The nation's banks had an aggregate profit of $21.6 billion in the second quarter, a vast improvement from the $4.4 billion net loss the sector had at this point a year ago, the Federal Deposit Insurance Corp. reported in its quarterly banking profile released Tuesday.

The quarter's earnings were the highest since the third quarter of 2007.

The FDIC also reported that noncurrent loans and leases had a year-to-year decline for the first time since the fourth quarter of 2006. Institutions charged off $49 billion in uncollectible loans in the second quarter, compared to $214 million in charge-offs the previous year.

More good news: Only 20 percent of institutions suffered a net loss in the quarter, an improvement over the 29 percent with losses a year ago.

"This is the best quarterly profit for the banking sector in almost three years," FDIC Chairman Sheila Bair said in a statement. "Nearly two out of every three banks are reporting better year-over-year earnings. As long as economic conditions remain supportive, most institutions should maintain profitability and increase their capacity to lend."

Bair conceded that the industry "still faces challenges." Earnings are still low by historical standards, and the number of failed and problem banks remains high. She also said that although small banks are gradually recovering, they are doing so at a slower rate than their larger counterparts.

The FDIC attributed the improvements in earnings to reduced provisions for loan losses. Those amounted to $40.3 billion in the second quarter of 2010, more than 40 percent below the total from a year ago.

Still, there were troubling figures in the report. The number of institutions on the FDIC's super-secret list of "problem" banks rose from 775 to 829, the highest number since 1993. But the collective assets of those institutions, $431 billion, was down 7 percent from a year ago.