FHLBank Chicago Announces 2022 Financial Highlights
To Our Members:
Thanks to your partnership, FHLBank Chicago reached new heights in 2022 supporting you and the communities you serve. Many milestones were achieved – including the 90th anniversary of the Federal Home Loan Bank System, the 25th anniversary of our Mortgage Partnership Finance® (MPF®) Program, and advancing our Community Investment offerings. In what was a turbulent year for the economy, the FHLBank System served a key role of being a reliable source of funding and liquidity and by providing meaningful community investment support. This was no different in our District, as member needs led us to a record all-time high in advances outstanding at the end of the fourth quarter of 2022, and we expanded the reach of our Community Investment programs. These successes were achieved through our conversations with you and our ability to adapt and grow alongside each other. At FHLBank Chicago, we continue to foster a culture that is diverse, equitable, and inclusive to help us consistently develop and deliver quality products and solutions to you, our members, so you may better support your diverse communities. We are focused on the future of supporting your institutions and the businesses and communities you serve, including reviewing valuable feedback from the ongoing FHLBank System at 100 Initiative. With that, I am pleased to share some of our accomplishments over the past year.
We expect to report net income of $415 million for 2022 when we file our Form 10-K with the Securities and Exchange Commission (SEC) next month. Our preliminary and unaudited 2022 financial results and details on our 2022 financial performance are provided at the end of this letter. Based on our preliminary fourth quarter 2022 results, the Board of Directors of FHLBank Chicago declared our fourth quarter 2022 dividend on January 24, 2023 – 7.125% (annualized) for Class B1 activity stock and 3.0625% (annualized) for Class B2 membership stock. Dividends will be paid February 15, 2023. A reminder that the net benefit of the higher dividend received on Class B1 activity stock has the effect of lowering your borrowing costs from us, currently estimated at 15.2 bps* interest rate reduction.
As communicated last month, we expect to maintain at least a 7.125% (annualized) dividend for Class B1 activity stock for the first and second quarters of 2023, based on current projections and assumptions regarding our financial condition. We are providing this information to assist you in planning your advance, letter of credit, and MPF Program on-balance sheet product activity with us. Any future dividend payments remain subject to determination and declaration by our Board of Directors and may be impacted by changes in financial or economic conditions, regulatory and statutory limitations, and any other relevant factors.
Strong Member Engagement
In 2022, 89% of our members and associate members used at least one of our core product offerings—advances, letters of credit, or MPF Program products—or participated in our competitive Affordable Housing Program (AHP) or Downpayment Plus® (DPP®) programs. We also welcomed 17 new members last year.
- Advance products: At year-end 2022, 574 members had advances totaling $66.3 billion outstanding, up 38% from year-end 2021, as loan growth remained strong and deposit growth slowed among depository members.
- MPF Program: During 2022, 195 participating financial institutions (PFIs) funded our MPF on- and off-balance sheet products. At year-end 2022, MPF loans outstanding on our balance sheet were $10.2 billion, a 3% increase from year-end 2021, showcasing the stability of the MPF Program through a volatile market.
- AHP and DPP: In 2022, we awarded $23.8 million in AHP funds to help finance 39 affordable housing projects located in Illinois and Wisconsin. These funds will support the acquisition, rehabilitation, and new construction of 1,950 housing units. By year-end 2022, 184 members had disbursed over $18 million in DPP grants on behalf of nearly 3,000 homebuyers in your communities. We recently opened our 2023 DPP programs and increased the maximum grant amount to $10,000.
- Events: Our Member Meetings are coming to a city near you at select dates from March 15 to March 30, 2023. We look forward to seeing many of you at one of our five locations across Illinois and Wisconsin. Learn about the economic and mortgage outlook for the year, balance sheet strategies for today’s environment, how to drive change through technology and innovation, and hear more about the customized products and solutions we have to offer you. Visit our Events webpage for a list of 2023 events and to register for an upcoming Member Meeting or workshop.
Investing in Your Communities
Our Community Investment products are central to our mission, and we continuously seek out dialogue with local leaders in our District to drive innovation to meet the critical needs of your communities. In April 2022, we announced three program offerings designed to address affordable housing and community economic development needs in Illinois and Wisconsin. Two new programs target affordable housing development and access, while an enhanced capacity building program will bring needed support to small businesses.
- Community First® Diverse Developer Initiative: This new program awarded over $1 million of a $3 million commitment to support career development for diverse developers of affordable housing in Illinois and Wisconsin. In 2022, we announced the ten award recipients who will receive funds to support internships, fellowships, skills training, and/or long-range initiatives that expand the pipeline of diverse developers.
- Community First® Housing Counseling Resource Program: In partnership with two FHLBank Chicago housing associates, Illinois Housing Development Authority (IHDA) and Wisconsin Housing and Economic Development Authority (WHEDA), this program provides grants to agencies throughout Illinois and Wisconsin to facilitate expanded service to minority and low- and moderate-income homebuyers. Through these grants, agencies in our District can provide financial counseling and education to help homebuyers in underserved communities rebuild credit, manage debt and establish savings. FHLBank Chicago disbursed $2.1 million of $6.2 million committed to IHDA and WHEDA over a three-year period, and the selected beneficiary organizations were announced in October 2022.
- Community First® Accelerate Grants for Small Business: This new program provides grants up to $25,000 to support the growth and development of small businesses in communities served by FHLBank Chicago member financial institutions. By helping individual businesses grow and thrive, FHLBank Chicago supports economic opportunities in our members’ communities. In December 2022, we awarded nearly $835,000 to 34 small businesses of $2.1 million committed over a three-year period.
We remain committed to using our financial strength to support you and your communities and look forward to continuing to deliver value to you in 2023. Thank you for your membership in the Federal Home Loan Bank of Chicago.
President and CEO
2022 Financial Highlights
Throughout 2022, we maintained our commitment, to be a reliable source of liquidity by providing products, services, and solutions to meet your evolving business needs and to provide you meaningful support for your community investment activities. Selected financial data is below. For more details, please refer to the Condensed Statements of Income and Statements of Condition. The financial results discussed are preliminary and unaudited. We expect to file our 2022 Annual Report on Form 10-K 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.
- Net income for 2022 was $415 million, compared to $275 million in 2021, with the year-over-year increase primarily driven by increased returns in our liquidity portfolio (i.e., cash and due from banks, interest bearing deposits, federal funds sold, and securities purchased under agreement to resell) as interest rates rose during the year.
- Net interest income for 2022 was $677 million, compared to $543 million in 2021, driven by the factors discussed above.
- Noninterest income (loss) increased by $44 million to $32 million in 2022 compared to ($12) million in 2021, primarily driven by gains from derivatives used to hedge our market risk exposure. There was also a significant decline in the average balance of our trading securities outstanding for the year, resulting from a decline in investment in U.S. Treasuries, which in turn reduced the amount of losses incurred on our trading portfolio.
- Noninterest expense was $244 million for 2022 compared to $222 million in 2021, with the change primarily driven by increases in compensation and benefits expense, nonpayroll operating expenses, and expenses related to our voluntary Community Investment contributions. In 2022, our voluntary Community Investment contributions were $11 million, compared to $4 million in 2021, driven by additional commitments to our Downpayment Plus Programs above the regulatory amounts and the expansion of various Community Investment grant programs.
- Total assets were $126.9 billion at year-end 2022 compared to $97.0 billion at year-end 2021, with the change attributable to increased advance borrowings from our depository institutions and an increase in our liquidity portfolio.
- Advances outstanding were $66.3 billion at year-end 2022 compared to $48.0 billion at year-end 2021, with the change attributable to increased borrowings from our depository institutions.
- MPF loans held in portfolio remained steady at $10.2 billion at year-end 2022, compared to $9.8 billion at year-end 2021.
- Total investment securities were $22.1 billion at year-end 2022 compared to $25.5 billion at year-end 2021, with the change 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.
- Retained earnings were $4.6 billion at year-end 2022, up from $4.3 billion at year-end 2021, and we remained in compliance with all of our regulatory capital requirements as of year-end 2022.
- Letters of credit commitments decreased to $10.8 billion at year-end 2022, down from $11.3 billion at year-end 2021, primarily due to decreased usage from our members for public unit deposits.
* Reflects Class B1 activity stock dividend as a reduction to the assumed advance rate, based on a Class B1 dividend rate of 7.125% for Q4 2022, an opportunity cost of buying stock (estimated to be the Q4 2022 U.S. Federal Reserve Average Federal Funds Rate of 3.649%), and 4.50% advance capitalization for illustration purposes only.