Compass Bankshares Inc.'s nonperforming assets are expected to rise in the fourth quarter because of a $15 million loan to a retailer that filed for bankruptcy protection in November, according to analysts.

The Birmingham, Ala., banking company would not identify the retailer, but analysts believe it is Just for Feet Inc. a Birmingham seller of apparel and footwear.

Compass declined to comment.

The $15 million credit could boost $17.7 billion asset Compass' ratio of nonperforming assets to total loans to 0.7% - which would be its highest level in at least the last seven quarters, according to Marni Pont O'Doherty, an analyst at Keefe, Bruyette & Woods Inc. In the same period the company's nonperforming assets-to-loans ratio has been as low as 0.4%.

The company also told analysts that its net chargeoffs would probably increase, to 0.35% to 0.40% of loans, from its average of 0.28% for the last nine months.

Compass quietly disclosed the increase in its nonperforming assets during the last two weeks to analysts who were calling for guidance about the company's fourth-quarter earnings. Most analysts said they were not concerned about the uptick in nonperforming assets, calling it an aberration in the company's strong credit history.

Nevertheless, investors reacted sharply.

Shares of Compass fell 20% in the last two weeks, to $20.6875, a 52-week low. The American Banker bank index of the largest 50 banks fell 13.4% in the last two weeks, and its index of 225 banks fell 15.94%.

Credit quality for the industry has frayed, so investors are particularly sensitive about the issue, said Ms. Pont O'Doherty.

Jason Goldberg, an analyst at Salomon Smith Barney, said, "Many investors would rather not take the chance investing in a company that may have a problem." said He noted that Hibernia Corp. of New Orleans and Summit Bancorp of Princeton, N.J., reported credit-quality problems recently.

Mr. Goldberg has a "buy" rating on Compass, however, because he thinks the uptick in its nonperforming assets is not a big deal.

Ms. Pont O'Doherty said Compass' reserve coverage for nonperforming loans was comfortable - at more than 200%. "Given Just for Feet's troubles were well documented for some time prior to the bankruptcy, Compass may have already taken some measures to reduce its ultimate loss exposure," she said.

"The business cycle has been so strong that we have forgotten that banks are in the business to take credit risk," Ms. Pont O'Doherty said. "Sometimes they get paid back, sometimes they don't."

"I do not see widespread deterioration," said Christopher Mutascio, an analyst at Legg Mason Wood Walker in Atlanta. "Investors need to take a step back before they sell the stock on a rise in nonperforming assets, because they are coming off of historically low levels. But in this kind of environment, news of this kind is going to be overblown."

"I am in the this-is-an-aberration camp for now," said Gerald Cronin, an analyst at McDonald & Co. in Cleveland. "But we are in an environment where investors are so nervous, and there are two things driving margin - compression and credit quality - and that explains why the stock is down."

Antimerger sentiment has also battered the stock.

Compass agreed to buy Hartland Bank of Austin, Tex., in October and MegaBank Financial Corp. of Englewood, Colo., last month. Hartland has $300 million of assets and $263 million of deposits; MegaBank has assets of $298 million.

"They are making these acquisitions to expand into higher-growth markets, but these are just peanut-sized players in these markets," Mr. Cronin said. "They are looking forward to getting bigger in New Mexico and Colorado, and there are few banks in those areas, which means bidding on those banks will be competitive."

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