People's United Bank of Bridgeport, Conn., has an excess of capital and is looking to use it — and give its stock a boost in the process.

With a market capitalization of $5.3 billion, People's United is a bright spot in the banking world.

Many community banks have been hit hard by loan losses and have been trying to raise capital levels. The $20.8 billion-asset People's United did not take government funds and has a strong balance sheet that is not bogged down with subprime loans. Unlike many of its competitors, it is overcapitalized.

The company is actively seeking an acquisition.

"While the bank's first priority remains to expand in the Northeast, we would consider acquiring a bank not in our footprint in the context of a government-assisted transaction," said Philip Sherringham, People's United's chief executive.

"The bank needs to generate momentum in its stock and it has to deploy capital," said Collyn Gilbert, an analyst with Stifel, Nicolaus & Co. "If the bank does not get a deal done by the end of the year, it will be tough to move the stock forward."

Potential risks to the stock price include interest rate changes that may affect profitability and a change in the economy that will make customers unable to repay loans, Gilbert wrote in a research report.

People's United has a forward price to earnings ratio of 49.5, according to FactSet Research.

The company's strategy is simple: "Our old-fashioned plan is to stick to our knitting, because that has worked so far," Sherringham said. "We lend to people that can pay us back."

Bob Ramsey, an analyst at FBR Capital Markets, said that while credit quality and the loan book at People's United are pretty clean, deterioration in credit quality and growth in nonperforming loans are a concern. Its loan book is about $14.6 billion.

Competition is everywhere, from large banks such as JPMorgan Chase & Co. to smaller ones such as Webster Financial Corp. of Waterbury, Conn., and Hudson City Bancorp Inc. of Paramus, N.J.

However, People's United is positioned nicely in the market, Sherringham said.

"It's a favorable environment for us competitively because we are still lending and gaining customers from our competition," he said.

Sherringham said he recognizes that investors are waiting for the company to strike a deal. Its goal is to acquire a commercial bank, rather than a thrift, in the Northeast down to Washington.

An acquisition assisted by the Federal Deposit Insurance Corp. could be an attractive option. The government guarantees the losses on the loan portfolio and the price is usually a bargain. Technically, People's United could acquire a much larger bank than itself, even one with assets of up to $30 billion.

People's United, which has 300 branches from Maine to New York, was organized under the mutual holding company structure. It went public in 1988. It did its second-step conversion to a fully publicly owned stock in 2007.

"When management sees the right deal, whether in existing territory or not, the bank will put the capital to use," said Thomas Forsha, portfolio manager with River View Asset Management.

River View is "looking for People's to prudently deploy capital," he said.

Forsha, who bought the stock a year ago, said that he looked for the best-capitalized banks, and that "People's United stood out as one."

Gilbert of Stifel, Nicolaus said potential good fits for People's United in a merger or acquisition could include Susquehanna Bank and Fulton Financial Corp., both of Pennsylvania, she said.

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