ORDERS ISSUED UNDER BANK HOLDING COMPANY ACT.

Orders Issued Under Section 3 of the Bank Holding Company Act

Bay Port Financial Corporation Bay Port, Michigan

Order Approving Formation of a Bank Holding Company and Acquisition

Bay Port Financial Corporation ("Bay Port") has requested the Board's approval under section 3(a)(1) of the Bank Holding Company Act ("BHC Act") (12 U.S.C. [sections] 1842(a)(1)) to become a bank holding company by acquiring Bay Port State Bank, Bay Port, Michigan ("Bank").

Notice of the proposal, affording interested persons an opportunity to submit comments, has been published (64 Federal Register 4106 (1999)). The time for filing comments has expired, and the Board has considered the proposal and all comments received in light of the factors set forth in section 3 of the BHC Act.

Bay Port is a nonoperating corporation created for the purpose of acquiring Bank. Bank is the 148th largest commercial banking organization in Michigan, controlling approximately $33.2 million in deposits, representing less than 1 percent of total deposits in commercial banking organizations in the state ("state deposits").(1) Consummation of this proposal would result in a change in the shareholdings of the current shareholders of Bank, and would result in one shareholder becoming the largest shareholder of the newly formed bank holding company by acquiring control of more than 25 percent of the voting shares of Bay Port. This individual is also the largest shareholder of another Michigan bank holding company, First of Huron Corporation, Bad Axe, Michigan ("FHC").(2) FHC is the 57th largest commercial banking organization in Michigan, controlling approximately $142.9 million in deposits, representing less than 1 percent of state deposits. If the two organizations were combined, the resulting organization would become the 44th largest commercial banking organization in Michigan, controlling approximately $176.1 million in deposits, representing less than 1 percent of state deposits.

Bay Port and FHC compete in the Huron County, Michigan, banking market.(3) In the Huron County banking market, Bay Port is the fifth largest commercial banking organization, controlling deposits of $33.2 million, representing 7.6 percent of total deposits in commercial banking organizations in the market ("market deposits"). FHC is the largest commercial banking organization in the market, controlling deposits of $120.4 million, representing 27.7 percent of market deposits. If the two organizations were combined, the resulting organization would be the largest commercial banking organization in the Huron County banking market, controlling deposits of $153.6 million, representing 35.(3) percent of market deposits. The Herfindahl-Hirschman Index ("HHI") would increase by 422 points to 2052.

The increase in the HHI would exceed the Department of Justice Merger Guidelines ("Merger Guidelines").(4) The Board notes, however, that the controlling shareholder of Bay Port owns only 14.4 percent of the voting shares of FHC. The shareholder, who has been a passive investor, has not been involved in the operations of either institution, and numerous other shareholders own significant percentages of FHC's voting shares. The Board also notes that even if the two organizations were combined, nine banking and thrift competitors would operate in the market, and three of these competitors, in addition to Bay Port and FHC, would each control more than 10 percent of market deposits. Finally, the market is reasonably attractive for entry and has experienced both de novo entry and entry by acquisition during the past two years. Based on these and all other facts of record, and for the reasons discussed in this order, the Board concludes that consummation of the proposal is not likely to result in any significantly adverse effects on competition or on the concentration of banking resources in the Huron County banking market or in any other relevant banking market.

The BHC Act also requires the Board, in acting on an application, to consider the financial and managerial resources and future prospects of the companies and banks involved in a proposal, the convenience and needs of the community to be served, and certain other supervisory factors.

The Board has carefully considered the financial and managerial resources and future prospects of Bay Port and Bank, the structure of the proposed transaction, the resources of the combined organization, and other supervisory factors, in light of all the facts of record. As part of its consideration, the Board has reviewed relevant reports of examination and other supervisory information prepared by the Federal Deposit Insurance Corporation ("FDIC"). The Board notes that Bay Port proposes to issue preferred stock as a part of the proposal and to provide additional capital to Bank. As a result of the additional capital after consummation of the proposal, Bank, which currently is undercapitalized, would become adequately capitalized. Based on all the facts of record, the Board concludes that considerations relating to the financial and managerial resources and future prospects of Bay Port and Bank and the other supervisory factors, that the Board must consider under section 3 of the BHC Act weigh in favor of approval of the proposal.

In considering the convenience and needs factor, the Board has reviewed Bank's record under the Community Reinvestment Act ("CRA"),(5) in light of examinations of the CRA performance record of Bank by the FDIC, the institution's appropriate federal financial supervisory agency. Bank received a "satisfactory" rating at its most recent examination of CRA performance. Based on all the facts of record, the Board concludes that convenience and needs considerations, including the CRA performance record of Bank, are consistent with approval of the proposal.

Based on the foregoing, and in light of all the facts of record, the Board has determined that the application should be, and hereby is, approved. Approval of the application is specifically conditioned on compliance by Bay Port and Bank with all the commitments made in connection with the proposal. For purposes of this transaction, the commitments and conditions referred to in this order shall be deemed to be conditions imposed in writing by the Board in connection with its findings and decision and, as such, may be enforced in proceedings under applicable law.

The proposal shall not be consummated before the fifteenth calendar day after the effective date of this order, or later than three months after the effective date of this order, unless such period is extended for good cause by the Board or by the Federal Reserve Bank of Chicago, acting pursuant to delegated authority.

By order of the Board of Governors, effective March 22, 1999.

Voting for this action: Chairman Greenspan, Vice Chair Rivlin, and Governors Kelley, Meyer, and Gramlich. Absent and not voting: Governor Ferguson.

ROBERT DEV. FRIERSON Associate Secretary of the Board

C-B-G, Inc. Wilton, Iowa

(1.) All banking data are as of June 30, 1998.

(2.) The Board previously has determined that if an applicant's principal shareholder is associated with other one-bank holding companies, the proposed formation of a one-bank holding company is analyzed by the Board using the same standard that would be used for a multibank holding company acquisition. See Nebraska State Bank, 62 Federal Reserve Bulletin 638 (1976).

(3.) The Huron County banking market is approximated by Huron County, Michigan, minus Sebewaing Township.

(4.) See 49 Federal Register 26,823 (June 29, 1984). Under the Merger Guidelines, a market in which the post-merger HHI is more than 1800 is considered highly concentrated. The Department of Justice has informed the Board that a bank merger or acquisition generally will not be challenged (in the absence of other factors indicating anticompetitive effects) unless the post-merger HHI is at least 1800 and the merger increases the HHI by more than 200 points. The Department of Justice has stated that the higher than normal HHI thresholds for screening bank mergers for anticompetitive effects implicitly recognize the competitive effects of limited-purpose lenders and other nondepository financial entities.

(5.) 12 U.S.C. [sections] 2901 et seq.