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Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from              to             
Commission File No. 000-51401
logoa58.jpgFederal Home Loan Bank of Chicago 

(Exact name of registrant as specified in its charter)

 
Federally chartered corporation
 
36-6001019
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
200 East Randolph Drive
Chicago, IL
 
60601
 
 
(Address of principal executive offices)
 
(Zip Code)
 

Registrant's telephone number, including area code: (312) 565-5700
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer   o
 
Accelerated filer  o
 
Non-accelerated filer   x  (Do not check if a smaller reporting company)
 
Smaller reporting company   o
 
 
 
 
 
Emerging growth company   o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x


As of June 30, 2018, including mandatorily redeemable capital stock, registrant had 21,184,919 total outstanding shares of Class B Capital Stock.

1

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logoa57.jpg Federal Home Loan Bank of Chicago 


TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION
 
Item 1.
Financial Statements (unaudited).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
 
 
PART II - OTHER INFORMATION
 
Item 1.
Item 1A.
Item 2.
Item 3.
Item 4.
Item 5.
Item 6.
 
 


2

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logoa54.jpg Federal Home Loan Bank of Chicago 


PART I - FINANCIAL INFORMATION
Item 1.    Financial Statements.
Statements of Condition (unaudited)
(Dollars in millions, except capital stock par value)
 
June 30, 2018
 
December 31, 2017
Assets
 
 
 
Cash and due from banks
$
29

 
$
42

Interest bearing deposits
775

 
775

Federal Funds sold
10,170

 
7,561

Securities purchased under agreements to resell
7,000

 
5,000

Investment securities -
 
 
 
Trading,
74
and
67
pledged
2,602

 
233

Available-for-sale
11,768

 
12,957

Held-to-maturity,
4,050
and
4,538
fair value
3,733

 
4,157

Investment securities
18,103

 
17,347

Advances,
859
 
and
776
 
carried at fair value
54,468

 
48,085

MPF Loans held in portfolio, net of
(1)
and
(2)
allowance for credit losses
5,779

 
5,193

Derivative assets
5

 
3

Other assets,
111
and
118
carried at fair value
402

 
349

Assets
$
96,731

 
$
84,355

 
 
 
 
Liabilities
 
 
 
Deposits -
 
 
 
Noninterest bearing
$
53

 
$
51

Interest bearing,
18
and
32
from other FHLBs
537

 
473

Deposits
590

 
524

Consolidated obligations, net -
 
 
 
Discount notes,
0
and
749
carried at fair value
43,007

 
41,191

Bonds,
4,067
and
5,260
carried at fair value
46,854

 
37,121

Consolidated obligations, net
89,861

 
78,312

Derivative liabilities
19

 
20

Affordable Housing Program assessment payable
87

 
88

Mandatorily redeemable capital stock
314

 
311

Other liabilities
505

 
248

Liabilities
91,376

 
79,503

Commitments and contingencies - see notes to the financial statements


 


Capital
 
 
 
Class B1 activity stock,
15
and
12
million shares issued and outstanding
1,498

 
1,241

Class B2 membership stock,
3
and
2
million shares issued and outstanding
307

 
202

Capital stock - putable,
$100
and
$100
par value per share
1,805

 
1,443

Retained earnings - unrestricted
2,944

 
2,845

Retained earnings - restricted
484

 
452

Retained earnings
3,428

 
3,297

Accumulated other comprehensive income (loss) (AOCI)
122

 
112

Capital
5,355

 
4,852

Liabilities and capital
$
96,731

 
$
84,355




The accompanying notes are an integral part of these financial statements (unaudited).

3

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logoa54.jpg Federal Home Loan Bank of Chicago 


Statements of Income (unaudited)
(Dollars in millions)

 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income
 
$
577

 
$
373

 
$
1,057

 
$
710

Interest expense
 
445

 
256

 
801

 
480

Net interest income
 
132

 
117

 
256

 
230

Provision for (reversal of) credit losses
 

 
1

 

 
1

Net interest income after provision for (reversal of) credit losses
 
132

 
116

 
256

 
229

 
 
 
 
 
 
 
 
 
Noninterest income -
 
 
 
 
 
 
 
 
Derivatives and hedging activities
 
3

 
3

 

 
6

Instruments held under fair value option
 
(10
)
 
4

 
(17
)
 
2

MPF fees,
6
,
5
,
12
and
10
from other FHLBs
 
7

 
7

 
15

 
13

Other, net
 
9

 
2


11

 
5

Noninterest income
 
9

 
16

 
9

 
26

 
 
 
 
 
 
 
 
 
Noninterest expense -
 
 
 
 
 
 
 
 
Compensation and benefits
 
28

 
26

 
52

 
51

Operating expenses
 
17

 
15

 
32

 
30

Other
 
1

 
3

 
4

 
5

Noninterest expense
 
46

 
44

 
88

 
86

 
 
 
 
 
 
 
 
 
Income before assessments
 
95

 
88

 
177

 
169

 
 
 
 
 
 
 
 
 
Affordable Housing Program
 
10

 
9

 
18

 
17

 
 
 
 
 
 
 
 
 
Net income
 
$
85

 
$
79

 
$
159

 
$
152



The accompanying notes are an integral part of these financial statements (unaudited).



4

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logoa54.jpg Federal Home Loan Bank of Chicago 


Statements of Comprehensive Income (unaudited)
(Dollars in millions)

 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Net income
 
$
85

 
$
79

 
$
159

 
$
152

 
 

 
 
 
 
 
 
Other comprehensive income (loss) -
 

 
 
 
 
 
 
Net unrealized gain (loss) available-for-sale securities
 
(43
)
 
(19
)
 
(92
)
 
19

Noncredit OTTI held-to-maturity securities
 
8

 
8

 
15

 
17

Net unrealized gain (loss) cash flow hedges
 
32

 
25

 
90

 
69

Postretirement plans
 
(1
)
 

 
(3
)
 
(2
)
Other comprehensive income (loss)
 
(4
)
 
14

 
10

 
103

 
 

 
 
 

 
 
Comprehensive income
 
$
81

 
$
93

 
$
169

 
$
255



The accompanying notes are an integral part of these financial statements (unaudited).



5

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logoa54.jpg Federal Home Loan Bank of Chicago 


Statements of Capital (unaudited)
(Dollars and shares in millions)

 
Capital Stock - Putable - B1 Activity
 
Capital Stock - Putable - B2 Membership
 
Total
Capital Stock
 
Retained Earnings
 
 
 
Total
 
Shares
 
Value
 
Shares
 
Value
 
Shares
 
Value
 
Unrestricted
 
Restricted
 
Total
 
AOCI
 
December 31, 2017
12

 
$
1,241

 
2

 
$
202

 
14

 
$
1,443

 
$
2,845

 
$
452

 
$
3,297

 
$
112

 
$
4,852

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
127

 
32

 
159

 
10

 
169

Proceeds from issuance of capital stock
17

 
1,698

 

 
11

 
17

 
1,709

 
 
 
 
 
 
 
 
 
1,709

Repurchases of capital stock

 

 
(13
)
 
(1,345
)
 
(13
)
 
(1,345
)
 
 
 
 
 
 
 
 
 
(1,345
)
Capital stock reclassified to mandatorily redeemable capital stock liability

 
(1
)
 

 
(1
)
 

 
(2
)
 
 
 
 
 
 
 
 
 
(2
)
Transfers between classes of capital stock
(14
)
 
(1,440
)
 
14

 
1,440

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash dividends - class B1
 
 
 
 
 
 
 
 
 
 
 
 
(27
)
 


 
(27
)
 
 
 
(27
)
Class B1 annualized rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.75
%
Cash dividends - class B2
 
 
 
 
 
 
 
 
 
 
 
 
(1
)
 
 
 
(1
)
 
 
 
(1
)
Class B2 annualized rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1.55
%
Total change in period
3

 
257

 
1

 
105

 
4

 
362

 
99

 
32

 
131

 
10

 
503

June 30, 2018
15

 
$
1,498

 
3

 
$
307

 
18

 
$
1,805

 
$
2,944

 
$
484

 
$
3,428

 
$
122

 
$
5,355

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2016
12

 
$
1,160

 
6

 
$
551

 
18

 
$
1,711

 
$
2,631

 
$
389

 
$
3,020

 
$
(36
)
 
$
4,695

Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
122

 
30

 
152

 
103

 
255

Proceeds from issuance of capital stock
13

 
1,452

 

 
10

 
13

 
1,462

 
 
 
 
 
 
 
 
 
1,462

Repurchases of capital stock

 
(34
)
 
(16
)
 
(1,607
)
 
(16
)
 
(1,641
)
 
 
 
 
 
 
 
 
 
(1,641
)
Capital stock reclassified to mandatorily redeemable capital stock liability

 
(3
)
 

 
(3
)
 

 
(6
)
 
 
 
 
 
 
 
 
 
(6
)
Transfers between classes of capital stock
(13
)
 
(1,339
)
 
13

 
1,339

 
 
 
 
 
 
 
 
 
 
 
 
 


Cash dividends - class B1
 
 
 
 
 
 
 
 
 
 
 
 
(17
)
 
 
 
(17
)
 
 
 
(17
)
Class B1 annualized rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
3.08
%
Cash dividends - class B2
 
 
 
 
 
 
 
 
 
 
 
 
(2
)
 
 
 
(2
)
 
 
 
(2
)
Class B2 annualized rate
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
0.95
%
Total change in period

 
76

 
(3
)
 
(261
)
 
(3
)
 
(185
)
 
103

 
30

 
133

 
103

 
51

June 30, 2017
12


$
1,236


3


$
290


15


$
1,526


$
2,734


$
419


$
3,153


$
67


$
4,746



The accompanying notes are an integral part of these financial statements (unaudited).

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logoa54.jpg Federal Home Loan Bank of Chicago 


Condensed Statements of Cash Flows (unaudited)
(Dollars in millions)

 
Six months ended June 30,
 
2018
 
2017
 
Operating
Net cash provided by (used in) operating activities
 
$
235

 
$
225

 
Investing
Net change interest bearing deposits
 

 
(100
)
 
 
Net change Federal Funds sold
 
(2,609
)
 
(3,608
)
 
 
Net change securities purchased under agreements to resell
 
(2,000
)
 
50

 
 
Trading securities -
 
 
 
 
 
 
Sales
 
200

 
801

 
 
Proceeds from maturities and paydowns
 
4

 
2

 
 
Purchases
 
(2,559
)
 

 
 
Available-for-sale securities -
 
 
 
 
 
 
Proceeds from maturities and paydowns
 
1,420

 
828

 
 
Purchases
 
(129
)
 

 
 
Held-to-maturity securities -
 
 
 
 
 
 
Short-term held-to-maturity securities, net
 
65

a 
90

a 
 
Proceeds from maturities and paydowns
 
389

 
553

 
 
Purchases
 
(15
)
 
(17
)
 
 
Advances -
 
 
 
 
 
 
Principal collected
 
674,825

 
359,395

 
 
Issued
 
(681,320
)
 
(361,153
)
 
 
MPF Loans held in portfolio -
 
 
 
 
 
 
Principal collected
 
396

 
511

 
 
Purchases
 
(988
)
 
(513
)
 
 
Other investing activities
 
8

 
14

 
 
Net cash provided by (used in) investing activities
 
(12,313
)
 
(3,147
)
 
Financing
Net change deposits
 
66

 
62

 
 
Discount notes -
 
 
 
 
 
 
Net proceeds from issuance
 
1,011,104

 
725,466

 
 
Payments for maturing and retiring
 
(1,009,303
)
 
(723,480
)
 
 
Consolidated obligation bonds -
 
 
 
 
 
 
Net proceeds from issuance
 
23,685

 
10,579

 
 
Payments for maturing and retiring
 
(13,812
)
 
(9,670
)
 
 
Capital stock -
 
 
 
 
 
 
Proceeds from issuance
 
1,709

 
1,462

 
 
Repurchases
 
(1,345
)
 
(1,641
)
 
 
Cash dividends paid
 
(28
)
 
(19
)
 
 
Other financing activities
 
(11
)
 
(20
)
 
 
Net cash provided by (used in) financing activities
 
12,065

 
2,739

 
 
Net increase (decrease) in cash and due from banks
 
(13
)
 
(183
)
 
 
Cash and due from banks at beginning of period
 
42

 
351

 
 
Cash and due from banks at end of period
 
$
29

 
$
168

 
a 
Short-term assets and liabilities may be presented on a net basis provided that the original maturity of the asset or liability is three months or less from the date of origination or the date of purchase.

The accompanying notes are an integral part of these financial statements (unaudited).

7

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logoa58.jpg Federal Home Loan Bank of Chicago 
Notes to Financial Statements - (Unaudited)
(Dollars in tables in millions except per share amounts unless otherwise indicated)


Note 1 – Background and Basis of Presentation

The Federal Home Loan Bank of Chicago is a federally chartered corporation and one of 11 Federal Home Loan Banks (the FHLBs) that, with the Office of Finance, comprise the Federal Home Loan Bank System (the System).  The FHLBs are government-sponsored enterprises (GSE) of the United States of America and were organized under the Federal Home Loan Bank Act of 1932, as amended (FHLB Act), in order to improve the availability of funds to support home ownership.  We are supervised and regulated by the Federal Housing Finance Agency (FHFA), an independent federal agency in the executive branch of the United States (U.S.) government.

Each FHLB is a member-owned cooperative with members from a specifically defined geographic district. Our defined geographic district is Illinois and Wisconsin. All federally-insured depository institutions, insurance companies engaged in residential housing finance, credit unions and community development financial institutions located in our district are eligible to apply for membership with us. All our members are required to purchase our capital stock as a condition of membership. Our capital stock is not publicly traded, and is issued, repurchased or redeemed at par value, $100 per share, subject to certain statutory and regulatory limits. As a cooperative, we do business with our members, and former members (under limited circumstances). Specifically, we provide credit principally in the form of secured loans called advances. We also provide liquidity for home mortgage loans to members approved as Participating Financial Institutions (PFIs) through the Mortgage Partnership Finance® (MPF®) Program.

Our accounting and financial reporting policies conform to generally accepted accounting principles in the United States of America (GAAP). Amounts in prior periods may be reclassified to conform to the current presentation and, if material, are disclosed in the following notes.

In the opinion of management, all normal recurring adjustments have been included for a fair statement of this interim financial information. These unaudited financial statements and the following footnotes should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2017, included in our Annual Report on Form 10-K (2017 Form 10-K) starting on page F-1, as filed with the Securities and Exchange Commission (SEC).

Unless otherwise specified, references to we, us, our, and the Bank are to the Federal Home Loan Bank of Chicago.

“Mortgage Partnership Finance”, “MPF”, “MPF Xtra”, and "Community First" are registered trademarks of the Federal Home Loan Bank of Chicago.

See the Glossary of Terms starting on page 59 for the definitions of certain terms used herein.

Use of Estimates and Assumptions

We are required to make estimates and assumptions when preparing our financial statements in accordance with GAAP. The most significant of these estimates and assumptions applies to fair value measurements and allowance for credit losses. Our actual results may differ from the results reported in our financial statements due to such estimates and assumptions. This includes the reported amounts of assets and liabilities, the reported amounts of income and expense, and the disclosure of contingent assets and liabilities.

Basis of Presentation

The basis of presentation pertaining to the consolidation of our variable interest entities has not changed since we filed our 2017 Form 10-K.  The basis of presentation pertaining to our gross versus net presentation of financial instruments also has not changed since we filed our 2017 Form 10-K.

Refer to Note 1- Background and Basis of Presentation to the financial statements in our 2017 Form 10-K with respect to our basis of presentation for consolidation of variable interest entities and our gross versus net presentation of financial instruments for further details.

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logoa58.jpg Federal Home Loan Bank of Chicago 
Notes to Financial Statements - (Unaudited)
(Dollars in tables in millions except per share amounts unless otherwise indicated)

Note 2 – Summary of Significant Accounting Policies


Our Summary of Significant Accounting Policies through December 31, 2017, can be found in Note 2 – Summary of Significant Accounting Policies to the financial statements in our 2017 Form 10-K. We adopted the following policies effective January 1, 2018:


Recognition and Measurement of Financial Assets and Financial Liabilities (ASU 2016-01)

We are required to recognize the portion of instrument-specific credit risk attributable to the total change in fair value of our consolidated obligations that are carried at fair value in our statements of comprehensive income. We measure such instrument-specific credit risk based on our nonperformance risk, which includes our nonperformance risk and the credit risk associated with the joint and several liability of other FHLBs. The new guidance did not have an effect on our financial condition, results of operations, and cash flows at the time of adoption.


Revenue from Contracts with Customers (ASU 2014-09)

The revenue recognition guidance did not have any effect on our financial condition, results of operations, or cash flows at the time of adoption. This is because the majority of our financial instruments and other contractual rights that generate revenue are covered by other GAAP, and therefore, were scoped out of this new guidance. Further, our prior method of recognizing service fee revenue was consistent with this new guidance. As a result, no cumulative effect adjustment to our opening balance of retained earnings in 2018 was required under the modified retrospective method.


Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost (ASU 2017-07)

We are required to classify the service cost component of our net periodic pension and postretirement benefit costs as compensation costs. All other components of our net periodic pension and postretirement benefit costs are required to be classified as Noninterest expense - Other. Previously, our total net periodic pension and postretirement costs were classified as compensation costs. We made this classification change on a prospective rather than retrospective basis due to materiality. This classification guidance did not have a significant effect on our financial condition, results of operations, and cash flows.


Classification of Certain Cash Receipts and Cash Payments in the Statement of Cash Flows (ASU 2016-15)

We classify and disclose interest expense on zero coupon discount notes within operating activities, which is consistent with our prior and current classification practice. As a result, this guidance did have any effect on our financial condition, results of operations, and cash flows at the time of adoption.







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logoa58.jpg Federal Home Loan Bank of Chicago 
Notes to Financial Statements - (Unaudited)
(Dollars in tables in millions except per share amounts unless otherwise indicated)

Note 3 – Recently Issued but Not Yet Adopted Accounting Standards


Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)

In August of 2017, the FASB issued targeted improvements to existing derivatives and hedging guidance. We will adopt this guidance as of January 1, 2019. We are in the process of determining the expected effect of this guidance on our financial condition, results of operations, and cash flows. Outlined below are the significant changes to existing GAAP guidance that may have an effect on us.


Newly Permitted Hedging Strategies:

Permits us to enter into a cash flow hedge of the variability in cash flows in a financial instrument that has a contractually specified interest rate.
Permits us to hedge the benchmark risk component of cash flows in a fair value hedge.
Permits us to enter into a partial-term fair value hedge of the hedged item.
Permits us to enter into last-of-layer fair value hedges.


Assessment of Hedge Effectiveness:

Permits qualitative assessment of hedge effectiveness.
Enables applying the long-haul method of assessing hedge effectiveness in cases where the shortcut method was initially applied but subsequently is not or no longer is appropriate.


Financial Statement Presentation:

Requires the entire change in fair value of the hedging instrument in a cash flow hedge to be recorded and deferred in AOCI until reclassification to our statements of income would be required.
Requires hedge ineffectiveness to be presented in either interest income or interest expense, whichever is appropriate rather than in derivatives and hedging activities in our statements of income.
The presentation and disclosure guidance will be prospectively adopted.


Transition:

Prior reporting periods are not restated.
Requires recognition of cumulative effect adjustment to AOCI with a corresponding adjustment to the opening balance of retained earnings related to ineffectiveness recognized in prior reporting periods attributable to open cash flow hedges as of January 1, 2019.  
Permits us to modify the risk hedged under the existing fair value hedges of interest rate risk with the risk under newly permitted hedging strategies as of January 1, 2019. Such an election will require an adjustment to the opening balance of retained earnings.
We are permitted to reclassify a debt security from held-to-maturity to available-for-sale if the debt security is eligible to be hedged under the last-of-the layer method.


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logoa58.jpg Federal Home Loan Bank of Chicago 
Notes to Financial Statements - (Unaudited)
(Dollars in tables in millions except per share amounts unless otherwise indicated)

Measurement of Credit Losses on Financial Instruments (ASU 2016-13)

In June of 2016, the FASB amended existing GAAP guidance applicable to measuring credit losses on financial instruments. This guidance takes effect January 1, 2020. We are in the process of reviewing the expected effect of this guidance on our financial condition, results of operations, and cash flows. Specifically, the amendment replaces the “incurred loss” impairment methodology applied under current GAAP with a “currently expected credit losses” or CECL methodology. The measurement of CECL is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the financial instrument’s reported amount. Upon adoption, any difference between our existing and CECL allowance for credit losses will be recognized as a cumulative-effect adjustment to the opening balance of our retained earnings as of January 1, 2020.

In addition, the accounting for securities is amended as follows:

Aligns the income statement recognition of credit losses for securities with the reporting period in which changes in collectability occur by recording credit losses (and subsequent reversals) through an allowance rather than a write-down as currently required under GAAP.

Requires recognition of a credit loss on available-for-sale (AFS) securities into the income statement if the present value of cash flows expected to be collected on the security is less than its amortized cost basis. Additionally, the allowance on AFS debt securities will be limited to the amount by which fair value is less than the amortized cost basis.

A prospective transition approach is required for debt securities. Accordingly, any OTTI write-downs on securities recognized prior to January 1, 2020 may not be reversed at the time of our adoption. Improvements in expected cash flows for these securities will continue to be accounted for as yield adjustments over their remaining life. Additionally, recoveries for these securities will be recorded in earnings only when received.


Leases (ASU 2016-02)

In February of 2016, the FASB issued lease accounting guidance that becomes effective January 1, 2019. Upon adoption, we are required to apply the guidance to the beginning of our earliest statement of condition presented or December 31, 2018. The guidance requires us to recognize and measure our operating leases and right-to-use assets, if any, with terms that exceed 12 months in our statements of condition. Expenses attributable to our leases will continue to be included in noninterest expense - operating expenses in our statements of income. We do not expect the new guidance to have a significant effect on our financial condition, results of operations, and cash flows since our existing off-balance sheet operating leases are not material.



11

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logoa58.jpg Federal Home Loan Bank of Chicago 
Notes to Financial Statements - (Unaudited)
(Dollars in tables in millions except per share amounts unless otherwise indicated)

Note 4 – Interest Income and Interest Expense
The following table presents interest income and interest expense for the periods indicated:
 
 
Three months ended June 30,
 
Six months ended June 30,
 
 
2018
 
2017
 
2018
 
2017
Interest income -
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
Trading
 
$
9

 
$
1

 
$
15

 
$
2

 
 
 
 
 
 
 
 
 
Available-for-sale interest income
 
107

 
107

 
211

 
215

Available-for-sale prepayment fees
 
13

 
7

 
20

 
11

Available-for-sale
 
120

 
114

 
231

 
226

 
 
 
 
 
 
 
 
 
Held-to-maturity
 
43

 
48

 
89

 
101

 
 
 
 
 
 
 
 
 
Investment securities
 
172

 
163

 
335

 
329

 
 

 
 
 
 
 
 
Advances
 
285

 
130

 
499

 
229

 
 


 
 
 
 
 
 
MPF Loans held in portfolio
 
60

 
53

 
115

 
107

Federal funds sold and securities purchased under agreements to resell
 
54

 
25

 
98

 
40

Other
 
6

 
2

 
10

 
5

 
 
 
 
 
 
 
 
 
Interest income
 
577

 
373

 
1,057

 
710

 
 

 
 
 
 
 
 
Interest expense -
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated obligations -
 

 
 
 
 
 
 
Discount notes
 
205

 
119

 
388

 
215

Bonds
 
233

 
133

 
402

 
258

 
 

 
 
 
 
 
 
Other
 
7

 
4

 
11

 
7

 
 
 
 
 
 
 
 
 
Interest expense
 
445

 
256

 
801

 
480

 
 

 
 
 
 
 
 
Net interest income
 
132

 
117

 
$
256

 
$
230

Provision for (reversal of) credit losses
 

 
1

 

 
1

Net interest income after provision for (reversal of) credit losses
 
$
132

 
$
116

 
$
256

 
$
229




12

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logoa58.jpg Federal Home Loan Bank of Chicago 
Notes to Financial Statements - (Unaudited)
(Dollars in tables in millions except per share amounts unless otherwise indicated)

Note 5 – Investment Securities


We classify securities as either trading, held-to-maturity (HTM), or available-for-sale (AFS). Our security disclosures within these classifications are disaggregated by major security types as shown below. Our major security types are based on the nature and risks of the security.

U.S. Government & other government related may consist of the sovereign debt of the United States; debt issued by government sponsored enterprises (GSE); debt issued by the Tennessee Valley Authority; and securities guaranteed by the Small Business Administration.
Federal Family Education Loan Program - asset-backed securities (FFELP ABS).
GSE residential mortgage-backed securities (MBS) issued by Fannie Mae and Freddie Mac.
Government guaranteed MBS.
Private label residential MBS.
State or local housing agency obligations.


Pledged Collateral

We disclose the amount of investment securities pledged as collateral pertaining to our derivatives activity on our statements of condition. See Note 9 - Derivatives and Hedging Activities for further details.


Trading Securities

The following table presents the fair value of our trading securities. Our unrealized gains or losses on trading securities still held on our statement of condition as of the end of the reporting period were not material.

As of
 
June 30, 2018
 
December 31, 2017
U.S. Government & other government related
 
$
2,574

 
$
202

Residential MBS
 
 
 
 
GSE
 
27

 
30

Government guaranteed
 
1

 
1

Trading securities
 
$
2,602

 
$
233




13

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logoa58.jpg Federal Home Loan Bank of Chicago 
Notes to Financial Statements - (Unaudited)
(Dollars in tables in millions except per share amounts unless otherwise indicated)

Amortized Cost Basis and Fair Value – Available-for-Sale Securities (AFS)

 
Amortized Cost Basis
 
Gross Unrealized Gains in AOCI
 
Gross Unrealized (Losses) in AOCI
 
Carrying Amount and Fair Value
As of June 30, 2018
 
 
 
 
 
 
 
U.S. Government & other government related
$
229

 
$
9

 
$

 
$
238

State or local housing agency
18