(FORTUNE Magazine) – It's feeding time for New England banks. Led by the Big Three -- Fleet Financial, Bank of Boston, and Shawmut National -- the region's largest institutions are prowling after their smaller brethren. That could mean handsome profits for investors who own shares of the prey. This is news: Until recently the bigger banks were in no position to buy much of anything, aside from some failures that the FDIC has been unloading on the cheap. Instead they were busy digging out from under bad real estate loans they had made in the Eighties. Now, with much of the real estate sold and bad loans written off and cash coming back into their coffers, the big banks are ready to grow again. But since much of the region is still in recession, few loans are to be made and the main route will be through acquisitions. The buying has already begun. Bank of Boston is about to complete the purchase of two smaller outfits, and Shawmut and Fleet one apiece. Analysts think there is more to come. Says Stanley Wells of Keefe Bruyette & Woods in Hartford: ''The New England banking market is probably the most fragmented in the country. A lot of banks are talking behind the scenes, and consolidations are going to pick up.'' Wells expects acquisition prices to average about 50% over book value. Of course, no single bank is a sure acquisition target, and investors who want to jump in should buy a basket of them. Plus, they should choose banks that are attractive investments on their own merits. Says Karen Finkel, portfolio manager of the Paine Webber Regional Financial Growth fund: ''You need a bank that's capable of generating improving results. Otherwise, you could be sitting on dead money.'' Wells of Keefe Bruyette thinks some of the most likely targets are based in Middlesex County, Massachusetts, just northwest of downtown Boston. Middlesex, which has one-quarter of the state's work force, also has $25 billion in bank deposits. Only a third of that money reposes with the region's big banks. They are sure to try for more via acquisition. Among the likely candidates, says Wells, are Sterling Bancshares, recently trading at $19 a share, or about 90% of book value; Regional Bancorp, trading at $21, or about 75% of book; and Co- operative Bank of Concord, which is at $11.50, or 80% of book. BANK STOCK ANALYST Gerard Cassidy of Hancock Institutional Equity Services in Portland, Maine, thinks banks in which the CEOs have a big number of shares are good bets because the CEO has a motive to sell. He likes Neworld Bancorp, whose CEO, James Oates, owns or has options on 193,000 shares, or 4.8% of the total outstanding. Cassidy also likes BankWorcester, where CEO Harold Cabot has 155,000 shares, or 2.3%. One plus: At 63, Cabot is near retirement. Neworld's shares recently traded at $20.75, or 95% of book value; BankWorcester's trade at $22.75, or just over book value. Two Vermont institutions whose numbers may be up are Chittendon and Banknorth Group. Located in Burlington, the state's business hub, both suffered as the recession clobbered the area's big vacation business. But Finkel thinks they are getting their financial houses in order, bringing nonperforming assets down and increasing reserves against losses. At $19, Chittendon's shares trade at about book value, while Banknorth's trade at $17, or a 10% discount to book.