Equity loans: TARP funds for home equity loans

Bank Rhode Island is planning to launch a revolutionizing home equity loan program. The U.S. Treasury Department has funded the program with thirty million dollars. The Bank is using this program to get back onto its feet. This change of direction for Bank Rhode Island was announced very recently.

Previous reports of the BankRI had very dismal totals of consumer and mortgage loans. The bank was planning to shift to a more profit oriented balance sheets and have used this program as platform to begin its upward journey. BankRI is a subsidiary of the parent bank, Bancorp Rhode Island Inc. (Nasdaq: BARI) which is based in Providence. This new loan launched by the bank is believed to be the largest in a history spanning thirteen years. The highlights of the loan are-

• An interest rate of 5.9% per annum for local home owners.
• A term period of up to 30 years.
• There are no closing costs.
• There would be no points charged.

This program has specially been devised to help the local home owners and the Bank hopes this could contribute towards bringing stability to the local financial markets. The Bank has plans of launching many more such helpful and profitable loans which can contribute to the well being of the community.

Bank Rhode Island participated in the US Treasury Department’s Capital Purchase Program worth $250 billion. The thirty million dollars was a part of this program. The Purchase program allows the government to buy shares of banks so that the cash would aid in thawing the credit markets. In exchange of the money, thirty thousand shares which was a part of fixed rate perpetual cumulative stock. Warrants for purchasing 192,967 shares of the bank over a period of ten years were also handed over to the Treasury Department. The initial price of the shares was twenty three dollars per share.

The Purchase program provided the bank an opportunity to increase and build up momentum for the third quarter. It also helped in increasing and building strong capabilities of lending for customers. There were doubts about applying for the program since it could have been perceived as a sign of weakness by the market. The bank has to improve its balance sheets so that its share holders, customers and community would be safe. The bank had reported an increase in third quarter earnings as well as the year to date earnings. The parent company’s risk weighted capital ratio was around thirteen percent which is ten percent excess of what is required to be a well capitalized institution. The Washington Trust Bancorp Inc. (WASH) is not participating in the TARP program though.

Every new program attracts its own critics. Similarly this program critics claim that the money that the banks receive from Treasury investments are used to improve their balance sheets and is not always lent for the welfare of the community. The Bank Rhode Island is a state chartered institution which is insured by FDIC. It has sixteen branches in the counties of Washington, Kent and Providence.