Florida regulators say Putnam State Bank maintained a "good old boy" network that saw the Palatka lender conduct insider deals and make risky bets that broke state law.
It also tried to hide its problems from bank examiners, lent money without properly investigating the borrowers and accelerated growth even when regulators warned them to slow down.
But the main issue was insider dealing.
In 2004, Putnam State officials loaned $480,000 to William J. Revels III — the brother of a board member.
Revels wanted the money to finance a spinach crop on a farm in St. Johns County. Financial records submitted by Revels showed he had $500,000 in liquid assets and his farm was worth $1.5 million.
But underwriters later discovered that Revels overstated his assets and did not actually own the farm — he transferred his 20-percent stake to a family member one year before filing for bankruptcy protection in October 2005.
The loan was never repaid.
Regulators scolded Putnam State for not using caution when making "deliberations about family-related transactions." But that was not the only insider deal seized upon by examiners.
In 2006, a company belonging to the chairman, Ronald E. Clark, sold 11 acres off Highway 17 in Palatka. The price of $1.8 million was six times higher than the $250,000 Clark paid four years earlier.
To complete the deal, Putnam State lent the money to the borrower, a company controlled by Corrine Martin.
A lawyer representing Martin later accused Clark of using his his position as chairman to push the bank's loan committee toward a loan that clearly could not be repaid.
"The bank did not follow accepted industry procedures and made a loan that would benefit the chairman of the board," Martin's lawyer was quoted as saying in a 2009 regulatory report.
Putnam State's lawyer disputed the claims against Clark and the bank's loan committee. But the bank still agreed to buy back the property and release Martin's company from its obligations.
"The board was aware of the inappropriate actions by Chairman Clark," regulators wrote in 2009. "The board was not enamored of the situation, but decided to accept the offer."
Clark, an attorney who has not been accused of any crime, did not return messages left with his Palatka law firm.
In April 2009, Putnam State's leaders also rewarded themselves with a deal that broke the law. That month, the board voted to approve a loan to Putnam Pride Inc., a company controlled by all of the bank's directors except for one. The size of the loan is unknown, but examiners say it violated state law because board members are supposed to refrain from acting on deals that are in their own interest.
As the state housing market began to collapse in 2008 and 2009, regulators found other problems at Putnam State. Regulators warned officers and directors to slow down, but executives paid them little heed.
The amount of money lent to commercial developers nearly doubled between 2008 and 2009 — at the height of the world financial crisis — to $40 million.
Meanwhile, officials say Putnam State was trying to hide its problem loans. Examiners ordered in 2009 that the bank reclassify $15 million, put an additional $7 million in reserves and restate its annual income — because losses were eight times higher than Putnam State formally acknowledged.
The bank ultimately failed in November 2012 and cost the American financial system $37 million.
No one has been charged with a crime.
Top bank officials did not return phone calls for comment.