An Illinois banking company that said it lost close to $1 million in the third quarter on a loan connected with an alleged Ponzi scheme is selling one of its four banks and may sell more.

Wayne Benson, Community Financial Corp.'s president and chief executive officer, said the $296 million-asset company in Olney will consider offers for "one or more" of the three other banks.

"We could sell all three, or we might sell one or two, and focus better on what is left," he said.

Community Financial is selling $40 million-asset Egyptian State Bank of Carrier Mills, Ill., to Midwest Community Bancshares of Marion, Ill., for $4.2 million in cash. Midwest is the holding company for $159 million-asset Bank of Marion.

The deal, which was announced Thursday and is to close in the first quarter, would be the first acquisition for the parent of 66-year-old Bank of Marion. Egyptian would retain its charter and all of its employees, said Ray Altmix, Midwest's president and CEO.

Community Financial bought Egyptian State in 1997, but Mr. Benson said the bank was too far from the company's Olney headquarters to manage effectively.

Community Financial also may have needed the cash. It lost $982,000 in the third quarter - against earnings of $367,000 in the year-earlier period and $443,000 in the first half of 2000 - after charging off a $1.5 million loan to a borrower who has been indicted by a Springfield, Ill., grand jury on a charge of participating in a scheme that is said to have cost its victims $12.5 million.

The bank sale "is absolutely in the best interest of this company," said Barrett R. Rochman, who joined Community's board in May after a bitter proxy fight.

Mr. Benson acknowledged that company officials "did not dig deep enough" in evaluating the $1.5 million loan.

"In a town of this size, who would have thought that there could be a $12 million Ponzi scheme?" he said.

The Springfield grand jury indicted 18 people on Aug. 18, including 66-year-old Clyde C. Hood. U.S. Attorney Frances C. Hulin called him the mastermind of the alleged scheme.

Community Financial did not identify the customer who took out the $1.5 million loan.

Both Mr. Benson and Mr. Rochman said they believe Community Financial will eventually recover most of its money. But owing largely to that bad loan, the company added $1.7 million to its loan-loss reserve in the third quarter.

"Let's face it," Mr. Benson said. "It's been a bad year."

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