Bank profits rose substantially in the first quarter, and financial institutions reported their best quarterly results since the second quarter of 2007, the Federal Deposit Insurance Corp. (FDIC) said today, even though the industry still is experiencing troubles, MarketWatch reported.

“The trend is good,” said Bert Ely, president of research firm Ely & Co., in an interview with MarketWatch. “We’re going in the right direction, but let’s not declare victory yet, because there are still a lot of credit-quality problems out there, and loan demand is weak because a lot of people are trying to de-leverage.”

Banks insured by the FDIC reported total profits of $29 billion in the quarter ended March 31, a 67 percent increase from the first quarter of 2010. It is the seventh consecutive quarter that industry earnings have registered year-over-year gains, the agency said.

The number of banks on the FDIC’s “problem list,” or those that have low capital levels, has grown as a result of the recession. The number grew to 888 in the most recent quarter from 884 in the previous year.

Problem banks, which are not released by name, represent roughly 12 percent of the 7,574 insured U.S. banks. Problem banks have assets of $397 billion, the FDIC said. Most banks on the problem list will not fail, Ely said.

Bank operating revenue was $5.5 billion, 3.2 percent lower than a year ago.

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