To Our Members:
We are pleased to announce that, based on our preliminary financial results for the second quarter of 2022, the Board of Directors of the Federal Home Loan Bank of Chicago (FHLBank Chicago) declared a dividend of 5.75% (annualized) for Class B1 activity stock and a dividend of 2.375% (annualized) for Class B2 membership stock, an increase on the levels declared in the first quarter of 2022. FHLBank Chicago pays a higher dividend per share on your Class B1 activity stock to recognize members that support the entire cooperative through the use of our products.
We expect to maintain a dividend of at least 5.75% (annualized) for Class B1 activity stock through the third and fourth quarters of 2022, reviewed quarterly and based on current projections and assumptions regarding our financial condition. We are providing this information to assist you in planning your activity with us.
For second quarter 2022, we expect to report net income of $91 million when we file our Form 10-Q with the Securities and Exchange Commission (SEC) next month. Our preliminary and unaudited financial results, details on the dividend payments, and our second quarter financial highlights are provided at the end of this letter.
A Source of Stability for 90 Years and Counting
As this month marks the 90th anniversary of the Federal Home Loan Bank System, as well as the 25th anniversary of our Mortgage Partnership Finance® (MPF®) Program, we proudly express our appreciation to you, our members, and reflect on the critical role the FHLBanks play in supporting the U.S. economy with liquidity in all economic cycles. Uncertainty in the market brings challenges and opportunities – and we are steadfast in our commitment to being a trusted advisor in helping you achieve your goals.
- We ended the second quarter of 2022 with $52.8 billion in advances outstanding, our highest quarter-end advance balance since Q1 2020.
- We saw increased liquidity and funding needs from our members as loan growth increased and deposit growth has slowed. We are supporting these needs with attractively priced advances and discounts on certain advances.
- We encourage our members to view our B1 activity stock dividend as an effective reduction in advance rates. We estimate the net benefit of the increased 5.75% dividend on Class B1 activity stock has the effect of lowering your borrowing costs from us, currently estimated at 22 bps1 interest rate reduction.
- On June 29, 2022, FHLBank Chicago and Ginnie Mae announced that the total issuance under the MPF Program surpassed $3 billion in mortgage-backed securities (MBS). The MPF Government MBS product resulted from a relationship forged by FHLBank Chicago and Ginnie Mae to issue securities guaranteed by Ginnie Mae and backed by mortgages originated by Federal Home Loan Bank member financial institutions. The MPF Government MBS product provides participating members, particularly smaller institutions, direct access to the secondary mortgage market.
- Inflationary pressures, along with the Federal Reserve’s quantitative tightening actions, have resulted in substantially increased home prices and mortgage rates in a short time frame, impacting home affordability for many buyers. To help alleviate some of the overall market pressures, FHLBank Chicago is offering summer pricing specials for our MPF Traditional product to enhance member profitability while potentially offering lower mortgage rates to your customers.
- We offer SOFR-linked products to support our members’ LIBOR transition efforts. In addition to our popular Discount Note Floater Advance (A382), we now offer a Callable Floating Rate Advance (A380), which supports the flexible liquidity needs of our members.
- In May 2022, we offered our 2022 COVID-19 Recovery Advance to support our members as they recovered from the pandemic. We are pleased to share that 119 members took advantage of the opportunity, executing a total of $528 million in significantly-below-market rate advances.
- Our events have been back in person this year, for the first time in three years. After the success of our Member Meetings in March, we were happy to host our 2022 FHLBank System Insurance Conference in June. We look forward to seeing many of you next week at our annual marquee event – the 2022 Management Conference, August 4-5, 2022 in Chicago – with keynote speaker Paul Ryan. Attendees will hear valuable insights from distinguished guest speakers on leadership, the economy, politics, business, and innovation. Credit union members can save the date for our 2022 Credit Union Conference, October 6-7, 2022 in Chicago. Registration will open on August 10.
Providing Support for Your Communities
We remain focused on how we can create and promote equitable opportunities across our District through our product offerings and have some updates to share on both our longstanding and newly created community investment programs:
- Our new Community First® Accelerate Grants for Small Business, a pivot from our previous Community First® Capacity-Building Grant Program, provide flexible grant funds to strengthen small businesses in Illinois and Wisconsin. Applications will be accepted from August 2 – September 9, 2022. We continue to offer our Community Small Business Advance with an initial rate of 0% to support local economies and community revitalization across our District.
- Our inaugural Community First® Diverse Developer Initiative received 32 applications, requesting over $5 million. This competitive grant program provides nonprofit and for-profit organizations, in collaboration with our members, with funding for career and talent development initiatives supporting diverse developers of affordable housing across Illinois and Wisconsin. We will announce the award recipients next month.
- Our Downpayment Plus® (DPP®) Programs continue to provide our members easy-to-access downpayment and closing cost assistance to help your income-eligible customers achieve homeownership. In honor of National Homeownership Month in June, we hosted a special DPP webinar on June 16. The recording and other resources are available on our DPP webpage. We anticipate providing $18 million in downpayment assistance throughout 2022.
- Our 2022 Affordable Housing Program (AHP) General Fund closed on June 10, 2022. Forty members and 48 sponsors jointly submitted 67 applications for approximately $41.9 million in subsidy to support the construction, acquisition, and/or rehabilitation of more than 3,500 housing units. We expect to award approximately $20.7 million this year and will announce the awards in late October.
We value your feedback and close with a few reminders to ensure your continued access to our services and that your voice is heard as we plan for the future:
- We require a Member Security Administrator (MSA) from each institution to annually review their institution’s eBanking user authorization roles and access permissions. Complete your eBanking Administration Recertification by August 31, 2022.
- Take part in a unique opportunity to provide feedback on potential new eBanking features through one of our Member Focus Groups running through December 2022.
- Ballots for our 2022 Member and Independent Director Election will be sent to eligible member institutions in September and the voting deadline is October 20, 2022.
As always, thank you for your membership in the Federal Home Loan Bank of Chicago.
President and CEO
1Reflects Class B1 activity stock dividend as a reduction to the assumed advance rate, based on a B1 dividend rate of 5.75% for Q2 2022 payable in Q3 2022, an opportunity cost of buying stock (estimated to be the current U.S. Federal Reserve Discount Rate of 0.759%), and 4.50% advance capitalization for illustration purposes only.
Second Quarter Dividend and Financial Highlights
On July 28, 2022, the Board of Directors of FHLBank Chicago declared a dividend of 5.75% (annualized) for Class B1 activity stock and a dividend of 2.375% (annualized) for Class B2 membership stock based on preliminary financial results for the second quarter of 2022. The dividend for the second quarter of 2022 will be paid by crediting your DID account on August 15, 2022. Any future dividend payments remain subject to determination and declaration by our Board of Directors and may be impacted by further changes in financial or economic conditions, regulatory and statutory limitations, and any other relevant factors.
Selected financial data is below. For more details, please refer to the Condensed Statements of Condition and Condensed Statements of Income. The financial results discussed are preliminary and unaudited. We expect to file our Form 10-Q with the Securities and Exchange Commission (SEC) next month. After it is filed, you will be able to access it on fhlbc.com or through the SEC’s reporting website.
- Advances outstanding increased to $52.8 billion at June 30, 2022, compared to $48.0 billion at December 31, 2021 attributable to increased borrowings from our depository institutions.
- MPF® loans held in portfolio continued to remain steady at $10.0 billion at June 30, 2022, compared to $9.8 billion at December 31, 2021.
- Total investment securities decreased 18% to $20.8 billion at June 30, 2022, compared to $25.5 billion at December 31, 2021, attributable to a reduction in investment in U.S. Treasuries and a decline in the fair value of our available-for-sale (AFS) portfolio driven by rising market interest rates.
- Total liquid assets increased to $21.0 billion at June 30, 2022, compared to $13.2 billion at December 31, 2021. We maintain a sufficient pool of liquidity to support anticipated member demand for advances and letters of credit.
- Total assets increased to $105.2 billion as of June 30, 2022, compared to $97.0 billion as of December 31, 2021.
- Letters of credit commitments increased to $13.1 billion at June 30, 2022, compared to $11.3 billion at December 31, 2021.
- We recorded net income of $91 million in the second quarter of 2022, up $13 million compared to the second quarter of 2021, with the increase primarily driven by increased returns on our liquid assets as interest rates rose during the period.
- In the second quarter of 2022, noninterest income was $5 million, an increase of $15 million when compared to a $(10) million (loss) for the second quarter of 2021. Gains from derivatives used to hedge our market risk exposure was the primary driver of this increase. There was also a significant decline in the average balance of our trading securities outstanding for the period resulting from a decline in investment in U.S. Treasuries, which in turn reduced the amount of losses incurred on our trading portfolio.
- We remained in compliance with all of our regulatory capital requirements as of June 30, 2022.