With no capital left, Irwin Financial Corp. is pinning its hopes for survival on a new program from the Treasury Department that may not even exist.

The $3.4 billion-asset company reported Wednesday that, after seven quarters of losses, its total risk-based capital has dipped below zero. Though both Irwin's bank and its thrift remained adequately capitalized at the end of the second quarter, regulators have given the thrift until Aug. 31 to boost its capital or face a forced sale or liquidation.

Irwin has commitments for $34 million from private sources, but they hinge on its ability to get a significantly larger infusion from the Treasury. The Columbus, Ind., company has gone as far as to ask the Treasury to call an audible on existing Troubled Asset Relief Program eligibility requirements, making it easier for strugglers with private capital commitments to gain access to the pot.

Will Miller, Irwin's chairman and chief executive, said Wednesday that there are signs the Treasury might be taking notice.

"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," Miller said in a press release and repeated on a conference call with investors.

However, the company's knowledge of "Plan C" consists of a story published last month in The Washington Post about the possibility of such a program, and a mixed bag of reactions when it asked its Washington contacts about the idea, Matt Souza, the company's chief administrative officer, said in an interview.

Irwin has no evidence that whatever the Treasury is considering is linked to the proposal the company made in May, Souza said. That month, Irwin said it submitted to the Treasury a proposal to alter existing eligibility standards to allow banks that would be deemed viable upon the receipt of Treasury capital and private capital to qualify. Though the Treasury has never disclosed the requirements for Tarp, experts said that only banks healthy enough without Tarp can qualify. And as the economy begins to show signs of stability, it is getting tougher to get Tarp.

"We got a wide range of feedback, from 'that is the label that is being used' to 'we don't really know' to 'there have been discussions about the potential new application of Tarp for small to medium-sized banks,' " Souza said. "We don't know, at all, if there is any linkage between 'Plan C' and Irwin's recapitalization program. … We haven't seen any direct, definitive link, but from what we've read, we are very interested."

Washington observers said that while the Treasury might be considering various tweaks to its recovery initiatives, there does not appear to be anything concrete.

"There are several different proposals that have been knocking around the agencies and [the] Treasury," said Camden Fine, the president of the Independent Community Bankers of America. But "I have not had one e-mail, one bank — nobody has called me about 'Plan C.' "

Others said that while the Treasury might be tinkering with a new program or changing sputtering ones — such as the Capital Assistance Program, which was introduced in February and has generated an underwhelming response — Irwin's attempt to align itself accordingly might be a last-ditch effort.

"CAP has really fallen on its face, and I've heard — in the last month — that they were going to tinker with it," said Kip Weissman, a partner at Luse Gorman Pomerenk & Schick PC.

Irwin is "possibly grasping at straws," Weissman said. "They're very weak."

The Treasury would not discuss "Plan C" or the possibility of a revamped CAP.

"The list [of banks] that need it, it's the very list that regulators would be most reluctant in clearing as a viable bank," said Douglas Faucette, a banking lawyer at Lord, Bissell & Brook LLP.

Several companies have reported that they only received Tarp on a contingency that they were able to find matching private capital. Irwin's private capital commitments, however, equal $34 million, 22% of the $150 million Irwin originally requested from the Treasury.

Irwin has spent the last year trying to realign itself around what it calls traditional community banking. The company has sold assets, exited business lines and struck deals to sell branches.

The one remaining piece that Irwin said it needs to complete the restructuring is also the most elusive one: capital.

In order to preserve capital thus far, the company has primarily turned to asset sales. It has reduced its loan portfolio by 41% in the last year to $3 billion at the end of the second quarter. Irwin said such sales would continue should the company not receive fresh capital.

"We would certainly like to be able to complete our recapitalization plan sooner than later," Souza said. "However, if the recapitalization as we have preferred to do it doesn't materialize, we will pursue alternatives including further shrinking."

The company's total risk-based capital ratio fell to negative 1.2% at the end of the second quarter. Since October, the company's Irwin Bank and Trust and Irwin Union Bank have been operating under written agreements to strengthen capital and reduce problem loans.

On July 24, the Office of Thrift Supervision gave Irwin Union until the end of this month to boost its core capital ratio to 10% and its total risk-based capital ratio to 12%. At June 30, the core capital ratio was 8% and the total risk-based capital ratio was 10.4%.

"We intend to reach them," Souza said of the tight deadline.

The company has reported a loss in nine of the last 10 quarters. Its second-quarter loss narrowed 46% from a year earlier, to $57 million. The provision for loan losses dropped 71%, to $45 million.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.