February 3, 2009

UNITED STATES OF AMERICA 

BEFORE THE 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 

WASHINGTON, D.C. 

In the Matter of 

FSB BANCORP, INC. 
Altus, Oklahoma 

Docket No. 09-006-B-HC 

Cease and Desist Order Issued 
Upon Consent Pursuant to the 
Federal Deposit Insurance Act, 
as amended 

WHEREAS, FSB Bancorp, Inc., Altus, Oklahoma (“FSB”) is a registered bank holding 
company with financial holding company status that owns and controls First State Bank of Altus, 
Altus, Oklahoma (the “Bank”), a state chartered nonmember bank, and various nonbank 
subsidiaries, including, but not limited to, First State Insurance Agency, Inc.; Bankers Benefit 
Solutions, Inc.; Oklahoma Industrial Venture Management Company, LLC; FSB Bancorp 
Capital Trust I; FSB Development Capital, LLC; Altus Venture Capital Fund III, LLC; Altus 
Venture Capital Fund IV, LLC; Altus Venture Capital Fund V, LLC; FSB Financial Planning, 
LLC; Global Industrial Leasing, LLC; and Quartz Mountain Aerospace, Inc., all of Altus, 
Oklahoma; 

WHEREAS, FSB has, inter alia, directly or indirectly: (a) failed to timely file required 
regulatory reports and notices, including Reporting Form FR Y-10 “Report of Changes in 
Organizational Structure;” (b) engaged in merchant banking activities not in compliance with 
regulatory requirements for financial holding companies; and (c) participated in the Bank’s 
violations of section 23A of the Federal Reserve Act (12 U.S.C. § 371c) and Regulation W of the 
Board of Governors of the Federal Reserve System (the “Board of Governors”) (12 C.F.R. 
Part 223); 

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WHEREAS, in recognition of their common goal to restore and maintain the financial 
soundness of FSB, FSB has consented to the issuance of a Cease and Desist Order (the “Order”) 
by the Board of Governors; and 

WHEREAS, on February 3, 2009, FSB’s board of directors, at a duly constituted 
meeting, adopted a resolution authorizing and directing Larry McLaughlin, President, 
to consent to this Order on behalf of FSB and consenting to compliance with each and every 
provision of this Order by FSB, FSB’s nonbank subsidiaries, and their institution-affiliated 
parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act, as amended 
(the “FDI Act”) (12 U.S.C. §§ 1813(u) and 1818(b)(3)), and waiving any and all rights that FSB 
may have pursuant to section 8 of the FDI Act (12 U.S.C. 1818) to: (i) the issuance of a notice of 
charges on any and all matters set forth in this Order; (ii) a hearing for the purpose of taking 
evidence on any and all matters set forth in this Order; (iii) contest the issuance of a cease and 
desist order by the Board of Governors pursuant to section 8 of the FDI Act; (iv) judicial review 
of this Order; and (v) challenge or contest, in any manner, the basis, validity, effectiveness, terms 
or enforceability of the provisions of this Order or any provisions hereof. 

NOW, THEREFORE, IT IS HEREBY ORDERED, that pursuant to sections 8(b)(1) and 
8(b)(3) of the FDI Act (12 U.S.C. §§ 1818(b)(1), and 1818(b)(3)), that FSB, including its 
nonbank subsidiaries, and each of their institution-affiliated parties shall cease and desist and 
take affirmative actions as follows: 

Board Oversight 

1. Within 60 days of this Order, FSB’s board of directors shall submit to the Federal 

Reserve Bank of Kansas City (the “Reserve Bank”) a written plan to strengthen board oversight 

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of the management and operations of FSB and its nonbank subsidiaries. The plan shall, at a 
minimum, address, consider, and include: 

(a) The actions that the board of directors will take to improve FSB’s 
condition and maintain effective control over and supervision of FSB’s senior management and 
the operations and activities of FSB and its nonbank subsidiaries; 

(b) the responsibility of the board of directors to monitor management’s 
adherence to, and take appropriate action to address the failure to comply with, applicable laws, 
regulations, and approved plans, policies, and procedures; and 

(c) a description of the detailed information to be included in the periodic 
reports that will be reviewed by the board of directors in its oversight of the operations and 
management of FSB and its nonbank subsidiaries. 

Accounting and Regulatory Reporting 

2. (a) Within 10 days of this Order, FSB shall engage an independent public 

accounting firm acceptable to the Reserve Bank to conduct a full scope audit of FSB on a 
consolidated basis, including the bank and FSB’s nonbank subsidiaries, for the calendar years 
2005, 2006, 2007, and 2008 to be conducted in accordance with generally accepted auditing 
standards. 

(b) Within 10 days of retaining the independent public accounting firm, FSB 
shall submit to the Reserve Bank an acceptable engagement letter governing the scope and terms 
of the audit described in paragraph 2(a) that includes a timetable for completion of the audit and 
a commitment that any interim reports, draft reports, or workpapers associated with the audit will 
be made available to the Reserve Bank upon request. 

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(c) FSB, its subsidiaries, and their institution-affiliated parties shall fully 
cooperate with and provide prompt, complete, and accurate information to the independent 
public accounting firm. 

(d) A copy of the independent public accounting firm’s audit report and 
management letter shall be provided to the Reserve Bank at the same time as it is presented to 
FSB. 

(e) Within 45 days of the receipt of the audit report and management letter, 
FSB shall provide the Reserve Bank with an acceptable written plan to correct all deficiencies 
noted in the audit report or management letter. 

(f) Within 30 days of receipt of the audit report and management letter, FSB 
shall file complete and accurate consolidated financial statements and regulatory reports for the 
years 2005, 2006, 2007, and 2008 with the Reserve Bank. 

(g) For each year subsequent to 2008, FSB shall file complete, accurate, and 
timely audited consolidated financial statements and regulatory reports with the Reserve Bank. 

3. (a) Within 60 days of this Order, FSB shall submit to the Reserve Bank 

acceptable written procedures designed to strengthen accounting controls and maintain accurate 

books and records for FSB and its nonbank subsidiaries. These procedures shall include steps to 

ensure that all required regulatory reports and notices filed with the Reserve Bank: 

(i) accurately reflect FSB’s condition on the dates for which such 
reports or notices are filed; 

(ii) are filed in accordance with the applicable instructions for 
preparation; and 

(iii) are filed in a timely manner. 

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(b) FSB and its nonbank subsidiaries shall maintain for subsequent 
supervisory review documentation sufficient to support the accuracy of all required regulatory 
reports and notices. 

Affiliate Transactions 

4. (a) Within 30 days of this Order, FSB shall submit to the Reserve Bank an 
acceptable plan to repay to the Bank all funds received by FSB or its nonbank subsidiaries in 
connection with the Bank’s violations of section 23A of the Federal Reserve Act and 
Regulation W of the Board of Governors (“Regulation W”) that are detailed in the report of the 
examination of the Bank jointly conducted by the Oklahoma State Banking Department and the 
Federal Deposit Insurance Corporation (the “FDIC”) as of July 7, 2008. 

(b) FSB shall take all necessary actions to ensure that the Bank complies with 
sections 23A and 23B of the Federal Reserve Act and Regulation W in all transactions between 
the Bank and its affiliates, including, but not limited to FSB and its nonbank subsidiaries. 

(c) FSB and its nonbank subsidiaries shall not cause the Bank to violate any 
provision of sections 23A and 23B of the Federal Reserve Act or Regulation W. 

5. (a) FSB and its nonbank subsidiaries shall not, without the prior written 
approval of the Reserve Bank, engage in: (i) any covered transaction with the Bank; and (ii) any 
transaction with any Insider. 

(b) For the purposes of this Order: 

(i) “covered transaction” shall be defined as set forth in section 23A 
of the Federal Reserve Act and section 223.3(h) of Regulation W (12 C.F.R. § 223.3(h)); 

(ii) “transaction” shall include, but not be limited to: (A) the transfer or 
payment of cash, the transfer, contribution, sale or purchase of any other asset, the direct or 

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indirect payment of any expense or obligation, the direct or indirect assumption of any liability, 
the provision of any service, the payment of a management or service fee of any nature, any 
extension of credit, any overdraft, or any advance; and (B) each other transaction posted to the 
general ledger (either a debit or credit entry), including, but not limited to adjustments of 
accruals, posting of items held in suspense to their proper accounts, and other month-or quarter-
end adjusting entries; 

(iii) “extension of credit” shall be defined as set forth in section 215.3 
of Regulation O of the Board of Governors (“Regulation O”) (12 C.F.R. § 215.3); 

(iv) “Insider” shall include any current or former officer, director, or 
principal shareholder, as defined in section 215.2 (m) of Regulation O (12 C.F.R. § 215.2 (m)), 
of FSB or its nonbank subsidiaries, their related interests, any member of their immediate 
families, or any person acting on their behalf; 

(v) “related interest” shall be defined as set forth in section 215.2(n) of 
Regulation O (12 C.F.R. § 215.2(n)); and 

(vi) “immediate family” shall be defined as set forth in 
section 225.41(b)(3) of Regulation Y of the Board of Governors (12 C.F.R. § 225.41(b)(3)). 
(c) For the purposes of paragraph 5(a), “transaction” shall not include the 
payment of any money to the Bank by FSB, its nonbank subsidiaries, or any Insider. 

Ethics and Conflict of Interest Policy 

6. Within 90 days of the Order, FSB shall submit to the Reserve Bank a written code 

of ethics and conflicts of interest policy that applies to all institution-affiliated parties of FSB and 
its nonbank subsidiaries. The code of ethics and conflicts of interest policy shall address the 
responsibilities of institution-affiliated parties and the avoidance of conflicts of interest, in 

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transactions with FSB, its nonbank subsidiaries, and the Bank. At a minimum, the code of ethics 
and conflicts of interest policy shall: 

(a) Prohibit self-dealing by institution-affiliated parties and their related 
interests, and the advancing of personal, business, or other interests at the expense of FSB, its 
nonbank subsidiaries, or the Bank; and 

(b) describe the ethical conduct and other standards expected of institution-
affiliated parties in the performance of their duties and responsibilities. 

7. Within 90 days of this Order, FSB shall submit to the Reserve Bank an acceptable 

written plan to ensure compliance by institution-affiliated parties of FSB and its nonbank 
subsidiaries with the code of ethics and conflicts of interest policy described in paragraph 6 of 
this Order. The plan shall, at a minimum, address, consider, and include: 

(a) Policies and procedures to require all institution-affiliated parties to: 
(i) file comprehensive written conflict of interest statements on a 

periodic basis that describe actual or potential conflicts with the 
interests of FSB, its nonbank subsidiaries, or the Bank; and 
(ii) immediately report any new conflicts of interest or the discovery of 
previously unreported conflicts of interest; 

(b) policies to identify all institution-affiliated parties and ensure that 
institution-affiliated parties do not participate in any violations of applicable laws and 
regulations, including, but not limited to sections 23A and 23B of the Federal Reserve Act, 
Regulation W, and Regulation O. 

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(c) internal controls to monitor compliance with the code of ethics and 
conflicts of interest policy and report any noncompliance or exceptions to the approved policy to 
FSB’s board of directors and the Reserve Bank; 

(d) training for all institution-affiliated parties provided on a regular basis 
regarding the code of ethics and conflicts of interest policy and the requirements of applicable 
laws, rules, and regulations. 

Compliance with Laws and Regulations 

8. (a) Within 30 days of this Order, FSB shall submit an acceptable plan, 

including a timetable, to cease engaging, directly and indirectly, in all activities that are 
impermissible for a bank holding company that is not a financial holding company. 

(b) FSB and its affiliates shall not commence any additional activity or 
acquire control or shares of any company under section 4(k) of the Bank Holding Company Act 
(the “BHC Act”) (12 U.S.C. § 1843(k)). 

(c) FSB shall not commit any violation of the BHC Act (12 U.S.C. 
§ 1841 et seq.). 

(d) Within 30 days of this Order, FSB shall submit to the Reserve Bank 
acceptable policies and procedures to ensure that FSB and its nonbank subsidiaries comply with 
all applicable laws and regulations. At a minimum, the policies and procedures shall establish 
internal controls to review all proposed transactions among FSB, its nonbank subsidiaries, or the 
Bank. 

(e) In appointing any new director or senior executive officer, or changing the 
responsibilities of any senior executive officer so that the officer would assume a different senior 
executive officer position, FSB shall comply with the notice provisions of section 32 of the 

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FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors 
(12 C.F.R. §§ 225.71 et seq.). 

(f) FSB shall comply with the restrictions on indemnification and severance 
payments of section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the FDIC’s 
regulations (12 C.F.R. Part 359). 

Capital 

9. Within 90 days of this Order, FSB shall submit to the Reserve Bank an acceptable 

written plan to maintain sufficient capital at the consolidated organization and the Bank. The 
plan shall, at a minimum, address, consider, and include: 

(a) The consolidated organization’s and the Bank’s current and future capital 
requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding 
Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of 
Regulation Y of the Board of Governors (12 C.F.R. Part 225, App. A and D) and the applicable 
capital adequacy guidelines for the Bank issued by the Bank’s appropriate federal regulator; 

(b) the adequacy of the Bank’s capital, taking into account the volume of 
classified credits, concentrations of credit, allowance for loan and lease losses (“ALLL”), current 
and projected asset growth, and projected retained earnings; 

(c) the source and timing of additional funds to fulfill the consolidated 
organization’s and the Bank’s future capital requirements; 

(d) federal or state supervisory requests for additional capital at the Bank or 
the requirements of any supervisory action imposed on the Bank by any federal or state 
regulator; 

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(e) the requirements of section 225.4(a) of Regulation Y of the Board of 
Governors (12 C.F.R. § 225.4(a)) that FSB serve as a source of strength to the Bank; and 

(f) procedures for FSB to notify the Reserve Bank, in writing, no more than 
30 days after the end of any quarter in which FSB’s consolidated capital ratios or the Bank’s 
capital ratios (total risk-based, Tier 1 risk-based, or leverage) fall below the plan’s minimum 
ratios and to submit to the Reserve Bank an acceptable written plan that details the steps FSB 
will take to increase its and the Bank’s capital ratios above the plan’s minimum within 30 days 
of such calendar quarter-end date. 

Dividends 

10. (a) FSB and its nonbank subsidiaries shall not directly or indirectly take 
dividends or any other form of payment representing a reduction in capital from the Bank 
without the prior written approval of the Reserve Bank. 

(b) FSB and its nonbank subsidiaries shall not declare or pay any dividends 
without the prior written approval of the Reserve Bank and the Director of the Division of 
Banking Supervision and Regulation of the Board of Governors (the “Director”). 

(c) FSB and its nonbank subsidiaries shall not make any distributions of 
interest, principal, or other sums on subordinated debentures or trust preferred securities without 
the prior written approval of the Reserve Bank and the Director. 

(d) All requests for prior written approval shall be received by the Reserve 
Bank at least 30 days prior to the proposed dividend declaration date, proposed distribution on 
subordinated debentures, and required notice of deferral on trust preferred securities. All 
requests shall contain, at a minimum, current and projected information on FSB’s and, as 
appropriate, any of its nonbank subsidiaries’ capital, earnings, and cash flow; the Bank’s capital, 

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asset quality, earnings, and ALLL; identification of the sources of funds for the proposed 
payment or distribution; and, to the extent that the proposed payment or distribution will be made 
with dividends paid by the Bank, whether the Bank’s federal and state regulators have approved 
the dividend payment to FSB. For requests to declare or pay dividends, FSB must also 
demonstrate that the requested declaration or payment of dividends is consistent with the Board 
of Governors’ Policy Statement on the Payment of Cash Dividends by State Member Banks and 
Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 
4-877 at page 4-323). 

Debt and Stock Redemption 

11. (a) FSB and its nonbank subsidiaries shall not, directly or indirectly, incur, 
increase, or guarantee any debt without the prior written approval of the Reserve Bank. All 
requests for prior written approval shall contain, but not be limited to, a statement regarding the 
purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an 
analysis of the cash flow resources available to meet such debt repayment. 

(b) FSB and its nonbank subsidiaries shall not, directly or indirectly, purchase 
or redeem any shares of their stock without the prior written approval of the Reserve Bank. 

Compliance with the Order 

12. Within 30 days after the end of each calendar quarter following the date of this 
Order, the board of directors shall submit to the Reserve Bank written progress reports detailing 
the form and manner of all actions taken to secure compliance with the provisions of this Order 
and the results thereof. 

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Approval and Implementation of Plans, Policies, and Procedures 

13. (a) FSB shall submit written plans, policies, procedures, and an engagement 
letter that are acceptable to the Reserve Bank, within the time periods set forth in 
paragraphs 2(b), 2(e), 3(a), 4(a), 7, 8(a), 8(d), and 9 of this Order. An independent public 
accounting firm acceptable to the Reserve Bank shall be retained by FSB within the time period 
set forth in paragraph 2(a) of this Order. 

(b) Within 10 days of approval by the Reserve Bank, FSB shall adopt the 
approved plans, policies, procedures, and engagement letter. Upon adoption, FSB shall promptly 
implement the approved plans, policies, and procedures, and thereafter fully comply with them. 

(c) During the term of this Agreement, the approved plans, policies, 
procedures, and engagement letter shall not be amended or rescinded without the prior written 
approval of the Reserve Bank. 

Communications 

14. All communications regarding this Order shall be sent to: 

(a) Ms. Susan E. Zubradt 
Vice President 

Federal Reserve Bank of Kansas City 

1 Memorial Drive 

Kansas City, Missouri 64198 

(b) Mr. Larry McLaughlin 
President 

FSB Bancorp, Inc. 
721 North Main Street 
Altus, Oklahoma 73522 

15. Notwithstanding any provision of this Order, the Reserve Bank may, in its sole 
discretion, grant written extensions of time to FSB to comply with any provision of this Order. 

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