2)(6) *
W. Flake Oakley, IV 8,633(6) *
Michael R. Holley 200

All Executive Officers
& Directors as a Group 2,098,835 16.72%
</TABLE>
- ---------------
* Represents less than one percent.
** Executive Officer.

(1) Percentages are calculated assuming the issuance of 233,424 shares
of Common Stock pursuant to BancGroup's stock option plans and assuming the
issuance of 96,430 shares of Common Stock into which BancGroup's 1985 and 1986
Debentures beneficially owned by directors, officers or principal stockholders
are convertible.

(2) Includes 500 shares of Common Stock out of 1,000 shares owned by
Young J. Boozer, and Young J. Boozer, III EX U/W Phyllis C. Boozer.

(3) Includes 24,600 shares of Common Stock subject to options
exercisable under BancGroup's stock option plans.

(4) Includes 12,262 shares and 12,262 shares of Common Stock subject
to options exercisable by Mr. Holdbrooks and Mr. King, respectively, under
BancGroup's stock option plans and 43,067 shares and 41,078 shares of Common
Stock into which BancGroup's 1985 Debentures owned by Mr. Holdbrooks and Mr.
King, respectively, are convertible.

(5) These shares include 97,000 shares of Common Stock subject to
options under BancGroup's stock option plans. See the table at "Voting
Securities and Principal Stockholders."

(6) Alan Romanchuck, Young J. Boozer, III, and W. Flake Oakley, IV,
executive officers of BancGroup, hold options respecting 10,000, 12,500, and
3,000, shares of Common Stock, respectively, pursuant to BancGroup's stock
option plans.

104
<PAGE> 111
MANAGEMENT INFORMATION

Certain information regarding the biographies of the directors and
executive officers of BancGroup, executive compensation and related party
transactions is included in BancGroup's Annual Report on Form 10-K for the
fiscal year ending December 31, 1994, at items 10, 11, and 13 and is
incorporated herein by reference.

CERTAIN REGULATORY CONSIDERATIONS

BancGroup is a registered bank holding company subject to supervision
and regulation by the Federal Reserve. As such, it is subject to the Bank
Holding Company Act of 1956 as amended (the "BHC Act") and many of the Federal
Reserve's regulations promulgated thereunder.

BancGroup's subsidiary banks, Colonial Bank and Colonial Bank of
Tennessee (the "Subsidiary Banks"), are subject to supervision and examination
by applicable federal and state banking agencies. Colonial Bank, as a state
chartered bank and not a member of the Federal Reserve system, is regulated and
examined both by the State of Alabama Banking Department and by the FDIC.
Colonial Bank of Tennessee is also state chartered and not a member of the
Federal Reserve system and is regulated by both the State of Tennessee
Department of Financial Institutions and by the FDIC. The deposits of the
Subsidiary Banks are insured by the FDIC to the extent provided by law. The
FDIC assesses deposit insurance premiums the amount of which may, in the
future, depend in part on the condition of the Subsidiary Banks. Moreover, the
FDIC may terminate deposit insurance of the Subsidiary Banks under certain
circumstances. Both the FDIC and the respective

105

<PAGE> 112

state regulatory authorities have jurisdiction over a number of the same
matters, including lending decisions, branching and mergers.

One limitation under the BHC Act and the Federal Reserve's regulations
requires that BancGroup obtain prior approval of the Federal Reserve before
BancGroup acquires, directly or indirectly, more than five percent of any class
of voting securities of another bank. Prior approval also must be obtained
before BancGroup acquires all or substantially all of the assets of another
bank, or before it merges or consolidates with another bank holding company.
BancGroup may not engage in "non-banking" activities unless it demonstrates to
the Federal Reserve's satisfaction that the activity in question is closely
related to banking and a proper incident thereto. Because BancGroup is a
registered bank holding company, persons seeking to acquire 25 percent or more
of any class of its voting securities must receive the approval of the Federal
Reserve. Similarly, persons seeking to acquire between 10 percent and 25
percent also are required to obtain prior Federal Reserve approval.

In 1989 Congress expressly authorized the acquisition of savings
associations by bank holding companies. BancGroup must obtain the prior
approval of the Federal Reserve (among other agencies) before making such an
acquisition, and must demonstrate that the likely benefits to the public of the
proposed transaction (such as greater convenience, increased competition, or
gains in efficiency) outweigh potential burdens (such as an undue concentration
of resources, decreased or unfair competition, conflicts of interest, or
unsound banking practices).

106

<PAGE> 113
Following enactment in 1991 of the FDIC Improvement Act, banks now are
subject to increased reporting requirements and more frequent examinations by
the bank regulators. The agencies also now have the authority to dictate
certain key decisions that formerly were left to management, including
compensation standards, loan underwriting standards, asset growth, and payment
of dividends. Failure to comply with these new standards, or failure to
maintain capital above specified levels set by the regulators, could lead to
the imposition of penalties or the forced resignation of management. If a bank
becomes critically undercapitalized, the bank agencies have the authority to
place an institution into receivership or require that the bank be sold to, or
merged with, another financial institution.

In September 1994 Congress enacted the Riegle-Neal Interstate Banking
and Branching Efficiency Act of 1994. This legislation, among other things,
amended the BHC Act to permit bank holding companies, subject to certain
limitations, to acquire either control or substantial assets of a bank located
in states other than that bank holding company's home state regardless of state
law prohibitions. This amendment becomes effective on September 29, 1995. In
addition, this legislation also amended the Federal Deposit Insurance Act to
permit, beginning on June 1, 1997 (or earlier where state legislatures provide
express authorization), the merger of insured banks with banks in other states.

The officers and directors of BancGroup and the Subsidiary Banks are
subject to numerous insider transactions restrictions, including limits on the
amount and terms of transactions involving the Subsidiary Banks, on the one
hand, and their principal stockholders, officers, directors, and affiliates on
the other. There are a number of other

107

<PAGE> 114
laws that govern the relationship between the Subsidiary Banks and their
customers. For instance, the Community Reinvestment Act is designed to
encourage lending by banks to persons in low and moderate income areas. The
Home Mortgage Disclosure Act and the Equal Credit Opportunity Act attempt to
minimize lending decisions based on impermissible criteria, such as race or
gender. The Truth-in-Lending Act and the Truth-in-Savings Act require banks to
provide full disclosure of relevant terms related to loans and savings
accounts, respectively. Anti-tying restrictions (which prohibit, for instance,
conditioning the availability or terms of credit on the purchase of another
banking product) further restrict the Subsidiary Banks' relationships with
their customers.

It should be noted that supervision, regulation, and examination of
BancGroup and the Subsidiary Banks are intended primarily for the protection of
depositors, not stockholders.

BUSINESS OF THE BANK

GENERAL

The Bank is an Alabama State Banking Corporation which was organized,
and began business, in 1949. The Bank conducts a full service commercial
banking business through three branches, all of which are located in Dale
County, Alabama (two of which are in Ozark and one of which is in Ariton). As
of April 30, 1995, the Bank had assets of approximately $51.5 million, net
loans of approximately $23 million, and twenty-four full-time employees.
Approximately 40% of the Bank's loan portfolio is comprised of residential real
estate loans, the predominant portion of which pertain to residential real

108

<PAGE> 115
property located in Dale County, Alabama. The balance of the Bank's loan
portfolio is divided approximately evenly between consumer and commercial
loans. The Bank's growth in loans over the past several years has been
concentrated in residential real estate loans. The lending activities of the
Bank are dependant upon the demands within the local markets of its branches.
Based on this demand, loans collateralized by residential real estate have been
the fastest growing component of the Bank's loan portfolio.

PRINCIPAL STOCKHOLDERS

The following table shows those persons who are known to the Bank to
be beneficial owners as of June 15, 1995, of more than five percent of the
Bank's outstanding common stock.

<TABLE>
<CAPTION>
SHARES OF BANK BENEFICIALLY OWNED

PERCENTAGE
COMMON OF CLASS
NAME AND ADDRESS STOCK OUTSTANDING
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Twedell B. Wilson(2) 1,063 18.98%
Post Office Box 3
Ariton, Alabama 36311

D.K. Wilson(1)(2) 1,063 18.98%
Post Office Box 3
Ariton, Alabama 36311

Christopher K. Wilson(2) 615 10.98%
103 White Oak Bend
Ozark, Alabama 36360

Amy Armstrong(2) 480 8.75%
518 Bunkers Cove Road
Panama City, Florida 32401

James F. & Florrie B. Wilson (1)(3) 350 6.25%
Route 2, Box 199
Brundidge, Alabama 36010
</TABLE>

109

<PAGE> 116
- --------------------------------------------------------------------------------

(1) D.K. Wilson is the brother of James F. Wilson. Each disclaims
any beneficial ownership interest in the shares owned by the other.

(2) D.K. Wilson and Twedell Wilson are husband and wife, and
Christopher K. Wilson and Amy Armstrong are their children. Each disclaims any
beneficial ownership interest in the shares owned by the others.

(3) James F. & Florrie B. Wilson disclaim any beneficial ownership
interest in the shares owned by their son, Ben F. Wilson (75 shares), their
son, Dan Wilson (25 shares), and their daughter, Melinda W. Sanders (75
shares).

SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates for each director, executive officer,
and executive officers and directors of the Bank as a group the number of shares
of outstanding common stock of the Bank beneficially owned as of June 15, 1995.

<TABLE>
<CAPTION>
SHARES OF BANK BENEFICIALLY OWNED

PERCENTAGE
COMMON OF CLASS
NAME AND ADDRESS STOCK OUTSTANDING
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
D. K. Wilson(1)(2)** 1,063 18.98%
Christopher K. Wilson(2)(3) 615 10.98%
Marion J. Sanders**(4) 92 1.64%
G. F. Beasley(5) 160 2.86%
Ben F. Wilson(6) 75 1.34%
C. F. Carter, Jr.(7) 94 1.68%
Kenneth M. Sanders(8) 6 *
</TABLE>

110
<PAGE> 117
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------

EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
<S> <C> <C>
Constene Jones(9) -0- -0-
Judy Johnston(10) 8 *

All Executive Officers
& Directors as a Group 2,113 37.73%
</TABLE>
- -----------------
* Represents less than one percent
** Executive Officer.

(1) D. K. Wilson and Twedell Wilson are husband and wife and each
owns 1,063 shares of Bank common stock. D. K. Wilson disclaims any beneficial
ownership interest in the shares owned by Twedell B. Wilson.

(2) D. K. Wilson and Christopher K. Wilson are father and son.
Each disclaims any beneficial ownership interest in the shares owned by the
other.

(3) Christopher K. Wilson and Twedell B. Wilson are son and
mother. Twedell B. Wilson owns 1,063 shares of Bank common stock. Christopher
K. Wilson disclaims any beneficial ownership interest in the shares owned by
Twedell B. Wilson.

(4) Marion J. Sanders disclaims any beneficial ownership interest
in the 36 shares owned by his wife, Virginia Sanders, and in the 6 shares owned
by his son, Kennneth M. Sanders.

(5) G. F. Beasley disclaims any beneficial ownership interest in
the 12 shares owned by his daughter, Sammy B. Carter.

(6) Ben F. Wilson disclaims any beneficial ownership interest in
the 375 shares owned by his parents, James F. Wilson and Florrie B. Wilson, in
the 25 shares owned by his brother, Dan Wilson, and in the 75 shares owned by
his sister, Melinda W. Sanders.

(7) C. F. Carter, Jr. disclaims any beneficial ownership interest
in the 12 shares owned by his wife, Sammy B. Carter.

(8) Kenneth M. Sanders disclaims any beneficial ownership interest
in the 92 shares owned by his father, Marion J. Sanders, and in the 36 shares
owned by his mother, Virginia J. Sanders.

(9) Constene W. Jones disclaims any beneficial ownership interest
in the 40 shares owned by her husband, Herman Jones.

111
<PAGE> 118
(10) Judy Johnston disclaims any beneficial ownership interest in
the 8 shares owned by her sister, Janet Breland.

ADJOURNMENT OF SPECIAL MEETING

Approval of the Merger by the Bank's stockholders requires the
affirmative vote of at least two-thirds of the total votes eligible to be cast
at the Special Meeting. In the event there are an insufficient number of
shares of Bank common stock present in person or by proxy at the Special
Meeting to approve the Merger, the Bank's board of directors intends to adjourn
the Special Meeting to a later date. The place and date to which the Special
Meeting would be adjourned would be announced at the Special Meeting, but would
not be more than 30 days after the date of the Special Meeting. Proxies voted
against the Merger will not be voted to adjourn the Special Meeting.

The effect of any such adjournment would be to permit the Bank to
solicit additional proxies for approval of the Merger. While such an
adjournment would not invalidate any proxies previously filed, including those
filed by stockholders voting against the Merger, it would afford the Bank the
opportunity to solicit additional proxies in favor of the Merger.

OTHER MATTERS

The board of directors of the Bank is not aware of any business to
come before the Special Meeting other than those matters described above in
this Prospectus. If, however, any other matters not now known should properly
come before the Special Meeting, the proxy holders named in the accompanying
proxy will vote such proxy on such matters as determined by a majority of the
board of directors of the Bank.

112
<PAGE> 119
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS

In order to be eligible for inclusion in BancGroup's proxy
solicitation materials for its 1996 annual meeting of stockholders, any
stockholder proposal to take action at such meeting must be received at
BancGroup's main office at One Commerce Street, Post Office Box 1108,
Montgomery, Alabama 36101, no later than 120 calendar days in advance of March
17, 1996.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand serves as the independent accountants for BancGroup.
It is not expected that a representative of such firm will be present at the
Special Meeting.

Jackson, Thornton & Co. serves as the independent accountants for the
Bank. It is expected that a representative of such firm will be present at the
Special Meeting and will have an opportunity to answer questions from
stockholders.

LEGAL OPINIONS

Certain issues regarding the tax consequences of the Merger and the
shares of Common Stock of BancGroup offered hereby are being passed upon by the
law firm of Miller, Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, of which
John C. H. Miller, Jr., a director of BancGroup and of Colonial Bank, is a
member. John C. H. Miller, Jr. owns 11,174 shares of Common Stock. Mr.
Miller also received employee-related compensation from BancGroup in 1994 of
$42,500.

113

<PAGE> 120
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY
GIVING WRITTEN NOTICE OF REVOCATION TO THE PERSON NAMED IN THE NOTICE OF THE
SPECIAL MEETING PRIOR TO THE SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY
OR BY ATTENDING THE SPECIAL MEETING VOTING IN PERSON.

114
<PAGE> 121

INDEX TO FINANCIAL STATEMENTS

COLONIAL BANCGROUP:

All required financial statements have been incorporated by reference into this
prospectus.

Farmers and Merchants Bank:

Independent Accountants' Report ................................... F-2

Balance Sheets at December 31, 1994 and 1993....................... F-3

Statements of Income Years Ended December 31, 1994,
1993 and 1992.................................................... F-4

Statements of Stockholders' Equity Years Ended
December 31, 1994 and 1993....................................... F-5

Statements of Cash Flows Years Ended December 31,
1994, 1993 and 1992.............................................. F-6

Notes to Financial Statements December 31, 1994.................... F-8

Balance Sheet at March 31, 1995 (Unaudited)........................ F-15

Statements of Income for the Three Months
Ended March 31, 1995 and 1994 (Unaudited)........................ F-16

Statements of Stockholders' Equity for the Three
Months Ended March 31, 1995 and 1994 (Unaudited)................. F-17

Statements of Cash Flows for the Three Months
Ended March 31, 1995 and 1994 (Unaudited)........................ F-18

Notes to Financial Statements
March 31, 1995 (Unaudited)....................................... F-19

F-1

<PAGE> 122
JACKSON THORNTON & CO.
a professional corporation
Certified Public Accountants
Member of American Institute of Certified Public Accountants
Dothan, Alabama
Montgomery - Prattville - Wetumpka - Greenville

INDEPENDENT ACCOUNTANTS' REPORT

To the Stockholders
Farmers and Merchants Bank, Ariton, Alabama
Ariton, Alabama

We have audited the accompanying balance sheet of Farmers and Merchants
Bank, Ariton, Alabama as of December 31, 1994, and the related statements of
income, changes in stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.

We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Farmers and
Merchants Bank, Ariton, Alabama as of December 31, 1994, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

The 1993 balance sheet and statement of changes in stockholders' equity
and the 1993 and 1992 income statements and statements of cash flows were
compiled by us. We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or other form of
assurance on them.

JACKSON THORNTON & CO., P.C.

Dothan, Alabama
June 23, 1995

F-2
<PAGE> 123

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
ARITON, ALABAMA
BALANCE SHEETS AT DECEMBER 31, 1994 AND 1993

ASSETS

<TABLE>
<CAPTION>
1994 1993
(Audited) (Unaudited)
<S> <C> <C>
Cash and due from banks $ 1,782,296 $ 1,749,327
Securities held to maturity 22,437,021 24,006,839
Federal funds sold 1,840,000 1,560,000
Loans, net 23,661,237 20,085,111
Bank premises and equipment, net 533,867 554,717
Accrued interest receivable 594,816 595,956
Other assets 158,386 180,965
----------- -----------
Total assets $51,007,623 $48,732,915
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
Demand $ 9,833,213 $ 9,622,872
Now 7,838,045 6,770,135
Savings 2,859,157 2,485,576
Other time 23,030,584 22,903,180
----------- -----------
Total deposits 43,560,999 41,781,763
Accrued interest 65,731 62,693
Other liabilities 38,497 158,055
----------- -----------
Total liabilities 43,665,227 42,002,511
----------- -----------

Stockholders' equity:
Common stock - $100 par value; 5,600 shares authorized,
issued and outstanding 560,000 560,000
Surplus 560,000 560,000
Retained earnings 6,222,396 5,610,404
----------- -----------
Total stockholders' equity 7,342,396 6,730,404
----------- -----------
Total liabilities and stockholders' equity $51,007,623 $48,732,915
=========== ===========
</TABLE>

See Accountants' Report and notes to financial statements.

F-3
<PAGE> 124

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992

<TABLE>
<CAPTION>
1994 1993 1992
(Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $1,990,477 $1,852,611 $1,888,567
Securities held to maturity 1,545,574 1,683,250 1,838,227
Federal funds sold 48,602 38,115 61,174
---------- ---------- ----------
3,584,653 3,573,976 3,787,968

INTEREST EXPENSE ON DEPOSITS 1,351,844 1,319,779 1,614,201
---------- ---------- ----------

NET INTEREST INCOME 2,232,809 2,254,197 2,173,767

PROVISION FOR LOAN LOSSES 79,608 67,542 231,970
---------- ---------- ----------

NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 2,153,201 2,186,655 1,941,797
---------- ---------- ----------

OTHER INCOME:
Service charges and other fees 186,295 181,919 158,725
Gain (loss) on sale of securities (22,578) 35,097 (44,708)
Gain on sale of bank assets 3,294 37,842 1,232
---------- ---------- ----------
167,011 254,858 115,249
---------- ---------- ----------

OTHER EXPENSE:
Salaries 472,189 451,871 416,716
Retirement and other employee benefits 130,122 125,832 121,476
Occupancy expenses 96,372 106,610 109,304
Furniture and equipment expenses 60,618 63,091 71,853
Other operating expenses 393,576 375,740 354,198
---------- ---------- ----------
1,152,877 1,123,144 1,073,547
---------- ---------- ----------

INCOME BEFORE INCOME TAXES 1,167,335 1,318,369 983,499

PROVISION FOR INCOME TAXES 359,343 416,340 296,669
---------- ---------- ----------

NET INCOME $ 807,992 $ 902,029 $ 686,830
========== ========== ==========

NET INCOME PER SHARE OF COMMON STOCK $ 144.28 $ 161.08 $ 122.65
========== ========== ==========
</TABLE>

See Accountants' Report and notes to financial statements.

F-4
<PAGE> 125

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993

<TABLE>
<CAPTION>
COMMON RETAINED
STOCK SURPLUS EARNINGS TOTAL
-------- ------- -------- -----
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992
(UNAUDITED) $560,000 $560,000 $4,848,375 $5,968,375

Net income 902,029 902,029

Dividends (140,000) (140,000)
-------- -------- ---------- ----------

BALANCE AT DECEMBER 31, 1993
(UNAUDITED) 560,000 560,000 5,610,404 6,730,404

Net income 807,992 807,992

Dividends (196,000) (196,000)
-------- -------- ---------- ----------

BALANCE AT DECEMBER 31, 1994 $560,000 $560,000 $6,222,396 $7,342,396
======== ======== ========== ==========
</TABLE>

See Accountants' Report and notes to financial statements.

F-5
<PAGE> 126
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Increase (Decrease) in Cash and Due From Banks

<TABLE>
<CAPTION>
1994 1993 1992
(Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR)
OPERATING ACTIVITIES:
Net income $ 807,992 $ 902,029 $ 686,830
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 86,031 94,410 106,875
Provision for loan losses 79,608 67,542 231,970
Write - down of other real estate 7,916 21,913 50,512
Amortization of bond premiums 51,378 48,949 21,626
Provision for deferred income taxes 3,000 (3,100) (12,400)
(Gain) loss on sale of securities 22,578 (35,097) 44,708
Gain on sales of bank assets (3,294) (37,842) (1,232)
Decrease (increase) in operating assets
and increase (decrease) in operating
liabilities:
Interest receivable 1,140 32,971 61,806
Interest payable 3,038 (14,182) (36,081)
Other assets (38,486) (88,548) 13,044
Other liabilities (119,558) 5,739 92,979
----------- ---------- -----------

Net cash from operating
activities 901,343 994,784 1,260,637
----------- ---------- -----------

CASH FLOWS FROM (USED FOR)
INVESTING ACTIVITIES:
Proceeds from sales and maturities
of investment securities 5,982,425 9,576,444 9,066,691
Purchases of securities held to maturity (4,486,563) (8,722,247) (10,931,551)
Decrease (increase) in federal funds sold (280,000) (460,000) 200,000
Net increase in loans (3,655,734) (2,515,598) (1,715,956)
Proceeds from sale of other real estate 53,443 64,500 1,232
Purchases of bank premises and equipment (65,181) (73,414) (25,721)
----------- ---------- -----------

Net cash used for investing
activities (2,451,610) (2,130,315) (3,405,305)
----------- ---------- -----------
</TABLE>

See Accountants' Report and notes to financial statements.

F-6
<PAGE> 127

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
Increase (Decrease) in Cash and Due From Banks

<TABLE>
<CAPTION>
1994 1993 1992
(Audited) (Unaudited) (Unaudited)
<S> <C> <C> <C>
CASH FLOWS FROM (USED FOR)
FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits,
Now accounts, and savings accounts $1,651,832 $ (437,889) $3,342,722
Net increase (decrease) in certificates of deposit 127,404 1,054,095 (623,469)
Dividends paid (196,000) (140,000) (100,800)
---------- ---------- ----------

Net cash from financing
activities 1,583,236 476,206 2,618,453
---------- ---------- ----------

NET INCREASE (DECREASE) IN CASH AND
DUE FROM BANKS 32,969 (659,325) 473,785

CASH AND DUE FROM BANKS AT
BEGINNING OF YEAR 1,749,327 2,408,652 1,934,867
---------- ---------- ----------

CASH AND DUE FROM BANKS AT
END OF YEAR $1,782,296 $1,749,327 $2,408,652
========== ========== ==========

SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for:
Interest $1,348,806 $1,333,961 $1,650,282
Income taxes 519,440 411,069 217,595

Noncash investing and financing activities:
Other real estate acquired in settlement
of loans - 83,465 3,500
</TABLE>

F-7
<PAGE> 128
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
NOTES TO FINANCIAL STATEMENTS

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Investment securities - In May, 1993, the Financial Accounting
Standards Board issued Statement No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." A significant provision of this statement is
the change in accounting and reporting for certain investments in debt and
equity securities. These securities shall be classified into one of three
categories: held to maturity, available for sale or trading. The Company
adopted and implemented SFAS No. 115 as of December 31, 1993, as permitted.

Securities have been classified as held to maturity which are those
bonds, notes and debentures for which the Bank has the positive intent and
ability to hold to maturity and are reported at cost, adjusted for premiums
that are recognized in interest income using the interest method over the
period to maturity.

Gains and losses on the sale of securities are determined using the
specific identification method.

Loans and allowance for loan losses - Loans are stated at the amount
of unpaid principal, reduced by unearned discount and an allowance for loan
losses. Unearned discount on installment loans is recognized as income over the
terms of the loans by the interest method. Interest on other loans is
calculated by using the simple interest method on daily balances of the
principal amount outstanding.

The allowance for loan losses is established through a provision for
loan losses charged to expenses. Loans are charged against the allowance for
loan losses when management believes that the collectibility of the principal
is unlikely. The allowance is an amount that management believes will be
adequate to absorb possible losses on existing loans that may become
uncollectible, based on evaluations of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans and current economic conditions that
may affect the borrowers' ability to pay.

Accrual of interest is discontinued on a loan when management
believes, after considering economic and business conditions and collection
efforts, that the borrowers' financial condition is such that collection of
interest is doubtful.

Bank premises and equipment - Bank premises and equipment are stated
at cost less accumulated depreciation. Depreciation is computed using an
accelerated method over the estimated useful lives of the assets, which
generally range from 15 to 39 years for buildings and from 3 to 7 years for
furniture and equipment.

Maintenance and repairs are charged to operating expense as incurred
and significant improvements are capitalized.

Income taxes - Provisions for income taxes are based on amounts
reported in the statements of income (after exclusion of nontaxable income such
as interest on state and municipal securities) and include deferred taxes on
temporary differences in the recognition of income and expense for tax and
financial statement purposes. Deferred tax assets are included in the financial
statements at currently

F-8
<PAGE> 129
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
NOTES TO FINANCIAL STATEMENTS

enacted income tax rates applicable to the period in which deferred tax assets
are expected to be realized as prescribed in SFAS No. 109, "Accounting for
Income Taxes." As changes in tax laws or rates are enacted, deferred tax assets
are adjusted through the provision for income taxes.

Cash flows - For purposes of the Statements of Cash Flows, cash and
cash equivalents are defined as those amounts included in the balance sheet
caption "Cash and due from banks."

Current accounting developments - The Financial Accounting Standards
Board has issued Statement No. 114, "Accounting by Creditors for Impairment of
a Loan," which becomes effective for fiscal years beginning after December 15,
1994. Earlier application is permitted. The Statement generally requires
impaired loans to be measured on the present value of expected future cash
flows discounted at the loan's effective interest rate, or as an expedient, at
the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. A loan is impaired when it is probable the
creditor will be unable to collect all contractual principal and interest
payments due in accordance with the terms of the loan agreement. The Bank has
not addressed the potential future impact of the application of this Statement.

NOTE 2 - INVESTMENT SECURITIES:
Investment securities have been classified in the financial
statements as held to maturity based on management's intent. The carrying
amount of securities and their approximate fair values at December 31 were as
follows:

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C>
December 31, 1994:

Obligations of U.S.
government agencies $ 3,847,560 $ - $(173,676) $ 3,673,884
Obligations of states
and political
subdivisions 1,677,875 39,878 (3,126) 1,714,627
Mortgage-backed
securities 16,911,586 5,318 (783,471) 16,133,433
----------- ------- --------- -----------

Totals $22,437,021 $45,196 $(960,273) $21,521,944
=========== ======= ========= ===========
</TABLE>

<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
December 31, 1993:

U.S. Treasury securities $ 500,000 $ 2,345 $ 502,345
Obligations of U.S.
government agencies 3,875,098 68,191 (5,176) 3,938,113
Obligations of states
and political
subdivisions 1,958,811 160,903 2,119,714
Mortgage-backed
securities 17,672,930 429,285 (79,217) 18,022,998
----------- -------- -------- -----------

Totals $24,006,839 $660,724 $(84,393) $24,583,170
=========== ======== ======== ===========
</TABLE>

Gross realized gains and losses on sales of securities were:

<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Gross realized gains $ 9,259 $45,437 $52,777
======= ======= =======

Gross realized losses $31,837 $10,340 $97,485
======= ======= =======
</TABLE>

The amortized cost and estimated market value of securities being
held to maturity at December 31, 1994, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without call
or prepayment penalties.

<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
----------- -----------
<S> <C> <C>
Due in one year or less $ 6,422,801 $ 6,289,465
Due after one year through five years 12,906,258 12,330,730
Due after five years through ten years 946,245 898,591
Due after ten years 2,161,717 2,003,158
----------- -----------
$22,437,021 $21,521,944
=========== ===========
</TABLE>

F-9
<PAGE> 130
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
NOTES TO FINANCIAL STATEMENTS

NOTE 2 - INVESTMENT SECURITIES: (continued)
Securities with an amortized cost of $8,085,577 and $7,960,982 at
December 31, 1994 and 1993, respectively, were pledged as collateral on public
deposits and for other purposes as required or permitted by law.

NOTE 3 - LOANS:
Major classifications of loans are as follows:

<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Commercial $ 6,208,863 $ 5,086,057
Installment 17,810,635 15,370,839
Overdrafts 4,891 6,577
----------- -----------
24,024,389 20,463,473
----------- -----------
Deduct:
Unearned interest 93,152 113,287
Allowance for loan losses 270,000 265,075
----------- -----------
363,152 378,362
----------- -----------

Loans, net $23,661,237 $20,085,111
=========== ===========
</TABLE>

Changes in the allowance for loan losses are as follows:

<TABLE>
<S> <C> <C>
Balance at beginning of year $ 265,075 $ 230,000

Provision charged to operations 79,608 67,542
Recoveries of loans previously charged - off 71,316 74,823
Loans charged - off (145,999) (107,290)
----------- -----------

Balance at end of year $ 270,000 $ 265,075
=========== ===========
</TABLE>

The Bank grants agribusiness, commercial and residential loans to
customers throughout its lending area which is primarily the trading area of
Ariton and Ozark, Alabama. The Bank has a diversified loan portfolio and its
debtors' ability to honor their contracts is dependent upon the general
economic environment of its lending area.

The Bank did not have any loans classified as nonaccrual at December
31, 1994 and 1993.

F-10
<PAGE> 131
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
NOTES TO FINANCIAL STATEMENTS

NOTE 4 - BANK PREMISES AND EQUIPMENT:
A major classification of these assets is summarized as follows:

<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Land $ 125,500 $ 125,500
Buildings 798,186 798,186
Furniture and equipment 576,485 511,304
---------- ----------
1,500,171 1,434,990
Less: Accumulated depreciation 966,304 880,273
---------- ----------

Totals $ 533,867 $ 554,717
========== ==========
</TABLE>

Depreciation expense for the years ended December 31, 1994, 1993 and
1992 amounted to $86,031, $94,410 and $106,875, respectively.

NOTE 5 - DEPOSITS:
Certificates of deposit of $100,000 or more included in time
deposits for the years ended December 31, 1994 and 1993 totaled $5,205,296 and
$4,872,758, respectively.

The following is a maturity distribution of time certificates of
deposit in denominations of $100,000 or more at December 31, 1994:

<TABLE>
<CAPTION>
1994
----
<S> <C>
Three months or less $2,826,593
Over three months through six months 934,722
Over six months through twelve months 1,243,981
Over twelve months 200,000
----------

Total $5,205,296
==========
</TABLE>

F-11
<PAGE> 132
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
NOTES TO FINANCIAL STATEMENTS

NOTE 6 - INCOME TAXES:
The provision for income taxes is as follows:

<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $ 325,222 $ 370,886 $ 267,965
State 31,121 48,554 41,104
Deferred provision (benefit) 3,000 (3,100) (12,400)
--------- --------- ---------

$ 359,343 $ 416,340 $ 296,669
========= ========= =========
</TABLE>

A reconciliation of the statuatory income tax to the income tax
expense included in the statements of income is as follows:

<TABLE>
<CAPTION>
1994 1993 1992
----------------- ----------------- -----------------
AMOUNT % AMOUNT % AMOUNT %
------ --- ------ --- ------ ---
<S> <C> <C> <C> <C>
Tax at statuatory
federal rate $396,894 34.00% $448,246 34.00% $334,390 34.00%
Tax - exempt interest (62,255) (5.33) (69,528) (5.27) (73,245) (7.45)
State income taxes 10,582 0.91 16,509 1.25 13,975 1.42
Other 14,122 1.21 21,113 1.60 21,549 2.19
-------- ----- -------- ----- -------- -----
Provision for
income taxes $359,343 30.79% $416,340 31.58% $296,669 30.16%
======== ===== ======== ===== ======== =====
</TABLE>

The components of the net deferred tax assets included in other
assets consist entirely of deferred tax assets.

The tax effects of each type of income and expense item that gave
rise to deferred taxes are:

<TABLE>
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
Allowance for loan losses $38,358 $39,550
Cumulative write - down of other real estate 35,642 37,450
------- -------

Net deferred tax asset $74,000 $77,000
======= =======
</TABLE>

F-12
<PAGE> 133
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
NOTES TO FINANCIAL STATEMENTS

NOTE 6 - INCOME TAXES: (continued)
In 1993, the Bank changed its method of accounting for income taxes
from the deferred method to the liability method required by FASB Statement No.
109, "Accounting for Income Taxes." As permitted under the new rules, prior
years' financial statements have not been restated. The cumulative effect of
adopting FASB Statement No. 109 was not material.

NOTE 7 - RESTRICTIONS ON RETAINED EARNINGS:
Banking laws and regulations limit the amount of dividends that may
be paid without prior approval of the Bank's regulatory agency. Under that
limitation, the Bank could have declared additional dividends of approximately
$1,865,000 in 1994.

The Bank is also required to maintain minimum amounts of capital to
total "risk weighted" assets, as defined by the banking regulators. At December
31, 1994, the Bank is required to have minimum Tier 1 and total capital ratios
of 4% and 8%, respectively. The Bank's actual ratios at that date were 7% and
10%, respectively.

NOTE 8 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
The Bank is a party to financial instruments with off-balance sheet
risk in the normal course of business to meet the financing needs of its
customers and to reduce its own exposure to fluctuations in interest rates.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement of cash flows. The contract or notional amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.

The Bank's exposure to credit loss in the event of nonperformance by
the other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional amount
of those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance sheet
instruments. Bank financial instruments whose contract amounts represent credit
risk are as follows:

<TABLE>
<S> <C>
Commitments to extend credit $278,861
Standby letters of credit 14,900
</TABLE>

Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's credit worthiness on a case-by-case basis. The amount of collateral
obtained if deemed necessary by the Bank upon extension of credit is based on
management's credit evaluation of the counter party. Collateral held varies but
may include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.

Standby letters of credit are conditional commitments issued by the
Bank to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support borrowing arrangements. The credit
risk involved in issuing letters of credit is essentially the same as that
involved in extending loans to customers.

NOTE 9 - PROFIT SHARING PLAN:
The Bank has a profit sharing plan which covers substantially all
regular, full-time employees. The plan provides for contributions in such
amounts as the Board of Directors may determine. The Bank's policy is to fund
profit sharing cost accrued. Contributions were $50,000, $50,000 and $0 for
1994, 1993 and 1992, respectively.

NOTE 10 - OPERATING LEASES:
The Bank is obligated under several noncancellable operating leases
for office equipment and furniture that expire through 1998. The following is a
schedule by years of future minimum rental payments required under operating
leases that have noncancellable lease terms in excess of one year as of
December 31, 1994.

<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31 AMOUNT
----------- ------
<S> <C>
1995 $9,579
1996 9,336
1997 7,750
1998 3,812
</TABLE>

Rent expense for all operating leases for the years ended December
31, 1994, 1993 and 1992 was $4,046, $4,592 and $8,762, respectively.

F-13
<PAGE> 134
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
NOTES TO FINANCIAL STATEMENTS

NOTE 11 - RELATED PARTY TRANSACTIONS:
Certain directors of the Bank, companies in which they have a 10% or
more beneficial ownership, and certain principal officers are customers of, and
have banking transactions with, the Bank in the ordinary course of business.
The aggregate amount of loans to such related parties at December 31, 1994 was
$866,033. New loans to such related parties amounted to $678,926 and repayments
amounted to $155,063 during 1994.

NOTE 12 - SUBSEQUENT EVENTS:
The Board of Directors executed on May 19, 1995, an agreement and
plan of merger between Farmers and Merchants Bank, Ariton, Alabama; Colonial
Bank and Colonial BancGroup, Inc.

F-14
<PAGE> 135

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
ARITON, ALABAMA
BALANCE SHEET AT MARCH 31, 1995

<TABLE>
<S> <C>
ASSETS

(Unaudited)

Cash and due from banks $ 1,697,165
Securities being held to maturity 22,250,227
Federal funds sold 1,065,000
Loans, net 24,590,421
Bank premises and equipment, net 515,537
Accrued interest receivable 620,505
Other assets 112,971
-----------

Total assets $50,851,826
===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
Demand $18,053,081
Savings 3,862,595
Other time 21,422,797
-----------
Total deposits 43,338,473
Accrued interest 72,222
Other liabilities 69,788
-----------
Total liabilities 43,480,483
-----------

Stockholders' equity:
Common stock - $100 par value; 5,600 shares authorized;
5,600 shares outstanding 560,000
Surplus 560,000
Retained earnings 6,251,343
-----------
Total stockholders' equity 7,371,343
-----------

Total liabilities and stockholders' equity $50,851,826
===========

</TABLE>

See Accountants' Compilation Report.

F-15
<PAGE> 136

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------

1995 1994
---- ----
(Unaudited)
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $546,223 $433,287
Securities to be held to maturity 362,142 399,031
Federal funds sold 29,588 18,683
-------- --------
937,953 851,001

INTEREST EXPENSE ON DEPOSITS 376,414 323,326
-------- --------

NET INTEREST INCOME 561,539 527,675
-------- --------

OTHER INCOME:
Service charges and other fees 49,272 65,382
Other gains 1,190 1,158
-------- --------
50,462 66,540
-------- --------
OTHER EXPENSE:
Salaries 117,060 117,146
Retirement and other employee benefits 20,121 20,069
Other operating expenses 143,373 121,363
-------- --------
280,554 258,578
-------- --------

INCOME BEFORE INCOME TAXES 331,447 335,637

PROVISION FOR INCOME TAXES 106,500 90,000
-------- --------

NET INCOME $224,947 $245,637
======== ========

NET INCOME PER SHARE OF COMMON STOCK $ 40.17 $ 43.86
======== ========
</TABLE>

See Accountants' Compilation Report.

F-16
<PAGE> 137

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994

<TABLE>
<CAPTION>
COMMON RETAINED
STOCK SURPLUS EARNINGS TOTAL
-------- -------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1993 $560,000 $560,000 $5,610,404 $6,730,404

Net income 245,637 245,637

Dividends (196,000) (196,000)
-------- -------- ---------- ----------

BALANCE AT MARCH 31, 1994 $560,000 $560,000 $5,660,041 $6,780,041
======== ======== ========== ==========

BALANCE AT DECEMBER 31, 1994 $560,000 $560,000 $6,222,396 $7,342,396

Net income 224,947 224,947

Dividends (196,000) (196,000)
-------- -------- ---------- ----------

BALANCE AT MARCH 31, 1995 $560,000 $560,000 $6,251,343 $7,371,343
======== ======== ========== ==========

</TABLE>

See Accountants' Compilation Report.

F-17
<PAGE> 138

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------

1995 1994
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM (USED FOR) OPERATING ACTIVITIES:
Net income $ 224,947 $ 245,637
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 18,330 17,400
Amortization of bond premiums 12,519 13,890
Gain on sale of securities (943)
Gain on sale of bank assets (247) (1,158)
Decrease (increase) in operating assets and increase
(decrease) in operating liabilities:
Interest receivable (25,686) (81,168)
Interest payable 6,490 (4,880)
Other assets 30,662 (11,003)
Other liabilities 31,291 (59,715)
----------- -----------

Net cash from operating activities 297,363 119,003
----------- -----------

CASH FLOWS FROM (USED FOR) INVESTING ACTIVITIES:
Proceeds from sales and maturities of investment securities 1,186,468 118,835
Purchase of investment securities (1,011,250) (1,001,102)
Decrease in federal funds sold 775,000 315,000
Net increase in loans (929,184) (263,722)
Proceeds from sales of bank assets 15,000 7,500
Purchases of bank premises and equipment (1,857)
----------- -----------

Net cash from (used for) investing activities $ 36,034 $ (825,346)
----------- -----------
</TABLE>

See Accountants' Compilation Report.

F-18
<PAGE> 139

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------

1995 1994
---- ----
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM (USED FOR) FINANCING ACTIVITIES:
Net increase in demand deposits, NOW
accounts and savings accounts $ 1,385,260 $ 28,867
Net increase (decrease) in certificates of deposit (1,607,788) 615,196
Dividends paid (196,000) (196,000)
----------- ----------

Net cash from (used for) financing activities (418,528) 448,063
----------- ----------

NET DECREASE IN CASH AND CASH EQUIVALENTS (85,131) (258,280)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,782,296 1,749,327
----------- ----------

CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,697,165 $1,491,047
=========== ==========

SUPPLEMENTAL CASH FLOWS INFORMATION:
Cash paid for:
Interest $ 369,923 $ 328,205
Income taxes 31,121 151,440
</TABLE>

F-19

<PAGE> 140
FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
SELECTED INFORMATION - SUBSTANTIALLY ALL DISCLOSURES
REQUIRED BY GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
ARE NOT INCLUDED

The accompanying unaudited financial statements of Farmers and Merchants
Bank, Ariton, Alabama for the three months ended March 31, 1995 and March 31,
1994 have been prepared in accordance with generally accepted accounting
principles for interim information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all material
adjustments considered necessary for a fair presentation have been included.
All 1995 interim amounts are subject to year-end audit and the results of
operations for the interim periods herein are not necessarily indicative of the
results that may be expected for the year ending December 31, 1995. For
further information, refer to the financial statements and footnotes thereto
included in Farmers and Merchants Bank, Ariton, Alabama's audited financial
statements for the year ended December 31, 1994.

F-20
<PAGE> 141
APPENDIX A

AGREEMENT AND PLAN OF MERGER

BY AND BETWEEN

THE COLONIAL BANCGROUP, INC.,

COLONIAL BANK

AND

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA

DATED AS OF

MAY 19, 1995
<PAGE> 142

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<S> <C>
ARTICLE 1 -- NAME

1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7

ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS

2.1 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-7
2.2 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
2.3 Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.4 Resulting Corporation's Officers and Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.5 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.6 Further Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-9
2.7 Effective Date and Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10

ARTICLE 3 -- CONVERSION OF BANK STOCK

3.1 Conversion of Bank Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-10
3.2 Surrender of Bank Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
3.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-12
3.4 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
3.5 Colonial Bank Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13
3.6 Dissenting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-13

ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND
COVENANTS OF BANCGROUP

4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
4.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-14
4.3 Financial Statements; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-15
4.4 No Conflict with Other Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-17
4.5 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-18
4.6 Approval of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-18
4.7 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
4.8 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-19
4.9 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
4.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-20
4.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
4.12 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
</TABLE>

A-2
<PAGE> 143

<TABLE>
<S> <C>
4.13 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
4.14 Filings Incorporated by Reference . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-22
4.15 Form S-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
4.16 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23
4.17 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-23

ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND
COVENANTS OF THE BANK

5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-24
5.4 Financial Statements; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-25
5.5 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
5.6 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-32
5.7 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-33
5.8 Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-34
5.10 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
5.11 No Conflict with Other Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-35
5.12 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
5.13 Absence of Regulatory Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
5.14 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
5.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-36
5.16 Pension and Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-37
5.17 Buy-Sell Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
5.18 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
5.19 Approval of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-38
5.20 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
5.21 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-39
5.22 Loans; Adequacy of Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
5.23 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-40
5.24 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-41

ARTICLE 6 -- ADDITIONAL COVENANTS

6.1 Additional Covenants of BancGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-42
6.2 Additional Covenants of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-44

ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS

7.1 Best Efforts; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-46
7.2 Press Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-47
7.3 Mutual Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-47
</TABLE>

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<TABLE>
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7.4 Access to Properties and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-47

ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES

8.1 Approval by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-48
8.2 Regulatory Authority Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-48
8.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-48
8.4 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-49
8.5 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-49

ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF THE BANK

9.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-51
9.2 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-51
9.3 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-51
9.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-53
9.5 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-53
9.6 Material Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-53
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP

10.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-54
10.2 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-54
10.3 Closing Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-55
10.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-56
10.5 Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-56
10.6 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-57
10.7 Material Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-57
10.8 Dissenters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-57

ARTICLE 11 -- TERMINATION OF REPRESENTATIONS
AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-57

ARTICLE 12 -- NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-58

ARTICLE 13 -- AMENDMENT OR TERMINATION

13.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-59
13.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-59
13.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-61

ARTICLE 14 -- DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-61
</TABLE>

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ARTICLE 15 -- MISCELLANEOUS

15.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-72
15.2 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-72
15.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-72
15.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-72
15.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-72
15.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-73
15.7 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-73
15.8 Return of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-73
15.9 Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
15.10 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
15.11 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-74
15.12 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-75
15.13 Entire Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-75

FORM OF AFFILIATE AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXHIBIT A

OPINION OF COUNSEL TO BANCGROUP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXHIBIT B

OPINION OF COUNSEL TO BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EXHIBIT C
</TABLE>

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AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this
the 19 day of May 1995, by and between FARMERS AND MERCHANTS BANK, ARITON,
ALABAMA, an Alabama state banking corporation ("Bank"), COLONIAL BANK
("Colonial Bank"), an Alabama state banking corporation, and joined in by THE
COLONIAL BANCGROUP, INC. ("BancGroup"), a Delaware corporation.

WITNESSETH

WHEREAS, the Bank operates as a commercial bank in Ozark, Alabama and
Ariton, Alabama; and

WHEREAS, BancGroup is a bank holding company with subsidiary banks in
Alabama and Tennessee; and

WHEREAS, the Bank wishes to merge with Colonial Bank, a wholly-owned
subsidiary of BancGroup; and

WHEREAS, the Parties hereto acknowledge and agree that the Merger
herein contemplated will benefit the Bank by increasing its legal lending limit
and reducing its operating expenses through consolidating its administrative
functions, and will benefit

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Colonial Bank by giving it access to, and a substantial presence in, the Dale
County, Alabama, banking market; and

WHEREAS, it is the intention of BancGroup, Colonial Bank and the Bank
that such merger shall qualify for federal income tax purposes as a
"reorganization" within the meaning of section 368(a) of the Code, as defined
herein;

NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the Parties hereto agree as follows:

ARTICLE 1

NAME

1.1 NAME. The name of the corporation resulting from the Merger
shall be "Colonial Bank."

ARTICLE 2

MERGER -- TERMS AND CONDITIONS

2.1 APPLICABLE LAW. On the Effective Date, the Bank shall be
merged with and into Colonial Bank (herein referred to as the "Resulting
Corporation" whenever reference is made to it as of the time of merger or
thereafter). The Merger shall be undertaken

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pursuant to the provisions of and with the effect provided in the ABCA. The
offices and facilities of the Bank and of Colonial Bank shall become the
offices and facilities of the Resulting Corporation.

2.2 CORPORATE EXISTENCE. On the Effective Date, the corporate
existence of the Bank and of Colonial Bank shall, as provided in the ABCA, be
merged into and continued in the Resulting Corporation, and the Resulting
Corporation shall be deemed to be the same corporation as the Bank and Colonial
Bank. All rights, franchises and interests of the Bank and Colonial Bank,
respectively, in and to every type of property (real, personal and mixed) and
choses in action shall be transferred to and vested in the Resulting
Corporation by virtue of the Merger without any deed or other transfer. The
Resulting Corporation on the Effective Date, and without any order or other
action on the part of any court or otherwise, shall hold and enjoy all rights
of property, franchises and interests, including appointments, designations and
nominations and all other rights and interests as trustee, executor,
administrator, transfer agent and registrar of stocks and bonds, guardian of
estates, assignee, and receiver and in every other fiduciary capacity and in
every agency, and capacity, in the same manner and to the same extent as such
rights, franchises and interests were held or enjoyed by the Bank and Colonial
Bank, respectively, on the Effective Date.

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2.3 ARTICLES OF INCORPORATION AND BYLAWS. On the Effective Date,
the articles of incorporation and bylaws of the Resulting Corporation shall be
the articles of incorporation and bylaws of Colonial Bank as they exist
immediately before the Effective Date.

2.4 RESULTING CORPORATION'S OFFICERS AND BOARD. The board of
directors and the officers of the Resulting Corporation on the Effective Date
shall consist of those persons serving in such capacities of Colonial Bank as
of the Effective Date.

2.5 SHAREHOLDER APPROVAL. This Agreement shall be submitted to
the shareholders of the Bank at the Stockholders Meeting to be held as promptly
as practicable consistent with the satisfaction of the conditions set forth in
this Agreement. Upon approval by the requisite vote of the shareholders of the
Bank as required by applicable Law, this Agreement shall become effective as
soon as practicable thereafter in the manner provided in section 2.7 hereof.

2.6 FURTHER ACTS. If, at any time after the Effective Date, the
Resulting Corporation shall consider or be advised that any further assignments
or assurances in law or any other acts are necessary or desirable (i) to vest,
perfect, confirm or record, in the Resulting Corporation, title to and
possession of any property or right of the Bank or Colonial Bank, acquired as a
result of the Merger, or (ii) otherwise to carry out the purposes of this
Agreement, the Bank or Colonial Bank and its officers and directors shall
execute and deliver all such proper deeds, assignments and assurances in law
and do all acts

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necessary or proper to vest, perfect or confirm title to, and possession of,
such property or rights in the Resulting Corporation and otherwise to carry out
the purposes of this Agreement; and the proper officers and directors of the
Resulting Corporation are fully authorized in the name of the Bank or Colonial
Bank, or otherwise, to take any and all such action.

2.7 EFFECTIVE DATE AND CLOSING. Subject to the terms of all
requirements of Law and the conditions specified in this Agreement, the Merger
shall become effective on the date specified in the Certificate of Merger to be
issued by the Secretary of State of the State of Alabama (such time being
herein called the "Effective Date"). The Closing shall take place at the
offices of BancGroup, in Montgomery, Alabama, at 11:00 a.m. on the date that
the Effective Date occurs or at such other place and time that the Parties may
mutually agree.

ARTICLE 3

CONVERSION OF BANK STOCK

3.1 CONVERSION OF BANK STOCK. (a) On the Effective Date, and
subject to section 3.1(b), each share of common stock of the Bank outstanding
and held by the Bank's shareholders (the "Bank Stock"), shall be converted into
shares of BancGroup Common Stock and cash as specified below. Each outstanding
share of Bank Stock shall be converted into the number of shares, or such
fractions of a share (subject to section 3.3 hereof), of

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BancGroup Common Stock which shall be equal to $7,000,000 divided by the total
number of shares of Bank Stock outstanding divided by the Market Value. The
Market Value shall represent the per share market value of the BancGroup Common
Stock at the Effective Date and shall be determined by calculating the average
of the closing prices of the Common Stock of BancGroup as reported by the NYSE
on each of the ten (10) trading days ending on the trading day immediately
preceding the Effective Date. In addition, BancGroup will pay an aggregate of
$3,000,000 in cash for the outstanding shares of Bank Stock, with $535.71 in
cash to be paid for each one share of Bank Stock assuming 5,600 shares of Bank
Stock outstanding. Thus, as an illustration only, if the Market Value is $24,
and assuming 5,600 shares of Bank Stock outstanding, then each one share of
Bank Stock shall be converted into 52.08 shares of BancGroup Common Stock
(i.e., $7,000,000 divided by 5,600 divided by the Market Value), and a
shareholder of the Bank holding 123 shares of Bank Stock would receive in the
aggregate 6,405 shares of BancGroup Common Stock (123 multiplied by 52.08) with
the .84 of a share of BancGroup Common Stock converted to cash equal to $20.16
($24 multiplied by .84) as provided in section 3.3. In addition, such
shareholder would be paid $65,892.33 in cash for such shareholder's 123 shares
of Bank Stock.

(b) Notwithstanding the provisions of section 3.1(a), the maximum
number of shares of Common Stock that BancGroup shall be required to issue in
the Merger shall be 354,430, and the minimum number of such shares that
BancGroup shall be required to issue shall be 256,881.

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3.2 SURRENDER OF BANK STOCK. After the Effective Date, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of Bank Stock who is entitled to receive BancGroup Common
Stock shall be entitled, upon surrender to BancGroup of their certificate or
certificates representing shares of Bank Stock, to receive in exchange therefor
a certificate or certificates representing the number of whole shares of
BancGroup Common Stock into and for which the shares of Bank Stock so
surrendered shall have been converted, such certificates to be of such
denominations and registered in such names as such holder may reasonably
request. Until so surrendered and exchanged, each such outstanding certificate
which, prior to the Effective Date, represented shares of Bank Stock and which
is to be converted into BancGroup Common Stock shall for all purposes evidence
ownership of the BancGroup Common Stock into and for which such shares shall
have been so converted, except that no dividends or other distributions with
respect to such BancGroup Common Stock shall be made until the certificates
previously representing shares of Bank Stock shall have been properly tendered.

3.3 FRACTIONAL SHARES. No fractional shares of BancGroup Common
Stock shall be issued, and each holder of shares of Bank Stock having a
fractional interest arising upon the conversion of such shares into shares of
BancGroup Common Stock shall, at the time of surrender of the certificates
previously representing Bank Stock, be paid by BancGroup an amount in cash
equal to the Market Value of such fractional share.

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3.4 ADJUSTMENTS. In the event that prior to the Effective Date
BancGroup Common Stock shall be changed into a different number of shares or a
different class of shares by reason of any recapitalization or
reclassification, stock dividend, combination, stock split, or reverse stock
split of the Common Stock, an appropriate and proportionate adjustment shall be
made in the number of shares of BancGroup Common Stock into which the Bank
Stock shall be converted.

3.5 COLONIAL BANK STOCK. The shares of common stock of Colonial
Bank issued and outstanding immediately before the Effective Date shall
continue to be issued and outstanding shares of the Resulting Corporation.

3.6 DISSENTING RIGHTS. Any shareholder of the Bank who shall not
have voted in favor of this Agreement and has complied with the applicable
procedures set forth in the ABCA, relating to rights of dissenting
shareholders, shall be entitled to receive payment for the fair value of his
Bank Stock. If after the Effective Date a dissenting shareholder of the Bank
fails to perfect, or effectively withdraws or loses, his right to appraisal and
payment for his shares of Bank Stock, BancGroup shall issue and deliver the
consideration to which such holder of shares of Bank Stock is entitled under
Section 3(a) (without interest) upon surrender of such holder of the
certificate or certificates representing shares of Bank Stock held by him.

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ARTICLE 4

REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP

BancGroup represents, warrants and covenants to and with the Bank as
follows:

4.1 ORGANIZATION. BancGroup is a corporation duly organized,
validly existing and in good standing under the Laws of the State of Delaware.
BancGroup has the necessary corporate powers to carry on its business as
presently conducted and is qualified to do business in every jurisdiction in
which the character and location of the Assets owned by it or the nature of the
business transacted by it requires qualification or in which the failure to
qualify could, individually or in the aggregate, have a Material Adverse Effect
on the condition (financial or other), earnings, business, affairs, Assets,
properties, prospects or results of operations of BancGroup or of BancGroup and
its Subsidiaries taken as a whole.

4.2 CAPITAL STOCK.

(a) The authorized capital stock of BancGroup consists of
(A) 44,000,000 shares of Common Stock, $2.50 par value per share, of which as
of March 31, 1995, 12,208,446 shares were validly issued and outstanding, fully
paid and nonassessable and are not subject to preemptive rights, (B) and
1,000,000 shares of Preference Stock, $2.50 par value per share, none of which
are issued and outstanding. The shares of Common Stock

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to be issued upon the Merger are duly authorized and, when so issued, will be
validly issued and outstanding, fully paid and nonassessable.

(b) The authorized capital stock of each Subsidiary of
BancGroup is duly authorized, validly issued and outstanding, fully paid and
nonassessable, and each Subsidiary is wholly owned, directly or indirectly, by
BancGroup.

4.3 FINANCIAL STATEMENTS; TAXES. (a) BancGroup has delivered to
the Bank true and complete copies of the following financial statements of
BancGroup (together with related opinions of auditors, as appropriate).

(i) Consolidated balance sheets as of December 31, 1993,
and December 31, 1994, and for the quarterly period ending March 31, 1995;

(ii) Consolidated statements of operations for each of the
three years ended December 31, 1992, 1993 and 1994, and for the quarterly
period ending March 31, 1995;

(iii) Consolidated statements of cash flows for each of the
three years ended December 31, 1992, 1993 and 1994, and for the quarterly
period ending March 31, 1995; and

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(iv) Consolidated statements of changes in shareholders'
equity for the three years ended December 31, 1992, 1993 and 1994, and for the
quarterly period ending March 31, 1995.

Between the date hereof and the Effective Date, BancGroup will deliver to the
Bank copies of all quarterly financial statements as soon as they become
available. All such financial statements are in all material respects in
accordance with the books and records of BancGroup and have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis throughout the periods indicated, all as more particularly set
forth in the notes to such statements. Each of the consolidated balance sheets
presents fairly as of its date the consolidated financial condition of
BancGroup and its Subsidiaries. Except as and to the extent reflected or
reserved against in such balance sheets (including the notes thereto),
BancGroup did not have, as of the dates of such balance sheets, any material
Liabilities or obligations (absolute or contingent) of a nature customarily
reflected in a balance sheet or the notes thereto, other than Liabilities
(including reserves) in the amount set forth in such balance sheets and the
notes thereto. The statements of consolidated income, shareholders' equity and
changes in consolidated financial position present fairly the results of
operations and changes in financial position of BancGroup and its Subsidiaries
for the periods indicated.

(b) All Tax returns required to be filed by or on behalf
of BancGroup have been timely filed (or requests for extensions therefor have
been timely filed and granted and

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have not expired), and all returns filed are complete and accurate in all
material respects. All Taxes shown on said returns to be due and all
additional assessments received have been paid. The amounts recorded for Taxes
on the balance sheets provided under section 4.3(a) are, to the Knowledge of
BancGroup, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign or other Taxes (including any interest
or penalties) of BancGroup accrued for or applicable to the period ended on the
dates thereof, and all years and periods prior thereto and for which BancGroup
may at said dates have been liable in its own right or as transferee of the
Assets of, or as successor to, any other corporation or other party. No audit,
examination or investigation is presently being conducted or, to the Knowledge
of BancGroup, threatened by any taxing authority which is likely to result in a
material Tax Liability, no material unpaid Tax deficiencies or additional
liabilities of any sort have been proposed by any governmental representative
and no agreements for extension of time for the assessment of any material
amount of Tax have been entered into by or on behalf of BancGroup. BancGroup
has withheld from its employees (and timely paid to the appropriate
governmental entity) proper and accurate amounts for all periods in material
compliance with all Tax withholding provisions of applicable federal, state,
foreign and local Laws (including without limitation, income, social security
and employment Tax withholding for all types of compensation).

4.4 NO CONFLICT WITH OTHER INSTRUMENT. The consummation of the
transactions contemplated by this Agreement will not result in a breach of or
constitute a Default (without regard to the giving of notice or the passage of
time, or both) under any material

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indenture, mortgage, deed of trust or other material agreement or instrument to
which BancGroup or any of its Subsidiaries is a party or by which they or any
material portion of their Assets may be bound; will not conflict with any
provision of the restated certificate of incorporation or bylaws of BancGroup
or the articles of incorporation or bylaws of any of its Subsidiaries; and will
not violate any provision of any Law, Regulation, judgment or decree binding on
them or any of their Assets.

4.5 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the date of the
most recent balance sheet provided under section 4.3(a)(i) above, there have
been no events, changes or occurrences which have had or are reasonably likely
to have, individually or in the aggregate, a Material Adverse Effect on
BancGroup.

4.6 APPROVAL OF AGREEMENTS. The board of directors of BancGroup
has, or will have prior to the Effective Date, approved this Agreement and the
transactions contemplated by it and have, or will have prior to the Effective
Date, authorized the execution and delivery by BancGroup of this Agreement.
Subject to the matters referred to in section 8.2, BancGroup has full power,
authority and legal right to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. Subject to the conditions stated
herein, this Agreement represents a legal, valid and binding obligation of
BancGroup and Colonial Bank, enforceable against BancGroup and Colonial Bank in
accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting

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the enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is subject
to the discretion of the court before which any proceeding may be brought).

4.7 TAX TREATMENT. Colonial Bank will acquire, pursuant to the
Merger, substantially all of the properties of the Bank within the meaning of
Treasury Regulations Section 1.368-2(b)(2). BancGroup and Colonial Bank have
no intention to sell or otherwise dispose of any of the Assets of the Bank
acquired pursuant to the Merger. Colonial Bank shall continue the Bank's
historic business and shall use a significant portion of the Bank's historic
business assets in a business, all within the meaning of Treasury Regulations
Section 1.368-1(d). BancGroup controls Colonial Bank within the meaning of
section 368(c) of the Code.

4.8 TITLE AND RELATED MATTERS. BancGroup has good and marketable
title to all the properties, interests in properties and Assets, real and
personal, reflected in the most recent balance sheet referred to in section
4.3(a), or acquired after the date of such balance sheet (except properties,
interests and Assets sold or otherwise disposed of since such date, in the
ordinary course of business), free and clear of all mortgages, Liens, pledges,
charges or encumbrances except (i) mortgages and other encumbrances referred to
in the notes of such balance sheet, (ii) liens for current Taxes not yet due
and payable and (iii) such imperfections of title and easements as do not
materially detract from or interfere with the present use of the properties
subject thereto or affected thereby, or otherwise materially

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impair present business operations at such properties. To the Knowledge of
BancGroup, the material structures and equipment of BancGroup comply in all
material respects with the requirements of all applicable Laws.

4.9 SUBSIDIARIES. Each Subsidiary of BancGroup, including
Colonial Bank, has been duly incorporated and is validly existing as a
corporation in good standing under the Laws of the jurisdiction of its
incorporation (which, in the case of Colonial Bank, is the State of Alabama)
and each Subsidiary, including Colonial Bank, has been duly qualified as a
foreign corporation to transact business and is in good standing under the Laws
of each other jurisdiction in which it owns or leases properties, or conducts
any business so as to require such qualification and in which the failure to be
duly qualified could have a Material Adverse Effect upon BancGroup and its
Subsidiaries considered as one enterprise; each of the banking Subsidiaries of
BancGroup, including Colonial Bank, has its deposits fully insured by the
Federal Deposit Insurance Corporation to the extent provided by the Federal
Deposit Insurance Act; and the businesses of the non-bank Subsidiaries of
BancGroup are permitted to subsidiaries of registered bank holding companies.

4.10 CONTRACTS. Neither BancGroup nor any of its Subsidiaries is
in violation of its respective certificate of incorporation or by-laws or in
default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any Contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which
it or its property may be bound.

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4.11 LITIGATION. Except as disclosed in or reserved for in
BancGroup's financial statements, there is no Litigation before or by any court
or Agency, domestic or foreign, now pending, or, to the Knowledge of BancGroup,
threatened against or affecting BancGroup or any of its Subsidiaries (nor is
BancGroup aware of any facts which could give rise to any such Litigation)
which is required to be disclosed in the Registration Statement (other than as
disclosed therein), or which is likely to have any Material Adverse Effect or
prospective Material Adverse Effect in the condition, financial or otherwise,
or in the general affairs, management, stockholders' equity or results of
operations of BancGroup and its Subsidiaries considered as one enterprise, or
which is likely to materially and adversely affect the properties or Assets
thereof or which is likely to materially affect the consummation of the
transactions contemplated by this Agreement; all pending legal or governmental
proceedings to which BancGroup or any Subsidiary is a party or of which any of
their properties is the subject which are not described in the Registration
Statement, including ordinary routine litigation incidental to the business,
are, considered in the aggregate, not material; and neither BancGroup nor any
of its Subsidiaries have any contingent obligations which could be considered
material to BancGroup and its Subsidiaries considered as one enterprise which
are not disclosed in the Registration Statement as it may be amended or
supplemented.

4.12 COMPLIANCE. BancGroup and its Subsidiaries, in the conduct of
their businesses, are to the Knowledge of BancGroup, in material compliance
with all material federal, state or local Laws, applicable to their or the
conduct of their businesses.

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4.13 REGISTRATION STATEMENT. At the time the Registration
Statement becomes effective and at the time of the Stockholders' Meeting, the
Registration Statement, including the Proxy Statement which shall constitute a
part thereof, will comply in all material respects with the requirements of the
1933 Act and the rules and regulations thereunder, will not contain an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not apply to statements
in or omissions from the Proxy Statement made in reliance upon and in
conformity with information furnished in writing to BancGroup by the Bank or
any of its representatives expressly for use in the Proxy Statement or
information included in the Proxy Statement regarding the business of the Bank,
its operations, Assets and capital.

4.14 FILINGS INCORPORATED BY REFERENCE. The documents incorporated
by reference into the Registration Statement, at the time they were filed with
the SEC, complied in all material respects with the requirements of the 1934
Act and Regulations thereunder and when read together and with the other
information in the Registration Statement will not contain an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading at the time
the Registration Statement becomes effective or at the time of the Stockholders
Meeting.

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4.15 FORM S-4. The conditions for use of a registration statement
on SEC Form S-4 set forth in the General Instructions on Form S-4 have been or
will be satisfied with respect to BancGroup and the Registration Statement.

4.16 DISCLOSURE. No representation or warranty, or any statement
or certificate furnished or to be furnished to the Bank by BancGroup, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.

4.17. BROKERS. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by BancGroup
directly with the Bank and without the intervention of any other person, either
as a result of any act of BancGroup, or otherwise, in such manner as to give
rise to any valid claim against BancGroup or the Bank for a finder's fee,
brokerage commission or other like payment.

ARTICLE 5

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BANK

The Bank represents, warrants and covenants to and with BancGroup, as
follows:

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5.1 ORGANIZATION. The Bank is an Alabama state banking
corporation duly organized, validly existing and in good standing under the
Laws of Alabama and has all requisite corporate power and authority to carry on
its business as it is now being conducted and is qualified to do business in
every jurisdiction in which the character and location of the Assets owned by
it or the nature of the business transacted by it requires qualification or in
which the failure to qualify could, individually, or in the aggregate, have a
Material Adverse Effect on the condition (financial or other) earnings,
business, affairs, Assets, properties, prospects or results of operations of
the Bank.

5.2 CAPITAL STOCK. (i) As of March 31, 1995, the authorized
capital stock of the Bank consisted of 5,600 shares of common stock, $100 par
value per share, 5,600 shares of which are issued and outstanding as of the
date hereof. All of such shares which are outstanding are duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights. The Bank has no shares of its common stock subject to exercise under
any stock option. The Bank does not have any other arrangements or commitments
obligating it to issue shares of its capital stock or any securities
convertible into or having the right to purchase shares of its capital stock.

5.3 SUBSIDIARIES. (a) The Bank has no Subsidiaries.

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(b) The Bank does not own directly or indirectly any
equity interest in any bank, corporation or other entity, except in a fiduciary
capacity.

5.4 FINANCIAL STATEMENTS; TAXES (a) The Bank has delivered to
BancGroup true and complete copies of its Directors' Examinations performed by
the Bank's independent certified public accountants for each of the three (3)
years. Each such Directors' Examination has been performed in accordance with
the minimum guidelines as set forth by the State of Alabama Superintendent of
Banking. The Bank has also delivered to BancGroup its 1994 Annual Disclosure
Statement which includes the following financial statements on the Bank:

(i) Statements of financial condition as of December 31,
1993 and 1994;

(ii) Statements of income for each of the two years ended
December 31, 1993 and 1994; and

(iii) Statements of changes in equity capital for each of
the two years ended December 31, 1993, and 1994.

Between the date hereof and the Effective Date, the Bank will deliver copies of
all monthly financial statements as soon as they become available. All of the
foregoing financial statements are in all material respects in accordance with
the books and records of the

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Bank. Each of the balance sheets of the Bank presents fairly as of its date
the financial condition of the Bank. Except as and to the extent reflected or
reserved against in such balance sheets (including the notes thereto), the Bank
did not have, as of the date of such balance sheets, any material Liabilities
or obligations (absolute or contingent) of a nature customarily reflected in a
balance sheet or the notes thereto, other than Liabilities (including reserves)
in the amount set forth in such balance sheets and the notes thereto. The
statements of income, stockholders' equity and changes in financial position
present fairly the results of operation of the Bank for the periods indicated.

(b) All Tax returns required to be filed by or on behalf
of the Bank have been timely filed (or requests for extensions therefor have
been timely filed and granted and have not expired), and all returns filed are
complete and accurate in all material respects. All Taxes shown on said
returns to be due and all additional assessments received have been paid. The
amounts recorded for Taxes on the balance sheets provided under section 5.4(a)
are, to the Knowledge of the Bank, sufficient in all material respects for the
payment of all unpaid federal, state, county, local, foreign and other Taxes
(including any interest or penalties) of the Bank accrued for or applicable to
the period ended on the dates thereof, and all years and periods prior thereto
and for which the Bank may at said dates have been liable in its own right or
as a transferee of the Assets of, or as successor to, any other corporation or
other party. No audit, examination or investigation is presently being
conducted or, to the Knowledge of the Bank, threatened by any taxing authority
which is likely to result in a material Tax Liability, no material unpaid Tax
deficiencies or additional

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liability of any sort have been proposed by any governmental representative and
no agreements for extension of time for the assessment of any material amount
of Tax have been entered into by or on behalf of the Bank. The Bank has not
executed an extension or waiver of any statute of limitations on the assessment
or collection of any Tax due that is currently in effect.

(c) The Bank has withheld from its employees (and timely
paid to the appropriate governmental entity) proper and accurate amounts for
all periods in material compliance with all Tax withholding provisions of
applicable federal, state, foreign and local Laws (including without
limitation, income, social security and employment Tax withholding for all
types of compensation). The Bank is in compliance with, and its records
contain all information and documents (including properly completed IRS Forms
W-9) necessary to comply with, all applicable information reporting and Tax
withholding requirements under federal, state and local Tax Laws, and such
records identify with specificity all accounts subject to backup withholding
under section 3406 of the Code.

5.5 ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Since the date of
the most recent balance sheet provided under section 5.4(a)(i) above, the Bank
has not

(i) issued, delivered or agreed to issue or deliver any
stock, bonds or other corporate securities (whether authorized and unissued or
held in the treasury) except shares issued as director's qualifying shares;

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(ii) borrowed or agreed to borrow any funds or incurred,
or become subject to, any Liability (absolute or contingent) except borrowings,
obligations and Liabilities incurred in the ordinary course of business and
consistent with past practice;

(iii) paid any material obligation or Liability (absolute
or contingent) other than current Liabilities reflected in or shown on the most
recent balance sheet referred to in section 5.4(a)(i) and current Liabilities
incurred since that date in the ordinary course of business and consistent with
past practice;

(iv) except as permitted by section 5.5(b), declared or
made, or agreed to declare or make, any payment of dividends or distributions
of any Assets of any kind whatsoever to shareholders, or purchased or redeemed,
or agreed to purchase or redeem, any of its outstanding securities;

(v) except in the ordinary course of business, sold or
transferred, or agreed to sell or transfer, any of its Assets, property or
rights or canceled, or agreed to cancel, any debts or claims, except that the
automobiles and other immaterial Assets of the Bank listed on Schedule
5.5(a)(v) hereto may be transferred at Closing to the persons shown on such
schedule. Such Assets shall be assessed at book value (which shall be shown on
such schedule), and such assessment shall be charged against the Bank's 1995
earnings as described in section 5.5(c);

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(vi) except in the ordinary course of business, entered or
agreed to enter into any agreement or arrangement granting any preferential
rights to purchase any of its Assets, property or rights or requiring the
consent of any party to the transfer and assignment of any of its Assets,
property or rights;

(vii) suffered any Losses or waived any rights of value
which in the aggregate are material;

(viii) except in the ordinary course of business, made or
permitted any amendment or termination of any Contract, agreement or license to
which it is a party if such amendment or termination is material considering
its business as a whole;

(ix) made any accrual or arrangement for or payment of
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer or employee;

(x) except in accordance with normal and usual practice,
increased the rate of compensation payable to or to become payable to any of
its officers or employees or made any material increase in any profit sharing,
bonus, deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of its
officers or employees;

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(xi) received notice or had Knowledge or reason to believe
that any of its substantial customers has terminated or intends to terminate
its relationship, which termination would have a Material Adverse Effect on its
financial condition, results of operations, business, Assets or properties;

(xii) failed to operate its business in the ordinary course
so as to preserve its business intact and to preserve the goodwill of its
customers and others with whom it has business relations; and

(xiii) entered into any other material transaction other
than in the ordinary course of business.

Between the date hereof and the Effective Date, the Bank, without the
express written approval of BancGroup, will not do any of the things listed in
clauses (a) through (c) of this section 5.5 except as permitted therein or as
contemplated in this Agreement.

(b) Notwithstanding section 5.5(a)(iv), the Bank may declare and
pay a dividend immediately prior to the Closing which may be equal to the
amount of the dividend paid for 1994 prorated for the number of months,
including fractions of a month, from January 1, 1995, to the Closing. In other
words, the prorated dividend shall be calculated on the basis of the amount of
the 1994 dividend, divided by 12, and multiplied by the number of months from
January 1, 1995, to the Closing, including fractions of a month.

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(c) Notwithstanding section 5.5(a)(ix), at the Closing, the Bank
shall pay to or for the benefit of its employees the Bank's 1995 earnings
through the end of the month immediately prior to the Closing. For this
purpose, the Bank's "1995 earnings" shall mean earnings from normal and
customary operations of the Bank determined in accordance with GAAP. The Bank
shall provide to BancGroup income statements sufficient to show the calculation
of 1995 earnings. In addition to any expenses which may for purposes of GAAP
reduce 1995 earnings, any expenses incurred by the Bank in connection with (i)
the Merger (including but not limited to, attorney and auditing fees and
expenses, printing, mailing, and travel costs), (ii) the cancellation of the
Bank's data processing contracts listed on Schedule 5.6(d), and (iii) the
Assets shown on Schedule 5.5(a)(v) shall be accrued and included in calculating
1995 earnings. Before making such payments to its employees, however, the Bank
shall provide in writing to BancGroup a list of all employees of the Bank who
are recommended by the Bank to receive such payments, showing the name of the
employee and the employee's position and years of service at the Bank, the
amount recommended to be received by or paid for the benefit of the employee,
and the method by which the Bank proposes to make such payment and the reasons
for such payment, including the method of payment, as to each employee. For
this purpose, the "method" of payment may be in the form of a retention
agreement payment, a cash bonus, a profit sharing plan contribution or other
similar award and may vary for each employee. BancGroup shall have the right
to approve or modify the payments for each employee and the employees to whom
payments will be made, and the Bank shall only make such payments, including
any modifications, as

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are approved in writing by BancGroup. No payments shall be made if such
payments would fail to be deductible for federal income tax purposes by virtue
of section 280G of the Code.

5.6 TITLE AND RELATED MATTERS.

(a) Title. The Bank has good and marketable title to all
the properties, interest in properties and Assets, real and personal, reflected
in the most recent balance sheet referred to in section 5.4(a), or acquired
after the date of such balance sheet (except properties, interests and Assets
sold or otherwise disposed of since such date, in the ordinary course of
business), free and clear of all mortgages, Liens, pledges, charges or
encumbrances except (i) mortgages and other encumbrances referred to in the
notes to such balance sheet, (ii) Liens for current Taxes not yet due and
payable and (iii) such imperfections of title and easements as do not
materially detract from or interfere with the present use of the properties
subject thereto or affected thereby, or otherwise materially impair present
business operations at such properties. To the Knowledge of the Bank, the
material structures and equipment of the Bank, comply in all material respects
with the requirements of all applicable Laws.

(b) Leases. Schedule 5.6(b) sets forth a list and
description of all real and personal property owned or leased by the Bank,
either as lessor or lessee.

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(c) Personal Property. Schedule 5.6(c) sets forth a
depreciation schedule of the Bank's fixed Assets as of December 31, 1994.

(d) Computer Hardware and Software. Schedule 5.6(d)
contains a description of all agreements relating to data processing computer
software and hardware now being used in the business operations of the Bank.
The Bank is not aware of any defects, irregularities or problems with any of
its computer hardware or software which renders such hardware or software
unable to satisfactorily perform the tasks and functions to be performed by
them in the business of the Bank.

5.7 COMMITMENTS. Except as set forth in Schedule 5.7, the Bank is
not a party to any oral or written (i) Contracts for the employment of any
officer or employee which is not terminable on 30 days' (or less) notice, (ii)
profit sharing, bonus, deferred compensation, savings, stock option, severance
pay, pension or retirement plan, agreement or arrangement, (iii) loan
agreement, indenture or similar agreement relating to the borrowing of money by
such party, (iv) guaranty of any obligation for the borrowing of money or
otherwise, excluding endorsements made for collection, and guaranties made in
the ordinary course of business, (v) consulting or other similar Contracts,
(vi) collective bargaining agreement, (vii) agreement with any present or
former officer, director or shareholder of such party, or (viii) other
Contract, agreement or other commitment which is material to the business,
operations, property, prospects or Assets or to the condition, financial or
otherwise, of the Bank. Complete and accurate copies of all Contracts, plans

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and other items so listed have been made or will be made available to BancGroup
for inspection. Prior to the Effective Date, the Bank will not enter into or
amend any Contract, agreement or other instrument of any of the types listed in
this section without giving five days prior written notice to BancGroup,
provided that such notice shall not impair BancGroup's right to determine
whether such action which is the subject of such notice constitutes a Material
Adverse Effect under section 10.2 hereof.

5.8 CHARTER AND BYLAWS. The Bank has delivered to BancGroup true
and correct copies of its articles of incorporation and bylaws, including all
amendments thereto, as currently in effect. There will be no changes in such
articles of incorporation or bylaws prior to the Effective Date, without the
prior written consent of BancGroup.

5.9 LITIGATION. There is no Litigation (whether or not
purportedly on behalf of the Bank) pending or, to the Knowledge of the Bank,
threatened against or affecting (nor is the Bank aware of any facts which could
give rise to any such Litigation) at law or in equity, or before or by any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or before any arbitrator of any kind, which involves the
possibility of any judgment or Liability not fully covered by insurance in
excess of a reasonable deductible amount or which may have a Material Adverse
Effect on the business operations, properties or Assets or in the condition,
financial or otherwise, of the Bank, and the Bank is not in Default with
respect to any judgment, order, writ, injunction, decree, award, rule or
regulation of any court, arbitrator or governmental department, commission,

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board, bureau, agency or instrumentality, which Default would have a Material
Adverse Effect on the business operations, properties or Assets or in the
condition, financial or otherwise, of such party. To the Knowledge of the
Bank, the Bank has complied in all material respects with all material
applicable Laws including those imposing Taxes, or any applicable jurisdiction
and of all states, municipalities, other political subdivisions and Agencies,
in respect of the ownership of its properties and the conduct of its business,
which, if not complied with, would have a Material Adverse Effect in the
business operations, properties or Assets or in the condition, financial or
otherwise, of the Bank.

5.10 MATERIAL CONTRACT DEFAULTS. The Bank is not in Default in any
material respect under the terms of any Contract, agreement, lease or other
commitment which is or may be, material to the business, operations, properties
or Assets, or the condition, financial or otherwise, of such company and, to
the Knowledge of the Bank, there is no event which, with notice or lapse of
time, or both, may be or become an event of Default under any such Contract,
agreement, lease or other commitment in respect of which adequate steps have
not been taken to prevent such a Default from occurring.

5.11 NO CONFLICT WITH OTHER INSTRUMENT. The consummation of the
transactions contemplated by this Agreement will not result in the breach of or
constitute a Default (without regard to the giving of notice or the passage of
time, or both) under any term or provision of any Contract, indenture,
mortgage, deed of trust or other material agreement

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or instrument to which the Bank is a party or its Assets may be bound and will
not conflict with any provision of the charter or bylaws of the Bank.

5.12 GOVERNMENTAL AUTHORIZATION. The Bank has all licenses,
franchises, permits and other governmental authorizations that, to the
Knowledge of the Bank, are or will be legally required to enable the Bank to
conduct its business in all material respects as now conducted by the Bank.

5.13 ABSENCE OF REGULATORY COMMUNICATIONS. The Bank is not subject
to, nor has the Bank received during the past three years, any written
communication directed specifically to it from any Agency to which it is
subject or pursuant to which such Agency has imposed or has indicated it may
impose any material restrictions on the operations of it or the business
conducted by it or in which such Agency has raised any material question
concerning the condition, financial or otherwise, of the Bank.

5.14 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the date of the most
recent balance sheet provided under section 5.4(a)(i), there have been no
events, changes or occurrences which have had, or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Bank.

5.15 INSURANCE. The Bank has in effect insurance coverage and
bonds with reputable insurers which, in respect to amounts, types and risks
insured, management of the

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Bank reasonably believes to be adequate for the type of business conducted by
such company. The Bank is not liable for any material retroactive premium
adjustment. All insurance policies and bonds are valid, enforceable and in
full force and effect, and the Bank has not received any notice of a premium
increase or cancellation with respect to any of its insurance policies or
bonds. Within the last three years, the Bank has not been refused any
insurance coverage which it has sought or applied for, and it has no reason to
believe that existing insurance coverage cannot be renewed as and when the same
shall expire, upon terms and conditions as favorable as those presently in
effect, other than possible increases in premiums that do not result from any
extraordinary loss experience. All policies of insurance presently held or
policies containing substantially equivalent coverage will be outstanding and
in full force with respect to the Bank at all times from the date hereof to the
Effective Date.

5.16 PENSION AND EMPLOYEE BENEFIT PLANS.

(a) To the Knowledge of the Bank, all employee benefit
plans of the Bank have been established in compliance with, and such plans have
been operated in material compliance with, all applicable Laws. Except as set
forth on Schedule 5.16, the Bank has no pension or other retirement plan or any
other plan or agreement subject to the ERISA or Section 401 of the Code, and no
unfunded Liabilities exist with respect to any employee benefit plan, past or
present. To the Knowledge of the Bank, no employee benefit plan, any trust
created thereunder nor any trustee or administrator thereof has engaged in a

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"prohibited transaction," as defined in section 4975 of the Code, which may
have a Material Adverse Effect on the condition, financial or otherwise, of the
Bank.

(b) The Bank has no reason to believe that any amount
payable to any employee of the Bank will fail to be deductible for federal
income tax purposes by virtue of Section 280G of the Code and Regulations
thereunder.

5.17 BUY-SELL AGREEMENT. The Bank is not aware of any agreement
among any of its shareholders granting to any person or persons a right of
first refusal in respect of the sale, transfer, or other disposition of shares
of outstanding securities by any shareholder of the Bank, any similar agreement
or any voting agreement or voting trust in respect of any such shares.

5.18 BROKERS. All negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by the Bank
directly with BancGroup and without the intervention of any other person,
either as a result of any act of the Bank, or otherwise, in such manner as to
give rise to any valid claim against the Bank for a finder's fee, brokerage
commission or other like payment.

5.19 APPROVAL OF AGREEMENTS. The board of directors of the Bank
has approved this Agreement and the transactions contemplated by this Agreement
and has authorized the execution and delivery by the Bank of this Agreement.
Subject to the matters referred

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to in section 8.2, the Bank has full power, authority and legal right to enter
into this Agreement, and, upon appropriate vote of the shareholders of the Bank
in accordance with this Agreement, the Bank shall have full power, authority
and legal right to consummate the transactions contemplated by this Agreement.
Subject to the conditions set forth herein, this Agreement represents a legal,
valid, and binding obligation of the Bank, enforceable against the Bank in
accordance with its terms (except in all cases as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium, or
similar Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought).

5.20 DISCLOSURE. No representation or warranty, nor any statement
or certificate furnished or to be furnished to BancGroup by the Bank, contains
or will contain any untrue statement of a material fact, or omits or will omit
to state a material fact necessary to make the statements contained in this
Agreement or in any such statement or certificate not misleading.

5.21 REGISTRATION STATEMENT. At the time the Registration
Statement becomes effective and at the time of the Stockholders Meeting, the
Registration Statement, including the Proxy Statement which shall constitute
part thereof, will not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading;

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provided, however, that the representations and warranties in this subsection
shall only apply to statements in or omissions from the Proxy Statement
relating to descriptions of the business of the Bank, its Assets, properties,
operations, and capital stock or to information furnished by the Bank or its
representatives expressly for inclusion in the Proxy Statement.

5.22 LOANS; ADEQUACY OF ALLOWANCE FOR LOAN LOSSES. All reserves
for loan losses shown on the most recent financial statements furnished by the
Bank are adequate in all material respects, and the Bank has no Knowledge of
any fact which is likely to require a future material increase in the provision
for loan losses or a material decrease in the loan loss reserve reflected in
such financial statements. Each loan reflected as an Asset on the financial
statements of the Bank is the legal, valid and binding obligation of the
obligor of each loan, enforceable in accordance with its terms subject to the
effect of bankruptcy, insolvency, reorganization, moratorium, or other similar
laws relating to creditors' rights generally and to general equitable
principles. Except as disclosed on Schedule 5.22, the Bank does not have in
its portfolio any loan exceeding its legal lending limit, and the Bank has no
known significant delinquent, substandard, doubtful, loss, nonperforming or
problem loans.

5.23 ENVIRONMENTAL MATTERS. To the Knowledge of the Bank, the Bank
is in compliance with all Laws, and other governmental requirements relating to
the generation, management, handling, transportation, treatment, disposal,
storage, delivery, discharge, release or emission of any waste, pollution, or
toxic, hazardous or other substance (the

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"Environmental Laws"), and the Bank has no Knowledge that the Bank has not
complied with all regulations and requirements promulgated by the Occupational
Safety and Health Administration that are applicable to the Bank. To the
Knowledge of the Bank, there is no Litigation proceeding, suit or investigation
pending or threatened with respect to any violation or alleged violation of the
Environmental Laws. To the Knowledge of the Bank, with respect to properties
or Assets of or owned by the Bank, including any Loan Property, (i) there has
been no spillage, leakage, contamination or release of any substances for which
the appropriate remedial action has not be completed; (ii) no owned or leased
property is contaminated with or contains any hazardous substance or waste; and
(iii) there are no underground storage tanks on any premises owned or leased by
the Bank. The Bank has no Knowledge of any facts which might suggest that the
Bank has engaged in any management practice with respect to any of its past or
existing borrowers which could reasonably be expected to subject the Bank to
any Liability, either directly or indirectly, under the principles of law as
set forth in United States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir.
1990) or any similar principles. Moreover, to the Knowledge of the Bank, The
Bank has not extended credit, either on a secured or unsecured basis, to any
person or other entity engaged in any activities which would require or
requires such person or entity to obtain any Permits, licenses, and other
authorizations which are required under any Environmental Law.

5.24 TRANSFER OF SHARES. The Bank has no Knowledge of any plan or
intention on the part of the Bank's shareholders to sell or otherwise dispose
of any of the BancGroup

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Common Stock to be received by them in the Merger that would reduce such
shareholders' ownership to a number of shares having, in the aggregate, a fair
market value of less than fifty (50%) percent of the total fair market value of
Bank common stock outstanding immediately before the Merger.

ARTICLE 6

ADDITIONAL COVENANTS

6.1 ADDITIONAL COVENANTS OF BANCGROUP. BancGroup covenants to and
with the Bank as follows:

(a) Registration Statement and Other Filings. BancGroup
shall prepare and file with the SEC the Registration Statement on Form S-4 (or
such other form as may be appropriate) and all amendments and supplements
thereto, in form reasonably satisfactory to the Bank and its counsel, with
respect to the Common Stock to be issued pursuant to this Agreement. BancGroup
shall use reasonable good faith efforts to prepare all necessary filings with
any Agencies which may be necessary for approval to consummate the transactions
contemplated by this Agreement.

(b) Blue Sky Permits. BancGroup shall use its best
efforts to obtain, prior to the effective date of the Registration Statement,
all necessary state securities Law or "blue sky" Permits and approvals required
to carry out the transactions contemplated by this Agreement.

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(i) As soon as practicable and in any event within
forty-five (45) days after the end of each quarterly period (other than the
last quarterly period) in each fiscal year, consolidated statements of
operations of BancGroup for such period and for the period beginning at the
commencement of the fiscal year and ending at the end of such quarterly period,
and a consolidated statement of financial condition of BancGroup as of the end
of such quarterly period, setting forth in each case in comparative form
figures for the corresponding periods ending in the preceding fiscal year,
subject to changes resulting from year-end adjustments;

(ii) Promptly upon receipt thereof, copies of all audit
reports submitted to BancGroup by independent auditors in connection with each
annual, interim or special audit of the books of BancGroup made by such
accountants;

(iii) As soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such regular
and periodic reports as BancGroup may file with the SEC or any other Agency; and

(iv) With reasonable promptness, such additional financial
data as the Bank may reasonably request.

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(d) No Control of the Bank by BancGroup. Notwithstanding
any other provision hereof, until the Effective Date, the authority to
establish and implement the business policies of the Bank shall continue to
reside solely in the Bank's officers and board of directors.

(e) Listing. Prior to the Effective Date, BancGroup
shall use its reasonable efforts to list the shares of BancGroup Common Stock
to be issued in the Merger on the NYSE or other quotations system on which such
shares are primarily traded.

6.2 ADDITIONAL COVENANTS OF THE BANK. The Bank covenants to and
with BancGroup as follows:

(a) Operations. The Bank will conduct its business
in a proper and prudent manner and will use its best efforts to maintain its
relationships with its depositors, customers and employees. The Bank will not
engage in any material transaction outside the ordinary course of business or
make any material change in its accounting policies or methods of operation,
nor will the Bank permit the occurrence of any change or event which would
render any of the representations and warranties in Article 5 hereof untrue in
any material respect at and as of the Effective Date with the same effect as
though such representations and warranties had been made at and as of such
Effective Date.

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(b) Stockholders Meeting; Best Efforts. The Bank will
cause the Stockholders Meeting to be held for the purpose of approving the
Merger as soon as practicable after the effective date of the Registration
Statement, and will use its best efforts to bring about the transactions
contemplated by this Agreement, including stockholder approval of this
Agreement, as soon as practicable unless this Agreement is terminated as
provided herein.

(c) Prohibited Negotiations. Until the termination of
this Agreement, neither the Bank nor any of the Bank's directors or officers
(or any person representing any of the foregoing) shall solicit or encourage
inquiries or proposals with respect to, furnish any information relating to or
participate in any negotiations or discussions concerning, any acquisition or
purchase of all or of a substantial portion of the Assets of, or of a
substantial equity interest in, the Bank or any business combination involving
the Bank other than as contemplated by this Agreement. The Bank will notify
BancGroup immediately if any such inquiries or proposals are received by the
Bank, if any such information is requested from the Bank, or if any such
negotiations or discussions are sought to be initiated with the Bank, and the
Bank shall instruct the Bank's officers, directors, agents or affiliates or
their subsidiaries to refrain from doing any of the above; provided, however,
that nothing contained herein shall be deemed to prohibit any officer or
director of the Bank from fulfilling his fiduciary duty or from taking any
action that is required by Law.

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(d) Director Voting. The members of the Board of
Directors of the Bank agree to support publicly the Merger, and the Bank shall
on the date of execution of this Agreement obtain an agreement from each of its
directors substantially in the form set forth in Exhibit A.

ARTICLE 7

MUTUAL COVENANTS AND AGREEMENTS

7.1 BEST EFFORTS; COOPERATION. Subject to the terms and
conditions herein provided, BancGroup and the Bank each agrees to use its best
efforts promptly to take, or cause to be taken, all actions and do, or cause to
be done, all things necessary, proper or advisable under applicable Laws or
otherwise, including, without limitation, promptly making required deliveries
of stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, to consummate and make
effective, as soon as practicable, the transactions contemplated by this
Agreement. The officers of each Party to this Agreement shall fully cooperate
with officers and employees, accountants, counsel and other representatives of
the other Parties not only in fulfilling the duties hereunder of the Party of
which they are officers but also in assisting, directly or through direction of
employees and other persons under their supervision or control, such as stock
transfer agents for the Party, the other Parties requiring information which is
reasonably available from such Party.

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7.2 PRESS RELEASE. Each Party hereto agrees that, unless approved
by the other Parties in advance, such Party will not make any public
announcement, issue any press release or other publicity or confirm any
statements by any person not a party to this Agreement concerning the
transactions contemplated hereby. Notwithstanding the foregoing, each Party
hereto reserves the right to make any disclosure if such Party, in its
reasonable discretion, deems such disclosure required by Law. In that event,
such Party shall provide to the other Party the text of such disclosure
sufficiently in advance to enable the other Party to have a reasonable
opportunity to comment thereon.

7.3 MUTUAL DISCLOSURE. Each Party hereto agrees to promptly
furnish to each other Party hereto its public disclosures and filings not
precluded from disclosure by Law including but not limited to call reports,
Form 8-K, Form 10-Q and Form 10-K filings, Y-2 applications, reports on Form
Y-6, quarterly or special reports to shareholders, Tax returns, Form S-8
registration statements and similar documents.

7.4 ACCESS TO PROPERTIES AND RECORDS. Each Party hereto shall
afford the officers and authorized representatives of each of the other Parties
full access to the properties, books and records of such Party in order that
such other Parties may have full opportunity to make such investigation as they
shall desire of the affairs of such Party and shall furnish to such Parties
such additional financial and operating data and other information as to its
businesses and Assets as shall be from time to time reasonably requested.

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ARTICLE 8

CONDITIONS TO OBLIGATIONS OF ALL PARTIES

The obligations of BancGroup and the Bank to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction, in the sole discretion of the Party relying upon such conditions,
on or before the Effective Date of all the following conditions, except as such
Parties may waive such conditions in writing:

8.1 APPROVAL BY SHAREHOLDERS. At the Stockholders Meeting, this
Agreement and the matters contemplated by this Agreement shall have been duly
approved by the vote of the holders of not less than the requisite number of
the issued and outstanding voting securities of the Bank as is required by
applicable law.

8.2 REGULATORY AUTHORITY APPROVAL. Orders, Consents and
approvals, in form and substance reasonably satisfactory to BancGroup and the
Bank shall have been entered by the Board of Governors of the Federal Reserve
System and other appropriate bank regulatory Agencies (i) granting the
authority necessary for the consummation of the transactions contemplated by
this Agreement and (ii) satisfying all other requirements prescribed by Law.

8.3 LITIGATION. There shall be no pending or threatened
Litigation in any court or any pending or threatened proceeding by any
governmental commission, board or

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Agency, with a view to seeking or in which it is sought to restrain or prohibit
consummation of the transactions contemplated by this Agreement or in which it
is sought to obtain divestiture, rescission or damages in connection with the
transactions contemplated by this Agreement and no investigation by any Agency
shall be pending or threatened which might result in any such suit, action or
other proceeding.

8.4 REGISTRATION STATEMENT. The Registration Statement shall be
effective under the 1933 Act and no stop order suspending the effectiveness of
the Registration Statement shall be in effect; no proceedings for such purpose,
or under the proxy rules of the SEC or any bank regulatory authority pursuant
to the 1934 Act, as amended, and with respect to the transactions contemplated
hereby, shall be pending before or threatened by the SEC or any bank regulatory
authority; and all approvals or authorizations for the offer of BancGroup
Common Stock shall have been received or obtained pursuant to any applicable
state securities Laws, and no stop order or proceeding with respect to the
transactions contemplated hereby shall be pending or threatened under any such
state Law.

8.5 TAX OPINION. An opinion of Miller, Hamilton, Snider & Odom,
counsel to BancGroup, shall have been received in form and substance reasonably
satisfactory to the Bank and BancGroup to the effect that (i) the Merger will
constitute a "reorganization" within the meaning of section 368 of the code;
(ii) no gain or loss will be recognized by the Bank; (iii) no gain or loss will
be recognized to the shareholders of the Bank who receive shares of BancGroup
Common Stock except to the extent of any taxable "boot" received by

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such persons from BancGroup, and except to the extent of any dividends received
from the Bank prior to the Effective Date; (iv) the basis of the BancGroup
Common Stock received in the Merger will be equal to the sum of the basis of
the shares of Bank common stock exchanged in the Merger and the amount of gain,
if any, which was recognized by the exchanging Bank shareholder, including any
portion treated as a dividend, less the value of taxable boot, if any, received
by such shareholder in the Merger; (v) the holding period of the BancGroup
Common Stock will include the holding period of the shares of Bank common stock
exchanged therefor if such shares of bank common stock were capital assets in
the hands of the exchanging Bank shareholder; and (vi) cash received by a Bank
stockholder in lieu of a fractional share interest of BancGroup stock will be
treated as having been received as a distribution in full payment in exchange
for the fractional share interest of BancGroup Common Stock which he would
otherwise be entitled to receive and will qualify as capital gain or loss
(assuming the Bank common stock was a capital asset in his hands as of the
Effective Date).

ARTICLE 9

CONDITIONS TO OBLIGATIONS OF THE BANK

The obligations of the Bank to cause the transactions contemplated by
this Agreement to be consummated shall be subject to the satisfaction on or
before the Effective Date of all the following conditions except as the Bank
may waive such conditions in writing:

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9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding any
investigation made by or on behalf of the Bank, all representations and
warranties of BancGroup contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations
and warranties were made on and as of such Effective Date, and BancGroup shall
have performed in all material respects all agreements and covenants required
by this Agreement to be performed by it on or prior to the Effective Date.

9.2 ADVERSE CHANGES. There shall have been no changes after the
date of the most recent balance sheet provided under section 4.3(a)(i) hereof in
the results of operations (as compared with the corresponding period of the
prior fiscal year), Assets, Liabilities, financial condition or affairs of
BancGroup which in their total effect constitute a Material Adverse Effect, nor
shall there have been any material changes in the Laws governing the business of
BancGroup or which would impair the rights of the Bank or its stockholders
pursuant to this Agreement.

9.3 CLOSING CERTIFICATE. In addition to any other deliveries
required to be delivered hereunder, the Bank shall have received a certificate
from the President or a Vice President and from the Secretary or Assistant
Secretary of BancGroup dated as of the Closing certifying that:

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(a) the Board of Directors of BancGroup has duly adopted
resolutions (copies of which shall be attached to such certificate) approving
the substantive terms of this Agreement and authorizing the consummation of the
transactions contemplated by this Agreement and such resolutions have not been
amended or modified and remain in full force and effect;

(b) each person executing this Agreement on behalf of
BancGroup is an officer of BancGroup holding the office or offices specified
therein and the signature of each person set forth on such certificate is his
or her genuine signature;

(d) such persons have no knowledge of a basis for any
material claim, in any court or before any Agency or arbitration and or
otherwise against, by or affecting BancGroup or the business, prospects,
condition (financial or otherwise), or Assets of BancGroup or which would
prevent the performance of this Agreement or the transactions contemplated by
this Agreement or declare the same unlawful or cause the recision thereof;

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or omit to state any material fact required to be stated therein or necessary
to make the statements therein, not misleading in light of the circumstances
under which they were made (it being understood that such persons need not
express a statement as to information concerning or provided by the Bank for
inclusion in such Proxy Statement); and

(f) the conditions set forth in this Article 9 insofar as
they relate to BancGroup have been satisfied.

9.4 OPINION OF COUNSEL. The Bank shall have received an opinion
of Miller, Hamilton, Snider & Odom, counsel to BancGroup, dated as of the
Closing, in form reasonably satisfactory to the Bank, as to matters set forth
in Exhibit B hereto.

9.5 OTHER MATTERS. There shall have been furnished to such
counsel for the Bank certified copies of such corporate records of BancGroup
and copies of such other documents as such counsel may reasonably have
requested for such purpose.

9.6 MATERIAL EVENTS. There shall have been no determination by
the board of directors of the Bank that the transactions contemplated by this
Agreement have become impractical because of any state of war, national
emergency, declaration of a banking moratorium in the United States or a
general suspension of trading on the NYSE or any other major stock exchange.

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ARTICLE 10

CONDITIONS TO OBLIGATIONS OF BANCGROUP

The obligations of BancGroup to cause the transactions contemplated by
this Agreement to be consummated shall be subject to the satisfaction by the
Bank on or before the Effective Date of the following conditions except as
BancGroup may waive such conditions in writing:

10.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding
any investigation made by or on behalf of BancGroup, all representations and
warranties of the Bank contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations
and warranties were made on and as of the Effective Date, and the Bank shall
have performed in all material respects all agreements and covenants required
by this Agreement to be performed by it on or prior to the Effective Date.

10.2 ADVERSE CHANGES. There shall have been no changes after the
date of the most recent balance sheet provided under section 5.4(a)(i) hereof
in the results of operations (as compared with the corresponding period of the
prior fiscal year), Assets, Liabilities, financial condition, or affairs of the
Bank which constitute a Material Adverse Effect, nor shall there have been any
material changes in the Laws governing the business of the Bank which would
impair BancGroup's rights pursuant to this Agreement.

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10.3 CLOSING CERTIFICATES. In addition to any other deliveries
required to be delivered hereunder, BancGroup shall have received a certificate
from the President or Vice President and from the Secretary or Assistant
Secretary of the Bank dated as of the Closing certifying that:

(a) the Board of Directors has duly adopted resolutions
(copies of which shall be attached to such certificate) approving the
substantive terms of this Agreement and authorizing the consummation of the
transactions contemplated by this Agreement and such resolutions have not been
amended or modified and remain in full force and effect;

(b) the shareholders of the Bank have duly adopted
resolutions (copies of which shall be attached to such certificate) approving
the substantive terms of the Merger and the transactions contemplated thereby
and such resolutions have not been amended or modified and remain in full force
and effect;

(c) each person executing this Agreement on behalf of the
Bank is an officer of the Bank holding the office or offices specified therein
and the signature of each person set forth on such certificate is his or her
genuine signature;

(d) the charter documents of the Bank and the bank
referenced in section 5.8 hereof were in full force and effect and have not
been amended or modified since the date hereof;

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(e) to such persons' knowledge, the Proxy Statement
delivered to the Bank's stockholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by reference
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, not
misleading in light of the circumstances under which they were made (it being
understood that such persons need not express a statement as to any information
concerning or provided by BancGroup for inclusion in such Proxy Statement); and

(f) the conditions set forth in this Article 10 insofar
as they relate to the Bank have been satisfied.

10.4 OPINION OF COUNSEL. BancGroup shall have received an opinion
of Johnston, Hinesley, Flowers & Clenney, P.C., counsel to the Bank, dated as
of the Closing, in form reasonably satisfactory to BancGroup, as to matters set
forth in Exhibit C hereto.

10.5 CONTROLLING SHAREHOLDERS. Each shareholder of the Bank
who may be an "affiliate" of the Bank, within the meaning of Rule 145 of the
general rules and regulations under the 1933 Act shall have executed and
delivered a commitment and undertaking to the effect that such person shall not
make a "distribution" (within the meaning of Rule 145) of the Common Stock
which he receives upon the Effective Date and that such Common Stock will be
held subject to all applicable provisions of the 1933 Act and the rules and
regulations

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of the SEC thereunder. The Bank recognizes and acknowledges that Common Stock
issued to such persons may bear a legend evidencing the undertakings described
above.

10.6 OTHER MATTERS. There shall have been furnished to counsel for
BancGroup certified copies of such corporate records of the Bank and copies of
such other documents as such counsel may reasonably have requested for such
purpose.

10.7 MATERIAL EVENTS. There shall have been no determination by
the board of directors of BancGroup that the transactions contemplated by this
Agreement have become impractical because of any state of war, national
emergency, declaration of a banking moratorium in the United States or a
general suspension of trading on the NYSE or any other major stock exchange.

10.8 DISSENTERS. The number of shares as to which shareholders of
the Bank have exercised dissenters rights of appraisal does not exceed 10% of
the outstanding shares of common stock of the Bank.

ARTICLE 11

TERMINATION OF REPRESENTATIONS AND WARRANTIES

All representations and warranties provided in Articles 4 and 5 of
this Agreement, except for those of sections 4.2(a) and 4.7, or in any closing
certificate provided pursuant

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to Articles 9 and 10 shall terminate and be extinguished at and shall not
survive the Effective Date. All covenants, agreements and undertakings
required by this Agreement to be performed by any Party hereto following the
Effective Date shall survive such Effective Date and be binding upon such
Party. If the Merger is not consummated, all representations, warranties,
obligations, covenants, or agreements hereunder or in any certificate delivered
hereunder relating to the transaction which is not consummated shall be deemed
to be terminated or extinguished except that section 7.2, Article 11 and
Article 15, shall survive. Items disclosed in the Exhibits and Schedules
attached hereto are incorporated into this Agreement and form a part of the
representations, warranties, covenants or agreements to which they relate.
Information provided in such Exhibits and Schedules is provided only in
response to the specific section of this Agreement which calls for such
information.

ARTICLE 12

NOTICES

All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed to have been duly given at
the time given or mailed, first class postage prepaid:

(a) If to the Bank to Christopher K. Wilson, P. O. Box
66, Ariton, Alabama 36311, facsimile (334) 762-2686, with copies to Thomas B.
Bedsole, Jr., C.P.A., c/o

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Jackson, Thornton & Co., P. O. Box 6965, Dothan, Alabama 36302, facsimile
(334) 793-7004, or as may otherwise be specified by the Bank in writing to
BancGroup.

(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce
Street, Suite 800, Montgomery, Alabama, 36104, facsimile (334) 240-6040, with a
copy to Michael D. Waters, Miller, Hamilton, Snider & Odom, One Commerce
Street, Suite 802, Montgomery, Alabama 36104, facsimile (334) 265-4533, or as
may otherwise be specified in writing by BancGroup to the Bank.

ARTICLE 13

AMENDMENT OR TERMINATION

13.1 AMENDMENT. This Agreement may be amended by the mutual
consent of BancGroup, Colonial Bank and the Bank before or after approval of
the transactions contemplated herein by the shareholders of the Bank. No
amendments shall be made which would alter the consideration paid under section
3.1 or which, in the opinion of the board of directors of any Party hereto,
would adversely affect the rights of the shareholders of any Party hereto.

13.2 TERMINATION. This Agreement may be terminated at any time
prior to or on the Effective Date whether before or after action thereon by the
shareholders of the Bank, as follows:

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(a) by the mutual consent of the respective boards of
directors of the Bank and BancGroup;

(b) by the board of directors of either Party (provided
that the terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in this
Agreement) in the event of a breach by the other Party of any representation or
warranty contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
Party of such breach and which breach would provide the non-breaching party the
ability to refuse to consummate the Merger under the standard set forth in
section 10.1 of this Agreement in the case of BancGroup and section 9.1 of this
Agreement in the case of the Bank;

(c) by the board of directors of either Party (provided
that the terminating Party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in this
Agreement) in the event of a material breach by the other Party of any covenant
or agreement contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
Party of such breach, or if any of the conditions to the obligations of such
Party contained in this Agreement shall not have been satisfied in full;

(d) by the board of directors of BancGroup or the Bank if
all transactions contemplated by this Agreement shall not have been consummated
on or prior to

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January 31, 1996, if the failure to consummate the transactions provided for in
this Agreement on or before such date is not caused by any breach of this
Agreement by the Party electing to terminate pursuant to this section 13.2(d);

(e) by the board of directors of BancGroup if the Market
Value of the BancGroup Common Stock at the Closing is greater than $27.25, or

(f) by the board of directors of the Bank if the Market
Value of BancGroup Common Stock at the Closing is less than $19.75.

13.3 DAMAGES. In the event of termination pursuant to section
13.2, the Bank and BancGroup shall not be liable for damages for any breach of
warranty or representation contained in this Agreement made in good faith, and
the expenses incurred shall be borne as set forth in section 15.1 hereof.

ARTICLE 14

DEFINITIONS

The following terms, which are capitalized in this Agreement, shall
have the meanings set forth below for the purpose of this Agreement:

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ABCA The Alabama Business Corporation Act, and to the
extent applicable, the Alabama Banking Code.

Agencies Shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice,
the Board of the Governors of the Federal Reserve
System, the Federal Deposit Insurance Corporation,
the Office of Thrift Supervision, all state
regulatory agencies having jurisdiction over the
Parties and their respective Subsidiaries, the NYSE
and the SEC.

Agreement Shall mean this Agreement and Plan of Merger and the
Exhibits and Schedules delivered pursuant hereto
and incorporated herein by reference.

Assets Of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind,
nature, character and description, whether real,
personal or mixed, tangible or intangible, accrued or
contingent, or otherwise relating to or utilized in
such Person's business, directly or indirectly, in
whole or in part, whether or not carried on the books
and records of such Person, and whether or not owned
in the name of such Person or any Affiliate of
such Person and wherever located.

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BancGroup The Colonial BancGroup, Inc., a Delaware corporation
with its principal offices in Montgomery, Alabama.

Bank Farmers & Merchants Bank, an Alabama state banking
corporation with offices in Ariton, Alabama.

Bank Stock Shares of Common stock, par value $100 per share, of
the Bank.

Closing The closing of the transactions contemplated hereby
as described in section 2.7 of this Agreement.

Common Stock BancGroup's Common Stock authorized and defined in
the restated certificate of incorporation of
BancGroup, as amended.

Code The Internal Revenue Code of 1986, as amended.

Consent Any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any
Person pursuant to any Contract, Law, Order, or
Permit.

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Contract Any written or oral agreement, arrangement,
authorization, commitment, contract, indenture,
instrument, lease, obligation, plan, practice,
restriction, understanding or undertaking of any kind
or character, or other document to which any Person is
a party or that is binding on any Person or its
capital stock, Assets or business.

Default Shall mean (i) any breach or violation of or default
under any Contract, Order or Permit, (ii) any
occurrence of any event that with the passage of time
or the giving of notice or both would constitute a
breach or violation of or default under any Contract,
Order or Permit, or (iii) any occurrence of any event
that with or without the passage of time or the giving
of notice would give rise to a right to terminate or
revoke, change the current terms of, or renegotiate,
or to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit.

Effective Date Means the date and time at which the Merger becomes
effective as defined in section 2.7 hereof.

Environment Laws Means the laws, regulations and governmental
requirements referred to in section 5.23 hereof.

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ERISA The Employee Retirement Income Security Act of 1974,
as amended.

Exhibits A through C, inclusive, shall mean the Exhibits so
marked, copies of which are attached to this
Agreement. Such Exhibits are hereby incorporated by
reference herein and made a part hereof, and may be
referred to in this Agreement and any other related
instrument or document without being attached
hereto.

GAAP Generally Accepted Accounting Principles.

Knowledge Means the knowledge after due inquiry of the Chairman,
President, Chief Financial Officer, Chief Accounting
Officer, Chief Credit Officer, General Counsel or any
Senior or Executive Vice President of BancGroup, in
the case of knowledge of BancGroup, or of the Bank, in
the case of knowledge of the Bank.

Law Any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to
a Person or its Assets, Liabilities or business,
including those promulgated, interpreted or enforced
by any Agency.

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Liability Any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or
expense (including costs of investigation, collection
and defense), deficiency, guaranty or endorsement of
or by any Person (other than endorsements of notes,
bills, checks, and drafts presented for collection or
deposit in the ordinary course of business) of any
type, whether accrued, absolute or contingent,
liquidated or unliquidated, matured or unmatured, or
otherwise.

Lien Any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation,
infringement, lien, mortgage, pledge, reservation,
restriction, security interest, title retention or
other security arrangement, or any adverse right or
interest, charge, or claim of any nature whatsoever
of, on, or with respect to any property or property
interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository
institution Subsidiaries of a Party, pledges to secure
deposits and other Liens incurred in the ordinary
course of the banking business, and (iii) Liens in the
form of easements and restrictive covenants on real
property which do not materially adversely affect
the use of such property by the current owner thereof.

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Litigation Any action, arbitration, complaint, criminal
prosecution, governmental or other examination or
investigation, hearing, inquiry, administrative or
other proceeding relating to or affecting a Party, its
business, its Assets (including Contracts related to
it), or the transactions contemplated by this
Agreement.

Loan Property Any property owned by the Party in question or by any
of its Subsidiaries or in which such Party or
Subsidiary holds a security interest, and, where
required by the context, includes the owner or
operator of such property, but only with respect to
such property.

Loss Any and all direct or indirect payments, obligations,
recoveries, deficiencies, fines, penalties, interest,
assessments, losses, diminution in the value of
Assets, damages, punitive, exemplary or consequential
damages (including, but not limited to, lost income
and profits and interruptions of business),
liabilities, costs, expenses (including without
limitation, reasonable attorneys' fees and expenses,
and consultant's fees and other costs of defense or
investigation), and interest on any amount payable to
a Third Party as a result of the foregoing.

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Market Value Shall be the market value of BancGroup Common Stock
as determined in section 3.1 hereof.

material For purposes of this Agreement shall be determined in
light of the facts and circumstances of the matter in
question; provided that any specific monetary amount
stated in this Agreement shall determine
materiality in that instance.

Material Adverse Effect On a Party shall mean an event, change or occurrence
which has a material adverse impact on (i) the
financial position, business, or results of operations
of such Party and its Subsidiaries, taken as a whole,
or (ii) the ability of such Party to perform its
obligations under this Agreement or to consummate the
Merger or the other transactions contemplated by this
Agreement provided that "material adverse impact"
shall not be deemed to include the impact of (x)
changes in banking and similar laws of general
applicability or interpretations thereof by courts or
governmental authorities, (y) changes in generally
accepted accounting principles or regulatory
accounting principles generally applicable to banks
and their holding companies, and (z) the Merger
and compliance with the

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provisions of this Agreement on the operating
performance of the Parties.

Merger The merger of the Bank with Colonial Bank as
contemplated in this Agreement.

NYSE The New York Stock Exchange.

Order Any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision
or award, ruling, or writ of any federal, state, local
or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Agency.

Party Shall mean the Bank, Colonial Bank or BancGroup, and
"Parties" shall mean collectively the Bank, Colonial
Bank and BancGroup.

Permit Any federal, state, local, and foreign governmental
approval, authorization, certificate, easement,
filing, franchise, license, notice, permit, or right
to which any Person is a party or that is or may be
binding upon or inure to the benefit of any Person or
its securities, Assets or business.

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Person A natural person or any legal, commercial or
governmental entity, such as, but not limited to, a
corporation, general partnership, joint venture,
limited partnership, limited liability company, trust,
business association, group acting in concert, or any
person acting in a representative capacity.

Proxy Statement The proxy statement used by the Bank to solicit the
approval of its stockholders of the transactions
contemplated by this Agreement, which shall include
the prospectus of BancGroup relating to the issuance
of the BancGroup Common Stock to the shareholders of
the Bank.

Registration Statement The registration statement on Form S-4, or such other
appropriate form, to be filed with the SEC by
BancGroup, and which has been agreed to by the Bank,
to register the shares of BancGroup Common Stock
offered to stockholders of the Bank pursuant to this
Agreement, including the Proxy Statement.

Resulting Corporation Colonial Bank, as the surviving corporation
resulting from the Merger.

SEC United States Securities and Exchange Commission.

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Stockholders Meeting The special meeting of stockholders of the Bank called
to approve the transactions contemplated by this
Agreement.

Subsidiaries Shall mean all those corporations, banks,
associations, or other entities of which the entity in
question owns or controls 5% or more of the
outstanding equity securities either directly or
through an unbroken chain of entities as to each of
which 5% or more of the outstanding equity securities
is owned directly or indirectly by its parent;
provided, however, there shall not be included any
such entity acquired through foreclosure or any such
entity the equity securities of which are owned or
controlled in a fiduciary capacity.

Tax or Taxes Means any federal, state, county, local, foreign, and
other taxes, assessments, charges, fares, and
impositions, including interest and penalties
thereon or with respect thereto.

1933 Act The Securities Act of 1933, as amended.

1934 Act The Securities Exchange Act of 1934, as amended.

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ARTICLE 15

MISCELLANEOUS

15.1 EXPENSES. Each Party hereto shall bear its own legal, auditing,
trustee, investment banking, regulatory and other expenses in connection with
this Agreement and the transactions contemplated hereby.

15.2 BENEFIT. This Agreement shall inure to the benefit of and be
binding upon the Bank, Colonial Bank and BancGroup, and their respective
successors.

15.3 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the Laws of the State of Alabama without regard to any
conflict of Laws.

15.4 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed to constitute an original. Each such counterpart
shall become effective when one counterpart has been signed by each Party
thereto.

15.5 HEADINGS. The headings of the various articles and sections of
this Agreement are for convenience of reference only and shall not be deemed a
part of this Agreement or considered in construing the provisions thereof.

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15.6 SEVERABILITY. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being
severable, shall remain in full force and effect in such circumstance or
situation and the said term or provision shall remain valid and in effect in
any other circumstances or situation.

15.7 CONSTRUCTION. Use of the masculine pronoun herein shall be deemed
to refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.

15.8 RETURN OF INFORMATION. In the event of termination of this
Agreement prior to the Effective Date, each Party shall return to the other,
without retaining copies thereof, all confidential or non-public documents,
work papers and other materials obtained from the other Party in connection
with the transactions contemplated in this Agreement and shall keep such
information confidential, not disclose such information to any other person or
entity, and not use such information in connection with its business.

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15.9 EQUITABLE REMEDIES. The parties hereto agree that, in the event
of a breach of this Agreement by either Party, the other Party may be without
an adequate remedy at law owing to the unique nature of the contemplated
transactions. In recognition thereof, in addition to (and not in lieu of) any
remedies at law that may be available to the non-breaching Party, the
non-breaching Party shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the
non-breaching Party to obtain such equitable relief shall be deemed to
constitute an election of remedies by the non-breaching Party that would
preclude the non-breaching Party from obtaining any remedies at law to which it
would otherwise be entitled.

15.10 ATTORNEYS' FEES. If any Party hereto shall bring an action at law
or in equity to enforce its rights under this Agreement (including an action
based upon a misrepresentation or the breach of any warranty, covenant,
agreement or obligation contained herein), the prevailing Party in such action
shall be entitled to recover from the other Party its costs and expenses
incurred in connection with such action (including fees, disbursements and
expenses of attorneys and costs of investigation).

15.11 NO WAIVER. No failure, delay or omission of or by any Party in
exercising any right, power or remedy upon any breach or Default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or Default, nor shall it be construed to be a wavier of any such right,
power or remedy, or an acquiescence in any

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similar breach or Default; nor shall any waiver of any single breach or Default
be deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Party of any provisions of this Agreement must be in writing
and be executed by the Parties to this Agreement and shall be effective only to
the extent specifically set forth in such writing.

15.12 REMEDIES CUMULATIVE. All remedies provided in this Agreement, by
law or otherwise, shall be cumulative and not alternative.

15.13 ENTIRE CONTRACT. This Agreement and the documents and instruments
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.

IN WITNESS WHEREOF, the Bank, Colonial Bank and BancGroup have caused
this Agreement to be signed by their respective duly authorized officers as of
the date first above written.

ATTEST: FARMERS AND MERCHANTS BANK,
ARITON, ALABAMA

BY: Marion J. Sanders BY: D. K. Wilson
--------------------------- ------------------------------

ITS: Secretary ITS: President
--------------------------- ------------------------------

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(CORPORATE SEAL)

ATTEST: COLONIAL BANK

BY: Teresa R. Skipper BY: Alan T. Romanchuck
--------------------------- ------------------------------

ITS: Secretary ITS: Executive Vice President
--------------------------- ------------------------------

(CORPORATE SEAL)

ATTEST: THE COLONIAL BANCGROUP, INC.

BY: Teresa R. Skipper BY: Alan T. Romanchuck
--------------------------- -----------------------------

ITS: Assistant Secretary ITS: Executive Vice President
--------------------------- -----------------------------

(CORPORATE SEAL)

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APPENDIX B

ALABAMA BUSINESS CORPORATION ACT

ARTICLE 13.

DISSENTERS' RIGHTS.

Division A.

Right to Dissent and Obtain Payment for Shares.

SECTION 10-2B-13.01. DEFINITIONS.

(1) "Corporate action" means the filing of articles of merger or
share exchange by the probate judge or Secretary of State, or other action
giving legal effect to a transaction that is the subject of dissenters' rights.

(2) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.

(3) "Dissenter" means a shareholder who is entitled to dissent
from corporate action under Section 10-2B-13.02 and who exercises that right
when and in the manner required by Sections 10-2B-13.20 through 10-2B-13.28.

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(4) "Fair Value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.

(5) "Interest" means interest from the effective date of the
corporate action until the date of payment, at the average rate currently paid
by the corporation on its principal bank loans, or, if none, at a rate that is
fair and equitable under all circumstances.

(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.

(7) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.

(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Acts 1994, No. 94-245, p. 343, Section 1.)

SECTION 10-2B-13.02 RIGHT TO DISSENT.

(a) A shareholder is entitled to dissent from, and obtain payment
of the fair value of his or her shares in the event of, any of the following
corporate actions:

(1) Consummation of a plan of merger to which the
corporation is a party (i) if shareholder approval is required for the
merger by

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Section 10-2B-11.03 or the articles of incorporation and the
shareholder is entitled to vote on the merger or (ii) if the
corporation is a subsidiary that is merged with its parent under
Section 10-2B-11.04;

(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;

(3) Consummation of a sale or exchange by all, or
substantially all, of the property of the corporation other than in
the usual and regular course of business, if the shareholder is
entitled to vote on the sale or exchange, including a sale in
dissolution, but not including a sale pursuant to court order or a
sale for cash pursuant to a plan by which all or substantially all of
the net proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;

(4) To the extent that the articles of incorporation of
the corporation so provide, an amendment of the articles of
incorporation that materially and adversely affects rights in respect
to a dissenter's shares because it:

(i) Alters or abolishes a preferential right of
the shares;

(ii) Creates, alters, or abolishes a right in
respect of redemption, including a provision respecting a
sinking fund for the redemption or repurchase of the shares;

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(iii) Alters or abolishes a preemptive right of the
holder of the shares to acquire shares or other securities;

(iv) Excludes or limits the right of the shares to
vote on any matter, or to cumulate votes, other than a
limitation by dilution through issuance of shares or other
securities with similar voting rights; or

(v) Reduces the number of shares owned by the
shareholder to a fraction of a share if the fractional share
so created is to be acquired for cash under Section
10-2B-6.04; or

(5) Any corporate action taken pursuant to a shareholder vote to
the extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.

(b) A shareholder entitled to dissent and obtain payment for
shares under this chapter may not challenge the corporate action creating his
or her entitlement unless the action is unlawful or fraudulent with respect to
the shareholder or the corporation. (Acts 1994, No. 94-245, P. 343, Section
1.)

SECTION 10-2B-13.03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.

(a) A record shareholder may assert dissenters' rights as to fewer
than all of the shares registered in his or her name only if he or she dissents
with respect to all shares beneficially owned by any one person and notifies
the corporation in writing of the name

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and address of each person on whose behalf he or she asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares to which he or she dissents and his or her other shares were
registered in the names of different shareholders.

(b) A beneficial shareholder may assert dissenters' rights as to
shares held on his or her behalf only if:

(1) He or she submits to the corporation the record
shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and

(2) He or she does so with respect to all shares of which
he or she is the beneficial shareholder or over which he or she has
power to direct the vote. (Acts 1994, No. 94-245, p. 343, Section
1.)

Division B.

Procedure for Exercise of Dissenters' Rights.

SECTION 10-2B-13.20. NOTICE OF DISSENTERS' RIGHTS.

(a) If proposed corporate action creating dissenters' rights under
Section 10-2B-13.02 is submitted to a vote at a shareholders' meeting, the
meeting notice must state

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that shareholders are or may be entitled to assert dissenters' rights under
this article and be accompanied by a copy of this article.

(b) If corporate action creating dissenters' rights under Section
10-2B-13.02 is taken without a vote of shareholders, the corporation shall (1)
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken; and (2) send them the dissenters' notice described in
Section 10-2B-13.22. (Acts 1994, No. 94-245, p. 343, Section 1.)

SECTION 10-2B-13.21. NOTICE OF INTENT TO DEMAND PAYMENT.

(a) If proposed corporate action creating dissenters' rights under
Section 10-2B-13.02 is submitted to a vote at a shareholder's meeting, a
shareholder who wishes to assert dissenters' rights (1) must deliver to the
corporation before the vote is taken written notice of his or her intent to
demand payment or his or her shares if the proposed action is effectuated; and
(2) must not vote his or her shares in favor of the proposed action.

(b) A shareholder who does not satisfy the requirements of
subsection (a) is not entitled to payment for his or her shares under this
article. (Acts 1994, No. 94-245, p. 343, Section 1.)

SECTION 10-2B-13.22. DISSENTERS' NOTICE.

(a) If proposed corporate action creating dissenters' rights under
Section 10-2B-13.02 is authorized at a shareholders' meeting, the corporation
shall deliver a written

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dissenters' notice to all shareholders who satisfied the requirements of
Section 10-2B-13.21.

(b) The dissenters' notice must be sent no later than 10 days
after the corporate action was taken, and must:

(1) State where the payment demand must be sent;

(2) Inform holders of shares to what extent transfer of
the shares will be restricted after the payment demand is received;

(3) Supply a form for demanding payment;

(4) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60
days after the date the subsection (a) notice is delivered; and

(5) Be accompanied by a copy of this article. (Acts
1994, No. 94-245, p. 343, Section 1.)

SECTION 10-2B-13.23. DUTY TO DEMAND PAYMENT.

(a) A shareholder sent a dissenters' notice described in Section
10-2B-13.22 must demand payment in accordance with the terms of the dissenters'
notice.

(b) The shareholder who demands payment retains all other rights
of a shareholder until those rights are canceled or modified by the taking of
the proposed corporate action.

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(c) A shareholder who does not demand payment by the date set in
the dissenters' notice is not entitled to payment for his or her shares under
this article.

(d) A shareholder who demands payment under subsection (a) may not
thereafter withdraw that demand and accept the terms offered under the proposed
corporate action unless the corporation shall consent thereto. (Acts 1994, No.
94-245, p. 343, Section 1.)

SECTION 10-2B-13.24. SHARE RESTRICTIONS.

(a) Within 20 days after making a formal payment demand, each
shareholder demanding payment shall submit the certificate or certificates
representing his or her shares to the corporation for (1) notation thereon by
the corporation that such demand has been made and (2) return to the
shareholder by the corporation.

(b) The failure to submit his or her shares for notation shall, at
the option of the corporation, terminate the shareholders' rights under this
article unless a court of competent jurisdiction, for good and sufficient
cause, shall otherwise direct.

(c) If shares represented by a certificate on which notation has
been made shall be transferred, each new certificate issued therefor shall bear
similar notation, together with the name of the original dissenting holder of
such shares.

(d) A transferee of such shares shall acquire by such transfer no
rights in the corporation other than those which the original dissenting
shareholder had after making demand for payment of the fair value thereof.
(Acts 1994, No. 94-245, p. 343, Section 1.)

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SECTION 10-2B-13.25. OFFER OF PAYMENT.

(a) As soon as the proposed corporate action is taken, or upon
receipt of a payment demand, the corporation shall offer to pay each dissenter
who complied with Section 10-2B-13.23 the amount the corporation estimates to
be the fair value of his or her shares, plus accrued interest.

(b) The offer of payment must be accompanied by:

(1) The corporation's balance sheet as of the end of a
fiscal year ending not more than 16 months before the date of the
offer, an income statement for that year, and the latest available
interim financial statements, if any;

(2) A statement of the corporation's estimate of the fair
value of the shares;

(3) An explanation of how the interest was calculated;

(4) A statement of the dissenter's right to demand
payment under Section 10-2B-13.28; and

(5) A copy of this article.

(c) Each dissenter who agrees to accept the corporation's offer of
payment in full satisfaction of his or her demand must surrender to the
corporation the certificate or certificates representing his or her shares in
accordance with terms of the dissenters' notice. Upon receiving the certificate
or certificates, the corporation shall pay each dissenter the fair value of his
or her shares, plus accrued interest, as provided in subsection (a). Upon

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receiving payment, a dissenting shareholder ceases to have any interest in the
shares. (Acts 1994, No. 94-245, p. 343, Section 1.)

SECTION 10-2B-13.26. FAILURE TO TAKE CORPORATE ACTION.

(a) If the corporation does not take the proposed action within 60
days after the date set for demanding payment, the corporation shall release
the transfer restrictions imposed on shares.

(b) If, after releasing transfer restrictions, the corporation
takes the proposed action, it must send a new dissenters' notice under Section
10-2B-13.22 and repeat the payment demand procedure. (Acts 1994, No. 94-245,
p. 343, Section 1.)

SECTION 10-2B-13.27. RESERVED.

SECTION 10-2B-13.28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH OFFER OF
PAYMENT.

(a) A dissenter may notify the corporation in writing of his or
her own estimate of the fair value of his or her shares and amount of interest
due, and demand payment of his or her estimate, or reject the corporation's
offer under Section 10-2B-13.25 and demand payment of the fair value of his or
her shares and interest due, if:

(1) The dissenter believes that the amount offered under
Section 10-2B-13.25 is less than the fair value of his or her shares
or that the interest due is incorrectly calculated;

(2) The corporation fails to make an offer under Section
10-2B-13.25

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within 60 days after the date set for demanding payment; or

(3) The corporation, having failed to take the proposed
action, does not release the transfer restrictions imposed on shares
within 60 days after the date set for demanding payment.

(b) A dissenter waives his or her right to demand payment under
this section unless he or she notifies the corporation of his or her demand in
writing under subsection (a) within 30 days after the corporation offered
payment for his or her shares. (Acts 1994, No. 94-245, p. 343, Section 1.)

Division C.

Judicial Appraisal of Shares.

SECTION 10-2B-13.30. COURT ACTION.

(a) If a demand for payment under Section 10-2B-13.28 remains
unsettled, the corporation shall commence a proceeding within 60 days after
receiving the payment demand and petition the court to determine the fair value
of the shares and accrued interest. If the corporation does not commence the
proceeding within the 60 day period, it shall pay each dissenter whose demand
remains unsettled the amount demanded.

(b) The corporation shall commence the proceeding in the circuit
court of the county where the corporation's principal office (or, if none in
this state, its registered office)

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is located. If the corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in this
state where the registered office of the domestic corporation merged with or
whose shares were acquired by the foreign corporation was located.

(c) The corporation shall make all dissenters (whether or not
residents of this state) whose demands remain unsettled parties to the
proceeding as in an action against their shares, and all parties must be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided under the Alabama Rules of Civil
Procedure.

(d) After service is completed, the corporation shall deposit with
the clerk of the court an amount sufficient to pay unsettled claims of all
dissenters party to the action in an amount per share equal to its prior
estimate of fair value, plus accrued interest, under Section 10-2B-13.25.

(e) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) is plenary and exclusive. The court may appoint
one or more persons as appraisers to receive evidence and recommend decision on
the question of fair value. The appraisers have the powers described in the
order appointing them, or in any amendment to it. The dissenters are entitled
to the same discovery rights as parties in other civil proceedings.

(f) Each dissenter made a party to the proceeding is entitled to
judgment for the amount the court finds to be the fair value of his or her
shares, plus accrued interest. If the

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court's determination as to the fair value of a dissenter's shares, plus
accrued interest, is higher than the amount estimated by the corporation and
deposited with the clerk of the court pursuant to subsection (d), the
corporation shall pay the excess to the dissenting shareholder. If the court's
determination as to fair value, plus accrued interest, of a dissenter's shares
is less than the amount estimated by the corporation and deposited with the
clerk of the court pursuant to subsection (d), then the clerk shall return the
balance of funds deposited, less any costs under Section 10-2B-13.31, to the
corporation.

(g) Upon payment of the judgment, and surrender to the
corporation of the certificate or certificates representing the appraised
shares, a dissenting shareholder ceases to have any interest in the shares.
(Acts 1994, No. 94-245, p. 343, Section 1.)

SECTION 10-2B-13.31. COURT COSTS AND COUNSEL FEES.

(a) The court in an appraisal proceeding commenced under Section
10-2B-13.30 shall determine all costs of the proceeding, including compensation
and expenses of appraisers appointed by the court. The court shall assess the
costs against the corporation, except that the court may assess costs against
all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously, or not in
good faith in demanding payment under Section 10-2B-13.28.

(b) The court may also assess the reasonable fees and expenses of
counsel and experts for the respective parties, in amounts the court finds
equitable:

(1) Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially
comply with the requirements of Sections

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10-2B-13.20 through 10-2B-13.28; or

(2) Against either the corporation or a dissenter, in
favor of any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights provided
by this chapter.

(c) If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against the
corporation, the court may award to these counsel reasonable fees to be paid
out of the amounts awarded the dissenters who were benefitted. (Acts 1994, No.
94-245, p. 343, Section 1.)

SECTION 10-2B-13.32. STATUS OF SHARES AFTER PAYMENT.

Shares acquired by a corporation pursuant to payment of the agreed
value therefor or to payment of the judgment entered therefor, as in this
chapter provided, may be held and disposed of by such corporation as in the
case of other treasury shares, except that, in the case of a merger or share
exchange, they may be held and disposed of as the plan of merger or share
exchange may otherwise provide. (Acts 1994, No. 94-245, p. 343, Section 1.)

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Pursuant to section 145 of the Delaware General Corporation Law, as
amended, and the Restated Certificate of Incorporation of the Registrant,
officers, directors, employees, and agents of the Registrant are entitled to
indemnification against liabilities incurred while acting in such capacities on
behalf of the Registrant, including reimbursement of certain expenses. In
addition, the Registrant maintains an officers and directors insurance policy
pursuant to which officers and directors of the Registrant are entitled to
indemnification against certain liabilities, including reimbursement of certain
expenses, and the Registrant has indemnity agreements with certain officers and
all of its directors pursuant to which such persons may be indemnified by the
Registrant against certain liabilities, including expenses.

ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) The following is a list of exhibits that are included in Part II
of the Registration Statement. Such exhibits are separately
indexed elsewhere in the Registration Statement.

DESCRIPTION

Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation of
successor:

Agreement and Plan of Merger among The Colonial BancGroup, Inc.,
Colonial Bank, and Farmers and Merchants Bank, Ariton, Alabama,
dated as of May 19, 1995, included in the Prospectus portion of
this Registration Statement at Appendix A and incorporated herein
by reference.

Exhibit 3 Articles of Incorporation and Bylaws:

(A) Restated Certificate of Incorporation of the Registrant, filed as
Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.

(B) Bylaws of the Registrant, filed as Exhibit 4.2 to the Registrant's
Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by

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reference.

Exhibit 4 Instruments defining the rights of security holders:

(A) Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current Report
on Form 8-K, dated February 21, 1995, and incorporated herein by
reference.

(B) Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to
the Registrant's Current Report on Form 8-K, dated February 21,
1995, and incorporated herein by reference.

(C) Dividend Reinvestment and Class A Common Stock Purchase Plan of
the Registrant dated January 15, 1986, and Amendment No. 1 thereto
dated as of June 10, 1986, filed as Exhibit 4(C) to the
Registrant's Registration Statement on Form S-4 (File No. 33-
07015), effective July 15, 1986, and incorporated herein by
reference.

Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to certain
Delaware law issues of the securities being registered.

Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C.

Exhibit 10 Material Contracts:

(A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan of
the Registrant, filed as Exhibit 4-1 to the Registrant's
Registration Statement on Form S-8 (Commission Registration No.
33-41036), effective June 4, 1991, and incorporated herein by
reference.

(A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock Option
Plan of the Registrant filed as Exhibit 4-2 to the Registrant's
Registration Statement on Form S-8 (Commission Registration No.
33-41036), effective June 4, 1991, and incorporated herein by
reference).

(A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as
Exhibit 4-1 to Registrant's Registration Statement on Form S-8
(File No. 33-47770), effective May 8, 1992, and incorporated
herein by reference.

(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed as
Exhibit 4-2 to Registrant's Registration Statement on Form S- 8
(File No. 33-47770),

II-2
<PAGE> 233

effective May 8, 1992, and incorporated herein by reference.

(B)(1) Residential Loan Funding Agreement between Colonial Bank and
Colonial Mortgage Company dated January 18, 1988, included as
Exhibit 10(B)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by reference.

(B)(2) 1993 Term Loan Agreement between the Registrant and SunBank,
National Association, and related Pledge Agreement filed as
Exhibit 10(B)(1) to Amendment No. 2 of the Registrant's
Registration Statement on Form S-4, registration number 33-63826
and incorporated herein by reference.

(C)(1) The Colonial BancGroup, Inc. First Amended and Restated Restricted
Stock Plan for Directors, as amended, included as Exhibit 10(C)(1)
to the Registrant's Registration Statement as Form S-4, file no.
33-52952, and incorporated herein by reference.

(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's Registration
Statement as Form S-4, file no. 33-52952, and incorporated herein
by reference.

(D) Stock Purchase Agreement dated as of July 20, 1994, by and among
The Colonial BancGroup, Inc., Colonial Bank, The Colonial Company,
Colonial Mortgage Company, and Robert E., James K. and Thomas H.
Lowder, included as Exhibit 2 in Registrant's registration
statement on Form S-4, Registration No. 33-83692 and incorporated
herein by reference.

Exhibit 13 Registrant's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995, and incorporated herein by reference.

Exhibit 21 List of subsidiaries of the Registrant.

Exhibit 23 Consents of experts and counsel:

(A) Consent of Coopers & Lybrand

(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C.

II-3
<PAGE> 234

Exhibit 24 Power of Attorney filed as Exhibit 25 to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1994, and
incorporated herein by reference.

Exhibit 99 Additional exhibits:

(A) Form of Proxy of Farmers and Merchants Bank, Ariton, Alabama

(b) Financial Statement Schedules

The financial statement schedules required to be included pursuant
to this Item are not included herein because they are not
applicable or the required information is shown in the financial
statements or notes thereto.

ITEM 22. UNDERTAKINGS.

(a) The undersigned hereby undertakes as follows as required by Item
512 of Regulation S-K:

(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus
which is a part of this Registration Statement, by
any person or party who is deemed to be an
underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus
will contain the information called for by the
applicable registration form with respect to
reofferings by persons who may be deemed
underwriters, in addition to the information called
for by the other Items of the applicable form.

(2) That every prospectus (i) that is filed pursuant to
paragraph (1) immediately above, or (ii) that
purports to meet the requirements of section 10(a)(3)
of the Act and is used in connection with an offering
of securities subject to Rule 415, will be filed as a
part of an amendment to the Registration Statement
and will not be used until such amendment is
effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
Registration Statement relating to such securities
offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona
fide offering thereof.

(3) Insofar as indemnification for liabilities arising
under the Act may be

II-4
<PAGE> 235

permitted to directors, officers, and controlling
persons of the Registrant, the Registrant has been
advised that in the opinion of the Securities and
Exchange Commission such indemnification is against
public policy as expressed in the Act and is,
therefore, unenforceable.
In the event that a claim for indemnification against
such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person
in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question
whether such indemnification by it is against public
policy as expressed in the Act and will be governed by
the final adjudication of such issue.

(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference into
the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4,
within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration
Statement through the date of responding to the request.

(c) The undersigned Registrant hereby undertakes to supply by means of
a post-effective amendment all information concerning a
transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement
when it became effective.

(d) The undersigned Registrant hereby undertakes:

(1) To file, during any period in which offers or sales
are being made, a post-effective amendment to this
Registration Statement:

(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or
events arising after the effective date of
the Registration Statement (or the most
recent post-effective amendment thereof)
which, individually or in the aggregate,
represent a fundamental change in the
information set forth in the Registration
Statement;

(iii) To include any material information with
respect to the plan of distribution not
previously disclosed in the Registration

II-5
<PAGE> 236

Statement or any material change to such
information in the Registration Statement;

Provided, however, that paragraphs (d)(1)(i) and (d)(1)(ii) do not
apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to section 13 or
section 15(d) of the Exchange Act that are incorporated by
reference in the Registration Statement.

(2) That, for the purpose of determining any liability
under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration relating to the securities offered
therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide
offering thereof.

(3) To remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of
the offering.

II-6
<PAGE> 237

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
Montgomery, Alabama, on the 18th day of July, 1995.

THE COLONIAL BANCGROUP, INC.

By: /s/Robert E. Lowder
-------------------

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

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/Robert E. Lowder Chairman of the Board **
- ----------------------- of Directors, President
Robert E. Lowder and Chief Executive
Officer

/s/W. Flake Oakley, IV Chief Financial **
- ------------------------ Officer, Secretary
W. Flake Oakley, IV and Treasurer (Principal
Financial Officer and
Principal Accounting
Officer)

* Director **
- -------------------------
Young J. Boozer
</TABLE>
II-7
<PAGE> 238

<TABLE>
<S> <C> <C>
* Director **
- -------------------------
William Britton

* Director **
- -------------------------
Jerry J. Chesser

Director
- ----------------------------
Augustus K. Clements, III

* Director **
- ---------------------------
Robert C. Craft

* Director **
- ---------------------------
Patrick F. Dye

* Director **
- ---------------------------
Clinton O. Holdbrooks

* Director **
- ---------------------------
D. B. Jones

* Director **
- ---------------------------
Harold D. King
</TABLE>

II-8
<PAGE> 239

<TABLE>
<S> <C> <C>
* Director **
- ---------------------------
John Ed Mathison

* Director **
- ---------------------------
Milton E. McGregor

* Director **
- ---------------------------
John C. H. Miller, Jr.

* Director **
- ---------------------------
Joe D. Mussafer

* Director **
- ---------------------------
William E. Powell

* Director **
- ---------------------------
Jack H. Rainer

* Director **
- ---------------------------
Frances E. Roper
</TABLE>

II-9
<PAGE> 240

<TABLE>
<S> <C> <C>
* Director **
- ---------------------------
Ed V. Welch
</TABLE>

* The undersigned, acting pursuant to a power of attorney, has signed
this Registration Statement on Form S-4 for and on behalf of the
persons indicated above as such persons' true and lawful
attorney-in-fact and in their names, places and stead, in the
capacities indicated above and on the date indicated below.

/s/ W. Flake Oakley, IV
- ----------------------------
W. Flake Oakley, IV
Attorney-in-Fact

** Dated: July 18, 1995

II-10
<PAGE> 241

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
<S> <C> <C>
Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation
of successor:

Agreement and Plan of Merger among The Colonial II-14
BancGroup, Inc., Colonial Bank, and Farmers and Merchants
Bank, Ariton, Alabama, dated as of May 19, 1995, included in
the Prospectus portion of this registration statement at
Appendix A and incorporated herein by reference.

Exhibit 3 Articles of Incorporation and Bylaws:

(A) Restated Certificate of Incorporation of the Registrant, filed II-15
as Exhibit 4.1 to the Registrant's Current Report on Form
8-K, dated February 21, 1995, and incorporated herein by
reference.

(B) Bylaws of the Registrant, as amended, filed as Exhibit 4.2 to II-16
the Registrant's Current Report on Form 8-K, dated February
21, 1995, and incorporated herein by reference.

Exhibit 4 Instruments defining the rights of security holders:

(A) Article 4 of the Restated Certificate of Incorporation of the II-17
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, and incorporated
herein by reference.

(B) Article II of the Bylaws of the Registrant filed as Exhibit II-18
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.

(C) Dividend Reinvestment and Class A Common Stock Purchase Plan II-19
of the Registrant dated January 15, 1986, and Amendment No. 1
thereto dated as of June 10, 1986, filed as Exhibit 4(C) to
the Registrant's Registration Statement on Form S-4 (File
</TABLE>

II-11
<PAGE> 242

<TABLE>
<S> <C> <C>
No. 33-07015), effective July 15, 1986, and incorporated
herein by reference.

Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to II-20
certain Delaware law issues of the securities being registered.

Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C. II-22

Exhibit 10 Material Contracts:

(A)(1) Second Amendment and Restatement of 1982 Incentive Stock II-26
Plan of the Registrant, filed as Exhibit 4-1 to the
Registrant's Registration Statement on Form S-8 (Commission
Registration No. 33-41036), effective June 4, 1991, and
incorporated herein by reference.

(A)(2) Second Amendment and Restatement to 1982 Nonqualified II-27
Stock Option Plan of the Registrant filed as Exhibit 4-2 to the
Registrant's Registration Statement on Form S-8 (Commission
Registration No. 33-41036), effective June 4, 1991, and
incorporated herein by reference).

(A)(3) 1992 Incentive Stock Option Plan of the Registrant, II-28
filed as Exhibit 4-1 to Registrant's Registration Statement on
Form S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.

(A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, II-29
filed as Exhibit 4-2 to Registrant's Registration Statement on
Form S-8 (File No. 33-47770), effective May 8, 1992, and
incorporated herein by reference.

(B)(1) Residential Loan Funding Agreement between Colonial Bank II-30
and Colonial Mortgage Company dated January 18, 1988, included
as Exhibit 10(B)(1) to the Registrant's Registration Statement
as Form S-4, file no. 33-52952, and incorporated herein by
reference.

(B)(2) 1993 Term Loan Agreement between the Registrant and II-31
SunBank, National Association, and related Pledge
AgRegistrantsreement filed as Exhibit 10(B)(1) to Amendment No.
2 of the number registration number 33-63826 and
</TABLE>

II-12
<PAGE> 243

<TABLE>
<S> <C> <C>
incorporated herein by reference.

(C)(1) The Colonial BancGroup, Inc. First Amended and Restated II-32
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement as
Form S-4, file no. 33-52952, and incorporated herein by
reference.

(C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan, II-33
included as Exhibit 10(C)(2) to the Registrant's Registration
Statement as Form S-4, file no. 33-52952, and incorporated
herein by reference.

(D) Stock Purchase Agreement dated as of July 20, 1994, by and II-34
among The Colonial BancGroup, Inc., Colonial Bank, The
Colonial Company, Colonial Mortgage Company, and Robert E.,
James K. and Thomas H. Lowder, included as Exhibit 2 in
Registrant's registration statement on Form S-4, Registration
No. 33-83692 and incorporated herein by reference.

Exhibit 13 Registrant's Quarterly Report on Form 10-Q for the quarter II-35
ended March 31, 1995, and incorporated herein by reference.

Exhibit 21 List of subsidiaries of the Registrant. II-36

Exhibit 23 Consents of experts and counsel:

(A) Consent of Coopers & Lybrand II-37

(B) Consent of Miller, Hamilton, Snider & Odom, L.L.C. II-38

Exhibit 24 Power of Attorney filed as Exhibit 25 to the Registrant's II-40
Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.

Exhibit 99 Additional exhibits: II-41

(A) Form of Proxy of Farmers and Merchants Bank, Ariton, Alabama
</TABLE>

II-13

<PAGE> 1
EXHIBIT 2(A)(1)

Agreement and Plan of Merger among The Colonial BancGroup,
Inc., Colonial Bank, and Farmers and Merchants Bank, Ariton,
Alabama, dated as of May 19, 1995, included in the Prospectus
portion of this Registration Statement at Appendix A and
incorporated herein by reference.

II-14

<PAGE> 1

EXHIBIT 3(A)

The Restated Certificate of Incorporation of the Registrant,
filed as Exhibit 4.1 to the Registrant's Current Report on
Form 8-K, dated February 21, 1995, is incorporated herein by
reference.

II-15

<PAGE> 1

EXHIBIT 3(B)

The Bylaws of the Registrant, filed as Exhibit 4.2 to the
Registrant's Report on Form 8-K, dated February 21, 1995, is
incorporated herein by reference.

II-16

<PAGE> 1
EXHIBIT 4(A)

Article 4 of the Restated Certificate of Incorporation of the
Registrant, filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, is incorporated
herein by reference.

II-17

<PAGE> 1

EXHIBIT 4(B)

Article II of the Bylaws of the Registraion, filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, is incorporated herein by reference.

II-18

<PAGE> 1

EXHIBIT 4(C)

The Dividend Reinvestment and Class A Common Stock Purchase
Plan of the Registrant dated January 15, 1986, and Amendment
No. 1 thereto dated as of June 10, 1986, filed as Exhibit 4(C)
to the Registrant's Registration Statement on Form S-4 (File
No. 33-07015), effective July 15, 1986, are incorporated
herein by reference.

II-19

<PAGE> 1

EXHIBIT 5

(On Letterhead of Miller, Hamilton, Snider & Odom, L.L.C.)

July 10, 1994

Montgomery Office

The Colonial BancGroup, Inc.
P. O. Box 1108
Montgomery, AL 36101

Re: Registration Statement on Form S-4 relating to the issuance of
shares of Common Stock of The Colonial BancGroup, Inc., in
connection with the acquisition by merger of Farmers and
Merchants Bank, Ariton, Alabama ("Merger")

Gentlemen:

We are familiar with the proceedings taken and proposed to be taken by
The Colonial BancGroup, Inc., a Delaware corporation (the "Company"), in
connection with the proposed issuance by the Company of a maximum of 354,430
shares of its Common Stock, par value of $2.50 per share, in connection with
the Merger and in accordance with an Agreement and Plan of Merger, dated as of
May 19, 1995 (the "Agreement"), by and between the Company, Colonial Bank and
Farmers and Merchants Bank, Ariton, Alabama. We have also acted as counsel for
the Company in connection with the preparation and filing with the Securities
and Exchange Commission under the Securities Act of 1933, of the Registration
Statement on Form S-4 referred to in the caption above. In this connection we
have reviewed such documents and matters of law as we have deemed relevant and
necessary as a basis for the opinions expressed herein.

Upon the basis of the foregoing, we are of the opinion that:

II-20
<PAGE> 2

The Colonial BancGroup
July 10, 1995
Page 2

(i) The Company is a corporation duly organized and existing under
the laws of the State of Delaware;

(ii) The shares of Common Stock of the Company referred to above,
to the extent actually issued pursuant to the Agreement will, when so issued,
be duly and validly authorized and issued and will be fully paid and
nonassessable shares of Common Stock of the Company;

(iii) Under the laws of the State of Delaware, no personal liability
attaches to the ownership of the shares of Common Stock of the Company.

We hereby consent to the filing of this opinion and our tax opinion
dated July 10, 1995 as an exhibit to the above-referenced registration
statement. In consenting to the inclusion of our opinions in the Registration
Statement, we do not thereby admit that we are a person whose consent is
required pursuant to Section 7 of the Securities Act of 1933, as amended.

Sincerely yours,

MILLER, HAMILTON, SNIDER & ODOM, L.L.C.

By: /s/ Michael D. Waters
-------------------------
Michael D. Waters

MDW/lwb

II-21

<PAGE> 1

EXHIBIT 8

(On Letterhead of Miller, Hamilton, Snider & Odom, L.L.C.)

July 10, 1995

Mobile Office

Farmers & Merchants Bank
101 Main Street
Ariton, Alabama

Re: Tax Opinion

Gentlemen:

We have acted as counsel to The Colonial BancGroup, Inc., a Delaware
corporation ("BancGroup"), in connection with the merger of Farmers and
Merchants Bank Ariton, Alabama (the "Bank") with and into BancGroup's
wholly-owned subsidiary, Colonial Bank ("Colonial Bank"), pursuant to the
Agreement and Plan of Merger dated as of May 19, 1995 (the "Agreement") by and
between BancGroup, Colonial Bank and the Bank. This opinion is being rendered
to you pursuant to paragraph 8.5 of the Agreement.

In rendering this opinion, we have relied upon the facts, which are
not restated herein, but rather, as they have been presented to us in the
Agreement, and in the joint proxy statement and prospectus of the Bank,
Colonial Bank and BancGroup as filed with the Securities and Exchange
Commission on Form S-4. We have assumed, with your consent, that the facts
presented to us provide an accurate and complete description of the facts and
circumstances concerning the proposed transaction. Any changes to the facts,
representations, or documents referred to in this opinion may affect the
conclusions stated herein.

II-22
<PAGE> 2

Farmers & Merchants Bank
July 10, 1995
Page 2

In connection with this opinion, we have assumed, with your consent,
the following:

(1) BancGroup does not plan to sell or otherwise dispose of any of
the stock of Colonial Bank or to liquidate Colonial Bank after the merger.

(2) Colonial Bank will continue the historic business of the Bank
or will use a significant portion of the historic business assets of the Bank
in a business.

(3) The Bank has no knowledge of any plan or intention on the part
of its shareholders to sell or otherwise dispose of the BancGroup Common Stock
to be received by them that would reduce their holdings to a number of shares
having, in the aggregate, a fair market value of less than fifty percent of the
total fair market value of the Bank common stock outstanding immediately before
the merger.

(4) The proposed merger will be effected for substantial non-tax
business purposes.

(5) Colonial Bank will acquire at least 90% of the fair market
value of the net assets and at least 70% of the fair market value of the gross
assets held by the Bank immediately prior to the merger. For purposes of this
representation, Bank assets used to pay its reorganization expenses, and all
redemptions and distributions (except for regular, normal dividends) made by
the Bank immediately preceding the merger and all payments to dissenters, if
any, will be included as assets of the Bank held immediately prior to the
merger.

(6) The Bank is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal
Revenue Code of 1986, as amended (the "Code").

(7) Though shareholders of the Bank shall have the right to
dissent as described in the Agreement, we have assumed that persons holding
fewer than 10% of the total outstanding shares of the Bank's common stock will
elect to dissent.

On the basis of the foregoing and our consideration of such other
matters as we have considered necessary, we advise you that, in our opinion,
for federal income tax purposes:

(1) The merger of the Bank with and into Colonial Bank in
accordance with the terms of the Agreement will constitute a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2) of the Code. The
Bank, Colonial Bank and BancGroup will each be a "party to a reorganization"
under Section 368(b) of the Code.

II-23
<PAGE> 3

Farmers & Merchants Bank
July 10, 1995
Page 3

(2) No gain or loss will be recognized by the Bank upon the
transfer of its assets and liabilities to Colonial Bank. Sections 357(a) and
361(a) of the Code.

(3) A Bank shareholder who exchanges shares of Bank stock for a
combination of BancGroup Common Stock and cash as described in the Agreement
shall recognize gain, if any, but in an amount not in excess of the sum of such
cash received. The amount of the gain realized will be the excess of (a) the
sum of (i) the amount of cash received and (ii) the fair market value of the
shares of BancGroup Common Stock received, over (b) the tax basis of the shares
of Bank Stock exchanged therefore. No loss shall be recognized. Sections
356(a)(1), (c).

(4) Any gain recognized by a shareholder of the Bank probably will
be characterized as a capital gain if the Bank stock is a capital asset in the
hands of such shareholder and the receipt of the cash does not have "the effect
of the distribution of a dividend" within the meaning of Section 356(a)(2) of
the Code as interpreted by the United States Supreme Court in Commissioner v.
Clark, 489 U.S. 726 (1989). Pursuant to Clark, it will be assumed that
BancGroup issued all stock to each of the Bank shareholders and then BancGroup
redeemed a portion of such stock for the amount of cash that was actually
issued. If that hypothetical redemption satisfies any of the tests of Section
302(b) of the Code, then the hypothetical redemption is treated as an exchange.
Otherwise, the receipt of the cash is treated as a dividend under Section
356(a)(2) of the Code. In the present case, the Bank shareholders should be
able to satisfy one or more of the tests of Section 302(b) of the Code.
However, the application of such provisions is dependent to each shareholders'
facts and circumstances and is affected by the attribution rules of Section 318
of the Code. Consequently, shareholders should seek independent tax advice as
to the tax effect of the merger, including the receipt of the cash, to them.

(5) A dissenting Bank shareholder, who is not deemed to own any
shares of BancGroup under the constructive ownership rules of Section 318 of
the Code (see the discussion below of Section 318 of the Code), and who
receives only cash in exchange for his shares of Bank stock, will recognize
gain or loss equal to the difference between the amount of cash received and
the shareholder's basis in the shares of Bank stock surrendered. Section 1001
of the Code. Such gain or loss will be capital gain or loss if the shares are
capital assets in the hands of the shareholder.

(6) The constructive ownership rules of Section 318 of the Code
apply in determining whether the receipt of cash has "the effect of the
distribution of a dividend" and whether a dissenting Bank shareholder who
actually has received all cash is deemed to have received a combination of cash
and BancGroup Common Stock. Under these rules, shares subject to options and
shares owned (or, in some cases, constructively owned) by members

II-24
<PAGE> 4

Farmers & Merchants Bank
July 10, 1995
Page 4

of the shareholder's family, and by related entities (such as corporations,
partnerships, trusts, and estates) in which the shareholder, a member of his
family, or a related entity has an interest, may be counted as owned by the
shareholder. Similarly, an entity may be treated as owning shares owned by
related persons or entities (such as shareholders, partners, or beneficiaries).

(7) The tax basis of the BancGroup Common Stock received by a Bank
shareholder will be the same as the adjusted tax basis of the shares of Bank
stock exchanged, decreased by the amount of cash received and increased by the
amount treated as a dividend and the amount of gain recognized on the exchange.
Section 358(a)(1) of the Code.

(8) The holding period of the BancGroup Common Stock received by a
Bank shareholder will include the holding period of the shares of Bank stock
exchanged therefor if such shares were capital assets in the hands of the
exchanging shareholder. Section 1223(a) of the Code.

(9) Cash received in lieu of a fractional share interest in
BancGroup Common Stock will be treated as received in payment for such
interest. Rev. Rul. 66-365, 1966 - 2 C.B. 116. The shareholder should
recognize gain or loss equal to the difference between the cash received and
the basis of such fractional share interest.

Very truly yours,

/s/MILLER, HAMILTON, SNIDER & ODOM, L.L.C.

II-25

<PAGE> 1

EXHIBIT 10(A)(1)

The Second Amendment and Restatement of 1982 Incentive Stock
Option Plan of the Registrant, filed as Exhibit 4-1 to the
Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, is incorporated herein by
reference.

II-26

<PAGE> 1

EXHIBIT 10(A)(2)

The Second Amendment and Restatement to 1982 Nonqualified
Stock Option Plan of the Registrant, filed as Exhibit 4-2 to
the Registrant's Registration Statement on Form S-8 (File No.
33-41036), effective June 4, 1991, is incorporated herein by
reference.

II-27

<PAGE> 1

EXHIBIT 10(A)(3)

The 1992 Incentive Stock Option Plan of the Registrant, filed
as Exhibit 4-1 to Registrant's Registration Statement on Form
S-8 (File No. 33-47770), effective May 8, 1992, is
incorporated herein by reference.

II-28

<PAGE> 1

EXHIBIT 10(A)(4)

The 1992 Nonqualified Stock Option Plan of the Registrant,
filed as Exhibit 4-2 to Registrant's Registration Statement on
Form S-8 (File No. 33-47770), effective May 8, 1992, is
incorporated herein by reference.

II-29

<PAGE> 1

EXHIBIT 10(B)(1)

The Residential Loan Funding Agreement between Colonial Bank
and Colonial Mortgage Company dated January 18, 1988, included
as Exhibit 10(B)(1) to the Registrant's Registration Statement
on Form S-8, file no. 33-52952, is incorporated herein by
reference.

II-30

<PAGE> 1

EXHIBIT 10(B)(2)

1993 Term Loan Agreement between the Registrant and SunBank,
National Association, and related Pledge Agreement filed as
Exhibit 10(B)(1) to Amendment No. 2 of the Registrant's
Registration Statement on Form S-4, registration number
33-63826, is incorporated herein by reference.

II-31

<PAGE> 1

EXHIBIT 10(C)(1)

The Colonial BancGroup, Inc. First Amended and Restated
Restricted Stock Plan for Directors, as amended, included as
Exhibit 10(C)(1) to the Registrant's Registration Statement on
Form S-4, file no. 33-52952, is incorporated herein by
reference.

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EXHIBIT 10(C)(2)

The Colonial BancGroup, Inc. Stock Bonus and Retention Plan,
included as Exhibit 10(C)(2) to the Registrant's Registration
Statement on Form S-4, file no. 33-52952, is incorporated
herein by reference.

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EXHIBIT 10(D)

Stock Purchase Agreement dated as of July 20, 1994, by and
among The Colonial BancGroup, Inc., Colonial Bank, The
Colonial Company, Colonial Mortgage Company, and Robert E.,
James K. and Thomas H. Lowder, included as Exhibit 2 to the
Registrant's Registration Statement on Form S-4 Registration
No. 33-83692 and incorporated herein by reference.

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EXHIBIT 13

The Registrant's quarterly report on Form 10-Q for the quarter
ended March 31, 1995, is incorporated herein by reference.

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EXHIBIT 21

Subsidiaries of The Colonial BancGroup, Inc.
--------------------------------------------

Colonial Bank, an Alabama banking corporation.

Colonial Bank of Tennessee, a Tennessee bank.

The Colonial BancGroup Building Corporation, an Alabama corporation.

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EXHIBIT 23(A)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the incorporation by reference in this registration statement on
Form S-4 (Registration No. ________) of our report dated February 24, 1995, on
our audits of the restated consolidated financial statements of The Colonial
BancGroup, Inc. and subsidiaries as of December 31, 1994 and 1993 and for each
of the three years ended December 31, 1994.

/s/Coopers & Lybrand L.L.P.

Montgomery, Alabama
July 18, 1995

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EXHIBIT 23(B)

CONSENT OF COUNSEL
------------------

The Colonial BancGroup, Inc.

We hereby consent to use in this Registration Statement of The
Colonial BancGroup, Inc., of our name in the Prospectus, which is a part of
such Registration Statement, under the headings "APROVAL OF THE MERGER -
Certain Federal Income Tax Consequences" and "LEGAL OPINIONS," and to the
summarization of our opinions referenced therein.

/s/MILLER, HAMILTON, SNIDER & ODOM, L.L.C.

July 18, 1995

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EXHIBIT 23(C)

CONSENT OF INDEPENDENT ACCOUNTANTS

We consent to the inclusion in this registration statement on Form S-4 of our
report dated June 23, 1995 on our audit and compilation of the consolidated
financial statements of Farmers and Merchants Bank, Ariton, Alabama.

/s/Jackson Thornton & Co., P.C.

Dothan, Alabama
July 18, 1995

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EXHIBIT 24

Power of attorney, filed as Exhibit 25 to the Registrant's
Annual Report on Form 10-K for the year ended December 31,
1994, and incorporated herein by reference.

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EXHIBIT 99(A)

SOLICITED BY
THE BOARD OF
DIRECTORS
PROXY

FARMERS AND MERCHANTS BANK, ARITON, ALABAMA
SPECIAL MEETING OF STOCKHOLDERS
_________________, 1995

The undersigned hereby appoints _________________________ and
_________________________, and either of them, or such other persons as the
board of directors of Farmers and Merchants Bank, Ariton, Alabama (the "Bank"),
may designate, proxies for the undersigned, with full power of substitution, to
represent the undersigned and to vote all of the shares of common stock of the
Bank at the special meeting of stockholders to be held on __________________,
1995, and at any and all adjournments thereof.

<TABLE>
<CAPTION>
FOR AGAINST ABSTAIN
<S> <C> <C> <C> <C>
1. To ratify and approve the Agreement and Plan ------------ ------------ ------------
of Merger dated as of May 19, 1995, pursuant
to which the Bank will be merged with and into ------------ ------------ ------------
Colonial Bank, a wholly-owned subsidiary of
The Colonial BancGroup, Inc.
</TABLE>

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE
VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED
FOR PROPOSAL 1 AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS
RESPECTING SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING
BUT WHICH ARE NOT NOW ANTICIPATED, AND TO VOTE UPON MATTERS INCIDENT TO THE
CONDUCT OF THE SPECIAL MEETING.

DATED: , 1995
----------------------------------------

PHONE NO:
-------------------------------------------

-----------------------------------------------------
(Signature of Stockholder)

-----------------------------------------------------
(Signature of Stockholder, if more than one)

Please sign exactly as your name appears on the
envelope in which this material was mailed. If shares
are held jointly, each stockholder must sign. Agents,
executors, administrators, guardians and trustees must
give full title as such. Corporations should sign by
their president or authorized officer.

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