Lower Your Borrowing Costs: The Dividend Effect

Did You Know?

  • The FHLBank Chicago dividend reduces the “all-in” cost of borrowing an advance.
  • The FHLBank Chicago dividend represents a return on a member’s investments.

Lower Your Borrowing Costs: The Dividend Effect

On October 28, 2022, the Federal Home Loan Bank of Chicago (FHLBank Chicago) declared a dividend on B1 activity stock at an annualized rate of 6.50% and on B2 membership stock at an annualized rate of 2.75%. The Bank pays a higher dividend per share on activity stock to reward members for using the Bank’s advances and, thereby, supporting the entire cooperative. The higher dividend received on Class B1 activity stock has the effect of lowering your borrowing costs.

See the example below, which lowers your borrowing costs by 19 basis points (bps). Contact your Sales Director to find opportunities to lower your borrowing costs.

“All-In” Advance Rate Based on 100% B1 Activity Stock Sample*

Advance Transaction Details
Borrow a $5,000,000 advance for one year at 4.93%**** activity stock requirement 

B1 Activity Stock Required***
$5,000,000 advance borrowed x 4.93% activity stock requirement
$225,000
Recent B1 Activity Stock Dividend Rate** 

Reflective of a projected dividend rate of 6.50% for Q4 2022 payable in Q1 2023.

6.50% 
Advance Rate
As of October 28, 2022
 2.19%
 

Dividend Cost Reduction
How the FHLBank Chicago dividend lowers your borrowing costs

Interest Cost on Advance^

$5,000,000 advance X Advance Rate X Actual/360

 $249,924
B1 Activity Stock Dividend Paid^^
*Assumes the advance is fully supported by B1 Activity Stock.
 $14,625
Cost of Funding Capital Purchase^^^

Assumes Primary Credit Rate of 0.25%

 $4,985
Net Interest Cost $240,283
“All-In” Advance Rate 4.74%
Interest Cost Reductio

Advance Rate less “All-In” Advance Rate

 0.19%

Interest Cost Reduction
Advance Rate less “All-In” Advance Rate

0.19% 
*Reflects Class B1 stock dividend as a reduction to the regular advance rate, based on a projected B1 dividend rate of 6.50% for Q3 2022 payable in Q4 2022, an opportunity cost of buying stock (estimated to be 2.185%, the average Effective Federal Funds Rate during Q3, 2022), and 4.50% advance capitalization for illustration purposes only.
** Reflective of a projected dividend rate for Q3 2022 payable in Q4 2022.
***Advance notional multiplied by 4.5% activity stock requirement
****Assumes an opportunity cost of previous quarter's average Fed Funds Effective Rate
^Advance Notional X advance rate X Actual/360
^^ Assumes the advance is fully supported by B1 Activity Stock
^^^Assumes opportunity cost of previous quarter's average Fed Funds Effective Rate

Contact your Sales Director for more information.

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