The financial strength of the nation's banks deteriorated in the first quarter amid declining credit quality and low capital levels. Among 8,260 banks and savings-and-loan institutions, 26% received "weak" financial-strength grades of D-plus or lower from TheStreet.com Ratings, based on first-quarter data. That amounts to 2,125 companies, up from 1,835 in the previous quarter and 1,717 a year earlier. The banking industry's combined profit dropped to $7.6 billion in the first quarter from $19.3 billion a year earlier as companies like Bank of America ( BAC) and Citigroup ( C) struggled to regain their footing. While it was an improvement from the industry's $32 billion net loss in the fourth quarter, banks and thrifts continued to wrestle with nonperforming loans and rising charge-off rates. Twenty-one banks failed during the first quarter, the most in any quarter since 1992. TheStreet.com Ratings assigned "good" ratings of B-plus or above to 1,175 of the reporting institutions, or 14%. That's a decrease from 1,388 in the previous quarter and 1,561 a year earlier. We rated 32 banks or thrifts A-plus, or "excellent, down from 37 in the previous quarter.