For the first time in four years, the troubled loans held by banks decreased.

According to the Federal Deposit Insurance Corp. (FDIC), this decline pushed banks to collectively earn $21.6 billion in the second quarter of the year. The figure is a huge difference compared to the $17.8 billion they collected in the first quarter and the $4.4 billion they lost in second quarter of 2009.

Banks are also spending less money to settle loan losses, the FDIC’s quarterly report said. However, FDIC chairman Sheila Bair said banks are still suffering from the struggling economy. “Earnings remain low by historical standards, and the numbers of unprofitable institutions, problem banks, and failures remain high,” she said.

Meanwhile, Bair admitted that the FDIC sees recovery to be slow. It does not expect the country to suffer a double dip recession though. “We think our predictions are that we will continue on a slow recovery but a recovery nonetheless. But we’re also in a somewhat wait-and-see posture,” the official added.

The FDIC second quarter report showed a 1.3% decline in net loan and lease balances. It also noted a 1.8% decrease in the number of loans to small businesses and farms. As for the number of banks under its watch list, their number grew from 775 to 829, which is equivalent to around 11% of all banks in the country.

Last year, some 140 banks from the list folded up. That number is expected to go up this year, although the amount of assets involved is expected to be smaller. So far, some $403 billion assets are held by trouble banks. The figure stood at $431 billion in the previous quarter.

Many critics have blamed banks for buying bad housing loans, which led to the housing market bubble burst.

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