2 Failed Banks For September 18, 2009 – Irwin Financial’s “Adequately Capitalized” Banks Closed

Banking Failures – 94 And Counting

2009 has now seen a total of 69 more failed banks than occurred for all of 2008.  The latest banking closures by the FDIC bring total banking failures for 2009 to 94.  The latest two failed banks on September 18, 2009 had total assets of $3.2 billion and total losses to the FDIC Deposit Insurance Fund (DIF) are estimated at $850 million.

The latest two failed banks are as follows:

Irwin Union Bank and Trust Co, Columbus, Indiana – Number 93

Irwin Union Bank, F.S.B., Louisville, Kentucky – Number 94

Irwin Union Bank and Trust and Irwin Union Bank, FSB, banking subsidiaries of Irwin Financial Corp, Columbus, Indiana, were closed today and the FDIC as receiver entered into a purchase and assumption agreement with First Financial Bank, National Association, Hamilton, Ohio, to assume all of the assets and deposits of the two failed banks.

The two failed banks had total assets of $3.2 billion and total deposits of $2.54 billion as of August 31, 2009.  The FDIC and First Financial entered into a loss-share transaction on $2.5 billion of the assets acquired by First Financial.

The estimated cost to the FDIC Deposit Insurance Fund (DIF) is $850 million for the two failed banks, or 26% of total assets.  This was the first banking failure of the year for both Indiana and Kentucky.

Irwin Financial had been the subject of a cease and desist order, as announced by the Federal Reserve Board on September 16, 2009.

The Federal Reserve Board on Wednesday announced the execution of a consent Cease and Desist Order by and among Irwin Financial Corporation, a registered bank holding company, Irwin Union Bank and Trust Company, a state chartered member bank, both of Columbus, Indiana, the Federal Reserve Board, and the Indiana Department of Financial Institutions.

Irwin Financial’s “Adequately Capitalized” Banks Fail

The closing of these two banks may have come as a shock to the parent company.  As recently as August 5, 2009, Irwin Financial presented an optimistic assessment of their banking business going forward and stated that both banking subsidiaries remain “adequately capitalized”.

(Columbus, IN, August 5, 2009) Irwin Financial Corporation (NYSE:IFC), today announced a loss of $57 million for the second quarter of 2009, or $1.92 per diluted share, principally due to credit provisions and costs related to its strategic restructuring. This loss is an improvement over the loss of $94 million in the first quarter of 2009 and reflects a materially improved reduction in the rate of credit portfolio deterioration. Irwin Union Bank and Trust and Irwin Union Bank, FSB remained adequately capitalized at June 30.

“In the second quarter, we saw a meaningful slow-down in new problem credits. This encouraging sign suggests that our focus on credit management is having a positive effect. Our consolidated loan loss provision has fallen from $158 million in the second quarter of 2008 to $64 million in the first quarter of 2009 to $45 million this quarter,” said Will Miller, Chairman and CEO of Irwin Financial.

“Both of our banking subsidiaries remain adequately capitalized. This was accomplished through the sale of approximately $190 million of commercial loans and derecognition of another $110 million of home
equity loans during the second quarter,” Miller continued.

“We continue to pursue the only remaining step in our restructuring – raising additional capital. We have been advised that Treasury is working on what they call ‘Plan C,’ which includes discussions with other banking agencies of a new application of the TARP capital program to assist community banks that have the ability to raise private capital. We continue to have private capital lined up and under contract to enable us to participate in such a program. Our private sector commitments to invest $34 million in such a partnership have been extended to year-end,” Miller concluded.

Obviously, neither the raising of private capital nor the TARP application was successful.  Irwin Financial had been an aggressive 100% loan to value lender during the housing boom.  The cost of that aggressive lending now falls onto the backs of the taxpayers.