COLONIAL BANCGROUP INC, 424B2, 1996-06-05

COLONIAL BANCGROUP INC
424B2, 1996-06-05
STATE COMMERCIAL BANKS

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<PAGE> 1
Filed Pursuant to Rule 424(b)(2)
Registration No. 333-01163

DOTHAN FEDERAL SAVINGS BANK
1962 WEST MAIN STREET
DOTHAN, ALABAMA 36302
(334) 794-1988

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON JULY 2, 1996

NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the "Special
Meeting") of Dothan Federal Savings Bank (the "Bank") will be held at 1962 West
Main Street, Dothan, Alabama on July 2, 1996, at 6:00 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 January 22, 1996 (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 May
24, 1996, 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 federal 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 revocation, by executing a later dated Proxy, or
by attending the Special Meeting and voting in person.

BY ORDER OF THE BOARD OF DIRECTORS

/s/ Charles A. Williams
----------------------------------
President

Dothan, Alabama
June 3, 1996
<PAGE> 2

JOINT PROXY STATEMENT AND PROSPECTUS

COLONIAL BANCGROUP

COMMON STOCK

DOTHAN FEDERAL SAVINGS BANK

SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON
JULY 2, 1996

This Joint Proxy Statement and Prospectus (the "Prospectus") relates to the
proposed merger (the "Merger") of Dothan Federal Savings Bank, a federal savings
bank, (the "Bank") with and into Colonial Bank ("Colonial Bank"), an Alabama
banking corporation and a wholly-owned subsidiary bank of The Colonial
BancGroup, Inc., a Delaware corporation ("BancGroup") and is furnished to the
Bank's stockholders on or about the date set forth below. Colonial Bank conducts
business throughout the State of Alabama. In connection with the Merger,
BancGroup will issue shares of its Common Stock, par value $2.50 per share, and
also pay cash to the holders of the outstanding shares of Common Stock of the
Bank. The number of shares of BancGroup Common Stock to be issued to the
stockholders of the Bank will depend upon the market value of such shares prior
to the Merger. See "APPROVAL OF THE MERGER -- Conversion of Bank Shares." The
shares of Common Stock of BancGroup are listed on the New York Stock Exchange
("NYSE") under the symbol "CNB." The closing price per share of such stock as
reported by the NYSE as of May 8, 1996, was $33.

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

BancGroup has filed a Registration Statement pursuant to the Securities Act
of 1933, as amended, to register the shares of its Common Stock 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 BancGroup
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 OR ANY STATE SECURITIES COMMISSION, NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES 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, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

The office and mailing address of the Bank are 1962 West Main Street,
Dothan, Alabama 36302 (telephone 334-794-1988), 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 June 3, 1996.
<PAGE> 3

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 information filed 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: 7 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 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 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.

The information in this Prospectus concerning BancGroup and its
subsidiaries has been furnished by BancGroup, and the information concerning the
Bank has been furnished by the Bank. The Bank is not subject to the periodic
reporting requirements of the Exchange Act.

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, 1995;

(2) BancGroup's Quarterly Report on Form 10-Q for the quarter ending
March 31, 1996; and

(3) BancGroup's Registration Statement on 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 Special Meeting shall be deemed incorporated by reference in
this 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 an Agreement and Plan of Merger dated as of
January 22, 1996 (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.

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<PAGE> 4

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).

3
<PAGE> 5

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CAPTION PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
SUMMARY.............................................................................. 6
INTRODUCTION......................................................................... 13
General.............................................................................. 13
Record Date; Shares Entitled to Vote; Vote Required for the Merger................... 13
Solicitation; Voting and Revocation of Proxies....................................... 13
Voting Effect of Merger.............................................................. 14
APPROVAL OF THE MERGER............................................................... 14
General.............................................................................. 14
Reasons for and Background of the Merger............................................. 15
Interests of Certain Persons in the Merger........................................... 15
Conversion of Bank Shares............................................................ 16
Certain Federal Income Tax Consequences.............................................. 18
Other Possible Consequences.......................................................... 21
Conditions of Consummation of the Merger............................................. 21
Amendment and Termination............................................................ 22
Conduct of Business Pending the Merger............................................... 22
Rights of Dissenting Stockholders.................................................... 23
Resale of BancGroup Common Stock..................................................... 24
Accounting Treatment................................................................. 24
COMPARATIVE MARKET PRICES AND DIVIDENDS.............................................. 25
BancGroup............................................................................ 25
The Bank............................................................................. 25
BANCGROUP CAPITAL STOCK AND DEBENTURES............................................... 25
Common Stock......................................................................... 26
Preference Stock..................................................................... 26
1986 Debentures...................................................................... 26
Changes in Control................................................................... 27
COMPARATIVE RIGHTS OF STOCKHOLDERS................................................... 29
Director Elections................................................................... 29
Removal of Directors................................................................. 29
Voting............................................................................... 29
Preemptive Rights.................................................................... 30
Directors' Liability................................................................. 30
Indemnification...................................................................... 30
Special Meetings of Stockholders; Action Without a Meeting........................... 31
Mergers, Share Exchanges and Sales of Assets......................................... 31
Amendment of Certificate of Incorporation and Bylaws................................. 32
Rights of Dissenting Stockholders.................................................... 32
Antitakeover Statutes................................................................ 32
Preferred Stock...................................................................... 33
Other Provisions..................................................................... 33
Effect of Merger on Bank Stockholders................................................ 33
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES........................................ 34
Condensed Pro Forma Statement of Condition (Unaudited)............................... 34
Condensed Pro Forma Statements of Income (Unaudited)................................. 38
</TABLE>

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<TABLE>
<CAPTION>
CAPTION PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Pro Forma Selected Financial Data (Unaudited)........................................ 41
Selected Interim Financial Data...................................................... 43
Selected Financial Data.............................................................. 44
Selected Quarterly Financial Data 1995-1994.......................................... 46
DOTHAN FEDERAL SAVINGS BANK.......................................................... 47
Selected Interim Financial Data (unaudited).......................................... 47
Management's Discussion and Analysis of Financial Condition and Results of Operations
Comparison of the Nine Months Ended March 31, 1996 and 1995........................ 48
Selected Financial Data.............................................................. 49
Management's Discussion and Analysis of Financial Condition and Results of
Operations......................................................................... 50
BUSINESS OF BANCGROUP................................................................ 56
General.............................................................................. 56
Lending Activities................................................................... 56
Proposed Affiliate Banks............................................................. 57
Voting Securities and Principal Stockholders......................................... 58
Security Ownership of Management..................................................... 59
Management Information............................................................... 59
Certain Regulatory Considerations.................................................... 60
BUSINESS OF THE BANK................................................................. 62
General.............................................................................. 62
Principal Stockholders............................................................... 62
Security Ownership of Management..................................................... 63
ADJOURNMENT OF SPECIAL MEETING....................................................... 63
OTHER MATTERS........................................................................ 64
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS............................... 64
INDEPENDENT ACCOUNTANTS.............................................................. 64
LEGAL MATTERS........................................................................ 64
INDEX TO FINANCIAL STATEMENTS........................................................ F-1
APPENDIX A -- Agreement and Plan of Merger........................................... A-1
APPENDIX B -- OTS Regulation Regarding Dissenters' Rights of Appraisal............... B-1
</TABLE>

NO 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 THE SOLICITATION OF A PROXY 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 SOLICITATION OR 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.

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<PAGE> 7

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 and into 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 Tuesday, July 2, 1996, at 6:00 p.m.,
local time, at the Bank's main office. 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 shares of BancGroup Common Stock and cash. On the Effective
Date, each share of Bank Common Stock issued and outstanding shall be converted
by operation of law into the right to receive the number of shares, or such
fractions of a share, of BancGroup Common Stock which shall be equal to
$2,600,000 divided by the total number of shares of Bank Common Stock
outstanding, divided in turn 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
10 consecutive trading days ending on the trading day immediately preceding the
Effective Date. In addition, BancGroup will pay an aggregate of $2,600,000 in
cash for the outstanding shares of Bank Common Stock, with the amount of cash to
be paid for each share of Bank Common Stock equal to $2,600,000 divided by the
number of shares of Bank Common Stock outstanding. (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.") Accordingly, the total
value of the Merger Consideration per share is $13.01. As of the date of this
Prospectus, there were 399,688 shares of Bank Common Stock outstanding.

Stockholders of the Bank may elect, subject to the restrictions summarized
below, to receive their Merger Consideration in all cash or all shares of
BancGroup Common Stock, or some proportion that is other than 50% for each.
Stockholders must file an election form (a copy of which is enclosed with this
Prospectus) prior to the Special Meeting if they wish to have their Merger
Consideration paid in a proportion of BancGroup Common Stock and cash that is
other than 50-50. Regardless of such elections, however, the total amount of
BancGroup Common Stock to be issued in the Merger shall equal 50% of the total
Merger Consideration and the total amount of cash (including cash paid for
appraisal rights) shall equal 50%. Accordingly, stockholders of the Bank may be
paid Merger Consideration in a proportion that is other than 50-50 of BancGroup
Common Stock and cash, even if such stockholders have filed an election form
requesting Merger Consideration in some other proportion.

No fractions of shares of Common Stock will be issued. Pursuant to the
Agreement, each holder of shares of Bank Common Stock who would otherwise be
entitled to receive a fraction of a share of BancGroup Common Stock shall
receive, in lieu of such fractional share, cash (without interest) in an amount
equal to such fractional share multiplied by the Market Value.

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<PAGE> 8

rights, and assuming a Market Value of BancGroup Common Stock at the Merger of
$33.575 (calculated as of May 8, 1996), then such stockholder would receive
Merger Consideration as follows:

<TABLE>
<CAPTION>
NUMBER OF SHARES OF AMOUNT OF
BANCGROUP COMMON CASH TO TOTAL VALUE
NUMBER OF SHARES STOCK TO BE BE OF MERGER
OF BANK COMMON STOCK RECEIVED RECEIVED CONSIDERATION
- -------------------- ------------------- --------- -------------
<S> <C> <C> <C>
500 96.874(1) $3,252.53(2) $6,505.06(3)
</TABLE>

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

(1) Each share of Bank Common Stock receives an amount of BancGroup Common Stock
determined by the following formula: $2,600,000 / 399,688 / 33.575 =
.1937475. Thus, 500 shares multiplied by .1937475 yields 96.874 BancGroup
shares. The fraction of .874 of a share would be paid in cash.
(2) Determined by the following formula: $2,600,000 / 399,688 = $6.505 cash for
each share of Bank Common Stock.
(3) The total Merger Consideration represents the $3252.53 of cash to be
received plus the value of the 96.874 shares of BancGroup Common Stock to
be received at a Market Value of $33.575 per share.

See "APPROVAL OF THE MERGER -- Conversion of Bank Shares."

The closing price of BancGroup Common Stock as reported on the NYSE as of
May 8, 1996 was $33 per share. See "COMPARATIVE MARKET PRICES AND DIVIDENDS."

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 BancGroup Common Stock at the time of the Effective Date of the
Merger. The aggregate number of shares of BancGroup Common Stock issued in the
Merger will increase as the Market Value of such shares at the Effective Date of
the Merger decreases and will decrease as the Market Value increases. The amount
of cash to be paid will not vary based upon the earnings of the Bank or other
performance factors. 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
promptly after the Effective Date of the Merger. Certificates for the BancGroup
Common Stock issued and cash to be paid will not be distributed until
stockholders surrender their certificates representing Bank Common Stock. See
"APPROVAL OF THE MERGER -- Conversion of Bank Shares."

INTEREST OF CERTAIN PERSONS IN THE MERGER

The Bank has entered into agreements with Charles Williams, president and
chief executive officer of the Bank, and Charles E. Myers, executive vice
president and controller of the Bank, pursuant to which Mr. Williams would
receive a $32,000 cash payment plus his Bank-furnished automobile and Mr. Myers
would receive a $22,000 cash payment following the Merger, should such persons
terminate employment with the Bank (or Colonial Bank following the Merger). The
purpose of these agreements is to provide incentives to each person to remain as
officers and employees of the Bank during the period of time that the Merger is
pending.

REASONS FOR THE MERGER

The Board of Directors of the Bank believes the Merger is in the best
interests of Bank stockholders. In recommending the Merger, the Board considered
a number of factors, including the market price of BancGroup Common Stock, the
dividend history of the BancGroup Common Stock, the lack of liquidity for the
Bank Common Stock, and the apparent and continued trend toward consolidation in
the banking field which may make it more difficult for the Bank to compete and
maintain profitability in the future. See "APPROVAL OF THE MERGER -- Reasons for
and Background of Merger."

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VOTE REQUIRED

Pursuant to OTS regulations, the Merger (item 1 on the proxy card) requires
the approval of at least two-thirds of the outstanding shares of Common Stock of
the Bank. Each share of Bank Common Stock is entitled to one vote per share. A
total of 399,688 shares are outstanding. Only those stockholders of the Bank who
were stockholders of record at the close of business on May 24, 1996, are
entitled to notice of and to vote at the Special Meeting. The Bank's directors
and executive officers own in the aggregate 210,549 shares representing 52.68%
of the outstanding shares of Common Stock of the Bank and have agreed to vote
for the Merger. Directors and executive officers of BancGroup beneficially own
in the aggregate 2,103,478 shares representing approximately 15% 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 Management."

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 two-thirds 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. See
"INTRODUCTION -- Solicitation, Voting and Revocation of Proxies."

RIGHTS OF DISSENTING STOCKHOLDERS

Pursuant to regulations of the OTS, any stockholder of record of the Bank
may dissent from the Merger and obtain the fair value of his Common Stock in
cash if such stockholder (i) gives notice in writing to the Bank before voting
on the Merger that he intends to demand appraisal rights, (ii) does not vote in
favor of the Merger, and (iii) follows certain other procedures explained
further herein. If a stockholder refrains from voting in favor of the Merger but
does not deliver the notice in writing to the Bank before the stockholder vote
on the Merger occurs, such stockholder will LOSE his or her appraisal rights.
Exercise of appraisal rights by stockholders will reduce the $2,600,000 figure
for determining the amount of cash to be issued in the Merger by an amount equal
to the number of shares exercising appraisal rights multiplied by $13.01. See
"APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders" and Appendix B
hereto.

Any stockholder who properly exercises appraisal rights and receives the
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."

CONDITIONS OF CONSUMMATION

The Merger is subject to approval by the requisite vote 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 Office of Thrift Supervision ("OTS")
and the Federal Deposit Insurance Corporation ("FDIC"). Applications were filed
with these agencies on March 28, 1996, and the regulatory approval process is
expected to take approximately four months from that date. 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

8
<PAGE> 10

terminate the Merger if the Merger is not consummated by December 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.

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

BUSINESS OF THE BANK

The Bank is a federally chartered stock savings bank which began operations
in 1988. The Bank's primary business is to accept savings deposits from the
general public and to make real estate loans secured by residential and
commercial property and, to a lesser extent, to make commercial and consumer
loans. Its income is derived from interest and fees in connection with such
loans. The Bank's principal expenses are interest paid on deposits and operating
expenses. The Bank conducts business through one office in Dothan, Alabama. See
"BUSINESS OF THE BANK."

BUSINESS OF BANCGROUP

BancGroup conducts a commercial banking business in the states of Alabama,
Tennessee and Georgia through 95, four and three banking offices, respectively.
Colonial Mortgage Company, a subsidiary of BancGroup's Alabama bank subsidiary,
Colonial Bank, is a mortgage company that has $9.1 billion of residential loan
servicing and that originates residential mortgages in 29 states through 6
regional offices. As of March 31, 1996, BancGroup had consolidated assets of
$3.9 billion and consolidated shareholders' equity of $268.2 million. BancGroup
has entered into agreements to acquire a bank in Georgia and to acquire a bank
in Orlando, Florida. See "BUSINESS OF BANCGROUP" and "PRO FORMA INFORMATION."

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 May 24, 1996, the Bank had 399,688 shares of its
Common Stock outstanding and 196 stockholders of record. See "COMPARATIVE RIGHTS
OF STOCKHOLDERS."

COMMON STOCK OF BANCGROUP

BancGroup is authorized to issue 44,000,000 shares of its Common Stock, of
which on May 8, 1996, 13,575,465 shares were issued and outstanding. Further, up
to 333,333 shares of Common Stock are issuable upon conversion of certain
debentures of BancGroup and 199,495 shares are subject to issue upon exercise of
outstanding options 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."

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CERTAIN FEDERAL 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 $1,466,000,
will be amortized by charges or credits to future earnings over a period
approximating 20 years. See "APPROVAL OF THE MERGER -- Accounting Treatment."

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, 10,518 shares of the Bank
Common Stock have been transferred since January 1, 1994. The Bank has no
knowledge of the sales prices, if any, in such transfers. See "COMPARATIVE
MARKET PRICES AND DIVIDENDS -- The Bank."

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
BancGroup Class A Common Stock and the BancGroup Common Stock as reported on the
Nasdaq National Market and the NYSE 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
National Market security under the symbol "CLBGA" until February 24, 1995. On
February 21, 1995, the Class A and Class B Common Stock were reclassified into
Common Stock.

<TABLE>
<CAPTION>
PRICE PER
SHARE OF
COMMON STOCK
--------------
HIGH LOW
---- ---
<S> <C> <C>
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
Third Quarter................................................................ 29 7/8 27 1/2
Fourth Quarter............................................................... 32 7/8 28 1/2
1996
First Quarter................................................................ 36 1/2 30
Second Quarter (through May 8, 1996)......................................... 36 1/8 33
</TABLE>

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

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

10
<PAGE> 12

See "COMPARATIVE MARKET PRICES AND DIVIDENDS -- BancGroup."

On November 20, 1995, the business day immediately prior to the public
announcement of the Merger, the closing price of the Common Stock on the NYSE
was $29 per share. The following table presents the market value of BancGroup
Common Stock on November 20, 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.............................. $29.00(1) $ 9.89(2) $ 6.5051(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 per share book value at September 30, 1995.
(3) If the Merger had closed on, November 21, 1995, .2230 (6.5051 / 29.175)
shares of BancGroup Common Stock would have been exchanged for each one
share of the Bank Common Stock, and $6.50 in cash would also have been paid
for such share, assuming 399,688 shares of Bank Common Stock outstanding,
no exercise of dissenters' rights of appraisal, and a 50-50 distribution of
stock and cash for each one share of Bank Common Stock.

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 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 below 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 assuming the acquisition of
the Bank. Certain information from the table has been taken from the condensed
pro forma

11
<PAGE> 13
statements of condition and income included elsewhere in this document. The
table should be read in conjunction with those pro forma statements.

<TABLE>
<CAPTION>
THREE MONTHS YEAR
MARCH 31, ENDED
1996 1995(A)
------------ -------
<S> <C> <C>
BANCGROUP -- HISTORICAL:
Net Income
Primary.................................................................................. $ 0.82 $ 3.12
Fully diluted............................................................................ 0.80 3.02
Book value at end of period................................................................ 19.81 19.35
Dividends per share:
Common Stock............................................................................. 0.27 0.675
Common A................................................................................. 0.225
Common B................................................................................. 0.125
DOTHAN FEDERAL SAVINGS BANK:
Net Income
Historical:
Primary................................................................................ 0.14 0.38
Fully diluted.......................................................................... 0.14 0.38
Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank only(b):
Primary................................................................................ 0.16 0.60
Fully diluted.......................................................................... 0.15 0.58
Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank, Commercial
Bancorp of Georgia, Inc. and Southern Banking Corporation(b):
Primary................................................................................ 0.15 0.53
Fully diluted.......................................................................... 0.15 0.52
Book value at end of period
Historical............................................................................... 10.16 10.04
Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank only(b)......... 3.85 N/A
Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank, Commercial
Bancorp of Georgia, Inc. and Southern Banking Corporation(b)........................... 3.65 N/A
Dividends per share
Historical(d)............................................................................ 0.00 0.00
Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank only(c)......... 0.05 .13
Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank, Commercial
Bancorp of Georgia, Inc. and Southern Banking Corporation(c)........................... 0.05 .13
BANCGROUP -- PRO FORMA COMBINED (DOTHAN FEDERAL ONLY):
Net Income:
Primary.................................................................................. 0.81 3.10
Fully diluted............................................................................ 0.80 3.01
Book value at end of period................................................................ 19.89 N/A
BANCGROUP -- PRO FORMA COMBINED (DOTHAN FEDERAL SAVINGS BANK,
COMMERCIAL BANCORP OF GEORGIA, INC. AND SOUTHERN BANKING CORPORATION):
Net Income
Primary.................................................................................. 0.77 2.73
Fully diluted............................................................................ 0.76 2.66
Book value at end of period................................................................ 18.86 N/A
</TABLE>

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

(a) Per share data of BancGroup is for the year ended December 31, 1995. Per
share data of Dothan Federal Savings Bank is for the year ended December
31, 1995 (last six months from fiscal year end June 30, 1995 and first
six months of fiscal year end June 30, 1996).

(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 Dothan Federal Savings Bank. For the purposes of these pro forma
equivalent per share amounts, a .1937 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 $33.575 at May
8, 1996.
(c) Pro forma equivalent dividends per share are shown at BancGroup's Common
Stock dividend per share rate multiplied by the .1937 conversion ratio
per share of Dothan Federal Savings 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.
12
<PAGE> 14

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 on July 2, 1996, at
6:00 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, BancGroup's
Alabama bank subsidiary. 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 $.01 per share, are the only securities
of the Bank issued and outstanding. The close of business on May 24, 1996, has
been 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 196 record holders of Bank Common Stock as of such date. On that date,
there were outstanding 399,688 shares of Common Stock of the Bank. 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.

Under federal regulations, stockholders of the Bank have dissenters' rights
of appraisal with respect to the Merger. 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. 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 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 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, 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.

13
<PAGE> 15

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 or her 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.

Votes will be tabulated and counted by one or more inspectors of election
appointed by the Bank. 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 at any time before it is voted by: (i) filing with
the Secretary of the Bank a written notice of revocation, (ii) delivering to the
Bank a duly executed proxy bearing a later date; or (iii) attending the Special
Meeting and voting in person. Attendance at the Special Meeting will not in and
of itself constitute revocation of the proxy.

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 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 $33.575 (calculated as of May 8, 1996) per share, upon consummation of the
Merger (a) 77,439 shares of BancGroup Common Stock will be issued and $2,600,000
in cash will in the aggregate be paid in connection with the Merger and (b)
former holders of Bank Common Stock will hold 77,439 shares, or .57%, of the
BancGroup Common Stock then outstanding, not counting any additional shares
BancGroup may issue, including shares to be issued pursuant to pending
acquisitions.

APPROVAL OF THE MERGER

THE FOLLOWING SETS FORTH A SUMMARY OF THE MATERIAL PROVISIONS OF THE
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. THE DESCRIPTION DOES NOT
PURPORT TO BE COMPLETE AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
AGREEMENT, A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX A, AND CERTAIN
REGULATIONS OF THE OTS RELATING TO THE RIGHTS OF DISSENTING STOCKHOLDERS, A COPY
OF WHICH IS ATTACHED HERETO AS APPENDIX B. ALL BANK STOCKHOLDERS ARE URGED TO
READ ALL APPENDICES IN THEIR ENTIRETY.

GENERAL

Pursuant to the Agreement, subject to stockholder approval, receipt of
necessary regulatory approval and certain other conditions set forth in the
Agreement, the Bank will merge with and into Colonial Bank, a wholly-owned
Alabama bank 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. 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.

14
<PAGE> 16

REASONS FOR AND BACKGROUND OF THE MERGER

In March, 1995, BancGroup contacted representatives of the Bank about a
possible acquisition of the Bank. At that time, the Bank did not enter into
negotiations regarding such an acquisition. In August, 1995, the Bank retained
the services of T. Stephen Johnson & Associates, a financial brokerage firm, to
seek possible buyers of the Bank. At that point, the board of directors decided
that a sale of the Bank would be in the best interests of Bank stockholders. In
reaching its decision to seek a sale of the bank, the Board of Directors of the
Bank considered the general trend in the banking industry toward consolidations
and mergers between community and regional banks. The Board believes that new
interstate banking legislation may result in increased consolidation in the
banking industry and may make it more difficult for smaller community banks,
such as the Bank, to compete in a given market area with larger, better
capitalized banks. With such increased competition, the upgrading of customer
services and products that would probably be necessary for the Bank would
necessitate additional personnel and overhead costs, both of which could
significantly reduce the Bank's profitability.

In September 1995, the Bank's broker contacted BancGroup to determine
whether BancGroup would have an interest in the Bank. Approximately 24 potential
purchasers of the Bank were contacted, and ten expressed interest to the Bank in
an acquisition. BancGroup was the only institution making an offer of
acquisition. The Bank's Board of Directors decided that the BancGroup proposal
represented the best transaction for the Bank's stockholders. Following
negotiations, the Bank and BancGroup entered into a letter of intent on November
17, 1995, stating the intent of the parties to merge the Bank with Colonial
Bank. Following further discussions and a review of the Bank's finances and
operations by BancGroup, the Agreement was executed in late January, 1996.

In negotiating the letter of intent and the Agreement, Bank management
wanted an opportunity for the stockholders of the Bank to be paid cash for their
Bank Common Stock. Although the Common Stock of BancGroup represents a liquid
security that may be readily sold on the NYSE, Bank management believed that the
opportunity for Bank stockholders to receive cash in the Merger was important.
At the same time, Bank stockholders have an opportunity in the Merger to receive
BancGroup Common Stock that, unlike the Bank Common Stock for which there is no
active trading market, may be traded on the NYSE.

The Bank also considered the market value of the BancGroup Common Stock and
the dividend history of BancGroup.

Finally, the Board considered the management philosophy of
BancGroup -- i.e., an emphasis upon local input and judgment in the operations
of its branch banks -- to be important in serving the Bank's customers.

In reaching its decision to approve the Merger, the Board of Directors did
not place a relative weight on any of the foregoing factors, but concluded that
in light of all of the foregoing, the Merger is in the best interests of the
Bank's stockholders.

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

Charles Williams, president and chief executive officer of the Bank, and
Charles E. Myers, vice president and controller, each entered into agreements
with the Bank, dated October 22, 1995, and expiring October 1, 1996, which
provide that in the event of a change in control of the Bank, each person will
be entitled for a period of 180 days from the date of closing the change in
control transaction to terminate such agreements and receive a lump sum cash
payment, in the case of Mr. Williams, of $32,000, and in the case of Mr. Myers,
of $22,000. Mr. Williams is also entitled to receive his Bank-furnished
automobile. Among other things, a "change in control" is defined as a merger of
the Bank in which any person acquires control of 50% or more of the Bank's
Common Stock. The agreements were entered into by the Bank to provide incentives
to Mr. Williams and Mr. Myers to remain as officers and employees of the Bank
during the time that the Bank was actively considering a sale. The Merger
constitutes a change in control of the Bank.

15
<PAGE> 17

CONVERSION OF BANK SHARES

Merger Consideration. On the effective date of the Merger (the "Effective
Date"), and except as stated below, each share of the Bank's Common Stock
outstanding and held of record by Bank stockholders shall be converted by
operation of law into the right to receive shares of BancGroup Common Stock and
cash upon surrender of the certificates representing shares of Bank Common
Stock. 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 $2,600,000 divided by the total number of shares of Bank
Common Stock outstanding, divided in turn 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 10 consecutive trading days ending on the trading day immediately
preceding the Effective Date. In addition, BancGroup will pay an aggregate of
$2,600,000 in cash for the outstanding shares of Bank Common Stock, with the
amount of cash to be paid for each share of Bank Common Stock equal to
$2,600,000 divided by the number of shares of Bank Common Stock outstanding.
(The BancGroup Common Stock to be issued and the cash to be paid in exchange for
Bank Common Stock as stated above is sometimes referred to as the "Merger
Consideration.") The closing price of the BancGroup Common Stock on the NYSE on
May 8, 1996, was $33 per share. As of the date of this Prospectus, there were
399,688 shares of Bank Common Stock outstanding.

No fractions of shares of BancGroup Common Stock will be issued in the
Merger. Pursuant to the Agreement, each holder of shares of Bank Common Stock
who would otherwise be entitled to receive a fraction of a share of BancGroup
Common Stock shall receive, in lieu of such fractional share, cash (without
interest) in an amount equal to such fraction of a share multiplied by the
Market Value.

As an example, a stockholder of the Bank who owns 500 shares of Bank Common
Stock would be entitled to receive for such shares BancGroup Common Stock and
cash. Assuming such stockholder receives BancGroup Common Stock and cash in the
proportion of 50-50 for each, assuming no exercise of appraisal rights, and
assuming a Market Value of BancGroup Common Stock at the Merger of $33.575
(calculated as of May 8, 1996), then such stockholder would receive Merger
Consideration as follows:

<TABLE>
<CAPTION>
AMOUNT OF
NUMBER OF SHARES OF CASH TO TOTAL VALUE
NUMBER OF SHARES BANCGROUP COMMON BE OF MERGER
OF BANK COMMON STOCK STOCK TO BE RECEIVED RECEIVED CONSIDERATION
- -------------------- -------------------- --------- -------------
<S> <C> <C> <C>
500 96.874(1) $3,252.53(2) $6,505.06(3)
</TABLE>

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

As the Market Value of the BancGroup Common Stock rises, the number of
shares of BancGroup Common Stock to be issued in the Merger will decrease, and
as the Market Value falls, the number of such shares will increase.

If any stockholder of the Bank exercises dissenters' rights of appraisal
and receives cash for Bank Common Stock held, the $2,600,000 figure stated above
which is to be used for calculating the cash to be distributed shall be reduced
by an amount that equals the number of shares of Bank Common Stock properly
exercising dissenting rights of appraisal multiplied by $13.01 which is the
total value of Merger Consideration to be received per share of Bank common
stock. See "Rights of Dissenting Stockholders."

16
<PAGE> 18

Election Forms. A holder of Bank Common Stock may, prior to the Special
Meeting, file a written election form (an "Election Form") with the Bank
specifying whether such holder prefers to have the Merger Consideration (i.e.,
$13.01 per share) paid to such holder in shares of BancGroup Common Stock only,
cash only, or a proportion of cash and BancGroup Common Stock that is other than
50% for each, provided that, notwithstanding any elections made pursuant to such
Election Forms, the aggregate number of shares of BancGroup Common Stock to be
distributed in the Merger shall equal 50% of the total Merger Consideration and
the aggregate amount of cash to be paid in the Merger shall equal 50% of the
total Merger Consideration. An Election Form shall apply to all shares of record
of Bank Common Stock held by the holder of record submitting the Election Form.
An Election Form is enclosed with this Prospectus.

If the aggregate amount of cash to be paid in the Merger is less than 50%
of the Merger Consideration based upon the Election Forms which have been
properly filed, then a sufficient amount of additional cash shall be distributed
pro rata to all stockholders of the Bank who have not elected to receive 100% of
the Merger Consideration in cash, regardless of whether such stockholders have
filed an Election Form, so that the aggregate amount of Merger Consideration to
be paid in cash in the Merger will equal 50%, and the number of shares of
BancGroup Common Stock otherwise required to be distributed shall be reduced pro
rata as to all stockholders who have not elected to receive 100% of the Merger
Consideration in cash.

If the aggregate amount of cash to be paid in the Merger is greater than
50% of the Merger Consideration based upon the Election Forms which have been
properly filed, then the aggregate amount of cash will be reduced and a
sufficient amount of cash shall be distributed pro rata to all stockholders of
the Bank who have not elected to receive 100% of the Merger Consideration in
BancGroup Common Stock, regardless of whether such stockholders have filed an
Election Form, so that the aggregate amount of Merger Consideration to be paid
in cash in the Merger will equal 50%, and the number of shares of BancGroup
Common Stock otherwise required to be distributed shall be increased pro rata as
to all stockholders who have not elected to receive 100% of the Merger
Consideration in BancGroup Common Stock. Cash to be paid to holders exercising
dissenter's rights of appraisal shall be included as part of the Merger
Consideration for determining the amount of cash to be paid in the Merger.
Interest will not be paid on any cash to be paid as part of the Merger
Consideration.

Deadline for Election Forms. The Election Form may be submitted to the
Bank along with the proxy in the envelope which has been provided with this
Prospectus. ELECTION FORMS MUST BE RECEIVED BY THE BANK NO LATER THAN 6:00 P.M.
ON JULY 2, 1996, THE START OF THE SPECIAL MEETING.

Surrender of Certificates and Dividends. 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, have the right to receive shares of
BancGroup Common Stock and cash upon surrender of the certificates representing
their shares of Bank Common Stock as described herein. Outstanding certificates
representing shares of Bank Common Stock shall represent the right to receive
shares of Common Stock of BancGroup and cash. Thereafter, upon surrender of the
certificates formerly representing shares of Bank Common Stock, the holder will
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 certificates for Bank Common Stock. No interest will be paid on
the cash to be distributed in the Merger. SunTrust 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 and cash paid in
connection with the Merger.

The Agreement provides that if, 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 BancGroup
Common Stock, an appropriate and proportionate adjustment shall be made in the
number of shares of BancGroup Common Stock into which the Bank Common Stock
shall be converted in the Merger.

A detailed explanation of these arrangements will be mailed to Bank
stockholders promptly following the Effective Date. STOCK CERTIFICATES FOR BANK
COMMON STOCK SHOULD NOT BE SENT TO THE EXCHANGE AGENT UNTIL SUCH NOTICE IS
RECEIVED.

17
<PAGE> 19

CERTAIN FEDERAL INCOME TAX CONSEQUENCES

The following discussion is a summary of all material federal income tax
consequences of the Merger to Colonial Bank, 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 FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ON HIS
OR HER OWN PARTICULAR FACTS 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 counsel, Miller, Hamilton, Snider & Odom,
L.L.C., as to the federal income tax consequences of the Merger to Colonial
Bank, 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 following presents a summary of that opinion:

1. The Merger will qualify as a reorganization within the meaning of
Section 368(a)(1) pursuant to Section 368(a)(2)(D) of the Code.

2. A Bank stockholder who exchanges shares of Bank Common Stock solely
for BancGroup Common Stock pursuant to the election provided in the
Agreement will not recognize any gain or loss.

3. No gain or loss will be recognized by the Bank upon the transfer of
its assets and liabilities to Colonial Bank. No gain or loss will be
recognized by Colonial Bank upon the receipt of the assets and liabilities
of the Bank. However, the bad debt reserve account, if any, of the Bank
will be recaptured by Colonial Bank, generally, over a six (6) year period.

4. The basis of the assets of the Bank acquired by Colonial Bank will
be the same as the basis of the assets in the hands of the Bank immediately
prior to the Merger.

5. The holding period of the assets of the Bank in the hands of
Colonial Bank will include the period during which such assets were held by
the Bank.

6. 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. The amount of the gain realized by a
stockholder will be the excess of (a) the sum of (i) the amount of cash
received, and (ii) the fair market value of shares of BancGroup Common
Stock received, over (b) the tax basis of the shares of Bank Common Stock
exchanged therefor. Of such gain realized, a stockholder will recognize
gain, but limited to the amount of cash received. No loss shall be
recognized. Any gain recognized by such 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). Otherwise, the receipt
of the cash will be treated as a dividend. Pursuant to Clark, such Bank
stockholders will be treated as if the stockholder received only BancGroup
Common Stock and then BancGroup redeemed a portion of such Common Stock for
the amount of cash that actually was issued

18
<PAGE> 20

(a post-reorganization hypothetical redemption). If that hypothetical
redemption satisfies any of the tests of Section 302(b) of the Code, it
will be treated as an exchange. Bank stockholders should be able to satisfy
one or more of the tests for exchange treatment under of Section 302(b) of
the Code. Consequently, any gain recognized by a Bank stockholder should be
treated as capital gain or loss. However, the application of Section 302(b)
is dependent on each stockholder's particular facts and circumstances and
is affected by the attribution rules of Section 318 of the Code.
Consequently, Bank stockholders should seek independent tax advice as to
the tax effect of the Merger including the receipt of the cash, to them.

7. A Bank stockholder who exchanges Bank Common Stock solely for cash
pursuant to an election provided in the Agreement shall recognize gain or
loss. The amount of the gain realized by such stockholder will be the
excess of the amount of cash received over the tax basis of the shares of
Bank Common Stock exchanged therefor. Any gain recognized by such
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
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. It is
unclear whether the post-reorganization hypothetical redemption of the
Clark case discussed above will be applicable to such stockholders.
Nonetheless, such stockholders should be entitled to capital gain treatment
if the redemption satisfies any of the tests of Section 302(b) of the Code.
Such Bank stockholders should be able to satisfy one or more of the tests
for exchange treatment under Section 302(b) of the Code. However, the
application of Section 302(b) is dependent upon each stockholder's
particular facts and circumstances and is affected by the attribution rules
of Section 318 of the Code. Consequently, such Bank stockholders should
seek independent tax advice as to the tax effects of the Merger, including
the receipt of the cash, to them.

8. 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.

9. A Bank stockholder who dissents and receives only cash pursuant to
dissenter's rights of appraisal 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.

10. 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.

11. 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.

The assumptions stated in the tax opinion are as follows:

(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

19
<PAGE> 21

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) As a result of the Merger, each share of the issued and
outstanding Bank Common Stock will be converted into the right to receive
BancGroup Common Stock and cash.

(5) No fractional shares will be issued in the Merger. In the event
fractional shares result in the exchange, the Bank stockholders entitled to
fractional shares will be paid cash by BancGroup for their fractional
shares.

(6) The fair market value of the BancGroup Common Stock and cash to be
received by the Bank stockholders will be approximately equal to the fair
market value of the Bank stock exchanged therefor.

(7) The proposed Merger will be effected for substantial non-tax
business purposes.

(8) 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.

(9) The Bank is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of sec. 368(a)(3)(A) of the Code.

If the assumption stated above, that there is no plan or intention by the
Bank stockholders to sell or dispose of BancGroup Common Stock that would reduce
their holdings to the number of shares with an aggregate 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 reorganization under Section 368 of 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 reorganizations, the
stockholders of the acquired corporation must receive and retain stock of the
acquiror equal to 50 percent of the aggregate fair market value of the acquired
corporation immediately before the Merger. Thus, of the total consideration
received by the stockholders of the Bank, at least 50% must consist of BancGroup
Common Stock. Moreover, Bank stockholders must retain at least that amount of
BancGroup stock after the Merger.

The "continuity of interest" test may be affected by actions of the Bank's
stockholders subsequent to the Merger. If shares of BancGroup Common Stock
received in the Merger are sold after the Merger, for example, within a twelve
month period, the IRS may challenge the status of the Merger as a reorganization
under Section 368 of the Code. For example, if ten percent of such shares were
sold within such twelve month period pursuant to a pre-arranged plan or
commitment by any one or more Bank stockholders, the IRS might assert that there
was insufficient continuity by the Bank stockholders. If the IRS were successful
in that assertion, the Merger would be taxable to both the Bank and its
stockholders. As a result, Bank stockholders would be subject to gain or loss on
the entire transaction, including the receipt of BancGroup stock.

As noted above, for advance ruling purposes the IRS requires fifty percent
continuity. However, that is not a rule of substantive law. Rather, it is the
minimum required by the IRS for issuance of Private Rulings to taxpayers that
request such rulings prior to consummating a transaction. Courts, however, have
upheld the status of mergers as reorganizations where continuity was less than
fifty percent.

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 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.

THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF ALL MATERIAL
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THE STOCKHOLDERS OF THE BANK,
TO THE BANK AND TO COLONIAL BANK AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS
OR LISTING OF ALL POTENTIAL TAX EFFECTS RELEVANT TO

20
<PAGE> 22

A DECISION WHETHER TO VOTE IN FAVOR OF APPROVAL OF THE MERGER. THE DISCUSSION
DOES NOT ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR
STOCKHOLDER SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS,
SUCH AS DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT
ORGANIZATIONS, NON-UNITED STATES PERSONS, STOCKHOLDERS WHO DO NOT HOLD THEIR
SHARES OF BANK COMMON STOCK AS "CAPITAL ASSETS" WITHIN THE MEANING OF SECTION
1221 OF THE CODE, AND STOCKHOLDERS WHO ACQUIRED THEIR SHARES OF BANK COMMON
STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS COMPENSATION, NOR ANY
CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION. THE DISCUSSION IS BASED UPON THE CODE, TREASURY REGULATIONS
THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE HEREOF.
ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE
CONTINUING VALIDITY OF THIS DISCUSSION BANK STOCKHOLDERS ARE URGED TO CONSULT
THEIR OWN TAX ADVISORS CONCERNING THE PARTICULAR FEDERAL, STATE, LOCAL AND
FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.

OTHER POSSIBLE CONSEQUENCES

If the Merger becomes effective, the stockholders of the Bank, a federal
savings bank, 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 a federal
savings bank.

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. First, the
Agreement must be approved by the affirmative vote of at least two-thirds of the
outstanding shares of Common Stock of the Bank.

The Merger must also be approved by the Alabama State Banking Department
(the "Alabama Department"), the Office of Thrift Supervision ("OTS") and the
Federal Deposit Insurance Corporation ("FDIC"). Applications for approval were
filed with these agencies on March 28, 1996, and the regulatory approval process
is expected to take approximately four months from that date. Any of these
agencies might refuse or 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 Bank Merger Act imposes a waiting period which prohibits
consummation of the Merger, in ordinary circumstances, for a period ranging from
15-30 days following the FDIC's approval of the Merger. 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 December 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, except as may be disclosed in the
Agreement; and (iii) in the case of BancGroup's obligations, receipt by
BancGroup of certain undertakings

21
<PAGE> 23

from 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, except that 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 Board
to act in the best interests of the Bank's stockholders.

AMENDMENT AND TERMINATION

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.

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;

(iv) 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
canceling, 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) Except for customary bonuses, 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;

22
<PAGE> 24

(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) Receiving notice or having 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) 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

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

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, and provided further that nothing in the
foregoing clause shall be deemed a waiver by BancGroup that any action taken by
the Bank pursuant to such proviso constitutes a breach of the Agreement.

RIGHTS OF DISSENTING STOCKHOLDERS

Stockholders of record of the Bank have certain appraisal rights under
Federal law relating to the Merger. OTS regulation 12 C.F.R. sec. 552.14
provides for rights of appraisal for the value of the shares of such stockholder
who (1) has given notice in writing to the Bank prior to voting upon the Merger
that he or she intends to exercise appraisal rights and demand appraisal for his
or her Bank Common Stock and (2) does not vote in favor of the Merger. Failure
of a stockholder to give such written notice or to follow properly any provision
of this regulation will result in a waiver of his or her rights of appraisal.
Such notice must identify the stockholder and state that the stockholder intends
to demand appraisal of and payment for his or her shares. Such written notice
must be in addition to and separate from any proxy or vote against the Merger by
the stockholder.

Within 10 days of the consummation of the Merger, Colonial Bank will give
written notice of the Effective Date to the stockholders who dissented from the
Merger and will make a written offer to such stockholders to pay for their
shares at a specified price deemed by Colonial Bank to be the fair value thereof
and outlining other applicable procedures.

If within 60 days after the Effective Date the fair value of such shares is
agreed upon between Colonial Bank and a dissenting Bank stockholder, payment
therefor shall be made within 90 days after the Effective Date upon the
surrender of the certificate representing such stockholder's shares of Bank
Common Stock.

If within such period of 60 days a dissenting stockholder and Colonial Bank
do not agree, then such stockholder may file a petition with the OTS, 1700 G.
Street, N.W., Washington, D.C. 20552, attention: Director, with a copy filed by
certified or registered mail, with Colonial Bank, demanding a determination of
the fair market value of the shares. A stockholder who fails to file such
petition within 60 days of the Effective Date will be deemed to have accepted
the terms offered under the Merger. (At any time within such 60 days, any
stockholder will have the right to withdraw his demand for appraisal and accept
the terms of the Merger.) Within such 60 day period, such stockholder must also
submit to Trust Company Bank, BancGroup's transfer agent, his or her
certificates representing Bank Common Stock with a notation thereon that
appraisal rights have been requested. ANY STOCKHOLDER WHO FAILS TO SUBMIT HIS OR
HER STOCK CERTIFICATES FOR SUCH NOTATION WILL NO LONGER BE ENTITLED TO APPRAISAL
RIGHTS AND WILL BE DEEMED TO HAVE ACCEPTED THE TERMS OF THE MERGER. The OTS
shall determine the fair market value of such shares as of the date of the
Merger, exclusive of any

23
<PAGE> 25

element of value arising from the accomplishment or expectation of the Merger.
Colonial Bank shall pay to such stockholders the fair market value as determined
by the OTS.

The costs and expenses of any proceeding under this regulation may be
apportioned and assessed by the OTS as it deems equitable against all or some of
the parties. In making this determination the OTS shall consider whether any
party has acted arbitrarily, vexatiously, or not in good faith in respect to the
rights provided by this section.

Cash, if any, received by a Bank stockholder who dissents to the Merger
will be taxable as having been received as a distribution in redemption of the
stockholder's shares of Bank Common Stock, subject to the provisions and
limitations of the Code. See "Certain Federal Income Tax Consequences."

STOCKHOLDERS OF THE BANK WHO EXERCISE APPRAISAL RIGHTS MAY RECEIVE MORE OR
LESS CONSIDERATION THAN THOSE WHO DO NOT, IF THEIR SHARES ARE APPRAISED FOR MORE
OR LESS THAN THE AGGREGATE CONSIDERATION THEY WOULD HAVE RECEIVED PURSUANT TO
THE MERGER. THE FAILURE OF A HOLDER OF BANK COMMON STOCK TO VOTE AGAINST THE
MERGER WILL NOT ITSELF CONSTITUTE A WAIVER OF THE RIGHT TO RECEIVE PAYMENT FOR
HIS SHARES, NOR WILL A VOTE AGAINST THE MERGER SATISFY THE NOTICE REQUIREMENTS
REFERRED TO ABOVE. A STOCKHOLDER WHO HAS DEMANDED APPRAISAL RIGHTS SHALL
THEREAFTER NEITHER BE ENTITLED TO VOTE SUCH STOCK NOR BE ENTITLED TO THE PAYMENT
OF DIVIDENDS.

If a stockholder does not hold shares directly or of record but instead
holds shares of Bank Common Stock through a bank, broker or other nominee, such
stockholder must act promptly to cause the bank, broker or other nominee, as the
record holder, to follow the steps outlined above properly and in a timely
manner to perfect such stockholder's dissenters' rights. Stockholders who hold
shares of Bank Common Stock through banks, brokers or other nominees are urged
to consult with such banks, brokers or nominees regarding these procedures.

Stockholders who wish to exercise dissenters' rights should consult a legal
advisor before attempting to exercise such rights.

References herein to applicable regulations are summaries of portions
thereof, do not purport to be complete, and are qualified in their entirety by
reference to applicable law. OTS regulation 12 C.F.R. sec. 552.14, is attached
hereto as Appendix B.

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.

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 BancGroup Common Stock to be
issued to such person will contain an appropriate restrictive legend and
appropriate stop 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 $1,466,000, will be amortized by charges or credits to future earnings over a
period of approximately twenty years.

24
<PAGE> 26

COMPARATIVE MARKET PRICES AND DIVIDENDS

BANCGROUP

BancGroup Common Stock is listed for trading on the 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. The Class A
Common Stock had more limited voting rights than the Class B Common Stock. 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
the Nasdaq National Market on February 24, 1995.

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

<TABLE>
<CAPTION>
PRICE AND DIVIDENDS PAID
----------------------------
DIVIDENDS
HIGH LOW (PER SHARE)
---- --- -----------
<S> <C> <C> <C>
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
3rd Quarter................................................ 29 7/8 27 1/2 0.225
4th Quarter................................................ 32 7/8 28 1/2 0.225
1996
1st Quarter................................................ 36 1/2 30 0.27
2nd Quarter (through May 8, 1996).......................... 36 1/8 33 0.27
</TABLE>

On November 20, 1995, the business day immediately prior to the public
announcement of the Merger, the closing price as reported on the NYSE of the
BancGroup Common Stock was $29 per share.

At December 31, 1995, BancGroup's banking subsidiaries accounted for
approximately 98% of BancGroup's consolidated assets. BancGroup derives
substantially all of its income from dividends received from its subsidiary
banks. 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, 10,518 shares of Bank Common Stock have been transferred
since January 1, 1994. The Bank has no knowledge of the sales price, if any, in
such transfers.

The Bank has paid one cash dividend. That dividend was paid in 1994 at the
rate of 15c per share. 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."

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 May 8, 1996, there

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were issued and outstanding a total of 13,575,465 shares of Common Stock. No
shares of Preference Stock are issued and outstanding. 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 $9,373,000 are currently
outstanding and are convertible at any time into 333,333 shares of Common Stock,
subject to adjustment. There are 199,495 shares of Common Stock subject to
exercise under BancGroup's stock option plans. In addition to BancGroup Common
Stock issued in the Merger, BancGroup will issue additional shares of its Common
Stock in two pending acquisitions. See "BUSINESS OF BANCGROUP -- Proposed
Affiliate Banks."

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, and bylaws 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 BancGroup 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 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.

1986 DEBENTURES

BancGroup issued in 1986 its 7 1/2% Convertible Subordinated Debentures due
2011 in the total principal amount of $28,750,000 of which $9,373,000 are
outstanding. The 1986 Debentures were issued under a trust indenture (the "1986
Indenture") between BancGroup and SunTrust Bank, Atlanta, Georgia, as trustee.

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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 333,333 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 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, and (ii) indebtedness which
by its terms states that such indebtedness is subordinate to or equally
subordinate with the 1986 Debentures.

At March 31, 1996, BancGroup's Senior Indebtedness as defined in the 1986
Indenture aggregated approximately $684.6 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 Senior Indebtedness. The 1986 Indenture
does not limit the amount of Senior Indebtedness which BancGroup may incur, nor
does such indenture 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 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
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

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the Related Person, unless the Continuing Directors of BancGroup approve such
Business Combination. A "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, the chairman and president of BancGroup, 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 15% 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 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 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

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<PAGE> 30

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 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 properly exercising dissenters' rights of appraisal or receiving all cash
pursuant to an Election Form, 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 holders of Bank Common Stock
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 Stock Charter and bylaws, the Delaware
General Corporation Law (the "Delaware GCL") and the regulations of the OTS.

DIRECTOR ELECTIONS

The Bank. The Bank's directors are elected to terms of three years with
approximately one-third of the board to be elected annually. Stockholders of the
Bank have cumulative voting rights in the election of directors, which means a
stockholder is entitled to the number of votes as shall equal the number of
directors to be elected multiplied by the number of shares held by such
stockholder. The stockholder may give one candidate all of such votes or may
distribute votes among the directors to be elected as such stockholder
determines.

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. At a meeting of stockholders called expressly for such purpose,
stockholders of the Bank may remove a director with cause upon the affirmative
vote of the holders of at least a majority of the Common Stock entitled to vote.

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.

VOTING

The Bank. Each share of Common Stock of the Bank is entitled to one vote
per share on all matters requiring a stockholder vote, except in the election of
directors, in which case stockholders have cumulative voting rights. See
"Director Elections."

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.

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PREEMPTIVE RIGHTS

The Bank. Holders of the Bank's capital stock do not have preemptive
rights to acquire additional shares of capital stock which the Bank may issue.

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.

DIRECTORS' LIABILITY

The Bank. Neither the Bank's Stock Charter nor bylaws contain any
provisions respecting the personal liability of directors.

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. Neither the Bank's Stock Charter nor bylaws contain any
provisions respecting indemnification of the Bank's directors.

Pursuant to OTS regulations, the Bank shall indemnify any person against
whom an action is brought or threatened because that person is or was a
director, officer or employee of the Bank for any amount for which that person
becomes liable under a judgment and reasonable attorney's fees, actually paid or
incurred by that person in defending or settling such action, or in enforcing
his or her rights under such regulations if he or she obtains a favorable
judgment in such enforcement action. Indemnification shall be made to such
person only if:

(1) Final judgment on the merits is in his or her favor; or

(2) In case of:

(i) Settlement,

(ii) Final judgment against him or her, or

(iii) Final judgment in his or her favor, other than on the merits,
if a majority of the disinterested directors of the Bank determine that
he or she was acting in good faith within the scope of his or her
employment or authority as he or she could reasonably have perceived it
under the circumstances and for a purpose he or she could reasonably
have believed under the circumstances was in the best interests of the
Bank or its members. However, no indemnification shall be made unless
the Bank gives the OTS at least 60 days' notice of its intention to make
such indemnification.

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

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<PAGE> 32

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 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. Special meetings of stockholders of the Bank may be called at
any time by the Chairman of the Board of the Bank, the President, or a majority
of the Board of Directors, and shall be called by the Chairman, the President or
Secretary upon the written request of the holders of at least 10 percent of the
outstanding shares of capital stock. Any action required to be taken at any
meeting of stockholders may be taken without a meeting if a consent, in writing,
setting forth the action to be taken, is given by all stockholders entitled to
vote on such matter.

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. Regulations of the OTS provide that mergers, consolidations and
sales of all or substantially all of the assets of the Bank must be approved by
the affirmative vote of at least two-thirds of the outstanding shares of Bank
Common Stock. Stockholders of the Bank need not authorize a merger or other such
transaction if the Bank is the resulting corporation and if:

(i) The Bank's Stock Charter is not changed;

(ii) Each share of stock outstanding immediately prior to the
effective date of the transaction is to be an identical outstanding share
or a treasury share of the resulting Federal stock association after such
effective date; and

(iii) Either:

(A) No shares of voting stock of the resulting Federal stock
association and no securities convertible into such stock are to be
issued, or delivered under the plan of combination, or

(B) The authorized unissued shares of the treasury shares of voting
stock of the resulting Federal stock association to be issued or
delivered under the plan of combination, plus those initially issuable
upon conversion of any securities to be issued or delivered under such
plan, do not exceed 15% of the total shares of voting stock of such
association outstanding immediately prior to the effective date of the
combination.

BancGroup. The Delaware GCL provides that mergers and sales of
substantially all of the assets 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
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

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<PAGE> 33

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. Amendments to the Bank's Stock Charter must be approved by the
affirmative vote of the holders of at least a majority of the outstanding shares
of Bank Common Stock, after recommendation by the Board of Directors. The Bank's
bylaws may be amended by a vote of at least two-thirds of the Board of Directors
or by at least a majority of the shares of Common Stock voted at a meeting of
stockholders.

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" stockholder 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 Director evaluation of business combination procedures. See "BANCGROUP
CAPITAL STOCK AND DEBENTURES -- Changes in Control."

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 the Bank have the right to exercise dissenters'
rights of appraisal respecting mergers, consolidations and sales of all or
substantially all of the assets of the Bank. For a description of such rights,
see "APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders." Stockholders
of a federal savings bank do not have such appraisal rights if the consideration
to be paid for the shares of the bank in the transaction constitutes only
"qualified consideration" and if the shares of the bank are listed on a national
securities exchange or quoted on the Nasdaq National Market. "Qualified
consideration" means cash, or shares listed on a national securities exchange or
quoted on the Nasdaq National Market, or a combination of both.

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 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, 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 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. Neither the OTS regulations nor Alabama law has a business
combination statute that may have antitakeover effects.

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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 Stock Charter permits the Bank to issue up to
1,000,000 shares of preferred stock, par value $1.00 per share. The shares may
be issued from time to time on such terms as the Bank's Board of Directors may
determine. Among other things, the Board may decide the voting rights (including
the right of the preferred stock to vote as a class), dividend rights,
redemption, and liquidation preferences of the preferred stock to be issued.

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."

OTHER PROVISIONS

The Bank's Stock Charter provides that no shares of capital stock shall be
issued to officers, directors or controlling persons of the Bank other than as a
part of a general public offering unless the issue is approved by at least a
majority of the Bank's shares of Common Stock outstanding. BancGroup's
Certificate has no similar provisions.

EFFECT OF THE MERGER ON BANK STOCKHOLDERS

As of May 24, 1996, the number of stockholders of record of the Bank was
196 and the number of shares of Common Stock outstanding was 399,688. As of May
8, 1996, BancGroup had 13,575,465 shares of Common Stock outstanding with 5,413
stockholders of record.

Assuming at the Effective Date a 10-day average market price per share of
the BancGroup Common Stock of $33.575, calculated as of May 8, 1996, an
aggregate amount of 77,439 shares of BancGroup Common Stock would be distributed
to the stockholders of the Bank pursuant to the Merger. These shares would
represent .57% of the total shares of Common Stock outstanding after the Merger,
not counting shares of BancGroup Common Stock to be issued in other pending
acquisitions.

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."

BancGroup has entered into agreements pursuant to which approximately
2,898,412 additional shares of BancGroup Common Stock will be issued. See
"BUSINESS OF BANCGROUP -- Proposed Affiliate Banks."

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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, 1996, (ii) the condensed
statement of condition of Dothan Federal Savings Bank ("Dothan Federal") as of
March 31, 1996, (iii) the condensed consolidated statement of condition of
Commercial Bancorp of Georgia, Inc. and subsidiaries ("CBG") as of March 31,
1996, (iv) the condensed consolidated statement of condition of Southern Banking
Corporation and subsidiary ("SBC") as of March 31, 1996, (v) adjustments to give
effect to the proposed purchase method acquisition of Dothan Federal and the
proposed pooling of interests with CBG and SBC, and (vi) the pro forma combined
condensed statement of condition of BancGroup and subsidiaries as if such
combination had occurred on March 31, 1996.

These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of condition of
BancGroup and subsidiaries, incorporated by reference herein, and the statements
of condition of Dothan Federal, CBG and SBC, included elsewhere herein. The pro
forma information provided below may not be indicative of future results.

34
<PAGE> 36
<TABLE>
<CAPTION>
MARCH 31, 1996
-------------------------------------------------------------------------
COMMERCIAL
COLONIAL DOTHAN FEDERAL ADJUSTMENTS/ BANCORP OF
BANCGROUP SAVINGS BANK (DEDUCTIONS) SUBTOTAL GEORGIA, INC.
---------- -------------- ------------ ---------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks.............................. $ 140,571 $ 3,854 $ (2,600)(1) $ 141,825 $ 20,753
Interest-bearing deposits............................ 5,003 5,003
Federal funds sold................................... 700 700 22,680
Securities available for sale........................ 172,206 4,901 177,107 20,835
Investment securities................................ 259,165 2,248 (13)(1) 261,400 13,981
Mortgage loans held for sale......................... 193,672 193,672
Loans, net of unearned income........................ 2,945,625 36,679 2,982,304 147,362
Less: Allowance for possible loan losses............. (38,443) (298) (38,741) (2,625)
---------- ------ -------- ---------- ---------
Loans, net........................................... 2,907,182 36,381 2,943,563 144,737
Premises and equipment, net.......................... 58,602 1,026 59,628 5,729
Excess of cost over tangible and intangible assets
acquired, net....................................... 25,825 1,466 (1) 27,291 780
Purchased mortgage servicing rights.................. 88,788 88,788
Other real estate owned.............................. 9,785 9,785 1,413
Accrued interest and other assets.................... 62,894 558 (22)(1) 63,597 4,246
(29)(1)
196 (1)
---------- -------- -------- ---------- ---------
Total Assets.................................. $3,924,393 $ 48,968 $ (1,002) $3,972,359 $ 235,154
========== ======== ======== ========== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits............................................. $2,859,262 $ 42,362 $2,901,624 $ 210,700
FHLB short-term borrowings........................... 515,000 2,083 517,083
Other short-term borrowings.......................... 169,620 169,620
Subordinated debt.................................... 9,341 9,341
Other long-term debt................................. 27,254 27,254
Other liabilities.................................... 75,688 461 $ 460 (1) 76,609 4,036
---------- -------- -------- ---------- ---------
Total liabilities............................. 3,656,165 44,906 460 3,701,531 214,736
Common Stock......................................... 33,850 4 (4)(1) 34,044 1,883
194 (1)
Additional paid in capital........................... 144,334 3,329 (3,329)(1) 146,740 16,323
2,406 (1)
Treasury Stock....................................... (300)
Retained earnings.................................... 90,658 733 (733)(1) 90,658 2,547
Unearned compensation................................ (782) (782)
Unrealized loss on securities........................ 168 (4) 4 (1) 168 (35)
---------- -------- -------- ---------- ---------
Total equity.................................. 268,228 4,062 (1,462) 270,828 20,418
Total liabilities and equity.................. $3,924,393 $ 48,968 $ (1,002) $3,972,359 $ 235,154
========== ======== ======== ========== =========
Capital Ratios:
Capital Ratio....................................... 7.97% 7.95%
Tangible Leverage Ratio............................. 6.38% 6.33%
Tier One Capital Ratio*............................. 8.94% 10.66%
Total Capital Ratio*................................ 10.54% 12.26%

SOUTHERN PRO FORMA
ADJUSTMENTS/ BANKING ADJUSTMENTS/ COMBINED
(DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS) TOTAL
------------ ---------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Cash and due from banks.............................. $ 162,578 $ 16,325 $ 178,903
Interest-bearing deposits............................ 5,003 5,003
Federal funds sold................................... 23,380 22,400 45,780
Securities available for sale........................ 197,942 29,244 227,186
Investment securities................................ 275,381 275,381
Mortgage loans held for sale......................... 193,672 193,672
Loans, net of unearned income........................ 3,129,666 152,362 3,282,028
Less: Allowance for possible loan losses............. (41,366) (1,942) (43,308)
-------- ---------- --------- -------- ----------
Loans, net........................................... 3,088,300 150,420 3,238,720
Premises and equipment, net.......................... 65,357 4,877 70,234
Excess of cost over tangible and intangible assets
acquired, net....................................... 28,071 2,309 30,380
Purchased mortgage servicing rights.................. 88,788 88,788
Other real estate owned.............................. 11,198 11,198
Accrued interest and other assets.................... 67,843 3,233 71,076
-------- ---------- --------- -------- ----------
Total Assets.................................. $ 0 $4,207,513 $ 228,808 $ 0 $4,436,321
======== =========== ========= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits............................................. $3,112,324 $ 209,248 $3,321,572
FHLB short-term borrowings........................... 517,083 517,083
Other short-term borrowings.......................... 169,620 169,620
Subordinated debt.................................... 9,341 9,341
Other long-term debt................................. 27,254 27,254
Other liabilities.................................... 80,645 2,275 82,920
-------- ---------- --------- -------- ----------
Total liabilities............................. 3,916,267 211,523 4,127,790
Common Stock......................................... (1,883)(3) 36,884 3,362 $ (3,362)(5) 40,897
2,840 (2) 4,013 (4)
Additional paid in capital........................... (16,323)(3) 161,806 7,405 (7,405)(5) 168,560
15,066 (2) 6,754 (4)
Treasury Stock....................................... 300 (3)
Retained earnings.................................... 93,205 6,519 99,724
Unearned compensation................................ (782) (782)
Unrealized loss on securities........................ 133 (1) 132
-------- ---------- --------- -------- ----------
Total equity.................................. 0 291,246 17,285 0 308,531
Total liabilities and equity.................. $ 0 $4,207,513 $ 228,808 $ 0 $4,436,321
======== =========== ========= ======== ==========
Capital Ratios:
Capital Ratio....................................... 8.05% 8.06%
Tangible Leverage Ratio............................. 6.45% 6.47%
Tier One Capital Ratio*............................. 10.04% 9.48%
Total Capital Ratio*................................ 11.62% 11.05%
</TABLE>

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

* Based on risk weighted assets

35
<PAGE> 37
PRO FORMA ADJUSTMENTS (IN THOUSANDS):

DOTHAN FEDERAL SAVINGS BANK
(PURCHASE METHOD)

(1) To assign the amount by which the estimated value of the investment in
Dothan Federal 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 Dothan Federal by the issuance of approximately 77,439 shares of
BancGroup Common Stock and $2,600,000 in cash for all of the outstanding 399,688
shares of Dothan Federal as follows:

<TABLE>
<S> <C>
Equity in carrying value of net assets of Dothan Federal.................... $4,062
Adjustments to state assets at fair value:
Write-down prepaid expenses............................................... (22)
Write-down deposit premium................................................ (29)
Write-down investment securities.......................................... (13)
Acquisition accruals:
Miscellaneous legal, accounting, other professional....................... (460)
Tax effect of purchase adjustments.......................................... 196
Goodwill.................................................................... 1,466
------
Total adjustments................................................. 1,138
------
Adjusted equity in carrying value of net assets............................. $5,200
======
Allocated as follows:
Par Value of 77,439 shares issued for all outstanding shares of Dothan
Federal................................................................... $ 194
Estimated amount in excess of par value of 77,439 shares of BancGroup Common
Stock issued for Dothan Federal outstanding shares at an assumed market
value of $33.575 per share (10 day average at May 8, 1996)................ 2,406
Cash of approximately $6.51 per share paid to Dothan
Federal Savings Bank shareholders......................................... 2,600
------
Total purchase price.............................................. $5,200
======
</TABLE>

COMMERCIAL BANCORP OF GEORGIA, INC.
(POOLING OF INTEREST)

(2) To record the issuance of 1,136,180 shares of BancGroup Common Stock in
exchange for all of the outstanding shares of CBG:

<TABLE>
<S> <C>
Commercial Bancorp outstanding shares.................................... 1,853,302
Conversion ratio, determined as follows:
$21.07/$34.37 per share, the 30-day average of the Daily Average market
value of BancGroup common stock on May 8, 1996...................... 0.61306
---------
Colonial BancGroup shares to be issued................................... 1,136,180
=========
Par value of 1,136,180 shares issued at $2.50 per share........... $ 2,840
Shares issued at par value........................................ $ 2,840
Total capital stock of CBG.............................. 17,906
-------
Excess recorded as an increase in contributed capital... 15,066
---------
17,906
</TABLE>

36
<PAGE> 38

(3) To eliminate CBG's capital stock:

<TABLE>
<S> <C>
Common stock, at par value................................................ (1,883)
Contributed capital....................................................... (16,323)
Treasury Stock............................................................ 300
--------
(17,906)
--------
Net change in equity............................................ $ 0
========
</TABLE>

SOUTHERN BANKING CORPORATION
(POOLING OF INTEREST)

(4) To record the issuance of 1,605,235 shares of BancGroup Common Stock in
exchange for all of the outstanding shares and SBC options (other than incentive
stock options to acquire 94,000 shares of SBC common stock) determined as
follows:

<TABLE>
<CAPTION>
OUTSTANDING
SHARES OPTIONS TOTAL
----------- --------- ---------
<S> <C> <C> <C>
Southern Bank outstanding shares and options....... 3,362,000 1,018,000
Conversion ratio per agreement..................... 0.3919 0.2826*
--------- -------
Colonial BancGroup shares to be issued............. 1,317,568 287,667 1,605,235
=========
Par value of 1,605,235 shares issued at $2.50 per share................ $ 4,013
Shares issued at par value.................................... $ 4,013
Total capital stock of SBC.......................... 10,767
-------
Excess recorded as an increase in contributed capital............. 6,754
---------
10,767
</TABLE>

(5) To eliminate SBC's capital stock:

<TABLE>
<S> <C>
Common stock, at par value................................................ (3,362)
Contributed capital....................................................... (7,405)
--------
(10,767)
--------
Net change in equity................................................. $ 0
========
</TABLE>

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

* Assumes no options are exercised prior to the date of combination and that the
weighted average exercise price of the options is $3.32 per share.

37
<PAGE> 39
CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED)

The following summaries include (i) the condensed consolidated statement of
income of Colonial BancGroup and subsidiaries on a historical basis for the
three months ended March 31, 1996 and the year ended December 31, 1995, (ii) the
condensed statement of income of Dothan Federal for the three months ended March
31, 1996 and year ended December 31, 1995, (iii) the condensed consolidated
statement of income of CBG for the three months ended March 31, 1996 and the
year ended December 31, 1995, (iv) the condensed consolidated statement of
income of SBC for the three months ended March 31, 1996 and year ended December
31, 1995, (v)adjustments to give effect to the proposed purchase method
acquisition of Dothan Federal and the proposed pooling of interests with CBG and
SBC, and (vi) the pro forma combined condensed consolidated statements of income
of BancGroup and subsidiaries as if such combinations had occurred on January 1,
1995.

These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of income of
BancGroup and subsidiaries, incorporated by reference herein, and the statements
of income of Dothan Federal, CBG and SBC included elsewhere herein. The pro
forma information provided may not necessarily be indicative of future results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1996
---------------------------------------------------------------------------------------------------------
CONSOLIDATED COMMERCIAL
COLONIAL DOTHAN FEDERAL ADJUSTMENTS/ BANCORP OF ADJUSTMENTS/
BANCGROUP SAVINGS BANK (DEDUCTIONS) SUBTOTAL GEORGIA, INC. (DEDUCTIONS) SUBTOTAL
------------ -------------- ------------ ----------- ------------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........... $ 71,986 $ 924 $ 1 (1) $ 72,873 $ 4,850 $ 0 $ 77,723
(38)(1)
Interest expense.......... 38,580 604 39,184 2,231 41,415
------------ -------- ---------- ----------- ------------ ------------ -----------
Net interest income before
provision for loan
losses.................. 33,406 320 (37) 33,689 2,619 0 36,308
Provision for loan
losses.................. 1,499 15 1,514 16 1,530
------------ -------- ---------- ----------- ------------ ------------ -----------
Net interest income after
provision for loan
losses.................. 31,907 305 (37) 32,175 2,603 0 34,778
------------ -------- ---------- ----------- ------------ ------------ -----------
Noninterest income........ 14,775 27 1 (1) 14,803 544 15,347
Noninterest expense....... 29,570 238 20 (1) 29,828 2,128 31,956
------------ -------- ---------- ----------- ------------ ------------ -----------
Income before income
taxes................... 17,112 94 (56) 17,150 1,019 0 18,169
Income taxes.............. 6,058 37 (13)(1) 6,082 377 6,459
------------ -------- ---------- ----------- ------------ ------------ -----------
Net Income................ $ 11,054 $ 57 $ (43) $ 11,068 $ 642 $ 0 $ 11,710
============ ======== ========== =========== ============ ============ ===========
Average primary shares
outstanding............. 13,546,000 399,688 77,439 13,623,439 1,840,006 1,136,180 14,759,619
(399,688) (1,840,006)
Average fully-diluted
shares outstanding...... 13,884,000 399,688 77,439 13,961,439 2,004,548 1,136,180 15,097,619
(399,688) (2,004,548)
Earnings per share:
Net Income:
Primary............... $ 0.82 $ 0.14 $ 0.81 $ 0.34 $ 0.79
Fully diluted......... $ 0.80 $ 0.14 $ 0.80 $ 0.32 $ 0.78

<CAPTION>
SOUTHERN PRO FORMA
BANKING ADJUSTMENTS/ COMBINED
CORPORATION (DEDUCTIONS) TOTAL
----------- ------------ -----------
<S> <C> <C> <C>
Interest income........... $ 4,425 $ 0 $ 82,148

Interest expense.......... 1,620 43,035
----------- ------------ -----------
Net interest income before
provision for loan
losses.................. 2,805 0 39,113
Provision for loan
losses.................. 55 1,585
----------- ------------ -----------
Net interest income after
provision for loan
losses.................. 2,750 0 37,528
----------- ------------ -----------
Noninterest income........ 781 16,128
Noninterest expense....... 2,162 34,118
----------- ------------ -----------
Income before income
taxes................... 1,369 0 19,538
Income taxes.............. 515 6,974
----------- ------------ -----------
Net Income................ $ 854 $ 0 $ 12,564
========== ============ ============
Average primary shares
outstanding............. 3,647,540 1,605,235 16,364,854
(3,647,540)
Average fully-diluted
shares outstanding...... 3,647,541 1,605,235 16,702,854
(3,647,541)
Earnings per share:
Net Income:
Primary............... $ 0.23 $ 0.77
Fully diluted......... $ 0.23 $ 0.76
</TABLE>

38
<PAGE> 40
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------------------------------------------
CONSOLIDATED COMMERCIAL
COLONIAL DOTHAN FEDERAL ADJUSTMENTS/ BANCORP OF ADJUSTMENTS/
BANCGROUP SAVINGS BANK (DEDUCTIONS) SUBTOTAL GEORGIA, INC. (DEDUCTIONS) SUBTOTAL
------------ -------------- ------------ ----------- ------------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Interest income........... $ 250,900 $ 3,533 $ 3 (1) $ 254,286 $ 18,973 $ 0 $ 273,259
(150)(1)
Interest expense.......... 132,458 2,240 134,698 8,389 143,087
------------ -------- ---------- ----------- ------------ ------------ -----------
Net interest income before
provision for loan
losses.................. 118,442 1,293 (147) 119,588 10,584 0 130,172
Provision for loan
losses.................. 5,480 60 5,540 1,345 6,885
------------ -------- ---------- ----------- ------------ ------------ -----------
Net interest income after
provision for loan
losses.................. 112,962 1,233 (147) 114,048 9,239 0 123,287
------------ -------- ---------- ----------- ------------ ------------ -----------
Noninterest income........ 50,175 73 4 (1) 50,252 2,237 52,489
Noninterest expense....... 103,230 1,041 79 (1) 104,350 9,962 114,312
------------ -------- ---------- ----------- ------------ ------------ -----------
Income before income
taxes................... 59,907 265 (222) 59,950 1,514 0 61,464
Income taxes.............. 21,113 113 (50)(1) 21,176 846 22,022
------------ -------- ---------- ----------- ------------ ------------ -----------
Net Income................ $ 38,794 $ 152 $ (172) $ 38,774 $ 668 $ 0 $ 39,442
============ ======== ========== ============ ============ ============ ===========
Average primary shares
outstanding............. 12,418,000 399,688 77,439 12,495,439 1,826,711 1,136,180 13,631,619
(399,688) (1,826,711)
Average fully-diluted
shares outstanding...... 13,181,000 399,688 77,439 13,258,439 2,034,063 1,136,180 14,394,619
(399,688) (2,034,063)
Earnings per share:
Net Income:
Primary............... $ 3.12 $ 0.38 $ 3.10 $ 0.37 $ 2.89
Fully diluted......... $ 3.02 $ 0.38 $ 3.01 $ 0.33 $ 2.81

SOUTHERN PRO FORMA
BANKING ADJUSTMENTS/ COMBINED
CORPORATION (DEDUCTIONS) TOTAL
----------- ------------ -----------

<S> <C> <C> <C>
Interest income........... $ 17,267 $ 0 $ 290,526

Interest expense.......... 6,133 149,220
----------- ------------ -----------
Net interest income before
provision for loan
losses.................. 11,134 0 141,306
Provision for loan
losses.................. 525 7,410
----------- ------------ -----------
Net interest income after
provision for loan
losses.................. 10,609 0 133,896
----------- ------------ -----------
Noninterest income........ 1,978 54,467
Noninterest expense....... 9,214 123,526
----------- ------------ -----------
Income before income
taxes................... 3,373 0 64,837
Income taxes.............. 1,282 23,304
----------- ------------ -----------
Net Income................ $ 2,091 $ 0 $ 41,533
=========== ============ ===========
Average primary shares
outstanding............. 3,356,500 1,605,235 15,236,854
(3,356,500)
Average fully-diluted
shares outstanding...... 3,356,500 1,605,235 15,999,854
(3,356,500)
Earnings per share:
Net Income:
Primary............... $ 0.62 $ 2.73
Fully diluted......... $ 0.62 $ 2.66
</TABLE>

39
<PAGE> 41

PRO FORMA ADJUSTMENTS
(IN THOUSANDS)

<TABLE>
<CAPTION>
THREE MONTHS YEAR
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
<S> <C> <C> <C>
Adjustments Applicable to Dothan Federal Savings Bank:
(1) To amortize the assignment of estimated fair value in excess of
the carrying amount of assets acquired. The amortization consists
of the following:
Increases in income:
Reduction of amortization of deposit premium (8 year period)..... $ 1 $ 4
Amortization of write-down of investment securities (5 year
period)...................................................... 1 3
Decreases in income:
Earnings forgone on $2,600,000 cash at an average interest rate
5.75%........................................................ (38) (150)
---- ------
Total.................................................. (36) (143)
---- ------
Increase in expense:
Amortization of goodwill (20 year period)........................ (20) (79)
---- ------
Total.................................................. (20) (79)
---- ------
Net decrease in income before tax................................ (56) (222)
---- ------
Tax effect of the pro forma adjustments (other than goodwill
amortization).................................................. 13 50
---- ------
Net decrease in income........................................... $(43) $ (172)
---- ------
</TABLE>

40
<PAGE> 42

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

PRO FORMA SELECTED FINANCIAL DATA (UNAUDITED)

The following pro forma information includes consolidated BancGroup and
subsidiaries, Dothan Federal, consolidated CBG, and consolidated SBC.

<TABLE>
<CAPTION>
FOR THREE FOR THE YEARS ENDED DECEMBER 31,
MONTHS ENDED ----------------------------------------------------
MARCH 31, 1996 1995 1994 1993 1992 1991
-------------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income......................... $ 82,148 $290,526 $214,845 $163,902 $149,361 $152,874
Interest expense........................ 43,035 149,220 92,465 67,843 69,005 89,357
-------- -------- -------- -------- -------- --------
Net interest income..................... 39,113 141,306 122,380 96,059 80,356 63,517
Provision for possible loan losses...... 1,585 7,410 7,566 8,970 8,966 7,169
-------- -------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses.................. 37,528 133,896 114,814 87,089 71,390 56,348
Noninterest income...................... 16,128 54,467 47,811 43,503 37,104 32,744
Noninterest expense..................... 34,119 123,526 116,755 99,449 86,635 73,115
-------- -------- -------- -------- -------- --------
Income before income taxes.............. 19,537 64,837 45,870 31,143 21,859 15,977
Applicable income taxes................. 6,974 23,304 15,972 9,899 5,699 4,197
-------- -------- -------- -------- -------- --------
Income before extraordinary items and
the cumulative effect of a change in
accounting for income taxes........... 12,563 41,533 29,898 21,244 16,160 11,780
Extraordinary items, net of income
taxes................................. -- -- -- (463) -- 831
Cumulative effect of a change in
accounting for income
taxes................................. -- -- -- 3,650 -- --
-------- -------- -------- -------- -------- --------
Net income.............................. $ 12,563 $ 41,533 $ 29,898 $ 24,431 $ 16,160 $ 12,611
======== ======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE
Income before extraordinary items and
the cumulative effect of a change in
accounting for income taxes:
Primary............................... $ 0.77 $ 2.73 $ 2.02 $ 1.72 $ 1.37 $ 1.01
Fully-diluted......................... $ 0.76 $ 2.66 $ 1.99 $ 1.70 $ 1.37 $ 0.90
Net income:
Primary............................... $ 0.77 $ 2.73 $ 2.02 $ 1.98 $ 1.37 $ 1.08
Fully-diluted......................... $ 0.76 $ 2.66 $ 1.99 $ 1.94 $ 1.37 $ .97
Average shares outstanding:
Primary............................... 16,365 15,237 14,815 12,349 11,835 11,724
Fully-diluted......................... 16,703 16,000 15,582 13,442 13,146 13,066
Cash dividends per common share:(1)
Common................................ $ 0.27 $ 0.675 -- -- -- --
Class A............................... -- $ 0.225 $ 0.80 $ 0.71 $ 0.67 $ 0.63
Class B............................... -- $ 0.125 $ 0.40 $ 0.31 $ 0.27 $ 0.23
======== ======== ======== ======== ======== ========
</TABLE>

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

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

41
<PAGE> 43

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

PRO FORMA SELECTED FINANCIAL DATA (UNAUDITED) -- (CONTINUED)

The following Pro Forma information includes consolidated Colonial
BancGroup and subsidiaries, Dothan Federal, consolidated CBG, and consolidated
SBC.

<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED FOR THE YEARS ENDED DECEMBER 31,
MARCH 31, --------------------------------------------------------------
1996 1995 1994 1993 1992 1991
---------------- ---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
At year-end:
Total assets............................ $4,436,367 $4,249,742 $3,263,165 $3,148,493 $2,065,873 $1,895,308
Loans, net of unearned income........... 3,282,055 3,211,349 2,384,566 1,998,144 1,362,208 1,221,168
Mortgage loans held for sale............ 193,672 110,486 60,536 361,496 144,215 105,219
Deposits................................ 3,321,572 3,245,996 2,538,569 2,478,525 1,729,784 1,630,469
Long-term debt.......................... 27,254 29,038 69,203 57,686 23,449 27,890
Shareholders' equity.................... 308,531 292,064 227,633 200,989 126,552 114,039
Average daily balances:
Total assets............................ 4,297,486 3,705,572 3,118,702 2,420,879 2,013,982 1,813,095
Interest-earning assets................. 3,468,892 3,379,930 2,812,788 2,141,925 1,644,962 1,527,523
Loans, net of unearned income........... 3,024,445 2,743,628 2,173,453 1,527,234 1,213,856 1,141,760
Mortgage loans held for sale............ 123,470 97,511 131,121 241,683 118,510 65,373
Deposits................................ 2,347,916 2,866,791 2,506,240 1,909,148 1,576,154 1,474,003
Shareholders' equity.................... 262,473 254,950 218,167 146,816 120,798 105,930
Book value per share at year-end.......... 18.86 18.32 15.38 13.75 10.79 9.78
Tangible book value per share at
year-end................................ 17.00 16.39 14.28 12.63 9.85 8.49
========== ========= ========= ========= ========= =========
SELECTED RATIOS
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes to:
Average assets.......................... 0.29% 1.12% 0.96% 0.88% 0.80% 0.65%
Average shareholders' equity............ 4.16 16.29 13.70 14.47 13.38 11.12
Net income to:
Average assets.......................... 0.29 1.12 0.96 1.01 0.80 0.70
Average shareholders' equity............ 4.16 16.29 13.70 16.64 13.38 11.91
Efficiency ratio.......................... 61.76 63.10 68.60 71.26 73.75 75.95
Dividend payout ratio..................... 29.54 25.33 24.86 19.84 25.83 30.62
Average equity to average total assets.... 7.03 6.88 7.00 6.06 6.00 5.84
Allowance for possible loan losses to
total loans (net of unearned income).... 1.32 1.30 1.62 1.64 1.62 1.50
</TABLE>

42
<PAGE> 44

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

SELECTED INTERIM FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>
MARCH 31, MARCH 31,
1996 1995
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
STATEMENT OF CONDITION SUMMARY
Total assets...................................................... $3,924,393 $3,014,654
Loans, net of unearned income..................................... 2,945,625 2,255,647
Total earnings assets............................................. 3,576,371 2,739,092
Deposits.......................................................... 2,859,262 2,295,841
Shareholders' equity.............................................. 268,228 205,886
Book value per share.............................................. $ 19.81 $ 16.86
---------- ----------
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------------
1996 1995
---------- ----------
<S> <C> <C>
EARNINGS SUMMARY
Net interest income (taxable equivalent).......................... $ 33,982 $ 27,779
Provision for loan losses......................................... 1,499 1,067
Noninterest income................................................ 14,775 10,063
Noninterest expense............................................... 29,570 23,402
Net income........................................................ 11,054 8,301
Average primary shares outstanding................................ 13,546 12,049
Average fully diluted shares outstanding.......................... 13,884 12,818
Per common share:
Fully-diluted earnings:
Net Income................................................... $ .80 $ .67
Dividends:
Common Stock................................................. 0.27 N/A
Class A...................................................... N/A 0.225
Class B...................................................... N/A 0.125
---------- ----------
SELECTED RATIOS
Return on average assets.......................................... 1.17% 1.18%
Return on average equity.......................................... 16.94 17.16
Efficiency ratio.................................................. 60.65 61.84
Equity to assets.................................................. 6.83 6.83
Total capital..................................................... 7.97 8.44
Tangible leverage................................................. 6.42 6.67
---------- ----------
</TABLE>

43
<PAGE> 45

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

SELECTED FINANCIAL DATA

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
Interest income............................. $250,900 $187,230 $141,572 $130,624 $138,969
Interest expense............................ 132,458 82,549 59,517 60,576 81,486
-------- -------- -------- -------- --------
Net interest income......................... 118,442 104,681 82,055 70,048 57,483
Provision for possible loan losses.......... 5,480 6,481 7,945 7,979 6,364
-------- -------- -------- -------- --------
Net interest income after provision for
possible loan losses...................... 112,962 98,200 74,110 62,069 51,119
Noninterest income.......................... 50,175 44,243 40,433 34,727 31,271
Noninterest expense......................... 103,230 100,791 86,520 75,529 65,996
-------- -------- -------- -------- --------
Income before income taxes.................. 59,907 41,652 28,023 21,267 16,394
Applicable income taxes..................... 21,113 14,342 8,886 5,715 4,175
-------- -------- -------- -------- --------
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes............... 38,794 27,310 19,137 15,552 12,219
Extraordinary items, net of income taxes.... -- -- (463) -- 831
Cumulative effect of a change in accounting
for income taxes.......................... -- -- 3,219 -- --
-------- -------- -------- -------- --------
Net income.................................. $ 38,794 $ 27,310 $ 21,893 $ 15,552 $ 13,050
======== ======== ======== ======== ========
EARNINGS PER COMMON SHARE
Income before extraordinary items and the
cumulative effect of a change in
accounting for income taxes:
Primary................................... $ 3.12 $ 2.28 $ 2.01 $ 1.72 $ 1.37
Fully-diluted............................. $ 3.02 $ 2.23 $ 1.96 $ 1.71 $ 1.37
Net income:
Primary................................... $ 3.12 $ 2.28 $ 2.30 $ 1.72 $ 1.47
Fully-diluted............................. $ 3.02 $ 2.23 $ 2.21 $ 1.71 $ 1.47
Average shares outstanding:
Primary................................... 12,418 11,996 9,530 9,016 8,905
Fully-diluted............................. 13,181 12,763 10,623 10,327 10,247
Cash dividends per common share:(1)
Common.................................... $ 0.675
Class A................................... $ 0.225 $ 0.80 $ 0.71 $ 0.67 $ 0.63
Class B................................... $ 0.125 $ 0.40 $ 0.31 $ 0.27 $ 0.23
======== ======== ======== ======== ========
</TABLE>

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

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

44
<PAGE> 46

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

SELECTED FINANCIAL DATA -- (CONTINUED)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF CONDITION
At year-end:
Total assets....................... 3,741,217 $2,838,343 $2,822,521 $1,796,246 $1,687,177
Loans, net of unearned income...... 2,875,581 2,094,028 1,771,989 1,172,151 1,093,728
Mortgage loans held for sale....... 110,486 60,536 361,496 144,215 105,219
Deposits........................... 2,785,958 2,171,464 2,190,998 1,493,479 1,452,344
Long-term debt..................... 29,038 69,042 57,397 22,979 27,225
Shareholders' equity............... 253,148 191,551 172,764 100,406 88,429
Average daily balances:
Total assets....................... 3,239,312 $2,726,710 $2,119,660 $1,764,397 $1,643,622
Interest-earning assets............ 2,958,204 2,458,568 1,871,254 1,540,926 1,450,115
Loans, net of unearned income...... 2,428,823 1,906,385 1,315,910 1,136,124 1,094,096
Mortgage loans held for sale....... 97,511 131,121 241,683 118,510 65,373
Deposits........................... 2,451,253 2,158,532 1,644,658 1,476,668 1,403,538
Shareholders' equity............... 216,256 182,823 119,790 94,833 84,423
Book value per share at year-end..... 19.35 $ 16.08 $ 14.64 $ 11.27 $ 10.00
Tangible book value per share at
year-end........................... 17.34 14.71 13.25 10.60 9.21
========= ========= ========= ========= =========
SELECTED RATIOS
Income before extraordinary items and
the cumulative effect of a change
in accounting for income taxes to:
Average assets..................... 1.20% 1.00% 0.90% 0.88% 0.74%
Average shareholders' equity....... 17.94 14.94 15.98 16.40 14.47
Net income to:
Average assets..................... 1.20 1.00 1.03 0.88 0.79
Average shareholders' equity....... 17.94 14.94 18.28 16.40 15.46
Efficiency ratio..................... 60.32 66.68 69.50 70.64 72.52
Dividend payout ratio................ 27.12 27.21 25.33 26.85 31.60
Average equity to average total
assets............................. 6.68 6.70 5.65 5.37 5.14
Total nonperforming assets to net
loans, other real estate and
repossessions...................... 0.78 0.90 1.31 1.34 1.07
Net charge-offs to average loans..... 0.13 0.09 0.33 0.47 0.51
Allowance for possible loan losses to
total loans (net of unearned
income)............................ 1.28 1.60 1.62 1.60 1.48
Allowance for possible loan losses to
nonperforming loans................ 271% 314% 347% 246% 246%
========= ========= ========= ========= =========
</TABLE>

45
<PAGE> 47

THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES

SELECTED QUARTERLY FINANCIAL DATA 1995-1994

<TABLE>
<CAPTION>
1995 1994
--------------------------------------- ---------------------------------------
DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
------- -------- ------- -------- ------- -------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income.......................... $70,667 $65,560 $60,664 $54,009 $50,870 $47,180 $45,779 $43,401
Interest expense......................... 38,410 35,124 32,093 26,831 23,341 20,439 19,915 18,854
------- ------- ------- ------- ------- ------- ------- -------
Net interest income...................... 32,257 30,436 28,571 27,178 27,529 26,741 25,864 24,547
Provision for loan losses................ 2,050 1,265 1,098 1,067 1,767 1,818 1,448 1,448
------- ------- ------- ------- ------- ------- ------- -------
Net interest income after provision for
loan losses............................ 30,207 29,171 27,473 26,111 25,762 24,923 24,416 23,099
Net income............................... $10,041 $10,202 $10,250 $ 8,301 $ 6,644 $ 7,078 $ 6,740 $ 6,848
------- ------- ------- ------- ------- ------- ------- -------
Net income
Primary................................ $ 0.78 $ 0.83 $ 0.83 $ 0.69 $ 0.55 $ 0.59 $ 0.56 $ 0.57
Fully-diluted.......................... 0.75 0.80 0.80 0.67 0.54 0.58 0.55 0.56
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>

46
<PAGE> 48
DOTHAN FEDERAL SAVINGS BANK

SELECTED INTERIM FINANCIAL DATA
(UNAUDITED)

FINANCIAL CONDITION DATA:

<TABLE>
<CAPTION>
MARCH 31,
-----------------------
Total Amount of: 1996 1995
-------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Assets........................................................ $48,968 $45,702
Investments(1)................................................ 11,002 8,443
Loans Receivable, net......................................... 36,381 35,465
Deposits...................................................... 42,362 35,011
FHLB Advances................................................. 2,083 6,333
Retained Earnings............................................. 733 595
------- -------
Number of Full Service Facilities............................. 1 1
------- -------
</TABLE>

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

(1) Consist of Interest Bearing Deposits in Other Banks, Marketable Securities
and Cash

OPERATING DATA:

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Interest and Dividend Income................................... $ 2,716 $ 2,406
Interest Expense............................................... 1,803 1,327
------- -------
Net Income Before Loan Loss Provision.......................... 913 1,079
------- -------
Provision for Loan Loss........................................ 45 45
Non-Interest Income............................................ 82 65
Non-Interest Expense........................................... 731 763
------- -------
Income Before Income Taxes..................................... 219 336
Provision For Income Taxes..................................... 91 130
------- -------
Net Income..................................................... $ 128 $ 206
======= =======
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1996 1995
------- -------
<S> <C> <C>
Selected Statistical Data:
Return on Assets............................................. 0.28% 0.49%
Equity to Assets............................................. 8.51% 8.80%
Earnings per share............................................. $ 0.32 $ 0.52
Dividends Paid................................................. N/A N/A
</TABLE>

47
<PAGE> 49

DOTHAN FEDERAL SAVINGS BANK

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

Comparison of the Nine Months Ended March 31, 1996 and 1995

FINANCIAL CONDITION

ASSETS. Total assets increased $4,310,433 from $44,657,061 at June 30,
1995 to $48,967,494 at March 31, 1996. The increase was due to an increase in
loans and investments of $1,293,312 and a increase in cash of $2,940,185. Total
assets increased $5,520,198 from $40,182,106 as of June 30, 1994 to $45,702,304
at March 31, 1995. The net increase was primarily due to an increase in loans
and investments of $4,282,594.

LIABILITIES. Total liabilities were $44,905,475 at March 31, 1996, an
increase of $4,146,324 from June 30, 1995, and were $41,899,793 at March 31,
1995, a $5,371,007 increase from June 30, 1994. Both the 1995 and 1996 increases
were due to increases of deposits and borrowed money of $5,319,608 and
$4,151,836, respectively.

CAPITAL. Capital as of March 31, 1996 totaled $4,062,019, a $164,109
increase from capital of $3,897,910 at June 30, 1995. The net increase consists
of net income of $128,090 and a $36,018 adjustment in unrealized gains on
securities. Capital as of March 31, 1995 totaled $3,802,511, a $149,191 increase
from capital of $3,653,320 at June 30, 1994. The net increase consists of net
income of $206,853 less cash dividends declared of $59,953, and a $2,291
adjustment in unrealized losses on securities.

RESULTS OF OPERATIONS

SUMMARY. The Bank's net income decreased $78,763 from $206,853 or $.52 per
share to $128,090 or $.32 per share for the nine months ended March 31, 1996 and
1995, respectively. The decrease can be attributed to a $165,400 decrease in net
interest income.

NET INTEREST INCOME. Net interest income decreased from $1,078,502 for the
nine months ended March 31, 1995, to $913,096 for the same period of 1996.
Interest earning assets increased $4,804,290 to $43,846,931 in the nine months
ended March 31, 1995 and increased $4,132,089 to $47,281,649 during the same
period in 1996. Interest bearing liabilities increased $5,157,225 to $41,344,425
in the nine months ended March 31, 1995 and increased $4,075,550 to $44,445,515
during the same period in 1996.

PROVISION FOR LOAN LOSSES. During the nine months ended March 31, 1995 and
1996, the Bank added $45,000 to the allowance for loan losses. Even though the
Bank's asset quality continues to be strong, the Bank's management and Board of
Directors feels that a monthly increase of $5,000 would help to strengthen the
Bank's allowance due to higher risk commercial loans being portfolioed in 1996.

NON-INTEREST INCOME. For the nine months ended March 31, 1996, the Bank's
non-interest income increased $16,458 to $81,628 compared to the same period in
1995. The increase is primarily due to a $10,000 payment received to resolve a
legal matter.

NON-INTEREST EXPENSE. Non-interest expense decreased $31,847 to $730,464
for the first nine months of 1996 from $762,311 for the same period in 1995. The
decrease is primarily due to a $9,602 decrease in compensation expense offset by
a $10,128 increase in consulting fees.

PROVISION FOR INCOME TAXES. The provision for income taxes for the nine
months ended March 31, 1996 and 1995 was $91,170 and $129,508, respectively. The
income tax expense expressed as percent of income before income taxes was 41.59%
for 1996 and 38.51% for 1995.

48
<PAGE> 50

DOTHAN FEDERAL SAVINGS BANK

SELECTED FINANCIAL DATA

FINANCIAL CONDITION DATA:

<TABLE>
<CAPTION>
JUNE 30,
-------------------
TOTAL AMOUNT OF: 1995 1994
----------------------------------------------------------------- ------- -------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assets........................................................... $44,657 $40,182
Investments(1)................................................... 7,692 9,035
Loans Receivable, net............................................ 35,457 29,917
Deposits......................................................... 37,627 32,191
FHLB Advances.................................................... 2,667 3,833
Retained Earnings................................................ 605 448
------- -------
Number of Full Service Facilities................................ 1 1
------- -------
</TABLE>

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

(1) Consist of Interest Bearing Deposits in Other Banks, Marketable Securities
and Cash

OPERATING DATA:

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1995 1994 1993
------ ------ ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Interest and Dividend Income................................. $3,293 $3,160 $3,088
Interest Expense............................................. 1,874 1,460 1,510
------ ------ ------
Net Income Before Loan Loss Provision........................ 1,419 1,700 1,578
------ ------ ------
Provision For Loan Loss...................................... 60 60 90
Non-Interest Income.......................................... 58 71 69
Non-Interest Expense......................................... 1,057 956 921
------ ------ ------
Income Before Income Taxes................................... 360 755 636
Provision for Income Taxes................................... 143 278 0
------ ------ ------
Net Income......................................... $ 217 $ 477 $ 636
====== ====== ======
</TABLE>

SELECTED STATISTICAL DATA:

<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
----------------
1995 1994
------ -----
<S> <C> <C>
Return on Assets (net earnings divided by average total assets)..... 0.49% 1.18%
Equity-to-Assets Ratio (average equity divided by average total
assets)........................................................... 8.46% 8.68%
Allowance for possible loan losses as a percent of total loans...... 0.72% 0.71%
Cash Dividends per share............................................ $ 0.15 NA
Dividend Payout ratio (dividend declared per share dividend by net
income per share)................................................. 27.78% NA
Earnings per share.................................................. $ 0.54 $1.19
</TABLE>

49
<PAGE> 51

DOTHAN FEDERAL SAVINGS BANK

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

INTRODUCTION

The following discussion and financial information is presented to aid the
understanding of the current financial position and results of operations of
Dothan Federal Savings Bank, Dothan, Alabama (the "Bank") and should be read in
conjunction with the Financial Statements and Notes. With respect to the figures
for the years ended June 30, 1995 and 1994 and for the three month periods ended
September 30, 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 has one banking facility located in Houston County, Alabama.

As of and For the Years Ended June 30, 1995 and 1994

FINANCIAL CONDITION

ASSETS. The total assets of the Bank were $44,657,061 at June 30, 1995, a
$4,474,955 increase from the 1994 year end assets of $40,182,106. At June 30,
1995, earning assets totaled $42,606,060 or 95.41% of total assets, compared to
$38,554,768, or 95.95% at June 30, 1994.

The Bank's investment securities portfolio decreased from $8,221,091 at
June 30, 1994 to $6,778,919 at year end 1995. The primary reason for the
decrease was normal principal repayments and maturities.

During 1995, the average yield on interest bearing deposits in other banks
increased from an average rate of 3.47% in 1994 to an average of 5.91%. The
balance of interest bearing deposits in other banks decreased from $417,151 at
June 30, 1994 to $369,732 at June 30, 1995. The decrease was due mainly to the
purchase of adjustable rate mortgage loans to help improve the Bank's interest
rate risk.

Total loans, net of unearned income, increased by $5,584,292 during 1995,
or 18.53% from the June 30, 1994 total of $30,128,839. Mortgage loans increased
$4,118,242 or 15.31%. Commercial non-real estate loans decreased by $716,620 or
26.97%. Consumer loans increased $944,252 or 34.05%. The increase in loan demand
was caused by an increase in rates during the first quarter, which caused
consumers to enter the market early in the year and take advantage of lower
rates while they could.

An allowance is established for uncollectible interest on loans that are 60
days past due based on management's periodic evaluations. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized to the extent that cash payments
are received until, in management's judgment, the borrower's ability to make
periodic interest and principal payments has been demonstrated, in which case
the loan is returned to accrual status. Loans that had been placed on nonaccrual
status at June 30, 1995 and 1994 totaled $145,531 and $10,452, respectively.

The Allowance for loan losses is maintained through provisions charged to
expense at levels which management considers adequate to absorb losses inherent
in the loan portfolio. The allowance is decreased by charge-offs, net of
recoveries. Management's evaluation of the allowance includes a review of all
loans for which full collectibility is not reasonably assured and considers,
among other factors, prior years' loss experience, economic conditions,
distribution of loans by risk class, and the estimated value of underlying
collateral. Though management believes the allowance for loan losses to be
adequate, the ultimate losses may vary from these evaluations; however, the
allowance is reviewed periodically and, as adjustments become necessary, they
are reported in earnings in the periods in which they become known.

The Bank's allowance for loan losses at June 30, 1995 and 1994, was
$255,722 and $212,313, respectively, with the corresponding ratios of allowance
to total loans being .72% and .71%. Net charge-offs totaled $16,591 and $25,023
in 1995 and 1994, respectively, representing .05% and .08% of net loans.

50
<PAGE> 52

DEPOSITS. The Bank relies on deposits to fund loans and other investments.
Total deposits at June 30, 1995 were $37,627,012, an increase of $5,435,528 or
16.88% from June 30, 1994. Demand and time deposit accounts at June 30, 1995
were $2,837,515 and $28,852,755, respectively, representing a decrease of
$68,154 and an increase of $6,503,415, respectively. Savings and money market
accounts totaled $5,936,742 at June 30, 1995, representing a decrease of
$999,733. The decrease in savings and money market accounts and increase in time
deposits was due to customers withdrawing their funds from the low yielding
savings accounts and depositing them in higher yielding time deposits.

LIQUIDITY. Liquidity refers to the ability of the Bank to meet 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 normally meets it short-term liquidity requirements with interest
bearing deposits in other banks and short term government securities; however,
occasionally it may become necessary to borrow from the Federal Home Loan Bank
to meet short-term cash flow needs. At June 30, 1995, the Bank's average
regulatory liquidity ratio was 8.65% which is 3.65% above the OTS's Requirement
of 5.00%.

The Bank's liquid assets as of June 30, 1995 totaled $2,526,392, down from
$3,415,856 on June 30, 1994. Management considers the Bank's liquidity sources
to be adequate to meet its current and projected needs.

The Bank's total outstanding advances from the FHLB of Atlanta were
$2,666,667 as of June 30, 1995 compared to $3,833,333 on June 30, 1994. This
decrease of $1,166,666 was due to the repayment of maturing advances with funds
received from increased deposits.

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 dividends to its
shareholders.

The Bank's capital at June 30, 1995 totaled $3,897,910 compared to
$3,653,320 in 1994. This growth in the Bank's capital has been through the
retention of internally generated earnings. Total capital as expressed as a
percent of total assets as of June 30, 1995 and 1994 was 8.73% and 9.09%,
respectively.

As a federally chartered savings bank, the Bank is required by its primary
regulator, the Office of Thrift Supervision ("OTS"), to maintain capital
sufficient to meet three requirements, as defined: (1) a tangible capital
requirement equal to 1.5% of adjusted total assets; (2) a leverage or core
capital requirement of 3% of adjusted total assets, though it is anticipated
that most institutions will be required by the regulators to maintain capital of
an additional 100 to 200 basis points; and (3) a risk-based capital requirement
equal to 8% of risk-weighted assets, which were approximately $21,895,200 at
June 30, 1995. Assets and off-balance sheet commitments are assigned a
credit-risk weighting based upon their relative risk ranging from 0% for assets
backed by the full faith and credit of the United States Government or that pose
no credit risk to the Bank, to the 100% for assets such as commercial loans,
delinquent, or repossessed assets.

51
<PAGE> 53

The following presents the Bank's capital levels and ratios compared to its
minimum capital requirements as of June 30, 1995:

<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
(UNAUDITED)
<S> <C> <C>
Tangible capital, as defined................................... $3,903,946 8.74%
Required minimum............................................... 669,946 1.5
---------- -----
Excess............................................... $3,234,000 7.24%
========= =====
Core capital, as defined....................................... $3,903,946 8.74%
Required Minimum(a)............................................ 1,339,893 3.00
---------- -----
Excess............................................... $2,564,053 5.74%
========= =====
Risk-based capital............................................. $4,039,268 18.45%
Required Minimum............................................... 1,751,616 8.00
---------- -----
Excess............................................... $2,287,652 10.45%
========= =====
</TABLE>

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

(a) The required minimum based on 5% would be $2,233,155 leaving an excess of
$1,670,791.

Capital requirements continue to be under study by the OTS. Management
continues to monitor these requirements and contemplated changes and believes
that the Bank will continue to exceed its regulatory minimum requirements.

The Bank has not been required by the OTS to incorporate an interest rate
risk component to the risk-based capital requirement. This regulation requires a
deduction from risk-based capital based on an institution's exposure to interest
rate risk. Management believes the Bank would continue to exceed its regulatory
minimum requirements if the interest rate risk component is ever required.

RESULTS OF OPERATIONS

For the year ended June 30, 1995 the Bank recorded net income of $217,207
which represents a 54.47% decrease from 1994 net income of $477,048 and a 65.83%
decrease from 1993 net income at $635,747. Earnings per share were $0.54, $1.19
and $1.59, respectively, for the years ended June 30, 1995, 1994 and 1993.

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 included in this section details the distribution of average
assets, liabilities and shareholders' equity, with the interest rate
differentials for the Bank for the two years ended June 30, 1995 and 1993.

Interest income for 1995 of $3,293,441 represents a 4.23% increase over
1994 interest income of $3,159,905. The increase in income occurred as a result
of an increase in the volume of earning assets of $4,051,292 from 1994 to 1995.

Interest income on loans represents the largest source of revenue for the
Bank. Interest income on loans increased from $2,797,004 in 1994 to $2,873,845
in 1995. This $76,841 or 2.75% increase was due to an increase in net loans of
$5,540,883 even though the average yield on loans decreased from 9.05% to 8.37%
during the year.

Even though investment securities decreased by $1,442,172 in 1995 interest
income on investment securities increased by $52,068 in 1995 over 1994. This
increase occurred due to the maturing of lower yielding securities and the
repricing of adjustable mortgage backed securities to a higher rate.

52
<PAGE> 54

Interest income on interest bearing deposits in other banks in 1995
increased from $32,248 in 1994 to $36,875. This increase was due to the increase
in the yield on these deposits in 1995 to 5.91% compared to 3.47% during 1994.

Interest expense is the Bank's largest single expense category. In 1995,
interest expense totaled $1,874,878, a 28.45% increase from the 1994 interest
expense of $1,459,562. This increase was due to the increased volume of deposits
and FHLB borrowings, and slightly higher rates.

The resulting net interest income for 1995 was $1,418,563, a 16.57%
decrease from the 1994 net interest income of $1,700,343. This decrease was due
to interest bearing liabilities repricing at a faster rate than interest earning
assets. This timing difference would lead to lower earnings in a time of
increasing interest rates.

PROVISION FOR LOAN LOSSES. The provision for loan losses in 1995 and 1994
was $60,000. The purpose of the provision for loan losses is to replace
reductions in 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 fees are deposit service charge,
safe deposit box rent, and net gains on the sale of assets.

Total non-interest income decreased $13,039 in 1995 to $58,214. This was
primarily due to decreased gains on the sale of mortgage loans during the year.

NON-INTEREST EXPENSE. Total non-interest expense for 1995 totaled
$1,056,644 compared to $956,423 for the previous year, an increase of $100,221
or 10.48%. The majority of the increase was due to the implementation of a
profit sharing plan for the Bank's employees. Payments under the plan amounted
to $18,954 during 1995.

INCOME TAX EXPENSE. Income before taxes for 1995 was $360,133, a 52.31%
decrease from the 1994 income before taxes of $755,173. The income tax expense
expressed as a percent of income before taxes was 39.69% and 36.83% for 1995 and
1994, respectively. The income tax expense for 1995 totaled $142,926 compared to
$278,125 for 1994. The Bank did not begin recording a provision for income taxes
until July, 1993 due to the utilization of net operating loss carry forwards.
The provision for income taxes includes deferred taxes on temporary differences
between income tax and financial accounting.

NEW ACCOUNTING STANDARDS

On June 30, 1994, the Bank adopted Financial Accounting Standards Board
("FASB") Statement of Financial Accounting Standards ("SFAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities." The Bank has
elected to classify all its mortgage-backed securities and mortgage related
securities as available-for-sale and all its U.S. Government securities as
held-to-maturity. The effect of this election decreased stockholder's equity by
$40,525 and $127,861 as of June 30, 1995 and 1994, respectively.

IMPACT OF INFLATION AND INTEREST RATE SENSITIVITY

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 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 of inflation is
on non-interest expenses, which tend to rise during periods of inflation.

53
<PAGE> 55

A portion of the Bank's interest earning assets are long-term fixed rate
mortgage loans and mortgage-backed securities, while its principal source of
funds are saving deposits with maturities of three years or less. Because of the
short-term nature of the savings deposits, their costs generally reflect returns
currently available in the market. Accordingly, the savings deposits have a high
degree of interest rate sensitivity while the mortgage loan portfolio, to the
extent of fixed rate loans, is relatively fixed and has much less sensitivity to
changes in current market rates. Although these conditions are somewhat
mitigated by the Bank's risk management strategies of selling long-term fixed
rate loans and reinvesting in adjustable-rate mortgage-backed securities and
loans, changes in market interest rates tend to directly affect the level of net
interest income.

54
<PAGE> 56

DOTHAN FEDERAL SAVINGS BANK

AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME
FOR THE YEARS ENDED JUNE 30, 1995 AND 1994
(DOLLARS IN THOUSANDS)
(UNAUDITED)

<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
------- -------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Loans, Net................................... $34,330 $ 2,874 8.37% $30,921 $ 2,797 9.05%
Investment Securities........................ 6,660 383 5.75 6,615 331 5.00
Interest Bearing Deposits in Other Banks..... 626 37 5.91 921 32 3.47
------- -------- ------ ------- -------- ------
Total Interest Earning Assets........ 41,616 3,294 7.92 38,457 3,160 8.22
------- -------- ------ ------- -------- ------
Non-interest Earning Assets
Cash and Due From Banks...................... 637 833
Bank Premises and Equipment (net)............ 1,009 752
Other Assets................................. 647 500
------- -------
Total Non-Interest Earning Assets.... 2,293 2,085
------- -------
Total Assets......................... $43,909 $40,542
======= =======
LIABILITIES
Interest Bearing Liabilities:
Interest Bearing Demand Deposits............. $33,668 $ 1,620 4.81% $31,360 $ 1,279 4.08%
FHLB Advances................................ 5,078 255 5.02 3,944 181 4.59
------- -------- ------ ------- -------- ------
Total Interest Bearing Liabilities... 38,746 1,875 4.84 35,304 1,460 4.14
------- -------- ------ ------- -------- ------
Non-Interest Bearing Liabilities:
Non-Interest Bearing Demand Deposits......... 856 1,252
Other Liabilities............................ 593 464
------- -------
Total Non-Interest Bearing
Liabilities........................ 1,449 1,716
------- -------
Total Liabilities.................... 40,195 37,020
------- -------
Stockholders' Equity........................... 3,714 3,521
------- -------
Total Liabilities and Stockholders'
Equity............................. $43,909 $40,541
======= =======
Net Interest Income............................ $ 1,419 $ 1,700
====== ======
Net Spread on Interest Earning Assets.......... 3.08% 4.08%
===== =====
</TABLE>

55
<PAGE> 57

BUSINESS OF BANCGROUP

GENERAL

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 a wholly-owned subsidiary bank in Alabama, Colonial
Bank, which conducts a full service commercial banking business in the state of
Alabama through 95 banking offices. The Bank will merge with Colonial Bank in
the Merger. BancGroup also has a wholly-owned bank subsidiary in Tennessee, The
Colonial Bank of Tennessee, which conducts a general commercial banking business
through three offices located in that state, and BancGroup operates a
wholly-owned federal savings bank subsidiary in Georgia, Colonial Bank, which
conducts the business of a federal savings bank through four offices in the
Atlanta area. This bank located in Georgia is sometimes referred to as Colonial
Bank -- Georgia. Colonial Mortgage Company, a subsidiary of Colonial Bank, is a
mortgage banking company that has approximately $9.1 billion in residential loan
servicing and that originates residential mortgages in 29 states through 6
regional offices. BancGroup's commercial banking loan portfolio is comprised
primarily of commercial real estate loans (22%) and residential real estate
loans (49%), 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 in Alabama 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.

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, Georgia and Tennessee and are
dependent upon economic conditions 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 multifamily residential as well as nonresidential real
estate. Loan values for these loans are from 80% to 85% of 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.

56
<PAGE> 58

- 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
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.

BancGroup's subsidiary banks fund loans primarily with customer deposits
approximately 10% of which are considered more rate sensitive or volatile than
other deposits. In addition the subsidiary banks borrow funds from the Federal
Home Loan Bank to fund residential real estate loans.

PROPOSED AFFILIATE BANKS

BancGroup has entered into a definitive agreement dated as of December 21,
1995, to acquire Commercial Bancorp of Georgia, Inc., Lawrenceville, Georgia
("CBG"). CBG is a Georgia corporation and is a holding company for Commercial
Bank of Georgia ("Commercial Bank"). CBG will merge with BancGroup, and
following such merger, Commercial Bank, which will be a wholly-owned subsidiary
of BancGroup doing business in the Atlanta, Georgia area, will be merged with
Colonial Bank -- Georgia. Based on the market price of BancGroup Common Stock as
of May 8, 1996, a total of 1,367,661 shares of Common Stock of BancGroup will be
offered to the stockholders of CBG. 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. This transaction is subject to,
among other things, approval by the stockholders of CBG and approval by
appropriate regulatory authorities. At December 31, 1995, CBG had assets of
$230.7 million, deposits of $206.6 million and stockholders' equity of $19.8
million. See "THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro
Forma Statements of Condition (Unaudited)."

BancGroup has entered into a definitive agreement dated as of February 15,
1996, to acquire Southern Banking Corporation, Orlando, Florida ("Southern").
Southern is a Florida corporation and is a holding company for Southern Bank of
Central Florida. Southern will merge with BancGroup and following such merger
Southern Bank of Central Florida will become a subsidiary of BancGroup with the
name "Colonial Bank". A total of 1,605,235 shares of Common Stock of BancGroup
will be offered to the stockholders of Southern, not counting additional shares
to be issued to certain persons holding options to purchase Southern common
stock under stock option plans. This transaction is subject to, among other
things, approval by the stockholders of Southern and approval by appropriate
regulatory authorities. At March 31, 1996, Southern had assets of $228.8
million, deposits of $209.3 million and stockholders' equity of $17.3 million.
See "THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma
Statements of Condition (Unaudited)."

57
<PAGE> 59

VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS

As of May 8, 1996, BancGroup had issued and outstanding 13,575,465 shares
of Common Stock with 5,413 stockholders of record. Each such share is entitled
to one vote. In addition, as of that date, 199,495 shares of Common Stock were
subject to issue upon exercise of options pursuant to BancGroup's stock option
plans and up to 333,333 shares of Common Stock were issuable upon conversion of
BancGroup's 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 May 8, 1996, of more than five percent of BancGroup's
outstanding Common Stock.

SHARES OF BANCGROUP BENEFICIALLY OWNED

<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON CLASS
NAME AND ADDRESS STOCK OUTSTANDING(1)
- ------------------------------------------------------------------- --------- --------------
<S> <C> <C>
Robert E. Lowder(2)................................................ 1,437,345(3) 10.37%
Post Office Box 1108
Montgomery, AL 36101
James K. Lowder(2)................................................. 1,099,649 7.93%
Post Office Box 250
Montgomery, AL 36142
Thomas H. Lowder(2)................................................ 1,073,053 7.74%
Post Office Box 11687
Birmingham, AL 35202
</TABLE>

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

(1) Percentages are calculated assuming the issuance of 199,495 shares of Common
Stock pursuant to BancGroup's stock option plans.
(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.
(3) Includes 90,510 shares of BancGroup Common Stock subject to options under
BancGroup's stock option plans.

58
<PAGE> 60

SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates for each director, executive officer, and all
executive officers and directors of BancGroup as a group the number of shares of
outstanding Common Stock of BancGroup beneficially owned as of May 8, 1996.

SHARES OF BANCGROUP BENEFICIALLY OWNED

<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF CLASS
NAME STOCK OUTSTANDING(1)
- ----------------------------------------------------------------- --------- --------------
<S> <C> <C>
DIRECTORS
Young J. Boozer.................................................. 7,146(2) *
William Britton.................................................. 6,808 *
Jerry J. Chesser................................................. 73,295 *
Augustus K. Clements, III........................................ 9,476 *
Robert S. Craft.................................................. 5,997 *
Patrick F. Dye................................................... 26,063(3) *
Clinton O. Holdbrooks............................................ 145,932(4) 1.06%
D. B. Jones...................................................... 9,861 *
Harold D. King**................................................. 77,729(4) *
Robert E. Lowder**............................................... 1,437,345(5) 10.37%
John Ed Mathison................................................. 14,227 *
Milton E. McGregor............................................... 0 *
John C. H. Miller, Jr. .......................................... 10,243 *
Joe D. Mussafer.................................................. 10,000 *
William E. Powell, III........................................... 6,959 *
Jack H. Rainer................................................... 1,345 *
Frances E. Roper................................................. 182,034 1.32%
Ed V. Welch...................................................... 29,646 *
CERTAIN EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Young J. Boozer, III............................................. 22,914(2)(6) *
W. Flake Oakley, IV.............................................. 11,808(6) *
Michael R. Holley................................................ 16,337(6) *
All Executive Officers & Directors as a Group.................... 2,161,647(7) 15.39%
</TABLE>

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

* Represents less than one percent.
** Executive Officer.
(1) Percentages are calculated assuming the issuance of 199,495 shares of Common
Stock pursuant to BancGroup's stock option plans.
(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.
(5) These shares include 90,510 shares of Common Stock subject to options under
BancGroup's stock option plans. See the table at "Voting Securities and
Principal Stockholders."
(6) Young J. Boozer, III, Michael R. Holley, and W. Flake Oakley, IV, hold
options respecting 12,500, 5,000, and 3,000 shares of Common Stock,
respectively, pursuant to BancGroup's stock option plans.
(7) Includes shares subject to options.

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

59
<PAGE> 61

Form 10-K for the fiscal year ending December 31, 1995, 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. It is also subject to regulation by the
Georgia Department of Banking and Finance and by the OTS as a savings and loan
holding company.

BancGroup's subsidiary banks, Colonial Bank, Colonial Bank of Tennessee and
Colonial Bank -- Georgia (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. Colonial Bank -- Georgia,
is a federal savings bank and is regulated by the OTS. 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 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, under certain circumstances, persons seeking to acquire
between 10 percent and 25 percent also may be 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 and the OTS (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).

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 legislation became effective on September 29, 1995. In
addition, this legislation also amended the Federal Deposit Insurance Act

60
<PAGE> 62

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 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.

The Budget Reconciliation Act of 1995 ("Budget Act") was passed by Congress
but subsequently vetoed by President Clinton. Congressional leadership and
President Clinton began discussions in 1995 to determine whether the Congress
and the Administration could reach a compromise on budget reconciliation. It is
unknown whether these negotiations will be successful. The Budget Act originally
passed by Congress and subsequently vetoed by the President contained a
provision which directed the FDIC to set a one-time special assessment on
SAIF-insured deposits which would be in an amount sufficient to recapitalize the
Savings Association Insurance Fund ("SAIF"). It is anticipated that a special
assessment in the range of $0.78 to $0.85 per $100 of SAIF-insured deposits
would be necessary in order to recapitalize the SAIF, if the assessment were to
be made in the next six months. The recapitalization would allow a reduction in
the current $0.23 per $100 of SAIF insured deposits. BancGroup's subsidiary
banks maintain deposits which are insured by both the SAIF and the BIF (Bank
Insurance Fund). The SAIF insured deposits in all of BancGroup's subsidiary
bank's total $679 million, after adjusting for certain allowances in the current
proposal, which would be subject to the special assessment. In the event a
budget reconciliation agreement is reached between the Congress and the
Administration, it is expected that the agreement would include the special
assessment provision contained in the original Budget Act. If no agreement is
reached by the Congress and the Administration, it is still possible that
Congress could attach such a provision to another piece of legislation or pass
such a provision as a free-standing bill. The Administration, in testimony
before Congress and in the press, has indicated its support of the
recapitalization of SAIF in the manner provided in the Budget Act.

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.

61
<PAGE> 63

BUSINESS OF THE BANK

GENERAL

The Bank was organized in July, 1988. On July 22, 1988, the Bank commenced
its business operations as a federally chartered stock savings bank. The Bank is
a member of the Federal Home Loan Bank System and its deposits are insured by
the SAIF.

The Bank's primary business is to accept savings deposits from the general
public and to make real estate loans secured by residential and commercial
property, and to a lesser extent, to make commercial and consumer loans. Its
income is derived from interest and fees in connection with such loans. The
Bank's principal expenses are interest paid on deposits and operating expenses.

The Bank conducts its operations through one office located at 1962 West
Main Street, Dothan, Alabama, in a building consisting of 7,252 square feet
owned by the Bank. The Bank's primary market area is the City of Dothan and
Houston County in the southeastern portion of the State of Alabama. The Bank has
13 full time employees.

PRINCIPAL STOCKHOLDERS

There are 399,688 shares of Bank Common Stock outstanding with 176
stockholders of record. The following table shows those persons who are known to
the Bank to be beneficial owners as of the date of this Prospectus of more than
five percent of the Bank's outstanding Common Stock as of May 24, 1996.

SHARES OF BANK BENEFICIALLY OWNED

<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF CLASS
NAME AND ADDRESS STOCK OUTSTANDING
- ----------------------------------------------------------------------- ------ -----------
<S> <C> <C>
Gerald B. Crowley...................................................... 28,620(1) 7.16%
8235 S. County Road 33
Dothan, AL 36301
Barbara Everett........................................................ 30,578(2) 7.65%
405 Choctow Street
Dothan, AL 36303
Hayne Hollis SDIRS..................................................... 20,635 5.16%
Hollis & Spann, Inc.
116 Loftin Road
Dothan, AL 36303
William M. Lee......................................................... 37,696(3) 9.43%
109 Christen Lane
Dothan, AL 36301
Ralph Don Lewis........................................................ 25,960(4) 6.50%
202 Boyce Road
Dothan, AL 36301
William C. Shelor, Jr.................................................. 24,099(5) 6.03%
402 Girard Avenue
Dothan, AL 36303
</TABLE>

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

(1) Includes 1,800 shares owned indirectly.
(2) Includes 18,813 shares owned indirectly.
(3) Includes 25,783 shares owned indirectly.
(4) Includes 12,695 shares owned indirectly.
(5) Includes 15,307 shares owned indirectly.

62
<PAGE> 64

SECURITY OWNERSHIP OF MANAGEMENT

The following table indicates for each director, executive officer, and all
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 May 24, 1996.

SHARES OF BANK BENEFICIALLY OWNED*

<TABLE>
<CAPTION>
PERCENTAGE
COMMON OF CLASS
NAME STOCK OUTSTANDING
- ----------------------------------------------------------------------- ------ -----------
<S> <C> <C>
DIRECTORS
Sue K. Byrd............................................................ 9,298 (1) 2.33%
Gerald B. Crowley...................................................... 28,620 7.16%
William Griggs Espy.................................................... 7,647 1.91%
Barbara Everett........................................................ 30,578 7.65%
James H. Hartzog....................................................... 13,530 (2) 3.39%
William M. Lee**....................................................... 37,696 9.43%
Ralph Don Lewis........................................................ 25,960 6.50%
Larry Register......................................................... 8,846 (3) 2.21%
William C. Shelor, Jr.................................................. 24,099 6.03%
Terry Weatherly........................................................ 14,728 3.69%
Felton E. Woodham...................................................... 9,547 (4) 2.39%
All Directors and Executive Officers as a group........................ 210,549 52.68%
</TABLE>

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

* For shares owned indirectly by directors Crowley, Everett, Lee, Lewis and
Shelor see the footnotes to the table at "Principal Stockholders."
** Director is also an executive officer.
(1) Includes 970 shares owned indirectly.
(2) Includes 2,940 shares owned indirectly.
(3) All of these shares are owned by Mr. Register's company, Register Realty.
(4) Includes 1,569 shares owned indirectly.

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 represented in person or by proxy at the Special Meeting to approve
the Merger, the Bank's Board of Directors in its discretion may 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.

63
<PAGE> 65

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.

DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS

In order to be eligible for inclusion in BancGroup's proxy solicitation
materials for its 1997 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 18, 1997.

INDEPENDENT ACCOUNTANTS

Coopers & Lybrand L.L.P. serves as the independent accountants for
BancGroup. The consolidated financial statements of BancGroup as of December 31,
1995 and 1994 and for each of the three years ended December 31, 1995 that are
incorporated by reference in this Prospectus in reliance upon the report of such
firm, are given on the authority of that firm as experts in accounting and
auditing. It is not expected that a representative of such firm will be present
at the Special Meeting.

The financial statements of Dothan Federal Savings Bank included in this
Prospectus have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are included
herein in reliance upon the authority of said firm as experts in giving said
reports. 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 MATTERS

Certain legal matters 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
partner. Such firm received fees from BancGroup and its subsidiaries in 1995 of
$1,305,633. John C. H. Miller, Jr. owns 10,243 shares of Common Stock. Mr.
Miller also received employee-related compensation from BancGroup in 1995 of
$58,070.

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.

64
<PAGE> 66

INDEX TO FINANCIAL STATEMENTS

COLONIAL BANCGROUP:

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

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DOTHAN FEDERAL SAVINGS BANK:
Report of Independent Public Accountants................................................... F-2
Statements of Financial Condition, June 30, 1995 and 1994.................................. F-3
Statements of Income Years Ended June 30, 1995, 1994 and 1993.............................. F-4
Statements of Stockholders' Equity Years Ended June 30, 1995, 1994 and 1993................ F-5
Statements of Cash Flows Years Ended June 30, 1995, 1994 and 1993.......................... F-6
Notes to Financial Statements.............................................................. F-7
Condensed Statements of Financial Condition, March 31, 1996 and 1995 (Unaudited)........... F-18
Condensed Statements of Income for the Nine Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-19
Statement of Stockholders' Equity for the Nine Months Ended March 31, 1996................. F-20
Statements of Cash Flows for the Nine Months Ended March 31, 1996 and 1995................. F-21
Notes to Condensed Financial Statements.................................................... F-22
COMMERCIAL BANCORP OF GEORGIA, INC.
Independent Auditors' Report............................................................... F-23
Consolidated Balance Sheets, December 31, 1995 and 1994.................................... F-24
Consolidated Statements of Income Years Ended December 31, 1995, 1994 and 1993............. F-25
Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1995,
1994
and 1993................................................................................. F-26
Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993......... F-27
Notes to Consolidated Financial Statements................................................. F-28
Consolidated Balance Sheets, March 31, 1996 (Unaudited) and December 31, 1995.............. F-46
Consolidated Statements of Income Three Months Ended March 31, 1996 and 1995 (Unaudited)... F-47
Consolidated Statements of Cash Flows Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-48
Notes to Consolidated Financial Statements................................................. F-49
SOUTHERN BANKING CORPORATION:
Report of Independent Accountants.......................................................... F-51
Consolidated Balance Sheets, December 31, 1995 and 1994.................................... F-53
Consolidated Statements of Income Years Ended December 31, 1995, 1994 and 1993............. F-54
Consolidated Statements of Stockholders' Equity Years Ended December 31, 1995, 1994
and 1993................................................................................. F-55
Consolidated Statements of Cash Flows Years Ended December 31, 1995, 1994 and 1993......... F-56
Notes to Consolidated Financial Statements................................................. F-57
Consolidated Statements of Financial Condition, March 31, 1996 (Unaudited) and December 31,
1995..................................................................................... F-71
Consolidated Statements of Income for the Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-72
Consolidated Statement of Stockholders' Equity for the Three Months Ended March 31, 1996
(Unaudited).............................................................................. F-73
Consolidated Statements of Cash Flows Three Months Ended March 31, 1996 and 1995
(Unaudited).............................................................................. F-74
Notes to Consolidated Financial Statements................................................. F-75
</TABLE>

F-1
<PAGE> 67

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors of
Dothan Federal Savings Bank:

We have audited the accompanying statements of financial condition of
DOTHAN FEDERAL SAVINGS BANK (a federally chartered savings bank) as of June 30,
1995 and 1994 and the related statements of income, stockholders' equity, and
cash flows for each of the three years in the period ended June 30, 1995. 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 audits.

We conducted our audits 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 audits provide 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 Dothan Federal Savings Bank
as of June 30, 1995 and 1994 and the results of its operations and its cash
flows for each of the three years in the period ended June 30, 1995 in
conformity with generally accepted accounting principles.

As discussed in Note 1 to the financial statements, effective June 30,
1994, the Bank changed its method of accounting for investment securities and
mortgage-backed securities.

Arthur Andersen LLP

Birmingham, Alabama
July 28, 1995, (except with
respect to the matter
discussed in Note 14, as to which
the date is February 19, 1996)

F-2
<PAGE> 68

DOTHAN FEDERAL SAVINGS BANK

STATEMENTS OF FINANCIAL CONDITION
AS OF JUNE 30, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS:
Cash on hand and in banks........................................... $ 543,604 $ 396,328
Interest-bearing deposits in other banks............................ 369,732 417,151
----------- -----------
913,336 813,479
----------- -----------
SECURITIES AVAILABLE FOR SALE (Notes 1 and 2)....................... 5,280,789 5,713,879
SECURITIES HELD TO MATURITY, fair values of $1,504,690 and
$2,486,016, respectively (Notes 1 and 2).......................... 1,498,130 2,507,212
LOANS RECEIVABLE, net of allowance for loan losses of $255,722 and
$212,313, respectively (Notes 1 and 3)............................ 35,457,409 29,916,526
LAND, BUILDINGS, AND EQUIPMENT, less accumulated depreciation of
$180,194 and $202,981, respectively (Notes 1 and 4)............... 1,048,117 771,369
REAL ESTATE OWNED (Note 5):
Held pending sale................................................... 0 27,000
Properties under mortgage loans to facilitate sale.................. 28,765 69,746
ACCRUED INTEREST AND DIVIDENDS RECEIVABLE (Note 6).................. 331,692 293,312
OTHER ASSETS (Note 1)............................................... 98,823 69,583
----------- -----------
Total assets.............................................. $44,657,061 $40,182,106
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 7)................................................. $37,627,012 $32,191,484
Federal Home Loan Bank advances (Note 8).......................... 2,666,667 3,833,333
Advance payments by borrowers for taxes and insurance............. 186,094 161,947
Accrued interest payable.......................................... 179,610 93,418
Income taxes payable (Notes 1 and 9):
Current........................................................ 15,465 193,458
Deferred....................................................... 41,765 14,286
----------- -----------
57,230 207,744
----------- -----------
Accrued expenses and other liabilities............................ 42,538 40,860
----------- -----------
Total liabilities......................................... 40,759,151 36,528,786
----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY (Note 1):
Preferred stock, 1,000,000 shares authorized, none issued, par
value
of $.01........................................................ 0 0
Common stock, 4,000,000 shares authorized, 399,688 issued and
outstanding, par value of $.01................................. 3,997 3,997
Paid-in capital................................................... 3,329,339 3,329,339
Retained earnings................................................. 605,099 447,845
Unrealized loss on securities available for sale, net (Notes 1 and
2)............................................................. (40,525) (127,861)
----------- -----------
Total stockholders' equity................................ 3,897,910 3,653,320
----------- -----------
Total liabilities and stockholders' equity................ $44,657,061 $40,182,106
========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-3
<PAGE> 69

DOTHAN FEDERAL SAVINGS BANK

STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans................................. $2,873,845 $2,797,004 $2,852,402
Interest and dividends on securities available for sale.... 309,585 242,319 0
Interest on mortgage-backed securities..................... 0 0 103,364
Interest and dividends on securities....................... 73,136 88,334 73,034
Other interest income...................................... 36,875 32,248 59,482
---------- ---------- ----------
Total interest income............................ 3,293,441 3,159,905 3,088,282
---------- ---------- ----------
INTEREST EXPENSE:
Interest on deposits (Note 7).............................. 1,619,537 1,278,586 1,371,427
Interest on other borrowings (Note 8)...................... 255,341 180,976 138,727
---------- ---------- ----------
Total interest expense........................... 1,874,878 1,459,562 1,510,154
---------- ---------- ----------
Net interest income.............................. 1,418,563 1,700,343 1,578,128
PROVISION FOR LOAN LOSSES (Notes 1 and 3).................. 60,000 60,000 90,000
---------- ---------- ----------
Net interest income after provision for loan
losses......................................... 1,358,563 1,640,343 1,488,128
---------- ---------- ----------
OTHER INCOME:
Service charges............................................ 47,251 38,794 32,620
Gain on sale of securities................................. 7,169 0 34,531
Gain/(loss) on sale of loans............................... 3,304 25,847 0
Other income............................................... 490 6,612 2,289
---------- ---------- ----------
Total other income............................... 58,214 71,253 69,440
---------- ---------- ----------
OTHER EXPENSES:
Salaries and employee benefits (Note 11)................... 508,742 500,980 426,802
Office building and equipment.............................. 143,657 127,668 101,183
Federal deposit insurance premiums......................... 75,682 74,159 66,894
Data processing............................................ 79,042 64,244 63,140
Real estate owned (income)/expense, net.................... (3,838) (13,739) 47,643
Other expenses............................................. 253,359 203,111 216,159
---------- ---------- ----------
Total other expenses............................. 1,056,644 956,423 921,821
---------- ---------- ----------
INCOME BEFORE PROVISION FOR INCOME TAXES................... 360,133 755,173 635,747
Provision for income taxes (Notes 1 and 9)................. 142,926 278,125 0
---------- ---------- ----------
NET INCOME................................................. $ 217,207 $ 477,048 $ 635,747
========= ========= =========
EARNINGS PER SHARE (Note 1)................................ $ .54 $ 1.19 $ 1.59
========= ========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-4
<PAGE> 70

DOTHAN FEDERAL SAVINGS BANK

STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
COMMON STOCK RETAINED UNREALIZED TOTAL
------------------- PAID-IN EARNINGS GAIN (LOSS), STOCKHOLDERS'
SHARES AMOUNT CAPITAL (DEFICIT) NET EQUITY
------- --------- ---------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1992....... 399,688 $ 399,688 $2,933,648 $(664,950) $ 0 $ 2,668,386
Net income................... 0 0 0 635,747 0 635,747
Change in par value (Note
1)......................... 0 (395,691) 395,691 0 0 0
------- --------- ---------- --------- ---------- -----------
BALANCE, JUNE 30, 1993....... 399,688 3,997 3,329,339 (29,203) 0 3,304,133
Net income................... 0 0 0 477,048 0 477,048
Unrealized loss on securities
available for sale, net
(Notes 1 and 2)............ 0 0 0 0 (127,861) (127,861)
------- --------- ---------- --------- ---------- -----------
BALANCE, JUNE 30, 1994....... 399,688 3,997 3,329,339 447,845 (127,861) 3,653,320
Net income................... 0 0 0 217,207 0 217,207
Dividends paid............... 0 0 0 (59,953) 0 (59,953)
Change in unrealized loss on
securities available for
sale, net (Notes 1 and
2)......................... 0 0 0 0 87,336 87,336
------- --------- ---------- --------- ---------- -----------
BALANCE, JUNE 30, 1995....... 399,688 $ 3,997 $3,329,339 $ 605,099 $ (40,525) $ 3,897,910
======= ========= ========= ========= ========== ===========
</TABLE>

The accompanying notes are an integral part of these statements.

F-5
<PAGE> 71

DOTHAN FEDERAL SAVINGS BANK

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
------------ ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income....................................................... $ 217,207 $ 477,048 $ 635,747
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.................................. 65,200 78,351 83,071
Accretion of deferred income................................... (84,431) (149,915) (89,051)
Provision for losses on loans and real estate owned............ 60,000 60,000 165,000
Provision for deferred taxes................................... 17,482 80,125 0
Loan fees deferred, net........................................ 49,169 95,325 127,461
Federal Home Loan Bank stock dividend.......................... 0 (10,300) (14,400)
Loss (gain), net, on sale of:
Loans........................................................ (3,304) (25,847) 0
Real estate owned............................................ (5,980) (15,145) (31,433)
Securities available for sale................................ (7,169) 0 0
Securities................................................... 0 0 (34,531)
Equipment.................................................... 27,704 (2,353) 3,364
Change in assets and liabilities:
Increase in accrued interest and dividends receivable........ (38,380) (31,856) (3,015)
Decrease in other assets..................................... 3,390 3,077 1,065
Increase (decrease) in current income taxes payable.......... (262,680) 193,458 0
Increase (decrease) in accrued expenses and other
liabilities................................................ 1,678 727 (6,590)
Increase in accrued interest payable......................... 86,192 39,046 9,338
------------ ----------- -----------
Net cash provided by operating activities............... 126,078 791,741 846,026
------------ ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity.......... 1,500,000 0 0
Proceeds from sales of securities available for sale............. 184,508 0 0
Proceeds from sales of loans..................................... 1,756,117 3,534,550 0
Proceeds from sales of mortgage-backed securities................ 0 0 496,354
Proceeds from sales of equipment................................. 10,500 14,077 0
Proceeds from sales of real estate owned......................... 40,000 40,000 95,000
Repayments on securities available for sale...................... 437,139 0 0
Repayments on mortgage-backed securities......................... 0 514,469 424,130
Purchases of securities held to maturity......................... (496,328) (1,508,047) (300,000)
Purchases of mortgage-backed securities.......................... 0 (3,002,680) (1,455,195)
Loans originated, net of repayments.............................. (3,368,654) (512,306) (3,828,340)
Loans and participations purchased............................... (3,902,260) 0 (3,850,752)
Capital expenditures............................................. (367,099) (77,823) (12,640)
Purchase of Federal Home Loan Bank stock......................... (53,200) (19,900) (4,300)
------------ ----------- -----------
Net cash used in investing activities................... (4,259,277) (1,017,660) (8,435,743)
------------ ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net............................. 5,435,528 (967,403) 5,013,703
Principal payments on capital lease obligation................... 0 0 (40,933)
Advances from Federal Home Loan Bank............................. 16,850,000 7,000,000 3,000,000
Repayments of Federal Home Loan Bank advances.................... (18,016,666) (6,666,667) (1,500,000)
Increase (decrease) in advance payments by borrowers for taxes
and insurance.................................................. 24,147 (2,706) 57,075
Cash dividends paid.............................................. (59,953) 0 0
------------ ----------- -----------
Net cash (used in) provided by financing activities..... 4,233,056 (636,776) 6,529,845
------------ ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................................... 99,857 (862,695) (1,059,872)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................... 813,479 1,676,174 2,736,046
------------ ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR........................... $ 913,336 $ 813,479 $ 1,676,174
============= ============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-6
<PAGE> 72

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1995 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SECURITIES

Securities designated as available for sale are reported at fair value. The
unrealized difference between amortized cost and fair value on securities
available for sale is excluded from earnings and is reported net of deferred
taxes as a component of stockholders' equity. This caption includes securities
that management intends to use as part of its asset/liability management
strategy or that may be sold in response to changes in interest rates, changes
in prepayment risk, liquidity needs, or for other purposes.

Securities designated as held to maturity are reported at amortized cost,
as the Bank has both the ability and positive intent to hold these securities to
maturity. There are no securities classified as trading as of June 30, 1995 or
1994.

Amortization of premium and accretion of discount are computed under the
interest method. The adjusted cost of the specific security sold is used to
compute realized gain or loss on the sale of securities.

On June 30, 1994, Dothan Federal Savings Bank (the "Bank") adopted
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."

Initial adoption of SFAS No. 115 was accomplished by transferring certain
securities previously shown as investment securities or mortgage-backed
securities to the available for sale portfolio and had the effect of decreasing
stockholders' equity by $127,861 at June 30, 1994; it had no effect on 1994
income.

Prior to the adoption of SFAS No. 115, securities determined to be held on
a long-term basis or until maturity were accounted for in a manner similar to
securities held to maturity.

LOANS RECEIVABLE

Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses and net of deferred loan origination fees and
premiums.

An allowance is established for uncollectible interest on loans that are 60
days past due based on management's periodic evaluations. The allowance is
established by a charge to interest income equal to all interest previously
accrued, and income is subsequently recognized only to the extent that cash
payments are received until, in management's judgment, the borrower's ability to
make periodic interest and principal payments has been demonstrated, in which
case the loan is returned to accrual status.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is maintained through provisions charged to
expense at levels which management considers adequate to absorb losses inherent
in the loan portfolio. The allowance is decreased by charge-offs, net of
recoveries. Management's evaluation of the allowance includes a review of all
loans for which full collectibility is not reasonably assured and considers,
among other factors, prior years' loss experience, economic conditions,
distribution of loans by risk class, and the estimated value of underlying
collateral. Though management believes the allowance for loan losses to be
adequate, ultimate losses may vary from these evaluations; however, the
allowance is reviewed periodically and, as adjustments become necessary, they
are reported in earnings in the periods in which they become known.

F-7
<PAGE> 73

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosures", an amendment to SFAS No. 114. SFAS
No. 118 amends SFAS No. 114 to allow a creditor to use existing methods for
recognizing interest on an impaired loan. Management adopted SFAS Nos. 114 and
118 as of July 1, 1995; however, given the Bank's current loan portfolio
composition, the impact of adoption was not material.

LOAN ORIGINATION FEES, PREMIUMS, AND DISCOUNTS

Loan origination fees, net of direct costs associated with originating or
acquiring loans, are treated as an adjustment to the yield of the related loans
using the interest method over the contractual term of the loans. Such
adjustments are reflected in "Interest and fees on loans" in the accompanying
statements of income. Loan commitment fees are recognized into income upon
expiration of the commitment period, unless the commitment results in the loan
being funded and maintained in the loan portfolio.

Premiums paid and discounts received in connection with loans receivable
are amortized to interest income over the lives of the loans using the interest
method.

LAND, BUILDINGS, AND EQUIPMENT

Land, buildings, and equipment are carried at cost, net of accumulated
depreciation. Depreciation is computed on the straight-line method over the
estimated useful lives of the assets (40 years for buildings and 3 to 25 years
for equipment).

INTANGIBLE ASSETS

Intangible assets, included in "Other Assets" in the accompanying
statements of financial condition, consist of premiums paid to acquire the
deposits of other financial institutions. These costs ($33,498 and $50,562 at
June 30, 1995 and 1994, respectively) are being amortized using an accelerated
method over an eight year period which approximates the expected deposit
relationship lives. Amortization expense totaled $17,064, $20,565, and $24,065
in fiscal 1995, 1994, and 1993, respectively.

INCOME TAXES

The financial statements have been prepared on an accrual basis. Because
some income and expense items are recognized in different periods for financial
reporting purposes and for purposes of computing currently payable income taxes,
a provision or credit for deferred income taxes is made for such temporary
differences.

Effective July 1, 1991, the Bank adopted the asset and liability approach
for financial accounting and reporting of income taxes pursuant to SFAS No. 109,
"Accounting for Income Taxes."

No provision for income taxes was reflected in the statement of income for
the year ended June 30, 1993 due to the utilization of net operating loss
("NOL") carryforwards. The Bank utilized all of its federal and state NOL
carryforwards during fiscal 1994.

CHANGE IN PAR VALUE

On October 22, 1992, the Bank changed the par value of all authorized
preferred and common stock from $1.00 per share to $.01 per share.

F-8
<PAGE> 74

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF CASH FLOWS

Cash and cash equivalents, for purposes of reporting cash flows, include
cash on hand and in banks and interest-bearing deposits in banks.

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental cash flow information:
Cash paid during the period for:
Income taxes.......................................... $ 388,095 $ 4,513 $ 0
========= ========= =========
Interest.............................................. $1,788,686 $1,420,516 $1,500,816
========= ========= =========
Noncash transactions:
Transfers of loans receivable to real estate owned.... $ 6,000 $ 0 $ 0
========= ========= =========
Transfer of mortgage-backed and investment securities
to securities available for sale at fair value...... $ 0 $5,713,879 $ 0
========= ========= =========
Increase/(decrease) in unrealized net loss on
securities available for sale, net of deferred tax
provision/(benefit) of $44,961 and $(65,839),
respectively........................................ $ (87,336) $ 127,861 $ 0
========= ========= =========
</TABLE>

EARNINGS PER SHARE

Earnings per share have been calculated on the basis of the weighted
average number of shares of common stock outstanding, which were 399,688 during
fiscal years 1995, 1994, and 1993.

FINANCIAL STATEMENT RECLASSIFICATION

The financial statements for the prior years have been reclassified in
certain instances in order to conform with the 1995 financial statement
presentation. The reclassification did not change total assets or net income in
the prior years.

PENDING ACCOUNTING STANDARDS

Financial Instruments

In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair
Values of Financial Instruments", adoption of which is required for fiscal years
ending after December 15, 1995. In October 1994, the FASB issued SFAS No. 119,
"Disclosure about Derivative Financial Instruments and Fair Value of Financial
Instruments," adoption of which is required for fiscal years ending after
December 15, 1995. The Bank has elected not to adopt the provisions of these
statements before the required date.

DISCLOSURE OF CERTAIN RISKS

In December 1994, the Accounting Standards Division of the AICPA approved
SOP 94-6, "Disclosure of Certain Significant Risks and Uncertainties." SOP 94-6
requires disclosures in the financial statements beyond those now being required
or generally made in the financial statements about the risks and uncertainties
existing as of the date of those financial statements in the following areas:
nature of operations, use of estimates in the preparation of financial
statements, certain significant estimates, and current vulnerability due to
certain concentrations. SOP 94-6 is effective for financial statements issued
for fiscal years ending after December 15, 1995. The Bank has elected not to
adopt the provisions of SOP 94-6 before the required date.

F-9
<PAGE> 75

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS

In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121
establishes accounting standards for evaluating the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. The Bank has elected not to adopt the provisions
of SFAS No. 121 until the required date, though management does not believe that
the adoption of SFAS No. 121 will have a significant impact on the Bank's
financial position or on the results of its operations.

MORTGAGE SERVICING RIGHTS

In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing
Rights," an amendment to SFAS No. 65. SFAS No. 122 amends certain provisions of
SFAS No. 65 to eliminate the accounting distinction between rights to service
mortgage loans for others that are acquired through loan origination activities
and those acquired through purchase transactions. Management does not intend to
adopt the provisions of SFAS No. 122 before the required date. Based on the
Bank's current operating activities, management does not believe that the
adoption of this Statement will have a material impact on the Bank's financial
condition or results of operations.

2. SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY

The amortized historical cost, approximate fair value, and gross unrealized
gains and losses of the Bank's securities available for sale and securities held
to maturity at June 30, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE
------------------------------------------------------------------------------------------------
1995 1994
----------------------------------------------- -----------------------------------------------
AMORTIZED GROSS GROSS AMORTIZED GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED FAIR HISTORICAL UNREALIZED UNREALIZED FAIR
COST GAIN (LOSS) VALUE COST GAIN (LOSS) VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FHLB stock............... $ 340,300 $ 0 $ 0 $ 340,300 $ 287,100 $ 0 $ 0 $ 287,100
Mortgage-backed
securities............. 4,701,892 6,416 (66,317) 4,641,991 5,320,479 10,740 (199,635) 5,131,584
Mutual Fund.............. 300,000 0 (1,502) 298,498 300,000 0 (4,805) 295,195
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$5,342,192 $6,416 $ (67,819) $5,280,789 $5,907,579 $ 10,740 $ (204,440) $5,713,879
========== ======== ========= ========== ========== ======== ========== ==========
</TABLE>

<TABLE>
<CAPTION>
SECURITIES HELD TO MATURITY
------------------------------------------------------------------------------------------------
1995 1994
----------------------------------------------- -----------------------------------------------
AMORTIZED GROSS GROSS AMORTIZED GROSS GROSS
HISTORICAL UNREALIZED UNREALIZED FAIR HISTORICAL UNREALIZED UNREALIZED FAIR
COST GAIN (LOSS) VALUE COST GAIN (LOSS) VALUE
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities... $1,498,130 $ 11,295 $ (4,735) $1,504,690 $2,507,212 $1,602 $ (22,798) $2,486,016
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$1,498,130 $ 11,295 $ (4,735) $1,504,690 $2,507,212 $1,602 $ (22,798) $2,486,016
========== ======== ======== ========== ========== ======== ========= ==========
</TABLE>

The amortized historical cost and approximate fair value of securities
available for sale and securities held to maturity at June 30, 1995 by
contractual maturity, are shown below. Expected maturities will differ from

F-10
<PAGE> 76

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

contractual maturities because issuers may have the right to call or prepay
obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
AVAILABLE FOR SALE HELD TO MATURITY
----------------------- -----------------------
AMORTIZED AMORTIZED
HISTORICAL FAIR HISTORICAL FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due in one year or less......................... $ 300,000 $ 298,498 $1,001,142 $ 996,407
Due after one year through five years........... 0 0 496,988 508,283
Due after five years through ten years.......... 4,701,892 4,641,991 0 0
---------- ---------- ---------- ----------
5,001,892 4,940,489 1,498,130 1,504,690
FHLB stock...................................... 340,300 340,300 0 0
---------- ---------- ---------- ----------
$5,342,192 $5,280,789 $1,498,130 $1,504,690
========= ========= ========= =========
</TABLE>

Mortgage-backed securities totaling $934,227 have been pledged as
collateral against certain large deposits at June 30, 1995. Deposits (public
monies) associated with pledged mortgage-backed securities had an aggregate
balance of $750,000 at June 30, 1995.

Proceeds from sales of securities available for sale during 1995 were
$184,508 with gross gains of $7,169 realized on the sales. There were no
securities sales during fiscal 1994.

3. LOANS RECEIVABLE

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Mortgage loans:
Conventional loans:
Construction loans, primarily on one-to-four family
residences.................................................... $ 2,400,460 $ 3,670,870
Loans on existing property:
Residential.................................................. 26,673,402 20,621,089
Commercial................................................... 1,940,483 2,657,103
FHA and VA loans............................................. 1,937,669 2,601,330
Other loans, primarily consumer and lines of credit................. 3,717,059 2,772,807
Less:
Undisbursed portion of mortgage loans............................. (679,809) (1,879,760)
Unearned loan fees................................................ (249,452) (282,972)
Allowance for loan losses......................................... (255,722) (212,313)
Net acquisition discount.......................................... (26,681) (31,628)
----------- -----------
Total loans receivable, net............................... $35,457,409 $29,916,526
========== ==========
</TABLE>

As a savings bank, the Bank has a credit concentration in residential
mortgage loans. The majority of the Bank's customers are located in Dothan,
Alabama, and the surrounding area. The ability of these borrowers to repay is
highly dependent on local economic conditions.

Loans receivable at June 30, 1995 and 1994 included $145,531 and $10,452,
respectively, in loans that had been placed on nonaccrual status. Interest
income recognized on the nonaccrual loans outstanding at June 30, 1995 and 1994
was $2,217 and $1,119, respectively, as compared to $11,184 and $1,340 of
interest income in 1995 and 1994, respectively, that would have been recorded
under the original terms of the loans.

At June 30, 1995 and 1994, loans to key officers, directors and principal
stockholders and their affiliates amounted to $894,331 and $831,373,
respectively. In the opinion of management, related party loans are made on
substantially the same terms, including interest rates and collateral, as
comparable transactions with

F-11
<PAGE> 77

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

unrelated parties and do not involve more than normal risks of collectibility.
During fiscal 1995, new loans totaled $613,939 and repayments were $550,981.

An analysis of the Bank's allowance for loan losses for the years ended
June 30, 1995 and 1994 is as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Beginning balance.............................................. $212,313 $177,336
Provision...................................................... 60,000 60,000
Charge-offs.................................................... (16,591) (25,523)
Recoveries..................................................... 0 500
-------- --------
Ending balance................................................. $255,722 $212,313
======== ========
</TABLE>

4. LAND, BUILDINGS, AND EQUIPMENT

Land, buildings, and equipment, as reflected in the accompanying statements
of financial condition at June 30, 1995 and 1994 consisted of the following:

<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
Land........................................................ $ 222,707 $ 222,707
Buildings................................................... 773,399 419,329
Furniture, fixtures and equipment........................... 232,205 293,173
Construction in progress.................................... 0 39,141
---------- ---------
1,228,311 974,350
Less accumulated depreciation and amortization.............. (180,194) (202,981)
---------- ---------
$1,048,117 $ 771,369
========= =========
</TABLE>

5. REAL ESTATE OWNED

Real estate owned consists either of properties acquired through
foreclosure and held pending sale or properties sold under mortgage loans to
facilitate sale and accounted for under the deposit method. Real estate owned is
carried at the lower of loan balance or fair value, less estimated costs of
disposition. Subsequent to foreclosure, real estate owned is evaluated on an
individual basis for changes in fair value. Future declines in fair value of the
asset less costs of disposition below its carrying amount result in an increase
in the valuation allowance account. Future increases in fair value of the asset
less costs of disposition above its carrying amount reduce the valuation
allowance account, but not below zero. Minor costs relating to holding and
maintaining the property are expensed and amounts incurred to improve the
property are capitalized. The amounts expensed in fiscal 1995, 1994, and 1993
were $2,142, $4,280, and $10,699, respectively. The amount capitalized in fiscal
1995 was $1,020. No amounts were capitalized in fiscal 1994 or 1993. Valuations
are periodically performed by management and a provision for estimated losses on
real estate is charged to earnings when such losses are anticipated. No property
was held pending sale at June 30, 1995. Property held pending sale at June 30,
1994 consisted of residential property with a basis of $27,000 and no valuation
allowance.

There were no valuation allowances for real estate owned for the years
ended June 30, 1995 and 1994 and there was no related activity in the valuation
allowances.

F-12
<PAGE> 78

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

6. ACCRUED INTEREST AND DIVIDENDS RECEIVABLE

Accrued interest and dividends receivable at June 30, 1995 and 1994 is
summarized as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Securities held to maturity.................................... $ 29,086 $ 52,378
Securities available for sale.................................. 31,353 28,748
Loans receivable............................................... 271,253 212,186
-------- --------
$331,692 $293,312
======== ========
</TABLE>

7. DEPOSITS

The weighted average rate payable on all deposits at June 30, 1995 and 1994
was 5.48% and 4.10%, respectively. Deposits at June 30, 1995 and 1994 and the
related range of interest rates payable for deposits outstanding at June 30,
1995 consisted of the following:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Statement savings, 3.0%................................... $ 1,522,588 $ 1,312,254
NOW accounts, 2.5% to 2.75%............................... 2,837,515 2,905,669
Money market accounts, 3.0% to 4.0%....................... 4,414,154 5,624,221
Certificates of deposit, 2.62% to 10.50%.................. 28,852,755 22,349,340
----------- -----------
$37,627,012 $32,191,484
========== ==========
</TABLE>

Certificates of deposit above included $4,620,069 and $3,719,531,
respectively, of certificates in excess of $100,000 at June 30, 1995 and 1994.

At June 30, 1995 and 1994, scheduled maturities of certificates of deposit
were as follows:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Within one year........................................... $16,507,873 $12,535,224
One to three years........................................ 12,141,196 8,629,291
Thereafter................................................ 203,686 1,184,825
----------- -----------
$28,852,755 $22,349,340
========== ==========
</TABLE>

Interest expense on deposits consisted of the following:

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Statement savings.................................. $ 53,089 $ 24,852 $ 20,319
NOW accounts....................................... 58,338 53,240 49,201
Money market accounts.............................. 198,978 216,652 278,288
Certificates of deposit............................ 1,309,132 983,842 1,023,619
---------- ---------- ----------
$1,619,537 $1,278,586 $1,371,427
========= ========= =========
</TABLE>

F-13
<PAGE> 79

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

8. FEDERAL HOME LOAN BANK ADVANCES

Federal Home Loan Bank advances outstanding at June 30, 1995 and 1994
mature as follows:

<TABLE>
<CAPTION>
INTEREST
RATE 1995 1994
-------- ---------- ----------
<S> <C> <C> <C>
July 8, 1994........................................... 6.70% $ 0 $ 500,000
September 28, 1995..................................... 4.25% 166,667 833,333
September 27, 1998..................................... 4.73% 2,500,000 2,500,000
---------- ----------
$2,666,667 $3,833,333
========= =========
</TABLE>

The Bank is required by its blanket floating lien agreement with the
Federal Home Loan Bank to maintain qualifying collateral for its advances in an
amount at least equal to 175% of such advances. In addition, the Bank's
investment in Federal Home Loan Bank stock is pledged as collateral on
outstanding advances.

In 1994, the Bank maintained a $3,000,000 line of credit with the Federal
Home Loan Bank at a variable rate, which was 6.70% at June 30, 1994, which
matured July 8, 1994. The amount outstanding under this line of credit at June
30, 1994 was $500,000 and is included in the outstanding advances disclosed
above.

9. INCOME TAXES

The provision for income taxes for the years ended June 30, 1995 and 1994
were as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Current:
Federal........................................................ $144,943 $173,000
State.......................................................... 15,465 25,000
-------- --------
160,408 198,000
Deferred......................................................... (17,482) 80,125
-------- --------
Totals................................................. $142,926 $278,125
======== ========
</TABLE>

No provision for income taxes was recorded for the year ended June 30, 1993
due to utilization of net operating loss carryforwards (see Note 1).

The differences between the provision for income taxes and the amount
computed by applying the statutory federal income tax rate of 34% to income
before taxes for the years ended June 30, 1995 and 1994 were as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Expected income tax expense at federal tax rate.................. $122,445 $256,758
Add (deduct):
Utilization of NOL carryforwards............................... 0 (78,452)
State income tax, net of federal tax benefit................... 10,207 16,716
Restoration of deferred tax liability.......................... 0 75,583
Other, net..................................................... 10,274 7,520
-------- --------
Totals................................................. $142,926 $278,125
======== ========
</TABLE>

F-14
<PAGE> 80

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

The components of the net deferred tax liability as of June 30, 1995 and
1994 were as follows:

<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Deferred tax asset:
Unrealized loss................................................ $ 20,878 $ 65,839
-------- --------
Deferred tax liability:
FHLB stock dividend............................................ (21,852) (23,340)
Depreciation................................................... (14,047) (10,786)
Capital leases................................................. (29,332) (32,319)
Other.......................................................... 2,588 (13,680)
-------- --------
Total deferred tax liability........................... (62,643) (80,125)
-------- --------
Net deferred tax liability............................. $(41,765) $(14,286)
======== ========
</TABLE>

10. COMMITMENTS AND CONTINGENCIES

FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK

The Bank is party to financial instruments with off-balance sheet risk in
the normal course of business, primarily to meet the financing needs of its
customers. These financial instruments consisted of commitments to extend credit
and amounted to $182,000 at June 30, 1995. The Bank's policies as to collateral
and assumption of credit risk for off-balance sheet items are essentially the
same as those for extension of credit to its customers.

LITIGATION

The Bank is a party to litigation and claims arising in the normal course
of business. Management, after consultation with legal counsel, believes that
the liabilities, if any, arising from such litigation and claims will not be
material to the financial statements.

FDIC ASSESSMENTS

The FDIC-SAIF assessments became effective January 1, 1990. The FDIC
assessment rate was 20.8 basis points of insured deposits through December 31,
1990, and has been 23 basis points since January 1, 1991. However, significant
debate has ensued in Congress and within the industry as to the disparity
between bank and thrift deposit insurance premiums which arose during 1995 when
bank premiums were reduced when the target capitalization of the Bank Insurance
Fund ("BIF") was achieved. To eliminate and reduce the disparity and provide for
the recapitalization of the Savings Association Insurance Fund ("SAIF"), a
special recapitalization premium for SAIF deposits has been discussed
approximating 85 basis points. No decision has been finalized as to the
resolution of BIF/SAIF premium disparity or the fund recapitalization issue. In
the event of an 85 basis point assessment, the Bank would incur approximately
$320,000 in expense.

11. COMPENSATION AND BENEFITS

During fiscal 1994, the Bank adopted a profit sharing plan and distributes
funds earned to employees on a semiannual basis. Total distributions during 1995
related to this plan were $18,954, which are included in "Salaries and employee
benefits" in the accompanying statements of income. The Bank also adopted a
defined-contribution 401(k) plan, but does not contribute or match the
employees' contributions.

In December 1990 and November 1992, the FASB issued SFAS No. 106,
"Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112,
"Employers' Accounting for Postemployment Benefits", respectively. The Bank does
not offer these benefits, as defined, to its employees and, accordingly,

F-15
<PAGE> 81
DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

SFAS No. 106 had no effect on the Bank's 1995 financial statements and SFAS No.
112 at the date of adoption will have no effect on the Bank's financial
condition based on current activity.

12. REGULATION

As a federally chartered savings bank, the Bank is required by its primary
regulator, the Office of Thrift Supervision ("OTS"), to maintain capital
sufficient to meet three requirements, as defined: (1) a tangible capital
requirement equal to 1.5% of adjusted total assets; (2) a leverage or core
capital requirement of 3% of adjusted total assets, though it is anticipated
that most institutions will be required by the regulators to maintain capital of
an additional 100 to 200 basis points; and (3) a risk-based capital requirement
equal to 8% of risk-weighted assets, which were approximately $21,895,200 at
June 30, 1995. Assets and off-balance sheet commitments are assigned a
credit-risk weighting based upon their relative risk ranging from 0% for assets
backed by the full faith and credit of the United States Government or that pose
no credit risk to the Bank, to 100% for assets such as commercial loans,
delinquent, or repossessed assets.

The following is a reconciliation of the Bank's total stockholders' equity
to the Bank's tangible, core, and risk-based capital available to meet its
regulatory requirements:

<TABLE>
<CAPTION>
JUNE 30, 1995
-------------
<S> <C>
Stockholders' equity as reported in the accompanying financial
statements............................................................ $ 3,897,910
Intangible assets required to be deducted............................... (33,498)
Unrealized loss on debt securities available for sale................... 39,534
-----------
Tangible capital........................................................ 3,903,946
Required deductions..................................................... 0
-----------
Core capital............................................................ 3,903,946
General allowance for loan losses....................................... 135,322
-----------
Risk-based capital...................................................... $ 4,039,268
==========
</TABLE>

The following presents the Bank's capital levels and ratios compared to its
minimum capital requirements:

<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
---------- ----------
<S> <C> <C>
Tangible capital, as defined................................... $3,903,946 8.74%
Required minimum............................................... 669,946 1.50
---------- -----
Excess............................................... $3,234,000 7.24%
========= =====
Core capital, as defined....................................... $3,903,946 8.74%
Required minimum (a)........................................... 1,339,893 3.00
---------- -----
Excess............................................... $2,564,053 5.74%
========= =====
Risk-based capital............................................. $4,039,268 18.45%
Required minimum............................................... 1,751,616 8.00
---------- -----
Excess............................................... $2,287,652 10.45%
========= =====
</TABLE>

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

(a) The required minimum based on 5% would be $2,233,155, leaving an excess of
$1,670,791.

F-16
<PAGE> 82

DOTHAN FEDERAL SAVINGS BANK

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Effective December 19, 1992, the Bank became subject to additional capital
standards established by the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). These regulations established capital standards in five
categories ranging from "critically undercapitalized" to "well capitalized," and
defined "well capitalized" as at least 5% for core (leverage) capital and at
least 10% for risk-based capital. Institutions with a core capital less than 4%
or risk-based capital less than 8% are considered "undercapitalized," and
subject to increasingly stringent prompt corrective action measures. The Bank's
capital ratios above place it in the "well capitalized" category.

13. INTEREST RATE SENSITIVITY

A portion of the Bank's interest earning assets are long-term fixed rate
mortgage loans and mortgage-backed securities (approximately 79%), while its
principal source of funds are savings deposits with maturities of three years or
less (approximately 99%). Because of the short-term nature of the savings
deposits, their cost generally reflects returns currently available in the
market. Accordingly, the savings deposits have a high degree of interest rate
sensitivity while the mortgage loan portfolio, to the extent of fixed rate
loans, is relatively fixed and has much less sensitivity to changes in current
market rates. Although these conditions are somewhat mitigated by the Bank's
risk management strategies of selling long-term fixed rate loans and reinvesting
in adjustable-rate mortgage-backed securities, changes in market interest rates
tend to directly affect the level of net interest income.

14. SUBSEQUENT EVENT

On January 22, 1996, the Bank entered into a definitive agreement for the
acquisition of the Bank by The Colonial BancGroup, Inc. ("BancGroup"), in which
BancGroup will acquire all of the outstanding stock of the Bank, consideration
consisting of both shares of BancGroup's common stock and cash for an aggregate
purchase price of approximately $5,200,000. This transaction is subject to,
among other things, approval by the stockholders of the Bank and approval by the
appropriate regulatory authorities. In connection with the pending acquisition,
the Bank has entered into agreements with its president and chief executive
officer and its vice president and controller pursuant to which each could
receive cash payments following the merger, should they terminate employment
with the Bank or BancGroup following the merger. Total payments possible under
the agreements, if exercised, would approximate $54,000.

F-17
<PAGE> 83

DOTHAN FEDERAL SAVINGS BANK

CONDENSED STATEMENTS OF FINANCIAL CONDITION
MARCH 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash................................................................ $ 3,853,521 $ 1,487,601
Securities available for sale....................................... 4,900,823 5,456,746
Securities held to maturity......................................... 2,248,026 1,498,386
Loans receivable.................................................... 36,380,791 35,465,079
Land, buildings, and equipment...................................... 1,025,705 1,090,831
Real estate owned................................................... 27,479 102,352
Accrued interest and dividends receivable........................... 362,161 309,226
Other assets........................................................ 168,988 292,083
----------- -----------
$48,967,494 $45,702,304
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits............................................................ $42,362,182 $35,011,092
Federal Home Loan Bank advances..................................... 2,083,333 6,333,333
Advance payments by borrowers for taxes and insurance............... 134,203 157,050
Accrued interest payable............................................ 134,324 139,444
Accrued expenses and other liabilities.............................. 191,433 258,874
----------- -----------
Total Liabilities......................................... $44,905,475 $41,899,793
----------- -----------
Stockholders' Equity
Preferred stock, 1,000,000 shares authorized, none issued, par value
of $.01........................................................... $ 0 $ 0
Common Stock, 4,000,000 shares authorized, 399,688 issued and
outstanding, par value of $.01.................................... 3,997 3,997
Paid-in Capital..................................................... 3,329,339 3,329,339
Retained Earnings................................................... 733,190 594,746
Unrealized loss on securities available for sale, net............... (4,507) (125,571)
----------- -----------
Total Stockholders' Equity................................ $ 4,062,019 3,802,511
----------- -----------
$48,967,494 $45,702,304
========== ==========
</TABLE>

The accompanying notes are an integral part of these statements.

F-18
<PAGE> 84

DOTHAN FEDERAL SAVINGS BANK

CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995

<TABLE>
<CAPTION>
NINE MONTHS ENDED MARCH 31,
---------------------------
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
Interest Income:
Loans........................................................... $2,259,446 $2,104,612
Other investments............................................... 456,540 301,087
---------- ----------
Total interest income................................... 2,715,986 2,405,699
---------- ----------
Interest Expense
Deposits........................................................ 1,716,440 1,139,741
Other Borrowings................................................ 86,450 187,456
---------- ----------
Total interest expense.................................. 1,802,890 1,327,197
---------- ----------
Net Interest income..................................... 913,096 1,078,502
Provision for possible loan losses................................ 45,000 45,000
---------- ----------
Net interest income after provision for possible loan losses...... 868,096 1,033,502
---------- ----------
Other Income:
Other loan fees and charges..................................... 32,877 28,799
Demand deposit fees............................................. 25,822 22,187
Other income.................................................... 22,929 14,184
---------- ----------
Total other income...................................... 81,628 65,170
---------- ----------
Other Expenses:
Salaries and employee benefits.................................. 321,292 357,197
Office building and equipment................................... 87,785 99,029
Federal deposit insurance premiums.............................. 65,204 56,500
Data processing................................................. 51,475 59,460
Other expenses.................................................. 204,708 190,125
---------- ----------
Total other expenses.................................... 730,464 762,311
---------- ----------
Income before provision for income taxes................ 219,260 336,361
---------- ----------
Provision for income taxes........................................ 91,169 129,508
---------- ----------
Net Income.............................................. $ 128,091 $ 206,853
========= =========
Earnings Per Share................................................ $ 0.32 $ 0.52
========= =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-19
<PAGE> 85

DOTHAN FEDERAL SAVINGS BANK

STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK
------------------ UNREALIZED TOTAL
NUMBER OF ADDITIONAL RETAINED GAIN/(LOSS), STOCKHOLDERS'
SHARES AMOUNT PAID-IN CAPITAL EARNINGS NET EQUITY
--------- ------ --------------- -------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at June 30, 1995......................... 399,688 $3,997 $ 3,329,339 $605,099 $(40,525) $3,897,910
Net income....................................... 0 0 0 128,091 0 128,091
Change in unrealized loss on securities available
for sale, net.................................. 0 0 0 0 36,018 36,018
------- ------ ----------- -------- -------- ----------
Balance at March 31, 1996........................ 399,688 $3,997 $ 3,329,339 $733,190 $ (4,507) $4,062,019
======= ====== =========== ======== ======== =========
</TABLE>

The accompanying notes are an integral part of these statements.

F-20
<PAGE> 86

DOTHAN FEDERAL SAVINGS BANK

STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED MARCH 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 128,090 $ 206,853
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization............................................. 39,548 63,778
Accretion of deferred income.............................................. (48,374) (57,490)
Provision for losses on loans and real estate owned....................... 45,000 45,000
Loan fees deferred, net................................................... 35,738 35,978
Loss (gain), net, on sale of:
Loans and REO........................................................... (5,267) (5,427)
Equipment............................................................... (3,355) 0
Change in assets and liabilities:
Increase in accrued interest and dividends receivable................... (30,469) (15,914)
Increase in other assets................................................ (125,831) (235,627)
Increase (decrease) in current income taxes payable..................... 29,600 (42,905)
Increase in accrued expenses and other liabilities...................... 88,678 51,996
Increase (decrease) in accrued interest payable......................... (45,286) 46,026
----------- -----------
Net cash provided by operating activities............................ 108,072 92,268
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities held to maturity..................... 1,500,000 1,500,000
Proceeds from sales of securities available-for-sale........................ 2,500 0
Proceeds from sales of loans................................................ 1,691,667 1,028,550
Proceeds from sales of equipment............................................ 7,100 7,562
Repayments on securities available for sale................................. 425,921 311,416
Purchases of FHLB stock..................................................... 0 (53,200)
Purchases of securities held to maturity.................................... (2,249,531) (496,328)
Loans originated, net of repayments......................................... (1,758,007) (3,050,170)
Loans and participations purchased.......................................... (871,619) (3,555,698)
Capital expenditures........................................................ (15,863) (365,036)
----------- -----------
Net cash used in investing activities................................ (1,267,832) (4,672,904)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in deposits, net........................................ 4,735,170 2,819,608
Advances from Federal Home Loan Bank........................................ 0 16,350,000
Repayments of Federal Home Loan Bank advances............................... (583,334) (13,850,000)
Decrease in advance payments by borrowers for taxes and insurance........... (51,891) (4,897)
Cash dividends paid......................................................... 0 (59,953)
----------- -----------
Net cash (used in) provided by financing activities.................. 4,099,945 5,254,758
----------- -----------
INCREASE IN CASH AND CASH EQUIVALENTS......................................... 2,940,185 674,122
CASH AND CASH EQUIVALENTS, beginning of period................................ 913,336 813,479
----------- -----------
CASH AND CASH EQUIVALENTS, end of period...................................... 3,853,521 1,487,601
============ ============
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Income taxes.............................................................. 61,570 172,413
============ ============
Interest.................................................................. 1,848,176 1,281,171
============ ============
Noncash transactions:
Transfers of loans receivable to real estate owned........................ 0 6,000
============ ============
Increase in unrealized net loss on securities available for sale, net of
deferred tax benefit of $18,452 and $1,179, respectively................. 54,471 3,470
============ ============
</TABLE>

The accompanying notes are an integral part of these statements.

F-21
<PAGE> 87

DOTHAN FEDERAL SAVINGS BANK

NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1995

1. BASIS OF PRESENTATION

The condensed financial statements were prepared by Dothan Federal Savings
Bank (the "Bank") without audit, but in the opinion of management, reflect all
adjustments necessary for the fair presentation of the Bank's financial position
and results of operations for the nine month periods ended March 31, 1996 and
1995. Results of operations for the interim 1996 period are not necessarily
indicative of results expected for the full year. While certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted, the Bank believes that the disclosures herein are adequate to make the
information presented not misleading. These condensed financial statements
should be read in conjunction with the financial statements and the notes
thereto included in the Bank's statements of financial condition for the year
ended June 30, 1995. The accounting policies employed are the same as those
shown in Note 1 to the statements of financial condition.

2. IMPLEMENTATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NOS. 114 AND
118

During 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan," which is effective for fiscal years beginning after
December 15, 1994. SFAS No. 114 requires that impaired loans be valued based on
the present value of those loans' estimated cash flows at each loan's effective
interest rate or the loan's observable market price or the fair value of the
underlying collateral. In October 1994, the FASB issued SFAS No. 118,
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures", an amendment to SFAS No. 114. SFAS No. 118 amends SFAS No. 114 to
allow a creditor to use existing methods for recognizing interest on an impaired
loan. Management adopted SFAS Nos. 114 and 118 as of July 1, 1995; however,
given the Bank's current loan portfolio composition, the impact of adoption was
not material.

3. FDIC ASSESSMENTS

The FDIC-SAIF assessments became effective January 1, 1990. The FDIC
assessment rate was 20.8 basis points of insured deposits through December 31,
1990, and has been 23 basis points since January 1, 1991. However, significant
debate has ensued in Congress and within the industry as to the disparity
between bank and thrift deposit insurance premiums which arose during 1995 when
bank premiums were reduced when the target capitalization of the Bank Insurance
Fund ("BIF") was achieved. To eliminate or reduce the disparity and provide for
the recapitalization of the Savings Association Insurance Fund ("SAIF"), a
special recapitalization premium for SAIF deposits has been discussed
approximating 85 basis points. No decision has been finalized as to the
resolution of BIF/SAIF premium disparity or the fund recapitalization issue. In
the event of an 85 basis point assessment, the Bank would incur approximately
$320,000 in expense.

4. SUBSEQUENT EVENT

On January 22, 1996, the Bank entered into a definitive agreement for the
acquisition of the Bank by the Colonial BancGroup, Inc. ("BancGroup"), in which
BancGroup will acquire all of the outstanding stock of the Bank, consideration
consisting of both shares of BancGroup's common stock and cash for an aggregate
purchase price approximating $5,200,000. This transaction is subject to, among
other things, approval by the stockholders of the Bank and approval by the
appropriate regulatory authorities. In connection with the pending acquisition,
the Bank has entered into agreements with its president and chief executive
officer and its vice president and controller, pursuant to which each could
receive cash payments following the merger should they terminate employment with
the Bank or BancGroup following the merger. Total payments possible under the
agreements, if exercised, would approximate $54,000.

F-22
<PAGE> 88

INDEPENDENT AUDITORS' REPORT

The Board of Directors and Stockholders
Commercial Bancorp of Georgia, Inc.
and Subsidiary
Lawrenceville, Georgia

We have audited the accompanying consolidated balance sheets of Commercial
Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett,
Inc.) and subsidiary as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of Commercial Bancorp of Georgia, Inc.'s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. We audited the consolidated financial statements
of Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of
Gwinnett, Inc.) and subsidiary as of December 31, 1993, and for the year then
ended, and our report, dated January 25, 1994, expressed an unqualified opinion
on those statements. The consolidated financial statements of the former
Commercial Bancorp of Georgia, Inc. and subsidiary as of December 31, 1993, and
for the year then ended, were audited by other auditors whose report, dated
March 2, 1994, expressed an unqualified opinion on those statements.

The consolidated financial statements of Commercial Bancorp of Georgia,
Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) as of December 31,
1994, and for the two years in the period then ended, have been restated to
reflect the 1995 pooling of interests with the former Commercial Bancorp of
Georgia, Inc., as described in Note B of the consolidated financial statements.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of
Gwinnett, Inc.) and subsidiary as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles. We also
audited the combination of the accompanying consolidated statements of income
and cash flows for the year ended December 31, 1993, after restatement for the
1995 pooling of interests. In our opinion, such consolidated statements have
been properly combined on the basis described in Note A to the consolidated
financial statements.

As discussed in Note A to the consolidated financial statements, in 1995
the Company adopted the provisions of Statement of Financial Accounting
Standards No. 114 on the accounting for impaired loans.

BRICKER & MELTON, P.A.

March 15, 1996
Duluth, Georgia

F-23
<PAGE> 89

COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks (Note D).................................. $ 21,606,814 $ 12,164,453
Interest-bearing deposits in other banks.......................... -- 200,000
Federal funds sold................................................ 18,939,000 14,610,000
Investment securities held to maturity (market value of
$14,513,114 and $18,226,280 for 1995 and 1994, respectively)
(Note E)........................................................ 14,501,738 19,096,399
Investment securities available for sale (Note E)................. 21,310,904 7,311,800
Other investments................................................. -- 180,000
Loans, net of deferred loan fees (Notes F and L).................. 144,930,447 135,702,655
Loans held for sale............................................... -- 189,590
Less: Allowance for loan losses................................... (2,619,545) (1,966,411)
------------ ------------
Loans, net.............................................. 142,310,902 133,925,834
Premises and equipment, net (Note G).............................. 5,786,453 5,995,057
Other real estate, net (Note H)................................... 1,102,261 1,480,417
Intangible assets, net of accumulated amortization of $595,781 and
$432,491 for 1995 and 1994, respectively........................ 821,347 984,637
Accrued interest receivable....................................... 1,728,691 1,532,366
Other assets (Note J)............................................. 2,598,764 1,896,522
------------ ------------
TOTAL ASSETS............................................ $230,706,874 $199,377,485
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand................................... $ 35,030,207 $ 38,075,216
Interest-bearing demand and money market..................... 49,657,927 46,423,500
Savings...................................................... 5,382,903 5,744,815
Time deposits of $100,000 or more............................ 26,273,745 18,766,716
Other time deposits.......................................... 90,285,240 69,253,881
------------ ------------
Total Deposits.......................................... 206,630,022 178,264,128
------------ ------------
Note payable (Note L)........................................ -- 50,000
Obligation under capital leases (Note G)..................... 103,079 160,692
Accrued interest payable..................................... 1,694,426 1,066,201
Accrued merger expenses (Note C)............................. 1,272,941 --
Other liabilities............................................ 1,215,759 1,104,624
------------ ------------
TOTAL LIABILITIES....................................... 210,916,227 180,645,645
------------ ------------
STOCKHOLDERS' EQUITY (Note M)
Common stock -- $1 par value: 10,000,000 shares authorized,
1,856,711 shares issued and outstanding...................... 1,856,711 1,856,711
Surplus......................................................... 16,090,386 16,090,386
Retained earnings............................................... 1,904,740 1,236,769
Treasury stock, at cost, 30,000 shares.......................... (300,000) (300,000)
Market valuation reserve on investment securities available for
sale (Note E)................................................ 238,810 (152,026)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY.............................. 19,790,647 18,731,840
------------ ------------
Commitments and contingent liabilities (Notes N and O)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $230,706,874 $199,377,485
=========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-24
<PAGE> 90
COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees....................................... $16,054,571 $12,517,671 $10,853,400
Investment securities:
Taxable................................................... 1,690,133 1,217,364 1,123,736
Tax-exempt................................................ 20,539 10,693 2,231
Dividends................................................. 3,060 10,800 10,800
Federal funds sold.......................................... 1,200,394 586,398 336,179
Deposits in other banks..................................... 4,558 4,295 --
----------- ----------- -----------
TOTAL INTEREST INCOME................................ 18,973,255 14,347,221 12,326,346
----------- ----------- -----------
INTEREST EXPENSE
Interest-bearing demand and money market.................... 1,753,461 1,427,552 1,304,223
Savings..................................................... 164,857.... 162,809 118,444
Time deposits of $100,000 or more........................... 1,360,400 857,799 705,595
Other time deposits......................................... 5,081,669 2,978,769 2,635,520
Obligation under capital leases (Note G).................... 7,700 12,171 14,970
Other (Notes K and L)....................................... 21,586 18,906 13,533
----------- ----------- -----------
TOTAL INTEREST EXPENSE............................... 8,389,673 5,458,006 4,792,285
----------- ----------- -----------
NET INTEREST INCOME.................................. 10,583,582 8,889,215 7,534,061
PROVISION FOR LOAN LOSSES (Note F)............................ 1,345,191 694,967 438,854
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES............................................. 9,238,391 8,194,248 7,095,207
----------- ----------- -----------
OTHER INCOME
Service charges on deposit accounts......................... 953,343 918,899 671,802
Investment securities gains, net (Note E)................... -- -- 66,912
Gains on sales of SBA loan participations................... 394,594 526,400 529,942
Fees/gains on the origination/sale of mortgage loans........ 110,951 164,032 473,574
Loan servicing fees......................................... 345,606 254,723 185,962
Debit card servicing fees................................... 241,051 116,307 --
Other income................................................ 192,061 234,886 205,611
----------- ----------- -----------
TOTAL OTHER INCOME................................... 2,237,606 2,215,247 2,133,803
----------- ----------- -----------
OTHER EXPENSE
Salaries and employee benefits (Note K)..................... 4,399,640 4,518,188 4,045,739
Net occupancy and equipment expense (Note G)................ 1,251,805 1,403,746 1,237,045
Other real estate expense (Note H).......................... 315,222 308,872 142,030
Amortization expense........................................ 163,290 157,594 158,540
Pending merger expense (Note C)............................. 1,272,941 -- --
Other expense (Note P)...................................... 2,559,115 2,824,909 2,280,444
----------- ----------- -----------
TOTAL OTHER EXPENSE.................................. 9,962,013 9,213,309 7,863,798
----------- ----------- -----------
INCOME BEFORE INCOME TAXES........................... 1,513,984 1,196,186 1,365,212
INCOME TAX EXPENSE (Note J)................................... 846,013 498,408 479,024
----------- ----------- -----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLES.............................. 667,971 697,778 886,188
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES FOR
INCOME TAXES (Note J)....................................... -- -- 383,691
----------- ----------- -----------
NET INCOME........................................... $ 667,971 $ 697,778 $ 1,269,879
=========== =========== ===========
EARNINGS PER SHARE (Note A)
Before cumulative effect of change.......................... $ .37 $ .38 $ .49
Cumulative effect of change................................. -- -- .21
----------- ----------- -----------
Primary..................................................... $ .37 $ .38 $ .70
=========== =========== ===========
Fully diluted............................................... $ .33 $ .38 $ .70
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-25
<PAGE> 91

COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
----------------------------------------------------------------------------
MARKET
COMMON RETAINED TREASURY VALUATION
STOCK SURPLUS EARNINGS STOCK RESERVE TOTAL
---------- ----------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1992...... $ 620,000 $ 5,454,022 $(1,020,736) $ -- $ -- $ 5,053,286
Effect of merger with the former
Commercial Bancorp of Georgia,
Inc. (Note B)................... 1,236,711 10,636,364 289,848 (300,000) -- 11,862,923
Net income........................ -- -- 1,269,879 -- -- 1,269,879
---------- ----------- ----------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1993...... 1,856,711 16,090,386 538,991 (300,000) -- 18,186,088
Net income........................ -- -- 697,778 -- -- 697,778
Market valuation adjustment....... -- -- -- -- (152,026) (152,026)
---------- ----------- ----------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1994...... 1,856,711 16,090,386 1,236,769 (300,000) (152,026) 18,731,840
Net income........................ -- -- 667,971 -- -- 667,971
Market valuation adjustment....... -- -- -- -- 390,836 390,836
---------- ----------- ----------- --------- --------- -----------
BALANCE AT DECEMBER 31, 1995...... $1,856,711 $16,090,386 $ 1,904,740 $(300,000) $ 238,810 $19,790,647
========== ============ ============ ========== ========== ============
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-26
<PAGE> 92

COMMERCIAL BANCORP OF GEORGIA, INC.
AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................................... $ 667,971 $ 697,778 $ 1,269,879
Adjustments to reconcile net income to net cash provided by operating
activities:
Cumulative effect of change in accounting principles................... -- -- (383,691)
Provision for loan losses.............................................. 1,345,191 694,967 438,854
Net amortization on investment securities.............................. 35,543 58,068 149,280
Depreciation and amortization.......................................... 583,318 656,940 631,128
Amortization of intangible assets...................................... 163,290 157,594 158,540
Provision for losses on other real estate.............................. 238,173 231,939 27,751
Investment securities gains, net....................................... -- -- (66,912)
Deferred income tax benefit............................................ (549,338) (441,699) (63,025)
(Increase) decrease in loans held for sale............................. 189,590 2,617,474 (616,414)
Gains on sales of SBA loans............................................ (394,594) (526,400) (529,942)
(Increase) decrease in interest receivable............................. (196,325) (451,067) 32,917
Increase in interest payable........................................... 628,225 221,225 195,113
(Increase) decrease in other assets.................................... (354,243) 54,497 (86,398)
Increase in accrued merger expenses.................................... 1,272,941 -- --
Increase in other liabilities.......................................... 111,135 225,150 592,872
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 3,740,877 4,196,466 1,749,952
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
(Increase) decrease in interest-bearing deposits in other banks........ 200,000 (200,000) 1,682,000
Purchases of investment securities held to maturity.................... (4,051,986) (6,590,000) (5,311,044)
Purchases of investment securities available for sale.................. (18,457,557) (7,423,081) (10,305,683)
Proceeds from sales of investment securities........................... -- -- 6,150,146
Proceeds from sales of other investments............................... 180,000 -- --
Maturities of investment securities held to maturity................... 8,610,975 2,956,286 3,496,175
Maturities of investment securities available for sale................. 5,050,757 4,731,165 6,326,704
Proceeds from sales of SBA loans....................................... 5,018,637 7,027,300 5,734,588
Loans originated or acquired, net of principal repayments.............. (15,703,127) (31,547,292) (20,447,741)
Purchases of premises and equipment.................................... (374,714) (986,397) (494,501)
Capital improvements to other real estate.............................. (66,551) (331,898) (97,378)
Proceeds from sales of other real estate............................... 1,365,769 1,558,021 1,512,170
------------ ------------ ------------
NET CASH USED BY INVESTING ACTIVITIES............................ (18,227,797) (30,805,896) (11,754,564)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in federal funds purchased.................................... -- -- (1,500,000)
Net increase (decrease) in demand, money market and savings accounts... (172,494) 13,998,284 8,934,421
Time deposits accepted, net of repayments.............................. 28,538,388 12,211,051 17,267,714
Reduction of capital lease obligation.................................. (57,613) (128,498) (181,085)
Proceeds from note payable............................................. -- 50,000 --
Repayment of note payable.............................................. (50,000) -- --
------------ ------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES........................ 28,258,281 26,130,837 24,521,050
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..................... 13,771,361 (478,593) 14,516,438
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........................... 26,774,453 27,253,046 12,736,608
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR................................. $ 40,545,814 $ 26,774,453 $ 27,253,046
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest............................................................... $ 7,761,448 $ 5,236,781 $ 4,656,511
=========== =========== ===========
Income taxes........................................................... $ 1,872,283 $ 1,214,700 $ 289,500
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES:
Real estate acquired in settlement of loans............................ $ 1,159,235 $ 1,560,749 $ 504,323
=========== =========== ===========
Transfers of investment securities to held to maturity................. $ -- $ 9,286,388 $ --
=========== =========== ===========
Transfers of investment securities to available for sale............... $ -- $ 2,553,851 $ 9,267,563
=========== =========== ===========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-27
<PAGE> 93

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Commercial Bancorp of Georgia, Inc. and subsidiary provide a full range of
banking services in metropolitan Atlanta through its offices in Gwinnett,
Fulton, Cobb and DeKalb counties.

The accounting and reporting policies of Commercial Bancorp of Georgia,
Inc. and subsidiary conform to generally accepted accounting principles and to
general practices within the banking industry. The following is a summary of the
more significant of these policies.

The financial statements have been prepared in conformity with generally
accepted accounting principles. In preparing the financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the balance sheet
and revenues and expenses for the period. Actual results could differ
significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate, for example, to the
determination of the allowance for loan losses, the market valuation reserve on
investment securities available for sale, and the valuation of other real estate
acquired in connection with foreclosures or in satisfaction of loans. Management
believes that the allowance for loan losses is adequate, the decline in market
value of investment securities available for sale is temporary, and the
valuation of other real estate is appropriate. While management uses available
information to recognize losses on loans, future additions to the allowance may
be necessary based on changes in economic conditions. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the allowance for loan losses and valuation of other real
estate. Such agencies may require the recognition of additions to the allowance
or valuation adjustments to other real estate based on their judgments about
information available to them at the time of their examination.

BASIS OF PRESENTATION

The consolidated financial statements of Commercial Bancorp of Georgia,
Inc. (formerly Commercial Bancorp of Gwinnett, Inc.) (Parent Company) and its
wholly-owned subsidiary, Commercial Bank of Georgia (formerly known as
Commercial Bank of Gwinnett), collectively known as the Company, as of December
31, 1994, and for the two years in the period then ended, have been restated to
reflect the 1995 pooling of interests with the former Commercial Bancorp of
Georgia, Inc. and subsidiary as described in Note B. These restated consolidated
financial statements include the accounts of both entities and their wholly-
owned subsidiaries. The stock of the Parent Company held by the former
Commercial Bancorp of Georgia, Inc. has been treated as treasury stock. All
other significant intercompany accounts and transactions have been eliminated in
consolidation.

INVESTMENT SECURITIES

Investment securities which management has the ability and intent to hold
to maturity are reported at cost, adjusted for amortization of premium and
accretion of discount. Investment securities available for sale are reported at
fair value, with unrealized gains and losses reported as a separate component of
stockholders' equity, net of the related tax effect. Other investments are
reported at cost. Earnings are reported when interest is accrued or when
dividends are received.

Premium and discount on all investment securities are amortized (deducted)
and accreted (added), respectively, to interest income on the effective yield
method over the period to the maturity of the related securities. Premium and
discount on mortgage-backed securities are amortized (deducted) and accreted
(added), respectively, to interest income using a method which approximates a
level yield over the period to maturity of the related securities taking into
consideration assumed prepayment patterns.

Gains or losses on disposition are computed by the specific identification
method for all securities.

F-28
<PAGE> 94

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

LOANS

Loans are reported at the gross amount outstanding less net deferred loan
fees and a valuation allowance for loan losses. Interest income on all loans is
recognized over the terms of the loans based on the unpaid daily principal
amount outstanding. If the collectibility of interest appears doubtful, the
accrual thereof is discontinued. Loan origination fees, net of direct loan
origination costs, are deferred and recognized as income over the life of the
related loan on a level-yield basis. Income on impaired loans is recognized
using both the interest income and the cash basis methods.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 114 (SFAS 114) on accounting by creditors for
impairment of a loan. SFAS 114, as amended by SFAS 118, requires that impaired
loans be measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's fair value if
the loan is collateral dependent. The provisions of SFAS 114 were effective for
the Company beginning in 1995. The adoption did not have a significant adverse
effect on the Company.

Loans held for sale represent loans originated for sale by the Company in
the secondary market and are reported at the lower of cost or market.

Gains and losses on sales of loans and participating interests in loans are
recognized at the time of sale, as determined by the difference between the net
sales proceeds and the fair value of the loans sold. Discounts recorded to
adjust the value of the portions of the loans retained to fair value are
amortized to income over the life of the loan. Gains on sales of SBA loans are
deferred and recognized as income when all conditions of the sale have been met.

ALLOWANCE FOR LOAN LOSSES

The allowance for loan losses is established through a provision for loan
losses charged to expense. The allowance represents an amount which, in
management's judgment, will be adequate to absorb probable losses on existing
loans that may become uncollectible. Management's judgment in determining the
adequacy of the allowance is based on evaluations of the collectibility of loans
and takes into consideration such factors as changes in the nature and volume of
the loan portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality and review of specific problem loans.
Periodic revisions are made to the allowance when circumstances which
necessitate such revisions become known. Recognized losses are charged to the
allowance for loan losses, while subsequent recoveries are added to the
allowance.

PREMISES AND EQUIPMENT

Premises and equipment are reported at cost less accumulated depreciation
and amortization. For financial reporting purposes, depreciation and
amortization are computed using primarily straight-line methods over the
estimated useful lives of the assets. Capital lease assets are amortized over
the shorter of the estimated useful lives of the assets or term of the related
leases. Expenditures for maintenance and repairs are charged to operations as
incurred, while major renewals and betterments are capitalized. When property is
disposed of, the related cost and accumulated depreciation are removed from the
accounts and any gain or loss is reflected in income. For Federal tax reporting
purposes, depreciation and amortization are computed using primarily accelerated
methods.

OTHER REAL ESTATE

Other real estate represents property acquired through foreclosure or in
settlement of loans and is recorded at the lower of cost or fair value less
estimated selling expenses and a valuation allowance for losses. The allowance
represents an amount which, in management's judgement, will be adequate to
absorb probable losses. Losses incurred in the acquisition of foreclosed
properties are charged against the allowance for loan

F-29
<PAGE> 95

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

losses at the time of foreclosure. Provisions for subsequent devaluation of
other real estate are charged against the current period's operations. Losses on
disposal of other real estate are charged to the valuation allowance for losses.
Costs associated with improving the property are capitalized to the extent fair
value less estimated selling expenses is not exceeded. Holding costs for other
real estate are expensed as incurred.

ORGANIZATIONAL COSTS

The expenses associated with the formation of the Company were capitalized
as organizational costs and are being amortized on the straight-line method over
five years.

INTANGIBLE ASSETS

Intangible assets, primarily arising from premiums paid in acquiring
deposits of other financial institutions, are amortized on a straight-line basis
over a period of 120 months. Certain legal and other costs incurred in
connection with the acquisition of branch facilities and related deposits from
other financial institutions have been capitalized and are amortized using the
straight-line method over 60 months.

INCOME TAXES

The tax effect of transactions is recorded at current tax rates in the
periods the transactions are reported for financial statement purposes. Deferred
income taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. The Company files its income tax returns on a consolidated basis.

PENDING ACCOUNTING PRONOUNCEMENTS

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company is
required to implement SFAS 121 by December 31, 1996. The provisions of SFAS 121
will require the Company to review long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption is not expected to have a significant
impact on the Company.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 122 (SFAS 122), "Mortgage Servicing Rights," as an
amendment to SFAS 65. The Company is required to implement SFAS 122 by December
31, 1996. The provisions of SFAS 122 eliminate the accounting distinction
between rights to service mortgage loans that are acquired through loan
origination and those acquired through purchase. The adoption is not expected to
have a significant impact on the Company.

The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123 (SFAS 123), "Accounting for Stock-Based
Compensation." The Company is required to implement SFAS 123 in 1996. SFAS 123
establishes a method of accounting for stock compensation plans based on fair
value. Companies are permitted to continue to use the existing method of
accounting but are required to disclose pro forma net income and earnings per
share as if SFAS 123 had been used to measure compensation cost. The adoption of
SFAS 123 is not expected to have a significant impact on the Company.

EARNINGS PER SHARE

Primary earnings per share is based on the weighted average number of
shares outstanding during the period (1,826,711 in 1995, 1994 and 1993) and
common stock equivalents which would arise from the assumed exercise of
outstanding options and warrants unless their effect would be antidilutive.
Stock options and warrants, as described in Note M, are considered to be common
stock equivalents. For purposes of the

F-30
<PAGE> 96

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

fully diluted computation, the number of shares that would be issued from the
exercise of stock options and warrants has been reduced by the number of shares
which could have been purchased from the proceeds at the market price of the
Company's stock on December 31, 1995, because that price was higher than the
average market price during the year. The number of shares used in the
computation of fully diluted earnings per share in 1995 is 2,034,063.

FINANCIAL INSTRUMENTS

In the ordinary course of business, the Bank has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit and standby letters of credit. Such financial instruments are recorded in
the financial statements when they are funded or related fees are incurred or
received.

FAIR VALUES OF FINANCIAL INSTRUMENTS

The Company uses the following methods and assumptions in estimating fair
values of financial instruments:

Cash and cash equivalents

The carrying amount of cash and cash equivalents approximates fair value.

Investment securities

The fair value of investment securities held to maturity and available for
sale is estimated based on quotes received from independent pricing services.

Loans

For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For all other
loans, fair values are calculated by discounting the contractual cash flows
using estimated market discount rates which reflect the credit and interest rate
risk inherent in the loan, or by using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.

Deposits

The fair value of deposits with no stated maturity, such as demand, NOW and
money market, and savings accounts, is equal to the amount payable on demand at
year-end. The fair value of certificates of deposit is based on the discounted
value of contractual cash flows using the rates currently offered for deposits
of similar remaining maturities.

Capital lease obligations

The fair value of the Company's capital lease obligations is estimated
using discounted cash flow analyses based on the current borrowing rate for
similar types of arrangements.

Accrued interest

The carrying amount of accrued interest receivable and payable approximates
fair value.

F-31
<PAGE> 97

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Off-balance-sheet instruments

Fair values for off-balance-sheet lending commitments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the borrowers' credit standing.

The requirements of Statement of Financial Accounting Standards No. 107
(SFAS 107), "Disclosure About Fair Value of Financial Instruments," was
effective for financial statements of entities with less than $150 million in
total assets for fiscal years ending after December 15, 1995. At December 31,
1994, prior to the merger, Commercial Bank of Georgia and the former Commercial
Bank of Gwinnett each had less than $150 million in total assets and, therefore,
were not required to adopt SFAS 107 until 1995.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include
cash on hand, noninterest-bearing amounts due from banks and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.

RECLASSIFICATIONS

Certain reclassifications have been made in the 1994 and 1993 financial
statements to conform with the 1995 presentation.

NOTE B. BUSINESS COMBINATION AND RESTATEMENT OF FINANCIAL STATEMENTS

On March 2, 1995, the former Commercial Bancorp of Georgia, Inc. merged
with Commercial Bancorp of Gwinnett, Inc., and Commercial Bancorp of Gwinnett,
Inc., the surviving entity, changed its name to Commercial Bancorp of Georgia,
Inc. On September 30, 1995, Commercial Bank of Georgia merged with Commercial
Bank of Gwinnett, and Commercial Bank of Gwinnett, the surviving entity, changed
its name to Commercial Bank of Georgia. A total of 1,236,711 shares of
Commercial Bancorp of Gwinnett, Inc. stock was issued for all of the issued and
outstanding shares of the former Commercial Bancorp of Georgia, Inc. No cash,
except for nominal dissenting shareholders and fractional shares, was paid in
the transaction.

The transaction was accounted for as a pooling of interests. The financial
statements as of December 31, 1994, and for the two years in the period then
ended, have been restated to include the financial position and results of
operations of the former Commercial Bancorp of Georgia, Inc.

F-32
<PAGE> 98

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company's consolidated financial data have been restated as follows:

<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-----------------------
1994 1993
---------- ----------
<S> <C> <C>
Net Interest Income:
Commercial Bancorp of Gwinnett, before merger............. $2,988,641 $2,264,431
Commercial Bancorp of Georgia............................. 5,900,574 5,269,630
---------- ----------
Total....................................................... $8,889,215 $7,534,061
========= =========
Net Income:
Commercial Bancorp of Gwinnett, before merger............. $ 340,596 $ 751,743
Commercial Bancorp of Georgia............................. 357,182 518,136
---------- ----------
Total....................................................... $ 697,778 $1,269,879
========= =========
Net Income Per Share:
Commercial Bancorp of Gwinnett, before merger............. $ .55 $ 1.21(1)
Effect of restatement for Commercial Bancorp of Georgia... (.17) (.51)
---------- ----------
Total....................................................... $ .38 $ .70
========= =========
</TABLE>

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

(1) Includes a $383,691 increase in net income for cumulative effect of change
in accounting principles for income taxes.

NOTE C. PENDING MERGER

During December 1995, the Company and The Colonial BancGroup, Inc.
(Colonial) entered into an agreement to merge the two companies. The agreement
provides that, upon consummation of the merger, each outstanding share of
Commercial Bancorp of Georgia, Inc. common stock shall be converted and
exchanged for the right to receive the number of shares of Colonial common stock
equal to $21.07 divided by the market value, as defined, of Colonial's common
stock. The merger will be accounted for as a pooling of interests. As of
December 31, 1995, the Company has accrued $1,272,941 in expenses related to the
pending merger. The merger is subject to regulatory and shareholder approval and
is anticipated to be consummated during the third quarter of 1996.

NOTE D. CASH AND DUE FROM BANKS

A bank is required to maintain average reserve balances with the Federal
Reserve Bank, on deposit with national banks or in cash. The Bank's reserve
requirement at December 31, 1995 and 1994, was approximately $1,039,000 and
$1,048,000, respectively. The Bank maintained cash balances which were adequate
to meet this requirement.

F-33
<PAGE> 99

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E. INVESTMENT SECURITIES

The amortized cost and estimated market value of investment securities held
to maturity are as follows at December 31:

<TABLE>
<CAPTION>
1995
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 3,028,525 $ 8,366 $ 10,076 $ 3,026,815
U.S. Government agencies and
corporations........................... 3,506,950 5,916 21,319 3,491,547
Mortgage-backed securities............... 7,571,900 45,034 22,067 7,594,867
States and political subdivisions........ 394,363 5,522 -- 399,885
----------- ---------- ---------- -----------
$14,501,738 $ 64,838 $ 53,462 $14,513,114
========== ======== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
1994
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 6,042,396 $ -- $ 262,964 $ 5,779,432
U.S. Government agencies and
corporations........................... 7,558,899 -- 368,318 7,190,581
Mortgage-backed securities............... 4,300,822 -- 198,968 4,101,854
States and political subdivisions........ 894,312 -- 32,789 861,523
Other securities......................... 299,970 -- 7,080 292,890
----------- ---------- ---------- -----------
$19,096,399 $ -- $ 870,119 $18,226,280
========== ======== ======== ==========
</TABLE>

The amortized cost and estimated market value of investment securities
available for sale are as follows at December 31:

<TABLE>
<CAPTION>
1995
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 1,702,570 $ 8,995 $ 1,530 $ 1,710,035
U.S. Government agencies and
corporations........................... 17,039,466 321,250 2,420 17,358,296
Mortgage-backed securities............... 2,207,034 35,539 -- 2,242,573
----------- ---------- ---------- -----------
$20,949,070 $ 365,784 $ 3,950 $21,310,904
========== ======== ======== ==========
</TABLE>

<TABLE>
<CAPTION>
1994
---------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
U.S. Treasury securities................. $ 4,697,116 $ -- $ 110,703 $ 4,586,413
U.S. Government agencies and
corporations........................... 1,247,515 -- 97,128 1,150,387
Mortgage-backed securities............... 1,597,510 -- 22,510 1,575,000
----------- ---------- ---------- -----------
$ 7,542,141 $ -- $ 230,341 $ 7,311,800
========== ======== ======== ==========
</TABLE>

In conjunction with the adoption of SFAS 115, in 1994 the Company
transferred investment securities totaling $9,286,388 from available for sale to
held to maturity and securities totaling $2,553,851 to available for sale due to
management's reevaluation of the investment portfolio.

The unrealized gain on available for sale securities, net of the related
deferred taxes of $123,024, is $238,810 at December 31, 1995, and is included as
a separate component of stockholders' equity. The unrealized loss on available
for sale securities, net of the related deferred taxes of $78,315, is $152,026
at December 31, 1994, and is included as a separate component of stockholders'
equity.

F-34
<PAGE> 100

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The amortized cost and estimated market value of investment securities held
to maturity and available for sale at December 31, 1995, by contractual
maturity, are shown below. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
without call or prepayment penalties. Mortgage-backed securities have been
allocated based on stated maturity dates after considering assumed prepayment
patterns.

<TABLE>
<CAPTION>
INVESTMENT SECURITIES INVESTMENT SECURITIES
HELD TO MATURITY AVAILABLE FOR SALE
------------------------- -------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Due in one year or less..................... $ 2,381,985 $ 2,395,764 $ -- $ --
Due after one year through five years....... 7,744,780 7,714,781 10,242,037 10,364,629
Due after five years through ten years...... -- -- 9,105,498 9,339,342
Due after ten years......................... 4,374,973 4,402,569 1,601,535 1,606,933
----------- ----------- ----------- -----------
$14,501,738 $14,513,114 $20,949,070 $21,310,904
========== ========== ========== ==========
</TABLE>

There were no sales of investment securities during 1995 and 1994. Proceeds
from sales of investment securities during 1993 were $6,150,146, with gross
gains of $66,912 and gross losses of $0 realized on those transactions.

Investment securities with carrying values of $1,534,254 and $1,542,548 and
approximate market values of $1,531,728 and $1,589,798 at December 31, 1995 and
1994, respectively, were pledged to secure public funds and certain other
deposits as required by law.

At December 31, 1995, the Company has no outstanding derivative financial
instruments such as swaps, options, futures or forward contracts.

NOTE F. LOANS

Major classifications of loans are as follows at December 31:

<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Commercial, financial and agricultural............................ $ 34,522,237 $ 39,884,915
Real estate -- construction....................................... 58,109,400 50,979,892
Real estate -- mortgage........................................... 45,040,309 36,636,921
Consumer, installment and other loans............................. 8,001,055 8,900,980
------------ ------------
Total loans............................................. 145,673,001 136,402,708
Less: Net deferred loan fees...................................... (742,554) (700,053)
------------ ------------
Loans, net of deferred loan fees........................ $144,930,447 $135,702,655
=========== ===========
</TABLE>

Most of the Bank's business activity is with customers located within the
Atlanta metropolitan area. As of December 31, 1995 and 1994, the Bank had a
concentration of credit risk aggregating approximately $103,150,000 and
$87,617,000, respectively, in loans secured by real estate.

At December 31, 1995 and 1994, non-accrual loans totaled approximately
$734,000 and $770,000, respectively. If such loans had been on a full-accrual
basis, interest income would have been approximately $42,000 and $30,000 higher,
respectively. At December 31, 1995 and 1994, renegotiated and/or restructured
loans totaled approximately $765,000 and $1,026,000, respectively.

At December 31, 1995, the Bank has approximately $1,787,000 in loans which
are impaired under SFAS 114. Loans totaling approximately $1,537,000, which are
secured by real estate, have not been allocated a specific impairment reserve.
These loans are considered collateral dependent and foreclosure is probable.

F-35
<PAGE> 101

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Based on the fair market value of the properties, management expects the Bank to
incur no loss upon the subsequent disposition of the collateral. The allowance
for impaired loans at December 31, 1995, is approximately $182,000. The average
outstanding amount of impaired loans during 1995 is approximately $1,254,000.

The following is a summary of transactions in the allowance for loan losses
for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Balance, beginning of year......................... $1,966,411 $1,412,732 $1,189,398
Provision charged to expense....................... 1,345,191 694,967 438,854
Loans charged off.................................. (761,339) (216,922) (247,345)
Recoveries of loans charged off.................... 69,282 75,634 31,825
---------- ---------- ----------
Balance, end of year............................... $2,619,545 $1,966,411 $1,412,732
========= ========= =========
</TABLE>

NOTE G. PREMISES AND EQUIPMENT

Premises and equipment are comprised of the following at December 31:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Land.......................................................... $1,453,814 $1,453,814
Buildings..................................................... 3,859,347 3,820,219
Leasehold improvements........................................ 428,203 454,641
Furniture, fixtures and equipment............................. 2,068,158 1,864,321
Capital lease assets for furniture, fixtures and equipment.... 685,342 610,492
---------- ----------
8,494,864 8,203,487
Less: Accumulated depreciation and amortization............... (2,112,248) (1,719,433)
Accumulated depreciation of capital lease assets........ (596,163) (488,997)
---------- ----------
$5,786,453 $5,995,057
========= =========
</TABLE>

The charge to operating expense for depreciation and amortization,
including amortization of capital lease assets, was $583,318, $656,940 and
$631,128 in 1995, 1994 and 1993, respectively.

Future minimum lease payments under capital lease obligations and the
present value of the net minimum lease payments at December 31, 1995, are as
follows:

<TABLE>
<CAPTION>
YEAR AMOUNTS
-------------------------------------------------------------------------- --------
<S> <C>
1996...................................................................... $ 89,058
1997...................................................................... 18,271
--------
Total minimum lease payments.................................... 107,329
Less amount representing interest......................................... (4,250)
--------
Present value of net minimum lease payments............................... $103,079
========
</TABLE>

F-36
<PAGE> 102

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The Company leases office space under noncancelable operating lease
agreements with remaining terms in excess of one year. Future minimum annual net
rentals required under the terms of these operating leases at December 31, 1995,
are as follows:

<TABLE>
<CAPTION>
YEAR AMOUNTS
-------------------------------------------------------------------------- --------
<S> <C>
1996...................................................................... $224,080
1997...................................................................... 122,452
1998...................................................................... 50,400
1999...................................................................... 50,400
2000...................................................................... 50,400
Thereafter................................................................ 104,400
--------
$602,132
========
</TABLE>

Rental expense charged to operations was approximately $303,000, $326,000
and $339,000 in 1995, 1994 and 1993, respectively. Rental income of
approximately $101,000, $125,000 and $123,000 for 1995, 1994 and 1993,
respectively, is included as a reduction of net occupancy expense in the
consolidated statements of income.

NOTE H. OTHER REAL ESTATE

The following is a summary of transactions in the valuation allowance for
losses on other real estate for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Balance, beginning of year.................................... $ 200,000 $ 4,000
Provision charged to expense.................................. 238,173 231,939
Losses charged off............................................ (129,673) (35,939)
--------- --------
Balance, end of year.......................................... $ 308,500 $200,000
========= ========
</TABLE>

Net expenses of other real estate totaled $315,222, $308,872 and $142,030
for the years ended December 31, 1995, 1994 and 1993, respectively.

NOTE I. SHORT-TERM BORROWINGS

The Bank utilizes short-term borrowings as needed for liquidity purposes in
the form of federal funds purchased. The Bank has unsecured lines of credit for
federal funds purchased from other banks totaling $8,000,000. At December 31,
1995 and 1994, there were no amounts outstanding under these lines.

NOTE J. INCOME TAXES

The following are the components of income tax expense as provided for the
years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- --------
<S> <C> <C> <C>
Current income tax provision....................... $1,395,351 $ 940,107 $542,049
Deferred income tax benefit........................ (549,338) (441,699) (63,025)
---------- --------- --------
$ 846,013 $ 498,408 $479,024
========= ========= ========
</TABLE>

F-37
<PAGE> 103

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A reconciliation of income tax computed at the Federal statutory income tax
rate to total income taxes is as follows for the years ended December 31:

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Pretax income.................................... $1,513,984 $1,196,186 $1,365,212
========= ========= =========
Income tax computed at Federal statutory rate.... $ 514,755 $ 406,704 $ 464,172
Increase (decrease) resulting from:
Nondeductible expenses......................... 289,254 100,132 4,509
State income taxes............................. 63,981 20,315 --
Other, net..................................... (21,977) (28,743) 10,343
---------- ---------- ----------
$ 846,013 $ 498,408 $ 479,024
========= ========= =========
</TABLE>

The Company adopted Statement of Financial Accounting Standards No. 109 as
of January 1, 1993. The cumulative effect on prior years of this change in
accounting principles increased net income in 1993 by $383,691 and is reported
separately in the consolidated statement of operations.

At December 31, 1993, the Company had available net loss carryforwards of
approximately $190,000 for financial reporting purposes which were fully
utilized in 1994.

The following summarizes the tax effects of temporary differences which
comprise the net deferred tax assets at December 31:

<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Allowance for loan losses.................................... $ 814,171 $ 575,946
Intangible assets............................................ 78,218 62,897
Net deferred loan fees....................................... 287,551 275,416
Accumulated depreciation..................................... 169,879 108,268
Deferred compensation........................................ 318,705 122,366
Other real estate............................................ 123,919 110,222
Market valuation reserve..................................... (123,024) 78,315
Other, net................................................... 33,964 21,954
---------- ----------
$1,703,383 $1,355,384
========= =========
</TABLE>

NOTE K. SAVINGS AND DEFERRED COMPENSATION PLANS

The Company has established a 401(k) Savings Plan (Plan) for the benefit of
eligible employees and their beneficiaries. Participants under the Plan may
elect to contribute up to 20 percent of their gross salaries, excluding bonuses,
to the Plan. Any matching contributions are made at the discretion of the
Company. For the years ended December 31, 1995, 1994 and 1993, the Company
contributed $80,000, $21,000 and $10,000, respectively, to the Plan.

The former Commercial Bancorp of Georgia, Inc. maintained a deferred
compensation plan for directors which provided for the deferral of fees for
outside directors. In 1995, in conjunction with the merger, the plan was
modified to include the directors of the former Commercial Bancorp of Gwinnett,
Inc. All liabilities established under the former plan were assumed by the new
plan. The 1995 plan provides that amounts deferred are treated as if applied to
purchase the number of shares of common stock of the Company that could have
been purchased with the fees at the time of deferral. Participants generally
will receive payment in a single cash distribution upon leaving the Board of
Directors. Amounts expensed under the plan totaled $30,900, $41,600 and $27,150
in 1995, 1994 and 1993, respectively. During 1995, in conjunction with the
pending merger, the Company accrued an additional $181,603 related to the plan.

F-38
<PAGE> 104

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The employment contract between the Company and the President established a
retirement plan (Plan) for the benefit of the President. The Plan provides for a
monthly benefit of $1,500 to be paid to the President commencing on his
sixty-second birthday and continuing until his death. The Plan will remain in
effect regardless of the President's employment status with the Company. For the
years ended December 31, 1995, 1994 and 1993, the Company recorded total
compensation expense of $16,170, $17,531 and $19,000, respectively, and interest
expense of $10,265, $8,917 and $5,901, respectively, related to this Plan.

The employment contract between the Company and the President also
established a supplemental deferred compensation benefit (Annuity) for the
President. The agreement provides for a monthly benefit of $1,780 to be paid to
the President commencing on his sixty-second birthday and continuing for a
ten-year period provided the President remains in the Company's employ through
April 25, 1996. For the years ended December 31, 1995, 1994 and 1993, the
Company recorded compensation expense of $12,830, $13,891 and $15,049,
respectively, and interest expense of $8,135, $7,061 and $7,450, respectively,
related to this Annuity. An annuity contract was purchased by the Company to
fund the Plan. At December 31, 1995, the annuity contract was valued at
$138,769, and is included in other assets in the accompanying consolidated
balance sheet.

During 1995, in conjunction with the pending merger, certain Bank officers
and employees were awarded a retention bonus for continuing their employment
through the merger. At December 31, 1995, the Company accrued $233,750 for
retention bonuses, which is included in accrued merger expenses in the
accompanying consolidated balance sheet.

NOTE L. RELATED PARTY TRANSACTIONS

As of December 31, 1995 and 1994, the Bank had direct and indirect loans
which aggregated $2,698,178 and $2,919,404, respectively, outstanding to or for
the benefit of certain of the Company's officers, directors, and their related
interests. During 1995, $34,000 of such loans were made and repayments totaled
$255,226. These loans were made in the ordinary course of business in conformity
with normal credit terms, including interest rates and collateral requirements
prevailing at the time for comparable transactions with other borrowers. These
individuals and their related interests also maintain customary demand and time
deposit accounts with the Bank.

As of December 31, 1994, the Company had a $50,000 short-term unsecured
note payable to a related party. The note was scheduled to mature in May 1995
and bore interest at two percentage points above The Wall Street Journal prime
rate. The loan was repaid upon maturity.

NOTE M. STOCKHOLDERS' EQUITY

The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory -- and possibly additional
discretionary -- actions by regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. The regulations require the
Bank to meet specific capital adequacy guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of Tier 1 capital (as defined in the regulations) to total average assets
(as defined), and minimum ratios of Tier 1 and total capital (as defined) to
risk-weighted assets (as defined). To be considered adequately capitalized (as
defined) under the regulatory framework for prompt corrective action, the Bank
must maintain minimum Tier 1 leverage, Tier 1 risk-based, and total risk-

F-39
<PAGE> 105

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

based ratios as set forth in the table. The Bank's actual capital amounts and
ratios are also presented in the table.

<TABLE>
<CAPTION>
1995
-----------------------------------------------
REQUIRED ACTUAL
--------------------- ---------------------
AMOUNT (RATIO) AMOUNT (RATIO)
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Tier 1 Capital (to Average Assets)................. $ 9,202,000 4.0% $17,662,000 7.7%
Tier 1 Capital (to Risk Weighted Assets)........... $ 6,355,000 4.0% $17,662,000 11.1%
Total Capital (to Risk Weighted Assets)............ $12,710,000 8.0% $19,648,000 12.4%
</TABLE>

<TABLE>
<CAPTION>
1994
-----------------------------------------------
REQUIRED ACTUAL
--------------------- ---------------------
AMOUNT (RATIO) AMOUNT (RATIO)
----------- ------- ----------- -------
<S> <C> <C> <C> <C>
Tier 1 Capital (to Average Assets)................. $ 7,933,000 4.0% $15,881,000 8.0%
Tier 1 Capital (to Risk Weighted Assets)........... $ 5,932,000 4.0% $15,881,000 10.7%
Total Capital (to Risk Weighted Assets)............ $11,864,000 8.0% $17,736,000 12.0%
</TABLE>

Management believes, as of December 31, 1995, that the Bank meets all
capital requirements to which it is subject.

The Board of Directors has approved an aggregate of 135,611 stock options
to be issued to certain officers. Of the options outstanding at December 31,
1995, 61,851 are exercisable for a period of seven years from the date of grant
at the book value of the Company's stock at the end of the most recent quarter
immediately prior to the award of options, 13,000 are exercisable for a period
of seven years from the date of grant at the greater of the market value of the
Company's stock at the date of grant or $10 per share, and 22,500 are
exercisable at $12 per share for a period of ten years from the date of grant.
In the event of a change of control of the Company, all outstanding options will
be considered earned.

Summarized options data is as follows at December 31:

<TABLE>
<CAPTION>
1995 1994
--------------------------- --------------------------
NUMBER OF PRICE PER NUMBER OF PRICE PER
SHARES SHARE SHARES SHARE
--------- --------------- --------- --------------
<S> <C> <C> <C> <C>
Options outstanding at beginning of
year................................ 74,351 $ 9.57 - 10.21 73,351 $9.57 - 10.21
Options granted....................... 24,000 10.00 - 12.00 1,000 10.00
Options exercised..................... -- -- -- --
Options canceled...................... (1,000) 10.00 -- --
--------- --------------- --------- --------------
Options outstanding at end of year.... 97,351 $ 9.57 - 12.00 74,351 $9.57 - 10.21
======== ============ ======== ===========
Options available for grant at end of
year................................ 38,260 38,760
======== ========
</TABLE>

In connection with the Company's formation and initial stock offering,
255,000 non-transferable warrants were issued to organizing stockholders and
certain officers. The warrants allow such individuals to purchase one additional
share of common stock for each share purchased in connection with the initial
offering and are exercisable for ten years from the date that the Company
commenced operations (July 27, 1990) at the greater of the Company's book value
per common share as of the most recent quarter-end or $10 per share. At December
31, 1995 and 1994, all issued warrants were outstanding.

The Company's current employment contract with the President and CEO of the
Company provides for the right to receive cash payments based upon the
appreciation in the value of the Company's common stock over time (Stock
Appreciation Rights). This executive has been granted the right to receive a
total of 13,565 units of Stock Appreciation Rights over three years beginning in
1990. The value of the units depends on the Bank's performance, as defined in
the employment agreement, and the units are exercisable for a period of

F-40
<PAGE> 106

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

seven years after the date of grant. At December 31, 1995, all 13,565 units have
been granted and none have been exercised. In conjunction with the pending
merger, the Company has accrued $46,732 for the payment of these Stock
Appreciation Rights.

Georgia banking laws limit the amount of dividends which the Bank may pay
to the Parent Company without obtaining prior approval from the Georgia
Department of Banking and Finance. Such approval would be required if either (a)
the Bank's ratio of equity capital to adjusted total assets is less than 6%; (b)
the aggregate amount of dividends declared by the Bank exceeds 50% of net
profits, after taxes but before dividends, for the previous calendar year; or
(c) the percentage of the Bank's assets classified as doubtful as to repayment
exceeds 80% of the Bank's equity capital. The Bank paid no dividends in 1995 or
1994.

NOTE N. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS

The Bank is party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. These instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract amounts of these 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
customer on the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amounts of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments.

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. At December 31, 1995 and 1994, unfunded
commitments to extend credit were approximately $49,497,000 and $38,317,000,
respectively. The Bank's experience has been that approximately 90 percent of
loan commitments are drawn upon by customers.

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 public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loans to customers. The Bank had approximately
$1,777,000 and $1,184,000 in irrevocable standby letters of credit outstanding
at December 31, 1995 and 1994, respectively. The Bank was required to perform on
standby letters of credit totaling $10,000 during both 1995 and 1994.

The Bank evaluates each customer's creditworthiness 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 obligor.
Collateral varies but may include accounts receivable, inventory, property,
plant and equipment, and income-producing commercial properties for those
commitments on which collateral is deemed necessary.

NOTE O. COMMITMENTS AND CONTINGENCIES

The Company is a defendant in certain legal actions arising from its normal
business activities. Management believes that those actions are without merit or
that the ultimate liability, if any, resulting from them will not materially
affect the Company's financial position.

F-41
<PAGE> 107

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE P. SUPPLEMENTAL FINANCIAL DATA

Components of other expense in excess of 1% of total interest and other
income are as follows at December 31:

<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Legal and professional fees........................... $307,384 $374,199 $257,353
FDIC assessment....................................... 233,613 350,559 302,211
Data processing fees.................................. 282,767 214,957 182,988
Stationery and supplies............................... 202,215 206,355 199,658
Completed merger expenses............................. 39,141 267,221 14,251
</TABLE>

NOTE Q. FAIR VALUES OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments are as
follows at December 31:

<TABLE>
<CAPTION>
1995
-----------------------------
ESTIMATED
CARRYING FAIR
VALUE VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents............................. $ 40,545,814 $ 40,545,814
Investment securities held to maturity................ 14,501,738 14,513,114
Investment securities available for sale.............. 21,310,904 21,310,904
Loans................................................. 145,673,001 144,427,666
Accrued interest receivable........................... 1,728,691 1,728,691
Financial liabilities:
Noncontractual deposits............................... $ 90,071,037 $ 90,071,037
Contractual deposits.................................. 116,558,985 115,537,715
Capital lease obligation.............................. 103,079 97,669
Accrued interest payable.............................. 1,694,426 1,694,426
Off-balance-sheet instruments:
Undisbursed credit lines.............................. $ 49,073,858
Standby letters of credit............................. 1,761,809
</TABLE>

F-42
<PAGE> 108

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE R. CONDENSED FINANCIAL INFORMATION OF COMMERCIAL BANCORP OF
GEORGIA, INC.

CONDENSED BALANCE SHEETS
(PARENT ONLY)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash on deposit with subsidiary..................................... $ 1,252,808 $ 355,160
Investment in subsidiary............................................ 18,720,857 16,697,895
Loans to related parties............................................ 31,000 31,000
Other real estate................................................... 465,483 936,436
Other assets........................................................ 178,673 795,584
----------- -----------
TOTAL ASSETS.............................................. $20,648,821 $18,816,075
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Note payable...................................................... $ -- $ 50,000
Accrued merger expenses........................................... 857,588 --
Other liabilities................................................. 586 34,235
----------- -----------
TOTAL LIABILITIES......................................... 858,174 84,235
----------- -----------
STOCKHOLDERS' EQUITY
Common stock...................................................... 1,856,711 1,856,711
Surplus........................................................... 16,090,386 16,090,386
Retained earnings................................................. 1,904,740 1,236,769
Treasury stock.................................................... (300,000) (300,000)
Market valuation reserve.......................................... 238,810 (152,026)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY................................ 19,790,647 18,731,840
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $20,648,821 $18,816,075
========== ==========
</TABLE>

F-43
<PAGE> 109

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED STATEMENTS OF INCOME
(PARENT ONLY)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ---------- ----------
<S> <C> <C> <C>
INCOME
Interest income......................................... $ 2,816 $ 10,558 $ 5,670
Other income............................................ -- -- 4,400
----------- ---------- ----------
TOTAL INCOME.................................... 2,816 10,558 10,070
----------- ---------- ----------
EXPENSE
Completed merger expenses............................... 39,141 267,221 14,251
Other real estate expense............................... 47,350 227,147 91,731
Pending merger expense.................................. 857,588 -- --
Other expense........................................... 80,179 132,792 132,718
----------- ---------- ----------
TOTAL EXPENSE................................... 1,024,258 627,160 238,700
----------- ---------- ----------
LOSS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED
EARNINGS OF SUBSIDIARY.................................. (1,021,442) (616,602) (228,630)
INCOME TAX BENEFIT.............................. 57,287 134,678 64,103
----------- ---------- ----------
LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY.............................................. (964,155) (481,924) (164,527)
EQUITY IN UNDISTRIBUTED EARNINGS OF
SUBSIDIARY.................................... 1,632,126 1,179,702 1,387,121
----------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLES.............................................. 667,971 697,778 1,222,594
Cumulative effect of change in accounting principles...... -- -- 47,285
----------- ---------- ----------
NET INCOME................................................ $ 667,971 $ 697,778 $1,269,879
========== ========= =========
</TABLE>

F-44
<PAGE> 110

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONDENSED STATEMENTS OF CASH FLOWS
(PARENT ONLY)

<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
---------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................................ $ 667,971 $ 697,778 $ 1,269,879
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of subsidiary..... (1,632,126) (1,179,702) (1,387,121)
Provision for losses on other real estate.......... -- 200,000 --
(Increase) decrease in other assets................ 616,911 (78,515) (152,352)
Increase (decrease) in other liabilities........... 823,939 (5,126) 39,361
----------- ----------- -----------
NET CASH PROVIDED (USED) BY OPERATING
ACTIVITIES.................................. 476,695 (365,565) (230,233)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment in subsidiary.............................. -- (515,518) --
Proceeds from sales of other real estate.............. 537,504 363,347 561,909
Capital improvements to other real estate............. (66,551) (331,898) (97,378)
----------- ----------- -----------
NET CASH PROVIDED (USED) BY INVESTING
ACTIVITIES.................................. 470,953 (484,069) 464,531
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from note payable............................ -- 50,000 --
Repayment of note payable............................. (50,000) -- --
----------- ----------- -----------
NET CASH FLOWS PROVIDED (USED) BY FINANCING
ACTIVITIES.................................. (50,000) 50,000 --
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH......................... 897,648 (799,634) 234,298
CASH AT BEGINNING OF YEAR............................... 355,160 1,154,794 920,496
----------- ----------- -----------
CASH AT END OF YEAR..................................... $ 1,252,808 $ 355,160 $ 1,154,794
========== ========== ==========
</TABLE>

F-45
<PAGE> 111

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND DECEMBER 31, 1995

<TABLE>
<CAPTION>
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks........................................... $ 20,753,065 $ 21,606,814
Federal funds sold................................................ 22,680,000 18,939,000
Investment securities:
Held to maturity................................................ 13,980,602 14,501,738
Available for sale.............................................. 20,835,479 21,310,904
Loans, net of deferred loan fees.................................. 147,361,805 144,930,447
Less: Allowance for loan losses................................... (2,625,222) (2,619,545)
------------ ------------
Loans, net...................................................... 144,736,583 142,310,902
Fixed assets, net................................................. 5,728,552 5,786,453
Other real estate, net............................................ 1,413,472 1,102,261
Intangible assets, net............................................ 780,525 821,347
Accrued interest receivable....................................... 1,702,543 1,728,691
Other assets...................................................... 2,542,726 2,598,764
------------ ------------
TOTAL ASSETS............................................ $235,153,547 $230,706,874
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand...................................... $ 32,736,341 $ 35,030,207
Interest-bearing demand and money market........................ 52,692,852 49,657,927
Savings......................................................... 5,360,191 5,382,903
Time deposits of $100,000 or more............................... 28,752,937 26,273,745
Other time deposits............................................. 91,156,935 90,285,240
------------ ------------
Total Deposits.......................................... 210,699,256 206,630,022
------------ ------------
Obligation under capital leases................................... 76,331 103,079
Accrued interest payable.......................................... 1,684,675 1,694,426
Accrued merger expenses........................................... 1,026,834 1,272,941
Other liabilities................................................. 1,248,205 1,215,759
------------ ------------
TOTAL LIABILITIES....................................... 214,735,301 210,916,227
------------ ------------
STOCKHOLDERS' EQUITY
Common stock -- $1 par value: 10,000,000 shares authorized,
1,883,302 and 1,856,711 shares issued........................... 1,883,302 1,856,711
Surplus......................................................... 16,322,712 16,090,386
Retained earnings............................................... 2,546,712 1,904,740
Treasury stock, at cost, 30,000 shares.......................... (300,000) (300,000)
Market valuation reserve on investment securities available for
sale......................................................... (34,480) 238,810
------------ ------------
TOTAL STOCKHOLDERS' EQUITY.............................. 20,418,246 19,790,647
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $235,153,547 $230,706,874
=========== ===========
</TABLE>

F-46
<PAGE> 112

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
THREE MONTHS ENDED MARCH 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME
Loans, including fees............................................. $4,012,271 $3,873,232
Investment securities............................................. 549,325 356,118
Federal funds sold and deposits in other banks.................... 288,709 122,564
---------- ----------
TOTAL INTEREST INCOME..................................... 4,850,305 4,351,914
---------- ----------
INTEREST EXPENSE
Interest-bearing demand and money market.......................... 417,179 438,877
Savings........................................................... 39,264 42,438
Time deposits of $100,000 or more................................. 408,332 415,918
Other time deposits............................................... 1,360,420 782,014
Obligation under capital leases................................... 804 1,814
Other............................................................. 4,956 973
---------- ----------
TOTAL INTEREST EXPENSE.................................... 2,230,955 1,682,034
---------- ----------
NET INTEREST INCOME....................................... 2,619,350 2,669,880
PROVISION FOR LOAN LOSSES........................................... 15,852 196,400
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES....... 2,603,498 2,473,480
---------- ----------
OTHER INCOME
Service charges on deposit accounts............................... 245,677 250,520
Gains on sales of SBA loan participations......................... 44,861 72,020
Fees/gains on the origination/sale of mortgage loans.............. 27,999 16,706
Loan servicing fees............................................... 80,098 69,517
Debit card servicing fees......................................... 116,194 66,322
Other income...................................................... 29,397 21,455
---------- ----------
TOTAL OTHER INCOME........................................ 544,226 496,540
---------- ----------
OTHER EXPENSE
Salaries and employee benefits.................................... 1,187,094 1,053,544
Net occupancy and equipment expense............................... 308,055 335,040
Other real estate expense......................................... 29,911 17,825
Amortization expense.............................................. 40,822 40,822
Other expense (Note B)............................................ 562,792 664,309
---------- ----------
TOTAL OTHER EXPENSE....................................... 2,128,674 2,111,540
---------- ----------
INCOME BEFORE INCOME TAXES................................ 1,019,050 858,480
INCOME TAX EXPENSE.................................................. 377,078 342,576
---------- ----------
NET INCOME................................................ $ 641,972 $ 515,904
========= =========
EARNINGS PER SHARE (Note C)
Primary........................................................... $ .34 $ .28
========= =========
Fully diluted..................................................... $ .32 $ .28
========= =========
</TABLE>

F-47
<PAGE> 113

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.................................................... $ 641,972 $ 515,904
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses.................................. 15,852 196,400
Depreciation and amortization.............................. 132,692 139,013
Amortization of intangible assets.......................... 40,822 40,822
Gains on sales of SBA loans................................ (44,861) (72,020)
(Increase) decrease in interest receivable................. 26,148 (41,148)
(Increase) decrease in other assets........................ 196,823 (79,776)
Increase (decrease) in interest payable.................... (9,751) 135,681
Decrease in accrued merger expenses........................ (246,107) --
Increase in other liabilities.............................. 32,446 81,082
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 786,036 915,958
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities held to maturity........... -- --
Purchases of investment securities available for sale......... -- --
Maturities of investment securities held to maturity.......... 521,136 183,849
Maturities of investment securities available for sale........ 61,350 989,205
Sales of investment securities available for sale............. -- --
Proceeds from sales of SBA loans.............................. 1,076,250 647,200
Loans originated or acquired, net of principal repayments..... (4,097,784) (8,993,145)
Purchases of premises and equipment........................... (74,791) (11,747)
Proceeds from sales of other real estate...................... 313,651 441,721
----------- -----------
NET CASH USED BY INVESTING ACTIVITIES................. (2,200,188) (6,742,917)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase (decrease) in demand, money market and savings
accounts................................................... 718,347 (8,248,606)
Time deposits accepted, net of repayments..................... 3,350,887 11,472,514
Reduction of capital lease obligation......................... (26,748) (33,827)
Exercise of stock options..................................... 258,917 --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES............. 4,301,403 3,190,081
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS............ 2,887,251 (2,636,878)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD........................................................ 40,545,814 26,835,755
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $43,433,065 $24,198,877
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH PAID:
Interest...................................................... $ 2,240,706 $ 1,546,353
========== ==========
Income taxes.................................................. $ -- $ 100,969
========== ==========
SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING
ACTIVITIES:
Real estate acquired in settlement of loans................ $ 624,862 $ --
========== ==========
</TABLE>

F-48
<PAGE> 114

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996 AND 1995
(UNAUDITED)

NOTE A -- BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB. Accordingly,
these statements 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 adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three month period ended March 31, 1996, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the audited financial
statements and footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1995.

NOTE B -- SUPPLEMENTAL FINANCIAL DATA

Components of other operating expense in excess of one percent of total
interest and other income for the periods ended March 31, 1996 and 1995 are as
follows:

<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
FDIC Insurance Assessment.......................................... $11,293 $97,077
Stationery and Supplies............................................ $59,603 $54,954
Data Processing Fees............................................... $84,952 $54,583
</TABLE>

NOTE C -- EARNINGS PER SHARE

Earnings per share has been computed based on the weighted average number
of common stock and common stock equivalents outstanding during the period,
which totaled 1,840,006 and 1,826,711 shares, respectively, for primary earnings
per share and 2,004,548 and 1,826,711 shares, respectively, for fully diluted
earnings per share for the three-month periods ended March 31, 1996 and 1995.

NOTE D -- PENDING ACCOUNTING PRONOUNCEMENTS

F-49
<PAGE> 115

COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE E -- PENDING ACQUISITION

During December 1995, the Company and The Colonial BancGroup, Inc. entered
into an agreement to merge the two companies. For further discussion, see Note C
to the Notes to Consolidated Financial Statements included in the Company's
annual report on Form 10-KSB for the year ended December 31, 1995.

F-50
<PAGE> 116

INDEPENDENT AUDITORS' REPORT

The Board of Directors
Southern Banking Corporation and Subsidiary:

We have audited the accompanying consolidated balance sheet of Southern
Banking Corporation and subsidiary as of December 31, 1995 and the related
consolidated statements of income, stockholders' equity and cash flows for the
year then ended. These consolidated financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 1995 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Southern Banking Corporation and subsidiary as of December 31, 1995, and the
results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.

Orlando, Florida
January 26, 1996

F-51
<PAGE> 117

REPORT OF INDEPENDENT ACCOUNTANTS

The Board of Directors
Southern Banking Corporation and Subsidiary
Altamonte Springs, Florida

We have audited the accompanying consolidated balance sheet of Southern
Banking Corporation and Subsidiary as of December 31, 1994, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the two years in the period ended December 31, 1994. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Southern
Banking Corporation and Subsidiary as of December 31, 1994, and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1994, in conformity with generally accepted accounting
principles.

As discussed in Note 2, effective January 1, 1994, the Company adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities.

COOPERS & LYBRAND L.L.P.

Orlando, Florida
January 13, 1995

F-52
<PAGE> 118

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents:
Cash and due from banks......................................... $ 19,547,844 $ 13,590,206
Federal funds sold.............................................. 13,200,000 --
------------ ------------
Total cash and cash equivalents......................... 32,747,844 13,590,206
Interest bearing deposits in banks................................ 894,989 1,305,057
Investment securities available for sale.......................... 33,118,517 18,104,538
Investment securities held to maturity (estimated market value of
$544,300 and $16,050,406 in 1995 and 1994, respectively)........ 544,300 16,630,592
Loans, less allowance for loan losses of $1,958,423 for 1995 and
$1,608,656 for 1994............................................. 153,089,355 121,530,420
Premises and equipment, net....................................... 4,884,690 5,028,758
Accrued interest receivable....................................... 1,416,321 1,136,962
Goodwill.......................................................... 2,118,897 2,211,876
Prepaid expenses and other assets................................. 1,454,589 1,823,409
------------ ------------
Total assets............................................ $230,269,502 $181,361,818
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest bearing............................................. $ 45,337,294 $ 36,665,552
Interest bearing:
Demand....................................................... 25,999,459 22,724,259
Savings...................................................... 69,619,117 43,022,947
Time, $100,000 and over...................................... 25,097,258 16,569,300
Other time................................................... 45,556,645 35,751,950
------------ ------------
Total deposits.......................................... 211,609,773 154,734,008
Federal funds purchased........................................... -- 12,000,000
Accrued interest payable.......................................... 633,889 365,886
Accounts payable and other liabilities............................ 1,501,263 526,443
------------ ------------
Total liabilities....................................... 213,744,925 167,626,337
------------ ------------
Stockholders' equity:
Common stock, par value $1.00 per share; authorized 10,000,000
shares, issued and outstanding 3,362,000 and 3,350,000 shares
for 1995 and 1994, respectively.............................. 3,362,000 3,350,000
Surplus......................................................... 7,405,082 7,382,042
Retained earnings............................................... 5,665,188 3,574,412
Unrealized gain (loss) on investment securities available for
sale, net.................................................... 92,307 (570,973)
------------ ------------
Total stockholders' equity.............................. 16,524,577 13,735,481
Commitments and contingencies
------------ ------------
Total liabilities and stockholders' equity.............. $230,269,502 $181,361,818
=========== ===========
</TABLE>

See accompanying notes to the consolidated financial statements.

F-53
<PAGE> 119

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ----------
<S> <C> <C> <C>
Interest income and fees:
Loans.................................................. $14,427,934 $ 8,793,436 $6,045,913
Investment securities held to maturity and investment
securities available for sale....................... 2,126,296 1,290,968 630,670
Interest bearing deposits.............................. 55,206 84,806 70,377
Federal funds sold..................................... 657,319 156,966 184,026
----------- ----------- ----------
Total interest income.......................... 17,266,755 10,326,176 6,930,986
Interest expense:
Deposits............................................... 6,132,712 2,894,899 2,047,577
----------- ----------- ----------
Net interest income............................ 11,134,043 7,431,277 4,883,409
Provision for loan losses................................ 525,000 330,000 466,425
----------- ----------- ----------
Net interest income after provision for loan
losses....................................... 10,609,043 7,101,277 4,416,984
----------- ----------- ----------
Other income:
Service charges on deposit accounts.................... 1,560,061 1,061,899 664,047
Other income........................................... 417,727 231,722 214,109
----------- ----------- ----------
Total other income............................. 1,977,788 1,293,621 878,156
----------- ----------- ----------
Other expenses:
Salaries and wages..................................... 3,307,967 2,332,796 1,643,898
Employee benefits...................................... 1,258,344 342,038 250,147
Net occupancy expense.................................. 963,371 674,168 515,211
Equipment expense...................................... 427,838 296,650 207,418
Other noninterest expenses............................. 3,256,888 2,026,742 1,500,022
----------- ----------- ----------
Total other expenses........................... 9,214,408 5,672,394 4,116,696
----------- ----------- ----------
Income before income tax taxes................. 3,372,423 2,722,504 1,178,444
Income taxes............................................. 1,281,647 988,901 415,250
----------- ----------- ----------
Income before cumulative effect of change in
accounting principle......................... 2,090,776 1,733,603 763,194
Cumulative effect of change in accounting principle...... -- -- 46,874
----------- ----------- ----------
Net income..................................... $ 2,090,776 $ 1,733,603 $ 810,068
========== ========== =========
Net income per common share.............................. $ .62 $ .64 $ .37
========== ========== =========
Weighted average shares outstanding...................... 3,356,500 2,704,109 2,200,000
========== ========== =========
</TABLE>

See accompanying notes to the consolidated financial statements.

F-54
<PAGE> 120

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
ON INVESTMENT
SECURITIES TOTAL
COMMON RETAINED AVAILABLE FOR STOCKHOLDERS'
STOCK SURPLUS EARNINGS SALE, NET EQUITY
---------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992......... $2,200,000 $3,397,677 $1,030,741 $ -- $ 6,628,418
Net income......................... -- -- 810,068 -- 810,068
---------- ---------- ---------- ------------- -------------
Balance, December 31, 1993......... 2,200,000 3,397,677 1,840,809 -- 7,438,486
Adjustment to beginning balance for
change in accounting principle,
net of income taxes of $4,607.... -- -- -- (7,636) (7,636)
Issuance of common stock (net of
issuance costs of $40,635)....... 1,150,000 3,984,365 -- -- 5,134,365
Unrealized losses on investment
securities available for sale,
net.............................. -- -- -- (563,337) (563,337)
Net income......................... -- -- 1,733,603 -- 1,733,603
---------- ---------- ---------- ------------- -------------
Balance, December 31, 1994......... 3,350,000 7,382,042 3,574,412 (570,973) 13,735,481
Issuance of common stock........... 12,000 23,040 -- -- 35,040
Change in unrealized gain (loss) on
investment
securities -- available for
sale............................. -- -- -- 663,280 663,280
Net income......................... -- -- 2,090,776 -- 2,090,776
---------- ---------- ---------- ------------- -------------
Balance, December 31, 1995......... $3,362,000 $7,405,082 $5,665,188 $ 92,307 $ 16,524,577
========= ========= ========= ========== ==========
</TABLE>

See accompanying notes to consolidated financial statements.

F-55
<PAGE> 121

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................... $ 2,090,776 $ 1,733,603 $ 810,068
Adjustments to reconcile net income to net cash provided by
operating activities:
Cumulative effect of change in accounting principle........ -- -- (46,874)
Depreciation and amortization.............................. 581,832 368,458 225,989
Deferred income taxes...................................... (472,944) -- --
Net amortization of premiums and accretion of discounts on
investment securities held to maturity and investment
securities available for sale............................ (71,714) 456,555 (1,321)
Provision for loan losses.................................. 525,000 330,000 466,425
Deferred loan origination fees............................. 416,935 226,636 47,285
(Gain) loss on sale of investment securities available for
sale..................................................... (22,414) 5,264 (13,750)
Gain on sale of loan....................................... (26,941) -- --
Loss on sale of other real estate owned.................... 10,418 -- --
Gain on sale of fixed assets............................... (19,969) -- --
Writedown to fair value on other real estate owned......... 10,000 -- --
Cash provided by (used in) changes in:
Accrued interest receivable.............................. (279,359) (364,738) (148,433)
Prepaid expenses and other assets........................ 299,520 241,434 218,143
Accrued interest payable................................. 268,003 (98,083) 162,868
Accounts payable and other liabilities................... 974,820 (293,838) 156,487
------------ ------------ ------------
Net cash provided by operating activities............. 4,283,963 2,605,291 1,876,887
------------ ------------ ------------
Cash flows (used in) investing activities:
Loans (net of collections)................................... (33,208,790) (20,946,882) (17,994,865)
Purchases of investment securities available for sale........ (7,862,849) (9,497,570) (13,487,394)
Proceeds from sales and maturities of investment securities
available for sale......................................... 9,938,930 4,173,181 8,114,067
Acquisition of Osceola National Bank......................... -- (3,121,275) --
Proceeds from sale of fixed assets........................... 117,340 -- --
Proceeds from maturities of interest bearing deposits........ 410,068 400,000 300,000
Proceeds from sale of Federal Reserve Bank stock............. 150,000 -- --
Purchase of premises and equipment........................... (442,156) (1,770,970) (1,324,129)
Purchase of interest bearing deposits in banks............... -- -- (996,778)
Proceeds from the sale of other real estate owned............ 281,972 -- --
Proceeds from sale of loan................................... 578,355 -- --
------------ ------------ ------------
Net cash used in investing activities................. (30,037,130) (30,763,516) (25,389,099)
------------ ------------ ------------
Cash flows provided by financing activities:
Net increase in demand deposits, NOW accounts and passbook
savings accounts........................................... 38,543,112 13,750,315 22,525,126
Net increase (decrease) in certificates of deposit........... 18,332,653 (1,247,893) 751,746
Net (decrease) increase in Federal funds purchased........... (12,000,000) 12,000,000 --
Net proceeds from issuance of common stock................... 35,040 5,134,365 --
Payments on note payable..................................... -- -- (75,000)
------------ ------------ ------------
Net cash provided by financing activities............. 44,910,805 29,636,787 23,201,872
------------ ------------ ------------
Net increase (decrease) in cash and cash
equivalents......................................... 19,157,638 1,478,562 (310,340)
Cash and cash equivalents at beginning of year................. 13,590,206 12,111,644 12,421,984
------------ ------------ ------------
Cash and cash equivalents at end of year....................... $ 32,747,844 $ 13,590,206 $ 12,111,644
============= ============= =============
Cash paid during the year for:
Interest..................................................... $ 5,864,709 $ 2,992,982 $ 1,884,709
============= ============= =============
Taxes........................................................ $ 1,251,787 $ 1,281,284 $ 485,598
============= ============= =============
Supplemental disclosures of non-cash transactions:
Transfer of loans to other real estate owned................. $ 156,506 $ -- $ --
============= ============= =============
Market value adjustment -- investment securities available
for sale:
Market value adjustment -- investments..................... 139,860 (919,780) --
Deferred income tax liability (asset)...................... 47,553 (348,807) --
------------ ------------ ------------
Unrealized gain (loss) on investments available for
sale, net........................................... $ 92,307 $ (570,973) $ --
============= ============= =============
</TABLE>

See accompanying notes to the consolidated financial statements.

F-56
<PAGE> 122

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993

(1) ORGANIZATION

Southern Banking Corporation (the Company) is a bank holding company with a
wholly-owned subsidiary, Southern Bank of Central Florida (the Bank), a
state-chartered bank headquartered in Altamonte Springs, Florida. The Company
commenced operations on August 29, 1988. As of December 31, 1995, the Bank
operates eight branches: four in Seminole County, two in Osceola County and two
in Orange County. The Bank's primary market is Central Florida.

The Company's deposits are insured by the Federal Deposit Insurance
Corporation.

On September 30, 1994, the Bank acquired substantially all of the
outstanding common stock of Osceola National Bank (ONB). The acquisition has
been accounted for under the purchase method, whereby the purchase price of
$6,069,000 has been allocated to the underlying assets and liabilities based on
their respective fair values at the date of acquisition. A summary of the
purchase price allocation as referenced in the accompanying consolidated balance
sheet is as follows:

<TABLE>
<S> <C>
Cash and cash equivalents............................................... $ 2,948,000
Investment securities................................................... 16,542,000
Loans, net.............................................................. 23,820,000
Premises and equipment.................................................. 1,053,000
Goodwill................................................................ 2,242,000
Other assets............................................................ 784,000
Deposits................................................................ 40,867,000
Other liabilities....................................................... 453,000
</TABLE>

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of the Company and its subsidiary
conform to generally accepted accounting principles.

(a) Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amount of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

(b) Principles of Consolidation

The consolidated financial statements of the corporation include the
accounts of Southern Banking Corporation and its wholly owned subsidiary,
Southern Bank. The operations of the Company consist primarily of the operations
of the Bank. All significant intercompany accounts and transactions have been
eliminated in consolidation.

At January 1, 1994, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and
Equity Securities". SFAS 115 requires the reporting of certain securities at
fair value except for those securities in which the Company has the positive
intent and ability to hold to maturity. Investments to be held for indefinite
periods of time and not intended to be held to maturity are classified as
available for sale and are carried at fair value. Unrealized holding gains

F-57
<PAGE> 123

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and losses are included in stockholders' equity net of the effect of income
taxes. Realized gains and losses on investment securities are computed using the
specific identification method.

Securities that management has the intent and the Company has the ability
at the time of purchase or origination to hold until maturity are classified as
investment securities held to maturity. Securities in this category are carried
at amortized cost adjusted for accretion of discounts and amortization of
premiums using the level yield method over the estimated life of the securities.
If a security has a decline in fair value below its amortized cost that is other
than temporary, then the security will be written down to its new cost basis by
recording a loss in the consolidated statements of income.

In November 1995, the Bank elected to transfer investment securities
previously classified as held to maturity into the available for sale category,
in accordance with guidelines issued by the Financial Accounting Standards Board
which permitted such a one-time election.

The cumulative effect of adopting SFAS No. 115 as of January 1, 1994 was a
decrease in the opening balance of stockholders' equity of $7,636 (net of $4,607
in deferred income taxes) to reflect the unrealized losses on securities
classified as available-for-sale that were previously classified as investment
securities and carried at amortized cost.

(d) Loans

Loans receivable that the Company has the intent and ability to hold until
maturity or payoff are reported at their outstanding unpaid principal balance
reduced by any charge-offs or specific valuation accounts, net of any deferred
fees on originated loans.

Loan origination fees are capitalized and recognized in income over the
contractual life of the loans, adjusted for estimated prepayments based on the
Company's historical prepayment experience.

Loans are placed on nonaccrual status when the loan becomes 90 days past
due as to interest or principal, unless the loan is both well secured and in the
process of collection, or when the full timely collection of interest or
principal becomes uncertain. When a loan is placed on nonaccrual status, the
accrued and unpaid interest receivable is written off and the loan is accounted
for on the cash or cost recovery method thereafter until qualifying for return
to accrual status.

The Company adopted the provisions of Statement of Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan", as
amended by SFAS No. 118, "Accounting by Creditors for Impairment of a
Loan -- Income Recognition and Disclosure", on January 1, 1995. The Company,
considering current information and events regarding the borrower's ability to
repay their obligations, considers a loan to be impaired when it is probable
that the Company will be unable to collect all amounts due according to the
contractual terms of the loan agreement. When a loan is considered to be
impaired, the amount of the impairment is measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or
the secondary market value of the loan, or the fair value of the collateral for
collateral dependent loans. Impaired loans are written down to the extent that
principal is judged to be uncollectible and, in the case of impaired collateral
dependent loans where repayment is expected to be provided solely by the
underlying collateral and there is no other available and reliable sources of
repayment, are written down to the lower of cost or collateral value. Impairment
losses are included in the allowance for loan losses through a charge to the
provisions for loan losses. Cash receipts on impaired loans are applied to
reduce the principal amount of such loans until the principal has been recovered
and are recognized as interest income thereafter.

Adoption of SFAS No. 114 as amended by SFAS No. 118 had no impact on the
level of the overall allowance for loan losses or on operating results, and does
not affect the Company's policies regarding write-offs, recoveries or income
recognition.

F-58
<PAGE> 124

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(e) Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan
losses charged to expenses. Loans are charged against the allowance when
management believes that the collectibility of the principal is unlikely. The
allowance is an estimated amount that management believes will be adequate to
absorb losses inherent in the loan portfolio and commitments to extend credit,
based on evaluations of its collectibility. The evaluations take into
consideration such factors as changes in the nature and volume of the portfolio,
overall portfolio quality, specific problem loans and commitments, and current
and anticipated economic conditions that may affect the borrowers' ability to
pay. While management uses the best information available to recognize losses on
loans, future additions to the allowance may be necessary based on changes in
economic conditions.

In accordance with SFAS No. 114 as amended by SFAS No. 118, the Company
records impairment in the value of its loans as an addition to the allowance for
loan losses. Any changes in the value of impaired loans due to the passage of
time or revision in estimates are reported as adjustments to provision expenses
in the same manner in which impairment initially was recognized.

Regulatory examiners may require the Company to recognize additions to the
allowance based upon their judgments about the information available to them at
the time of their examination.

(f) Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation
which is computed principally on the straight-line method over the estimated
useful lives (3-40 years) of the assets. Leasehold improvements are amortized on
the straight-line method over the shorter of the estimated useful lives (10-20
years) of the improvements or the terms of the related lease.

(g) Intangible Assets

The Company recorded goodwill for the excess of the purchase price of
Osceola National Bank over the estimated fair value of the net assets required.
The Company assesses the recoverability of goodwill based on its best estimates
of expected future cash flows on an undiscounted basis. The goodwill is being
amortized on a straight-line basis over 20 years. Amortization expense was
$92,979 and $30,541 for 1995 and 1994, respectively.

The premium paid for the core deposit base in connection with the
acquisition of deposits has been recorded as a core deposit intangible and is
included in prepaid expenses and other assets in the accompanying consolidated
balance sheets. The core deposit intangible is being amortized over the
estimated life of the core deposits which is approximately seven years.

(h) Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that included the enactment date. Deferred tax assets are recognized
subject to management's judgment that realization is more likely than not.

(i) Other Real Estate Owned

Real estate acquired in the settlement of loans is initially recorded at
the lower of cost (principal balance of the former loan plus costs of obtaining
title and possession) or estimated fair value, net of estimated selling

F-59
<PAGE> 125

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

costs, at the date of acquisition. Subsequently, such real estate acquired is
carried at the lower of cost or fair value less estimated selling costs. Costs
relating to development and improvement of the property are capitalized, whereas
those relating to holding the property are charged to operations.

Other real estate owned is included in prepaid expenses and other assets in
the accompanying consolidated financial statements.

(j) Net Income Per Common Share

Net income per common share has been computed using the weighted average
number of shares outstanding during the year.

(k) Reclassifications

Certain previously reported amounts have been reclassed to conform to
current presentation.

(3) INVESTMENT SECURITIES HELD TO MATURITY AND INVESTMENT SECURITIES AVAILABLE
FOR SALE

The amortized cost and estimated market values of investment securities
held to maturity and available for sale at December 31, 1995 and 1994 are as
follows:

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES HELD TO MATURITY:
1995:
Federal Home Loan Bank and Federal Reserve
Stock................................... $ 544,300 $ -- $ -- $ 544,300
========== ======= ========= ==========
1994:
Federal Home Loan Bank and Federal Reserve
Stock................................... 694,300 -- -- 694,300
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies................................ 3,963,351 -- (105,823) 3,857,528
Mortgage-backed securities................. 8,690,465 15,393 (303,798) 8,402,060
Obligations of states and political
subdivisions............................ 3,282,476 -- (185,958) 3,096,518
----------- ---------- ---------- -----------
$16,630,592 $ 15,393 $ (595,579) $16,050,406
========== ======= ========= ==========
</TABLE>

F-60
<PAGE> 126

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
1995:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies................................ $23,071,497 $ 39,299 $ -- $23,110,796
Mortgage-backed securities................. 4,425,773 82,028 -- 4,507,801
Obligations of states and political
subdivisions............................ 4,981,387 26,533 -- 5,007,920
Other debt securities...................... 500,000 -- (8,000) 492,000
----------- ---------- ---------- -----------
$32,978,657 $ 147,860 $ (8,000) $33,118,517
========== ======== ========= ==========
1994:
U.S. Treasury securities and obligations of
U.S. Government corporations and
agencies................................ 12,917,751 941 (403,886) 12,514,806
Mortgage-backed securities................. 5,506,567 -- (384,120) 5,122,447
Obligations of states and political
subdivisions............................ 100,000 -- (3,965) 96,035
Other debt securities...................... 500,000 -- (128,750) 371,250
----------- ---------- ---------- -----------
$19,024,318 $ 941 $ (920,721) $18,104,538
========== ======== ========= ==========
</TABLE>

During November 1995, the Bank transferred investment securities classified
as held to maturity to the available for sale category in accordance with the
guidelines issued by the Financial Accounting Standards Board which permitted
such a one-time election. The amortized cost of the investment securities
transferred was $16,407,809, the estimated market value was $16,666,942 and the
unrealized gain was $259,133.

The amortized cost and estimated market value of investment securities at
December 31, 1995, by contractual maturity, are shown below. Expected maturities
will 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 ESTIMATED
COST MARKET VALUE
----------- -------------
<S> <C> <C>
INVESTMENT SECURITIES AVAILABLE FOR SALE:
Due in one year or less............................................. $ 5,890,406 $ 5,927,785
Due after one year through five years............................... 14,925,266 15,071,702
Due after five years through ten years.............................. 4,744,119 4,786,787
Due in more than ten years.......................................... 7,418,866 7,332,243
----------- -------------
$32,978,657 $ 33,118,517
========== ==========
INVESTMENT SECURITIES HELD TO MATURITY:
Federal Home Loan Bank stock........................................ $ 544,300 $ 544,300
========== ==========
</TABLE>

Proceeds from sales and maturities of investments available for sale during
1995, 1994 and 1993 were $10,088,930, $4,173,181 and $8,114,067, respectively.
Gross realized gains and losses on the sale of investments available for sale
during 1995 were $59,344 and $36,930, respectively. Gross realized losses on the
sale of investments during 1994 were $5,264 and gross gains on the sale of
investments in 1993 were $13,750.

Investment securities with book values of $4,702,835 and $1,505,266 at
December 31, 1995 and 1994, respectively, and with market values of
approximately $4,793,984 and $1,479,843 at December 31, 1995 and 1994,
respectively, were pledged as collateral for public funds and treasury tax and
loan deposits.

F-61
<PAGE> 127

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(4) LOANS

A summary of loan distribution at December 31, 1995 and 1994 follows:

<TABLE>
<CAPTION>
1995 1994
------------ -------------
<S> <C> <C>
Commercial.............................................. $ 36,668,890 $ 32,148,230
Mortgage................................................ 9,886,837 11,211,674
Real estate............................................. 97,791,120 69,836,655
Installment............................................. 10,472,877 10,120,846
------------ -------------
154,819,724 123,317,405
Overdrafts.............................................. 658,976 297,396
Unearned discounts...................................... (10,949) (33,255)
Deferred loan fees...................................... (419,973) (442,470)
------------ -------------
155,047,778 123,139,076
Allowance for loan losses............................... (1,958,423) (1,608,656)
------------ -------------
$153,089,355 $ 121,530,420
=========== ===========
</TABLE>

The recorded investment in loans for which an impairment has been
recognized and the related allowance for loan losses at December 31, 1995 were
$1,139,523 and $-0-, respectively. The average recorded investment in impaired
loans during 1995 was $1,170,626. Interest income recognized on impaired loans
during 1995 was $59,264.

Changes in the allowance for loan losses for the years ended December 31,
1995, 1994 and 1993 were as follows:

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
Balance, beginning of year........................ $1,608,656 $ 900,000 $ 639,860
Osceola National Bank loan loss reserve at
acquisition..................................... -- 473,645 --
Provision charged to operations................... 525,000 330,000 466,425
Recoveries on previous charge-offs................ 25,714 -- 3,755
Loans charged-off................................. (200,947) (94,989) (210,040)
---------- ---------- ---------
Balance, end of year.............................. $1,958,423 $1,608,656 $ 900,000
========= ========= =========
</TABLE>

At December 31, 1995, 1994 and 1993, nonaccrual loans were $505,706,
$199,614 and $43,241, respectively. If interest due on all nonaccrual loans had
been accrued at the original contract rates, estimated interest income would
have been increased by $33,000 in 1995, $25,000 in 1994 and $2,500 in 1993.

(5) PREMISES AND EQUIPMENT

A summary of premises and equipment at December 31, 1995 and 1994 follows:

<TABLE>
<CAPTION>
1995 1994
----------- ----------
<S> <C> <C>
Land......................................................... $ 827,004 $ 827,004
Bank premises................................................ 2,433,116 2,433,116
Leasehold improvements....................................... 625,464 575,274
Furniture, fixtures and equipment............................ 2,548,087 2,066,183
Construction in process...................................... 54,704 --
----------- ----------
6,488,375 5,901,577
Less accumulated depreciation................................ (1,603,685) (872,819)
----------- ----------
$ 4,884,690 $5,028,758
========== =========
</TABLE>

F-62
<PAGE> 128

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(6) FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires that the Company disclose
estimated fair values for financial instruments. The following methods and
assumptions were used by the Company in estimating fair values of financial
instruments as disclosed herein:

Cash and Cash Equivalents -- The carrying amount of cash and cash
equivalents (demand deposits maintained by the Company at various financial
institutions) and federal funds sold represents fair value.

Investment Securities Available for Sale and Held to Maturity -- The
Company's investment securities available for sale and held to maturity
represent investments in equity securities, U.S. Government obligations,
U.S. Government Agency securities, and state and political subdivisions.
The Company's equity investments at year end represents a stock investment
in the Federal Home Loan Bank. The stock is not publicly traded and the
carrying amount was used to estimate the fair value. The fair value of the
U.S. Government obligations and U.S. Government Agency obligations and
state and local political subdivision portfolios was estimated based on
quoted market prices.

Interest Bearing Deposits in Banks -- The carrying amount of the
interest bearing deposits in banks approximates their fair value.

Loans -- For variable rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. Fair values for commercial real estate, commercial and consumer
loans other than variable rate loans are estimated using discounted cash
flow analysis, using interest rates currently being offered for loans with
similar terms to borrowers of similar credit quality. Fair values of
impaired loans are estimated using discounted cash flow analysis or
underlying collateral values, where applicable.

Deposits -- The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at December 31, 1995
(that is their carrying amounts). The carrying amounts of variable rate,
fixed term money market accounts and certificates of deposit (CDs)
approximate their fair value at the reporting date. Fair values for fixed
rate CDs are estimated using a discounted cash flow calculation that
applies interest rates currently being offered on certificates to a
schedule of aggregated expected monthly maturities on time deposits.

Commitments -- Fair values for off-balance-sheet lending commitments
are based on fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the
counterparties' credit standing.

The following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1995. SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments", defines fair value of a
financial instrument as the amount at which the instrument would be exchanged in
a current transaction between willing parties.

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial assets:
Cash and due from banks and federal funds sold.................. $ 32,747,844 $ 32,747,844
Interest bearing deposits in banks.............................. 894,989 894,989
Investment securities available for sale........................ 33,118,517 33,118,517
Investment securities held to maturity.......................... 544,300 544,300
Loans (carrying amount less allowance for loan losses of
$1,958,423).................................................. 153,089,355 152,000,000
</TABLE>

F-63
<PAGE> 129

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
CARRYING FAIR
AMOUNT VALUE
------------ ------------
<S> <C> <C>
Financial liabilities:
Deposits:
Without stated maturities.................................... $140,955,870 $140,956,000
With stated maturities....................................... 70,653,903 71,923,592
Commitments:
Letter of credit................................................ -- 2,853,000
Loan commitments................................................ -- 34,501,000
</TABLE>

The carrying amounts shown in the table are included in the consolidated
balance sheet under the indicated captions.

(7) INCOME TAXES

The provision for income taxes for 1995, 1994 and 1993 consists of the
following:

<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
Year ended December 31, 1995:
Federal.......................................... $1,602,230 $ (404,885) $1,197,345
State............................................ 152,361 (68,059) 84,302
---------- --------- ----------
$1,754,591 $ (472,944) $1,281,647
========== ========= ==========
Year ended December 31, 1994:
Federal.......................................... $ 999,859 $ (106,703) $ 893,156
State............................................ 114,010 (18,265) 95,745
---------- --------- ----------
$1,113,869 $ (124,968) $ 988,901
========== ========= ==========
Year ended December 31, 1993:
Federal.......................................... $ 456,679 $ (74,752) $ 381,927
State............................................ 41,304 (7,981) 33,323
---------- --------- ----------
$ 497,983 $ (82,733) $ 415,250
========== ========= ==========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below.

<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Deferred tax assets:
Unrealized loss on investment securities available for sale.......... $ -- $348,807
Loan receivable, due to allowance for loan losses.................... 600,738 526,338
Accrued stock appreciation rights.................................... 237,069 --
Acquisition costs accrual............................................ 112,891 --
Deferred loan fee amortization....................................... 84,234 97,307
Deferred rent........................................................ 29,005 2,402
Other................................................................ 19,145 --
---------- --------
Total deferred tax assets.................................... 1,083,082 974,854
Less valuation allowance............................................. -- --
---------- --------
Net deferred tax assets...................................... 1,083,082 974,854
---------- --------
</TABLE>

F-64
<PAGE> 130

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1995 1994
---------- --------
<S> <C> <C>
Deferred tax liabilities:
Unrealized gain on investment securities available for sale.......... 47,553 --
Premises and equipment, due to differences in depreciation methods
and useful lives.................................................. 70,469 91,919
Investments, due to accretion........................................ 22,838 --
Other................................................................ -- 17,297
---------- --------
Total deferred tax liabilities............................... 140,860 109,216
---------- --------
Net deferred tax asset....................................... $ 942,222 $865,638
========= ========
</TABLE>

The Company has recorded a deferred tax asset of $942,222 and $865,638 as
of December 31, 1995 and 1994, respectively. Although realization of the
deferred tax asset is not assured, the Company believes that it has paid
sufficient taxes in prior carryback years which will enable it to realize the
deferred tax asset. The amount of the deferred tax asset considered realizable,
however, could be reduced in the near term if estimates of future taxable income
during the carryforward periods are reduced. No valuation allowance as defined
by SFAS 109, "Accounting for Income Taxes", is required at December 31, 1995 and
1994.

A reconciliation between the actual tax expense and the "expected" tax
expense (computed by applying the U.S. federal corporate tax rate of 34% to
earnings before income taxes) is as follows:

<TABLE>
<CAPTION>
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
"Expected" tax expense.............................. $1,146,624 $925,651 $400,671
State income tax expense, net of federal benefit.... 55,639 63,192 18,936
Life insurance premiums on officers................. 389 190 190
Meals and entertainment and dues.................... 18,851 14,171 4,085
Tax exempt interest................................. (48,128) (29,221) (8,632)
Goodwill amortization............................... 37,949 10,384 --
Other............................................... 70,323 4,534 --
---------- -------- --------
Actual tax expense........................ $1,281,647 $988,901 $415,250
========= ======== ========
</TABLE>

(8) STOCK BASED COMPENSATION PLANS

The Company's stock option plans adopted prior to December 31, 1992
authorize the granting of options for up to 160,000 shares of common stock of
organizing directors and key officers and employees of the Company. Under the
plans, options are granted at a price determined in each case by a committee of
the Board of Directors, but shall not be less than one hundred percent (100%) of
the fair market value of a share of common stock on the date the option is
granted, the book value thereof or $5.825 per share, whichever is greater. Such
options are exercisable over a period of ten years from the date of grant.

During the year ended December 31, 1993, the Company adopted a stock option
plan authorizing the granting of options of shares of common stock to directors
and certain key employees of the Company. The total number of shares which may
be issued under this plan and other plans adopted by the Company shall not
exceed twenty percent (20%) of the Company's total authorized shares. Under the
plan, the options are granted at a price determined in each case by the
committee of the Board of Directors, but shall not be less than one hundred
percent (100%) of the fair market value of the stock as of the date the option
is granted or the par value of such shares, whichever is greater. Such options
are exercisable over a period of ten years from the date of grant.

F-65
<PAGE> 131

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information with respect to the Company's organizing director stock option
plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES UNDER OPTION: SHARES PER SHARE
---------------------------------------------------------------- --------- ------------
<S> <C> <C>
Outstanding at December 31, 1994................................ 216,000 $ 2.92
Granted....................................................... -- --
Exercised..................................................... (12,000) 2.92
Cancelled..................................................... -- --
-------- ------
Outstanding at December 31, 1995................................ 204,000 $ 2.92
======= ======
</TABLE>

Information with respect to the Company's employee incentive stock options
plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES UNDER OPTION: SHARES PER SHARE
--------------------------------------------------------------- --------- ------------
<S> <C> <C>
Outstanding at December 31, 1994............................... 104,000 $2.92 - 3.38
Granted...................................................... -- --
Exercised.................................................... -- --
Cancelled.................................................... (10,000) 2.92 - 3.38
------- ------------
Outstanding at December 31, 1995............................... 94,000 $2.92 - 3.38
======= ============
</TABLE>

Information with respect to the Company's director and key employee stock
option plan is as follows:

<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES UNDER OPTION: SHARES PER SHARE
--------------------------------------------------------------- --------- ------------
<S> <C> <C>
Outstanding at December 31, 1994............................... 814,000 $3.04 - 4.50
Granted...................................................... -- --
Exercised.................................................... -- --
Cancelled.................................................... -- --
------- ------------
Outstanding at December 31, 1995............................... 814,000 $3.04 - 4.50
======= ============
</TABLE>

During 1994, the Company adopted an employee stock appreciation plan in
which hypothetical investments in shares of the Company's common stock are
awarded to key employees. The benefits vest over 5 years and are paid at the
close of the vesting period based upon the appreciation of the shares between
the grant and the exercise date. Under the plan, 84,000 shares were granted,
none of which were exercised or cancelled as of December 31, 1995. Compensation
expense pursuant to the plan was approximately $630,000 in 1995 (see note 16).

(9) EMPLOYEE BENEFIT PLAN

Effective January 1, 1993, the Company adopted a deferred savings plan
under Internal Revenue Code Section 401(k), which covers substantially all of
the Company's employees who meet minimum length of service requirements. Under
the provisions of the plan, employees may contribute up to 15% of their
compensation on a pre-tax basis. The Company matches the employee contribution
25% up to a maximum of 4%. The Company's contribution to the plan was $14,354,
$26,431 and $13,955 for the years ended December 31, 1995, 1994 and 1993,
respectively.

F-66
<PAGE> 132
SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(10) COMMITMENTS AND CONTINGENCIES

Lease Commitments

The Company leases several of its facilities under operating leases which
expire at various periods through September 2004. Future minimum lease payments,
by year and in the aggregate, under all operating leases as of December 31, 1995
are as follows:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------------
<S> <C>
1996......................................................... $ 525,339
1997......................................................... 378,144
1998......................................................... 391,126
1999......................................................... 405,296
Thereafter................................................... 1,662,419
----------
$3,362,324
=========
</TABLE>

Rent expense was approximately $582,000, $385,000 and $342,000 for 1995,
1994 and 1993, respectively.

(11) RETAINED EARNINGS

The payment of dividends by the Company is subject to certain regulatory
restrictions.

(12) REGULATORY CAPITAL

The Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)
was signed into law on December 19, 1991. Regulations implementing the prompt
corrective action provisions of FDICIA became effective on December 19, 1992. In
addition to the prompt corrective action requirements, FDICIA includes
significant changes to the legal and regulatory environment for insured
depository institutions, including reductions in insurance coverage for certain
kinds of deposits, increased supervision by the Federal regulatory agencies,
increased reporting requirements for insured institutions, and new regulations
concerning internal controls, accounting, and operations.

The prompt corrective action regulations define specific capital categories
based on an institution's capital ratios. The capital categories, in declining
order, are "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized."
Institutions categorized as "undercapitalized" or worse are subject to certain
restrictions, including the requirement to file a capital plan with its primary
Federal regulator, prohibitions on the payment of dividends and management fees,
restrictions on executive compensation, and increased supervisory monitoring,
among other things. Other restrictions may be imposed on the institution by the
FDIC, including requirements to raise additional capital, sell assets, or sell
the entire institution. Once an institution becomes "critically
undercapitalized" it must generally be placed in receivership or conservatorship
within 90 days.

F-67
<PAGE> 133

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table summarizes the capital thresholds for each prompt
corrective action capital categories. An institution's capital category is based
on whether it meets the threshold for all three capital ratios within the
category.

<TABLE>
<CAPTION>
TIER 1 TOTAL
LEVERAGE RISK-BASED RISK-BASED
CATEGORIES RATIO RATIO RATIO
- ------------------------------------------------ -------------- -------------- --------------
<S> <C> <C> <C>
"Well capitalized".............................. 5% or higher 6% or higher 10% or higher
"Adequately capitalized"........................ 4% or higher 4% or higher 8% or higher
"Undercapitalized".............................. less than 4% less than 4% less than 8%
"Significantly undercapitalized"................ less than 3% less than 3% less than 6%
"Critically undercapitalized"................... An institution is considered "critically under
capitalized" if its ratio of tangible equity to
total assets is 2% or less.
</TABLE>

At December 31, 1995, the Bank's total leverage ratio (unaudited) was
7.06%, Tier 1 risk-based ratio (unaudited) was 8.86%, and total risk-based ratio
(unaudited) was 10.07%. Accordingly, at December 31, 1995, the Company's
management believes the Bank is in the "well capitalized" category.

(13) CREDIT COMMITMENTS

The Bank has outstanding at any time a significant number of commitments to
extend credit. These arrangements are subject to strict credit control
assessments and each customer's credit worthiness is evaluated on a case-by-case
basis. A summary of commitments to extend credit and standby letters of credit
written at December 31, 1995 and 1994 are as follows:

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Standby letters of credit................................... $ 2,853,000 $ 1,877,000
Unfunded firm loan commitments.............................. 34,501,000 33,162,000
</TABLE>

Because many commitments expire without being funded in whole or part, the
contract amounts are not estimates of future cash flows.

The majority of loan commitments have terms up to one year, and have
variable interest rates which range from 9% to 9.5%.

Loan commitments written have off-balance-sheet credit risk because only
original fees are recognized in the statement of financial position until the
commitments are fulfilled or expire. Credit risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. The credit risk amounts are equal to the
contractual amounts, assuming that the amounts are fully advanced and that, in
accordance with the requirements of FASB Statement No. 105, "Disclosure of
Information About Financial Instruments with Off-Balance-Sheet Risk and
Financial Instruments with Concentrations of Credit Risk", collateral or other
security is of no value.

The Bank's policy is to require customers to provide collateral prior to
the disbursement of approved loans. The amount of collateral obtained, if it is
deemed necessary by the Bank upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies but may include
accounts receivable, inventory, real estate and income producing commercial
properties.

Standby letters of credit are contractual commitments issued by the Bank to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers.

F-68
<PAGE> 134

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(14) CONCENTRATION OF CREDIT RISK

The Bank originates real estate, consumer and commercial loans primarily in
its Central Florida market area. Although the Bank has a diversified loan
portfolio, a substantial portion of its borrowers' ability to honor their
contracts is dependent upon the economy of Central Florida. The Bank does not
have a significant exposure to any individual customer or counterparty.

(15) RELATED PARTY TRANSACTIONS

Loans

Loans receivable from principal stockholders, directors, executive officers
and companies in which they have a 10% or more beneficial interest aggregated
approximately $3,333,000 and $3,672,000 at December 31, 1995 and 1994,
respectively. All loans were made in the ordinary course of business. At
December 31, 1995, principal stockholders, directors and executive officers of
the Company and their related interests had $344,393 available in lines of
credit and commitments.

Deposits

Deposits of principal stockholders, directors, executive officers and
companies in which they have a 10% or more beneficial interest aggregated
approximately $9,369,000 and $10,196,000 at December 31, 1995 and 1994,
respectively.

(16) PROPOSED ACQUISITION

In January 1996, the Company entered into a definitive agreement with the
Colonial BancGroup, Incorporated to acquire the Company in a stock for stock
transaction. The expected effective date of the acquisition is June 1996 subject
to shareholder and regulatory approval.

(17) SOUTHERN BANKING CORPORATION (PARENT COMPANY ONLY)

Presented below are the financial statements of Southern Banking
Corporation:

BALANCE SHEETS
DECEMBER 31, 1995 AND 1994

<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents........................................... $ 30,265 $ 31,266
Investment in subsidiary bank, Southern Bank of Central Florida..... 16,472,370 13,645,379
Other assets........................................................ 46,942 58,836
----------- -----------
$16,549,577 $13,735,481
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and other liabilities.............................. $ 25,000 $ --
Common stock, par value $1.00 per share; 10,000,000 shares
authorized; 3,362,000 and 3,350,000 shares issued and outstanding
in 1995 and 1994.................................................. 3,362,000 3,350,000
Surplus............................................................. 7,405,082 7,382,042
Retained earnings................................................... 5,665,188 3,574,412
Unrealized gain (loss) on investments available for sale, net....... 92,307 (570,973)
----------- -----------
$16,549,577 $13,735,481
========== ==========
</TABLE>

F-69
<PAGE> 135

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

STATEMENTS OF INCOME AND RETAINED EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Equity in subsidiary's undistributed net income............ $2,246,670 $1,746,870 $ 831,515
Dividends received......................................... -- 10,000 --
Interest income............................................ -- 4,184 --
Other expense.............................................. (155,894) (41,489) (34,386)
Income tax benefits........................................ -- 14,038 12,939
---------- ---------- ----------
Net income............................................... 2,090,776 1,733,603 810,068
Retained earnings, beginning of period..................... 3,574,412 1,840,809 1,030,741
---------- ---------- ----------
Retained earnings, end of year............................. $5,665,188 $3,574,412 $1,840,809
========= ========= =========
</TABLE>

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993

<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- ---------
<S> <C> <C> <C>
Operating activities:
Net income............................................. $ 2,090,776 $ 1,733,603 $ 810,068
Adjustments to reconcile net income to net cash used by
operating activities:
Undistributed earnings of subsidiary................ (2,246,670) (1,746,870) (831,515)
Amortization........................................ 11,894 11,894 11,895
(Increase) in other assets.......................... -- (26,977) --
Increase in accounts payable and other
liabilities....................................... 25,000 -- --
----------- ----------- ---------
Net cash used in operating activities.......... (119,000) (28,350) (9,552)
----------- ----------- ---------
Investing activities:
Dividends received from bank........................... -- -- 94,811
Investment in bank..................................... 82,959 (5,087,061) --
----------- ----------- ---------
Net cash provided by (used in) investing
activities................................... 82,959 (5,087,061) 94,811
----------- ----------- ---------
Financing activities:
Proceeds from the issuance of common stock............. 35,040 5,134,365 --
Retirement of note payable............................. -- -- (75,780)
----------- ----------- ---------
Net cash provided by (used in) financing
activities................................... 35,040 5,134,365 (75,780)
----------- ----------- ---------
Net increase (decrease) in cash and cash
equivalents.................................. (1,001) 18,954 9,479
Cash and cash equivalents, beginning of year............. 31,266 12,312 2,833
----------- ----------- ---------
Cash and cash equivalents, end of year................... $ 30,265 $ 31,266 $ 12,312
========== ========== =========
</TABLE>

F-70
<PAGE> 136

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and due from banks......................................... $ 15,825,690 $ 19,547,844
Federal funds sold.............................................. 22,400,000 13,200,000
Investment securities........................................... 29,052,217 34,013,506
Loans receivable, net........................................... 150,420,224 153,089,355
Federal Home Loan Bank stock, at cost........................... 690,800 544,300
Office properties and equipment, net............................ 4,876,611 4,884,690
Accrued interest receivable..................................... 1,296,223 1,416,321
Other assets.................................................... 4,245,956 3,573,486
------------ ------------
Total assets.......................................... $228,807,721 $230,269,502
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits...................................................... $209,247,704 $211,609,773
Accrued expenses and other liabilities........................ 2,274,867 2,135,152
------------ ------------
Total liabilities..................................... 211,522,571 213,744,925
------------ ------------
Stockholders' Equity:
Common stock, $1.00 par value, authorized 10,000,000 shares;
issued and outstanding shares 3,362,000 at 03/31/96 and
12/31/95................................................... $ 3,362,000 $ 3,362,000
Additional paid-in capital.................................... 7,405,082 7,405,082
Net unrealized gain (loss) on AFS Securities.................. (773) 92,307
Retained earnings............................................. 6,518,841 5,665,188
------------ ------------
Total stockholders' equity............................ 17,285,150 16,524,577
------------ ------------
Total liabilities and stockholders' equity............ $228,807,721 $230,269,502
=========== ===========
</TABLE>

F-71
<PAGE> 137

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995

<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-----------------------
1996 1995
---------- ----------
(UNAUDITED)
<S> <C> <C>
INTEREST INCOME:
Loans................................................................. $3,724,318 $2,975,614
Other investments..................................................... 700,271 623,319
---------- ----------
Total interest income....................................... 4,424,589 3,598,933
---------- ----------
INTEREST EXPENSE:
Deposits.............................................................. 1,619,491 1,320,989
Advance and other borrowings.......................................... -- --
---------- ----------
Total Interest Expense...................................... 1,619,491 1,320,989
---------- ----------
Net Interest Income......................................... 2,805,098 2,277,944
Provision for possible loan losses.................................... 55,000 75,000
---------- ----------
Net interest income after provision for possible loan losses.......... 2,750,098 2,202,944
---------- ----------
OTHER INCOME:
Loan fees and service charges......................................... 719,325 624,865
Mortgage loan servicing fees.......................................... 8,546 5,297
Gain (loss) on sale of securities..................................... -- (36,941)
Other operating income, net........................................... 52,382 76,944
---------- ----------
780,253 670,165
---------- ----------
GENERAL AND ADMINISTRATIVE EXPENSES:
Compensation, payroll taxes, and fringe benefits...................... 1,116,545 949,796
Occupancy and equipment expense....................................... 363,057 340,711
Other................................................................. 681,896 780,914
---------- ----------
Total general and administrative expenses................... 2,161,498 2,071,421
---------- ----------
Income before income taxes.................................. 1,368,853 801,688
---------- ----------
Income tax expense.................................................... 515,200 306,975
---------- ----------
Net income.......................................................... $ 853,653 $ 494,713
========= =========
</TABLE>

F-72
<PAGE> 138

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL NET UNREALIZED TOTAL
NUMBER OF PAID-IN RETAINED GAIN/LOSS STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS ON AFS EQUITY
--------- ---------- ---------- ---------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995.................. 3,362,000 $3,362,000 $7,405,082 $5,665,188 $ 92,307 $ 16,524,577
Purchase and retirement
of common stock....... -- -- -- -- -- --
MVA to AFS Securities
(unaudited)........... -- -- -- -- (93,080) (93,080)
Net income
(unaudited)........... -- -- -- 853,653 -- 853,653
--------- ---------- ---------- ---------- ------------ ------------
Balance at March 31,
1996 (unaudited)...... 3,362,000 $3,362,000 $7,405,082 $6,518,841 $ (773) $ 17,285,150
========= ========== ========== ========== ============ ============
</TABLE>

F-73
<PAGE> 139

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1996 AND 1995

<TABLE>
<CAPTION>
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................................... $ 853,653 $ 494,713
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 156,182 118,145
Net amortization of premiums and accretion of discounts
on investment securities held to maturity and investment
securities available for sale................................ (11,965) (12,723)
Provision for loan losses..................................... 55,000 75,000
Deferred loan origination fees................................ 11,655 28,913
Loss on sale of investment securities available for sale...... -- 36,941
Cash provided by (used in) changes in:
Accrued interest receivable................................. 120,098 13,113
Other assets................................................ (703,447) 407,677
Accrued expenses and other liabilities...................... 139,715 490,211
----------- ------------
Net cash provided by operating activities................ 620,891 1,651,990
----------- ------------
Cash flows from investing activities:
Loans, net of collections........................................ 2,602,476 (2,382,833)
Proceeds from sales and maturities of investment securities
available for sale............................................ 4,880,174 3,212,625
Purchase of Federal Home Loan Bank stock......................... (146,500) --
Proceeds from sale of Federal Reserve Bank stock................. -- 150,000
Purchase of premises and equipment............................... (117,126) (125,513)
----------- ------------
Net cash provided by investing activities................ 7,219,024 854,279
----------- ------------
Cash flows from financing activities:
Net increase (decrease) in deposits.............................. (2,362,069) 30,310,201
Net decrease in Federal funds purchased.......................... -- (12,000,000)
----------- ------------
Net cash provided by (used in) financing activities...... (2,362,069) 18,310,201
----------- ------------
Net increase in cash and cash equivalents................ 5,477,846 20,816,470
Cash and cash equivalents at beginning of year..................... 32,747,844 13,590,206
----------- ------------
Cash and cash equivalents at end of year........................... $38,225,690 $ 34,406,676
=========== ============
Cash paid during the year for:
Interest......................................................... $ 1,667,078 1,176,794
=========== ============
Taxes............................................................ 40,308 --
Supplemental disclosures of non-cash transactions:
Transfer of loans to other real estate owned..................... $ -- 229,880
=========== ============
Transfer of loans to other real estate owned.................. $ -- 229,880
=========== ============
Market value adjustment -- investment securities available for
sale:
Market value adjustment -- investments........................ $ (1,171) (445,971)
Deferred income tax asset..................................... (398) (173,572)
----------- ------------
Unrealized loss on investment available for sale, net.... $ (773) (272,399)
=========== ============
</TABLE>

See accompanying notes to the consolidated financial statements.

F-74
<PAGE> 140

SOUTHERN BANKING CORPORATION AND SUBSIDIARY

NOTES TO THE UNAUDITED CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS

NOTE A -- ACCOUNTING POLICIES

The accompanying unaudited condensed consolidated financial statements of
Southern Banking Corporation and its Subsidiary ("the Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information. These unaudited interim financial statements should be
read in conjunction with the audited consolidated financial statements and
footnotes included in the Company's 1995 annual report.

In the opinion of the Company, the accompanying unaudited condensed
consolidated financial statements contain all adjustments (consisting only of
normal recurring accruals) necessary to present fairly the financial position as
of March 31, 1996 and the results of operations and cash flows for the interim
periods ended March 31, 1996 and 1995. Operating results for the three month
period ended March 31, 1996 are not necessarily indicative of the results of
operations to be expected for the year.

NOTE B -- COMMITMENTS AND CONTINGENCIES

The Company's subsidiary bank makes loan commitments and incurs contingent
liabilities in the normal course of business which are not reflected in the
consolidated statements of condition.

NOTE C -- ACCOUNTING CHANGES

On January 1, 1996 the Company adopted the Financial Standards Board issued
SFAS 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of". SFAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by the entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the future undiscounted
cash flows expected to result from the use of the asset and its eventual
disposition are less than the carrying amount of the asset, an impairment loss
is recognized. This statement also requires that long-lived assets and certain
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. Management believes that the adoption of SFAS No.
121 will not have a material impact on the Company's financial statements.

On January 1, 1996 the Company adopted the Financial Standards Board issued
SFAS 122, "Accounting for Mortgage Servicing Rights". This Statement amends
certain provisions of SFAS No. 65 to substantially eliminate the accounting
distinction between rights to service mortgage loans for others that are
acquired through loan origination activities and those acquired through purchase
transactions. The Statement requires the allocation of the total cost of the
mortgage loans to the mortgage servicing rights and the loans (without the
mortgage servicing rights), based on their relative fair values, if it is
practicable to estimate those fair values. Mortgage servicing rights are then
amortized in proportion to and over the period of estimated net servicing income
and should be evaluated for impairment based on their fair value. Management
believes that the adoption of SFAS No. 122 will not have a material impact on
the Company's financial statements.

On January 1, 1996 the Company adopted Financial Standards Board issued
SFAS 123, "Accounting for Stock-Based Compensation". SFAS 123 establishes a fair
value based method of accounting for stock-based compensation plans. The
Statement permits an entity, however, in determining its net income to continue
to apply the accounting provisions of Opinion 25 to its stock-based employee
compensation arrangements. The Company has both director and employee stock
compensation plans. Management believes that the adoption of SFAS No. 123 will
not have a material impact on the Company's financial statements.

F-75
<PAGE> 141

APPENDIX A

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

THE COLONIAL BANCGROUP, INC.,

COLONIAL BANK

AND

DOTHAN FEDERAL SAVINGS BANK

DATED AS OF

JANUARY 22, 1996
<PAGE> 142

TABLE OF CONTENTS

<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE 1 -- NAME
1.1 Name.......................................................................... A-5
ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS
2.1 Applicable Law................................................................ A-5
2.2 Corporate Existence........................................................... A-5
2.3 Articles of Incorporation and Bylaws.......................................... A-5
2.4 Resulting Corporation's Officers and Board.................................... A-6
2.5 Shareholder Approval.......................................................... A-6
2.6 Further Acts.................................................................. A-6
2.7 Effective Date and Closing.................................................... A-6
ARTICLE 3 -- CONVERSION OF BANK STOCK
3.1 Conversion of Bank Stock...................................................... A-6
3.2 Surrender of Bank Stock....................................................... A-7
3.3 Fractional Shares............................................................. A-7
3.4 Adjustments................................................................... A-7
3.5 Colonial Bank Stock........................................................... A-7
3.6 Dissenting Rights............................................................. A-7
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
4.1 Organization.................................................................. A-8
4.2 Capital Stock................................................................. A-8
4.3 Financial Statements; Taxes................................................... A-8
4.4 No Conflict with Other Instrument............................................. A-9
4.5 Absence of Material Adverse Change............................................ A-9
4.6 Approval of Agreements........................................................ A-9
4.7 Tax Treatment................................................................. A-9
4.8 Title and Related Matters..................................................... A-9
4.9 Subsidiaries.................................................................. A-9
4.10 Contracts..................................................................... A-10
4.11 Litigation.................................................................... A-10
4.12 Compliance.................................................................... A-10
4.13 Registration Statement........................................................ A-10
4.14 Filings Incorporated by Reference............................................. A-10
4.15 Form S-4...................................................................... A-10
4.16 Disclosure.................................................................... A-10
4.17 Brokers....................................................................... A-11
ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BANK
5.1 Organization.................................................................. A-11
5.2 Capital Stock................................................................. A-11
5.3 Subsidiaries.................................................................. A-11
5.4 Financial Statements; Taxes................................................... A-11
5.5 Absence of Certain Changes or Events.......................................... A-12
5.6 Title and Related Matters..................................................... A-13
5.7 Commitments................................................................... A-13
5.8 Charter and Bylaws............................................................ A-14
5.9 Litigation.................................................................... A-14
5.10 Material Contract Defaults.................................................... A-14
</TABLE>

A-2
<PAGE> 143

<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<C> <S> <C>
5.11 No Conflict with Other Instrument............................................. A-14
5.12 Governmental Authorization.................................................... A-14
5.13 Absence of Regulatory Communications.......................................... A-14
5.14 Absence of Material Adverse Change............................................ A-14
5.15 Insurance..................................................................... A-14
5.16 Pension and Employee Benefit Plans............................................ A-15
5.17 Buy-Sell Agreement............................................................ A-15
5.18 Brokers....................................................................... A-15
5.19 Approval of Agreements........................................................ A-15
5.20 Disclosure.................................................................... A-15
5.21 Registration Statement........................................................ A-15
5.22 Loans; Adequacy of Allowance for Loan Losses.................................. A-16
5.23 Environmental Matters......................................................... A-16
5.24 Transfer of Shares............................................................ A-16
5.25 Collective Bargaining......................................................... A-16
5.26 Labor Disputes................................................................ A-16
5.27 Derivative Contracts.......................................................... A-16
ARTICLE 6 -- ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup............................................. A-17
6.2 Additional Covenants of the Bank.............................................. A-17
ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation..................................................... A-18
7.2 Press Release................................................................. A-19
7.3 Mutual Disclosure............................................................. A-19
7.4 Access to Properties and Records.............................................. A-19
ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders...................................................... A-19
8.2 Regulatory Authority Approval................................................. A-19
8.3 Litigation.................................................................... A-19
8.4 Registration Statement........................................................ A-19
8.5 Tax Opinion................................................................... A-20
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF THE BANK
9.1 Representations, Warranties and Covenants..................................... A-20
9.2 Adverse Changes............................................................... A-20
9.3 Closing Certificate........................................................... A-20
9.4 Opinion of Counsel............................................................ A-21
9.5 Other Matters................................................................. A-21
9.6 Material Events............................................................... A-21
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants..................................... A-21
10.2 Adverse Changes............................................................... A-21
10.3 Closing Certificate........................................................... A-21
10.4 Opinion of Counsel............................................................ A-22
10.5 Controlling Shareholders...................................................... A-22
10.6 Other Matters................................................................. A-22
10.7 Material Events............................................................... A-22
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES......................... A-22
ARTICLE 12 -- NOTICES............................................................... A-23
</TABLE>

A-3
<PAGE> 144

<TABLE>
<CAPTION>
CAPTION PAGE
- ------- ----
<C> <S> <C>
ARTICLE 13 -- AMENDMENT OR TERMINATION
13.1 Amendment..................................................................... A-23
13.2 Termination................................................................... A-23
13.3 Damages....................................................................... A-23
ARTICLE 14 -- DEFINITIONS........................................................... A-24
ARTICLE 15 -- MISCELLANEOUS
15.1 Expenses...................................................................... A-27
15.2 Benefit....................................................................... A-27
15.3 Governing Law................................................................. A-27
15.4 Counterparts.................................................................. A-27
15.5 Headings...................................................................... A-28
15.6 Severability.................................................................. A-28
15.7 Construction.................................................................. A-28
15.8 Return of Information......................................................... A-28
15.9 Equitable Remedies............................................................ A-28
15.10 Attorneys' Fees............................................................... A-28
15.11 No Waiver..................................................................... A-28
15.12 Remedies Cumulative........................................................... A-28
15.13 Entire Contract............................................................... A-28
</TABLE>

A-4
<PAGE> 145

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
22nd day of January 1996, by and among DOTHAN FEDERAL SAVINGS BANK, a federal
savings bank ("Bank"), COLONIAL BANK ("Colonial Bank"), an Alabama state banking
corporation, and THE COLONIAL BANCGROUP, INC. ("BancGroup"), a Delaware
corporation.

WITNESSETH

WHEREAS, the Bank operates as a federal savings bank in Dothan, Alabama;
and

WHEREAS, BancGroup is a bank holding company with subsidiary banks in
Alabama, Georgia and Tennessee; and

WHEREAS, the Bank wishes to merge with Colonial Bank, a wholly-owned
subsidiary of BancGroup; 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 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.

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.

A-5
<PAGE> 146

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 and the Bank's stock charter and bylaws, 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 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) (i) On the Effective Date, and subject
to sections 3.1(a)(ii), 3.3 and 3.6, 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 (the "Merger
Consideration") as specified below. Unless specified otherwise by a holder of
Bank Stock in accordance with section 3.1(a)(ii), each outstanding share of Bank
Stock on the Effective Date shall be converted into the number of shares, or
such fractions of a share (subject to section 3.3 hereof), of BancGroup Common
Stock which shall be equal to $2,600,000 divided by the total number of shares
of Bank Stock outstanding, divided in turn 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 $2,600,000 in
cash for the outstanding shares of Bank Stock, with the amount of cash to be
paid for each one share of Bank Stock equal to $2,600,000 divided by the number
of shares of Bank Stock outstanding.

(ii) A holder of Bank Stock may, prior to the Stockholders Meeting, file a
written election form (an "Election Form") with the Bank specifying whether such
holder prefers to have the Merger Consideration paid to such holder in shares of
BancGroup Common Stock only, cash only, or a proportion of cash and BancGroup
Common Stock that is other than 50% for each, provided that, notwithstanding any
elections made pursuant to such Election Forms, the aggregate number of shares
of BancGroup Common Stock to be distributed in the Merger shall equal 50% of the
total Merger Consideration and the aggregate amount of cash to be paid in the
Merger shall equal 50% of the total Merger Consideration. Elections made shall
apply to all shares of record of Bank Stock held by a record holder making the
election. If the aggregate amount of cash to be paid in the Merger is less than
50% of the Merger Consideration based upon the Election Forms which have been
properly filed, then a sufficient amount of additional cash shall be distributed
pro rata to all

A-6
<PAGE> 147

stockholders of the Bank who have not elected to receive 100% of the Merger
Consideration in cash, regardless of whether such stockholders have filed an
Election Form, so that the aggregate amount of Merger Consideration to be paid
in cash in the Merger will equal 50%, and the number of shares of BancGroup
Common Stock otherwise required to be distributed shall be reduced pro rata as
to all stockholders who have not elected to receive 100% of the Merger
Consideration in cash. If the aggregate amount of cash to be paid in the Merger
is greater than 50% of the Merger Consideration based upon the Election Forms
which have been properly filed, then a sufficient amount of cash shall be
distributed pro rata to all stockholders of the Bank who have not elected to
receive 100% of the Merger Consideration in BancGroup Common Stock, regardless
of whether such stockholders have filed an Election Form, so that the aggregate
amount of Merger Consideration to be paid in cash in the Merger will equal 50%,
and the number of shares of BancGroup Common Stock otherwise required to be
distributed shall be increased pro rata as to all stockholders who have not
elected to receive 100% of the Merger Consideration in BancGroup Common Stock.
For purposes of this section 3.1(a), and in accordance with section 3.6, cash to
be paid to holders exercising dissenter's rights of appraisal under section 3.6
hereof shall be included as part of the Merger Consideration for determining the
amount of cash to be paid under section 3.1(a). Interest will not be paid on any
cash to be paid as part of the Merger Consideration.

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.

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 regulations of the Office of Thrift Supervision, 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. The $2,600,000 figure stated in section 3.1(a) used for calculating the
cash to be distributed to holders of Bank Stock shall be reduced by an amount
that equals the number of shares of Bank Stock properly exercising dissenting
rights of appraisal under this section multiplied by $13.01.

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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 September 30, 1995, 12,267,143 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 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 nine months ending September 30, 1995;

(ii) Consolidated statements of operations for each of the three years
ended December 31, 1992, 1993 and 1994, and for the nine months ending
September 30, 1995;

(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1992, 1993 and 1994, and for the nine months
ending September 30, 1995; and

(iv) Consolidated statements of changes in shareholders' equity for
the three years ended December 31, 1992, 1993 and 1994, and for the nine
months ending September 30, 1995.

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 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

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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 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 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 with 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 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 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 has been duly qualified as a foreign
corporation

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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 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.

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.

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.

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

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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 for a finder's fee, brokerage
commission or other like payment except for the services of Steven Johnson &
Associates.

ARTICLE 5

REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BANK

The Bank represents, warrants and covenants to and with BancGroup, as
follows:

5.1 Organization. The Bank is a federal savings bank duly organized,
validly existing and in good standing under the Laws of the United States and
the regulations of the Office of Thrift Supervision 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 September 30, 1995, the authorized capital
stock of the Bank consisted of 4,000,000 shares of common stock, $.01 par value
per share, 399,688 shares of which are issued and outstanding. 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.

(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 the following financial statements of the Bank
(together with related opinions of auditors, as appropriate):

(i) Statements of financial condition as of June 30, 1994 and 1995 and
for the six months ending September 30, 1995;

(ii) Statements of income for each of the three years ended June 30,
1993, 1994 and 1995 and for the six months ending September 30, 1995;

(iii) Statements of cash flows for each of the three years ending June
30, 1993, 1994 and 1995, and for the six months ending September 30, 1995;
and

(iv) Statements of changes in equity capital for each of the three
years ended June 30, 1993, 1994, and 1995 and for the six months ending
September 30, 1995.

All of the foregoing financial statements are in all material respects in
accordance with the books and records of the 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.

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(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
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. 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;

(ii) except as disclosed on Schedule 5.5(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) except as may be reasonable and necessary in connection with the
Merger, 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) 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;

(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;

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(ix) except as disclosed on Schedule 5.5(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;

(xi) except as set forth on Schedule 5.5(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;

(xiii) entered into any other material transaction other than in the
ordinary course of business; or

(xiv) agreed in writing, or otherwise, to take any action described in
clauses (i) through (xiii) above.

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 (i) through (xiii) of this section 5.5 except as permitted therein or as
contemplated in this Agreement.

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)(i), 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.

(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

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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 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. Schedule 5.8 contains true and correct copies of
the Bank's federal stock charter and bylaws, including all amendments thereto,
as currently in effect. There will be no changes in such charter 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, 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 the Bank 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 or instrument to which the Bank is a
party or its Assets may be bound and will not conflict with any provision of the
stock 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 Bank reasonably believes to be adequate for

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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 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 or any trustee or administrator thereof has
engaged in a "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, except for the services of Steven Johnson & Associates.

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 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; provided, however,
that the representations and warranties in this section shall only

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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, loss, or nonperforming 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 "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 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.

5.25 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of understanding or other arrangements, formal or
informal, between the Bank and any union or labor organization covering any of
the Bank's employees and none of said employees are represented by any union or
labor organization.

5.26 Labor Disputes. The Bank is in material compliance with all federal
and state laws respecting employment and employment practices, terms and
conditions of employment, wages and hours. The Bank is not and has not been
engaged in any unfair labor practice, and, to the Knowledge of the Bank, no
unfair labor practice complaint against the Bank is pending before the National
Labor Relations Board. Relations between management and the employees are
amicable and there have not been, nor to the Knowledge of the Bank are there
presently, any attempts to organize employees, nor to the Knowledge of the Bank
are there plans for any such attempts.

5.27 Derivative Contracts. The Bank is not a party to and has not agreed
to enter into a swap, forward, future, option, cap, floor or collar financial
contract, or any other interest rate or foreign currency protection

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contract or derivative security not included in the Bank's financial statements
delivered under section 4.3 hereof which is a financial derivative contract
(including various combinations thereof).

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.

(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.

(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; and provided
further that nothing in the foregoing proviso clause shall be deemed a
waiver by BancGroup that any action taken by the Bank pursuant to such
proviso constitutes a breach of this Agreement.

(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.

(e) Financial Statements. The Bank shall furnish to BancGroup:

(i) As soon as practicable and in any event within 30 days after
the end of each quarterly period in each fiscal year, consolidated
statements of operations of the Bank 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 the Bank 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 the Bank by independent auditors in connection with each
annual, interim or special audit of the books of the Bank 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 the Bank may file with the SEC or any
other Agency; and

(iv) With reasonable promptness, such additional financial data as
BancGroup may reasonably request.

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

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as stock transfer agents for the Party, the other Parties requiring information
which is reasonably available from such Party.

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.

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 and
the Bank's stock charter and by-laws.

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, the Federal
Deposit Insurance Corporation 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 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.

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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 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:

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:

(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;

(c) the certificate of incorporation and bylaws of BancGroup
referenced in section 4.4 hereof remain in full force and effect;

(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,

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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;

(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
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, L.L.C. 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.

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.

10.3 Closing Certificate. 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;

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(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;

(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 Lee &
McInish, 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 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.

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 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, and any applicable definitions of Article 14,
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.

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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 Charles Williams, P.O. Box 6886, Dothan, Alabama
36302, facsimile (334) 794-8036, with copies to William C. Carn, III, Lee &
McInish, 238 West Main Street, P.O. Box 1665, Dothan, Alabama 36301,
facsimile (334) 794-8342, 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.

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:

(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; or

(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 December 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).

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, in that
case, the expenses incurred shall be borne as set forth in section 15.1 hereof.

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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:

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.

BancGroup The Colonial BancGroup, Inc., a Delaware
corporation with its principal offices in
Montgomery, Alabama.

Bank Dothan Federal Savings Bank, a federal savings bank
with offices in Dothan, Alabama.

Bank Stock Shares of Common stock, par value $.01 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.

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

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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.

Election Form A written election filed pursuant to section
3.1(a)(i) hereof.

Environmental Laws Means the laws, regulations and governmental
requirements referred to in section 5.23 hereof.

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 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.

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.

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.

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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.

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 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.

Merger Consideration The consideration to be paid by BancGroup for a
share of Bank Stock under section 3.1(a).

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.

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.

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, except that BancGroup
will pays the costs of filing fees for the Registration Statement and any
applications filed with Agencies seeking approval of the Merger.

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.

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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.

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.

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 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.

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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.

<TABLE>
<S> <C>
ATTEST: DOTHAN FEDERAL SAVINGS BANK
BY: Charles A. Wilson BY: William M. Lee
ITS: President ITS: Chairman
(CORPORATE SEAL)

ATTEST: COLONIAL BANK
BY: Teresa R. Skipper BY: W. Flake Oakley
ITS: Secretary ITS: Chief Financial Officer
(CORPORATE SEAL)

ATTEST: THE COLONIAL BANCGROUP, INC.
BY: Teresa R. Skipper BY: W. Flake Oakley
ITS: Assistant Secretary ITS: Chief Financial Officer
(CORPORATE SEAL)
</TABLE>

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APPENDIX B

OTS REGULATION REGARDING DISSENTERS' RIGHTS OF APPRAISAL

SEC. 552.14 DISSENTER AND APPRAISAL RIGHTS.

(a) Right to demand payment of fair or appraised value. Except as provided
in paragraph (b) of this section, any stockholder of a Federal stock association
combining in accordance with sec. 552.13 of this part shall have the right to
demand payment of the fair or appraised value of his stock: Provided, That such
stockholder has not voted in favor of the combination and complies with the
provisions of paragraph (c) of this section.

(b) Exceptions. No stockholder required to accept only qualified
consideration for his or her stock shall have the right under this section to
demand payment of the stock's fair or appraised value, if such stock was listed
on a national securities exchange or quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the
meeting at which the combination was acted upon or stockholder action is not
required for a combination made pursuant to sec. 552.13(h)(2) of this part.
"Qualified consideration" means cash, shares of stock of any association or
corporation which at the effective date of the combination will be listed on a
national securities exchange or quoted on NASDAQ, or any combination of such
shares of stock and cash.

(c) Procedure-(1) Notice. Each constituent Federal stock association shall
notify all stockholders entitled to rights under this section, not less than
twenty days prior to the meeting at which the combination agreement is to be
submitted for stockholder approval, of the right to demand payment of appraised
value of shares, and shall include in such notice a copy of this section. Such
written notice shall be mailed to stockholders of record and may be part of
management's proxy solicitation for such meeting.

(2) Demand for appraisal and payment. Each stockholder electing to make a
demand under this section shall deliver to the Federal stock association, before
voting on the combination, a writing identifying himself or herself and stating
his or her intention thereby to demand appraisal of and payment for his or her
shares. Such demand must be in addition to and separate from any proxy or vote
against the combination by the stockholder.

(3) Notification of effective date and written offer. Within ten days
after the effective date of the combination, the resulting association shall:

(i) Give written notice by mail to stockholders of constituent Federal
stock associations who have complied with the provisions of paragraph
(c)(2) of this section and have not voted in favor of the combination, of
the effective date of the combination;

(ii) Make a written offer to each stockholder to pay for dissenting
shares at a specified price deemed by the resulting association to be the
fair value thereof; and

(iii) Inform them that, within sixty days of such date, the respective
requirements of paragraphs (c)(5) and (c)(6) of this section (set out in
the notice) must be satisfied.

The notice and offer shall be accompanied by a balance sheet and statement
of income of the association the shares of which the dissenting stockholder
holds, for a fiscal year ending not more than sixteen months before the date of
notice and offer, together with the latest available interim financial
statements.

(4) Acceptance of offer. If within sixty days of the effective date of the
combination the fair value is agreed upon between the resulting association and
any stockholder who has complied with the provisions of paragraph (c)(2) of this
section, payment therefor shall be made within ninety days of the effective date
of the combination.

(5) Petition to be filed if offer not accepted. If within sixty days of
the effective date of the combination the resulting association and any
stockholder who has complied with the provisions of paragraph (c)(2) of this
section do not agree as to the fair value, then any such stockholder may file a
petition with the Office, with a copy by registered or certified mail to the
resulting association, demanding a determination of the fair market

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value of the stock of all such stockholders. A stockholder entitled to file a
petition under this section who fails to file such petition within sixty days of
the effective date of the combination shall be deemed to have accepted the terms
offered under the combination.

(6) Stock certificates to be noted. Within sixty days of the effective
date of the combination, each stockholder demanding appraisal and payment under
this section shall submit to the transfer agent his certificates of stock for
notation thereon that an appraisal and payment have been demanded with respect
to such stock and that appraisal proceedings are pending. Any stockholder who
fails to submit his or her stock certificates for such notation shall no longer
be entitled to appraisal rights under this section and shall be deemed to have
accepted the terms offered under the combination.

(7) Withdrawal of demand. Notwithstanding the foregoing, at any time
within sixty days after the effective date of the combination, any stockholder
shall have the right to withdraw his or her demand for appraisal and to accept
the terms offered upon the combination.

(8) Valuation and payment. The Director shall, as he or she may elect,
either appoint one or more independent persons or direct appropriate staff of
the Office to appraise the shares to determine their fair market value, as of
the effective date of the combination, exclusive of any element of value arising
from the accomplishment or expectation of the combination. Appropriate staff of
the Office shall review and provide an opinion on appraisals prepared by
independent persons as to the suitability of the appraisal methodology and the
adequacy of the analysis and supportive data. The Director after consideration
of the appraisal report and the advice of the appropriate staff shall, if he or
she concurs in the valuation of the shares, direct payment by the resulting
association of the appraised fair market value of the shares, upon surrender of
the certificates representing such stock. Payment shall be made, together with
interest from the effective date of the combination, at a rate deemed equitable
by the Director.

(9) Costs and expenses. The costs and expenses of any proceeding under
this section may be apportioned and assessed by the Director as he or she may
deem equitable against all or some of the parties. In making this determination
the Director shall consider whether any party has acted arbitrarily,
vexatiously, or not in good faith in respect to the rights provided by this
section.

(10) Voting and distribution. Any stockholder who has demanded appraisal
rights as provided in paragraph (c)(2) of this section shall thereafter neither
be entitled to vote such stock for any purpose nor be entitled to the payment of
dividends or other distributions on the stock (except dividends or other
distribution payable to, or a vote to be taken by stockholders of record at a
date which is on or prior to, the effective date of the combination): Provided,
That if any stockholder becomes unentitled to appraisal and payment of appraised
value with respect to such stock and accepts or is deemed to have accepted the
terms offered upon the combination, such stockholder shall thereupon be entitled
to vote and receive the distributions described above.

(11) Status. Shares of the resulting association into which shares of the
stockholders demanding appraisal rights would have been converted or exchanged,
had they assented to the combination, shall have the status of authorized and
unissued shares of the resulting association.

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