Colonial Bank, overwhelmed by soured real estate loans in Florida, was seized Friday by federal regulators, who sold its assets to longtime Southeast banking rival BB&T Corp.
The shutdown, the biggest bank failure of the year, came after months of growing anxiety within the Montgomery, Ala., bank, which has more than $25 billion in assets and 346 branches in five states.
In Florida alone Colonial holds about $10 billion in deposits and has nearly 200 branches, according to latest-available figures from the FDIC.
BB&T, which is based in Winston-Salem, N.C., has about $4 billion in deposits and more than 100 branches in Florida. Once it absorbs Colonial, BB&T would become the fifth-largest bank in Florida.
Colonial last month indicated there was "substantial doubt" it could survive. A recent attempt to pump $300 million into the bank fell apart when the source of the lifeline, mortgage lender Taylor Bean & Whitaker, ran into a crisis of its own. Last week, Taylor Bean was forced to shutter its Ocala-based lending business and lay off 1,000 workers after it was banned from writing any more FHA-insured mortgages.
Beyond being weighed down by an estimated $1.7 billion-plus in bad real estate loans in Florida, Colonial is also the target of a federal criminal inquiry into its warehouse mortgage-lending business, the bank disclosed last week.
Colonial's failure is not the same scope as last year's IndyMac or the near failure of Wachovia Corp., which was swallowed up by Wells Fargo in an orchestrated sale before it reached the point of failure.
Yet the collapse dwarves this year's previous record-holder for bank failure: Florida's BankUnited Financial, which had less than $13 billion in assets.
And, more importantly, it ratchets up the likelihood that the Federal Deposit Insurance Corp. will need an injection of more federal funds. The agency's insurance fund fell to $13 billion as of March 31, and the FDIC said it will cost the fund $2.8 billion to help shoulder Colonial's losses.
"BB&T's acquisition of all the deposits was the least costly resolution," the FDIC said in a statement.
IndyMac cost the FDIC about $10.7 billion by itself, and is the most expensive failure in history.
Including Colonial, 74 banks have failed so far this year. But as more community banks and regional banks face rising losses from commercial real estate loans, the crisis could deepen. One report earlier this year by RBC Capital Markets predicted more than 1,000 of the nation's more than 9,000 banks may fail during the next five years.
"We're going to start seeing more Florida activity, unfortunately," said Ken Thomas, a Miami-based bank consultant and economist.
For Florida, which has become accustomed to domination by out-of-state banks, the takeover won't change dynamics greatly, Thomas said.
The good thing for Florida consumers, he added, is that they're trading a sickly bank for one that's relatively healthy compared to its peers. BB&T has strong capital and decent protection from loan losses.
"That puts them in a position to take advantage of these troubled times," Thomas said.
BB&T's stock closed Friday up 9 percent in anticipation of the deal.
Shares in Colonial fell about 12 percent to 41 cents before being halted Friday morning as reports of FDIC's pending intervention started spreading. The FDIC, however, waited until after 6 p.m. Friday to make it official.
As Colonial's slow death spiral became apparent during the day, some customers were taking it in stride.
The setting was quiet Friday afternoon at the Colonial Bank branch in downtown Tampa's Park Tower. At one point, only two customers visited the branch in 20 minutes. One of them was Mike Addison, who emerged from the bank confident that his money was safe.
"I ask them every day if they're still in business. Now it looks like they'll have a new name," the Tampa lawyer said. "But as long as my account's federally insured, that's all that matters."
Times staff writer James Thorner and Times wires contributed to this report. Jeff Harrington can be reached at jharrington@sptimes.com or (727) 893-8242.
What if I'm a Colonial customer?
Colonial Bank's 346 branches, including about 200 in Florida, will reopen under normal business hours and operate as branches of BB&T. Depositors of Colonial Bank will automatically become depositors of BB&T.
The FDIC's insurance fund guarantees up to $250,000 per person per account. The FDIC said deposits will continue to be insured, so there is no need for customers to change their banking relationship to retain their deposit insurance coverage.
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