By Tom Shean

The Virginian-Pilot

norfolk

When Hampton Roads Bankshares Inc. reported this month that it paid $925,000 to two former executives of Gateway Financial Holdings Inc. in the midst of a merger, it was thrust under a national spotlight.

The Norfolk-based banking company, which acquired Gateway at year- end, disclosed in a regulatory filing that former Gateway Chief Executive Ben Berry received $500,000 and former Executive Vice President David Twiddy received $425,000 for staying with Hampton Roads Bankshares.

What drew attention was the Dec. 31 date of the executives' employment agreements. It was the same day that Hampton Roads Bankshares received an $80.3 million capital infusion from the Treasury Department. The overlap prompted a financial blogger to write that Berry and Twiddy received "taxpayer financed signing bonuses."

The blogger's remarks, which appeared on the Web site footnoted.org and were picked up by ABC-TV news, became fodder for the debate over the Treasury's Troubled Asset Relief Program.

Jack Gibson, vice chairman and CEO of Hampton Roads Bankshares, said the payments that the company made to Berry and Twiddy didn't involve any of the TARP money that it received from the Treasury.

He acknowledged they might appear exceptional in light of the troubled banking environment and Gateway's losses last year from investments in the mortgage-finance giants Fannie Mae and Freddie Mac.

The payments were negotiated to retain Berry and Twiddy while protecting Hampton Roads Bankshares from possible competition if the two departed, Gibson said. Also, the compensation was much less expensive than the "change-of-control" severance that Hampton Roads Bankshares would have had to pay Berry and Twiddy if they had left.

Without Gateway's top management at Hampton Roads Bankshares, Gibson said, "it would have required much more work on our part and the loss of some key customer relationships."

Even so critics, including several members of Congress, already were arguing that banks receiving funds from the Treasury's financial-rescue effort hadn't disclosed how they were using the money. In the debate over whether Congress should make another $350 billion available for the TARP program, critics contended that some institutions failed to put the capital they received to work.

At the urging of the incoming Obama administration, the Senate approved the additional $350 billion on Jan. 15. However, economic advisers to the new president promised to impose tougher rules on the financial institutions that receive TARP capital, including restrictions on executive compensation.