To Our Members:

We are pleased to announce that, based on our preliminary financial results for the second quarter of 2023, the Board of Directors of the Federal Home Loan Bank of Chicago (FHLBank Chicago) declared a dividend of 8% (annualized) for Class B1 activity stock. FHLBank Chicago pays a higher dividend per share on your activity stock compared to membership stock to recognize your support of the cooperative through the use of our products*. We expect to maintain a dividend of at least 8% (annualized) for Class B1 activity stock for the third and fourth quarters of 2023, based on current projections and assumptions regarding our financial condition. We are providing this information to assist you in planning your activity with us.

Based on our preliminary financial results for the second quarter of 2023, the Board of Directors of FHLBank Chicago declared a dividend of 5% (annualized) for Class B2 membership stock.

For second quarter 2023, we expect to report net income of $167 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.

Telling Our Story

Many of you participated in the Federal Housing Finance Agency (FHFA) review of the FHLBank System, which concluded this past March. We expect the FHFA’s report will be released this September and will include recommendations focused on our important role in support of affordable housing and community development. Throughout this process, we remained committed on furthering our mission to promote homeownership and community development by serving you and your communities, and we look forward to hearing the FHFA’s recommendations.

In our recently published inaugural FHLBank Chicago 2022 Impact Report and the FHLBank System’s 2022 Corporate Responsibility Report, we highlighted our commitment through your stories that showcase innovation, adaptability, and resilience in service of our mission to housing, small business lending, and community development in the diverse communities our members serve across the country. I encourage you to not only read these reports but also continue to share how you are making a difference in your community with us. Visit fhlbc.com and share those moments with us so we can celebrate and elevate the great accomplishments we make together.

Supporting Housing and Your Communities

Homeownership can represent an unparalled opportunity for wealth-building for families and communities. However, rising interest rates and housing costs increasingly render homeownership out of reach for many very low to moderate-income households throughout Illinois and Wisconsin. Given the high-cost environment, we’ve seen record usage of our Downpayment Plus^® (DPP^®) program so far in 2023, which offers down payment and closing cost assistance to help members’ income-eligible customers achieve homeownership. During the first six months of 2023, we have awarded $22 million in down payment assistance and have set aside $21 million to be awarded in the second half of the year. Aside from down payment assistance, many homebuyers face barriers beyond cost, including a need for financial literacy, credit repair, and other homebuyer readiness support. Homebuyer education and counseling helps break down these barriers to facilitate sustainable homeownership. To this end, we have committed $1 million each to both the Illinois Housing Development Authority (IHDA) and Wisconsin Housing and Economic Development Authority (WHEDA) in 2023 to assist housing counseling agencies in Illinois and Wisconsin in expanding services to minority and very low to moderate-income homebuyers in need. This will be administered through our Community First^® Housing Counseling Resource Program. 

Expanding Our Value Proposition

Rising funding costs and compressed net interest margins continue to be a couple of the biggest challenges facing our membership. Announced in April 2023, our Savings Amidst Volatile Environment (S.A.V.E.) Advance gives members a one-time opportunity to receive a 10 basis point discount on advances up to $5 million with more flexibility around structure, tenor, and capitalization requirements than previous advance specials. This was created as a way to reduce the stress caused by a volatile economic environment and pass the benefit on to your customers. If you haven’t already, your institution can execute this special until October 31, 2023.

Staying Engaged

We want to take a moment to remind you of our upcoming 2023 Director Election taking place this year and the importance of letting your voice be heard through voting. In September, we will send ballots to the officer in your organization designated for voting in the election. We recommend that you white list “noreply@directvote.net” in your email system so that the voting ballot is not inadvertently blocked.

Lastly, it was great seeing many of you at our recent FHLBank Insurance Conference this past June in Chicago. We look forward to seeing many of you at our FHLBank Chicago Management Conference this August 3–4. We hope you find these marquee events an excellent value-add to your membership with us.

As always, thank you for your membership in the Federal Home Loan Bank of Chicago.

Best regards,

Michael Ericson
President and CEO

Second Quarter Dividend and Financial Highlights

On July 27, 2023, the Board of Directors of FHLBank Chicago declared a dividend of 8% (annualized) for Class B1 activity stock and a dividend of 5% (annualized) for Class B2 membership stock based on preliminary financial results for the second quarter of 2023. The dividend for the second quarter of 2023 will be paid by crediting your DID account on August 15, 2023. 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 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 $79.6 billion at June 30, 2023, compared to $66.3 billion at December 31, 2022, attributable to increased borrowings from our depository institutions.
• MPF loans held in portfolio remained steady at $10.5 billion at June 30, 2023, compared to $10.2 billion at December 31, 2022.
• Total investment securities increased to $25.9 billion at June 30, 2023, compared to $22.1 billion at December 31, 2022, primarily attributable to an increase in investment in GSE mortgage-backed securities and U.S. treasuries.
• Total liquid assets decreased to $19.9 billion at June 30, 2023, compared to $27.5 billion at December 31, 2022. We intend to maintain a sufficient pool of liquidity to support anticipated member demand for advances and letters of credit.
• Total assets increased to $136.7 billion as of June 30, 2023, compared to $126.9 billion as of December 31, 2022.
• Letters of credit commitments increased to $13.1 billion at June 30, 2023, compared to $10.8 billion at December 31, 2022, attributable to increased usage from our members for public unit deposits.
• We recorded net income of $167 million in the second quarter of 2023, up $76 million compared to the second quarter of 2022. The increase was primarily due to increased returns on our liquid assets as interest rates rose compared to the prior period.
• In the second quarter of 2023, noninterest income was $0 million, a decrease of $5 million when compared to a $5 million gain for the second quarter of 2022, primarily driven by unrealized losses in our trading portfolio.
• We remained in compliance with all of our regulatory capital requirements as of June 30, 2023.

*The higher dividend received on Class B1 activity stock has the effect of enhancing the benefits of using the Bank by lowering the cost on advances by an estimated 13.07 basis points (bps), reducing the fee on letters of credit by an estimated 0.29 bps, and improving the return on Mortgage Partnership Finance® (MPF®) Traditional loans sold by an estimated 7.50 bps. (These estimates reflect the Class B1 activity stock dividend as a reduction to the assumed advance rate or letters of credit (LC) fee, or as an enhancement to the MPF Traditional products average yearly return, based on a dividend rate of 8% for Q2 2023, an opportunity cost of buying stock (estimated to be 4.987% for advances and LCs, the average Effective Federal Funds Rate during Q2 2023, and 4.13% for MPF Traditional products, the 5-Year Treasury yield as of 6/30/2023), and 4.50%, 0.10%, and 2.00% capitalization, for advances, LCs, or MPF Traditional products, respectively. This is for illustration purposes only.)

Forward-Looking Information: This letter contains forward-looking statements which are based upon our current expectations and speak only as of the date hereof. All statements other than statements of historical fact are “forward-looking statements,” including any projections or guidance as to dividends or other financial items; any statements of the plans, strategies, and objectives for future operations; any statements of belief; and any statements of assumptions underlying any of the foregoing. These statements may use forward-looking terms, such as “anticipates,” “believes,” “expects,” “could,” “plans,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements involve risks or uncertainties, that actual results could differ materially from those expressed or implied in these forward-looking statements, and that actual events could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, legislative and regulatory developments that affect us or members, instability in the credit and debt markets, economic conditions including adverse employment trends, prolonged inflation, or recession, maintaining compliance with regulatory and statutory requirements (including relating to our dividend payments and retained earnings), any decrease in our levels of business which may negatively impact our results of operations or financial condition, the reliability of our projections, assumptions, and models on future financial performance and condition,  the impact of geopolitical uncertainties or conflicts, changes in mortgage interest rates and prepayment speeds on mortgage assets, our ability to execute our business model and to pay future dividends (including enhanced dividends on activity stock), our ability to meet required conditions to repurchase or redeem excess capital stock from members, including maintaining compliance with our minimum regulatory capital requirements and determining our financial condition is sound enough to support such repurchases and redemptions, our ability to continue to offer the Reduced Capitalization Advance Program, our ability to implement product enhancements and new products, the impacts of changes to Federal Home Loan Bank membership requirements, capital requirements and guidance, and liquidity requirements and guidance by the Federal Housing Finance Agency, the loss of members through mergers and consolidations, our ability to retain and recruit qualified personnel, our ability to protect the security of our information systems and manage any failures, interruptions, or breaches, uncertainties relating to the phase-out of the London Interbank Offered Rate (LIBOR), and the risk factors set forth in our periodic filings with the Securities and Exchange Commission, which are available on our website at fhlbc.com and through the SEC’s reporting website. We assume no obligation to update any forward-looking statements made in this letter. “Community First,” “Downpayment Plus,” “DPP,” “Mortgage Partnership Finance,” “MPF,” and “MPF Xtra” are registered trademarks of the Federal Home Loan Bank of Chicago.