Colonial BancGroup Inc. (CNB) was closed by regulators Friday evening after an agreement was reached to have BB&T Corp. (BBT) acquire most of its assets and all of its deposits.

The news capped weeks of speculation about the fate of the Montgomery, Ala., bank, which had been struggling amid growing losses on real estate and construction loans and was facing a federal criminal probe. Colonial's failure marks the fifth largest U.S. bank failure ever.

The Federal Deposit Insurance Corp. said that the Alabama State Banking Department closed Colonial Friday and appointed the FDIC as receiver in a failure expected to cost the federal deposit insurance fund $2.8 billion. FDIC Chair Sheila Bair, in a statement released by the agency, said that the losses from the failure were lower than the agency had projected.

The agreement between the FDIC and BB&T calls for the Winston-Salem, N.C., bank to acquire Colonial's approximately $20 billion in deposits and $22 billion of assets. The FDIC will hold on to any additional Colonial assets to sell later, the agency said.

Additionally, the FDIC said it had entered into a loss-sharing agreement with BB&T on approximately $15 billion of Colonial's assets.

"We're gaining solid market shares in great markets in Alabama, Florida and Georgia," BB&T Chief Executive Kelly King said in a press release. "And it comes with minimal asset risk to BB&T because of our loss-sharing agreement with the FDIC."

BB&T also said that the assets and liabilities the FDIC determines to be related to fraudulent or criminal activities are excluded from the deal. BB&T said it is indemnified by the FDIC for any liabilities not expressly assumed in the transaction.

News of the loss-sharing agreement and excluded assets and liabilities will please investors, who were eagerly awaiting details of the deal after reports emerged early Friday that BB&T was set to acquire Colonial's branches and assets. The stock gained 9.4% to $28.23 during Friday's regular session, and was up another 8 cents in after-hours trading.

With the deal, BB&T gains access to Texas, one of the nation's more-attractive banking markets. Texas, fueled by the energy industry, has a stronger economy than most states and has been largely sheltered from the current financial crisis.

BB&T already has branches in Florida and Georgia, which have been trouble spots for Colonial owing to souring real estate loans. Still, a bigger presence in Florida remains attractive for BB&T. The bank, which has the bulk of its branches in Virginia and North Carolina, has only a small presence in Alabama, Colonial's home market.

The Colonial acquisition represents the largest for BB&T in its 137-year history, creating the country's eighth-largest financial holding company by deposits, the North Carolina bank said in its release. BB&T had $102 billion in deposits at the end of the second quarter.

BB&T has held up better than many regional banks in the financial crisis. It was among those 19 banks the Federal Reserve performed a stress test on, and, unlike some of its competitors, didn't have to raise additional equity capital.

It did receive money from the Treasury Department's Trouble Asset Relief Program last year, but was among the first to pay it back in June. However, it too faces increasing losses from soured real estate loans.

Colonial, which failed to fulfill the requirements to receive TARP funding, has been struggling with a heavy load of loans tied to residential real estate markets in markets such as Florida and Georgia, which were once hot but now troubled.

The bank's problems mounted in recent weeks, as it acknowledged it might not be able to continue as a going concern. A deal for Colonial to receive a capital infusion from a group led by mortgage lender Taylor, Bean & Whitaker Mortgage Corp. fell apart and Colonial acknowledged that it was the target of a Justice Department probe in its mortgage lending business and related accounting irregularities.

BB&T was advised in the Colonial transaction by Credit Suisse Securities (USA) LLC, Deutsche Bank Securities Inc. and Wachtell, Lipton, Rosen & Katz.

-By Michael R. Crittenden, Dow Jones Newswires; 202-862-9273; michael.crittenden@dowjones.com

-By Matthias Rieker, Dow Jones Newswires; (212) 416-2471; matthias.rieker@dowjones.com