Dear Shareholder:

In every respect 2001 was a remarkable year. September 11 and its aftermath will be with us forever. In the face of real economic adversity I am proud of Colonial’s record earnings for the year. I am pleased to report that Colonial had record operating income for the year of $125.7 million and record net income for the year of $122.1 million. These results are a testament to the strength and competence of our people and to our philosophy of concentrating on the quality of the assets we put on our books above all other factors. While we achieved record earnings for the year we reached another milestone by growing to $13 billion in assets.

Revenues Increase
Our success in 2001 is attributable to several factors. First, we experienced overall loan growth, adjusted for acquisitions, of 9.8%. Fortunately, during a year of economic ups and downs and 11 interest rate changes, we were able to respond to market conditions by adjusting the components of our earning assets. These adjustments, however, did not interfere with our steadfast philosophy of maintaining sound asset quality. Our asset quality remains excellent with nonperforming assets as a percentage of loans and other real estate of 0.64% and net charge-offs of 0.28%. While indicative of the slowing economy, these results were still better than most of our peers.

Attention to creating personal relationships with quality borrowers while maintaining sound underwriting standards is the backbone of our company and has allowed us to effectively manage credit issues related to the recession. We are focused on our strengths from a lending perspective and thus are not faced with the need for massive write-offs in syndicated loans, auto-leasing, indirect lending or subprime lending that many other institutions are experiencing.

Additionally, over the past three years we have been building our mortgage warehouse lending business, which provides lines of credit to mortgage companies so they can temporarily “warehouse” their mortgages until they are delivered in the secondary market. The important aspect of this business is that it thrives when interest rates are down, so it is counter-cyclical and offers balance to our overall loan portfolio.

Colonial’s increased emphasis on retail banking and noninterest income sources has also been a significant factor in earnings performance and the ability to increase earnings in this difficult economic environment. In fact, noninterest income increased 20%, with mortgage origination, electronic banking and cash management services being the top performers. During 2001, we emphasized the growth of core deposits and enhanced our suite of products with the introduction of the Premier Account, a combined brokerage, money market and checking account. This emphasis resulted in an increase of 23% in retail noninterest-bearing deposits and 11% in interest-bearing money market accounts over 2000.

We are making strategic technology investments in retail delivery solutions that should be fully implemented by the end of 2003. In July 2001, we began the Eagle project. Through Eagle we plan to reengineer our processes to eliminate non-value added procedures to take full advantage of our new technology. We believe this project is an investment in our people and our customers, which will yield significant returns.

Acquisitions Contribute
We have continued to expand our footprint in key growth markets. In the fourth quarter of the year we completed two strategic additions to our regional banks along Florida’s west coast with the acquisition of Manufacturers Bank of Florida, headquartered in Tampa, and the purchase of nine Union Planters offices. We are also excited about our pending merger with First Mercantile Bank, which, with its $350 million in assets, will expand our presence in the Dallas/Forth Worth area and provide entry into the Austin market.

Through our strategic acquisitions, we believe that we are well-positioned to take advantage of the nation’s growth trends. The U.S. Census Bureau’s most recent population growth figures show only seven states with an annual growth rate of more than 2%. We operate in the higher growth areas of four of those states.

Next Twenty
Over the past 20 years, I have seen enormous changes in our company and in the financial services industry. No one could have predicted what would happen in 2001, but by adhering to our strategies, we were able to post record results.

What can you expect from us? In short, we will stay the course – efficiently running a people business and taking advantage of opportunities when they arise. For example, we promptly moved on opportunities in Florida, Georgia, Nevada and Texas during the last six years and now have great franchises in those states as a result.

Since we have responded quickly not only to opportunity, but also to changes in the economy and technology, you can expect that we will continue to initiate change for the benefit of our customers and shareholders.

Our fundamental banking philosophy remains that you can do everything else right, but if you make bad loans you will fail. We have no intention of straying from our high underwriting standards, and will continue to look to real-estate as our primary source of collateral. You can expect our focus on high-quality lending to continue.

Finally, we are well positioned to take advantage of a rebound in the economy. We are in the best markets. With new product introductions and investments in technology initiated in 2001, you certainly can expect an exciting future with us.

Sincerely,

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