Brea’s UnionFed Loses $11.6 Million in Second Quarter

UnionFed Financial Corp. posted a loss of $11.6 million for its fiscal second quarter, blaming the continued sagging real estate economy and a major bad loan for its woes.

The red ink at the Brea-based holding company, which owns Union Federal Savings Bank in Los Angeles, came mainly from $17 million it put in reserve for loan and real estate losses. That pushed its total reserves to $33 million, or 1.4% of its assets.

The loss also wiped out a small first-quarter profit and left UnionFed with a $10.6-million loss for the first six months of its fiscal year, which ended Dec. 31.

A year earlier, the company had reported net income of $3.3 million for the quarter and $8.6 million for the first six months.

Its quarterly revenue fell one-third, to $43.5 million from $65.4 million in the previous year’s second quarter. Six-month revenue fell 22%, to $102.8 million from $131.7 million in the same period a year earlier. Its assets remained stable at $2.4 billion.

The second-quarter loss follows a major reversal of fortune for UnionFed. It had ended its fiscal year June 30 with an apparent $11.1-million profit, but thrift regulators ordered a series of loans and investments written down, forcing the company to revise its annual income to show a loss of $18.1 million.

The annual loss and the recent quarterly loss have left Union Federal failing one of the three strict capital standards mandated by a 1989 law that restructured the thrift industry. Its ratio of capital to assets, based on the riskiness of its loans and invest ments, was 5.2% at the end of December. Regulators require the minimum risk-based ratio to be 7.2%.

The 27-branch S&L; hopes to comply with that capital standard by closing its real estate development subsidiary and liquidating the unit’s $129.5 million in assets. Federal law requires thrifts to dispose of such operations by mid-1994.

Union Federal put aside $3.5 million as reserves for possible loan losses and put $13.4 million more in reserve for a possible loss in a real estate deal with an out-of-state borrower, whom the company would not identify.

The S&L; had restructured the transaction previously, but the borrower still fell behind on its interest payments, forcing the thrift to classify the loan as effectively in foreclosure.

At the end of December, the thrift’s bad loans stood at 6.6% of its total loans--well above the 1% to 3% comfort level for bankers.