The Associated Press

WASHINGTON (AP) - U.S. thrifts eked out a $4 million profit in the second quarter, but the number of troubled institutions continued to rise, the government reported Wednesday.

The Office of Thrift Supervision said the small profit in the April-June period marked the industry's first positive earnings since the third quarter of 2007. It compared with a loss of $5.4 billion in the year-ago period, and $1.62 billion in the first quarter of this year.

"Problem thrifts" on the agency's confidential list, those rated by examiners as having significantly low capital reserves and other deficiencies, rose to 40. That's up from 31 in the first quarter and 17 a year earlier.

Thrifts differ from banks in that, by law, they must have at least 65 percent of their lending in mortgages and other consumer loans - making them particularly vulnerable to the housing downturn.

The industry's first-quarter loss of $1.62 billion was much wider than the previously reported loss of $47 million, largely because of the earnings restatement by one savings institution, which the government did not identify.

The Treasury Department agency's acting director, John Bowman, said troubled loans as a percent of the industry's assets "continued to creep upward" - to 3.52 percent from 3.35 percent at the end of the first quarter.

The thrift industry "is not out of the woods yet," Bowman said at a news conference. "Despite some encouraging signs, the industry's performance remained uneven."

"Points of weakness remained and significant challenges continued, but we saw signs that thrift managers are making progress toward positioning their institutions for a positive future," he said.

The 81 federally insured banks that have failed so far this year include several large thrifts. And the two biggest bank failures, which occurred last year, both involved thrifts. Big California lender IndyMac Bank, with about $30.2 billion in assets, failed in July 2008 and Seattle-based Washington Mutual Inc. collapsed in September - the largest U.S. bank failure ever with $307 billion in assets. It was acquired by JPMorgan Chase&Co. for $1.9 billion in a deal brokered by the Federal Deposit Insurance Corp.