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Decisions on Bank Applications

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First Security Bank of Lexington, Inc.

FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: First Security Bank of Lexington, Inc. Lexington, Fayette County, Kentucky

Application for Federal Deposit Insurance (Bank Insurance Fund)

ORDER

The Board of Directors of the Federal Deposit Insurance Corporation ("FDIC") has fully considered all available facts and information relevant to the factors of Section 6 of the Federal Deposit Insurance Act and relating to the application for Federal deposit insurance, with membership in the Bank Insurance Fund, filed on behalf of First Security Bank of Lexington, Inc., Lexington, Fayette County, Kentucky ("Bank"), a proposed new State nonmember bank to be located at 400 East Main Street, Lexington, Fayette County, Kentucky, and has concluded that the application should be approved.

Accordingly, it is hereby ORDERED, for the reasons set forth in the attached Statement, that the application submitted on behalf of First Security Bank of Lexington, Inc. for Federal deposit insurance be and the same hereby is approved subject to the following conditions:

1. That beginning paid-in capital funds of not less than $7,700,000 be provided, and that a ratio of "Tier 1" capital to "total assets" of not less than 8 percent, in addition to a fully funded loan loss reserve, shall be maintained during the first three years of operation;

2. That any changes in proposed management or proposed ownership (10 percent or more of stock), including new acquisitions of or subscriptions to 10 percent or more of the stock, will render this commitment null and void unless such proposal is approved by the FDIC prior to the opening of the Bank;

3. That any stock benefit plan contain a provision that, in the event the Bank's capital falls below the minimum requirements as determined by the primary federal or state regulator, the primary federal or state regulator may direct the Bank to require plan participants to exercise or forfeit their stock rights;

4. That any Stock Warrants issued are detachable from the stock held by the organizers, but shall not be transferrable until the sixth full calendar year of the Bank's operation, and will expire if not exercised by December 31 of that sixth calendar year;

5. That a supplement to the Offering Circular which reflects changes necessary to conform to applicable conditions of this Order be distributed to all subscribers and a copy provided to the FDIC's Memphis Regional Office;

6. That an accrual accounting system be adopted for maintaining the Bank's books;

7. That the Bank obtain an audit of its financial statements by an independent public accountant annually for at least the first three years after deposit insurance is effective, furnish a copy of any reports by the independent auditor (including any management letters) to the Memphis Regional Office within 15 days after their receipt by the Bank, and notify the Regional Office within 15 days when a change in its independent auditor occurs;

8. That adequate fidelity bond coverage be obtained prior to the opening of the Bank;

9. That Federal deposit insurance shall not become effective unless and until the applicant has been established as a State nonmember bank, that it has authority to conduct a banking business, and that its establishment and operation as a bank have been fully approved by the State authority;

10. That, until the Bank commences business, if the FDIC revises its Policy Statement on "Applications For Deposit Insurance" so as to differ in content with any conditions imposed herein, the FDIC shall have the right to alter said conditions to conform to such revised Policy Statement;

11. That, until the date this conditional commitment for deposit insurance becomes effective, the FDIC shall have the right to alter, suspend, or withdraw the said commitment should any interim development be deemed to warrant such action; and

12. That, if deposit insurance has not become effective within twelve months from the date of this Order, or unless, in the meantime, a request for an extension of time has been approved by the FDIC, the consent granted shall expire at the end of the said twelve-month period.

Dated at Washington, D. C., this 14th day of October, 1997.

BY ORDER OF THE BOARD OF DIRECTORS

Robert E. Feldman
Executive Secretary


FEDERAL DEPOSIT INSURANCE CORPORATION

IN RE: First Security Bank of Lexington, Inc. Lexington, Fayette County, Kentucky

Application for Federal Deposit Insurance (Bank Insurance Fund)

STATEMENT

Pursuant to the provisions of Section 5 of the Federal Deposit Insurance Act (12 U.S.C. section 1815), an application for Federal deposit insurance has been filed on behalf of the First Security Bank of Lexington, Inc., Lexington, Fayette County, Kentucky ("Bank"), a proposed new State nonmember bank to be located at 400 East Main Street, Lexington, Fayette County, Kentucky.

The Bank will offer full service, community oriented banking in a primary service area which includes Lexington, Kentucky, and the remainder of Fayette County, Kentucky. Economic activity and growth projections for the area support the addition of a new bank in the service area. The proponents believe that the recent consolidation of the banking industry has created opportunities for independent, locally-owned and managed banks. A review of the information submitted by the applicant relating to the convenience and needs statutory factor revealed no inconsistencies with the purposes of the Community Reinvestment Act.

Initial capitalization is adequate and acceptable deposit growth and operating profits within a reasonable period of time are projected. The proposed Bank's management is acceptable and approval of the proposal would not create an undue risk to the Bank Insurance Fund.

The application, as originally submitted, included the proposed issuance of stock warrants to organizers to compensate for financial support provided in the initial stages of establishing the Bank. Specifically, organizers will receive a more favorable price on share purchases exceeding $100,000 because stock warrants would be included for the same $20 per share price paid by a non-organizer making a $100,000 share purchase. There is no provision in the Federal Deposit Insurance Corporation's ("FDIC") current Statement of Policy regarding applications for deposit insurance to accommodate the granting of warrants to reward organizers for their financial support in the initial stages of establishing a bank. The issuance of stock warrants to organizers who will not be involved in the active management of the institution is also a contravention of existing policy.

While the stock warrants proposed to be issued will not be tied to specific performance by active management as provided in the Statement of Policy, such warrants would appear to be acceptable under the FDIC's proposed revisions to that Statement of Policy. The Board of Directors of the FDIC ("Board"), in the proposed revisions to the Statement of Policy and in recent cases involving stock benefit plans or stock warrants, has concluded that such plans are not objectionable if such plans represent reasonable compensation for the time and expertise or financial commitment of the outside incorporators. In this particular case, the stock warrants are not considered objectionable in that the warrants represent reasonable compensation for the risk arising from the significant financial commitment of the outside incorporators.

Accordingly, based on a careful evaluation of all available relevant facts and information, the Board of Directors has concluded that approval of the application is warranted subject to the conditions listed in the Order.

THE BOARD OF DIRECTORS
FEDERAL DEPOSIT INSURANCE CORPORATION



Last Updated 03/24/2011 Legal@fdic.gov