An anticipated wave of consolidation in the banking sector has been stalled by the slow economic recovery and uncertain capital and earnings in the industry, according to a report issued by Sterne Agee Thursday.

The report says the stalled consolidation isn't likely to get rolling before next year.

The firm says banks are facing weak expectations for loan growth amid requirements they maintain higher capital levels, which should spur lenders to acquire rivals as a way to bolster their balance sheet growth and improve profitability.

While plenty of distressed banks represent attractive acquisition targets, Sterne Agee argues the industry must overcome several hurdles before mergers and acquisition activity returns to levels seen before the financial crisis hit in 2008: High capital costs, uncertain capital requirements, and wide spreads on potential pricing between buyers and sellers, among others.

The conditions for consolidation among banks will strengthen, however, as more stringent capital requirements for lenders spark a return to traditional merger-and-acquisition activity, the report concluded.

Many well-capitalized banks are poised to take advantage of consolidation, and they will receive more leeway from regulators to pursue acquisitions, Sterne Agee said.

Still, the deals will likely be small and pricing more reasonable than in prior bank consolidation cycles, according to the report.

Sterne Agee says that typically it would want to be investing in potential acquisition targets. Because it anticipates that most of the consolidation will center on distressed banks, however, the firm favors would-be buyers that offer the potential for higher earnings next year, versus companies at risk of lower earnings, given the weak economic recovery. Sterne Agee says it would be wise to also own some banks that will likely be long-term sellers.

Among those the more favorable buyers are large-cap banks that are gaining market share and have relative capital flexibility, including U.S. Bancorp, PNC Financial Services Group, BB&T Corp. and M&T Bank Corp. Sterne Agee also sees JPMorgan Chase & Co. and Wells Fargo & Co. as potential buyers.

Some potential sellers include Astoria Financial Corp., Texas Capital Bancshares Inc., and Cathay General Bancorp Inc.

The firm also anticipates a heightened level of distressed deals in the Northeast and Mid-Atlantic centered on small-cap banks and thrifts, including NPBC National Penn Bancshares Inc., Susquehanna Bancshares Inc., and Webster Financial Corp.

Some potential bank mergers Sterne Agee sees as strategically compelling would involve BB&T and Comerica Inc., Barclays PLC and SunTrust Banks Inc., and a combination between two of these four Chicago lenders: FirstMerit Corp., MB Financial Inc., PrivateBancorp Inc. and Wintrust Financial Corp.

Shares in JPMorgan rose 61 cents, or about 1.5 percent, to $41 in afternoon trading on Thursday.

Wells Fargo added 85 cents, or 3.4 percent, to $26.21, while U.S. Bancorp rose 43 cents, or 1.8 percent, to $24.40.

Shares in Astoria Financial lost 3 cents to $13.78, Texas Capital rose 4 cents to $24.45, Cathay added 7 cents to $15.10, BB&T Corp. fell 2 cents to $26.69, Comerica added 18 cents to $33.98 and FirstMerit lost 22 cents to $15.54.

Elsewhere in the sector, Barclays PLC shares fell 6 cents to $17.17, SunTrust Banks Inc. added 40 cents to close at $25.53, MB Financial fell 25 cents to close at $17.73; PrivateBancorp slipped 25 cents to close at $14.23; Wintrust fell 5 cents to $30.80; PNC Financial fell 6 cents to $59.14 and M&T Bank rose 42 cents to $85.43.