Reuters reports that the Federal Deposit Insurance Corporation (FDIC) will take Colonial Bank Group into receivership and sell the bank’s assets to BB&T Corp.  This would be the largest bank failure since Wachovia Bank was put into receivership last September.

Colonial is based in Montgomery, Alabama and has $25 million in assets.  Its 355 branches are located in Alabama, Florida, Texas, Georgia, and Nevada.

The Alabama State Banking Department had said earlier in the week that it might ask the federal insurer to take over the state’s second largest bank after August 12.  It then canceled a scheduled meeting with the banks officers, giving no reason.  FDIC typically seizes a bank at the close of business on Friday, but never comments on its plans in advance of the actual takeover.

BB&T, the institution said to be assuming the assets, in headquartered in North Carolina.  In June it bought back the government’s interest in its operations, repaying the TARP fund $3.1 billion. The bank’s stock soared 9 percent after the rumors stated to swirl.

Colonial expanded its operations into Florida during the housing boom and ended up holding more than $1.7 billion in toxic real estate loans.   It recently posted a second-quarter loss of over $600 million and had been unable to meet capital requirements to qualify for an infusion of TARP money.  An expected $300 million from an investor has not materialized and the bank admitted last month that it might not be able to survive.  Topping off its problems, it announced last week that its warehouse mortgage-lending business was the subject of a U.S. criminal probe.

The New York Stock Exchange suspended trading in the bank’s stock before the opening this morning.

Update: FDIC Press Release