Regulators Shutter Irwin Financial Banks

WASHINGTON (TheStreet) -- Regulators shut down the two banking subsidiaries of Irwin Financial(IFC) Friday, bringing the total number of failed U.S. banks and thrifts in 2009 to 94.

Indiana regulators closed Irwin Union Bank & Trust of Columbus, Ind., and the Office of Thrift Supervision shuttered Irwin Union Bank FSB of Louisville, Ky. The Federal Deposit Insurance Corp. was appointed receiver and sold both institutions to First Financial Bank NA of Hamilton, Ohio, a subsidiary of First Financial Bancorp(FFBC).

Irwin Financial had announced Wednesday that it was unlikely to meet the capital and liquidity requirements of a regulatory cease and desist order. The holding company also said that regulators had required a restatement of Irwin Union Bank & Trust's second-quarter financial statements, to better recognize loan losses.

Irwin Union Bank & Trust had $2.7 billion in assets and $2.1 billion in deposits. Irwin Union Bank FSB had $493 million in assets and $441 million in deposits. The failed institutions' 27 branches were set to reopen Saturday as branches of First Financial Bank.

First Financial Bank acquired more than $200 million in nonaccrual loans from the failed institutions and entered into a loss-sharing agreement with the FDIC on $2.5 billion of the combined institutions' assets.

The FDIC released additional information about its loss-sharing agreements, possibly as a response to the growing perception that many acquirers of failed banks and thrifts are getting amazing bargains because of the agreements.

Although the agreements vary, the FDIC usually covers 80% of commercial loan losses for the first five years after the acquisition, up to a threshold amount (the FDIC's cost estimate), and 95% of losses above the threshold. For residential loans, the agency covers 80% of losses for 10 years, and 95% of losses above the threshold.

The FDIC estimated the cost to its insurance fund for the two failures would be $850 million.