The Federal Reserve has told Fullerton, Calif.-based Pioneer Bank to raise its critically low capital ratios by the end of this month.

The directive, issued under the prompt-corrective-action provision of the 1991 banking law, shows that the regulatory hammer that crunched so many community banks in southern California last year hasn't been put away yet.

According to a press release issued last week, the Federal Reserve ordered Pioneer in May to raise its capital to an "adequate" level by the end of this month, either through a stock sale or a merger with a healthy institution.

At the end of last year, Pioneer had a core capital level of 2.56% of total assets. The prompt-corrective-action directive indicates that Pioneer's core capital since has fallen below 2%, making it possible that the regulators could close the bank.

But Howard Levenson, chairman of a San Diego investment bank that has raised money for several capital-poor California banks, said that it is likely that the deadline imposed for raising the capital will be soft, unless Pioneer's condition substantially worsens.

"Their situation is not a new one," he said. "And the management there is very capable."

Pioneer president Thomas R. Timmons, who was brought on board last year to try and turn the bank around, could not be reached for comment.

Pioneer peaked at $215 million in assets in 1991, but as asset quality problems ate away at its earnings, assets shrank to the current $145 million. After losing a total of $10.2 million in 1992 and 1993, the bank's core capital level fell from 7.23% of total assets to the Dec. 31 level of 2.56%.

Nonperformers Soar

In 1993, the bank's rate of nonperforming loans rocketed to 22.8% of total assets, one of the highest levels of any bank in the West. Most of Pioneer's loans are construction loans.

The Fed order also directly affects consumers by barring the bank from accepting or renewing deposits with above-market interest rates.

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