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Open photoshop, create a new document with the size as 400 x 125.

Then I usually do it a lazy way by opening the picture I want to use in a seperate window then copy and paste it into the 400 x 125 window. Then I just start to play with it and resize stuff etc

If you are resizing then use CTRL+T/CMD+T and hold shift while dragging the corners, that will make sure it keeps to the same ratio which should help it keep some quality.

Then when you save, save it as a JPEG and make the quality maximum
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