With the financial regulatory reform bill procedures in full effect, many investors are wondering what sort of effects "finreg" will have on the financial industry and the banks in particular. It comes as no surprise that big Wall Street players like Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS) and Bank of America (NYSE: BAC) have all suffered some setbacks in the past few months, thanks to worries over financial regulation along with a multitude of other factors. While the big banks have been struggling, the regionals have picked up the slack and have outperformed their super-sized siblings. Take, for instance, the performance of the iShares Dow Jones US Regional Banks ETF (NYSE: IAT), which is up 11% YTD, while the S&P 500 and the iShares Dow Jones US Financial ETF (NYSE: IYF) are down 3% and 1%, respectively, so far in 2010.

With an eye on the future of banking in America, let's take a look at some regional banks that may be good plays in the coming months.

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As American As Apple Pie

One small-cap regional that looks promising going forward is American National BankShares (Nasdaq: AMNB). The Virginia-based firm is actually the holding company of American National Bank and Trust, which operates 18 banking offices and two loan production offices throughout Virginia and parts of North Carolina. American National shares have enjoyed a nice run in June, up nearly 10% on the heels of strong earnings in the first quarter of 2010.

The stock trades at a decent forward P/E of 16 and at a 30% premium to book. The company is also slated to grow revenues 22% this year and provide a 4.2% dividend yield. American National could be worth a look for investors looking for some exposure in regional banking.

In Washington We Trust

Another East Coast bank that may be of interest is Washington Trust Bancorp (Nasdaq: WASH), which operates branches in Rhode Island, Connecticut and Massachusetts. In fact, Washington Trust is the oldest community bank in the nation. The company's shares have performed quite well in the past five months, surging up nearly 20% having topped analyst earnings estimates in each of the past four quarters. Washington Trust trades in line with many of its regional competitors with a forward P/E of 13 and offers shareholders a 4.6% dividend as well.

Washington Trust also recently named James MarcAurele as its new chairman and CEO, taking over following the retirement of John C. Warren, who had held the position for the past 14 years. With MarcAurele having previously served as the company's president and COO, the transition should be seamless and should allow the bank to continue with business as usual - which has been good business so far in 2010.

A Situation On The JerseyShore

Lastly we take a look at Penns Woods Bancorp (Nasdaq: PWOD), which operates as The Jersey Shore State Bank and holds two other subsidiaries, Woods Real Estate Development and Woods Investment Co. The stock has been on a bit of a roller-coaster ride in the past couple of months, having lost 15% in value over the course of a week in early May following relatively disappointing earnings in Q1 that were basically flat year-over-year. That being said, the stock has rallied since and has recouped those losses to sit back above the $32 level, where it stood prior to Q1 earnings. The company's Board of Directors also approved the extension of the firm's buyback program for another year, authorizing the repurchase of up to 5% of the company's stock during that period.

Currently PWOD trades at a P/E of 16 and a dividend yield approaching 5.75%. Investors interested in small-cap regional banking exposure may want to take a closer look at Penns Woods.

Bottom Line

When people think about the banking industry, invariably the big banks are the first that come to mind. However, several great small regional banks in this country are poised to outperform their Wall Street counterparts. Investors should do their due diligence in selecting any potential stocks. (To learn more, check out The Industry Handbook: The Banking Industry.)

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