Colonial Bank Becomes the Biggest Failure of 2009

Regulators closed five more insolvent financial institutions Friday, including Colonial Bank, the biggest to fail since IndyMac Federal Bank went under last summer.

Colonial Bank, based in Montgomery, Ala., had $25 billion in assets and roughly $20 billion in deposits. The Federal Deposit Insurance Corp. said it arranged for BB&T Corp. to take over much of Colonial's operations, including its deposits and its 346 branches in Alabama, Florida, Georgia, Nevada and Texas.

BB&T agreed to buy $22 billion of Colonial's assets, with $15 billion of that amount covered by a loss-sharing arrangement with the FDIC.

Colonial was undone by its heavy exposure to mortgage and real-estate development loans. It had been seeking federal aid through the Treasury Department's Troubled Asset Relief Program, and through private investors.

On Thursday, Bank of America Corp. sued Colonial Bank's parent company, Colonial BancGroup Inc., seeking $1 billion in cash and loans. A judge granted its request for a freeze on the assets, helping to seal Colonial's fate.

Regulators also shut down Community Bank of Nevada, with headquarters in Las Vegas; Community Bank of Arizona, based in Phoenix; Union Bank, of Gilbert, Ariz., and Dwelling House Savings and Loan Association in Pittsburgh.

The latest closings bring the total for the year to 77.

The FDIC could not find a taker for Community Bank of Nevada, so it set up a new entity, Deposit Insurance National Bank of Nevada, to wind up its operations over the next 30 days.

Community Bank of Nevada had $1.52 billion in assets and $1.38 billion in deposits.

The FDIC arranged for MidFirst Bank, of Oklahoma City, Okla., to take over Community Bank of Arizona's four branches, and its $143.8 million in deposits. MidFirst also bought $125.5 million of the failed bank's $158.5 million in assets.

MidFirst and the FDIC have a loss-sharing agreement on $55.1 million of those assets.

MidFirst also bought the remains of Union Bank, the other Arizona institution that was shut down Friday. MidFirst took over the bank's lone branch, and its $112 million in deposits.

It also agreed to buy $11 million of the bank's $124 million in assets. The FDIC will hold the remaining assets for later disposition.

PNC Bank took over the operations of Dwelling House Savings and Loan, a small African-American owned thrift whose history goes back nearly a century. Dwelling House said earlier this year that it was the victim of cyber thieves who siphoned money through electronic bank transfers.

The savings and loan had been ordered by the federal Office of Thrift Supervision to raise $3 million to replenish its capital. Dwelling House had $13.4 million in assets and $13.8 million in deposits as of March 31.

PNC agreed to buy all of the savings and loan's deposits, and $3 million of its assets.

The FDIC said that the five closings Friday would cost its insurance fund an estimated $3.67 billion.