Editor's Note: In this edition of "360 Degrees," RealMoney commentators take a look at Compass Bancshares (CBSS). Has its heavy real estate lending compromised its financial foundations, or does its strength in other areas cancel out this weakness?

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Compass Is Overexposed to Construction Loans, by Richard Suttmeier

Real estate lending has reached levels unparalleled in the history of the U.S. economy, even adjusted by inflation. The riskiest of the lending is construction loans, which go to contractors and homebuilders to finance housing projects and developed communities prior to owner occupancy. This is an area where a glut of unsold properties could develop. Activity has expanded so fast that some of these loans have filtered down to so-called "pickup truck builders," who are likely to walk away from uncompleted projects sooner rather than later, leaving the community bank holding the financial bag.

As the country's bankers expanded their balance sheets to lend to developers, builders and contractors, a number of federal agencies moved to address the potential financial stresses. The Federal Deposit Insurance Corporation began to compile real estate loan risk data from banks in the fourth quarter of 2005.

It is computing two ratios. The CD loans ratio measures construction lending vs. total Tier 1 risk-based capital; when this ratio exceeds 100%, it's a warning. The CRE loans ratio measures the total of construction, multifamily and commercial real estate lending vs. total Tier 1 risk-based capital; when this ratio exceeds 300%, it's another warning.

I've screened for publicly traded banks with assets of more than $1 billion and a CD loans ratio of 200% or more at the end of the first quarter, twice the FDIC risk guideline. The result was a list of 50 institutions that could be set up like dominoes, should builders and contractors walk away from incomplete projects that are already funded.

Compass Bancshares made the list with a CD loans ratio of 242%. Of these 50, it is second in size with assets of $32.842 billion. It has $5.144 billion in construction loans on the books, supported by $2.126 billion in Tier 1 capital for the CD loans ratio of 242%. This overexposure is of concern to the FDIC and should thus be a concern to investors.

These ratios are new, and Wall Street analysts to my knowledge have not yet recognized the risk. The data are not included in quarterly earnings reports, and the bloated balance sheets may even project an improving earnings picture, but in my judgment, it is a ticking financial time bomb.

Compass is rated a hold by ValuEngine with fair value at $50.56. The weekly chart profile ended last week with overbought momentum (12x3 weekly slow stochastic) with the five-week modified moving average at $54.90. A close this week below $54.90 would shift the weekly chart profile to negative.

My model shows Compass to be between quarterly and monthly pivots at $53.24 and $56.68, where investors should consider reducing holdings. Below this range, there is risk to my annual value level of $48.23.

A Compass in the Right Direction, by Chris Edmonds

Certainly the stock has had a nice run, and some could argue that a little profit-taking isn't a bad thing. In fact, I would argue that profits in this market are worth taking. In that regard, Compass has been a standout in this market.

As for its high CD loans ratio, I don't think it is terribly meaningful in context. Compass has a CDs-to-total-deposits of just 28% (vs. the Southeast/Sun Belt median of 48%), and its cost of deposits ranks 28th out of 95 public banks in the Southeast/Sun Belt that are regularly tracked by FIG Partners. Given strong deposit health and plenty of lending coverage, I have little concern over safety.

Remember, the majority of the value creation for Compass is in the franchise. The company has a solid presence in key Southern markets, especially Texas.

Why is Texas important? Because there have been three Texas banking combinations in the past month, all for over 20 times 2007 EPS. I wouldn't expect that in a deal for Compass, but I would expect that valuations of recent Texas transactions would help support Compass' value. Half the franchise is now Texas. If you assume only 15 times 2007 earnings, you get to nearly $59 per share.

At worst, that suggests to me that the stock is fairly valued. I wouldn't necessarily be aggressive here, but to argue that the stock is ready to fall, on the basis of an isolated data point out of the context of the overall deposit base and financial health picture of the bank, seems to me to overstate the bearish case a bit.

Wait for the Stock to Make Up Its Mind, by Alan Farley

There isn't much to love or hate in the chart of Compass Bancshares right now. The strong uptrend in this leadership issue stalled out in early June, and the stock dropped into a sideways grind. This consolidation might turn out to be a bullish triangle or a bearish topping pattern.

This uncertainty tells current investors to hold on tight and wait for the stock to make up its mind. It also warns other interested parties to stand aside until this range-bound market yields a new trend, higher or lower. That resolution might take another four to six weeks.

Christopher S. Edmonds is vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. He is based in Atlanta.

Alan Farley is a professional trader and author of The Master Swing Trader. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies.

Richard Suttmeier is president of Global Market Consultants, Ltd., chief market strategist for Joseph Stevens & Co., a full service brokerage firm located in Lower Manhattan.