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Government gives bank $15 million

Centra Bank selected to be part of Treasury's Capital Purchase Program

Centra Bank selected to be part of Treasury's Capital Purchase Program

January 23, 2009|By HEATHER KEELS

MORGANTOWN, W.VA. -- The federal government invested $15 million last week in Morgantown, W.Va.-based Centra Bank as part of a program to stabilize and strengthen the U.S. financial system, the U.S. Treasury announced.

Centra Bank, which includes the independently managed Hagerstown bank that opened in 2007, was selected for the Treasury's Capital Purchase Program on the basis of its strong financial standing, said Timothy G. Henry, CEO of Centra Hagerstown.

The Capital Purchase Program is part of the Troubled Asset Relief Program, which was created to allocate funds provided by the Emergency Economic Stabilization Act of 2008. Unlike other TARP programs, which purchased bad loans from failing financial institutions, the purpose of the Capital Purchase Program is to inject capital into healthy financial institutions to increase the flow of financing to businesses and consumers.

"It's designed to get money to strong banks, not as a bailout of the banks, but to further strengthen an already strong bank," Henry said.

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On Jan. 16, the Treasury purchased $15 million in Centra perpetual preferred stock with exercised warrants.

That money goes into the bank as capital and costs the bank 5 percent for the first five years, then goes up to 9 percent after five years, Henry said. Most banks will choose to return the money to the government before the five years are up, he said.

The investment further strengthened the bank's capital position, Henry said.

"It allows us to continue to lend in, certainly what is a challenging economy, and know that we've got kind of some insurance behind us in knowing that our capital position's been strengthened," he said.

The investment will not affect dividends for shareholders, Henry said.

To receive the Capital Purchase Program investment, Centra had to agree to limits on compensation for senior executives, including a prohibition on "golden parachutes," or termination benefits for top executives.

Henry said the executive compensation limits would not affect Centra.

"Those limits are really geared at banks much bigger than us," he said.

Even before the federal investment, Centra Bank was profitable and had strong asset quality and capital ratios, Henry said.

Its shareholder report for the third quarter of 2008 showed a Tier 1 capital position of 9.95 percent, well ahead of the 6 percent level required of a "well capitalized" financial institution. Its loan delinquency was 0.23 percent.

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