Commercial Lending: Q1 2018


Commercial lending growth began to slowdown in 2017 from its post-recession highs. According to FDIC call report data, Commercial Real Estate (CRE) balances and Commercial and Industrial (C&I) balances are both up more than 8% in Illinois and Wisconsin combined from 2016 to 2017. Challenges remain as interest rates continue to rise and competition for loans remains strong. The Federal Home Loan Bank of Chicago (FHLBank Chicago) has solutions to help with these challenges.

CRE Lending Solutions

For long-term fixed-rate CRE loans there are several strategies to consider. In the example below, we suggest match-funding a 5Y30Y amortizing loan at a rate of 5.18% with a 5Y30Y amortizing advance at 2.83%; suggesting an initial net interest margin (NIM) of 2.35% (see Figures 1 and 2). Another option would be to use a barbell strategy funding 80% of the loan amount with a 5Y fixed-rate advance at 2.82% and the remaining 20% with a 1Y fixed-rate advance at a rate of 2.26%. Using this strategy, your institution would receive a starting NIM of 2.47% (see Figures 3 and 4). It’s also wise to consider the FHLBank Chicago’s option-embedded solutions (callable and putable advances) and swap-based solutions (swap plus rolling advance strategy or fixed-rate floating spread advance) to maximize spreads on CRE lending.

Commercial-Fig1-head     Commercial-Fig2-head

Figure 3: CRE Option 2 Barbell Funding

Commercial-Fig3-head     Commercial-Fig4-head

C&I Lending Solutions

As most C&I loans are floating-rate, it may be a good idea to use advances such as the open line advance to hedge individual C&I loans or the entire portfolio. Other options for funding C&I loans include rolling short term advances, such as the discount note floater. Using FHLBank Chicago short term low cost funding is a great way to increase margins while still giving your customers a competitive price.


To Learn More

For further information, contact your Sales Director at to find out more about the products, strategies, and tools you can use to develop competitive lending solutions for your commercial customers.


SolutionsHeadshots_Hunter_smErin Hunter
Director, Member Strategy and Solutions

SolutionsHeadshots_Tripathy_smAshish Tripathy
Managing Director, Member Strategy and Solutions


The scenarios in this paper were prepared without any consideration of your institution’s balance sheet composition, hedging strategies, or financial assumptions and plans, any of which may affect the relevance of these scenarios to your own analysis. The Federal Home Loan Bank of Chicago makes no representations or warranties about the accuracy or suitability of any information in this paper. This paper is not intended to constitute legal, accounting, investment, or financial advice or the rendering of legal, accounting, consulting, or other professional services of any kind. You should consult with your accountants, counsel, financial representatives, consultants, and/or other advisors regarding the extent these scenarios may be useful to you and with respect to
any legal, tax, business, and/or financial matters or questions.

Federal Home Loan Bank of Chicago | Member owned. Member focused. | February 2018

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