Analysts: A few small banks worth buying

With interest rates finally rising, long-depressed regional banks will make more money from business loans and service charges, writes David C. Peppard, bank analyst at Janney Capital Markets, Philadelphia. Peppard is telling clients to buy shares of Bryn Mawr Bank Corp., which, despite its previously "stalled" growth, is now poised "to become the preeminent community bank" around Philly, thanks to its wealthy suburban clients; and Fulton Financial, of Lancaster, which is using smart acquisitions and hires to make more business loans.

At the same time, Peppard is not recommending National Penn (already "reasonably valued"), Philadelphia's Beneficial Mutual (which faces a federal fair-lending investigation), Delaware-based WSFS (which is overdue to "exhibit better loan growth") or growth-challenged Susquehanna Bancshares.

What about the big banks? Despite the national recovery in business loans, other challenges -- the big drop in home mortgage refinancing, stricter government loan scrutiny and the big run-up in big-bank stock prices in the first half of the year -- havepushed R. Scott Siefers, bank analyst at Sandler O'Neill + Partners, New York, to drop his "buy" recommendations on PNC, the biggest bank based in Pennsylvania, and Wells Fargo, the leading lender in Philadelphia and many other metro markets.

The rally in big-company stocks helped push PNC shares up 30% year to date, and Wells Fargo up 25%, he notes in a report to clients.

While PNC is tightly managed and Wells Fargo has scads of extra cash waiting to be lent, invested, or dividended to shareholders, neither has improved enough to justify still higher share prices, Siefers concludes.