BREA, Calif. - Union Fed Financial Corp. said it was unable to comply with the March 31 interim capital and nonperforming-asset targets in a plan it had filed with the Office of Thrift Supervision.

As a result, the company said, it is required to file a capital restoration plan with the OTS by May 31.

UnionFed said it believes additional capital will be needed to avert a takeover by regulators under the prompt corrective action procedures. The company, which has $ 1.3 billion in assets and a core capital ratio of 2.13%, warned that shareholders are likely to experience substantial dilution in connection with any offerings.

Rights Offering Possible

UnionFed reported that its capital-raising efforts may include a rights offering to current shareholders, a public offering of common shares, or sale of the company or its subsidiary, Union Federal Bank.

The company said it selected, with OTS approval,. Keefe, Bruyette & Woods Inc. as financial adviser to explore alternatives for restructuring and recapitalizing.

Hurt by the downturn in California real estate, UnionFed lost $8.9 million in the quarter that ended March 3 1, about six times the $1.5 million it lost a year earlier. Losses for the first nine months of its fiscal year widened to $20.6 million from $17.4 million.

Provisions for loan losses and the loss from real estate operations for the March quarter totaled $12.2 million, up from $7.2 million a year earlier.

Nonperforming loans declined by $5.6 million during the latest quarter, but real estate owned and in-substance foreclosed properties, net of reserves, increased to $70.7 million from $60.7 million at Dec.31.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.