The closure of so many banks this year (if you're keeping score, more banks have failed in 2009 than at any time since 1992), has caused problems to ripple through the construction industry and other small businesses. Still, the picture is slowly improving in some parts of the country.

The Federal Deposit Insurance Corporation had shut down 130 banks, six last week, most of them regional or community institutions. Fifty banks failed in the third quarter, the highest number since the second quarter of 1992. The failures, and just general poor performance for banks, are being felt in almost every region of the country and causing ripple effects in other industries.

The overall picture of the industry, though, has improved slightly since this summer. The FDIC’s latest outlook on the industry showed profits improving in the third quarter, though loan losses remained high. Institutions covered by the FDIC earned $2.8 billion in the third quarter, three times the $879 million earned the year before, and back in the black from the $4.3 billion net loss posted in the second quarter.

But bad loans continue to plague banks. Insured institutions charged off $50.8 billion in the third quarter, an increase of $22.6 billion over the same period last year. And the shape of your local banks could very well depend upon your location.

Constructing a Problem

In San Francisco, builders who are just trying to pick themselves up and get going on some new housing construction projects, have found the funding rug pulled out from under them thanks to bank failures. The San Francisco Business Times reports that the FDIC’s seizure of two banks in the Bay area in recent weeks has left builders scrambling for loans.

The FDIC seized Pacific National Bank, which was sold to U.S. Bancorp, and United Commercial Bank, which was sold to EastWest Bank. Both banks were active in commercial real estate lending, especially United Commercial Bank, which provided financing for the sort of small-to-medium-sized condo projects that have been the bread-and-butter of San Francisco housing development in recent years.

Builder Joe Cassidy had started construction on a 113-unit condo project in San Francisco, but said the development’s financing is up in the air since the take over of United Commercial Bank. The project is the largest condo development in San Francisco to break ground in 2009, and Cassidy said United Commercial Bank was “the only game in town” when he went shopping for a loan. Cassidy, who said he doesn’t know if the loan will be funded by EastWest, knows a number of developers in the influential Residential Builders Association who have entitled projects ready to go “if we could get the banks rolling.”

“There were 20 guys I know who had construction loans with (United Commercial Bank),” said Cassidy. “All bets are off right now. We don’t know what is going to happen.”

Speculating on the Speculation

Nearly two-thirds of Oregon’s banks lost money in the third quarter, the Portland Business Journal reports. The state’s banks collectively lost $335 million, down from a $283 million loss in the three months ending June 30. In the third quarter of 2008, with three now-shuttered institutions still in operation, Oregon banks had a cumulative $58 million profit.

Blake Howells, vice president and bank analyst at Portland-based Becker Capital Management Inc., said speculative housing developments continue to hammer Oregon’s banks.

“For a long time, smaller banks feasted on these acquisition and development loans, which have a higher return on assets,” he said. “Now any bank with a significant percent of its loans in real estate development has been suffering pretty severe losses.”