Nevada County bank caught in 'hard money' broker's web

Nevada County is ripe for "hard money" lending, due in part to a lack of local banks that cater to developers.

The county's only locally based community bank, Citizens Bank of Northern California, founded in 1995, is struggling to raise capital and operates under an order by the Federal Deposit Insurance Corp. – signs of serious distress.

Citizens received $10.4 million in bailout funds under the federal Troubled Asset Relief Program, and, to preserve its capital, has become one of a handful of banks nationally that has deferred repaying the funds to the government.

Citizens has extended millions of dollars in credit to the local hard money industry. Philip Lester, a broker who recently surrendered his license and whose business was decimated in the recession, received funds for his office building in Grass Valley, according to a disclosure statement to his private investors, who also provided funds for that building.

In June 2009, when his lending empire was in jeopardy and his loan to Citizens lapsed into delinquency, Lester told those investors, "Citizens Bank has applied TARP (stimulus) funds and is not requiring payments at this time" – an apparent effort to reassure them that he would eventually repay their loan.

Lester told The Bee that two bank officers – including one who went to jail – told him not to worry about paying the money for a while. Lester couldn't recall the officer's name. On May 24, a former Citizens loan officer, Melvin Rohs, was sentenced to 33 months in federal prison for embezzlement.

" 'We've got $11 million in TARP funds,' and they said, 'don't worry about it,' " he recalled being told. "They never billed me for over two years." Then, Lester said, the bank sued him. Late last year, a Superior Court judge awarded the bank nearly $1 million, including damages.

Phillip Campbell, the bank's general counsel, said TARP funds are part of the bank's capital pool, and would never have been applied to any specific loan. He declined to comment further due to the pending legal matter against Lester.