Robert Bonelli switched from bank executive to money manager two years ago, and his experience is paying off for investors in his Ernst Bank Equity Fund.

The mutual fund has risen 25% this year - nearly double the 13.35% gain for the American Banker's bank stock index.

Mr. Bonelli invests part of his $3 million fund in the sharers of a couple of money-center banks - right now, Chemical Banking Corp. and Chase Manhattan Corp. -which he actively trades.

A Taste for Regionals

The rest goes into shares of 18 regional banks that are either likely to be acquired or whose stock prices fail to reflect their market shares, capital levels, and solid management.

Among his favorites: Magna Group, St. Louis: Commerce Bancorp, Cherry Hill, N.J.; and Continental Bank Corp., Chicago

Evaluating the prospects of small and midsize banks is where Mr. Bonelli believes his experience as a banker can pay.

He spent 16 years in the industry, starting at Citicorp, then moving to UJB Financial Corp. in Princeton, N.J., where he acquired banks and other businesses and learned the regional markets in the Northeast, the Middle Atlantic, and the Midwest. His last bank job was as executive vice president of troubled Howard Savings Bank in Livingston, N.J.

First Step in Program

While there, he approached Ernst & Co., a stock trading and clearing company in New York and a UJB customer, to establish an asset-management unit. The bank equity fund is the first step, he said, in establishing an investment track record that will bring in money to manage. Ernst & Co. is not affiliated with the accounting firm Ernst & Young.

"I know a lot of bank CEOs, and they know me," said Mr. Bonelli, 42 and an executive director of the Ernst Financial Group. "I can talk to them like one banker to another."

Those relationship, he said, often get him in the door of a chief executive's office to talk about prospects and strategy.

More Good Times Expected

Mr. Bonelli, who made money during a broad bank stock rally, does not think the good times are over.

Bank's good first-quarter earnings ignited a buying spree last spring. Over the next three weeks, Mr. Bonelli expects a repeat as investors react to what he expects will be record earnings.

"I see improved earnings across the board", he said.

Shares of Magna, for example, may rise to $17 over the next three weeks to two months, which would be a 20% gain over Friday's trading price, he believes. Mr. Boneli bought Magna shares around $12. which gives him a decided yield of 6% and a shot at appreciation.

Favorable Traits

The St. Louis bank has branches in that city and in centralized Illinois. It is well capitalized, having just sold $59.8 million in common stock in a public offering. Even though Magna is a midsize bank with $4.5 billion in assets, the shares trade heavily, about 65,000 a day. That volume makes it easy for Mr. Bonnelli to buy and sell.

Like Magna, Commerse Bancorp operates in a concentrated market and has first-rate managers and strong capital.

The bank, which operates in a Philadelphia bedroom community, has posted three successive quarters of record earnings. Also, it is likely to be bought, Mr. Bonelli said. He thinks Meridian Bancorp, Reading, Pa., which recently made an acquisition in the market, is a likely acquirer.

Commerce's shares were trading at $13.75 Friday - 130% of book value - up from $9 early this year. Mr. Bonelli's short-term target price: $15. Within a year, the share price should hit $18, he said.

The choice of Continental borders on bottom-fishing. The share price has fallen from a high of $19.50 this year to $16.25, about 75% of book value. But Mr. Bonelli believes the banking company's improving loan problems and potential earnings from foreign exchange business during the European currency crisis justify a higher share price.

Within the next two months, he thinks, the shares could reach $21.

The equity fund's early success is bringing in customers. Mr. Bonelli said he has an m agreement with a major corporation that will give him between $ 2 million and $ 5 million to invest in bank shares.

"I like this a lot better than being a banker," said Mr. Bonelli. "I deal with the entire industry right now, not just one company."

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