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Form 10-Q Federal Home Loan Bank For: Jun 30

August 9, 2022 12:32 PM EDT

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

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

For the quarterly period ended June 30, 2022

OR

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
fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
(Exact name of registrant as specified in its charter)
Federally chartered corporation36-6001019
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
433 West Van Buren Street, Suite 501S
Chicago,IL60607
(Address of principal executive offices)(Zip Code)
Registrant's telephone number, including area code: (312565-5700
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
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 every Interactive Data File required to be submitted 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 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes  No x

As of June 30, 2022, including mandatorily redeemable capital stock, registrant had 27,179,010 total outstanding shares of Class B Capital Stock.
1

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.Condensed 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

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago

PART I - FINANCIAL INFORMATION
Item 1.    Condensed Financial Statements
Condensed Statements of Condition (unaudited)
(U.S. Dollars in millions, except capital stock par value)
June 30,
2022
December 31,
2021
Assets
Cash and due from banks$49 $45 
Interest bearing deposits855 855 
Federal funds sold5,335 3,527 
Securities purchased under agreements to resell14,745 8,740 
Investment debt securities -
Trading, 616 and 645 pledged
951 954 
Available-for-sale, 18,639 and 22,340 amortized cost
18,625 22,706 
Held-to-maturity, 1,206 and 1,832 fair value
1,206 1,801 
Investment debt securities20,782 25,461 
Advances, 1,597 and 1,173 carried at fair value
52,811 48,049 
MPF Loans held in portfolio, net of (5) and (5) allowance for credit losses
9,953 9,843 
Derivative assets127 14 
Other assets, 86 and 104 carried at fair value
497 420 
net of (7) and (7) allowance for credit losses
Assets$105,154 $96,954 
Liabilities
Deposits -
Demand and overnight - noninterest bearing$127 $205 
Demand and overnight - interest bearing, 10 and 11 from other FHLBs
528 829 
Deposits655 1,034 
Consolidated obligations, net -
Discount notes, 865 and carried at fair value
31,525 24,563 
Bonds, 661 and 665 carried at fair value
64,519 63,373 
Consolidated obligations, net96,044 87,936 
Derivative liabilities152 32 
Affordable Housing Program assessment payable88 85 
Mandatorily redeemable capital stock273 247 
Other liabilities1,056 868 
Liabilities98,268 90,202 
Commitments and contingencies - see notes to the condensed financial statements
Capital
Class B1 activity stock, 17 and 14 million shares issued and outstanding
1,672 1,409 
Class B2 membership stock, 8 and 7 million shares issued and outstanding
773 740 
Capital stock - putable, $100 and $100 par value per share
2,445 2,149 
Retained earnings - unrestricted3,661 3,558 
Retained earnings - restricted740 703 
Retained earnings4,401 4,261 
Accumulated other comprehensive income (loss) (AOCI)40 342 
Capital6,886 6,752 
Liabilities and capital$105,154 $96,954 

The accompanying notes are an integral part of these condensed financial statements (unaudited).
3

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Condensed Statements of Income (unaudited)
(U.S. Dollars in millions)
Three months ended June 30,Six months ended June 30,
2022202120222021
Interest income$357 $225 $584 $417 
Interest expense203 72 275 154 
Net interest income154 153 309 263 
Provision for (reversal of) credit losses 1 1 1 
Net interest income after provision for (reversal of) credit losses154 152 308 262 
Noninterest income -
Trading securities1 (13)(2)(31)
Derivatives17 (13)46 7 
Instruments held under the fair value option(18)3 (46)(26)
MPF fees,6,6,12and13from other FHLBs9 13 19 25 
Other, net(4) (2)2 
Noninterest income (loss)5 (10)15 (23)
Noninterest expense -
Compensation and benefits28 25 57 53 
Nonpayroll operating expenses24 20 45 40 
Federal Housing Finance Agency and Office of Finance4 3 10 8 
Other, net2 7 4 15 
Noninterest expense58 55 116 116 
Income before assessments101 87 207 123 
Affordable Housing Program assessment10 9 21 13 
Net income$91 $78 $186 $110 


The accompanying notes are an integral part of these condensed financial statements (unaudited).
4

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Condensed Statements of Comprehensive Income (unaudited)
(U.S. Dollars in millions)
Three months ended June 30,Six months ended June 30,
2022202120222021
Net income$91 $78 $186 $110 
Other comprehensive income (loss) -
Net unrealized gain (loss) available-for-sale debt securities(162)54 (380)252 
Net unrealized gain (loss) cash flow hedges25 (9)81 32 
Postretirement plans 1 (3)(4)
Other comprehensive income (loss)(137)46 (302)280 
Comprehensive income$(46)$124 $(116)$390 


The accompanying notes are an integral part of these condensed financial statements (unaudited).
5

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Condensed Statements of Capital (unaudited)
(U.S. Dollars and shares in millions)


Capital Stock - Putable - B1 ActivityCapital Stock - Putable - B2 MembershipRetained Earnings
SharesValueSharesValueUnrestrictedRestrictedAOCITotal
March 31, 202213 $1,334 8 $798 $3,612 $722 $177 $6,643 
Comprehensive income73 18 (137)(46)
Issuance of capital stock6 560  16 576 
Repurchases of capital stock  (2)(262)(262)
Capital stock reclassed to mandatorily redeemable capital stock liability (1)  (1)
Transfers between classes of capital stock(2)(221)2 221 
Cash dividends - class B1 annualized rate and amount5.13 %(22)(22)
Cash dividends - class B2 annualized rate and amount2.13 %(2)(2)
Total change in period, excl. cumulative effect4 338  (25)49 18 (137)243 
June 30, 202217 $1,672 8 $773 $3,661 $740 $40 $6,886 
March 31, 202113 $1,312 7 $707 $3,428 $654 $441 $6,542 
Comprehensive income62 16 46 124 
Issuance of capital stock1 92  13 105 
Repurchases of capital stock  (1)(112)(112)
Capital stock reclassed to mandatorily redeemable capital stock liability   (5)(5)
Transfers between classes of capital stock(1)(121)1 121 
Cash dividends - class B1 annualized rate and amount5.00 %(19)(19)
Cash dividends - class B2 annualized rate and amount2.00 %(2)(2)
Total change in period, excl. cumulative effect (29) 17 41 16 46 91 
June 30, 202113 $1,283 7 $724 $3,469 $670 $487 $6,633 
6

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Capital Stock - Putable - B1 ActivityCapital Stock - Putable - B2 MembershipRetained Earnings
SharesValueSharesValueUnrestrictedRestrictedAOCITotal
December 31, 202114 $1,409 7 $740 $3,558 $703 $342 $6,752 
Comprehensive income149 37 (302)(116)
Issuance of capital stock9 847  16 863 
Repurchases of capital stock  (4)(510)(510)
Capital stock reclassed to mandatorily redeemable capital stock liability(1)(55) (2)(57)
Transfers between classes of capital stock(5)(529)5 529 
Cash dividends - class B1 annualized rate and amount5.07 %(42)(42)
Cash dividends - class B2 annualized rate and amount2.07 %(4)(4)
Total change in period excl. cumulative effect3 263 1 33 103 37 (302)134 
June 30, 202217 $1,672 8 $773 $3,661 $740 $40 $6,886 
December 31, 202013 $1,257 8 $753 $3,424 $648 $207 $6,289 
Comprehensive income88 22 280 390 
Issuance of capital stock2 260  13 273 
Repurchases of capital stock  (3)(270)(270)
Capital stock reclassed to mandatorily redeemable capital stock liability (1) (5)(6)
Transfers between classes of capital stock(2)(233)2 233 
Cash dividends - class B1 annualized rate and amount5.00 %(38)(38)
Cash dividends - class B2 annualized rate and amount2.00 %(5)(5)
Total change in period excl. cumulative effect 26 (1)(29)45 22 280 344 
June 30, 202113 $1,283 7 $724 $3,469 $670 $487 $6,633 


The accompanying notes are an integral part of these condensed financial statements (unaudited).
7

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Condensed Statements of Cash Flows (unaudited)
(U.S. Dollars in millions)
Six months ended June 30,20222021
OperatingNet cash provided by (used in) operating activities$1,065 $296 
InvestingNet change federal funds sold(1,808)(650)
Net change securities purchased under agreements to resell(6,005)(1,625)
Trading debt securities -
Proceeds from maturities and paydowns1 1,751 
Available-for-sale debt securities -
Sales 20 
Proceeds from maturities and paydowns4,046 259 
Purchases(1,887)(759)
Held-to-maturity debt securities -
Proceeds from maturities and paydowns2,156 1,239 
Purchases(1,561)(1,239)
Advances -
Principal collected243,750 247,898 
Issued(249,574)(247,793)
MPF Loans held in portfolio -
Principal collected750 1,890 
Purchases(886)(1,662)
Other investing activities(8)(7)
Net cash provided by (used in) investing activities(11,026)(678)
Financing
Net change deposits, (1) and from other FHLBs
(379)(161)
Discount notes -
Net proceeds from issuance435,410 300,754 
Payments for maturing and retiring(428,474)(303,665)
Consolidated obligation bonds -
Net proceeds from issuance12,781 21,133 
Payments for maturing and retiring(9,649)(20,704)
Capital stock -
Proceeds from issuance863 273 
Repurchases(510)(270)
Cash dividends paid(46)(43)
Other financing activities(31)(36)
Net cash provided by (used in) financing activities9,965 (2,719)
Net increase (decrease) in cash and due from banks4 (3,101)
Cash and due from banks at beginning of period45 3,541 
Cash and due from banks at end of period$49 $440 


The accompanying notes are an integral part of these condensed financial statements (unaudited).
8

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Notes to Condensed Financial Statements - (Unaudited)
(U.S. 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 condensed financial statements and the accompanying notes should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2021, included in our 2021 Annual Report on Form 10-K (2021 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”, "Downpayment Plus", "DPP", Downpayment Plus Advantage", "DPP Advantage", and "Community First" are federally registered trademarks of the Federal Home Loan Bank of Chicago.

Refer to the Glossary of Terms starting on page 60 for the definitions of certain terms used herein.

Use of Estimates and Assumptions

We are required to make estimates and assumptions when preparing our condensed financial statements in accordance with GAAP. The most significant of these estimates and assumptions applies to fair value measurements, which includes derivative instruments. Our actual results may differ from the results reported in our condensed 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 2021 Form 10-K.  The basis of presentation pertaining to our gross versus net presentation of derivative financial instruments also has not changed since we filed our 2021 Form 10-K. Refer to Note 1- Background and Basis of Presentation to the financial statements in our 2021 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.

Note 2 – Summary of Significant Accounting Policies

Our significant accounting policies adopted through December 31, 2021, can be found in Note 2 – Summary of Significant Accounting Policies to the financial statements in our 2021 Form 10-K including details on any cumulative effect adjustments. We have not yet adopted any significant new policies in 2022.


9

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Notes to Condensed Financial Statements - (Unaudited)
(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)

Note 3 – Recently Issued but Not Yet Adopted Accounting Standards

During March 2022, the Financial Accounting Standards Board (FASB) issued ASU 2022-01 Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. This ASU broadens the availability of fair value hedging to non-prepayable and prepayable portfolios. The guidance on hedging multiple layers in a closed portfolio is applied prospectively. The guidance on the accounting for fair value basis adjustments is applied on a modified retrospective basis. Further, an entity may reclassify debt securities from held-to-maturity to available for sale if it includes them in a closed portfolio that is hedged under the portfolio layer method. This ASU is effective for the Bank starting January 1, 2023, with early adoption permitted. The Bank is in the process of evaluating the impact of adoption of this ASU.

Also during March 2022, the FASB issued ASU 2022-02 Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures to eliminate the recognition and measurement guidance for troubled debt restructurings for creditors that have adopted Current Expected Credit Losses (CECL) methodology. The ASU also requires enhanced disclosures about loan modifications for borrowers experiencing financial difficulty and requires the presentation of gross write-offs by year of origination. This ASU is effective starting January 1, 2023, with early adoption permitted. The Bank is evaluating the impact of adoption of this ASU.
10

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Notes to Condensed Financial Statements - (Unaudited)
(U.S. 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,
2022202120222021
Interest income -
Trading$ $13 $ $34 
Available-for-sale interest income81 74 109 95 
Available-for-sale prepayment fees5  41  
Available-for-sale86 74 150 95 
Held-to-maturity7 7 14 15 
Investment debt securities93 94 164 144 
Advances interest income168 60 245 131 
Advances prepayment fees1 7 11 12 
Advances169 67 256 143 
MPF Loans held in portfolio69 60 134 123 
Federal funds sold15 1 17 2 
Securities purchased under agreements to resell6  7 1 
Interest earning deposits4 1 5 1 
Other1 2 1 3 
Interest income357 225 584 417 
Interest expense -
Consolidated obligations -
Discount notes51 10 63 25 
Bonds147 59 203 123 
Other5 3 9 6 
Interest expense203 72 275 154 
Net interest income$154 $153 $309 $263 

11

fhlbc-20220630_g1.gif Federal Home Loan Bank of Chicago
Notes to Condensed Financial Statements - (Unaudited)
(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Note 5 – Investment Debt Securities

We classify debt 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 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 mortgage-backed securities (MBS) - issued by Fannie Mae and Freddie Mac.
Government guaranteed MBS.
State or local housing agency obligations.

We have no allowance for credit losses on our investment debt securities and we have elected to exclude accrued interest receivable from the amortized cost in the following AFS and HTM tables. Prior to 2022, we included accrued interest in the carrying value of our AFS securities. See Note 8 - Allowance for Credit Losses for further details on these amounts.

Pledged Collateral

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

Trading Debt Securities

The following table presents the fair value of our trading debt securities.

As ofJune 30, 2022December 31, 2021
U.S. Government & other government related$947 $948 
MBS
GSE4