Irwin Union Bank and Trust Co. became the first Indiana bank to fail in the current recession as state and federal regulators seized control of it Friday and arranged its sale.

A financial cornerstone in Columbus, Ind., for 138 years with deep ties to engine maker Cummins Inc., Irwin has been sold to First Financial Bank of Hamilton, Ohio.

The takeover came after regulators gave Irwin a Sept. 30 deadline to get its financial books in order and meet certain capital levels. The bank acknowledged earlier this week it had “no realistic prospect of achieving” the capital levels.

The prospect of a sale had been giving some Columbus residents jitters for days, as they feared what would happen to the bank’s hometown headquarters and operations center, where the bulk of its 482 employees work.

“You assume that (operations center and headquarters staff) would be vulnerable” to cuts under a new owner, said Mark Foster, chief investment officer for Kirr Marbach& Co. in Columbus.

Claude Davis, president and chief executive of First Financial acknowledged there were would be some consolidation. But, he added: “It’s safe to say we will be retaining a majority of the (Irwin) people in their positions.”

Others also fear a loss of community involvement from a bank that has been a part of the local fabric for generations.

Cummins, the city’s chief corporate citizen, was founded by a son of the bank’s founder. Another descendant, J. Irwin Miller, was a longtime bank chairman who also led Cummins for 26 years. Miller’s son Will, a great-great-grandson of the bank’s founder, was chairman at the time of the bank’s demise.

“(The bank) has been a role model overall in supporting the community. That may not be easily or quickly replaced, if at all,” said Harold Force, president of Force Construction Co. in Columbus.

Irwin’s troubles can be traced in large part to a decision to expand its financial services well outside its Central and Southern Indiana roots to include making home equity and commercial real estate loans in faster-growing states such as California and Nevada.

Property prices there surged in the boom years of 2002-2006 but since have crashed, causing Irwin’s losses to soar to nearly $500 million since the start of 2007.

Irwin’s sale keeps all of the bank’s deposits safe, secure and readily accessible, according to regulators.

The bank’s 27 locations in Indiana and three other states will reopen for business today for their normal hours as branches of First Financial, the FDIC said.

First Financial will assume all $2.1 billion in deposits at Irwin Union Bank and all $441 million in deposits at the related Irwin Union Bank of Louisville, Ky., the FDIC.

“We’re hoping it will be a pretty smooth process,” said Troy Pogue, a spokesman for the Indiana Department of Financial Institutions.

Regulators didn’t give the public advance notice of the takeover. It was deemed necessary because the bank “was operating in an unsafe and unsound manner and its failing liquidity position left the bank in imminent danger of insolvency,” said David H. Mills, director of the Department of Financial Institutions.

First Financial will pay a premium of 1 percent to assume the deposits of Irwin Union Bank and 0 percent to assume the deposits of the savings and loan, the FDIC said.

The FDIC said it also entered into a loss-share transaction on about $2.5 billion in assets of Irwin. The FDIC said the cost to its Deposit Insurance Fund from Irwin’s failure is estimated at $850 million.

The last Indiana bank to fail was Rushville National Bank, in 1992, according to the FDIC.