Solutions

Overview of Seventh District Agricultural Credit Conditions

Community banks and credit unions remain important lenders to agriculture. †The Federal Reserve’s latest Beige Book reported income prospects in the Seventh District — Illinois, Indiana, Iowa, Michigan, and Wisconsin — for the agricultural sector improved a bit during the reporting period, despite concerns about the impact of Chinese tariffs. †Respondents described higher corn and soybean prices, allowing farmers to lock in modest profits for at least a portion of their crops this year. **As shown below in Figure 1, loan demand continued to rise in the first three months of the year while loan repayment edged lower in the Seventh District. As your institution funds more loans following strong demand, the Members Strategy and Solutions team at the Federal Home Loan Bank of Chicago (FHLBank Chicago) can help your institution develop your own competitive long-term fixed rate (or adjustable rate) lending programs for farm real estate and agricultural production loans. 

Figure 1: Indexes of Agricultural Credit Conditions in the Seventh District

Net Interest Margin (NIM) Tool

The solutions were formed using the FHLBank Chicago’s Net Interest Margin (NIM) Tool, which is a web-based  application that allows members to model NIM of asset portfolios funded by advances and/or deposits across different interest rate scenarios that can be found on our member only eBanking portal. This tool can be used to make optimal decisions on funding options that maximize the NIM of asset portfolios while minimizing the compression of NIM under worst interest  rate scenarios. Based on available funding choices, members can also make decisions on asset coupons and terms that are desirable in order to achieve their NIM targets. This tool can be utilized by treasury, asset liability management, finance, lending, investment, and accounting departments of member financial institutions to make optimal asset funding decisions.

To Learn More

To see an example case study of hedging a 10Y, 20Y amortizing agriculture loan, visit eBanking to read the Agricultural Lending Q2 2018 white paper.

Contributors

Melissa Deven
Director, Member Strategy and Solutions

 

Ashish Tripathy
Managing Director, Member Strategy and Solutions

Disclaimer

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. | October 2018