Regulators criticized First State Bank for having low standards — but they did not realize how deep its problems went.

Court records show that the Sarasota bank was a go-to lender for two of Southwest Florida's most notorious property-flipping schemes, one led by Sarasota attorney John Yanchek, and another by real estate agent R. Craig Adams.

Yanchek and Adams inflated the values of homes and sold them again and again to associates, lying about their income and borrowing more money than they should have.

Both men went to prison for their crimes.

Without First State's money, some of their deals would have been impossible to carry out.

Members of the two rings received 44 loans from First State totaling $33 million. One top bank official, John "Jed" Wilkinson, recognized what was going on and tried to put a stop to it — but could not.

"We let borrowers know their loans would not be renewed and they should take their business elsewhere," Wilkinson told the Herald-Tribune in 2009.

Loans to Yanchek and longtime associate James Russell Crain did indeed stop in 2003.

But the bank made 23 loans totaling $25 million to members of the Adams group over the next four years.

Michael Worthington, a former First State loan officer, said those loans looked good when the market was booming.

"At the time we made the determination, those people were creditworthy," Worthington said. "You can only go by the documents people give you, and then do some independent checking. As the old saying goes, trust everyone — but always cut the cards."

First State had ties to another Yanchek associate, Robert J. Martin, who had already borrowed millions to build office buildings and shopping plazas in Manatee County.

In late 2005, Martin teamed up with Neil Mohammad Husani to buy 224 acres in Manatee. 

Husani bought the land through one of his companies for $2.25 million and sold it four days later to one of Martin's companies for $6.7 million.

Martin then used the inflated purchase price to justify a $4 million loan from First State.

The fraudulent deal was mentioned in the federal government's criminal indictments against Husani and Yanchek in 2008.

Yanchek pleaded guilty and was sentenced to five years in prison. Husani fled the country and remains a fugitive. He surrendered to authorities in Jordan in 2009 but was released a short time later on a bond.

Martin was never charged with a crime. Despite the adverse publicity about his role in at least two fraudulent deals, First State continued to do business with him.

In May 2008, the bank provided one of his companies with another $1.6 million. His companies have since defaulted on nearly $10 million.

After First State failed in August 2009, the FDIC published a report showing that the bank's liberal underwriting policies weren't limited to flippers.

In December 2005, the bank lent $5 million to a company belonging to Sarasota developer Anthony DeLoach.

The company bought 35 acres off Cattlemen Road for $3 million to create a 22-lot business park.

According to the FDIC report, just over $2 million from First State was used to pay off DeLoach's original loan and another $450,000 was put aside to make interest payments going forward.

That left DeLoach with about $2.3 million in cash that could be used for unspecified purposes.

The bank's own credit analyst expressed concerns about the amount of cash going to the borrower and the speculative nature of the development. But First State's officers and directors ignored the warnings and recommendations, the FDIC report states.

In March 2007, First State gave DeLoach an additional $3.3 million. This time, the bank's credit analyst suggested getting more financial information about the borrower's ability to repay, as well as the construction and engineering costs incurred. The analyst also suggested that the bank require presale of the lots before extending the money.

The analyst's advice went unheeded.

DeLoach sold none of the lots and defaulted on the loan in July 2009.

"The board and management's high tolerance for risk was reflected in the type of loans it approved and weaknesses in underwriting and credit administration practices," the FDIC report states.

DeLoach did not return three phone calls.

Update: The FDIC sued executives from First State in August. To read about that lawsuit, go here.

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