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Posted March 18, 2009 | Copyright © The Northern Virginia Daily
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First Bank says yes to capital investment

Treasury buys $13.9 million in preferred stock

By James Heffernan - Daily Staff Writer

jheffernan@nvdaily.com

STRASBURG -- Uncle Sam now has a stake in First Bank.

The U.S. Treasury Department has purchased $13.9 million in First National Corp.'s newly issued preferred stock through the Treasury's Capital Purchase Program.

The voluntary program, which falls under the broader Troubled Asset Relief Program, is available to qualifying financial institutions to encourage them to build capital and increase lending to businesses and consumers.

"As an already healthy, well-capitalized community bank, this additional capital provides a cushion should the economy worsen," First National President and CEO Harry S. Smith said in a statement. "It allows First National Corp. and First Bank to remain flexible and agile in meeting the needs of customers and the community, plus take advantage of potential growth opportunities."

Like many other banks, First National saw a higher level of "non-performing assets" -- loans that are past-due and no longer producing income -- in 2008, according to its year-end statement. As of Dec. 31, the company had $17.8 million in nonperforming loans, including $8.5 million in commercial real estate, $4.3 million in other real estate owned, $2.9 million in residential development and $1.1 million in residential real estate.

Still, the company reported 2008 earnings of $4.2 million, or $1.45 a share.

First National's shareholders voted Feb. 24 to amend the company's articles of incorporation to issue preferred stock, a requirement for participation in the Treasury program.

In exchange for its investment, the government will receive a fixed-rate dividend of 5 percent on its 13,900 new shares for the first five years. And, as a preferred shareholder, it will be first in line to receive dividend payments.

Other community banks in the region have said no to the Treasury capital program, including Eagle Financial Services, the holding company for Bank of Clarke County, which was eligible for a $10 million federal investment.

In a statement dated Dec. 29, President and CEO John R. Milleson said as a community bank with local shareholders, "we don't believe that it is in their best interest to dilute their ownership and carry capital we don't need."

Bank of Clarke County has seen its share of past-due loans and charge-offs, but they are consistent with current economic conditions, according to the statement.

Similarly, United Bank, which acquired The Marathon Bank's parent company in 2007, cited "restrictions on possible future dividend increases, the dilution of earnings, and the uncertainty surrounding future requirements" in turning down $197 million from the federal government earlier this year.

BB&T received a $3.1 billion investment through the Capital Purchase Program in the fourth quarter. The Winston-Salem, N.C.-based company has used the money to increase lending and investments, it said.

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