Bad Loans Leave UnionFed in Red for 1st Quarter : ‘Further deterioration’ of its real estate projects is blamed for a $6.58-million loss. The thrift is under increasing pressure from federal regulators to meet minimal capital requirements.

BREA —  UnionFed Financial Corp., parent of Union Federal Bank, blamed bad real estate loans for a loss of $6.58 million, equal to 88 cents a share, during its first quarter ending Sept. 30. This contrasts with a profit of $906,000, or 12 cents a share, in last year’s first quarter.

In the 12 months ended June 30 the bank lost $65 million, or $8.68 a share.

UnionFed said “further deterioration” of its real estate loans and investments and other bad loans forced it to set aside $10.8 million for anticipated losses during the quarter for a total of $110 million, up from a total of $100 million last quarter and $20 million a year ago.

Like other thrifts, Brea’s UnionFed in the 1980s branched out from the traditional thrift practice of making loans for home mortgages. After the deregulation of the thrift industry in the early 1980s, UnionFed entered riskier businesses such as lending on commercial real estate projects as far away as Maine and Florida.

UnionFed even got into the home-building business itself through the moribund subsidiary Unical Financial Corp., assets from which are now being sold. It’s all those new businesses that have since got it into trouble.

Now federal regulators are prodding the thrift to comply with tough federal regulations enacted two years ago.

The S&L; said that during the first quarter it could not comply with two of those three regulations. For the second quarter in a row UnionFed could not meet the requirement to have $7.20 of capital on its balance sheet for every $100 worth of its riskiest assets--delinquent loans, construction loans, real estate it has repossessed and the like. UnionFed had only $4.96. This is generally considered the most important of the three requirements.

And the bank’s core capital--the amount left over when liabilities are subtracted from assets on its balance sheet--fell during the quarter below the $3 that the federal Office of Thrift Supervision requires for every $100 worth of total assets. UnionFed could muster only $2.73.

UnionFed, which has 27 branches in Southern California, averted the possibility of a government takeover when OTS in September approved the bank’s plan to get its finances in order by the end of 1994.

A very high 9.4% of the bank’s $2 billion in assets are made up of bad loans, sick real estate investments and loans that have already been restructured, usually on less profitable terms for the bank. That was up from 5.6% of assets a year ago.

The thrift, meanwhile, said it was cutting costs and shedding many of its bad assets. Operating expenses for the quarter fell to $9.6 million from $10.6 million a year ago, it said.

“The bank continues to make progress in gaining control of its problem assets,” said Chairman David S. Engelman, “while strengthening its core retail banking and mortgage banking businesses.”

UnionFed’s First Quarter

Bad real estate loans forced UnionFed, parent of Brea’s Union Federal Bank, to set aside $10.8 million against expected losses, which helped bring to $110 million the total amount UnionFed has put aside for bad loans and caused a $6.58-million quarterly loss.

Dollars in millions, except per-share data

Percent 1991 1990 Change Assets $2,022.2 $2,489.9 -18.8 Net earnings -$6.6 $0.9 N/A Earnings per share -$.88 $0.12 N/A

Source: UnionFed Financial Corp.