We are pleased to announce that, based on our preliminary financial results for the third quarter of 2022, the Board of Directors of the Federal Home Loan Bank of Chicago (FHLBank Chicago) declared a dividend of 6.50% (annualized) for Class B1 activity stock and a dividend of 2.75% (annualized) for Class B2 membership stock, an increase on the levels declared in the second 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 6.50% (annualized) for Class B1 activity stock through the fourth quarter 2022 and first quarter 2023, 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 third quarter 2022, we expect to report net income of $95 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 third quarter 2022 financial highlights are provided at the end of this letter.
FHLBank System at 100 – Thank You for Letting Your Voices Be Heard
Across the FHLBank System, we saw tremendous representation by community and industry leaders—including many of you—at the Federal Housing Finance Agency’s (FHFA) three listening sessions for their FHLBank System at 100: Focusing on the Future initiative. We believe the overall response from those who spoke was very positive and showed the important role each FHLBank plays in individual communities across the country. We also know there was an outpouring of written letters and comments to the FHFA from our members.
When the FHFA announced this initiative as an opportunity to review the mission, membership eligibility requirements, products and services, among other facets of the FHLBanks, we knew our members and community partners were vital to these conversations. You—more than anyone—understand the critical role the FHLBanks have in supporting your businesses and strengthening your communities. We are incredibly grateful to you for taking time to let your voices be heard by sharing your experiences and stories that bring to life our support for affordable housing, homeownership, and economic development as well as the collective impact we have made together throughout the years. We look forward to the FHFA’s regional roundtables in the months ahead and hope that many of you will be invited to participate.
We never take your partnership for granted, and we will continue to find new ways to embrace your evolving business needs and to seek out ways to further our mission to better serve you, our members, and your communities.
Guidance and Stability Through Market Volatility
As we monitor the market and the shift from the impacts of the COVID-19 pandemic, our economy is facing new headwinds. The Federal Reserve continues its path of monetary policy tightening to battle inflation brought on by factors such as global demand for products and services and geopolitical conflicts. We recognize the important role you play in providing essential products and services your customers must rely on. Even as inflation has placed pressure on deposit balances, negatively impacted securities valuations, and adversely impacted housing volume, we have been able to provide much needed liquidity and funding to our members. Compared to the end of the third quarter of 2021, advances outstanding have grown 30% to $59.7 billion at the end of the third quarter of 2022. We take pride in being a reliable source of liquidity for our members in all economic cycles.
Over the past quarter, we have announced specials to help manage an unpredictable mortgage market, provided forward-thinking strategies, and shared market insight at our member events:
- The mortgage markets have been impacted by dramatically rising interest rates stifling home affordability for many buyers. To alleviate some of the overall market pressure, we extended our targeted pricing special announced in May 2022 and improved prices across all Mortgage Partnership Finance® (MPF®) Traditional products.
- The swiftly approaching market transition from the use of London Interbank Offered Rate (LIBOR) to the Secured Overnight Financing Rate (SOFR) requires many of you to make numerous operational and technological changes. FHLBank Chicago remains committed to helping members navigate the post-LIBOR environment and has been hard at work ensuring that our products support our members’ transition from LIBOR to SOFR.
- We were thrilled to see many of you at our recent in-person events—including our Management Conference in August, ALM Meetings in September, and Credit Union Conference in October. Our FHLBank Chicago-hosted events are an excellent benefit to your membership as a way to hear insights and analyses from our FHLBank Chicago senior leadership as well as industry experts. We look forward to seeing you at future events in the fourth quarter of 2022 and into 2023.
Innovation and New Programs for Your Communities
As we all experience an evolving business landscape, our commitment to provide support for your communities remains steadfast. Earlier this year, we announced three new program offerings designed to address critical affordable housing and community economic development needs across Illinois and Wisconsin. These community investment programs reflect an ongoing commitment to diversity, equity, and inclusion and will deliver lasting impact for members, individual beneficiaries, and your communities.
- From August 16 through September 30, 2022, we accepted applications for the new Community First® Accelerate Grants for Small Business (Accelerate Grants) program. This competitive program provides an opportunity for our members to support local and small businesses, which drive growth and economic investment in rural, small town and urban communities. In 2022, FHLBank Chicago expects to award $750,000 in Accelerate Grants. We received 161 applications for more than five times the available funding, an indication of the critical resource needs facing many small businesses in our District. We look forward to announcing the results in November 2022.
Members seeking support for their eligible small business lending can also leverage the zero-percent Community Small Business Advance, as we recently doubled our support for this program in response to strong member demand.
- FHLBank Chicago awarded nearly $1 million of a $3 million, three-year commitment to support career development for diverse developers of affordable housing in Illinois and Wisconsin. Through the Community First Diverse Developer Initiative, eight organizations received funds to support internships, fellowships, skills training, and/or long-term programming to expand the pipeline of diverse developers.
- FHLBank Chicago awarded $2 million of a $6 million, three-year commitment to support grants to housing counseling agencies throughout Illinois and Wisconsin. The Community First Housing Counseling Resource Program (Housing Counseling Resource Program) provides support to housing counseling agencies to expand their reach to minority and low- and moderate-income homebuyers and to facilitate equitable access to homeownership for all. Illinois Housing Development Authority (IHDA) and Wisconsin Housing and Economic Development Authority (WHEDA) administers the Housing Counseling Resource Program on behalf of FHLBank Chicago. You can view the 30 beneficiaries on fhlbc.com.
- Next week, we will announce our annual Affordable Housing Program (AHP) General Fund awards and expect to provide more than $20 million in grants to our member institutions in partnership with developers, community organizations, public housing authorities, tribal governments, and other units of government. This program, now in its 32nd year, subsidizes the development and preservation of affordable rental and owner-occupied housing.
President and CEO
Third Quarter Dividend and Financial Highlights
On October 28, 2022, the Board of Directors of FHLBank Chicago declared a dividend of 6.50% (annualized) for Class B1 activity stock and a dividend of 2.75% (annualized) for Class B2 membership stock based on preliminary financial results for the third quarter of 2022. The dividend for the third quarter of 2022 will be paid by crediting your DID account on November 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 $59.7 billion at September 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 $10.1 billion at September 30, 2022, compared to $9.8 billion at December 31, 2021.
- Total investment securities decreased to $20.5 billion at September 30, 2022, compared to $25.5 billion at December 31, 2021, primarily attributable to a decline in the fair value of our available-for-sale (AFS) portfolio driven by rising market interest rates and a reduction in investment in U.S. Treasuries.
- Total liquid assets increased to $18.4 billion at September 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 $109.3 billion as of September 30, 2022, compared to $97.0 billion as of December 31, 2021.
- Letters of credit commitments increased to $13.0 billion at September 30, 2022, compared to $11.3 billion at December 31, 2021 attributable to increased usage from our members for public unit deposits.
- We recorded net income of $95 million in the third quarter of 2022, up $18 million compared to the third quarter of 2021. The increase was due to increased returns on our liquid assets as interest rates rose during the period, and other factors described below.
- In the third quarter of 2022, noninterest income was $27 million, an increase of $29 million when compared to a $(2) million (loss) for the third 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 September 30, 2022.