State and federal regulators late this afternoon shut down the two banking subsidiaries of ailing Irwin Financial Corp. of Columbus.
The action makes Irwin Union Bank and Irwin Union Bank FSB the first financial institution failures in Indiana since steep losses hit the industry last year. Irwin Union Bank, founded in 1871, was one of the state’s oldest banks.
The Federal Deposit Insurance Corp. has brokered the sale of Irwin’s banking operations to First Financial Corp. of Cincinnati, First Financial said in a statement late this afternoon.
“Since all deposits are being assumed by First Financial Bank, there will be no losses to any depositor,” First Financial CEO Claude Davis said in the statement.
Irwin Financial operated about two dozen bank branches, many of them in central Indiana.
Earlier this week, Irwin Financial disclosed in a Securities and Exchange Commission filing that regulators ordered it to bolster its capital by the end of the month to levels it had “no realistic prospect of achieving.”
Irwin has been under special regulatory oversight since last fall, in part because of steep losses on home equity loans. It has lost $450 million over the last six quarters.
The company has tried for months to raise additional capital, to no avail. Last fall, it announced plans for a $50 million stock offering, with Cummins Inc. committing to buy up to $25 million of the shares.
But Irwin canceled that offering Aug. 31. In a filing with the SEC, the company said it had been unable to move forward “due to adverse market conditions for almost all financial institutions and its inability to date to participate” in any of the government programs aiding the ailing industry.This outcome was so easily avoided. Bank managers left the Indiana market it had done so well in for greener pastures in Nevada and California, where it foolishly invested about a billion dollars in the risky home equity loan market. Not surprisingly, the default rate on those loans turned out to be pretty high after the housing market collapsed. Why would a bank that had so many years of success as a community bank in Indiana do something so stupid? The bank managed to survive several panics and the Great Depression following the Civil War but falls victim to high risk mortgage loans. Unbelievable. It becomes the first Indiana bank to fail during this latest banking crisis. First Financial is assuming control of Irwin's branches.
Irwin traces its roots the Civil War era. It help fund the launch of Cummins and the auto parts company that became Arvin Industries. Arvin was acquired by a Michigan competitor in 2000, but not before growing to become a Columbus powerhouse in its own right.