Regional Banks on Slow Road to Recovery

NEW YORK (TheStreet) -- Don't expect much of a recovery from regional banks when the third-quarter results start pouring in.

Large universal banks such as JPMorgan Chase (JPM Quote), Goldman Sachs (GS Quote) and Bank of America (BAC Quote) may show their feathers with a boost from strong investment banking, but regional banks, with less exposure to capital markets businesses, are more reliant on credit trends.

JPMorgan Chase kicks off the financial reporting season for banks on Wednesday, followed by Citigroup (C Quote) and Goldman Sachs on Thursday and BofA on Friday. Many of the large regional banks report their results the week of Oct. 19. Check out a preview of this week's big reports, complete with re-caps of second-quarter numbers:

Regional banks are tied very closely to the health of the economy. They depend much more on making money on the spread between the interest rates they offer depositors and the amount at which they lend money to businesses and consumers. Typically, smaller banks also have greater exposure to commercial loans, as the business is much more localized and "relationship-based."

Some positive signs are likely to materialize for the quarter, such as higher net interest margins and a lower rate of growth in early stage delinquent loans (those loans that are fewer than 90 days past due), particularly residential loans, but investors will likely have to push out their expectations for when the industry as a whole will return to profitability, since commercial losses have yet to peak, according to Credit Suisse.

"We do not believe investors should be overweight regional banks into the quarter," according to Craig Siegenthaler, an analyst at Credit Suisse, who rates the sector at market weight.