Is It Safe? People's United Is a Top Bank Buy

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Huntington Bancshares(HBAN Quote) is the best-performing stock this quarter on the KBW Banks Index, tripling its value since March 31. People's United Financial(PBCT Quote) is one of the index's biggest losers, but it's a far better buy.

Government-run stress tests conducted in recent weeks revealed that 10 of the nation's 19 biggest banks need more capital. Companies laid out plans to raise money from private sources in response, stoking investor confidence about the industry. That optimism has trickled down to smaller banks.

The fortunes of regional banks are tied to the economies of the areas they serve. New England, where People's United runs about 300 branches, has experienced lower rates of job loss and home foreclosure than other parts of the country. That helped People's United shares lose only 1.7% in the past year while its competitors lost 51%, on average.

People's United shares have been looking less attractive in recent weeks, losing 8.2% this quarter as the KBW index rose 39%. But the company has a stronger capital position than most regional banks, reflected by a tangible common equity ratio of 19.5%.

Huntington, in contrast, was one of the many banks that fell through the floor as the credit crisis unfolded. Even with its recent gains, the company's shares are down 41% from a year ago. The bank runs more than 600 branches in states such as Michigan, Ohio and Indiana. Those states are struggling with some of the highest unemployment and foreclosure rates in the country.