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WASHINGTON (

TheStreet

) -- Thrifts in the U.S. produced a profit in the second quarter for the first time since the third quarter of 2007. But the group isn't out of the woods yet, as more institutions felt the effects of the economic downturn.

According to the Office of Thrift Supervision, industry earnings totaled $4 million in the second period. By comparison, thrifts posted net losses of $5.45 billion in the year-earlier period and $1.62 billion in the first quarter of 2009.

The agency said the improved profit totals resulted from higher net interest margins and fee income, along with lower provisions for losses and certain other charges.

But in a press release, Director John Bowman noted "significant challenges" for the industry going forward.

The number of "problem thrifts," for instance -- or those with an assortment of problems including low capital reserves -- grew to 40 from 31 in the prior quarter. In the year-ago period, 17 thrifts held the problem designation.

Because of well-known problems in the housing market and increasing unemployment, problem assets and loans for the industry rose to 3.52% of assets in the second quarter. That figure is well beyond the 2.68% of assets registered in the year-earlier period, and outpaced the 3.35% reported in the prior quarter.

In the thrift sector, shares of

Hudson City Bancorp

TheStreet Recommends

(HCBK)

were rising 29 cents at $13.11 in afternoon trading.

New York Community Bancorp

(NYB)

shares slipped 7 cents at $10.86, while

First Niagara

(FNFG)

was trading at $13.29 after adding 8 cents.

-- Written by Sung Moss in New York

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