CFS Bancorp Inc. in Munster, Ind., is exploring its strategic options, including the possibility of selling itself.

The $1 billion-asset company, which has healthy capital levels but persistent loan trouble, has retained David D. Olson as an adviser to help evaluate its alternatives. Olson was formerly the co-head of Donaldson Lufkin & Jenrette's financial institutions group and head of the firm's Chicago investment banking office.

Thomas Prisby, CFS Bancorp's chairman and chief executive officer, disclosed the hiring in a letter to shareholders filed with the Securities and Exchange Commission this week. Prisby said that, because the operating environment is likely to remain "unforgiving" for the next few years, the company would consider finding a merger partner or raising capital to bolster its regulatory ratios and fund growth.

After taking a $9.4 million provision for loan losses, the parent of Citizens Financial Bank lost $4.7 million in the third quarter, compared with a $1 million loss the year earlier. Its ratio of nonperforming loans to total loans, which has been elevated for more than a year, rose to 7.48%.

At Sept. 30 the total risk-based capital ratio at the bank unit was 12.02%, well above the minimum needed to be considered well capitalized, but the ratio has declined by 119 basis points since the start of the year.

In announcing the quarterly results a few weeks ago, Prisby warned of more economic stress ahead. "Despite indications that the national recession may be ending, the local economy in our northwest Indiana and southwest suburban Chicago market area remains depressed," he said in a press release at the time.

He reiterated this theme in the letter to shareholders, saying that the past two years had been difficult for the banking industry and that little relief appears imminent. He said the board's decision to weigh its options had been prompted partly by the likelihood of a slow economic recovery and increased regulatory scrutiny, including expectations of higher future capital requirements being imposed on all institutions that hold deposits.

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