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, 2021March 31, 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
Federal 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.) | |
| 433 West Van Buren Street, Suite 501S | | | |
| Chicago, | IL | | 60607 | |
| (Address of principal executive offices) | | (Zip Code) | |
Registrant's telephone number, including area code: (312) 565-5700
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading 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 filer | ☐ | | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | | Smaller 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, 2021,March 31, 2022, including mandatorily redeemable capital stock, registrant had 22,550,01524,320,295 total outstanding shares of Class B Capital Stock.
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. | | |
| | |
| | |
Federal Home Loan Bank of Chicago
PART I - FINANCIAL INFORMATION
Item 1. Condensed Financial Statements.Statements
Condensed Statements of Condition (unaudited)
(U.S. Dollars in millions, except capital stock par value)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
Assets | | | |
Cash and due from banks | $ | 440 | | | $ | 3,541 | |
Interest bearing deposits | 855 | | | 855 | |
Federal Funds sold | 4,775 | | | 4,125 | |
Securities purchased under agreements to resell | 11,745 | | | 10,120 | |
Investment debt securities - | | | |
Trading, | 582 | and | 1,292 | pledged | 2,830 | | | 4,621 | |
Available-for-sale, | 18,346 | and | 18,145 | amortized cost | 18,890 | | | 18,437 | |
Held-to-maturity, | 1,536 | and | 1,549 | fair value | 1,491 | | | 1,491 | |
Investment debt securities | 23,211 | | | 24,549 | |
Advances, | 1,209 | | and | 1,315 | carried at fair value | 46,270 | | | 46,695 | |
MPF Loans held in portfolio, net of | (3) | and | (3) | allowance for credit losses | 9,759 | | | 10,038 | |
Derivative assets | 14 | | | 5 | |
| | | |
Other assets, | 108 | | and | 105 | | carried at fair value | | | |
net of | (7) | | and | (7) | | allowance for credit losses | 425 | | | 428 | |
Assets | $ | 97,494 | | | $ | 100,356 | |
| | | |
Liabilities | | | |
Deposits - | | | |
Demand and overnight - noninterest bearing | $ | 259 | | | $ | 394 | |
Demand and overnight - interest bearing, | 17 | and | 18 | from other FHLBs | 864 | | | 875 | |
Term deposits - interest bearing | 0 | | | 15 | |
Deposits | 1,123 | | | 1,284 | |
Consolidated obligations, net - | | | |
Discount notes, | 0 | | and | 2,000 | carried at fair value | 45,728 | | | 48,643 | |
Bonds, | 342 | and | 1,844 | carried at fair value | 42,922 | | | 42,670 | |
Consolidated obligations, net | 88,650 | | | 91,313 | |
Derivative liabilities | 88 | | | 691 | |
Affordable Housing Program assessment payable | 82 | | | 89 | |
| | | |
Mandatorily redeemable capital stock | 248 | | | 279 | |
Other liabilities | 670 | | | 411 | |
Liabilities | 90,861 | | | 94,067 | |
Commitments and contingencies - see notes to the financial statements | 0 | | 0 |
Capital | | | |
| | | |
Class B1 activity stock, | 13 | and | 13 | million shares issued and outstanding | 1,283 | | | 1,257 | |
Class B2 membership stock, | 7 | and | 8 | million shares issued and outstanding | 724 | | | 753 | |
Capital stock - putable, | $100 | and | $100 | par value per share | 2,007 | | | 2,010 | |
Retained earnings - unrestricted | 3,469 | | | 3,424 | |
Retained earnings - restricted | 670 | | | 648 | |
Retained earnings | 4,139 | | | 4,072 | |
Accumulated other comprehensive income (loss) (AOCI) | 487 | | | 207 | |
Capital | 6,633 | | | 6,289 | |
Liabilities and capital | $ | 97,494 | | | $ | 100,356 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | December 31, 2021 | | |
Assets | | | | | |
Cash and due from banks | $ | 31 | | | $ | 45 | | | |
Interest bearing deposits | 855 | | | 855 | | | |
Federal funds sold | 4,431 | | | 3,527 | | | |
Securities purchased under agreements to resell | 11,745 | | | 8,740 | | | |
Investment debt securities - | | | | | |
Trading, 623 and 645 pledged | 952 | | | 954 | | | |
| | | | | |
Available-for-sale, 21,316 and 22,340 amortized cost | 21,464 | | | 22,706 | | | |
| | | | | |
Held-to-maturity, 665 and 1,832 fair value | 655 | | | 1,801 | | | |
| | | | | |
Investment debt securities | 23,071 | | | 25,461 | | | |
Advances, 1,107 and 1,173 carried at fair value | 46,907 | | | 48,049 | | | |
| | | | | |
MPF Loans held in portfolio, net of (5) and (5) allowance for credit losses | 9,800 | | | 9,843 | | | |
| | | | | |
Derivative assets | 61 | | | 14 | | | |
| | | | | |
Other assets, 103 and 104 carried at fair value | 483 | | | 420 | | | |
| | | | | |
net of (7) and (7) allowance for credit losses | | | | | |
| | | | | |
Assets | $ | 97,384 | | | $ | 96,954 | | | |
| | | | | |
Liabilities | | | | | |
Deposits - | | | | | |
Demand and overnight - noninterest bearing | $ | 143 | | | $ | 205 | | | |
Demand and overnight - interest bearing, 12 and 11 from other FHLBs | 564 | | | 829 | | | |
| | | | | |
| | | | | |
Deposits | 707 | | | 1,034 | | | |
Consolidated obligations, net - | | | | | |
Discount notes, — and — carried at fair value | 26,463 | | | 24,563 | | | |
| | | | | |
Bonds, 652 and 665 carried at fair value | 62,222 | | | 63,373 | | | |
| | | | | |
Consolidated obligations, net | 88,685 | | | 87,936 | | | |
Derivative liabilities | 71 | | | 32 | | | |
Affordable Housing Program assessment payable | 87 | | | 85 | | | |
| | | | | |
Mandatorily redeemable capital stock | 300 | | | 247 | | | |
Other liabilities | 891 | | | 868 | | | |
Liabilities | 90,741 | | | 90,202 | | | |
Commitments and contingencies - see notes to the condensed financial statements | 0 | | 0 | | |
Capital | | | | | |
| | | | | |
Class B1 activity stock, 13 and 14 million shares issued and outstanding | 1,334 | | | 1,409 | | | |
| | | | | |
Class B2 membership stock, 8 and 7 million shares issued and outstanding | 798 | | | 740 | | | |
| | | | | |
Capital stock - putable, $100 and $100 par value per share | 2,132 | | | 2,149 | | | |
| | | | | |
Retained earnings - unrestricted | 3,612 | | | 3,558 | | | |
Retained earnings - restricted | 722 | | | 703 | | | |
Retained earnings | 4,334 | | | 4,261 | | | |
Accumulated other comprehensive income (loss) (AOCI) | 177 | | | 342 | | | |
Capital | 6,643 | | | 6,752 | | | |
Liabilities and capital | $ | 97,384 | | | $ | 96,954 | | | |
The accompanying notes are an integral part of these condensed financial statements (unaudited).
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, | | | | | Three months ended March 31, | |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 |
Interest income | Interest income | | $ | 225 | | | $ | 347 | | | $ | 417 | | | $ | 912 | | | Interest income | | | $ | 227 | | | $ | 192 | | |
Interest expense | Interest expense | | 72 | | | 209 | | | 154 | | | 628 | | | Interest expense | | | 72 | | | 82 | | |
Net interest income | Net interest income | | 153 | | | 138 | | | 263 | | | 284 | | | Net interest income | | | 155 | | | 110 | | |
Provision for (reversal of) credit losses | Provision for (reversal of) credit losses | | 1 | | | 4 | | | 1 | | | 6 | | | Provision for (reversal of) credit losses | | | 1 | | | — | | |
Net interest income after provision for (reversal of) credit losses | Net interest income after provision for (reversal of) credit losses | | 152 | | | 134 | | | 262 | | | 278 | | | Net interest income after provision for (reversal of) credit losses | | | 154 | | | 110 | | |
| Noninterest income - | Noninterest income - | | | Noninterest income - | | | | |
Trading securities | Trading securities | | (13) | | | (25) | | | (31) | | | 62 | | | Trading securities | | | (3) | | | (18) | | |
Derivatives and hedging activities | | (13) | | | (21) | | | 7 | | | (159) | | | |
Derivatives | | Derivatives | | | 29 | | | 20 | | |
Instruments held under the fair value option | Instruments held under the fair value option | | 3 | | | 36 | | | (26) | | | 76 | | | Instruments held under the fair value option | | | (28) | | | (29) | | |
MPF fees, | | MPF fees, | | 6 | | and | 7 | | from other FHLBs | | | 10 | | | 12 | | |
| MPF fees, | 6 | , | 8 | , | 13 | and | 16 | from other FHLBs | | 13 | | | 15 | | | 25 | | | 25 | | | |
Other, net | Other, net | | 0 | | | 4 | | | 2 | | | 7 | | | Other, net | | | 2 | | | 2 | | |
Noninterest income | | (10) | | | 9 | | | (23) | | | 11 | | | |
Noninterest income (loss) | | Noninterest income (loss) | | | 10 | | | (13) | | |
| Noninterest expense - | Noninterest expense - | | | Noninterest expense - | | | | |
Compensation and benefits | Compensation and benefits | | 25 | | | 35 | | | 53 | | | 71 | | | Compensation and benefits | | | 29 | | | 28 | | |
Nonpayroll operating expenses | Nonpayroll operating expenses | | 20 | | | 26 | | | 40 | | | 46 | | | Nonpayroll operating expenses | | | 21 | | | 20 | | |
COVID-19 relief program | | 3 | | | 19 | | | 3 | | | 19 | | | |
| Federal Housing Finance Agency and Office of Finance | | Federal Housing Finance Agency and Office of Finance | | | 6 | | | 5 | | |
Other, net | Other, net | | 7 | | | 5 | | | 20 | | | 6 | | | Other, net | | | 2 | | | 8 | | |
Noninterest expense | Noninterest expense | | 55 | | | 85 | | | 116 | | | 142 | | | Noninterest expense | | | 58 | | | 61 | | |
| Income before assessments | Income before assessments | | 87 | | | 58 | | | 123 | | | 147 | | | Income before assessments | | | 106 | | | 36 | | |
| Affordable Housing Program | | 9 | | | 6 | | | 13 | | | 15 | | | |
Affordable Housing Program assessment | | Affordable Housing Program assessment | | | 11 | | | 4 | | |
| Net income | Net income | | $ | 78 | | | $ | 52 | | | $ | 110 | | | $ | 132 | | | Net income | | | $ | 95 | | | $ | 32 | | |
The accompanying notes are an integral part of these condensed financial statements (unaudited).
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, | | | | Three months ended March 31, | |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
Net income | Net income | | $ | 78 | | | $ | 52 | | | $ | 110 | | | $ | 132 | | | Net income | | | $ | 95 | | | $ | 32 | | |
| Other comprehensive income (loss) - | Other comprehensive income (loss) - | | | Other comprehensive income (loss) - | | | | |
Net unrealized gain (loss) available-for-sale debt securities | Net unrealized gain (loss) available-for-sale debt securities | | 54 | | | 347 | | | 252 | | | (284) | | | Net unrealized gain (loss) available-for-sale debt securities | | | (218) | | | 198 | | |
Noncredit OTTI held-to-maturity debt securities | | 0 | | | 5 | | | 0 | | | 9 | | | |
Net unrealized gain (loss) cash flow hedges | Net unrealized gain (loss) cash flow hedges | | (9) | | | (4) | | | 32�� | | | (48) | | | Net unrealized gain (loss) cash flow hedges | | | 56 | | | 41 | | |
Postretirement plans | Postretirement plans | | 1 | | | 0 | | | (4) | | | (11) | | | Postretirement plans | | | (3) | | | (5) | | |
Other comprehensive income (loss) | Other comprehensive income (loss) | | 46 | | | 348 | | | 280 | | | (334) | | | Other comprehensive income (loss) | | | (165) | | | 234 | | |
| Comprehensive income | Comprehensive income | | $ | 124 | | | $ | 400 | | | $ | 390 | | | $ | (202) | | | Comprehensive income | | | $ | (70) | | | $ | 266 | | |
The accompanying notes are an integral part of these condensed financial statements (unaudited).
Federal Home Loan Bank of Chicago Condensed Statements of Capital (unaudited)
(U.S. Dollars and shares in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Capital Stock - Putable - B1 Activity | | Capital Stock - Putable - B2 Membership | | | | Retained Earnings | | | | | | |
| Shares | | Value | | Shares | | Value | | | | Unrestricted | | Restricted | | | | AOCI | | Total |
March 31, 2021 | 13 | | | $ | 1,312 | | | 7 | | | $ | 707 | | | | | $ | 3,428 | | | $ | 654 | | | | | $ | 441 | | | $ | 6,542 | |
| | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | 62 | | | 16 | | | | | 46 | | | 124 | |
Issuance of capital stock | 1 | | | 92 | | | 0 | | | 13 | | | | | | | | | | | | | 105 | |
Repurchases of capital stock | 0 | | | 0 | | | (1) | | | (112) | | | | | | | | | | | | | (112) | |
Capital stock reclassed to mandatorily redeemable capital stock liability | 0 | | | 0 | | | 0 | | | (5) | | | | | | | | | | | | | (5) | |
Transfers between classes of capital stock | (1) | | | (121) | | | 1 | | | 121 | | | | | | | | | | | | | |
Cash dividends - class B1 | | | | | | | | | | | (19) | | | | | | | | | (19) | |
Class B1 annualized rate | | | 5.00 | % | | | | | | | | | | | | | | | | |
Cash dividends - class B2 | | | | | | | | | | | (2) | | | | | | | | | (2) | |
Class B2 annualized rate | | | | | | | 2.00 | % | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Total change in period, excl. cumulative effect | 0 | | | (29) | | | 0 | | | 17 | | | | | 41 | | | 16 | | | | | 46 | | | 91 | |
June 30, 2021 | 13 | | | $ | 1,283 | | | 7 | | | $ | 724 | | | | | $ | 3,469 | | | $ | 670 | | | | | $ | 487 | | | $ | 6,633 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
March 31, 2020 | 15 | | | $ | 1,528 | | | 4 | | | $ | 426 | | | | | $ | 3,233 | | | $ | 589 | | | | | $ | (711) | | | $ | 5,065 | |
| | | | | | | | | | | | | | | | | | | |
Comprehensive income | | | | | | | | | | | 42 | | | 10 | | | | | 348 | | | 400 | |
Issuance of capital stock | 4 | | | 405 | | | 0 | | | 18 | | | | | | | | | | | | | 423 | |
Repurchases of capital stock | 0 | | | 0 | | | (5) | | | (540) | | | | | | | | | | | | | (540) | |
| | | | | | | | | | | | | | | | | | | |
Transfers between classes of capital stock | (6) | | | (610) | | | 6 | | | 610 | | | | | | | | | | | | | |
Partial recovery of prior capital distribution to FICO - see Note 11 | | | | | | | | | | | 19 | | | | | | | | | 19 | |
Cash dividends - class B1 | | | | | | | | | | | (18) | | | | | | | | | (18) | |
Class B1 annualized rate | | | 5.00 | % | | | | | | | | | | | | | | | | |
Cash dividends - class B2 | | | | | | | | | | | (2) | | | | | | | | | (2) | |
Class B2 annualized rate | | | | | | | 2.25 | % | | | | | | | | | | | | |
Total change in period, excl. cumulative effect | (2) | | | (205) | | | 1 | | | 88 | | | | | 41 | | | 10 | | | | | 348 | | | 282 | |
June 30, 2020 | 13 | | | $ | 1,323 | | | 5 | | | $ | 514 | | | | | $ | 3,274 | | | $ | 599 | | | | | $ | (363) | | | $ | 5,347 | |
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
Federal Home Loan Bank of Chicago | | Capital Stock - Putable - B1 Activity | | Capital Stock - Putable - B2 Membership | | | Retained Earnings | | | | |
| Shares | | Value | | Shares | | Value | | | Unrestricted | | Restricted | | | AOCI | | Total | |
December 31, 2020 | 13 | | | $ | 1,257 | | | 8 | | | $ | 753 | | | | $ | 3,424 | | | $ | 648 | | | | $ | 207 | | | $ | 6,289 | | |
| Comprehensive income | | | 88 | | | 22 | | | | 280 | | | 390 | | |
Issuance of capital stock | 2 | | | 260 | | | 0 | | | 13 | | | | | | | 273 | | |
Repurchases of capital stock | 0 | | | 0 | | | (3) | | | (270) | | | | | | | (270) | | |
Capital stock reclassed to mandatorily redeemable capital stock liability | 0 | | | (1) | | | 0 | | | (5) | | | | | | | (6) | | |
Transfers between classes of capital stock | (2) | | | (233) | | | 2 | | | 233 | | | | | | | |
Cash dividends - class B1 | | | (38) | | | | | (38) | | |
Class B1 annualized rate | | 5.00 | % | | | | | | |
Cash dividends - class B2 | | | (5) | | | | | (5) | | |
Class B2 annualized rate | | 2.00 | % | | | | | | |
| Total change in period excl. cumulative effect | 0 | | | 26 | | | (1) | | | (29) | | | | 45 | | | 22 | | | | 280 | | | 344 | | |
June 30, 2021 | 13 | | | $ | 1,283 | | | 7 | | | $ | 724 | | | | $ | 3,469 | | | $ | 670 | | | | $ | 487 | | | $ | 6,633 | | |
| | December 31, 2019 | 13 | | | $ | 1,337 | | | 4 | | | $ | 376 | | | | $ | 3,197 | | | $ | 573 | | | | $ | (29) | | | $ | 5,454 | | |
Cumulative effect adjustment - see Note 2 | | | (7) | | | | | (7) | | |
Comprehensive income | | | 106 | | | 26 | | | | (334) | | | (202) | | |
Issuance of capital stock | 11 | | | 1,133 | | | 0 | | | 18 | | | | | | | 1,151 | | |
Repurchases of capital stock | 0 | | | 0 | | | (10) | | | (1,026) | | | | | | | (1,026) | | |
Capital stock reclassed to mandatorily redeemable capital stock liability | 0 | | | 0 | | | 0 | | | (1) | | | | | | | (1) | | |
Transfers between classes of capital stock | (11) | | | (1,147) | | | 11 | | | 1,147 | | | | | | | |
Partial recovery of prior capital distribution to FICO - see Note 11 | | | 19 | | | | | 19 | | |
Cash dividends - class B1 | | | (38) | | | | | (38) | | |
Class B1 annualized rate | | 5.00 | % | | | | | | |
Cash dividends - class B2 | | | (3) | | | | | (3) | | |
Class B2 annualized rate | | 2.25 | % | | | | | | |
Total change in period excl. cumulative effect | 0 | | | (14) | | | 1 | | | 138 | | | | 84 | | | 26 | | | | (334) | | | (100) | | |
June 30, 2020 | 13 | | | $ | 1,323 | | | 5 | | | $ | 514 | | | | $ | 3,274 | | | $ | 599 | | | | $ | (363) | | | $ | 5,347 | | |
| | | | Capital Stock - Putable - B1 Activity | | Capital Stock - Putable - B2 Membership | | | Retained Earnings | | | |
| | | Shares | | Value | | Shares | | Value | | | Unrestricted | | Restricted | | | AOCI | | Total |
| | December 31, 2021 | | December 31, 2021 | | 14 | | | $ | 1,409 | | | 7 | | | $ | 740 | | | | $ | 3,558 | | | $ | 703 | | | | $ | 342 | | | $ | 6,752 | |
Comprehensive income | | Comprehensive income | | | 76 | | | 19 | | | | (165) | | | (70) | |
Issuance of capital stock | | Issuance of capital stock | | 3 | | | 287 | | | — | | | — | | | | | | | 287 | |
Repurchases of capital stock | | Repurchases of capital stock | | — | | | — | | | (2) | | | (248) | | | | | | | (248) | |
Capital stock reclassed to mandatorily redeemable capital stock liability | | Capital stock reclassed to mandatorily redeemable capital stock liability | | (1) | | | (54) | | | — | | | (2) | | | | | | | (56) | |
Transfers between classes of capital stock | | Transfers between classes of capital stock | | (3) | | | (308) | | | 3 | | | 308 | | | | | | |
Cash dividends - class B1 annualized rate and amount | | Cash dividends - class B1 annualized rate and amount | | 5.00 | % | | | (20) | | | | | (20) | |
Cash dividends - class B2 annualized rate and amount | | Cash dividends - class B2 annualized rate and amount | | 2.00 | % | | | (2) | | | | | (2) | |
| Total change in period excl. cumulative effect | | Total change in period excl. cumulative effect | | (1) | | | (75) | | | 1 | | | 58 | | | | 54 | | | 19 | | | | (165) | | | (109) | |
March 31, 2022 | | March 31, 2022 | | 13 | | | $ | 1,334 | | | 8 | | | $ | 798 | | | | $ | 3,612 | | | $ | 722 | | | | $ | 177 | | | $ | 6,643 | |
| | December 31, 2020 | | December 31, 2020 | | 13 | | | $ | 1,257 | | | 8 | | | $ | 753 | | | | $ | 3,424 | | | $ | 648 | | | | $ | 207 | | | $ | 6,289 | |
Comprehensive income | | Comprehensive income | | | 26 | | | 6 | | | | 234 | | | 266 | |
Issuance of capital stock | | Issuance of capital stock | | 1 | | | 168 | | | — | | | — | | | | | | | 168 | |
Repurchases of capital stock | | Repurchases of capital stock | | — | | | — | | | (2) | | | (158) | | | | | | | (158) | |
Capital stock reclassed to mandatorily redeemable capital stock liability | | Capital stock reclassed to mandatorily redeemable capital stock liability | | — | | | (1) | | | — | | | — | | | | | | | (1) | |
Transfers between classes of capital stock | | Transfers between classes of capital stock | | (1) | | | (112) | | | 1 | | | 112 | | | | | | |
Cash dividends - class B1 annualized rate and amount | | Cash dividends - class B1 annualized rate and amount | | 5.00 | % | | | (19) | | | | | (19) | |
Cash dividends - class B2 annualized rate and amount | | Cash dividends - class B2 annualized rate and amount | | 2.00 | % | | | (3) | | | | | (3) | |
Total change in period excl. cumulative effect | | Total change in period excl. cumulative effect | | — | | | 55 | | | (1) | | | (46) | | | | 4 | | | 6 | | | | 234 | | | 253 | |
March 31, 2021 | | March 31, 2021 | | 13 | | | $ | 1,312 | | | 7 | | | $ | 707 | | | | $ | 3,428 | | | $ | 654 | | | | $ | 441 | | | $ | 6,542 | |
|
The accompanying notes are an integral part of these condensed financial statements (unaudited).
Federal Home Loan Bank of Chicago Condensed Statements of Cash Flows (unaudited)
(U.S. Dollars in millions)
| | | Six months ended June 30, | | 2021 | | 2020 | | | Three months ended March 31, | | 2022 | | 2021 | |
Operating | Operating | Net cash provided by (used in) operating activities | | $ | 296 | | | $ | (2,013) | | | Operating | Net cash provided by (used in) operating activities | | $ | 467 | | | $ | 956 | | |
| Investing | Investing | Net change interest bearing deposits | | 0 | | | 425 | | | Investing | Net change federal funds sold | | (904) | | | (2,390) | | |
| Net change Federal Funds sold | | (650) | | | 2,385 | | | |
| | Net change securities purchased under agreements to resell | | (1,625) | | | 3,250 | | | | Net change securities purchased under agreements to resell | | (3,005) | | | 6,125 | | |
| | | Trading debt securities - | | | | Trading debt securities - | | |
| | Sales | | 0 | | | 1,502 | | | |
| | Proceeds from maturities and paydowns | | 1,751 | | | 252 | | | | Proceeds from maturities and paydowns | | — | | | 1,450 | | |
| | Purchases | | 0 | | | (3,025) | | | |
| | Available-for-sale debt securities - | | | | Available-for-sale debt securities - | | |
| | Sales | | 20 | | | 0 | | | |
| | Proceeds from maturities and paydowns | | 259 | | | 609 | | | | Proceeds from maturities and paydowns | | 1,091 | | | 143 | | |
| | Purchases | | (759) | | | (2,760) | | | | Purchases | | (1,076) | | | (328) | | |
| | Held-to-maturity debt securities - | | | | Held-to-maturity debt securities - | | |
| | Proceeds from maturities and paydowns | | 1,239 | | | 1,519 | | | | Proceeds from maturities and paydowns | | 2,113 | | | 1,159 | | |
| | Purchases | | (1,239) | | | (786) | | | | Purchases | | (967) | | | (613) | | |
| | Advances - | | | | Advances - | | |
| | Principal collected | | 247,898 | | | 600,688 | | | | Principal collected | | 88,038 | | | 99,013 | | |
| | Issued | | (247,793) | | | (598,601) | | | | Issued | | (87,614) | | | (99,692) | | |
| | MPF Loans held in portfolio - | | | | MPF Loans held in portfolio - | | |
| | Principal collected | | 1,890 | | | 1,716 | | | | Principal collected | | 416 | | | 991 | | |
| | Purchases | | (1,662) | | | (2,695) | | | | Purchases | | (387) | | | (879) | | |
| | Other investing activities | | (7) | | | (9) | | | | Other investing activities | | (4) | | | (3) | | |
| | Net cash provided by (used in) investing activities | | (678) | | | 4,470 | | | | Net cash provided by (used in) investing activities | | (2,299) | | | 4,976 | | |
Financing | Financing | Net change deposits, | 0 | and | 10 | from other FHLBs | | (161) | | | 618 | | | Financing | Net change deposits, — and 2 from other FHLBs | | (327) | | | (108) | | |
| | | Discount notes - | | | |
| | Net proceeds from issuance | | 300,754 | | | 323,650 | | | | Discount notes - | | |
| | Payments for maturing and retiring | | (303,665) | | | (327,833) | | | | Net proceeds from issuance | | 232,034 | | | 202,673 | | |
| | Consolidated obligation bonds - | | | | Payments for maturing and retiring | | (230,139) | | | (206,057) | | |
| | Net proceeds from issuance | | 21,133 | | | 27,805 | | | | Consolidated obligation bonds - | | |
| | Payments for maturing and retiring | | (20,704) | | | (26,743) | | | | Net proceeds from issuance | | 5,709 | | | 12,044 | | |
| | | Payments for maturing and retiring | | (5,475) | | | (14,200) | | |
| | Capital stock - | | | |
| | Proceeds from issuance | | 273 | | | 1,151 | | | | Capital stock - | | |
| | Repurchases | | (270) | | | (1,026) | | | | Proceeds from issuance | | 287 | | | 168 | | |
| | Cash dividends paid | | (43) | | | (41) | | | | Repurchases | | (248) | | | (158) | | |
| | Other financing activities | | (36) | | | (19) | | | | Cash dividends paid | | (22) | | | (22) | | |
| | Net cash provided by (used in) financing activities | | (2,719) | | | (2,438) | | | | Other financing activities | | (1) | | | (18) | | |
| | Net increase (decrease) in cash and due from banks | | (3,101) | | | 19 | | | | Net cash provided by (used in) financing activities | | 1,818 | | | (5,678) | | |
| | Cash and due from banks at beginning of period | | 3,541 | | | 29 | | | | Net increase (decrease) in cash and due from banks | | (14) | | | 254 | | |
| | Cash and due from banks at end of period | | $ | 440 | | | $ | 48 | | | | Cash and due from banks at beginning of period | | 45 | | | 3,541 | | |
| | | Cash and due from banks at end of period | | $ | 31 | | | $ | 3,795 | | |
The accompanying notes are an integral part of these condensed financial statements (unaudited).
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-sponsoredgovernment 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 detaileddisclosed 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 following footnotesaccompanying notes should be read in conjunction with the audited financial statements and footnotes for the year ended December 31, 2020,2021, included in our 20202021 Annual Report on Form 10-K (2020(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
“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. See
Refer to the Glossary of Terms starting on page 61 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.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 20202021 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 20202021 Form 10-K. Refer to Note 1- Background and Basis of Presentation to the financial statements in our 20202021 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, 2020,2021, can be found in Note 2 – Summary of Significant Accounting Policies to the financial statements in our 20202021 Form 10-K including details on theany cumulative effect adjustments. We have not yet adopted any significant new policies in 2021.2022.
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
There were no recentlyDuring March 2022, the Financial Accounting Standards Board (FASB) issued but not yetASU 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 accounting standards which may have a material effect on ourCECL. The ASU also requires enhanced disclosures about loan modifications for borrowers experiencing financial statements.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.
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:indicated.
| | | Three months ended June 30, | | Six months ended June 30, | | | | Three months ended March 31, | |
| | 2021 | | 2020 | | 2021 | | 2020 | | | 2022 | | 2021 |
Interest income - | Interest income - | | | | | | | | | | Interest income - | | | | | | |
| Trading | Trading | | $ | 13 | | | $ | 28 | | | $ | 34 | | | $ | 54 | | | Trading | | | $ | — | | | $ | 21 | | |
| Available-for-sale interest income | | Available-for-sale interest income | | | 28 | | | 21 | | |
Available-for-sale prepayment fees | | Available-for-sale prepayment fees | | | 36 | | | — | | |
Available-for-sale | | Available-for-sale | | | 64 | | | 21 | | |
| Available-for-sale | | 74 | | | 75 | | | 95 | | | 215 | | | |
Held-to-maturity | Held-to-maturity | | 7 | | | 21 | | | 15 | | | 48 | | | Held-to-maturity | | | 7 | | | 8 | | |
| Investment debt securities | Investment debt securities | | 94 | | | 124 | | | 144 | | | 317 | | | Investment debt securities | | | 71 | | | 50 | | |
| Advances interest income | Advances interest income | | 60 | | | 132 | | | 131 | | | 368 | | | Advances interest income | | | 77 | | | 71 | | |
Advances prepayment fees | Advances prepayment fees | | 7 | | | 13 | | | 12 | | | 15 | | | Advances prepayment fees | | | 10 | | | 5 | | |
Advances | Advances | | 67 | | | 145 | | | 143 | | | 383 | | | Advances | | | 87 | | | 76 | | |
| MPF Loans held in portfolio | MPF Loans held in portfolio | | 60 | | | 76 | | | 123 | | | 163 | | | MPF Loans held in portfolio | | | 65 | | | 63 | | |
Federal funds sold | Federal funds sold | | 1 | | | 1 | | | 2 | | | 27 | | | Federal funds sold | | | 2 | | | 1 | | |
Securities purchased under agreements to resell | Securities purchased under agreements to resell | | 0 | | | 0 | | | 1 | | | 12 | | | Securities purchased under agreements to resell | | | 1 | | | 1 | | |
Interest earning deposits | | Interest earning deposits | | | 1 | | | — | | |
Other | Other | | 3 | | | 1 | | | 4 | | | 10 | | | Other | | | — | | | 1 | | |
| Interest income | Interest income | | 225 | | | 347 | | | 417 | | | 912 | | | Interest income | | | 227 | | | 192 | | |
| Interest expense - | Interest expense - | | | Interest expense - | | | | |
| Consolidated obligations - | Consolidated obligations - | | | Consolidated obligations - | | | | |
Discount notes | Discount notes | | 10 | | | 82 | | | 25 | | | 267 | | | Discount notes | | | 12 | | | 15 | | |
Bonds | Bonds | | 59 | | | 123 | | | 123 | | | 351 | | | Bonds | | | 56 | | | 64 | | |
| Other | Other | | 3 | | | 4 | | | 6 | | | 10 | | | Other | | | 4 | | | 3 | | |
| Interest expense | Interest expense | | 72 | | | 209 | | | 154 | | | 628 | | | Interest expense | | | 72 | | | 82 | | |
| Net interest income | Net interest income | | 153 | | | 138 | | | 263 | | | 284 | | | Net interest income | | | $ | 155 | | | $ | 110 | | |
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, HTM,held-to-maturity (HTM), or AFS.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);GSE; debt issued by the Tennessee Valley Authority; and securities guaranteed by the Small Business Administration.
•Federal Family Education Loan Program - asset-backed securitiesasset-backed-securities (FFELP ABS).
•GSE residential mortgage backedmortgage-backed securities (MBS) - issued by Fannie Mae and Freddie Mac.
•Government guaranteed residential MBS.
•SOFR Structured Adjustable Rate Mortgage (SOFR SARM) 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 of | | June 30, 2021 | | December 31, 2020 |
U.S. Government & other government related | | $ | 2,823 | | | $ | 4,612 | |
Residential MBS | | | | |
GSE | | 7 | | | 8 | |
Government guaranteed | | 0 | | | 1 | |
Trading debt securities | | $ | 2,830 | | | $ | 4,621 | |
| | | | | | | | | | | | | | |
As of | | March 31, 2022 | | December 31, 2021 |
U.S. Government & other government related | | $ | 946 | | | $ | 948 | |
MBS | | | | |
GSE | | 6 | | | 6 | |
| | | | |
Trading debt securities | | $ | 952 | | | $ | 954 | |
The following table presents our gains and losses on trading debt securities recorded in Noninterest Income Other.- Other, net.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2021 | | 2020 | | 2021 | | 2020 |
Net unrealized gains (losses) on securities held at period end | | $ | (9) | | | $ | (29) | | | $ | (11) | | | $ | 41 | | |
Net realized gains (losses) on securities sold/matured during the period | | (4) | | | 4 | | | (20) | | | 21 | | |
Net gains (losses) on trading debt securities | | $ | (13) | | | $ | (25) | | | $ | (31) | | | $ | 62 | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, | |
| | | | | | 2022 | | 2021 |
Net unrealized gains (losses) on securities held at period end | | | | | | $ | (3) | | | $ | (2) | | |
Net realized gains (losses) on securities sold/matured during the period | | | | | | — | | | (16) | | |
Net gains (losses) on trading debt securities | | | | | | $ | (3) | | | $ | (18) | | |
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)
Available-for-Sale Debt Securities (AFS)
The following table presents the amortized cost and fair value of our AFS debt securities.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Amortized Cost Basis | a
| Gross Unrealized Gains in AOCI | | Gross Unrealized (Losses) in AOCI | | Net Carrying Amount and Fair Value | | |
As of June 30, 2021 | | | | | | | | | |
U.S. Government & other government related | $ | 1,475 | | | $ | 49 | | | $ | (7) | | | $ | 1,517 | | | |
State or local housing agency | 13 | | | 1 | | | 0 | | | 14 | | | |
| | | | | | | | | |
FFELP ABS | 2,769 | | | 160 | | | 0 | | | 2,929 | | | |
Residential MBS | | | | | | | | | |
GSE | 13,869 | | | 341 | | | (7) | | | 14,203 | | | |
Government guaranteed | 220 | | | 7 | | | 0 | | | 227 | | | |
| | | | | | | | | |
Available-for-sale debt securities | $ | 18,346 | | | $ | 558 | | | $ | (14) | | | $ | 18,890 | | | |
| | | | | | | | | |
As of December 31, 2020 | | | | | | | | | |
U.S. Government & other government related | $ | 1,535 | | | $ | 83 | | | $ | 0 | | | $ | 1,618 | | | |
State or local housing agency | 14 | | | 1 | | | 0 | | | 15 | | | |
FFELP ABS | 2,922 | | | 121 | | | (9) | | | 3,034 | | | |
Residential MBS | | | | | | | | | |
GSE | 13,413 | | | 147 | | | (59) | | | 13,501 | | | |
Government guaranteed | 261 | | | 8 | | | 0 | | | 269 | | | |
Available-for-sale debt securities | $ | 18,145 | | | $ | 360 | | | $ | (68) | | | $ | 18,437 | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Amortized Cost Basis | a | Gross Unrealized Gains in AOCI | | Gross Unrealized (Losses) in AOCI | | Net Carrying Amount and Fair Value | | |
As of March 31, 2022 | | | | | | | | | | |
U.S. Government & other government related | | $ | 3,942 | | | $ | 7 | | | $ | (55) | | | $ | 3,894 | | | |
State or local housing agency | | 8 | | | — | | | — | | | 8 | | | |
| | | | | | | | | | |
FFELP ABS | | 2,549 | | | 136 | | | — | | | 2,685 | | | |
MBS | | | | | | | | | | |
GSE | | 14,653 | | | 120 | | | (63) | | | 14,710 | | | |
Government guaranteed | | 164 | | | 3 | | | — | | | 167 | | | |
| | | | | | | | | | |
Available-for-sale debt securities | | $ | 21,316 | | | $ | 266 | | | $ | (118) | | | $ | 21,464 | | | |
| | | | | | | | | | |
As of December 31, 2021 | | | | | | | | | | |
U.S. Government & other government related | | $ | 4,659 | | | $ | 34 | | | $ | (12) | | | $ | 4,681 | | | |
State or local housing agency | | 8 | | | 1 | | | — | | | 9 | | | |
FFELP ABS | | 2,642 | | | 130 | | | — | | | 2,772 | | | |
MBS | | | | | | | | | | |
GSE | | 14,849 | | | 234 | | | (26) | | | 15,057 | | | |
Government guaranteed | | 182 | | | 5 | | | — | | | 187 | | | |
Available-for-sale debt securities | | $ | 22,340 | | | $ | 404 | | | $ | (38) | | | $ | 22,706 | | | |
a Includes adjustments made to the cost basis of an investment for accretion, amortization, net charge-offs,and fair value hedge accounting adjustments, andadjustments. This also includes accrued interest receivable of $52 million and $53$54 million at June 30, 2021 and December 31, 2020.2021.
We had no sales of AFS debt securities for the periods presented. See Note 2 - Summary of Significant Accounting Policies in our 2020 Form 10-K for details on the amounts and accounting policies related to these transactions. Any gains or losses are determined on a specific identification basis.
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)
Held-to-Maturity Debt Securities (HTM)
The following table presents the amortized cost, carrying amount, and fair value of our HTM debt securities.
| | | Amortized Cost and Net Carrying Amount | a
| Gross Unrecognized Holding Gains | | Gross Unrecognized Holding (Losses) | | Fair Value | | | Amortized Cost and Net Carrying Amount | a | Gross Unrecognized Holding Gains | | Gross Unrecognized Holding (Losses) | | Fair Value | |
As of June 30, 2021 | | | | | | | | | |
As of March 31, 2022 | | As of March 31, 2022 | | | | | | | | | |
U.S. Government & other government related | U.S. Government & other government related | $ | 1,148 | | | $ | 19 | | | $ | 0 | | | $ | 1,167 | | | U.S. Government & other government related | | $ | 381 | | | $ | — | | | $ | (3) | | | $ | 378 | | |
| Residential MBS | | | |
MBS | | MBS | | |
GSE | GSE | 249 | | | 24 | | | 0 | | | 273 | | | GSE | | 199 | | | 12 | | | — | | | 211 | | |
Government guaranteed | Government guaranteed | 82 | | | 2 | | | 0 | | | 84 | | | Government guaranteed | | 66 | | | 1 | | | — | | | 67 | | |
Other | Other | 12 | | | 0 | | | 0 | | | 12 | | | Other | | 9 | | | — | | | — | | | 9 | | |
Held-to-maturity debt securities | Held-to-maturity debt securities | $ | 1,491 | | | $ | 45 | | | $ | 0 | | | $ | 1,536 | | | Held-to-maturity debt securities | | $ | 655 | | | $ | 13 | | | $ | (3) | | | $ | 665 | | |
| As of December 31, 2020 | | | |
As of December 31, 2021 | | As of December 31, 2021 | | |
U.S. Government & other government related | U.S. Government & other government related | $ | 1,098 | | | $ | 24 | | | $ | 0 | | | $ | 1,122 | | | U.S. Government & other government related | | $ | 1,506 | | | $ | 11 | | | $ | — | | | $ | 1,517 | | |
| Residential MBS | | | |
MBS | | MBS | | |
GSE | GSE | 285 | | | 31 | | | 0 | | | 316 | | | GSE | | 214 | | | 19 | | | — | | | 233 | | |
Government guaranteed | Government guaranteed | 94 | | | 2 | | | 0 | | | 96 | | | Government guaranteed | | 71 | | | 1 | | | — | | | 72 | | |
Other | Other | 14 | | | 1 | | | 0 | | | 15 | | | Other | | 10 | | | — | | | — | | | 10 | | |
Held-to-maturity debt securities | Held-to-maturity debt securities | $ | 1,491 | | | $ | 58 | | | $ | 0 | | | $ | 1,549 | | | Held-to-maturity debt securities | | $ | 1,801 | | | $ | 31 | | | $ | — | | | $ | 1,832 | | |
a Includes adjustments made to the cost basis of an investment for accretion, amortization, and/or net charge-offs.amortization.
We had no sales of HTM debt securities for the periodsperiod presented. See Note 2 - Summary of Significant Accounting Policies in our 2020 Form 10-K for details on the amounts and accounting policies related to these transactions. Any gains or losses are determined on a specific identification basis.
Contractual Maturity
The maturity of our AFS and HTM debt securities is detailed in the following table. FFELP ABS/MBS are not presented by contractual maturity because their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Available-for-Sale | | Held-to-Maturity |
As of March 31, 2022 | | Amortized Cost Basis | | Net Carrying Amount and Fair Value | | Amortized Cost and Net Carrying Amount | | Fair Value |
Non FFELP ABS/MBS Year of Maturity - | | | | | | | | |
Due in one year or less | | $ | 2,615 | | | $ | 2,614 | | | $ | 116 | | | $ | 116 | |
Due after one year through five years | | 7 | | | 7 | | | 21 | | | 20 | |
Due after five years through ten years | | 421 | | | 408 | | | 244 | | | 242 | |
Due after ten years | | 907 | | | 873 | | | — | | | — | |
| | | | | | | | |
FFELP ABS and MBS | | 17,366 | | | 17,562 | | | 274 | | | 287 | |
Total debt securities | | $ | 21,316 | | | $ | 21,464 | | | $ | 655 | | | $ | 665 | |
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)
Contractual Maturity TermsAFS Securities in a Continuous Unrealized Loss Position
The maturity of our AFS and HTM debt securities is detailed in the following table.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Available-for-Sale | | Held-to-Maturity |
As of June 30, 2021 | | Amortized Cost Basis | | Net Carrying Amount and Fair Value | | Amortized Cost and Net Carrying Amount | | Fair Value |
Year of Maturity - | | | | | | | | |
Due in one year or less | | $ | 1 | | | $ | 1 | | | $ | 800 | | | $ | 800 | |
Due after one year through five years | | 11 | | | 12 | | | 23 | | | 23 | |
Due after five years through ten years | | 462 | | | 475 | | | 317 | | | 334 | |
Due after ten years | | 1,014 | | | 1,043 | | | 8 | | | 10 | |
| | | | | | | | |
ABS and MBS without a single maturity date | | 16,858 | | | 17,359 | | | 343 | | | 369 | |
Total debt securities | | $ | 18,346 | | | $ | 18,890 | | | $ | 1,491 | | | $ | 1,536 | |
Aging of Unrealized Temporary Losses
The following table presents unrealized temporary losses on our AFS portfolio for periods less than 12 months and for 12 months or more. We recognized no creditThese losses onare considered temporary as we expect to recover the entire amortized cost basis and neither intend to sell these unrealized loss positions. Refersecurities nor consider it more likely than not that we will be required to sell these securities before the Credit Loss Analysis below.anticipated recovery of each security’s remaining amortized cost basis. In the tables below, in cases where the gross unrealized losses for an investment category wereare less than $1 million, the losses are not reported.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 Months | | 12 Months or More | | Total |
Available-for-sale debt securities | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) |
| | | | | | | | | | | |
As of June 30, 2021 | | | | | | | | | | | |
U.S. Government & other government related | $ | 295 | | | $ | (7) | | | $ | 0 | | | $ | 0 | | | $ | 295 | | | $ | (7) | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Residential MBS | | | | | | | | | | | |
GSE | 728 | | | (3) | | | 55 | | | (4) | | | 783 | | | (7) | |
| | | | | | | | | | | |
Available-for-sale debt securities | $ | 1,023 | | | $ | (10) | | | $ | 55 | | | $ | (4) | | | $ | 1,078 | | | $ | (14) | |
| | | | | | | | | | | |
As of December 31, 2020 | | | | | | | | | | | |
U.S. Government & other government related | $ | 0 | | | $ | 0 | | | $ | 2 | | | $ | 0 | | | $ | 2 | | | $ | 0 | |
| | | | | | | | | | | |
FFELP ABS | 21 | | | 0 | | | 459 | | | (9) | | | 480 | | | (9) | |
Residential MBS | | | | | | | | | | | |
GSE | 102 | | | (1) | | | 6,327 | | | (58) | | | 6,429 | | | (59) | |
| | | | | | | | | | | |
Available-for-sale debt securities | $ | 123 | | | $ | (1) | | | $ | 6,788 | | | $ | (67) | | | $ | 6,911 | | | $ | (68) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 Months | | 12 Months or More | | Total |
| | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) | | Fair Value | | Gross Unrealized (Losses) |
Available-for-sale debt securities | | | | | | | | | | | | |
As of March 31, 2022 | | | | | | | | | | | | |
U.S. Government & other government related | | $ | 3,305 | | | $ | (28) | | | $ | 259 | | | $ | (27) | | | $ | 3,564 | | | $ | (55) | |
State or local housing agency | | 5 | | | — | | | — | | | — | | | 5 | | | — | |
| | | | | | | | | | | | |
MBS | | | | | | | | | | | | |
GSE | | 4,193 | | | (58) | | | 76 | | | (5) | | | 4,269 | | | (63) | |
Government guaranteed | | 1 | | | — | | | — | | | — | | | 1 | | | — | |
Available-for-sale debt securities | | $ | 7,504 | | | $ | (86) | | | $ | 335 | | | $ | (32) | | | $ | 7,839 | | | $ | (118) | |
| | | | | | | | | | | | |
As of December 31, 2021 | | | | | | | | | | | | |
U.S. Government & other government related | | $ | 3,764 | | | $ | (12) | | | $ | — | | | $ | — | | | $ | 3,764 | | | $ | (12) | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
MBS | | | | | | | | | | | | |
GSE | | 1,549 | | | (23) | | | 54 | | | (3) | | | 1,603 | | | (26) | |
| | | | | | | | | | | | |
Available-for-sale debt securities | | $ | 5,313 | | | $ | (35) | | | $ | 54 | | | $ | (3) | | | $ | 5,367 | | | $ | (38) | |
Credit Loss Analysis
We recognized no credit losses on HTM or AFS debt securities for the periods presented. We do not intend to sell AFS securities (although in October 2020 the Bank sold private label mortgage backed securities (PLMBS), as discussed in Note 2 – Summary of Significant Accounting Policies of our 2020 Form 10-K) and we believe it is more likely than not, that we will not be required to sell them prior to recovering their amortized cost. We expect to recover the entire amortized cost on these securities.
Accretion on Prior Years' Other-Than-Temporary Impairment
Increases in cash flows expected to be collected and recognized into interest income on prior years' credit related other-than-temporary impairment (OTTI) charges on our AFS and HTM PLMBS were $6 million for the three months ended June 30, 2020 and $12 million for the six months ended June 30, 2020. As discussed in Note 2 – Summary of Significant Accounting Policies of our 2020 Form 10-K, we sold these PLMBS during October 2020.
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 6 – Advances
We offer a wide range of fixed and variable-rate advance products with different maturities, interest rates, payment characteristics and options.
We have no allowance for credit losses on our advances and we have elected to exclude accrued interest receivable from the amortized cost in the following tables. See Note 8 - Allowance for Credit Losses for further details on these amounts.
The following table presents the remaining life of our advances by the advance’sterms of contractual maturity and the related weighted average contractual interest rate. For amortizing advances, remainingcontractual maturity is determined based on the advance’s amortization schedule. Actual maturities may differ from contractual maturities because some borrowers have the right to call or prepay advances with or without penalties.
| | | | | | | | | | | | | | | | | |
As of June 30, 2021 | | Amount | | Weighted Average Contractual Interest Rate | |
Due in one year or less | | $ | 13,124 | | | 0.47 | % | |
One to two years | | 3,547 | | | 1.27 | % | |
Two to three years | | 9,895 | | | 0.44 | % | |
Three to four years | | 7,597 | | | 0.86 | % | |
Four to five years | | 3,089 | | | 0.90 | % | |
More than five years | | 8,463 | | | 1.74 | % | |
Par value | | $ | 45,715 | | | 0.86 | % | |
| | | | | | | | | | | | | | | |
As of March 31, 2022 | | Par Value Amount | | Weighted Average Contractual Interest Rate | |
Due in one year or less | | $ | 14,396 | | | 0.56 | % | |
One to two years | | 9,172 | | a | 0.59 | % | |
Two to three years | | 7,458 | | a | 0.79 | % | |
Three to four years | | 3,304 | | | 1.11 | % | |
Four to five years | | 3,487 | | | 1.30 | % | |
Five to fifteen years | | 8,958 | | | 1.53 | % | |
More than fifteen years | | 508 | | | 5.13 | % | |
Total | | $ | 47,283 | | | 0.93 | % | |
a Of the advances due in one to two years and two to three years, $7.0 billion and $4.0 billion, respectively, were issued to One Mortgage Partners Corp. (now JPMorgan Chase Bank NA), our former captive insurance company member, whose membership was terminated in 2021 in connection with an FHFA rule.
The following table reconciles the par value of our advances to the carrying amount on our Condensed Statements of Condition as of the dates indicated.
| | | | | | | | | | | | | | |
As of | | June 30, 2021 | | December 31, 2020 |
Par value | | $ | 45,715 | | | $ | 45,820 | |
Fair value hedging adjustments | | 462 | | | 760 | |
Other adjustments | | 93 | | | 115 | |
Advances | | $ | 46,270 | | | $ | 46,695 | |
| | | | | | | | | | | | | | |
As of | | March 31, 2022 | | December 31, 2021 |
Par value | | $ | 47,283 | | | $ | 47,708 | |
Fair value hedging adjustments | | (446) | | | 227 | |
Other adjustments | | 70 | | | 114 | |
Advances | | $ | 46,907 | | | $ | 48,049 | |
The following advance borrowers exceeded 10% of our advances outstanding:outstanding.
| | | | | | | | | | | | | | |
As of June 30, 2021 | | Par Value | | % of Total Outstanding |
One Mortgage Partners Corp. | | $ | 11,000 | | a | 24.1 | % |
The Northern Trust Company | | 5,005 | | | 10.9 | % |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | | | | | | | | | | | |
As of March 31, 2022 | | Par Value | | % of Total Outstanding |
JPMorgan Chase Bank NA | | $ | 11,000 | | a | 23.3 | % |
BMO Harris Bank NA | | 5,000 | | | 10.6 | % |
| | | | |
| | | | |
| | | | |
| | | | |
a One Mortgage Partners Corp. (OMP) is a subsidiary of JPMorgan Chase Bank NA. Effective February 19, 2021, we terminated OMP’sOne Mortgage Partners Corp.'s ("OMP") membership in connection with the FHFA rule that made captive insurance companies ineligible for FHLB membership. In December 2021, OMP merged with and into its parent company, JPMorgan Chase Bank NA (“JPM”). For details on the contractual maturity terms of JPM’s advances, see the table above presenting advances by terms of contractual maturity.
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 7 – MPF Loans Held in Portfolio
We acquire MPF Loans from PFIs to hold in our portfolio and historically purchased participations in pools of eligible mortgage loans from other FHLBs (MPF Banks). MPF Loans that are held in portfolio are fixed-rate conventional and Government Loans secured by one-to-four family residential properties with maturities ranging from 5 years to 30 years or participations in pools of similar eligible mortgage loans from other MPF Banks.
The following table presents information on MPF Loans held in portfolio by contractual maturity at the time of purchase. We have an allowance for credit losses on our MPF Loans and we have elected to exclude accrued interest receivable from the amortized cost in the following tables. See Note 8 - Allowance for Credit Losses for further details on these amounts.
| As of | As of | | June 30, 2021 | | December 31, 2020 | As of | | March 31, 2022 | | December 31, 2021 |
Medium term (15 years or less) | Medium term (15 years or less) | | $ | 1,603 | | | $ | 1,403 | | Medium term (15 years or less) | | $ | 1,623 | | | $ | 1,653 | |
Long term (greater than 15 years) | Long term (greater than 15 years) | | 7,993 | | | 8,453 | | Long term (greater than 15 years) | | 8,026 | | | 8,031 | |
Unpaid principal balance | Unpaid principal balance | | 9,596 | | | 9,856 | | Unpaid principal balance | | 9,649 | | | 9,684 | |
Net premiums, credit enhancement, and/or deferred loan fees | Net premiums, credit enhancement, and/or deferred loan fees | | 173 | | | 177 | | Net premiums, credit enhancement, and/or deferred loan fees | | 169 | | | 174 | |
Fair value hedging and delivery commitment basis adjustments | Fair value hedging and delivery commitment basis adjustments | | (7) | | | 8 | | Fair value hedging and delivery commitment basis adjustments | | (13) | | | (10) | |
MPF Loans held in portfolio, before allowance for credit losses | MPF Loans held in portfolio, before allowance for credit losses | | 9,762 | | | 10,041 | | MPF Loans held in portfolio, before allowance for credit losses | | 9,805 | | | 9,848 | |
Allowance for credit losses on MPF Loans | Allowance for credit losses on MPF Loans | | (3) | | | (3) | | Allowance for credit losses on MPF Loans | | (5) | | | (5) | |
MPF Loans held in portfolio, net | MPF Loans held in portfolio, net | | $ | 9,759 | | | $ | 10,038 | | MPF Loans held in portfolio, net | | $ | 9,800 | | | $ | 9,843 | |
| Conventional mortgage loans | Conventional mortgage loans | | $ | 8,743 | | | $ | 8,979 | | Conventional mortgage loans | | $ | 8,826 | | | $ | 8,845 | |
Government Loans | Government Loans | | 853 | | | 877 | | Government Loans | | 823 | | | 839 | |
Unpaid principal balance | Unpaid principal balance | | $ | 9,596 | | | $ | 9,856 | | Unpaid principal balance | | $ | 9,649 | | | $ | 9,684 | |
The above table excludes MPF Loans acquired under the MPF Xtra® and MPF Government MBS products. See Note 2 - Summary of Significant Accounting Policies in our 20202021 Form 10-K for information related to the accounting treatment of these off-balance sheet MPF Loan products.
Coronavirus Disease 2019 (COVID-19) Forbearance
Section 4013 of the CARESCoronavirus Aid, Relief and Economic Security Act provides(the “CARES Act”) provided temporary relief from the accounting and reporting requirements for troubled debt restructurings (TDRs) for certain loan modifications related to COVID-19. Specifically, the CARES Act providesprovided that a qualifying financial institution may elect to suspend (1) the requirements under U.S. GAAP for certain loan modifications that would otherwise be categorized as a TDR, and (2) any determination that such loan modifications would be considered a TDR, including the related impairment for accounting purposes. Section 4013 of the CARES Act appliesapplied to any modification related to an economic hardship as a result of the COVID-19 pandemic, including a forbearance arrangement, an interest rate modification, a repayment plan, or any similar arrangement that defers or delays payment of principal or interest, that occursoccurred during the period beginning on March 1, 2020 and ending on the earlier of December 31, 2020 or the date that is 60 days after the declaration of the national emergency related to the COVID-19 pandemic ends for a loan that was not more than 30 days past due as of December 31, 2019. On December 27, 2020, the Consolidated Appropriations Act, 2021, was signed into law, extendingwhich extended the applicable end period to the earlier of January 1, 2022, or 60 days following the termination of the national emergency related to the COVID-19 pandemic. We have elected to suspend TDR accounting for eligible modifications under Section 4013 of the CARES Act. We resumed TDR accounting when this section of the CARES Act such modifications to loans outstanding as of June 30, 2021 were $15 million.expired on January 1, 2022.
Our servicers may grant a forbearance period to borrowers who have requested forbearance based on COVID-19 related difficulties regardless of the status of the loan at the time of the request. We continue to apply our accounting policy for past due loans and charge-offs to loans during the forbearance period whether it be formal or informal. A charge-off is not recognized when there is a presumption that we will collect on a loan even if it is 180 days past due. The accrual status for loans under forbearance will be driven by the past due status of the loan as the legal terms of the contractual arrangement have not been modified.
As of June 30, 2021, there were $226 million in unpaid principal balance (UPB) of conventional loans in a forbearance plan as a result of COVID-19. Of these conventional loans in forbearance, $115 million in UPB had a current payment status, $9 million were 30 to 59 days past due, $8 million were 60 to 89 days past due, and $94 million were greater than 90 days past due and in nonaccrual payment status. These loans represent 2% of our MPF Loans held in portfolio at June 30, 2021.
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 8 – Allowance for Credit Losses
See Note 2 - Summary of Significant Accounting Policies to the financial statements in our 20202021 Form 10-K for further details regarding our accounting policies pertaining to allowances for credit losses.
Our allowances for credit losses are immaterial due to the nature of our credit enhancements, collateral support, and/or credit worthiness of our counterparties. See Note 8 - Allowance for Credit Losses to the financial statements in our 20202021 Form 10-K for more information.
Allowance for Credit Losses on MPF Loans
The following table presents the activity in our allowance for credit losses for MPF Loans.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | |
For the periods ending | | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | | |
Allowance for MPF credit losses beginning balance | | $ | 3 | | | 2 | | | $ | 3 | | | 1 | | |
Allowance for MPF credit losses charged-off | | (2) | | | (2) | | | (2) | | | (3) | | |
Allowance for credit loss recovery | | 1 | | | 0 | | | 1 | | | 0 | | |
Provision for (reversal of) allowance for MPF for credit losses | | 1 | | | 4 | | | 1 | | | 6 | | |
Allowance for MPF credit losses ending balances | | $ | 3 | | | $ | 4 | | | $ | 3 | | | $ | 4 | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, | |
For the periods ending | | | | | | 2022 | | 2021 |
| | | | | | | | | |
| | | | | | | | | |
Allowance for MPF credit losses beginning balance | | | | | | $ | 5 | | | $ | 3 | | |
MPF credit losses charged-off | | | | | | (1) | | | — | | |
| | | | | | | | | |
Provision for (reversal of) MPF for credit losses | | | | | | 1 | | | — | | |
Allowance for MPF credit losses ending balance | | | | | | $ | 5 | | | $ | 3 | | |
Allowance for Credit Losses on Community First® Fund (the Fund)
As of June 30, 2021March 31, 2022 we had $45$47 million in Fund loans outstanding unchanged fromcompared to $45 million at December 31, 2020,2021, recorded in Other assets in our Condensed Statements of Condition.
Under the “currently expected credit losses” methodology (CECL), on January 1, 2020, we recorded a $7 million allowances for credit losses on a basis of expected losses over the life of the loans. As of June 30, 2021,March 31, 2022, all Fund loans were current.
The following table details our allowance for credit losses on Fund loans. As we had not incurred any credit losses under the pre-CECL accounting policy, we had no allowance prior to 2020. We have had no material activity in the allowance through June 30, 2021.
| | | Three months ended June 30, | | Six months ended June 30, | | | | Three months ended March 31, | |
For the periods ending | For the periods ending | | 2021 | | 2020 | | 2021 | | 2020 | For the periods ending | | | 2022 | | 2021 |
Allowance for Fund loan credit losses beginning balance | Allowance for Fund loan credit losses beginning balance | | $ | 7 | | | $ | 7 | | | $ | 7 | | | $ | 0 | | | Allowance for Fund loan credit losses beginning balance | | | $ | 7 | | | $ | 7 | | |
Adjustment for cumulative effect of accounting change | | 0 | | | 0 | | | 0 | | | 7 | | | |
| Allowance for Fund loan credit losses ending balances | | $ | 7 | | | $ | 7 | | | $ | 7 | | | $ | 7 | | | |
| Allowance for Fund loan credit losses ending balance | | Allowance for Fund loan credit losses ending balance | | | $ | 7 | | | $ | 7 | | |
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)
The following tables summarize our conventional MPF Loans by our key credit quality indicators. See Coronavirus Disease 2019 (COVID-19) Forbearance in Note 7 – MPF Loans Held in Portfolio for more information on how the forbearance impacts the accounting for the below credit quality indicators.
| | June 30, 2021 | | December 31, 2020 | |
As of | | As of | | March 31, 2022 | | December 31, 2021 |
| | Conventional MPF Amortized Cost by Origination Year | | Conventional MPF Amortized Cost by Origination Year | | | Conventional MPF Amortized Cost by Origination Year | | Conventional MPF Amortized Cost by Origination Year |
| | 2017 to 2021 | | Prior to 2017 | | Total | 2016 to 2020 | | Prior to 2016 | | Total | | 2018 to 2022 | | Prior to 2018 | | Total | 2017 to 2021 | | Prior to 2017 | | Total |
Past due 30-59 days | Past due 30-59 days | | $ | 35 | | | $ | 25 | | | $ | 60 | | | $ | 47 | | | $ | 23 | | | $ | 70 | | Past due 30-59 days | | $ | 63 | | | $ | 21 | | | $ | 84 | | | $ | 23 | | | $ | 18 | | | $ | 41 | |
Past due 60-89 days | Past due 60-89 days | | 8 | | | 7 | | | 15 | | | 17 | | | 9 | | | 26 | | Past due 60-89 days | | 6 | | | 6 | | | 12 | | | 8 | | | 6 | | | 14 | |
Past due 90 days or more | Past due 90 days or more | | 78 | | | 43 | | | 121 | | | 121 | | | 38 | | | 159 | | Past due 90 days or more | | 26 | | | 29 | | | 55 | | | 43 | | | 30 | | | 73 | |
Past due | Past due | | 121 | | | 75 | | | 196 | | | 185 | | | 70 | | | 255 | | Past due | | 95 | | | 56 | | | 151 | | | 74 | | | 54 | | | 128 | |
Current | Current | | 7,526 | | | 1,176 | | | 8,702 | | | 7,984 | | | 912 | | | 8,896 | | Current | | 7,665 | | | 1,155 | | | 8,820 | | | 7,883 | | | 987 | | | 8,870 | |
Total | | $ | 7,647 | | | $ | 1,251 | | | $ | 8,898 | | | $ | 8,169 | | | $ | 982 | | | $ | 9,151 | | |
Total outstanding | | Total outstanding | | $ | 7,760 | | | $ | 1,211 | | | $ | 8,971 | | | $ | 7,957 | | | $ | 1,041 | | | $ | 8,998 | |
| As of | | As of | | March 31, 2022 | | December 31, 2021 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | Amortized Cost | | Amortized Cost |
| | June 30, 2021 | | December 31, 2020 | | Conventional | | Government | | Total | | Conventional | | Government | | Total |
| Amortized Cost | | Amortized Cost | |
As of | | Conventional | | Government | | Total | | Conventional | | Government | | Total | |
In process of foreclosure | In process of foreclosure | | $ | 12 | | | $ | 11 | | | $ | 23 | | | $ | 13 | | | $ | 5 | | | $ | 18 | | In process of foreclosure | | $ | 10 | | | $ | 3 | | | $ | 13 | | | $ | 6 | | | $ | 3 | | | $ | 9 | |
Serious delinquency rate | Serious delinquency rate | | 1.38 | % | | 3.85 | % | | 1.60 | % | | 1.78 | % | | 4.22 | % | | 2.00 | % | Serious delinquency rate | | 0.62 | % | | 2.11 | % | | 0.75 | % | | 0.82 | % | | 2.33 | % | | 0.95 | % |
Past due 90 days or more and still accruing interest | Past due 90 days or more and still accruing interest | | $ | 40 | | | $ | 26 | | | $ | 66 | | | $ | 48 | | | $ | 17 | | | $ | 65 | | Past due 90 days or more and still accruing interest | | $ | 7 | | | $ | 16 | | | $ | 23 | | | $ | 30 | | | $ | 19 | | | $ | 49 | |
Loans on nonaccrual status | Loans on nonaccrual status | | 87 | | | 0 | | | 87 | | | 120 | | | 0 | | | 120 | | Loans on nonaccrual status | | 52 | | | — | | | 52 | | | 47 | | | — | | | 47 | |
Loans on nonaccrual status with no allowance for credit losses | Loans on nonaccrual status with no allowance for credit losses | | 20 | | | 0 | | | 20 | | | 21 | | | 0 | | | 21 | | Loans on nonaccrual status with no allowance for credit losses | | 13 | | | — | | | 13 | | | 11 | | | — | | | 11 | |
Accrued interest receivable
We present accrued interest receivable separately for loans and AFS/HTM debt securities which are carried at amortized cost.securities. We do not measure an allowance for credit losses on loan related accrued interest receivables as we reverse accrued interest on a monthly basis inwhen the event of an interest shortfall.loan is placed on nonaccrual status.
The following table summarizes our accrued interest receivable by portfolio segment.
| Financial instrument type | Financial instrument type | | June 30, 2021 | | December 31, 2020 | Financial instrument type | | March 31, 2022 | | December 31, 2021 |
MPF Loans held in portfolio | MPF Loans held in portfolio | | $ | 45 | | | $ | 48 | | MPF Loans held in portfolio | | $ | 45 | | | $ | 45 | |
HTM securities | HTM securities | | 4 | | | 5 | | HTM securities | | 3 | | | 4 | |
| AFS securities | | AFS securities | | 52 | | | — | |
| Advances | Advances | | 33 | | | 37 | | Advances | | 39 | | | 34 | |
| Accrued interest receivable | Accrued interest receivable | | $ | 82 | | | $ | 90 | | Accrued interest receivable | | $ | 139 | | | $ | 83 | |
The above table excludes accrued interest of $54 million on AFS securities at December 31, 2021. Prior to 2022, we included accrued interest in the carrying value of our AFS securities. See
Note 5 - Investment Debt Securities for 2021 AFS carrying values.
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 9 – Derivatives and Hedging Activities
Refer to Note 2 - Summary of Significant Accounting Policies in our 20202021 Form 10-K for our accounting policies for derivatives.
We transact most of our derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. We are not a derivatives dealer and do not trade derivatives for speculative purposes. We enter into derivative transactions through either of the following:
•A bilateral agreement with an individual counterparty for over-the-counter derivative transactions.
•Clearinghouses classified as Derivatives Clearing Organizations (DCOs) through Futures Commission Merchants (FCMs), which are clearing members of the DCOs, for cleared derivative transactions.
Managing Interest Rate Risk
We use fair value hedges to manage our exposure to changes in the fair value of (1) a recognized asset or liability or (2) an unrecognized firm commitment, attributable to changes in a benchmark interest rate, such as LIBOR.SOFR. Our cash flow hedge strategy is to hedge the variability in the total proceeds received from rolling forecasted zero-coupon discount note issuance, attributable to changes in the benchmark interest rate, by entering into pay-fixed interest rate swaps. We are not using the cash flow hedge strategy for new transactions at this time, as we used LIBOR as the benchmark interest rate for cash flow hedges and we are not entering into new LIBOR-linked transactions.
We may elect the fair value option for financial instruments, such as advances, MPF Loans held for sale, and consolidated obligation discount notes and bonds, in cases where hedge accounting treatment may not be achieved due to the inability to meet the hedge effectiveness testing criteria, or in certain cases where we wish to mitigate the risk associated with selecting the fair value option for other instruments. We may also use economic hedges when hedge accounting is not permitted or hedge effectiveness is not achievable.
Managing Credit Risk on Derivative Agreements
Over-the-counter (bilateral) Derivative Transactions: We are subject to credit risk due to the risk of nonperformance by counterparties to our derivative agreements. For bilateral derivative agreements, the degree of counterparty risk depends on the extent to which master netting arrangements, collateral requirements and other credit enhancements are included in such contracts to mitigate the risk. We manage counterparty credit risk through credit analysis, collateral requirements and adherence to the requirements set forth in our policies and FHFA regulations. We require collateral agreements on all over-the-counter derivatives. Additionally, collateral related to over-the-counter derivatives with member institutions includes collateral assigned to us, as evidenced by a written security agreement, and which may be held by the member institution for our benefit. As of June 30, 2021,March 31, 2022, based on credit analyses and collateral requirements, we have not recorded a credit loss on our over-the-counter derivative agreements. See Note 15 - Fair Value in our 20202021 Form 10-K for discussion regarding our fair value methodology for over-the-counter derivative assets and liabilities, including an evaluation of the potential for the fair value of these instruments to be affected by counterparty credit risk.
For nearly all of our bilateral derivative transactions executed prior to March 1, 2017, and for all transactions entered into on or after March 1, 2017, our bilateral derivative agreements are fully collateralized with a zero unsecured threshold in accordance with variation margin requirements issued by the U.S. federal bank regulatory agencies and the Commodity Futures Trading Commission (CFTC). We pledged no investment securities on our bilateral derivative transactions that(that can be sold or repledged by our counterpartycounterparty) as of June 30, 2021.March 31, 2022.
For certain transactions executed prior to March 1, 2017, we may be required to post net additional collateral with our counterparties if there is deterioration in our credit rating. If our credit rating had been lowered from its current rating to the next lower rating by a major credit rating agency, such as Standard and Poor's or Moody’s, the amount of collateral we would have been required to deliver would have been immaterial at June 30, 2021.March 31, 2022.
Cleared Derivative Transactions: Cleared derivative transactions are subject to variation and initial margin requirements established by the DCO and its clearing members. As a result of rule changes adopted by our DCOs, variationVariation margin payments are characterized as settlement of a derivative’s mark-to-market exposure and not as collateral against the derivative’s mark-to-market exposure. See Note 1 - Background and Basis of Presentation and Note 2 - Summary of Significant Accounting Policies to the financial statements in our 20202021 Form 10-K for further discussion. We post our initial margin collateral payments and make variation margin settlement payments
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)
through our FCMs, on behalf of the DCO, which could expose us to institutional credit risk in the event that the FCMs or the DCO fail to meet their obligations. Clearing derivatives through a DCO mitigates
Federal Home Loan Bank of ChicagoNotes to Financial Statements - (Unaudited)
(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
counterparty credit risk exposure because the DCO is substituted for individual counterparties and variation margin settlement payments are made daily through the FCMs for changes in the value of cleared derivatives. The DCO determines initial margin requirements for cleared derivatives. We pledged $582$623 million of investment securities that(that can be sold or repledged,repledged) as part of our initial margin related to cleared derivative transactions at June 30, 2021.March 31, 2022. Additionally, an FCM may require additional initial margin to be posted based on credit considerations, including but not limited to, if our credit rating downgrades. We had no requirement to post additional initial margin by our FCMs at June 30, 2021.March 31, 2022.
The following table presents details on the notional amounts, and cleared and bilateral derivative assets and liabilities on our Condensed Statements of Condition. The netting adjustment amount includes cash collateral (either received or paid by us) and related accrued interest in cases where we have a legal right, by contract (e.g., master netting agreement) or otherwise, to offset cash flow obligations between us and our counterparty into a single net payable or receivable.
| | | June 30, 2021 | | December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of | As of | | Notional Amount | | Derivative Assets | | Derivative Liabilities | | Notional Amount | | Derivative Assets | | Derivative Liabilities | As of | | March 31, 2022 | | December 31, 2021 |
| | | | Notional Amount | | Derivative Assets | | Derivative Liabilities | | Notional Amount | | Derivative Assets | | Derivative Liabilities |
Derivatives in hedge accounting relationships- | Derivatives in hedge accounting relationships- | | | | | | | | | | | | | Derivatives in hedge accounting relationships- | | | | | | | | | | | | |
Interest rate contracts | Interest rate contracts | | $ | 52,683 | | | $ | 93 | | | $ | 577 | | | $ | 39,493 | | | $ | 65 | | | $ | 729 | | Interest rate contracts | | $ | 75,053 | | | $ | 520 | | | $ | 1,593 | | | $ | 70,321 | | | $ | 58 | | | $ | 466 | |
Derivatives not in hedge accounting relationships- | Derivatives not in hedge accounting relationships- | | Derivatives not in hedge accounting relationships- | |
Interest rate contracts | Interest rate contracts | | 7,581 | | | 23 | | | 89 | | | 11,265 | | | 46 | | | 141 | | Interest rate contracts | | 3,457 | | | 7 | | | 34 | | | 2,772 | | | 10 | | | 59 | |
Mortgage delivery commitments | Mortgage delivery commitments | | 1,315 | | | 3 | | | 3 | | | 2,831 | | | 5 | | | 7 | | Mortgage delivery commitments | | 535 | | | 2 | | | 4 | | | 625 | | | 2 | | | 2 | |
Other | Other | | 235 | | | 0 | | | 0 | | | 257 | | | 0 | | | 1 | | Other | | 149 | | | 4 | | | — | | | 148 | | | — | | | — | |
Derivatives not in hedge accounting relationships | Derivatives not in hedge accounting relationships | | 9,131 | | | 26 | | | 92 | | | 14,353 | | | 51 | | | 149 | | Derivatives not in hedge accounting relationships | | 4,141 | | | 13 | | | 38 | | | 3,545 | | | 12 | | | 61 | |
Gross derivative amount before netting adjustments and cash collateral | Gross derivative amount before netting adjustments and cash collateral | | $ | 61,814 | | | 119 | | | 669 | | | $ | 53,846 | | | $ | 116 | | | 878 | | Gross derivative amount before netting adjustments and cash collateral | | $ | 79,194 | | | 533 | | | 1,631 | | | $ | 73,866 | | | 70 | | | 527 | |
Netting adjustments and cash collateral | Netting adjustments and cash collateral | | | | (105) | | | (581) | | | | | (111) | | | (187) | | Netting adjustments and cash collateral | | | | (472) | | | (1,560) | | | | | (56) | | | (495) | |
Derivatives on Statements of Condition | | $ | 14 | | | $ | 88 | | | $ | 5 | | | $ | 691 | | |
Derivatives on Condensed Statements of Condition | | Derivatives on Condensed Statements of Condition | | $ | 61 | | | $ | 71 | | | $ | 14 | | | $ | 32 | |
| | Cash Collateral | | | | | | Cash Collateral | | | | | | Cash Collateral | | | | | | Cash Collateral | | | | |
Cash collateral posted and related accrued interest | Cash collateral posted and related accrued interest | | $ | 483 | | | $ | 84 | | | Cash collateral posted and related accrued interest | | $ | 1,233 | | | $ | 447 | | |
Cash collateral received and related accrued interest | Cash collateral received and related accrued interest | | 7 | | | 8 | | | Cash collateral received and related accrued interest | | 144 | | | 8 | | |
The following table presents the noninterest income - derivatives and economic hedging activities as presented in the Condensed Statements of Income.
| | | Three months ended June 30, | | Six months ended June 30, | | | | Three months ended March 31, | |
For the periods ending | For the periods ending | | 2021 | | 2020 | | 2021 | | 2020 | For the periods ending | | | 2022 | | 2021 |
Economic hedges - | Economic hedges - | | | | | | | | | | Economic hedges - | | | | | | |
Interest rate contracts | Interest rate contracts | | $ | (11) | | | (11) | | | $ | 16 | | | (159) | | | Interest rate contracts | | | $ | 27 | | | $ | 27 | | |
Mortgage delivery commitments | Mortgage delivery commitments | | 1 | | | 0 | | | (12) | | | 0 | | | Mortgage delivery commitments | | | (5) | | | (13) | | |
Other | Other | | (3) | | | (10) | | | 3 | | | (4) | | | Other | | | 7 | | | 6 | | |
Economic hedges | Economic hedges | | (13) | | | (21) | | | 7 | | | (163) | | | Economic hedges | | | 29 | | | 20 | | |
Variation margin on daily settled cleared derivatives | | 0 | | | 0 | | | 0 | | | 4 | | | |
| Noninterest income - Derivatives and hedging activities | Noninterest income - Derivatives and hedging activities | | $ | (13) | | | $ | (21) | | | $ | 7 | | | $ | (159) | | | Noninterest income - Derivatives and hedging activities | | | $ | 29 | | | $ | 20 | | |
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)
The following tables present details regarding the offsetting of our cleared and bilateral derivatives on our Condensed Statements of Condition. The netting adjustment amount includes cash collateral (either received or paid by us) and related accrued interest in cases where we have a legal right, by contract (e.g., master netting agreement) or otherwise, to offset cash flow obligations between us and our counterparty into a single net payable or receivable.
| | | Derivative Assets | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2021 | | As of December 31, 2020 | | Derivative Assets |
| | Bilateral | | Cleared | | Total | | Bilateral | | Cleared | | Total | | As of March 31, 2022 | | As of December 31, 2021 |
| | | | | | | | | | | | | | Bilateral | | Cleared | | Total | | Bilateral | | Cleared | | Total |
Derivatives with legal right of offset - | Derivatives with legal right of offset - | | Derivatives with legal right of offset - | | | | | | | | | | | | |
Gross recognized amount | Gross recognized amount | | $ | 59 | | | $ | 57 | | | $ | 116 | | | $ | 60 | | | $ | 51 | | | $ | 111 | | Gross recognized amount | | $ | 361 | | | $ | 170 | | | $ | 531 | | | $ | 61 | | | $ | 7 | | | $ | 68 | |
| Netting adjustments and cash collateral | Netting adjustments and cash collateral | | (48) | | | (57) | | | (105) | | | (60) | | | (51) | | | (111) | | Netting adjustments and cash collateral | | (302) | | | (170) | | | (472) | | | (49) | | | (7) | | | (56) | |
Derivatives with legal right of offset - net | Derivatives with legal right of offset - net | | 11 | | | 0 | | | 11 | | | 0 | | | 0 | | | 0 | | Derivatives with legal right of offset - net | | 59 | | | — | | | 59 | | | 12 | | | — | | | 12 | |
Derivatives without legal right of offset | Derivatives without legal right of offset | | 3 | | | 0 | | | 3 | | | 5 | | | 0 | | | 5 | | Derivatives without legal right of offset | | 2 | | | — | | | 2 | | | 2 | | | — | | | 2 | |
Derivatives on Statements of Condition | | 14 | | | 0 | | | 14 | | | 5 | | | 0 | | | 5 | | |
Derivatives on Condensed Statements of Condition | | Derivatives on Condensed Statements of Condition | | 61 | | | — | | | 61 | | | 14 | | | — | | | 14 | |
| Net amount | Net amount | | $ | 14 | | | $ | 0 | | | $ | 14 | | | $ | 5 | | | $ | 0 | | | $ | 5 | | Net amount | | $ | 61 | | | $ | — | | | $ | 61 | | | $ | 14 | | | $ | — | | | $ | 14 | |
| | | Derivative Liabilities | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | As of June 30, 2021 | | As of December 31, 2020 | | Derivative Liabilities |
| | Bilateral | | Cleared | | Total | | Bilateral | | Cleared | | Total | | As of March 31, 2022 | | As of December 31, 2021 |
| | | | | | | | | | | | | | Bilateral | | Cleared | | Total | | Bilateral | | Cleared | | Total |
Derivatives with legal right of offset - | Derivatives with legal right of offset - | | Derivatives with legal right of offset - | | | | | | | | | | | | |
Gross recognized amount | Gross recognized amount | | $ | 548 | | | $ | 118 | | | $ | 666 | | | $ | 812 | | | $ | 59 | | | $ | 871 | | Gross recognized amount | | $ | 1,400 | | | $ | 227 | | | $ | 1,627 | | | $ | 495 | | | $ | 30 | | | $ | 525 | |
| Netting adjustments and cash collateral | Netting adjustments and cash collateral | | (524) | | | (57) | | | (581) | | | (136) | | | (51) | | | (187) | | Netting adjustments and cash collateral | | (1,391) | | | (169) | | | (1,560) | | | (487) | | | (8) | | | (495) | |
Derivatives with legal right of offset - net | Derivatives with legal right of offset - net | | 24 | | | 61 | | | 85 | | | 676 | | | 8 | | | 684 | | Derivatives with legal right of offset - net | | 9 | | | 58 | | | 67 | | | 8 | | | 22 | | | 30 | |
Derivatives without legal right of offset | Derivatives without legal right of offset | | 3 | | | 0 | | | 3 | | | 7 | | | 0 | | | 7 | | Derivatives without legal right of offset | | 4 | | | — | | | 4 | | | 2 | | | — | | | 2 | |
Derivatives on Statements of Condition | | 27 | | | 61 | | | 88 | | | 683 | | | 8 | | | 691 | | |
Derivatives on Condensed Statements of Condition | | Derivatives on Condensed Statements of Condition | | 13 | | | 58 | | | 71 | | | 10 | | | 22 | | | 32 | |
Less: | | Less: | |
| Less: Noncash collateral received or pledged and cannot be sold or repledged | | 0 | | | 61 | | | 61 | | | 668 | | | 8 | | | 676 | | |
Noncash collateral received or pledged and cannot be sold or repledged | | Noncash collateral received or pledged and cannot be sold or repledged | | — | | | 58 | | | 58 | | | — | | | 22 | | | 22 | |
Net amount | Net amount | | $ | 27 | | | $ | 0 | | | $ | 27 | | | $ | 15 | | | $ | 0 | | | $ | 15 | | Net amount | | $ | 13 | | | $ | — | | | $ | 13 | | | $ | 10 | | | $ | — | | | $ | 10 | |
At June 30,March 31, 2022 and December 31, 2021, we had $520$565 million and $622 million of additional credit exposure on cleared derivatives due to pledging of noncash collateral to our DCOs (for initial margin),counterparties, which exceeded our cleared net derivative liability position. We had 0 additional credit exposure on bilateral derivatives, which exceeded our bilateral net derivative liability position. At December 31, 2020, we had $615 million of comparable exposure on ourposition for combined cleared derivatives and $1 million on our bilateral derivatives.
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)
Fair Value Hedges
The following table presents our fair value hedging results by the type of hedged item. We had no net gain or loss on hedged firm commitments that no longer qualified as a fair value hedge. Changes in fair value of the derivative and the hedged item attributable to the hedged risk for designated fair value hedges are recorded in net interest income in the same line as the earnings effect of the hedged item. Gains (losses) on derivatives include unrealized changes in fair value, as well as net interest settlements. The line for Other relates to discontinued closed fair value hedges on MPF Loans held for portfolio that are being amortized over the remaining life of the loans, asloans. As of March 31, 2022 we did not have any active fair value hedges on our MPF Loans as of June 30, 2021.Loans.
| | | Three months ended June 30, 2021 | | Three months ended June 30, 2020 | |
| | Gain (Loss) on Derivative | | Gain (Loss) on Hedged Item | | Amount Recorded in Net Interest Income | | Gain (Loss) on Derivative | | Gain (Loss) on Hedged Item | | Amount Recorded in Net Interest Income | |
Available-for-sale debt securities | | $ | (354) | | | $ | 310 | | | $ | (44) | | | $ | (80) | | | $ | 28 | | | $ | (52) | | |
Advances | | (124) | | | 77 | | | (47) | | | (63) | | | 38 | | | (25) | | |
Consolidated obligation bonds | | 135 | | | (76) | | | 59 | | | 31 | | | 5 | | | 36 | | |
| Total | | $ | (343) | | | $ | 311 | | | $ | (32) | | | $ | (112) | | | $ | 71 | | | $ | (41) | | |
| | | | Six months ended June 30, 2021 | | Six months ended June 30, 2020 | | Three months ended March 31, 2022 | | Three months ended March 31, 2021 |
| | Gain (Loss) on Derivative | | Gain (Loss) on Hedged Item | | Amount Recorded in Net Interest Income | | Gain (Loss) on Derivative | | Gain (Loss) on Hedged Item | | Amount Recorded in Net Interest Income | | Gain (Loss) on Derivative | | Gain (Loss) on Hedged Item | | Amount Recorded in Net Interest Income | | Gain (Loss) on Derivative | | Gain (Loss) on Hedged Item | | Amount Recorded in Net Interest Income |
Available-for-sale debt securities | Available-for-sale debt securities | | $ | 381 | | | $ | (521) | | | $ | (140) | | | $ | (1,338) | | | $ | 1,299 | | | $ | (39) | | Available-for-sale debt securities | | $ | 875 | | | $ | (967) | | | $ | (92) | | | $ | 735 | | | $ | (831) | | | $ | (96) | |
Advances | Advances | | 212 | | | (298) | | | (86) | | | (793) | | | 753 | | | (40) | | Advances | | 653 | | | (674) | | | (21) | | | 336 | | | (375) | | | (39) | |
Consolidated obligation bonds | Consolidated obligation bonds | | (70) | | | 176 | | | 106 | | | 283 | | | (240) | | | 43 | | Consolidated obligation bonds | | (1,275) | | | 1,372 | | | 97 | | | (205) | | | 252 | | | 47 | |
Other | Other | | 0 | | | (1) | | | (1) | | | 0 | | | 0 | | | 0 | | Other | | — | | | — | | | — | | | — | | | (1) | | | (1) | |
Total | Total | | $ | 523 | | | $ | (644) | | | $ | (121) | | | $ | (1,848) | | | $ | 1,812 | | | $ | (36) | | Total | | $ | 253 | | | $ | (269) | | | $ | (16) | | | $ | 866 | | | $ | (955) | | | $ | (89) | |
|
The following table presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items. The line for Other relates to discontinued closed fair value hedges on MPF Loans held for portfolio that are being amortized over the remaining life of the loans, as we did not have any active fair value hedges on our MPF Loans as of June 30, 2021.
| As of June 30, 2021 | | Amortized cost of hedged asset/liability | | Basis adjustments active hedges included in amortized cost | | Basis adjustments discontinued hedges included in amortized cost | | Total amount of fair value hedging basis adjustments | |
As of March 31, 2022 | | As of March 31, 2022 | | Amortized cost of hedged asset/liability | | Basis adjustments active hedges included in amortized cost | | Basis adjustments discontinued hedges included in amortized cost | | Total amount of fair value hedging basis adjustments |
Available-for-sale securities | | Available-for-sale securities | | $ | 14,118 | | | $ | (618) | | | $ | 407 | | | $ | (211) | |
Advances | Advances | | $ | 17,994 | | | $ | 459 | | | $ | 2 | | | $ | 461 | | Advances | | 17,903 | | | (447) | | | 2 | | | (445) | |
Available-for-sale securities | | 13,438 | | | 976 | | | 0 | | | 976 | | |
Consolidated obligation bonds | Consolidated obligation bonds | | 21,719 | | | 43 | | | (18) | | | 25 | | Consolidated obligation bonds | | 39,643 | | | (1,565) | | | (15) | | | (1,580) | |
Other | Other | | 305 | | | 0 | | | 7 | | | 7 | | Other | | 249 | | | — | | | 6 | | | 6 | |
| As of December 31, 2021 | | As of December 31, 2021 | |
Available-for-sale securities | | Available-for-sale securities | | $ | 14,412 | | | $ | 335 | | | $ | 421 | | | $ | 756 | |
Advances | | Advances | | 19,720 | | | 225 | | | 2 | | | 227 | |
Consolidated obligation bonds | | Consolidated obligation bonds | | 36,335 | | | (192) | | | (16) | | | (208) | |
Other | | Other | | 265 | | | — | | | 6 | | | 6 | |
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)
Cash Flow Hedges
For cash flow hedges the entire change in the fair value of the hedging instrument is recorded in AOCI and reclassified into earnings (net interest income) as the hedged item affects earnings. Hedge effectiveness testing is performed to determine whether hedge accounting is qualified.
We are exposed to the variability in the total net proceeds received from forecasted zero-coupon discount note issuances, which is attributable to changes in the benchmark interest rate. As a result, we enter into cash flow hedge relationships utilizing derivative agreements to hedge the total net proceeds received from our "rolling" forecasted zero-coupon discount note issuances attributable to changes in the benchmark interest rate. The maximum length of time over which we are hedging this exposure is 98 years. We reclassify amounts in AOCI into our Condensed Statements of Income in the same periods during which the hedged forecasted transaction affects our earnings. We had no discontinued cash flow hedges for the periods presented. The deferred net gains (losses) on derivative instruments in AOCI that are expected to be reclassified to earnings during the next twelve months were immaterial as of June 30, 2021.March 31, 2022. We are not using the cash flow hedge strategy for new transactions at this time, as we used LIBOR as the benchmark interest rate for cash flow hedges and we are not entering into new LIBOR-linked transactions.
The following table presents our cash flow hedging results by type of hedged item. Additionally, the table indicates where cash flow hedging results are classified in our Condensed Statements of Income. In this regard, the Amount Reclassified from AOCI into Net Interest Income column below includes the following:
•The amortization of closed cash flow hedging adjustments, which are reclassified from AOCI into the interest income/expense line item of the respective hedged item type.
•The effect of net interest settlements attributable to open derivative hedging instruments, which are initially recorded in AOCI and are reclassified to the interest income/expense line item of the respective hedged item type.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, 2021 | | Three months ended June 30, 2020 |
| | Gross Amount Initially Recognized in AOCI | | Amount Reclassified from AOCI into Net Interest Income | | Gross Amount Initially Recognized in AOCI | | Amount Reclassified from AOCI into Net Interest Income |
| | | | | | | | |
Discount notes | | $ | (14) | | | $ | (4) | | | $ | (10) | | | $ | (5) | |
Bonds | | 0 | | | (1) | | | 0 | | | (1) | |
Total | | $ | (14) | | | $ | (5) | | | $ | (10) | | | $ | (6) | |
| | | | | | | | |
| | Six months ended June 30, 2021 | | Six months ended June 30, 2020 |
| | Gross Amount Initially Recognized in AOCI | | Amount Reclassified from AOCI into Net Interest Income | | Gross Amount Initially Recognized in AOCI | | Amount Reclassified from AOCI into Net Interest Income |
| | | | | | | | |
Discount notes | | $ | 23 | | | $ | (8) | | | $ | (58) | | | $ | (9) | |
Bonds | | 0 | | | (1) | | | 0 | | | (1) | |
Total | | $ | 23 | | | $ | (9) | | | $ | (58) | | | $ | (10) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | Three months ended March 31, 2022 | | Three months ended March 31, 2021 |
| | Gross Amount Initially Recognized in AOCI | | Amount Reclassified from AOCI into Net Interest Income | | Gross Amount Initially Recognized in AOCI | | Amount Reclassified from AOCI into Net Interest Income |
| | | | | | | | |
Discount notes | | $ | 52 | | | $ | (4) | | | $ | 37 | | | $ | (4) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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 10 – Consolidated Obligations
The FHLBs issue consolidated obligations through the Office of Finance as their agent. Consolidated obligations consist of discount notes and consolidated obligation bonds. Consolidated discount notes are issued to raise short-term funds, are issued at less than their face amount and redeemed at par value when they mature. The maturity of consolidated obligation bonds may range from less than one year to over 20 years, but they are not subject to any statutory or regulatory limits on maturity.
The following table presents our consolidated obligation discount notes for which we are the primary obligor. All are due in one year or less.
| As of | As of | | June 30, 2021 | | December 31, 2020 | As of | | March 31, 2022 | | December 31, 2021 |
Consolidated obligation discount notes - carrying amount | Consolidated obligation discount notes - carrying amount | | $ | 45,728 | | | $ | 48,643 | | Consolidated obligation discount notes - carrying amount | | $ | 26,463 | | | $ | 24,563 | |
Consolidated obligation discount notes - par amount | | 45,732 | | | 48,654 | | |
Consolidated obligation discount notes - principal amount | | Consolidated obligation discount notes - principal amount | | 26,471 | | | 24,565 | |
Weighted Average Interest Rate | Weighted Average Interest Rate | | 0.03 | % | | 0.10 | % | Weighted Average Interest Rate | | 0.24 | % | | 0.05 | % |
The following table presents the remaining life of our consolidated obligation bonds by the bond’s contractual maturity and the related weighted average interest rate, for which we are the primary obligor, including callable bonds that are redeemable in whole, or in part, at our discretion on predetermined call dates.
| | | | | | | | | | | | | | | | | | | | |
As of June 30, 2021 | | Contractual Maturity | | Weighted Average Interest Rate | | By Maturity or Next Call Date |
Due in one year or less | | $ | 12,586 | | | 0.69 | % | | $ | 30,576 | |
One to two years | | 8,782 | | | 1.13 | % | | 8,816 | |
Two to three years | | 2,372 | | | 0.99 | % | | 1,541 | |
Three to four years | | 2,471 | | | 0.88 | % | | 1,194 | |
Four to five years | | 6,940 | | | 0.69 | % | | 206 | |
Thereafter | | 9,757 | | | 1.71 | % | | 575 | |
Total par value | | $ | 42,908 | | | 1.04 | % | | $ | 42,908 | |
| | | | | | | | | | | | | | | | | | | | |
As of March 31, 2022 | | Contractual Maturity | | Weighted Average Interest Rate | | By Maturity or Next Call Date |
Due in one year or less | | $ | 19,118 | | | 0.78 | % | | $ | 54,022 | |
One to two years | | 6,735 | | | 0.87 | % | | 4,740 | |
Two to three years | | 10,569 | | | 1.01 | % | | 2,170 | |
Three to four years | | 8,127 | | | 0.79 | % | | 1,077 | |
Four to five years | | 9,233 | | | 1.27 | % | | 1,143 | |
Thereafter | | 10,054 | | | 1.75 | % | | 684 | |
Total par value | | $ | 63,836 | | | 1.05 | % | | $ | 63,836 | |
The following table presents consolidated obligation bonds outstanding by call feature:feature.
| | | | | | | | | | | | | | |
As of | | June 30, 2021 | | December 31, 2020 |
Noncallable | | $ | 22,730 | | | $ | 35,075 | |
Callable | | 20,178 | | | 7,397 | |
Par value | | 42,908 | | | 42,472 | |
Fair value hedging adjustments | | 25 | | | 200 | |
Other adjustments | | (11) | | | (2) | |
Consolidated obligation bonds | | $ | 42,922 | | | $ | 42,670 | |
| | | | | | | | | | | | | | |
As of | | March 31, 2022 | | December 31, 2021 |
Noncallable | | $ | 20,812 | | | $ | 24,516 | |
Callable | | 43,024 | | | 39,087 | |
Par value | | 63,836 | | | 63,603 | |
Fair value hedging adjustments | | (1,580) | | | (208) | |
Other adjustments | | (34) | | | (22) | |
Consolidated obligation bonds | | $ | 62,222 | | | $ | 63,373 | |
The following table summarizes the consolidated obligations of the FHLBs and those for which we are the primary obligor. We did not accrue a liability for our joint and several liability related to the other FHLBs’ share of the consolidated obligations as of June 30, 2021,March 31, 2022, and December 31, 2020.2021. See Note 16 - Commitments and Contingencies in our 20202021 Form 10-K for further details.
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Par values as of | Par values as of | | Bonds | | Discount Notes | | Total | | Bonds | | Discount Notes | | Total | Par values as of | | Bonds | | Discount Notes | | Total | | Bonds | | Discount Notes | | Total |
FHLB System total consolidated obligations | FHLB System total consolidated obligations | | $ | 435,014 | | | $ | 231,733 | | | $ | 666,747 | | | $ | 471,919 | | | $ | 274,853 | | | $ | 746,772 | | FHLB System total consolidated obligations | | $ | 457,350 | | | $ | 242,180 | | | $ | 699,530 | | | $ | 441,936 | | | $ | 210,926 | | | $ | 652,862 | |
FHLB Chicago as primary obligor | FHLB Chicago as primary obligor | | 42,908 | | | 45,732 | | | 88,640 | | | 42,472 | | | 48,654 | | | 91,126 | | FHLB Chicago as primary obligor | | 63,836 | | | 26,471 | | | 90,307 | | | 63,603 | | | 24,565 | | | 88,168 | |
As a percent of the FHLB System | As a percent of the FHLB System | | 10 | % | | 20 | % | | 13 | % | | 9 | % | | 18 | % | | 12 | % | As a percent of the FHLB System | | 14 | % | | 11 | % | | 13 | % | | 14 | % | | 12 | % | | 14 | % |
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 11 – Capital and Mandatorily Redeemable Capital Stock (MRCS)
Under our Capital Plan our stock consists of two sub-classes of stock, Class B1 activity stock and Class B2 membership stock (together, Class B stock), both with a par value of $100 and redeemable on five years' written notice, subject to certain conditions. Under the Capital Plan, each member is required to own capital stock in an amount equal to the greater of a membership stock requirement or an activity stock requirement. All stock that supports a member’s activity stock requirement with the Bank is classified as Class B1 activity stock. Any additional amount of stock necessary for the total amount of Class B stock held to equal a member’s minimum investment amount will be classified as Class B2 membership stock. Members purchase Class B2 membership stock to satisfy their membership stock requirement with the Bank. Stock held in excess of a member’s minimum investment requirement is classified as Class B2 excess capital stock. See Note 12 – Capital and Mandatorily Redeemable Capital Stock (MRCS) to the financial statements in our 20202021 Form 10-K for further information on our capital stock and MRCS.
Minimum Capital Requirements
For details on our minimum capital requirements, including how the ratios below were calculated, see Minimum Capital Requirements in Note 12 – Capital and Mandatorily Redeemable Capital Stock (MRCS) to the financial statements in our 20202021 Form 10-K. We complied with our minimum regulatory capital requirements as shown below.
| | June 30, 2021 | | December 31, 2020 | |
As of | | As of | | March 31, 2022 | | December 31, 2021 |
| | Requirement | | Actual | | Requirement | | Actual | | | Requirement | | Actual | | Requirement | | Actual |
Total regulatory capital | Total regulatory capital | | $ | 3,900 | | | $ | 6,394 | | | $ | 4,014 | | | $ | 6,361 | | Total regulatory capital | | $ | 3,895 | | | $ | 6,766 | | | $ | 3,878 | | | $ | 6,656 | |
Total regulatory capital ratio | Total regulatory capital ratio | | 4.00 | % | | 6.56 | % | | 4.00 | % | | 6.34 | % | Total regulatory capital ratio | | 4.00 | % | | 6.95 | % | | 4.00 | % | | 6.87 | % |
Leverage capital | Leverage capital | | $ | 4,875 | | | $ | 9,592 | | | $ | 5,018 | | | $ | 9,541 | | Leverage capital | | $ | 4,869 | | | $ | 10,149 | | | $ | 4,848 | | | $ | 9,984 | |
Leverage capital ratio | Leverage capital ratio | | 5.00 | % | | 9.84 | % | | 5.00 | % | | 9.51 | % | Leverage capital ratio | | 5.00 | % | | 10.42 | % | | 5.00 | % | | 10.30 | % |
Risk-based capital | Risk-based capital | | $ | 1,778 | | | $ | 6,394 | | | $ | 1,587 | | | $ | 6,361 | | Risk-based capital | | $ | 1,179 | | | $ | 6,766 | | | $ | 1,297 | | | $ | 6,656 | |
Total regulatory capital and leverage capital includes mandatorily redeemable capital stock (MRCS) but does not include AOCI. Under the FHFA regulation on capital classifications and critical capital levels for the FHLBs, we are adequately capitalized.
Additionally, an FHFA Advisory Bulletin sets forth guidance for each FHLB to maintain a ratio of at least two percent of capital stock to total assets. In accordance with this guidance, the FHFA considers the proportion of capital stock to assets, measured on a daily average basis at month end, when assessing each FHLB’s capital management practices.
The following members (including any successor) had regulatory capital stock exceeding 10% of our total regulatory capital stock outstanding (which includes MRCS):.
| | | | | | | | | | | | | | | | | | | | |
As of June 30, 2021 | | Regulatory Capital Stock Outstanding | | % of Total Outstanding | | Amount of Which is Classified as a Liability (MRCS) |
One Mortgage Partners Corp. | | $ | 245 | | a | 10.9 | % | | $ | 245 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | | | | | | | | | | | | | | | |
As of March 31, 2022 | | Regulatory Capital Stock Outstanding | | % of Total Outstanding | | Amount of Which is Classified as a Liability (MRCS) |
JPMorgan Chase Bank NA | | $ | 245 | | a | 10.1 | % | | $ | 245 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
a One Mortgage Partners Corp. (OMP) is a subsidiary of JPMorgan Chase Bank NA. Effective February 19, 2021, we terminated OMP’sOne Mortgage Partners Corp.'s ("OMP") membership in connection with the FHFA rule that made captive insurance companies ineligible for FHLB membership. In December 2021, OMP merged with and into its parent company, JPMorgan Chase Bank NA.
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)
Dividends
Our ability to pay dividends is subject to the FHLB Act and FHFA regulations. On JulyApril 28, 20212022 our Board of Directors declared a 5.00%5.125% dividend (annualized) for Class B1 activity stock and a 2.00%2.125% dividend (annualized) for Class B2 membership stock based on our preliminary financial results for the secondfirst quarter of 2021.2022. This dividend totaled $25$27 million (recorded as $22$24 million dividends on capital stock and $3 million interest expense on mandatorily redeemable capital stock) and is scheduled for payment on AugustMay 12, 2021.2022. Any future dividend payment remains subject to declaration by the Board and will depend on future operating results, our Retained Earnings and Dividend Policy and any other factors the Board determines to be relevant.
Repurchase of Excess Capital Stock
Members may request repurchase of excess capital stock on any business day. Additionally, starting on March 15, 2021, and continuing on a monthly basis, the Bank repurchases excess capital stock held by each member or former member that exceeds certain limits set by the Bank. All repurchases of excess capital stock, including any future monthly repurchases, will continue until otherwise announced, but remain subject to our regulatory requirements, certain financial and capital thresholds, and prudent business practices.
FICO Dissolution
The Competitive Equality Banking Act of 1987 was enacted in August 1987, which, among other things, provided for the recapitalization of the Federal Savings and Loan Insurance Corporation through a newly-chartered entity, the Financing Corporation (FICO). The capitalization of FICO was provided by capital distributions from the FHLBs to FICO in exchange for FICO nonvoting capital stock. Capital distributions were made by the FHLBs in 1987, 1988 and 1989 that aggregated to $680 million. Upon passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the FHLBs’ previous investment in capital stock of FICO was determined to be non-redeemable and the FHLBs charged-off their prior capital distributions to FICO directly against retained earnings.
In connection with the dissolution of FICO in July 2020, FICO determined that excess funds aggregating to $200 million were available for distribution to its stockholders, the FHLBs and FICO distributed these funds to the FHLBs in June 2020. Specifically, our partial recovery of prior capital distribution was $19 million, which was determined based on our share of the $680 million originally contributed to FICO. We treated the receipt of these funds as a return of our investment in FICO capital stock, and therefore as a partial recovery of the prior capital distributions we made to FICO in 1987, 1988, and 1989. These funds have been credited to unrestricted retained earnings in our Statements of Capital and in Other Financing Activities in our Condensed Statements of Cash Flows.
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 12 - Accumulated Other Comprehensive Income (Loss)
The following table summarizes the gains (losses) in AOCI for the reporting periods indicated.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Unrealized - | | Non-credit OTTI - | | Net Unrealized - Cash Flow Hedges | | | | |
| | Available-for-sale Debt Securities | | Held-to-maturity Debt Securities | | | Post - Retirement Plans | | Total in AOCI |
Three months ended June 30, 2021 | | | | | | | | | | |
Beginning balance | | $ | 490 | | | $ | 0 | | | $ | (24) | | | $ | (25) | | | $ | 441 | |
Other comprehensive income before reclassification - recorded to the Statements of Condition | | 55 | | | 0 | | | (14) | | | 0 | | | 41 | |
Amounts reclassified in period to Statements of Income: | | | | | | | | | | |
Net interest income | | (1) | | | 0 | | | 5 | | | | | 4 | |
| | | | | | | | | | |
Noninterest expense | | | | | | | | 1 | | | 1 | |
Ending balance | | $ | 544 | | | $ | 0 | | | $ | (33) | | | $ | (24) | | | $ | 487 | |
Three months ended June 30, 2020 | | | | | | | | | | |
Beginning balance | | $ | (527) | | | $ | (81) | | | $ | (82) | | | $ | (21) | | | $ | (711) | |
Other comprehensive income before reclassification - recorded to the Statements of Condition | | 347 | | | 5 | | | (10) | | | 0 | | | 342 | |
Amounts reclassified in period to statements of income: | | | | | | | | | | |
Net interest income | | 0 | | | 0 | | | 6 | | | | | 6 | |
| | | | | | | | | | |
| | | | | | | | | | |
Ending balance | | $ | (180) | | | $ | (76) | | | $ | (86) | | | $ | (21) | | | $ | (363) | |
| | | | | | | | | | |
Six months ended June 30, 2021 | | | | | | | | | | |
Beginning balance | | $ | 292 | | | $ | 0 | | | $ | (65) | | | $ | (20) | | | $ | 207 | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Other comprehensive income before reclassification - recorded to the Statements of Condition | | 253 | | | 0 | | | 23 | | | (10) | | | 266 | |
Amounts reclassified in period to Statements of Income: | | | | | | | | | | |
Net interest income | | (1) | | | 0 | | | 9 | | | | | 8 | |
| | | | | | | | | | |
Noninterest expense | | | | | | | | 6 | | | 6 | |
| | | | | | | | | | |
Ending balance | | $ | 544 | | | $ | 0 | | | $ | (33) | | | $ | (24) | | | $ | 487 | |
Six months ended June 30, 2020 | | | | | | | | | | |
Beginning balance | | $ | 104 | | | $ | (85) | | | $ | (38) | | | $ | (10) | | | $ | (29) | |
Other comprehensive income before reclassification - recorded to the Statements of Condition | | (284) | | | 9 | | | (58) | | | (12) | | | (345) | |
Amounts reclassified in period to Statements of Income: | | | | | | | | | | |
Net interest income | | 0 | | | 0 | | 10 | | | | | 10 | |
| | | | | | | | | | |
Noninterest expense | | | | | | | | 1 | | | 1 | |
Ending balance | | $ | (180) | | | $ | (76) | | | $ | (86) | | | $ | (21) | | | $ | (363) | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Unrealized - | | Net Unrealized - Cash Flow Hedges | | | | |
| | Available-for-sale Debt Securities | | | Post - Retirement Plans | | Total in AOCI |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Three months ended March 31, 2022 | | | | | | | | |
Beginning balance | | $ | 366 | | | $ | (11) | | | $ | (13) | | | $ | 342 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Other comprehensive income before reclassification - recorded to the Condensed Statements of Condition | | (218) | | | 52 | | | (4) | | | (170) | |
Amounts reclassified in period to Condensed Statements of Income: | | | | | | | | |
Net interest income | | — | | | 4 | | | | | 4 | |
| | | | | | | | |
Noninterest expense | | | | | | 1 | | | 1 | |
| | | | | | | | |
Ending balance | | $ | 148 | | | $ | 45 | | | $ | (16) | | | $ | 177 | |
Three months ended March 31, 2021 | | | | | | | | |
Beginning balance | | $ | 292 | | | $ | (65) | | | $ | (20) | | | $ | 207 | |
Other comprehensive income before reclassification - recorded to the Condensed Statements of Condition | | 198 | | | 37 | | | (10) | | | 225 | |
Amounts reclassified in period to Condensed Statements of Income: | | | | | | | | |
Net interest income | | — | | | 4 | | | | | 4 | |
| | | | | | | | |
Noninterest expense | | | | | | 5 | | | 5 | |
Ending balance | | $ | 490 | | | $ | (24) | | | $ | (25) | | | $ | 441 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
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 13 - Fair Value
The following table is a summary of the fair value estimates and related levels in the hierarchy. The carrying amounts are per the Condensed Statements of Condition. Fair value estimates represent the exit prices that we would receive to sell assets or pay to transfer liabilities in an orderly transaction with market participants at the measurement date. They do not represent an estimate of our overall market value as a going concern, as they do not take into account future business opportunities or profitability of assets and liabilities. We measure instrument-specific credit risk attributable to our consolidated obligations based on our nonperformance risk, which includes the credit risk associated with the joint and several liability of other FHLBs see(see Note 16 - Commitments and Contingencies in our 20202021 Form 10-K.10-K). As a result, we did not recognize any instrument-specific credit risk attributable to our consolidated obligations that are carried at fair value. See Note 2 - Summary of Significant Accounting Policies in our 20202021 Form 10-K for our fair value policies and Note 15 - Fair Value in our 20202021 Form 10-K for our valuation techniques and significant inputs. See Note 9 - Derivatives and Hedging Activities for more information on the Netting and Cash Collateral amounts. The net carrying amount in the below table is net of any allowance for credit losses.
| | | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Netting & Cash Collateral | | | Net Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Netting & Cash Collateral |
June 30, 2021 | | | | | | | | | | | | | | |
March 31, 2022 | | March 31, 2022 | | | | | | | | | | | | |
Carried at amortized cost | Carried at amortized cost | | Carried at amortized cost | |
| Cash and due from banks and interest bearing deposits | Cash and due from banks and interest bearing deposits | | $ | 1,295 | | | $ | 1,295 | | | $ | 1,295 | | | Cash and due from banks and interest bearing deposits | | $ | 886 | | | $ | 886 | | | $ | 886 | | |
| Federal Funds sold and securities purchased under agreements to resell | | 16,520 | | | 16,520 | | | $ | 16,520 | | | |
Federal funds sold and securities purchased under agreements to resell | | Federal funds sold and securities purchased under agreements to resell | | 16,176 | | | 16,176 | | | $ | 16,176 | | |
Held-to-maturity debt securities | Held-to-maturity debt securities | | 1,491 | | | 1,536 | | | 1,524 | | | $ | 12 | | | Held-to-maturity debt securities | | 655 | | | 665 | | | 656 | | | $ | 9 | | |
| Advances | Advances | | 45,061 | | | 45,337 | | | 45,337 | | | Advances | | 45,800 | | | 45,898 | | | 45,898 | | |
| MPF Loans held in portfolio, net | MPF Loans held in portfolio, net | | 9,750 | | | 9,957 | | | 9,944 | | | 13 | | | MPF Loans held in portfolio, net | | 9,796 | | | 9,396 | | | 9,385 | | | 11 | | |
Other assets | Other assets | | 82 | | | 82 | | | 82 | | | Other assets | | 139 | | | 139 | | | 139 | | |
| Carried at fair value on a recurring basis | Carried at fair value on a recurring basis | | Carried at fair value on a recurring basis | |
| Trading debt securities | Trading debt securities | | 2,830 | | | 2,830 | | | 2,830 | | | Trading debt securities | | 952 | | | 952 | | | 952 | | |
| Available-for-sale debt securities | Available-for-sale debt securities | | 18,890 | | | 18,890 | | | 18,890 | | | Available-for-sale debt securities | | 21,464 | | | 21,464 | | | 21,464 | | |
Advances | Advances | | 1,209 | | | 1,209 | | | 1,209 | | | Advances | | 1,107 | | | 1,107 | | | 1,107 | | |
| Derivative assets | Derivative assets | | 14 | | | 14 | | | 119 | | | $ | (105) | | | Derivative assets | | 61 | | | 61 | | | 533 | | | $ | (472) | |
Other assets - held for sale at fair value | | 108 | | | 108 | | | 108 | | | |
Other assets | | Other assets | | 103 | | | 103 | | | 103 | | |
| Carried at fair value on a nonrecurring basis | Carried at fair value on a nonrecurring basis | | Carried at fair value on a nonrecurring basis | |
MPF Loans held in portfolio, net | MPF Loans held in portfolio, net | | 9 | | | 9 | | | 9 | | | MPF Loans held in portfolio, net | | 4 | | | 4 | | | 4 | | |
| Financial assets | Financial assets | | 97,259 | | | $ | 97,787 | | | $ | 1,295 | | | $ | 96,563 | | | $ | 34 | | | $ | (105) | | | Financial assets | | 97,143 | | | $ | 96,851 | | | $ | 886 | | | $ | 96,413 | | | $ | 24 | | | $ | (472) | |
Other non financial assets | Other non financial assets | | 235 | | | | | | | | | | | | | Other non financial assets | | 241 | | | | | | | | | | | |
Assets | Assets | | $ | 97,494 | | | Assets | | $ | 97,384 | | |
Carried at amortized cost | Carried at amortized cost | | | | Carried at amortized cost | | | |
Deposits | Deposits | | $ | (1,123) | | | $ | (1,123) | | | $ | (1,123) | | | Deposits | | $ | (707) | | | $ | (707) | | | $ | (707) | | |
| Consolidated obligation discount notes | Consolidated obligation discount notes | | (45,728) | | | (45,727) | | | (45,727) | | | Consolidated obligation discount notes | | (26,463) | | | (26,464) | | | (26,464) | | |
| Consolidated obligation bonds | Consolidated obligation bonds | | (42,580) | | | (42,682) | | | (42,682) | | | Consolidated obligation bonds | | (61,570) | | | (60,856) | | | (60,856) | | |
Mandatorily redeemable capital stock | Mandatorily redeemable capital stock | | (248) | | | (248) | | | $ | (248) | | | Mandatorily redeemable capital stock | | (300) | | | (300) | | | $ | (300) | | |
Other liabilities | Other liabilities | | (110) | | | (110) | | | (110) | | | Other liabilities | | (133) | | | (133) | | | (133) | | |
| Carried at fair value on a recurring basis | Carried at fair value on a recurring basis | | Carried at fair value on a recurring basis | |
| Consolidated obligation bonds | Consolidated obligation bonds | | (342) | | | (342) | | | (342) | | | Consolidated obligation bonds | | (652) | | | (652) | | | (652) | | |
| Derivative liabilities | Derivative liabilities | | (88) | | | (88) | | | (669) | | | $ | 581 | | | Derivative liabilities | | (71) | | | (71) | | | (1,631) | | | $ | 1,560 | |
| Financial liabilities | Financial liabilities | | (90,219) | | | $ | (90,320) | | | $ | (248) | | | $ | (90,653) | | | $ | 0 | | | $ | 581 | | | Financial liabilities | | (89,896) | | | $ | (89,183) | | | $ | (300) | | | $ | (90,443) | | | $ | — | | | $ | 1,560 | |
Other non financial liabilities | Other non financial liabilities | | (642) | | | | | | | | | | | | | Other non financial liabilities | | (845) | | | | | | | | | | | |
Liabilities | Liabilities | | $ | (90,861) | | | Liabilities | | $ | (90,741) | | |
| |
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)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Netting & Cash Collateral | |
| | | | | | | | | | | | | |
December 31, 2020 | | | |
Carried at amortized cost | | | | | | | | | | | | | |
Cash and due from banks and interest bearing deposits | | $ | 4,396 | | | $ | 4,396 | | | $ | 4,396 | | | | | | | | |
Federal Funds sold and securities purchased under agreements to resell | | 14,245 | | | 14,245 | | | | | $ | 14,245 | | | | | | |
Held-to-maturity debt securities | | 1,491 | | | 1,549 | | | | | 1,534 | | | $ | 15 | | | | |
Advances | | 45,380 | | | 45,696 | | | | | 45,696 | | | | | | |
MPF Loans held in portfolio, net | | 10,020 | | | 10,332 | | | | | 10,327 | | | 5 | | | | |
Other assets | | 90 | | | 90 | | | | | 90 | | | | | | |
Carried at fair value on a recurring basis | | | | | | | | | | | | | |
Trading debt securities | | 4,621 | | | 4,621 | | | | | 4,621 | | | | | | |
Available-for-sale debt securities | | 18,437 | | | 18,437 | | | | | 18,437 | | | | | | |
Advances | | 1,315 | | | 1,315 | | | | | 1,315 | | | | | | |
Derivative assets | | 5 | | | 5 | | | | | 116 | | | | | $ | (111) | | |
Other assets - held for sale at fair value | | 105 | | | 105 | | | | | 105 | | | | | | |
Carried at fair value on a nonrecurring basis | | | | | | | | | | | | | |
MPF Loans held in portfolio, net | | 18 | | | 18 | | | | | | | 18 | | | | |
| | | | | | | | | | | | | |
Financial assets | | 100,123 | | | $ | 100,809 | | | $ | 4,396 | | | $ | 96,486 | | | $ | 38 | | | $ | (111) | | |
Other non financial assets | | 233 | | | | | | | | | | | | |
Assets | | $ | 100,356 | | | | | | | | | | | | |
Carried at amortized cost | | | | | | | | | | | | | |
Deposits | | $ | (1,284) | | | $ | (1,284) | | | | | $ | (1,284) | | | | | | |
Consolidated obligation discount notes | | (46,643) | | | (46,644) | | | | | (46,644) | | | | | | |
Consolidated obligation bonds | | (40,826) | | | (41,183) | | | | | (41,183) | | | | | | |
Mandatorily redeemable capital stock | | (279) | | | (279) | | | $ | (279) | | | | | | | | |
Other liabilities | | (89) | | | (89) | | | | | (89) | | | | | | |
Carried at fair value on a recurring basis | | | | | | | | | | | | | |
Consolidated obligation discount notes | | (2,000) | | | (2,000) | | | | | (2,000) | | | | | | |
Consolidated obligation bonds | | (1,844) | | | (1,844) | | | | | (1,844) | | | | | | |
Derivative liabilities | | (691) | | | (691) | | | | | (878) | | | | | 187 | | |
Financial liabilities | | (93,656) | | | $ | (94,014) | | | $ | (279) | | | $ | (93,922) | | | $ | 0 | | | $ | 187 | | |
Other non financial liabilities | | (411) | | | | | | | | | | | | |
Liabilities | | $ | (94,067) | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Net Carrying Amount | | Fair Value | | Level 1 | | Level 2 | | Level 3 | | Netting & Cash Collateral |
December 31, 2021 | | |
Carried at amortized cost | | | | | | | | | | | | |
Cash and due from banks and interest bearing deposits | | $ | 900 | | | $ | 900 | | | $ | 900 | | | | | | | |
Federal funds sold and securities purchased under agreements to resell | | 12,267 | | | 12,267 | | | | | $ | 12,267 | | | | | |
Held-to-maturity debt securities | | 1,801 | | | 1,832 | | | | | 1,822 | | | $ | 10 | | | |
Advances | | 46,876 | | | 47,108 | | | | | 47,108 | | | | | |
MPF Loans held in portfolio, net | | 9,839 | | | 9,908 | | | | | 9,900 | | | 8 | | | |
Other assets | | 83 | | | 83 | | | | | 83 | | | | | |
Carried at fair value on a recurring basis | | | | | | | | | | | | |
Trading debt securities | | 954 | | | 954 | | | | | 954 | | | | | |
Available-for-sale debt securities | | 22,706 | | | 22,706 | | | | | 22,706 | | | | | |
Advances | | 1,173 | | | 1,173 | | | | | 1,173 | | | | | |
Derivative assets | | 14 | | | 14 | | | | | 70 | | | | | $ | (56) | |
Other assets | | 104 | | | 104 | | | | | 104 | | | | | |
Carried at fair value on a nonrecurring basis | | | | | | | | | | | | |
MPF Loans held in portfolio, net | | 4 | | | 4 | | | | | | | 4 | | | |
| | | | | | | | | | | | |
Financial assets | | 96,721 | | | $ | 97,053 | | | $ | 900 | | | $ | 96,187 | | | $ | 22 | | | $ | (56) | |
Other non financial assets | | 233 | | | | | | | | | | | |
Assets | | $ | 96,954 | | | | | | | | | | | |
Carried at amortized cost | | | | | | | | | | | | |
Deposits | | $ | (1,034) | | | $ | (1,034) | | | | | $ | (1,034) | | | | | |
Consolidated obligation discount notes | | (24,563) | | | (24,563) | | | | | (24,563) | | | | | |
Consolidated obligation bonds | | (62,708) | | | (62,585) | | | | | (62,585) | | | | | |
Mandatorily redeemable capital stock | | (247) | | | (247) | | | $ | (247) | | | | | | | |
Other liabilities | | (116) | | | (116) | | | | | (116) | | | | | |
Carried at fair value on a recurring basis | | | | | | | | | | | | |
| | | | | | | | | | | | |
Consolidated obligation bonds | | (665) | | | (665) | | | | | (665) | | | | | |
Derivative liabilities | | (32) | | | (32) | | | | | (527) | | | | | $ | 495 | |
Financial liabilities | | (89,365) | | | $ | (89,242) | | | $ | (247) | | | $ | (89,490) | | | $ | — | | | $ | 495 | |
Other non financial liabilities | | (837) | | | | | | | | | | | |
Liabilities | | $ | (90,202) | | | | | | | | | | | |
We had no transfers between levels for the periods shown.
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)
Fair Value Option
We may elect the fair value option for financial instruments, such as advances, MPF Loans held for sale, and consolidated obligation discount notes and bonds, in cases where hedge accounting treatment may not be achieved due to the inability to meet the hedge effectiveness testing criteria, or in certain cases where we wish to mitigate the risk associated with selecting the fair value option for other instruments. Financial instruments for which we elected the fair value option along with their related fair value are shown on our Condensed Statements of Condition. Refer to our Note 2 – Summary of Significant Accounting Policies to the financial statements in our 20202021 Form 10-K for further details.
The following table presents the changesgains (losses) in fair values of financial assets and liabilities carried at fair value under the fair value option. These changes wereoption, which are recognized in noninterest income - instruments held under the fair value option in our Condensed Statements of Income.,
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2021 | | 2020 | | 2021 | | 2020 |
Advances | | $ | 2 | | | $ | 18 | | | $ | (26) | | | $ | 78 | | |
Other assets | | 0 | | | 0 | | | (2) | | | 2 | | |
Discount notes | | 0 | | | 14 | | | 0 | | | 0 | | |
Consolidated obligation bonds | | 1 | | | 4 | | | 2 | | | (4) | | |
Noninterest income - Instruments held under the fair value option | | $ | 3 | | | $ | 36 | | | $ | (26) | | | $ | 76 | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, | |
| | | | | | 2022 | | 2021 |
Advances | | | | | | $ | (39) | | | $ | (28) | | |
| | | | | | | | | |
Bonds | | | | | | 14 | | | 1 | | |
Other | | | | | | (3) | | | (2) | | |
Noninterest income - Instruments held under the fair value option | | | | | | $ | (28) | | | $ | (29) | | |
The following table reflects the difference between the aggregate UPB outstanding and the aggregate fair value for our long term financial instruments for which the fair value option has been elected. None of the advances were 90 days or more past due and none were on nonaccrual status.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
As of | | Advances | | Consolidated Obligation Bonds | | Advances | | Consolidated Obligation Bonds |
Unpaid principal balance | | $ | 1,133 | | | $ | 339 | | | $ | 1,213 | | | $ | 1,839 | |
Fair value over (under) UPB | | 76 | | | 3 | | | 102 | | | 5 | |
Fair value | | $ | 1,209 | | | $ | 342 | | | $ | 1,315 | | | $ | 1,844 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
As of | | March 31, 2022 | | December 31, 2021 |
| | Advances | | Consolidated Obligation Bonds | | Advances | | Consolidated Obligation Bonds |
Unpaid principal balance | | $ | 1,090 | | | $ | 666 | | | $ | 1,117 | | | $ | 666 | |
Fair value over (under) UPB | | 17 | | | (14) | | | 56 | | | (1) | |
Fair value | | $ | 1,107 | | | $ | 652 | | | $ | 1,173 | | | $ | 665 | |
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 14 – Commitments and Contingencies
The following table shows our commitments outstanding, which represent off-balance sheet obligations.
| | | June 30, 2021 | | December 31, 2020 | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
As of | As of | | Expire within one year | | Expire after one year | | Total | | Expire within one year | | Expire after one year | | Total | As of | | March 31, 2022 | | December 31, 2021 |
| | | | Expire within one year | | Expire after one year | | Total | | Expire within one year | | Expire after one year | | Total |
Member standby letters of credit | Member standby letters of credit | | $ | 4,870 | | | $ | 7,903 | | a | $ | 12,773 | | | $ | 10,446 | | | $ | 5,949 | | a | $ | 16,395 | | Member standby letters of credit | | $ | 4,373 | | | $ | 6,784 | | a | $ | 11,157 | | | $ | 4,285 | | | $ | 7,032 | | a | $ | 11,317 | |
MPF delivery commitments | MPF delivery commitments | | 764 | | | 0 | | | 764 | | | 1,527 | | | 0 | | | 1,527 | | MPF delivery commitments | | 339 | | | — | | | 339 | | | 366 | | | — | | | 366 | |
Advance commitments | Advance commitments | | 1,081 | | | 2 | | | 1,083 | | | 583 | | | 12 | | | 595 | | Advance commitments | | 221 | | | 2 | | | 223 | | | 43 | | | 2 | | | 45 | |
Housing authority standby bond purchase agreements | Housing authority standby bond purchase agreements | | 53 | | | 455 | | | 508 | | | 10 | | | 455 | | | 465 | | Housing authority standby bond purchase agreements | | 34 | | | 465 | | | 499 | | | 25 | | | 477 | | | 502 | |
| Unsettled consolidated obligation discount notes | | Unsettled consolidated obligation discount notes | | 2,100 | | | — | | | 2,100 | | | — | | | — | | | — | |
Unsettled consolidated obligation bonds | Unsettled consolidated obligation bonds | | 1,200 | | | 0 | | | 1,200 | | | 125 | | | 0 | | | 125 | | Unsettled consolidated obligation bonds | | 833 | | | — | | | 833 | | | 378 | | | — | | | 378 | |
Other | Other | | 2 | | | 0 | | | 2 | | | 3 | | | 0 | | | 3 | | Other | | 2 | | | — | | | 2 | | | 3 | | | — | | | 3 | |
Commitments | Commitments | | $ | 7,970 | | | $ | 8,360 | | | $ | 16,330 | | | $ | 12,694 | | | $ | 6,416 | | | $ | 19,110 | | Commitments | | $ | 7,902 | | | $ | 7,251 | | | $ | 15,153 | | | $ | 5,100 | | | $ | 7,511 | | | $ | 12,611 | |
a Contains $7.0$6.0 billion and $5.2$6.1 billion of member standby letters of credit as of June 30, 2021,March 31, 2022, and December 31, 2020,2021, which were renewable annually.
For a description of defined terms see Note 16 - Commitments and Contingencies to the financial statements in our 20202021 Form 10-K.
Note 15 – Transactions with Related Parties and Other FHLBs
We define related parties as either members whose officers or directors serve on our Board of Directors, or members that control more than 10% of our total voting interests. We did not have any members that controlled more than 10% of our total voting interests for the periods presented in these condensed financial statements.
In the normal course of business, we may extend credit to or enter into other transactions with a related party. These transactions are done at market terms that are no more favorable than the terms of comparable transactions with other members who are not considered related parties.
Members
The following table summarizes material balances we had with our members who are related parties as defined above (including their affiliates) as of the periodsdates presented. The related net income impacts to our Condensed Statements of Income were not material.
| | | | | | | | | | | | | | |
As of | | June 30, 2021 | | December 31, 2020 |
Assets - Advances | | $ | 220 | | | $ | 252 | |
Liabilities - Deposits | | 14 | | | 15 | |
Equity - Capital Stock | | 18 | | | 17 | |
| | | | | | | | | | | | | | |
As of | | March 31, 2022 | | December 31, 2021 |
Assets - Advances | | $ | 207 | | | $ | 235 | |
Liabilities - Deposits | | 11 | | | 15 | |
Equity - Capital Stock | | 18 | | | 18 | |
Other FHLBs
From time to time, we may loan to, or borrow from, other FHLBs. These transactions are done at market terms that are no more favorable than the terms of comparable transactions with other counterparties. These transactions are overnight, maturing the following business day.
In addition, we provide programmatic and operational support in our role as the administrator of the MPF Program on behalf of the other MPF Banks for a fee.
Material transactions with other FHLBs are identified on the face of our Condensed Financial Statements.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Selected Financial Data
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | March 31, 2021 | | December 31, 2020 | | September 30, 2020 | | June 30, 2020 | |
| | | | | | | | | | | |
Selected Statements of Condition data | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
Investments a | | $ | 40,586 | | | $ | 33,514 | | | $ | 39,649 | | | $ | 36,364 | | | $ | 36,005 | | |
Advances | | 46,270 | | | 46,975 | | | 46,695 | | | 49,771 | | | 49,250 | | |
MPF Loans held in portfolio, net | | 9,759 | | | 9,895 | |
| 10,041 | |
| 10,529 | |
| 10,947 | | |
Total assets | | 97,494 | | | 94,597 | | | 100,356 | | | 98,387 | | | 96,731 | | |
Consolidated obligation discount notes | | 45,728 | | | 45,262 | | | 48,643 | | | 41,801 | | | 37,440 | | |
Consolidated obligation bonds | | 42,922 | | | 40,260 | | | 42,670 | | | 47,970 | | | 51,760 | | |
Capital stock | | 2,007 | | | 2,019 | | | 2,010 | | | 2,041 | | | 1,837 | | |
Retained earnings | | 4,139 | | | 4,082 | | | 4,072 | | | 3,936 | | | 3,873 | | |
Total capital | | 6,633 | | | 6,542 | | | 6,289 | | | 5,904 | | | 5,347 | | |
Other selected data at period end | | | | | | | | | | | |
Member standby letters of credit outstanding | | $ | 12,773 | | | $ | 10,529 | | | $ | 16,395 | | | $ | 21,666 | | | $ | 24,825 | | |
MPF Loans par value outstanding - FHLB System b | | 67,673 | | | 69,107 | | | 70,326 | | | 71,297 | | | 71,768 | | |
MPF Loans par value outstanding - FHLB Chicago PFIs b | | 18,718 | | | 18,922 | | | 18,934 | | | 18,957 | | | 18,772 | | |
Number of members | | 678 | | | 680 | | | 686 | | | 683 | | | 687 | | |
Total employees (full and part time) | | 451 | | | 469 | | | 474 | | | 486 | | | 488 | | |
Selected Statements of Income data | | | | | | | | | | | |
Net interest income after provision for credit losses | | $ | 152 | |
| $ | 110 | | | $ | 142 | |
| $ | 168 | |
| $ | 134 | | |
Noninterest income | | (10) | | | (13) | | | 101 | | d | (8) | | | 9 | | |
Noninterest expense | | 55 | | | 61 | | | 68 | | | 65 | | | 85 | | |
Net income | | 78 | | | 32 | | | 157 | | d | 85 | | | 52 | | |
Other selected MPF data during the periods b | | | | | | | | | | | |
MPF Loans par value amounts funded - FHLB System | | $ | 4,535 | | | $ | 5,364 | | | $ | 6,672 | | | $ | 7,145 | | | $ | 8,641 | | |
Quarterly number of PFIs funding MPF products - FHLB System | | 687 | | | 710 | | | 707 | | | 730 | | | 764 | | |
MPF Loans par value amounts funded - FHLB Chicago PFIs | | $ | 1,379 | | | $ | 1,703 | | | $ | 1,999 | | | $ | 2,371 | | | $ | 2,985 | | |
Quarterly number of PFIs funding MPF products - FHLB Chicago | | 177 | | | 177 | | | 178 | | | 184 | | | 195 | | |
Selected ratios (rates annualized) | | | | | | | | | | | |
Total regulatory capital to assets ratio | | 6.56 | % | | 6.73 | % | | 6.34 | % | | 6.36 | % | | 6.20 | % | |
Market value of equity to book value of equity | | 106 | % | | 107 | % | | 105 | % | | 106 | % | | 104 | % | |
Primary mission asset ratio c | | 70.5 | % | e | 70.3 | % | e | 71.5 | % | e | 71.6 | % | e | 71.5 | % | e |
Dividend rate class B1 activity stock-period paid | | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % | |
Dividend rate class B2 membership stock-period paid | | 2.00 | % | | 2.00 | % | | 2.25 | % | | 2.25 | % | | 2.25 | % | |
Return on average assets | | 0.32 | % | | 0.13 | % | | 0.62 | % | d | 0.33 | % | | 0.20 | % | |
Return on average equity | | 4.59 | % | | 1.99 | % | | 10.06 | % | d | 6.13 | % | | 3.41 | % | |
Average equity to average assets | | 6.97 | % | | 6.53 | % | | 6.16 | % | | 5.38 | % | | 5.87 | % | |
Net yield on average interest-earning assets | | 0.64 | % | | 0.46 | % | | 0.58 | % | | 0.67 | % | | 0.54 | % | |
Return on average Regulatory Capital spread to three month LIBOR index | | 4.79 | % | | 1.83 | % | | 9.61 | % | d | 3.23 | % | | 2.88 | % | |
Cash dividends-period paid | | $ | 21 | | | $ | 22 | | | $ | 21 | | | $ | 22 | | | $ | 20 | | |
| | | | | | | | | | | |
Dividend payout ratio-period paid | | 26.92 | % |
| 68.75 | % | | 13.38 | % | | 26.00 | % | | 38.00 | % | |
Below are selected financial data for the last five quarters. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 | | September 30, 2021 | | June 30, 2021 | | March 31, 2021 | |
| | | | | | | | | | | |
Other selected data at period end | | | | | | | | | | | |
Member standby letters of credit outstanding | | $ | 11,157 | | | $ | 11,317 | | | $ | 13,116 | | | $ | 12,773 | | | $ | 10,529 | | |
MPF Loans par value outstanding - FHLB System a | | 65,867 | | | 66,297 | | | 67,217 | | | 67,673 | | | 69,107 | | |
MPF Loans par value outstanding - FHLB Chicago PFIs a | | 18,434 | | | 18,600 | | | 18,716 | | | 18,718 | | | 18,922 | | |
Number of members | | 670 | | | 676 | | | 674 | | | 678 | | | 680 | | |
Total employees (full and part time) | | 476 | | | 466 | | | 466 | | | 451 | | | 469 | | |
| | | | | | | | | | | |
Other selected MPF data a | | | | | | | | | | | |
MPF Loans par value amounts funded - FHLB System | | $ | 2,462 | | | $ | 3,152 | | | $ | 4,027 | | | $ | 4,535 | | | $ | 5,364 | | |
Quarterly number of PFIs funding MPF products - FHLB System | | 612 | | | 654 | | | 678 | | | 687 | | | 710 | | |
MPF Loans par value amounts funded - FHLB Chicago PFIs | | $ | 602 | | | $ | 938 | | | $ | 1,150 | | | $ | 1,379 | | | $ | 1,703 | | |
Quarterly number of PFIs funding MPF products - FHLB Chicago | | 172 | | | 179 | | | 178 | | | 177 | | | 177 | | |
Selected ratios (rates annualized) | | | | | | | | | | | |
Total regulatory capital to assets ratio | | 6.95 | % | | 6.87 | % | | 6.50 | % | | 6.56 | % | | 6.73 | % | |
Market value of equity to book value of equity | | 106 | % | | 107 | % | | 106 | % | | 106 | % | | 107 | % | |
Primary mission asset ratio b | | 73.2 | % | | 70.3 | % | | 70.7 | % | | 70.5 | % | | 70.3 | % | |
Dividend rate class B1 activity stock-period paid | | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % | | 5.00 | % | |
Dividend rate class B2 membership stock-period paid | | 2.00 | % | | 2.00 | % | | 2.00 | % | | 2.00 | % | | 2.00 | % | |
Return on average assets | | 0.37 | % | | 0.35 | % | | 0.31 | % | | 0.32 | % | | 0.13 | % | |
Return on average equity | | 5.61 | % | | 5.31 | % | | 4.54 | % | | 4.59 | % | | 1.99 | % | |
Average equity to average assets | | 6.60 | % | | 6.59 | % | | 6.83 | % | | 6.97 | % | | 6.53 | % | |
Net yield on average interest-earning assets | | 0.62 | % | | 0.58 | % | | 0.58 | % | | 0.64 | % | | 0.46 | % | |
Cash dividends | | $ | 22 | | | $ | 21 | | | $ | 22 | | | $ | 21 | | | $ | 22 | | |
| | | | | | | | | | | |
Dividend payout ratio | | 23.16 | % |
| 23.86 | % | | 28.57 | % | | 26.92 | % | | 68.75 | % | |
a Includes investment debt securities, interest bearing deposits, Federal Funds sold, and securities purchased under agreements to resell.
bIncludes all MPF products, whether on or off our balance sheet. See Mortgage Partnership Finance Program beginning on page 8 in our 20202021 Form 10-K.10-K for details on our various MPF products.
cb Annual average year to date basis. The FHFA issued an advisory bulletin that provides guidance relating to a primary mission asset ratio by which the FHFA will assess each FHLB's core mission achievement. See Mission Asset Ratio on page 5 in our 20202021 Form 10-K for more information.
d The selected line items are relatively higher when compared to the same line items in other quarters as a result of gains on our investment securities due to the sale of our AFS and HTM private label mortgage backed securities (PLMBS) during the fourth quarter of 2020. See Note 2 - Summary of Significant Accounting Policies of our Form 10-K for the year ended 2020 for more information.
e We have revised the previously disclosed primary mission asset ratios to reflect an adjusted calculation. See Mission Asset Ratio on page 5 in our 2020 Form 10-K for more information on the related FHFA advisory bulletin guidance.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Forward-Looking Information
Statements contained in this report, including statements describing the plans, objectives, projections, estimates, strategies, or future predictions of management, statements of belief, any projections or guidance on dividends or other financial items, or any statements of assumptions underlying the foregoing, may be “forward-looking statements.” These statements may use forward-looking terminology, such as “anticipates,” “believes,” “expects,” “could,” "plans," “estimates,” “may,” “should,” “will,” their negatives, or other variations of these terms. We caution that, by their nature, forward-looking statements involve risks and uncertainties related to our operations and business environment, all of which are difficult to predict and many of which are beyond our control. These risks and uncertainties could cause actual results to differ materially from those expressed or implied in these forward-looking statements and could affect the extent to which a particular objective, projection, estimate, or prediction is realized. As a result, undue reliance should not be placed on such statements.
These forward-looking statements involve risks and uncertainties including, but not limited to, the following:
•the impact of the coronavirus disease 2019 (COVID-19) pandemic on the global and national economies and on our and our members’ businesses;
•the loss or changes in business activities with significant members; changes in the demand by our members for advances, including as a result of the Federal Reserve’s emergency actions to increase liquidity along with market conditions resulting from the COVID-19 pandemic (or changes to, or the cessation of such actions), the impact of pricing increases, and the availability of other sources of funding for our members, such as deposits;
•regulatory limits on our investments;
•the impact of new business strategies, including our ability to develop and implement business strategies focused on maintaining net interest income; our ability to successfully maintain our balance sheet and cost infrastructure at an appropriate composition and size scaled to member demand; our ability to execute our business model, implement business process improvements and scale our size to our members' borrowing needs; the extent to which our members use our advances as part of their core financing rather than just as a back-up source of liquidity; and our ability to implement product enhancements and new products and generate enough volume in new products to cover our costs related to developing such products;
•the extent to which changes in our current capital stock requirements and/or our ability to continue to offer the Reduced Capitalization Advance Program for certain future advance borrowings, our ability to continue to pay enhanced dividends on our activity stock or our ability to maintain current levels of dividends, and any amendments to our capital plan, impact Bank product usage and activity with members;
•our ability to meet required conditions to repurchase and redeem capital stock from our members (including maintaining compliance with our minimum regulatory capital requirements and determining that our financial condition is sound enough to support such repurchases), the amount and timing of such repurchases or redemptions, any changes in our repurchase processes, and our ability to maintain compliance with regulatory and statutory requirements relating to our dividend payments;
•general economic and market conditions, including the timing and volume of market activity, inflation/deflation, unemployment rates, housing prices, the condition of the mortgage and housing markets, increased delinquencies and/or loss rates on mortgages, prolonged or delayed foreclosure processes, and the effects on, among other things, mortgage backed securities; volatility resulting from the effects of, and changes in, various monetary or fiscal policies and regulations, such as those determined by the Federal Reserve Board and Federal Deposit Insurance Corporation; impacts from various measures to stimulate the economy and help borrowers refinance home mortgages; disruptions in the credit and debt markets and the effect on future funding costs, sources, and availability; the impact of the occurrence of a major natural or other disaster, a pandemic such as the COVID-19 pandemic or other disruptive event; the impact of climate change; the impact of geopolitical uncertainties or conflicts;
•volatility of market prices, rates, and indices, or other factors, such as natural disasters, that could affect the value of our investments or collateral; changes in the value or liquidity of collateral securing advances to our members;
•changes in the value of and risks associated with our investments in mortgage loans, mortgage backed securities and the related credit enhancement protections;
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
•changes in our ability or intent to hold mortgage backed securities to maturity;
•changes in mortgage interest rates and prepayment speeds on mortgage assets;
•membership changes, including the loss of members through mergers and consolidations or as a consequence of regulatory requirements; changes in the financial health of our members, including the resolution of some members; risks related to expanding our membership to include more institutions with regulators and resolution processes with which we have less experience;
•increased reliance on short-term funding and changes in investor demand and capacity for consolidated obligations and/or the terms of interest rate derivatives and similar agreements, including changes in the relative attractiveness of consolidated obligations as compared to other investment opportunities; changes in our cost of funds due to concerns over U.S. fiscal policy, and any related rating agency actions impacting FHLB consolidated obligations;
•uncertainties relating to the scheduled phase-out of the London Interbank Offered Rate (LIBOR);
•political events, including legislative, regulatory, judicial, or other developments that affect us, our members, our counterparties and/or investors in consolidated obligations, including, among other things, changes in the proposals and legislation related to housing finance and GSE reform; changes in the Presidential Administration and the Congress; changes in our regulator or changes affecting our regulator and changes in the FHLB Act or applicable regulations as a result of the Housing and Economic Recovery Act of 2008 (Housing Act) or as may otherwise be issued by our regulator; the potential designation of us as a nonbank financial company for supervision by the Federal Reserve;
•regulatory changes to FHLB membership requirements, capital requirements, MPF program requirements, and liquidity requirements by the FHFA, and increased guidance from the FHFA impacting our balance sheet management, product structures, and collateral practices;
•the ability of each of the other FHLBs to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which we have joint and several liability;
•the pace of technological change and our ability to develop and support technology and information systems, including our ability to protect the security of our information systems and manage any failures, interruptions or breaches in our information systems or technology services provided to us through third party vendors;
•our ability to attractrecruit and retain skilled employees;qualified personnel;
•the impact of new accounting standards and the application of accounting rules, including the impact of regulatory guidance on our application of such standards and rules;
•the volatility of reported results due to changes in the fair value of certain assets and liabilities;
•our ability to identify, manage, mitigate, and/or remedy internal control weaknesses and other operational risks; and
•the reliability of our projections, assumptions, and models on our future financial performance and condition, including dividend projections.
For a more detailed discussion of the risk factors applicable to us, see Risk Factors starting on page 2322 in our 2020 Annual Report on2021 Form 10-K (2020 Form 10-K).10-K.
These forward-looking statements are representative only as of the date they are made, and we undertake no obligation to update any forward-looking statement as a result of new information, future events, changed circumstances, or any other reason.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Executive Summary
SecondFirst Quarter 20212022 Financial Highlights
•Advances outstanding declined slightlydecreased to $46.3$46.9 billion at June 30, 2021, from $46.7March 31, 2022, compared to $48.0 billion at December 31, 2020.2021. We believe many of our depository members experienced an inflowcontinue to experience elevated levels of deposits on their balance sheets along with reducedthat have not been offset by loan demand, while also having access to other liquidity sources as a result of certain government actions related to the COVID-19 pandemic. Although these factors continued to limit our depository members’ current need for advances, increased advance borrowing by insurance company members has mostlypartially offset the decrease by depository members.
•MPF Loans held in portfolio continued to remain steady at $9.8 billion at June 30, 2021, compared to $10.0 billion atMarch 31, 2022, consistent with December 31, 2020.2021.
•Total investment securities decreased 5%9% to $23.2$23.1 billion at June 30, 2021, down from $24.5March 31, 2022, compared to $25.5 billion at December 31, 2020, primarily due2021, attributable to a reduction in investment in TreasurySmall Business Administration securities that matured and were not replaced.replaced, and a decline in the fair value of our available-for-sale (AFS) portfolio due to rising market interest rates.
•Total liquid assets increased to $17.1 billion at March 31, 2022, compared to $13.2 billion at December 31, 2021, as we maintained a sufficient pool of liquidity to support anticipated member demand for advances and letters of credit.
•Total assets decreasedincreased slightly to $97.5$97.4 billion as of June 30, 2021,March 31, 2022, compared to $100.4$97.0 billion as of December 31, 2020, primarily due to a decrease in short-term liquidity assets and investment securities.2021.
•Letters of credit commitments decreased slightly to $12.8$11.2 billion at June 30, 2021, down from $16.4March 31, 2022, compared to $11.3 billion at December 31, 2020, primarily due to one of our former captive insurance company members reducing its letters of credit usage in connection with its membership termination in the first quarter of 2021.
•We recorded net income of $78$95 million in the secondfirst quarter of 2022, up $63 million compared to the first quarter of 2021, with the increase driven by prepayment fee income and lower costs of funding, and other factors described below.
•Net interest income after provision for credit losses for the first quarter of 2022 was $154 million, up from $52$110 million for the first quarter of 2021. This increase is a result, in part, of prepayment fee income of $36 million on our AFS portfolio in the first quarter of 2022 compared to no such income during the same period in 2021. Also, hedge ineffectiveness gains increased $43 million from a loss of $28 million in the secondfirst quarter of 2020, primarily due2021 to a decreasegain of $15 million for the same period in 2022, attributable to a reduction in the sensitivity of our hedged portfolio to fluctuations in market interest expense. The decreaserates. Additionally, the rise in market interest expense was a resultrates did not affect the cost of a lower interest rate environmentour debt until late in the first quarter of 2022, and we replaced our more expensive callable debt with more advantageous funding. Asadvantageously priced funding resulting in lower interest expenses in 2022. To a result,lesser extent, a slight increase in advance prepayments of $10 million in the decrease in interest expense was greater than the decrease in our interest incomefirst quarter of 2022 compared to $5 million for the period. The decreasesame period in 2021 and rising market interest income was primarily attributable to the lower interest rate environment. We also recognized lower operating expenses as employee compensation and benefits expense fell primarily due to reduced pension costs. In addition, lower COVID-19 relief expenses relative to the prior yearrates contributed to the decrease in noninterest expense, and consequently, the increase inour increased net interest income.
•In the secondfirst quarter of 2022, noninterest income was $10 million, an increase of $23 million when compared to a $(13) million (loss) for the first quarter of 2021, noninterest income (loss)attributable to gains from derivatives which were used to hedge our market risk exposure. There was ($10) million, down $19 million from $9 millionalso a significant decline in the average balance of our trading securities outstanding for the second quarterperiod, which in turn reduced the amount of 2020, primarily due to a losslosses incurred on our trading portfolio given the increase in value on instruments held under the fair value option.overall market interest rates.
•We remained in compliance with all of our regulatory capital requirements as of June 30, 2021.March 31, 2022.
Summary and Outlook
SecondFirst Quarter 20212022 Dividends and Dividend Guidance
On JulyApril 28, 2021,2022, the Board of Directors declared a dividend of 5.00%5.125% (annualized) for Class B1 activity stock and a dividend of 2.00%2.125% (annualized) for Class B2 membership stock based on preliminary financial results for the secondfirst quarter of 2022, an increase on the dividend levels declared in 2021. The dividend for the secondfirst quarter of 20212022 will be paid by crediting members’ DID accounts on AugustMay 12, 2021. We pay2022. The Bank pays a higher dividend per share on Class B1 activity stock to recognize members that support the entire cooperative through the use of ourBank products.
We expect to maintain a 5.00%dividend of at least 5.125% (annualized) dividend for Class B1 activity stock forthrough the thirdsecond and fourththird quarters of 2021,2022, reviewed quarterly and based on current projections and assumptions regarding our financial condition. We are providing this information to assist members in planning advance, letters of credit, and MPF Program on-balance sheet producttheir activity with us. 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.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Evolving Business Landscape Committed to Meeting Member Needs
Last month, we published our 2021 Annual Report, which highlights how we support our members, partners, and their communities throughout Illinois and Wisconsin. As we transitioned to a new year, inflation hit a four-decade high and the business landscape for certain productsFederal Reserve has given guidance on tightening monetary policy. We remain committed to leveraging our financial strength to support our members, their customers, and services is evolving, we’re adaptingtheir communities as market uncertainty persists. We are providing the following new specials and strategies to these changes and leveraging new technologies that we believe will be key toserve our members’ successes. As a trusted advisor, we strive to have our forward-thinking teams well-positioned and prepared to guide members through these changes.members:
•A new, significantly-below-market rate advance opportunity for all of our member institutions. We have allocated funds for all members and associate members to execute the 2022 COVID-19 Recovery Advance up to $5 million with a one-year term. The program opened on Monday, May 2, 2022, with funds available through Friday, May 27, 2022.
•In April, in response to member demand, we introduced the Callable Floating Rate Advance (A380 Advance) to enhance member business value as we transition to a post-LIBOR world. The A380 Advance is linked to the Secured Overnight Funding Rate (SOFR) and allows members to customize the call features for match funding floating assets, with an embedded option to help members manage fluctuations in liquidity needs. We expect to offer additional SOFR-linked products in the future.
•In keeping our MPF® Program competitive, we announced new low-loan balance pricing payups for MPF Program: Traditional and MPF Xtra products last quarter. These options continue to provide members with access to expanded pricing on low balance loans, which can help attract new customers and improve members’ balance sheets.
•In January 2021,March, our 2022 Member Meetings took place in five locations throughout Illinois and Wisconsin.
A Stable Source of Community Support
We remain committed to creating and promoting equitable opportunities for underserved people and communities. In partnership with our members, we are investing in programs and organizations in all parts of Illinois and Wisconsin:
•We recently announced three new grant programs designed to address critical affordable housing and community economic development needs in Illinois and Wisconsin with a three-year, $11.25 million commitment.
◦The Community First® Diverse Developer Initiative supports career and talent development initiatives for diverse developers of affordable housing.
◦The Community FirstHousing Counseling Resource Program will provide grants to housing counseling agencies in Illinois and Wisconsin to facilitate expanded service to minority and low- and moderate-income homebuyers. Two of our housing associates, Illinois Housing Development Authority (IHDA) and Wisconsin Housing and Economic Development Authority (WHEDA), will administer the U.S. Departmentprogram on our behalf and we expect grant funding will begin in the third quarter of 2022.
◦The Community First Accelerate Grants for Small Business will provide flexible grant funds to strengthen small businesses. This program is a pivot from our previous Community First Capacity-Building Grant Program for nonprofit community lenders.
•We have allocated $20.7 million to our 2022 Affordable Housing Program (AHP) General Fund.
•In March, we announced recipients of our 2022 Community First Awards – recognizing outstanding achievements of our member and their local partners as they work together to strengthen the communities they serve. These dedicated organizations and leaders strengthen our member communities and each of the Treasury and the FHFA amended the Preferred Stock Purchase Agreement with Fannie Mae and Freddie Mac (Amended PSPA), as discussed in our Form 10-Q for the quarter ended March 31, 2021. There are market changes coming outseven award recipients received $10,000 to support a nonprofit of the Amended PSPA impacting market participants including the MPF Program and the MPF Xtra product. In the short term, the level of non-owner occupied loans that can be sold to Fannie Mae has been limited. The Amended PSPA will also limit the total dollar amount of loans that can be sold to Fannie Mae through the cash window starting in 2022. The Bank continues to focus on serving our members and limiting the negative impacts from these potential disruptions. While we work to re-open non-owner occupied loans that can be sold through MPF Xtra, our MPF Traditional products can accept loans on second homes and may be used as an alternative for these loans. As we adjust to these market changes and as we make headway on solutions, we will provide further updates.their choosing.
•Advance Products – LIBOR transition: We have redesigned our advances tied to LIBOR allowing us to re-offer certain advances such as the Putable Floating-to-Fixed Rate advance (A370). We also set parameters to define the resiliency of the fallback language in connection with our members’ LIBOR-based pledged collateral.
•Pledging eNotes as eligible collateral: We recently approved the acceptance of first and second lien 1-4 family eNotes as eligible collateral.
Providing Support for Members’ Communities
The COVID-19 pandemic unveiled economic disparities and racial inequities that exist in our communities, and we remain focused on how we can create and promote equitable opportunities across our district in Illinois and Wisconsin through our product offerings. As part of our ongoing commitment to support members through the COVID-19 pandemic, in May 2021, we made available a zero-interest rate advance for all member institutions. Over half of our members took out this COVID-19 relief advance, resulting in $1.7 billion in subsidized, 0% advances. Additionally, our community investment programs continue to support our members by providing funds for: affordable housing; downpayment assistance for members’ customers; and economic development activities.
•AHP: Our 2021 Affordable Housing Program (AHP) General Fund closed on June 11, 2021. Forty-two members and 50 sponsors jointly submitted 78 applications for approximately $45.2 million in subsidy to support the construction, acquisition, and/or rehabilitation of more than 3,500 housing units. We expect to award approximately $28.6 million this year and will announce the awards in late October 2021.
•DPP: Our Downpayment Plus® (DPP®) Programs continue to provide our members easy-to-access down payment and closing cost assistance to help our members’ income-eligible customers achieve homeownership. At the end of the second quarter of 2021, we have awarded $8.5 million in DPP grants to over 1,400 households.
•Community First® Capacity-Building Grant Program: This year marks the fifth year of our Community First Capacity-Building Grant Program, which provides flexible funding to nonprofit lenders working to advance affordable housing and economic development. To date, $1.7 million in grants have been provided. Program applications for this year will be accepted from August 2 – September 3, 2021.
Impact of COVID-19 Pandemic
During the second quarter of 2021, we began to transition back to normal business operations, including opening our office to invited guests and employees on a voluntary basis.
Notwithstanding increasing COVID-19 vaccination rates and the easing of restrictive measures, uncertainty remains with respect to the speed and extent to which normal economic and operating conditions can resume, and with the ultimate effect of the COVID-19 pandemic on our business, financial condition, and results of operations. For a discussion of risks relating to our financial condition and results of operation as a result of the COVID-19 pandemic, see Risk Factors starting on page 23 of our Form 10-K for the year ended 2020.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Critical Accounting Policies and Estimates
For a detailed description of our Critical Accounting Policies and Estimates see page 4442 in our 20202021 Form 10-K.
There have been no significant changes to our critical accounting estimates subsequent to December 31, 2020.2021.
Results of Operations
Net Interest Income
Net interest income is the difference between the amount we recognize into interest income on our interest earning assets and the amount we recognize into interest expense on our interest bearing liabilities. These amounts were determined in accordance with GAAP and were based on the underlying contractual interest rate terms of our interest earning assets and interest bearing liabilities as well as the following items:
•Amortization of premiums;
•Accretion of discounts and credit OTTI reversals;discounts;
•Hedge ineffectiveness, which represents the difference between changes in fair value of the derivative hedging instrument and the related change in fair value of the hedged item is recognized into either interest income or interest expense, whichever is appropriate. For cash flow hedges, recognition occurs only when amounts are reclassified out of accumulated other comprehensive income. Such recognition occurs when earnings are affected by the hedged item;
•Net interest paid or received on interest rate swaps that are accounted for as fair value or cash flow hedges;
•Amortization of fair value and cash flow closed hedge adjustments;
•Advance and investment prepayment fees; and
•MPF credit enhancement fees.
The following table presents the increase or decrease in interest income and expense due to volume or rate variances. The calculation of these components includes the following considerations:
•Average Balance: Average balances are calculated using daily balances. Amortized cost is used to compute the average balances for most of our financial instruments, including MPF Loans held in portfolio (including those that are on nonaccrual status) and available-for-sale debt securities. Fair value is used to compute average balances for our trading debt securities and financial instruments carried at fair value under the fair value option.
•Total Interest: Total interest includes the net interest income components, as discussed above, applicable to our interest earning assets and interest bearing liabilities.
•Yield/Rate: Effective yields/rates are based on total interest and average balances as defined above. Yields/rates are calculated on an annualized basis. The calculation of the yield on our available-for-sale securities does not give effect to changes in fair value that are reflected as a component of accumulated other comprehensive income (AOCI).AOCI.
•The change in volume is calculated as the change in average balance multiplied by the current year yield. The change in rate is calculated as the change in yield multiplied by the prior year average balance. Any changes due to the combined volume/rate variance have been allocated to volume.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Increase or decrease in interest income and expense due to volume or rate variance
| | | | March 31, 2022 | | March 31, 2021 | | Increase (decrease) due to |
| | | Average Balance | | Interest Income/ Expense | | Yield/ Rate | | Average Balance | | Interest Income/ Expense | | Yield/ Rate | | Volume | | Rate | | Net Change |
| | | | June 30, 2021 | | June 30, 2020 | | Increase (decrease) due to | |
| | Average Balance | | Interest Income/ Expense | | Yield/ Rate | | Average Balance | | Interest Income/ Expense | | Yield/ Rate | | Volume | | Rate | | Net Change | |
For the three months ended | For the three months ended | | | | | | | | | | | | | | | | | | | For the three months ended | | | | | | | | | | | | | | | | | | |
Investment debt securities | | $ | 21,106 | | | $ | 94 | | | 1.78 | % | | $ | 24,374 | | | $ | 124 | | | 2.03 | % | | $ | (15) | | | $ | (15) | | | $ | (30) | | |
Advances | | 52,237 | | | 67 | | | 0.51 | % | | 54,703 | | | 145 | | | 1.06 | % | | (3) | | | (75) | | | (78) | | |
MPF Loans held in portfolio | | 9,792 | | | 60 | | | 2.45 | % | | 10,679 | | | 76 | | | 2.85 | % | | (5) | | | (11) | | | (16) | | |
Federal funds sold | | 7,480 | | | 1 | | | 0.05 | % | | 7,012 | | | 1 | | | 0.06 | % | | — | | | — | | | — | | |
Securities purchased under agreements to resell | | 4,041 | | | — | | | — | % | | 2,036 | | | — | | | — | % | | — | | | — | | | — | | |
Other interest earning assets | | 1,307 | | | 3 | | | 0.92 | % | | 2,684 | | | 1 | | | 0.15 | % | | (3) | | | 5 | | | 2 | | |
Interest earning assets | | 95,963 | | | 225 | | | 0.94 | % | | 101,488 | | | 347 | | | 1.37 | % | | (13) | | | (109) | | | (122) | | |
Noninterest earning assets | | 2,499 | | | | | | | 2,375 | | | | | | | | | | | | |
Total assets | | 98,462 | | | 103,863 | | | |
| Consolidated obligation discount notes | | 48,477 | | | 10 | | | 0.08 | % | | 45,956 | | | 82 | | | 0.71 | % | | — | | | (72) | | | (72) | | |
Consolidated obligation bonds | | 40,600 | | | 59 | | | 0.58 | % | | 49,001 | | | 123 | | | 1.00 | % | | (13) | | | (51) | | | (64) | | |
Other interest bearing liabilities | | 1,172 | | | 3 | | | 1.02 | % | | 1,504 | | | 4 | | | 1.06 | % | | (1) | | | — | | | (1) | | |
Interest bearing liabilities | | 90,249 | | | 72 | | | 0.32 | % | | 96,461 | | | 209 | | | 0.87 | % | | (4) | | | (133) | | | (137) | | |
Noninterest bearing liabilities | | 1,376 | | | | | | | 1,256 | | | | | | | | | | | | |
Total liabilities | | 91,625 | | | 97,717 | | | |
| Net yield interest earning assets | | $ | 95,963 | | | $ | 153 | | | 0.64 | % | | $ | 101,488 | | | $ | 138 | | | 0.54 | % | | $ | (10) | | | $ | 25 | | | $ | 15 | | |
| | For the six months ended | | |
| Investment debt securities | Investment debt securities | | $ | 21,867 | | | $ | 144 | | | 1.32 | % | | $ | 23,691 | | | $ | 317 | | | 2.68 | % | | $ | (12) | | | $ | (161) | | | $ | (173) | | Investment debt securities | | $ | 24,208 | | | $ | 71 | | | 1.17 | % | | $ | 22,628 | | | $ | 50 | | | 0.88 | % | | $ | 5 | | | $ | 16 | | | $ | 21 | |
Advances | Advances | | 51,645 | | | 143 | | | 0.55 | % | | 55,384 | | | 383 | | | 1.38 | % | | (10) | | | (230) | | | (240) | | Advances | | 55,101 | | | 87 | | | 0.63 | % | | 51,053 | | | 76 | | | 0.60 | % | | 7 | | | 4 | | | 11 | |
MPF Loans held in portfolio | MPF Loans held in portfolio | | 9,837 | | | 123 | | | 2.50 | % | | 10,453 | | | 163 | | | 3.12 | % | | (8) | | | (32) | | | (40) | | MPF Loans held in portfolio | | 9,801 | | | 65 | | | 2.65 | % | | 9,881 | | | 63 | | | 2.55 | % | | — | | | 2 | | | 2 | |
Federal funds sold | Federal funds sold | | 6,934 | | | 2 | | | 0.06 | % | | 7,527 | | | 27 | | | 0.72 | % | | — | | | (25) | | | (25) | | Federal funds sold | | 4,921 | | | 2 | | | 0.16 | % | | 6,387 | | | 1 | | | 0.06 | % | | (1) | | | 2 | | | 1 | |
Securities purchased under agreements to resell | Securities purchased under agreements to resell | | 4,525 | | | 1 | | | 0.04 | % | | 2,901 | | | 12 | | | 0.83 | % | | — | | | (11) | | | (11) | | Securities purchased under agreements to resell | | 4,031 | | | 1 | | | 0.10 | % | | 5,008 | | | 1 | | | 0.08 | % | | — | | | — | | | — | |
Interest earning deposits | | Interest earning deposits | | 1,518 | | | 1 | | | 0.26 | % | | 920 | | | — | | | — | % | | — | | | 1 | | | 1 | |
Other interest earning assets | Other interest earning assets | | 1,181 | | | 4 | | | 0.68 | % | | 2,411 | | | 10 | | | 0.83 | % | | (4) | | | (2) | | | (6) | | Other interest earning assets | | 83 | | | — | | | — | % | | 136 | | | 1 | | | 2.94 | % | | — | | | (1) | | | (1) | |
Interest earning assets | Interest earning assets | | 95,989 | | | 417 | | | 0.87 | % | | 102,367 | | | 912 | | | 1.78 | % | | (29) | | | (466) | | | (495) | | Interest earning assets | | 99,663 | | | 227 | | | 0.91 | % | | 96,013 | | | 192 | | | 0.80 | % | | 9 | | | 26 | | | 35 | |
Noninterest earning assets | Noninterest earning assets | | 2,401 | | | | | | | 2,242 | | | | | | | | | | | | Noninterest earning assets | | 1,748 | | | | | | | 2,305 | | | | | | | | | | | |
Total assets | Total assets | | 98,390 | | | 104,609 | | | Total assets | | $ | 101,411 | | | $ | 98,318 | | |
| Consolidated obligation discount notes | Consolidated obligation discount notes | | 48,105 | | | 25 | | | 0.10 | % | | 46,981 | | | 267 | | | 1.14 | % | | 2 | | | (244) | | | (242) | | Consolidated obligation discount notes | | $ | 27,235 | | | 12 | | | 0.18 | % | | $ | 47,732 | | | 15 | | | 0.13 | % | | (9) | | | 6 | | | (3) | |
Consolidated obligation bonds | Consolidated obligation bonds | | 40,909 | | | 123 | | | 0.60 | % | | 48,940 | | | 351 | | | 1.43 | % | | (25) | | | (203) | | | (228) | | Consolidated obligation bonds | | 64,084 | | | 56 | | | 0.35 | % | | 41,218 | | | 64 | | | 0.62 | % | | 20 | | | (28) | | | (8) | |
Other interest bearing liabilities | Other interest bearing liabilities | | 1,211 | | | 6 | | | 0.99 | % | | 1,366 | | | 10 | | | 1.46 | % | | (1) | | | (3) | | | (4) | | Other interest bearing liabilities | | 1,335 | | | 4 | | | 1.20 | % | | 1,250 | | | 3 | | | 0.96 | % | | — | | | 1 | | | 1 | |
Interest bearing liabilities | Interest bearing liabilities | | 90,225 | | | 154 | | | 0.34 | % | | 97,287 | | | 628 | | | 1.29 | % | | (12) | | | (462) | | | (474) | | Interest bearing liabilities | | 92,654 | | | 72 | | | 0.31 | % | | 90,200 | | | 82 | | | 0.36 | % | | 1 | | | (11) | | | (10) | |
Noninterest bearing liabilities | Noninterest bearing liabilities | | 1,527 | | | | | | | 1,310 | | | | | | | | | | | | Noninterest bearing liabilities | | 1,982 | | | | | | | 1,679 | | | | | | | | | | | |
Total liabilities | Total liabilities | | 91,752 | | | 98,597 | | | Total liabilities | | $ | 94,636 | | | $ | 91,879 | | |
| Net yield on interest earning assets | Net yield on interest earning assets | | $ | 95,989 | | | $ | 263 | | | 0.55 | % | | $ | 102,367 | | | $ | 284 | | | 0.55 | % | | $ | (21) | | | $ | — | | | $ | (21) | | Net yield on interest earning assets | | $ | 99,663 | | | $ | 155 | | | 0.62 | % | | $ | 96,013 | | | $ | 110 | | | 0.46 | % | | $ | 7 | | | $ | 38 | | | $ | 45 | |
|
The following analysis and comparisons apply to the periods presented in the above table unless otherwise indicated.
Federal Home Loan Bank of Chicago(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
•Interest income from investment debt securities increased due to prepayment fee income of $36 million on our AFS portfolio in the first quarter of 2022 compared to no such income during the same period in 2021. Also, investment hedge ineffectiveness gains increased $36 million from a loss of $33 million in the first quarter of 2021 to a gain of $3 million for the three months ended June 30, 2021 decreased,same period in part, due2022, attributable to lower overalla reduction in the sensitivity of our hedged portfolio to fluctuations in market interest rates. To a lesser extent, rising market interest rates in 2021 comparedthe first quarter of 2022 and an increase in volume also contributed to the same periodincrease in 2020. In addition, average investment balances declined as Treasury securities matured and were not replaced. Interest income from investment debt securities for the six months ended June 30, 2021 primarily decreased due to lower overall market interest rates in 2021 compared to the same period in 2020. In addition, the yield earned on our investment securities during 2021 as compared to the same period in 2020 declined as a result of the sale of our PLMBS in October 2020. See Note 2 – Summary of Significant Accounting Policies of our Form 10-K for the year ended 2020 for more information on these PLMBS sales.income.
•Interest income from advances decreased primarilyincreased due to the low interest rate environment since the Federal Reserve dramatically lowered interest ratesan increase in responsevolume, and to the COVID-19 pandemic. Lower demand for advances from our depository members, while mostly offset by increased demand from our insurance company members, have also impacted our net interest income. Additionally,a lesser extent, a slight increase in advance prepayments throughout 2020 resulted in a decline in our portfoliothe first quarter of higher interest earning advances which reduced the yield earned and balance outstanding on our advance portfolio in 20212022 compared to the same period in 2020.2021. In addition, rising market interest rates in the first quarter of 2022 also contributed to the increase in interest income.
•Interest income from MPF Loans held in portfolio declinedslightly increased primarily due to the lower mortgage rate environment impacting the yield earned on new loan originations, along with the recognition ofa reduction in premium amortization expense in the first quarter of 2022 compared to the same period in 2021 as loans prepaid duringloan prepayments slowed in 2022.
•Interest income from overnight federal funds sold, securities purchased under agreements to resell, and interest earning deposits increased due to higher overall market interest rates in 2022 compared to the period.same period in 2021.
•Interest expense on our shorter-termed consolidated obligationsobligation discount notes decreased as we paid down our discount notes in the fourth quarter of 2021 and increased our use of consolidated obligation bonds due to loweradvantageous funding opportunities in our longer-termed debt. While overall interest expense on our discount notes decreased, the interest rate paid on our discount notes increased due to rising market interest rates in 2021 compared to the same periodfirst quarter of 2022.
•Interest expense and the interest rate paid on our longer-termed consolidated obligation bonds decreased despite a significant increase in 2020.volume as the rise in market interest rates did not affect the cost of our debt until late in the first quarter of 2022. Additionally, in 2021, we replaced our more expensive callable debt with more advantageously priced funding.
•Interest income from overnight Federal Funds sold and securities purchased under agreements to resell decreased due to lower market interest rates in 2021 compared to the same period in 2020.
•For details of the effect our fair value and cash flow hedge activities had on our net interest income see Total Net Effect Gain (Loss) of Hedging Activities table on page 40.39.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Noninterest Income
| | | | Three months ended June 30, | | Six months ended June 30, | | | | Three months ended March 31, |
| | | 2021 | | 2020 | | 2021 | | 2020 | | | | 2022 | | 2021 |
Trading securities | Trading securities | | $ | (13) | | | $ | (25) | | | $ | (31) | | | $ | 62 | | Trading securities | | | $ | (3) | | | $ | (18) | |
Derivatives and hedging activities | | (13) | | | (21) | | | 7 | | | (159) | | |
Derivatives | | Derivatives | | | 29 | | | 20 | |
Instruments held under the fair value option | Instruments held under the fair value option | | 3 | | | 36 | | | (26) | | | 76 | | Instruments held under the fair value option | | | (28) | | | (29) | |
Subtotal | | (23) | | | (10) | | | (50) | | | (21) | | |
| MPF fees, | MPF fees, | 6 | , | 8 | , | 13 | and | 16 | from other FHLBs | | 13 | | | 15 | | | 25 | | | 25 | | MPF fees, | | 6 | | and | 7 | | from other FHLBs | | | 10 | | | 12 | |
Other, net | Other, net | | — | | | 4 | | | 2 | | | 7 | | Other, net | | | 2 | | | 2 | |
Noninterest income | | $ | (10) | | | $ | 9 | | | (23) | | | $ | 11 | | |
Noninterest income (loss) | | Noninterest income (loss) | | | $ | 10 | | | $ | (13) | |
The following analysis and comparisons apply to the periods presented in the above table.
Trading Securities, Derivatives and Hedging Activities, and Instruments Held Under the Fair Value Option
LossA decrease in valuelosses experienced on our instruments held under the fair value option weretrading securities was the primary driver of our decreaseincrease in noninterest income for the three months ended June 30, 2021. LossesMarch 31, 2022, attributable to a significant decline in the average balance of our trading securities outstanding for the period, which in turn reduced the amount of losses incurred on our trading securities and instruments held underportfolio given the fair value option were the primary driver of our decreaseincrease in noninterest income for the six months ended June 30, 2021.overall market interest rates. The corresponding gains and losses for derivatives and instruments held under fair value option were primarily driven by maturities in our Treasury Trading securities purchased at a premiumattributable to different positions and the increasemovement in long-termmarket interest rates and the interest rate curve steepening during in 2022 compared to 2021.
Federal Home Loan Bank of Chicago(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
The following table details the effect of thesehedging transactions on the various line items in our Condensed Statements of Income. Hedge ineffectiveness on hedges qualifying for hedge accounting are recorded in net interest income rather than recorded in derivatives and hedging activities as noted in the table below.
Total Net Effect Gain (Loss) of Hedging Activities
| | | Advances | | Investments | | MPF Loans | | Discount Notes | | Bonds | | Other | | Total | | Advances | | Investments | | MPF Loans | | Discount Notes | | Bonds | | | Total |
Three months ended June 30, 2021 | | | | | | | | | | | | | | |
Recorded in net interest income | $ | (47) | | | $ | (44) | | | $ | — | | | $ | (4) | | | $ | 58 | | | $ | (1) | | | $ | (38) | | |
Recorded in derivatives & hedging activities | (8) | | | — | | | (5) | | | — | | | — | | | — | | | (13) | | |
Recorded in trading securities | — | | | (13) | | | — | | | — | | | — | | | — | | | (13) | | |
Recorded on instruments held under the fair value option | 2 | | | — | | | — | | | — | | | 1 | | | — | | | 3 | | |
Total net effect gain (loss) of hedging activities | $ | (53) | | | $ | (57) | | | $ | (5) | | | $ | (4) | | | $ | 59 | | | $ | (1) | | | $ | (61) | | |
| Three months ended June 30, 2020 | | |
Recorded in net interest income | $ | (25) | | | $ | (51) | | | $ | — | | | $ | (5) | | | $ | 33 | | | $ | 1 | | | $ | (47) | | |
Recorded in derivatives & hedging activities | (9) | | | (2) | | | (11) | | | — | | | 1 | | | — | | | (21) | | |
Recorded in trading securities | — | | | (29) | | | — | | | — | | | — | | | — | | | (29) | | |
Recorded on instruments held under the fair value option | 18 | | | — | | | — | | | 14 | | | 4 | | | — | | | 36 | | |
Total net effect gain (loss) of hedging activities | $ | (16) | | | $ | (82) | | | $ | (11) | | | $ | 9 | | | $ | 38 | | | $ | 1 | | | $ | (61) | | |
| Six months ended June 30, 2021 | | |
| Three months ended March 31, 2022 | | Three months ended March 31, 2022 | | | | | | | | | | | | | |
| Recorded in net interest income | Recorded in net interest income | $ | (86) | | | $ | (140) | | | $ | (1) | | | $ | (8) | | | $ | 105 | | | $ | (1) | | | $ | (131) | | Recorded in net interest income | | $ | (21) | | | $ | (92) | | | $ | — | | | $ | (4) | | | $ | 97 | | | | $ | (20) | |
Recorded in derivatives & hedging activities | Recorded in derivatives & hedging activities | 21 | | | — | | | (14) | | | — | | | — | | | — | | | 7 | | Recorded in derivatives & hedging activities | | 32 | | | 2 | | | 7 | | | — | | | (12) | | | | 29 | |
Recorded in trading securities | Recorded in trading securities | — | | | (28) | | | — | | | — | | | — | | | — | | | (28) | | Recorded in trading securities | | — | | | (3) | | | — | | | — | | | — | | | | (3) | |
Recorded on instruments held under the fair value option | Recorded on instruments held under the fair value option | (26) | | | — | | | (2) | | | — | | | 2 | | | — | | | (26) | | Recorded on instruments held under the fair value option | | (39) | | | — | | | (3) | | | — | | | 14 | | | | (28) | |
Total net effect gain (loss) of hedging activities | Total net effect gain (loss) of hedging activities | $ | (91) | | | $ | (168) | | | $ | (17) | | | $ | (8) | | | $ | 107 | | | $ | (1) | | | $ | (178) | | Total net effect gain (loss) of hedging activities | | $ | (28) | | | $ | (93) | | | $ | 4 | | | $ | (4) | | | $ | 99 | | | | $ | (22) | |
| Six months ended June 30, 2020 | | |
Three months ended March 31, 2021 | | Three months ended March 31, 2021 | | | |
Recorded in net interest income | Recorded in net interest income | $ | (40) | | | $ | (39) | | | $ | — | | | $ | (9) | | | $ | 42 | | | $ | — | | | $ | (46) | | Recorded in net interest income | | $ | (39) | | | $ | (96) | | | $ | (1) | | | $ | (4) | | | $ | 47 | | | | $ | (93) | |
Recorded in derivatives & hedging activities | Recorded in derivatives & hedging activities | (100) | | | (94) | | | 2 | | | 20 | | | 9 | | | 4 | | | (159) | | Recorded in derivatives & hedging activities | | 29 | | | — | | | (9) | | | — | | | — | | | | 20 | |
Recorded in trading securities | Recorded in trading securities | — | | | 41 | | | — | | | — | | | — | | | — | | | 41 | | Recorded in trading securities | | — | | | (15) | | | — | | | — | | | — | | | | (15) | |
Recorded on instruments held under the fair value option | Recorded on instruments held under the fair value option | 78 | | | — | | | 2 | | | — | | | (4) | | | — | | | 76 | | Recorded on instruments held under the fair value option | | (28) | | | — | | | (2) | | | — | | | 1 | | | | (29) | |
Total net effect gain (loss) of hedging activities | Total net effect gain (loss) of hedging activities | $ | (62) | | | $ | (92) | | | $ | 4 | | | $ | 11 | | | $ | 47 | | | $ | 4 | | | $ | (88) | | Total net effect gain (loss) of hedging activities | | $ | (38) | | | $ | (111) | | | $ | (12) | | | $ | (4) | | | $ | 48 | | | | $ | (117) | |
|
MPF fees (including from other FHLBs)
A majority of MPF fees are from other FHLBs that pay us a fixed membership fee to participate in the MPF Program and a volume basedvolume-based fee for us to provide services related to MPF Loans carried on their balance sheets. MPF fees also include income from other third party off-balance sheet MPF Loan products and other related transaction fees. These fees are designed to offset a portion ofcompensate us for the expenses we incur to administer the program for them. Fee income remained relatively level for 2021 compared to 2020.program. Decreases in our 2022 MPF fees were primarily driven by a decrease in volume in both MPF Loans held in portfolio and off-balance sheet MPF Loan products resulting in a decline in fee income.
Other, net
Other, net consists primarily ofincludes fee income earned onwe earn from member standby letterletters of credit products, which have declined as noted in Selected Financial Data on page 32.products.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Noninterest Expense
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
Compensation and benefits | | $ | 25 | | | $ | 35 | | | $ | 53 | | | $ | 71 | |
Nonpayroll operating expenses | | 20 | | | 26 | | | 40 | | | 46 | |
COVID-19 relief program | | 3 | | | 19 | | | 3 | | | 19 | |
Other, net | | 7 | | | 5 | | | 20 | | | 6 | |
Noninterest expense | | $ | 55 | | | $ | 85 | | | 116 | | | $ | 142 | |
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
| | | | | | 2022 | | 2021 |
Compensation and benefits | | | | | | $ | 29 | | | $ | 28 | |
Nonpayroll operating expenses | | | | | | 21 | | | 20 | |
| | | | | | | | |
Federal Housing Finance Agency and Office of Finance | | | | | | 6 | | | 5 | |
Other, net | | | | | | 2 | | | 8 | |
Noninterest expense | | | | | | $ | 58 | | | $ | 61 | |
The following analysis and comparisons apply to the periods presented in the above table.
Compensation and benefits primarily decreased duewere comparable to reduced pension and other employee-related costs.prior periods. We had 451476 employees as of June 30, 2021,March 31, 2022, compared to 488469 as of June 30, 2020.March 31, 2021.
Nonpayroll operating expenses were lower compared to prior periods due to a one-time expense in 2020 related to the termination of our building lease. Nonpayroll operating expenses were otherwise comparable to prior periods as we continue our planned investment in information technology, specifically applications, infrastructure and resiliency.
As partFederal Housing Finance Agency and Office of the Bank's ongoing commitment to provide support to our members throughout the COVID-19 pandemic, from May 3, 2021 to May 28, 2021 we made available a zero interest-rate advance with a maximum borrowing amount up to $5 million for all member institutions. Over halfFinance expenses consist of our members took advantage of this advance offering, resulting in $1.7 billion in subsidized, 0% advances to support our members and approximately $3 million recorded in expenses. In 2020, we also offered COVID-19 relief programs to support communities in Illinois and Wisconsin; for more information on these programs, see Environment, Social, and Governance on page 13 of the 2020 10-K.
Other, net expenses primarily increased due to increased non-qualified defined benefit plan expenses related to the retirement of our former President and CEO expensed in the first quarter of 2021. Other also increased to a lesser extent as a result of increases in our share of the funding for the FHFA, our regulator, and the Office of Finance, which manages the consolidated obligation debt issuances of the FHLBs. In addition,
Other, includes MPF related non-operating expenses/gains on the sale of real estate owned.net expenses primarily decreased due to reduced non-qualified defined benefit plan expenses.
As noted in Noninterest Income on page 39, we earn MPF fees from the MPF Program, a majority of which are from other FHLBs, but also include income from other third party investors. These fees are designed to offset a portion ofcompensate us for the expenses we incur to administer the program. Our expenses relating to the MPF fees earned are included in the relevant line items in the noninterest expense table shown above. The following table summarizes MPF related fees and expenses.
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three months ended June 30, | | Six months ended June 30, | |
| | 2021 | | 2020 | | 2021 | | 2020 | |
MPF fees earned | | $ | 13 | | | $ | 15 | | | $ | 25 | | | $ | 25 | | |
Expenses related to MPF fees earned | | 11 | | | 11 | | | 20 | | | 20 | | |
| | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, | |
| | | | | | 2022 | | 2021 | |
MPF fees earned | | | | | | $ | 10 | | | $ | 12 | | |
Expenses related to MPF fees earned | | | | | | 9 | | | 9 | | |
| | | | | | | | | |
Assessments
We record the AHP assessment expense at a rate of 10% of income before assessments, excluding interest expense on MRCS. See Note 11 - Affordable Housing Program to the financial statements in our 20202021 Form 10-K for further details.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Other Comprehensive Income (Loss)
| | | Three months ended June 30, | | Six months ended June 30, | | Balance remaining in AOCI as of | | | Three months ended March 31, | | Balance remaining in AOCI as of |
| | 2021 | | 2020 | | 2021 | | 2020 | | June 30, 2021 | | | 2022 | | 2021 | | March 31, 2022 |
Net unrealized gain (loss) available-for-sale debt securities | Net unrealized gain (loss) available-for-sale debt securities | | $ | 54 | | | $ | 347 | | | $ | 252 | | | $ | (284) | | | $ | 544 | | Net unrealized gain (loss) available-for-sale debt securities | | | $ | (218) | | | $ | 198 | | | $ | 148 | |
Noncredit OTTI held-to-maturity debt securities | | — | | | 5 | | | — | | | 9 | | | — | | |
Net unrealized gain (loss) cash flow hedges | Net unrealized gain (loss) cash flow hedges | | (9) | | | (4) | | | 32 | | | (48) | | | (33) | | Net unrealized gain (loss) cash flow hedges | | | 56 | | | 41 | | | 45 | |
Postretirement plans | Postretirement plans | | 1 | | | — | | | (4) | | | (11) | | | (24) | | Postretirement plans | | | (3) | | | (5) | | | (16) | |
Other comprehensive income (loss) | Other comprehensive income (loss) | | $ | 46 | | | $ | 348 | | | $ | 280 | | | $ | (334) | | | $ | 487 | | Other comprehensive income (loss) | | | $ | (165) | | | $ | 234 | | | $ | 177 | |
The following analysis and comparisons apply to the periods presented in the above table.
Net unrealized gain (loss) on available-for-sale debt securities
The net unrealized gainloss on our available-for-sale (AFS)AFS portfolio for 2021the three months ended March 31, 2022 was primarily due to spreads to swaps reversing the widening (losses) initially experiencedan increase in the first quarter of 2020 resulting from the effects of the COVID-19 pandemic on the financial markets.overall market interest rates in 2022. As these securities approach maturity, we expect thesethe net unrealized gains in our AOCI as of March 31, 2022 to reverse over the remaining life of these securities (since we expect to receive par value at maturity).
Noncredit OTTI on held-to-maturity debt securities
We recorded unrealized noncredit impairments on held-to-maturity debt securities during the last financial crisis of 2008. From our sale of HTM PLMBS in October 2020 our remaining loss balance in AOCI went to zero. See Note 2 – Summary of Significant Accounting Policies of our 2020 Form 10-K for more details on our sale of PLMBS during October 2020.
Net unrealized gain (loss) on cash flow hedges
The net unrealized lossgain on cash flow hedges for the three months ended June 30, 2021March 31, 2022 was primarily driven by the slight dropan increase in long-termoverall market interest rates during the second quarter of 2021. The net unrealized gain on cash flow hedges for the six months ended June 30, 2021 was primarily driven by the overall increase in long-term interest rates and the interest rate curve steepening during 2021.
Postretirement plans
The loss recorded in the first quarter of 2021 was primarily due to an actuarial adjustment resulting from a decline in the discount rate used to calculate postretirement benefits.2022.
We did not recognize any instrument-specific credit risk in our Condensed Statements of Comprehensive Income as of June 30, 2021March 31, 2022 due to our credit standing. For further details on the activity in our Other Comprehensive Income (Loss) see Note 12 - Accumulated Other Comprehensive Income (Loss) to the condensed financial statements.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Statement of Condition
| | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| | | |
| | | |
| | | |
| | | |
Cash and due from banks, interest bearing deposits, Federal Funds sold, and securities purchased under agreement to resell | $ | 17,815 | | | $ | 18,641 | |
Investment debt securities | 23,211 | | | 24,549 | |
Advances | 46,270 | | | 46,695 | |
MPF Loans held in portfolio, net of allowance for credit losses | 9,759 | | | 10,038 | |
Other, net of allowance for credit losses | 439 | | | 433 | |
Assets | 97,494 | | | 100,356 | |
| | | |
Consolidated obligation discount notes | 45,728 | | | 48,643 | |
Consolidated obligation bonds | 42,922 | | | 42,670 | |
Other | 2,211 | | | 2,754 | |
Liabilities | 90,861 | | | 94,067 | |
Capital stock | 2,007 | | | 2,010 | |
Retained earnings | 4,139 | | | 4,072 | |
Accumulated other comprehensive income (loss) | 487 | | | 207 | |
Capital | 6,633 | | | 6,289 | |
Total liabilities and capital | $ | 97,494 | | | $ | 100,356 | |
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
| | | | |
| | | | |
| | | | |
| | | | |
Cash and due from banks, interest bearing deposits, federal funds sold, and securities purchased under agreements to resell | | $ | 17,062 | | | $ | 13,167 | |
Investment debt securities | | 23,071 | | | 25,461 | |
Advances | | 46,907 | | | 48,049 | |
MPF Loans held in portfolio, net of allowance for credit losses | | 9,800 | | | 9,843 | |
Other, net of allowance for credit losses | | 544 | | | 434 | |
Assets | | $ | 97,384 | | | $ | 96,954 | |
| | | | |
Consolidated obligation discount notes | | $ | 26,463 | | | $ | 24,563 | |
Consolidated obligation bonds | | 62,222 | | | 63,373 | |
Other | | 2,056 | | | 2,266 | |
Liabilities | | 90,741 | | | 90,202 | |
Capital stock | | 2,132 | | | 2,149 | |
Retained earnings | | 4,334 | | | 4,261 | |
Accumulated other comprehensive income (loss) | | 177 | | | 342 | |
Capital | | 6,643 | | | 6,752 | |
Total liabilities and capital | | $ | 97,384 | | | $ | 96,954 | |
The following is an analysis of the above table and comparisons apply to June 30, 2021March 31, 2022 compared to December 31, 2020.2021.
Cash and due from banks, interest bearing deposits, Federal Fundsfederal funds sold, and securities purchased under agreements to resell
Amounts held in these typically overnight accounts will vary each day based on the following:
•Interest rate spreads between Federal Fundsfederal funds sold and securities purchased under agreements to resell and our debt;
•Liquidity requirements;
•Counterparties available; and
•Collateral availability on securities purchased under agreements to resell.
In the secondfirst quarter of 2021,2022, we maintained a sufficient pool of liquidity to support anticipated member demand for advances and letters of credit.
Investment Debt Securities
Investment debt securities decreased primarily dueat the end of first quarter 2022 compared to Treasuryyear end 2021 attributable to a reduction in investment in Small Business Administration securities that matured and were not replaced, during 2021.and a decline in the fair value of our AFS portfolio due to rising market interest rates.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Advances
Advance balances slightly declined at the end of secondfirst quarter 20212022 compared to year end 2020.2021. We believe many of our depository members experienced an inflowcontinue to experience elevated levels of deposits on their balance sheets along with reducedthat have not been offset by loan demand, while also having access to other liquidity sources as a result of certain government actions related to the COVID-19 pandemic during 2020.pandemic. Although these factors continued to limit our depository members’ current need for advances, increased advance borrowing by insurance company members has mostlypartially offset the decrease by depository members. Advance balances will vary based primarily on member demand or need for wholesale funding and the underlying cost of the advance to the member. It is possible that member demand for our advances could decline further in future periods should their funding needs change, or to the extent they elect alternative funding resources. In addition, as our advances with our former captive insurance companiescompany members mature, our total advance levels may decrease. For a discussion of risks relating to our former captive insurance companies,company members, and of risks relating to our advance levels as a result of the COVID-19 pandemic, see Risk Factors starting on page 2322 of our 2021 Form 10-K for the year ended 2020.10-K. For details on our advances with our former captive insurance company members, see Note 6 - Advances.
MPF Loans Held in Portfolio, Net of Allowance for Credit Losses
MPF Loans held in portfolio slightly decreased as new-acquisition volume was outpaced by paydown and maturity activity. In addition to our MPF Loans held in portfolio, we have MPF off-balance sheet products, where we buy and concurrently resell MPF Loans to Fannie Mae or other third party investors or pool and securitize them into Ginnie Mae MBS.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Liquidity, Funding, & Capital Resources
Liquidity
For the period ending June 30, 2021,March 31, 2022, we maintained a liquidity position in accordance with FHFA regulations and guidance, and policies established by our Board of Directors. Based upon our excess liquidity position described below, we anticipate remaining in compliance with our current liquidity requirements. See Liquidity, Funding, & Capital Resources on page 54 in our 20202021 Form 10-K for a detailed description of our current liquidity requirements. We use different measures of liquidity as follows:
Overnight Liquidity – Our policy requires us to maintain overnight liquid assets at least equal to 3.5% or $3.4 billion of total assets. As of June 30, 2021,March 31, 2022, our overnight liquidity was $19.6$17.6 billion or 20%18% of total assets, giving us an excess overnight liquidity of $16.2$14.2 billion.
Deposit Coverage – To support our member deposits, FHFA regulations require us to have an amount equal to the current deposits received from our members invested in obligations of the U.S. Government, deposits in eligible banks or trust companies, or advances with maturities not exceeding five years. As of June 30, 2021,March 31, 2022, we had excess liquidity of $54.2$41.0 billion to support member deposits.
Liquidity Reserves – As discussed on page 54 in the Liquidity, Funding, & Capital Resources section of our 20202021 Form 10-K, FHFA guidance on liquidity (the “Liquidity AB”) requires that we hold positive cash flow assuming no access to the capital markets for a period of between ten to thirty calendar days, and assuming the renewal of all maturing advances. The Liquidity AB also requires the Bank to maintain liquidity reserves between one and 20 percent of our outstanding letter of credit commitments.
TheIn an effort to satisfy our current liquidity requirements, we generally maintain increased balances in short-term or liquid investments. Depending on market conditions, the Liquidity AB requiresmay require the Bank to hold an additional amount of liquid assets, which could reduce the Bank’s ability to invest in higher-yielding assets, and may in turn negatively impact net interest income. To the extent that the Bank adjusts pricing for its short-term advances and letters of credit, these products may become less competitive, which may adversely affect advance and capital stock levels as well as letters of credit levels. For additional discussion of how our liquidity requirements may impact our earnings, see Risk Factors section starting on page 2322 of our 20202021 Form 10-K.
In addition, we fund certain shorter-term or overnight investments and advances with debt that has a maturity that extends beyond the maturities of the related investments or advances. The Liquidity AB provides guidance on maintaining appropriate funding gaps for three-month (-10% to -20%) and one-year (-25% to -35%) maturity horizons. Subject to market conditions, our cost of funding may increase if we are required to achieve the appropriate funding gap by using longer term funding, on which we generally pay higher interest than on our short-term funding.
We are sensitive to maintaining an appropriate liquidity and funding balance between our financial assets and liabilities, and we measure and monitor the risk of refunding such assets as liabilities mature (refunding risk). In measuring the level of assets requiring refunding, we take into account their contractual maturities, as further described in the notes to the condensed financial statements. In addition, we make certain assumptions about their expected cash flows. These assumptions include: calls for assets with such features, projected prepayments and scheduled amortizations for our MPF Loans held in portfolio, MBS and ABS investments.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
The following table presents the unpaid principal balances of (1) MPF Loans held in portfolio, (2) AFS securities, and (3) HTM securities (including ABS and MBS investments), by expected principal cash flows. The table is illustrative of our assumptions about the expected cash flow of our assets, including prepayments made in advance of maturity.
| | | MPF Loans Held in Portfolio | | Investment Debt Securities | | MPF Loans Held in Portfolio | | Investment Debt Securities |
As of June 30, 2021 | | Available-for Sale | | Held-to-Maturity | |
As of March 31, 2022 | | As of March 31, 2022 | | MPF Loans Held in Portfolio | | Available-for Sale | | Held-to-Maturity |
Year of Expected Principal Cash Flows | Year of Expected Principal Cash Flows | | | | | | | Year of Expected Principal Cash Flows | | | | |
One year or less | One year or less | | $ | 2,367 | | | $ | 777 | | | $ | 1,017 | | One year or less | | $ | 1,287 | | | $ | 3,475 | | | $ | 288 | |
After one year through five years | After one year through five years | | 3,487 | | | 2,808 | | | 315 | | After one year through five years | | 3,881 | | | 2,682 | | | 253 | |
After five years through ten years | After five years through ten years | | 2,023 | | | 10,353 | | | 149 | | After five years through ten years | | 2,426 | | | 12,308 | | | 106 | |
After ten years | After ten years | | 1,719 | | | 3,176 | | | 112 | | After ten years | | 2,055 | | | 2,969 | | | 8 | |
Total | Total | | $ | 9,596 | | | $ | 17,114 | | | $ | 1,593 | | Total | | $ | 9,649 | | | $ | 21,434 | | | $ | 655 | |
We consider our liabilities available to fund assets until their contractual maturity. For further discussion of the liquidity risks related to our access to funding, see the Risk Factors section starting on page 2322 in our 20202021 Form 10-K.
Funding
Conditions in Financial Markets
DuringThe dominant themes of the secondfirst quarter of 2020, there2022 were signs of economic recovery with increased vaccinations, expanded reopening ofconcerns about rising inflation, the economy, and government support. In April 2021,announcement by the Federal Open Market Committee (FOMC) maintained the target range for the Federal Funds rate between 0.00 and 0.25 percent and committed to continuing use of its full range of tools, including asset purchases, to support the economy. At its June 2021 meeting, the FOMC maintainedraise the federal funds rate as well as speculation about future FOMC actions, and increased market volatility caused in part by Russia’s invasion of Ukraine. At its January 2022 meeting, the FOMC left the federal funds rate unchanged at a rate between 0% and 0.25%, but indicated that due to improved labor market conditions and higher inflation, it would begin raising the same target range and statedfederal funds rate, with expectation that these rate hikes would begin in March 2022. At its intent to continue its purchases of assets at the existing pace. However,meeting in March 2022, the FOMC raised ratesthe target for its overnight reverse repurchase agreement facilitythe federal funds rate to a range of 0.25% and on interest on excess reserves (IOER) by 5 basis points0.50%, as expected, due to 0.05 percentimproved economic indicators, lower unemployment and 0.15 percent, respectively. While stating the path of the economy will depend on the course of the COVID-19 pandemic,concerns about higher inflation. In addition, the FOMC projection for future rate hikes acceleratedindicated that it would begin to reduce its balance sheet, with the start date to be announced at the June 2021 meeting to two forecasted hikes in 2023.a subsequent meeting. U.S. Treasury yields finished the secondfirst quarter of 20212022 significantly higher for maturities shorter than five years, but decreased for longer maturities, relative to prevailing yields at the end of2021 year end. The U.S. stock market declined in the first quarter of 2021. During the second quarter, the U.S. stock market continued to rise,2022, as the Dow Jones Industrial Average stood at 34,503 points on June 30, 2021 versus 32,98234,678 points on March 31, 2022 versus 36,338 points on December 31, 2021.
Notwithstanding the easing of restrictive measures, uncertainty remains with respect to the speed and extent to which normal economic and operating conditions can resume, and with the ultimate effect of the COVID-19 pandemic on our workforce, business, financial condition, and results of operations. For a discussion of the risks to the Bank as a result of the COVID-19 pandemic, including risks related to government action in response to the impact of the pandemic, see Risk Factors starting on page 22 of our 2021 Form 10-K.
We maintained ready access to funding throughout the secondfirst quarter of 2021.2022.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
LIBOR Transition
In July 2017,Following the United Kingdom's (U.K.) Financial Conduct Authority (FCA), a regulator’s 2017 announcement of financial services firms and financial markets in the U.K., announced its intention to cease sustaining the LIBOR indices after 2021. In response, the Federal Reserve Board (FRB) and the Federal Reserve Bank of New York convened2021, the Alternative Reference Rates Committee (ARRC) to identify a set of alternative reference interest rates for possible use as market benchmarks. The ARRC has identified the Secured Overnight Financing Rate (SOFR) as its recommended alternative rate. SOFR is based on a broad segment of the overnight Treasuries repurchase market and is intended to be a measure of the cost of borrowing cash overnight collateralized by Treasury securities. The Federal Reserve Bank of New York began publishing SOFR rates in April 2018 and the FHLB System issued its first SOFR-linked debt in the market on November 13, 2018.
On March 5, 2021, the FCA announced that LIBOR will either cease to be provided or no longer be representative immediately after December 31, 2021 for most LIBOR settings across currencies, includingthe cessation of the 1 week and 2 month USD LIBOR oreffective December 31, 2021, and the cessation of the remaining USD LIBOR tenors effective immediately after June 30, 2023 in the case of certain frequently used tenors, including the remaining USD tenors.2023. The FCA announced that it would consult whether to require LIBOR’s administrator (the Intercontinental Exchange Benchmark Administration Limited) to publish certain frequently used USD LIBOR tenors on a non-representative, synthetic basis after such date.June 30, 2023. FCA’s announcement constitutesconstituted an index cessation event under the International Swaps and Derivatives Associations, Inc.Association's (ISDA) 2020 IBOR Fallbacks Protocol and IBOR Fallbacks Supplement, and as a result, the fallback spread adjustment for derivatives is fixed as of the date of the announcement. Although weWe do not have assets and liabilities indexed to the 1 week and 2 month USD LIBOR, which will no longer be provided after December 31, 2021,and many of our assets and liabilities are indexed to the remaining USD LIBOR tenors, some with maturities or termination dates extending past December 31, 2021.
Federal Home Loan Bank of Chicago(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
which will no longer be provided after June 30, 2023.
On September 27,Additionally, in accordance with a 2019 the FHFA issued a Supervisory Letter (the "Supervisory Letter") that the FHFA stated is designed to ensure the FHLBs will be able to identify and prudently manage the risks associated with the termination of LIBOR in a safe and sound manner. Among other things, the Supervisory Letter provides that the FHLBs should cease entering into certain transactions referencing LIBOR that mature after December 31, 2021. Accordingly,supervisory letter, we previously ceased entering into option embedded advance products that reference LIBOR and have ceased purchasing investments that reference LIBOR and maturematured after December 31, 2021. Additionally, we haveWe also suspended transactions in certain structured advances and advances with terms directly linked to LIBOR that mature after December 31, 2021 and we no longer enter into consolidated obligation bonds and derivatives with swaps, caps, or floors indexed to LIBOR that terminate after December 31, 2021.LIBOR. Further, on July 1, 2021, the FHFA issued an additional supervisory letter setting forth its expectations that the FHLBs should be prudent in their use of non-SOFR based alternative reference rates, and should avoid use of alternative reference rates that are not based on underlying transactions or that introduce further model risk. The letter also providesrequires that an FHLB provide advance notice to its examiner-in-charge of its plans to use a non-SOFR alternative reference rate. For further discussion of the risks related to the replacement of LIBOR, see the Risk Factors section starting on page 2322 in our 20202021 Form 10-K.
We continue to evaluateIn keeping with ARRC's recommendation and plan forindustry developments, the eventual replacement of the LIBOR benchmark interest rate, including the possibility ofBank has selected SOFR as theits preferred primary replacement rate for investments and advances. We have developed an initiala LIBOR transition action plan and convened a project team to implement the transition, which is led by a senior executive and comprised of representatives from various areas across the Bank. Ourour Asset-Liability Management Committee (ALCO) is the management committee responsible for overseeing the transition from LIBOR. In assessing our current exposure to LIBOR, we have developed an inventory of financial instruments impacted and identified contracts that maywould require adding or adjusting the "fallback" language which provides for contractual alternatives to the use of LIBOR when LIBOR cannot be determined based on the method provided in the agreement. We have amended the terms of certain advance products to include fallback languagelanguage. On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act (“LIBOR Act”) was signed into law, with the expectation that the Federal Reserve Board will issue implementing regulations. The LIBOR Act creates a uniform process to incorporate a replacement benchmark rate for LIBOR-indexed contracts that either do not contain a LIBOR fallback provision or contain an insufficient LIBOR fallback provision. As enacted, the Federal Reserve Board will identify a replacement benchmark rate based on SOFR and will include tenor spread adjustments which must be consistent with ISDA's 2020 IBOR Fallbacks Protocol and, for consumer loans, transitioning the OF has added or adjusted fallback language applicablespread adjustments to FHLB consolidated obligations.a linear basis over a one-year period. For further discussion of the LIBOR Act, see the Legislative and Regulatory Developments section on page 56.
For over-the-counter derivatives, we have adhered to the ISDA 2020 IBOR Fallbacks Protocol. For cleared derivatives, as part of the transition from LIBOR to SOFR, our clearinghouses revised their discounting methodology used to calculate the present value of future cash flows and price alignment on variation margin for USD cleared swaps from the daily Effective Federal Funds Rateeffective federal funds rate (EFFR) to SOFR. In October 2020, bothBoth of our clearinghouses have implemented their own unique cash and basis swap compensation mechanisms for market participants to neutralize any value transfer discrepancies from the LIBOR to SOFR conversion. Further, each clearinghouse announced respective proposalsits own proposal for the conversion process of LIBOR-linked cleared derivatives to risk-free rates, which is expected to occur at or shortly before the effective date of LIBOR discontinuation. We continue to monitor the market-wide efforts to address fallback language related to cleared derivatives and investment securities as well as fallback language for new activities and issuances of financial instruments. We continue to assess our operational readiness, including updating our processes and information technology systems to support the transition from LIBOR to an alternative reference rate.SOFR.
Market activity in SOFR-indexed financial instruments continues to increase, including the emergence ofprogression to a SOFR-based derivative market, and we continue to participate in the issuance of SOFR-indexed consolidated bonds. We are using Federal Funds Overnight Index Swapfederal funds overnight index swaps (Fed Funds OIS) swaps and SOFR indexed swaps as an interest rate hedging strategy for financial instruments that do not have embedded options, as an alternative to using LIBOR when entering into new derivative transactions. We are offering SOFR-linked advances to our members, and for the sixthree months ended June 30, 2021,March 31, 2022, have issued $73 million$4.2 billion in SOFR-linked advances. For a discussion of risks relating to our use of SOFR-linked consolidated obligations and advances, see Risk Factors starting on page 2322 of our 20202021 Form 10-K. We also offer Discount Note-index floater advances, which some members have used as alternatives to LIBOR-linked advance products.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Variable-Rate Financial Instruments by Interest-Rate Index and LIBOR-Indexed Financial Instruments
We have advances, investment securities, consolidated bonds, and derivatives with interest rates indexed to LIBOR. The following tables present our variable rate financial instruments by interest-rate index at June 30, 2021March 31, 2022 and may not include instruments that indirectly incorporate LIBOR or another interest rate index. The tables also do not consider the impact of any fallback language contained in our financial products. ABS and MBS are presented by contractual maturity; however, their expected maturities will likely differ from contractual maturities as borrowers may have the right to call or prepay obligations with or without call or prepayment fees.
| | | | | | | | | | | | | | | | | | | | |
As of June 30, 2021 | | Advances | | Investments | | Consolidated Obligations |
| | | | | | |
Principal amount of variable rate instruments outstanding a | | | | | | |
LIBOR | | $ | 968 | | | $ | 3,039 | | | $ | 250 | |
SOFR | | 79 | | | 499 | | | 13,161 | |
| | | | | | |
Treasury | | — | | | 125 | | | — | |
Other | | 17,241 | | b | 1 | | | — | |
Total | | $ | 18,288 | | | $ | 3,664 | | | $ | 13,411 | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Overnight, 1 month, 3 month, 6 month and 12-Month US Dollar LIBOR that cease or will no longer be representative immediately after June 30, 2023 | | | | | | |
Due in 2021 | | $ | 19 | | | $ | — | | | $ | — | |
Due in 2022 | | 301 | | | — | | | 250 | |
Due through June 30, 2023 | | 42 | | | — | | | — | |
Due thereafter | | 606 | | | 3,039 | | | — | |
Total | | $ | 968 | | | $ | 3,039 | | | $ | 250 | |
| | | | | | |
Principal amount of SOFR-linked instruments issued YTD through | | | | | | |
June 30, 2021 | | $ | 73 | | | $ | — | | | $ | 7,020 | |
| | | | | | | | | | | | | | | | | | | | |
As of March 31, 2022 | | Advances | | Investments | | Consolidated Obligations |
| | | | | | |
Principal amount of variable rate instruments outstanding a | | | | | | |
LIBOR | | $ | 613 | | | $ | 2,757 | | | $ | — | |
SOFR | | 3,187 | | | 596 | | | 13,560 | |
| | | | | | |
Treasury | | — | | | 104 | | | — | |
Consolidated obligation yields | | 18,517 | | | — | | | — | |
Other | | 24 | | | 1 | | | — | |
Total | | $ | 22,341 | | | $ | 3,458 | | | $ | 13,560 | |
| | | | | | |
Overnight, 1 month, 3 month, 6 month and 12-Month US Dollar LIBOR that cease or will no longer be representative immediately after June 30, 2023 | | | | | | |
Due in 2022 | | $ | 283 | | | $ | — | | | $ | — | |
Due through June 30, 2023 | | 36 | | | — | | | — | |
Due thereafter | | 294 | | | 2,757 | | | — | |
Total | | $ | 613 | | | $ | 2,757 | | | $ | — | |
| | | | | | |
Principal amount of SOFR-linked instruments issued YTD through | | | | | | |
March 31, 2022 | | $ | 4,200 | | | $ | — | | | $ | — | |
a With respect to advances, includes fixed rate advances that have cap/floor optionality linked to an interest rate index.
b Consists primarily of advances indexed to consolidated obligation yields.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
The following table details our variable rate financial instruments by pay or receive leg and whether cleared or uncleared.
| As of June 30, 2021 | | Derivative Notional Amount Outstanding | |
As of March 31, 2022 | | As of March 31, 2022 | | Derivative Notional Amount Outstanding |
| | | Pay Leg | | Receive Leg | | | Pay Leg | | Receive Leg |
Interest rate swaps outstanding | Interest rate swaps outstanding | | | | | Interest rate swaps outstanding | | | | |
Fixed rate | Fixed rate | | | $ | 37,955 | | | $ | 22,310 | | Fixed rate | | | $ | 36,239 | | | $ | 42,272 | |
LIBOR | LIBOR | | 4,817 | | | 18,664 | | LIBOR | | 2,610 | | | 14,862 | |
SOFR | SOFR | | 310 | | | 2,431 | | SOFR | | 17,935 | | | 7,928 | |
OIS | OIS | | 17,183 | | | 16,860 | | OIS | | 21,727 | | | 13,449 | |
| Total interest rate swaps | Total interest rate swaps | | $ | 60,265 | | | $ | 60,265 | | Total interest rate swaps | | $ | 78,511 | | | $ | 78,511 | |
| Breakdown of above LIBOR interest rate swaps by termination date and type | Breakdown of above LIBOR interest rate swaps by termination date and type | | Pay Leg | | Receive Leg | Breakdown of above LIBOR interest rate swaps by termination date and type | | Pay Leg | | Receive Leg |
| Cleared | | Uncleared | | Cleared | | Uncleared | | Cleared | | Uncleared | | Cleared | | Uncleared |
| | Overnight, 1 month, 3 month, 6 month and 12-Month US Dollar LIBOR that cease or will no longer be representative immediately after June 30, 2023 | | |
Terminates in 2021 | | $ | 1,052 | | | $ | 555 | | | $ | 636 | | | $ | 445 | | |
Overnight, 1 month, 3 month, 6 month and 12 month US Dollar LIBOR that cease or will no longer be representative immediately after June 30, 2023 | | Overnight, 1 month, 3 month, 6 month and 12 month US Dollar LIBOR that cease or will no longer be representative immediately after June 30, 2023 | | | | | | | | |
Terminates in 2022 | Terminates in 2022 | | 1,768 | | | 45 | | | 428 | | | 271 | | Terminates in 2022 | | $ | 550 | | | $ | 726 | | | $ | 58 | | | $ | 484 | |
Terminates through June 30, 2023 | Terminates through June 30, 2023 | | 767 | | | 35 | | | 499 | | | 166 | | Terminates through June 30, 2023 | | 452 | | | 350 | | | 101 | | | 252 | |
Terminates thereafter | Terminates thereafter | | 416 | | | 179 | | | 8,954 | | | 7,266 | | Terminates thereafter | | 148 | | | 384 | | | 4,780 | | | 9,187 | |
Total | Total | | $ | 4,003 | | | $ | 814 | | | $ | 10,517 | | | $ | 8,148 | | Total | | $ | 1,150 | | | $ | 1,460 | | | $ | 4,939 | | | $ | 9,923 | |
Condensed Statements of Cash Flows
Net cash flows from operating activities
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, | | 2021 | | 2020 | | Change |
Net cash provided by (used in) operating activities | | $ | 296 | | | $ | (2,013) | | | $ | 2,309 | |
The | | | | | | | | | | | | | | |
Three months ended March 31, | | 2022 | | 2021 |
Net cash provided by (used in) operating activities | | $ | 467 | | | $ | 956 | |
In both the first quarters of 2022 and 2021, as financial markets returned to normal, the majority of our operating cash outflows in 2020inflows were related to cash sent daily toreceived from clearinghouses to settle mark-to-market derivative positions due tomarket-to market positions; these inflows reversed the COVID-19 pandemic impact on market volatility, which occurred primarily$1.9 billion of cash outflows we experienced in the first quarter of 2020. Since then these cash flows have generally reversed during 2021.
Net cash flows from investing activities with significant activity
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, | | 2021 | | 2020 | | Change |
| | | | | | |
| | | | | | |
| | | | | | |
Liquid assets (Federal Funds sold, securities purchased under agreements to resell, and interest bearing deposits) | | $ | (2,275) | | | $ | 6,060 | | | $ | (8,335) | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
Investment debt securities | | 1,271 | | | (2,689) | | | 3,960 | |
| | | | | | |
| | | | | | |
| | | | | | |
Advances | | 105 | | | 2,087 | | | (1,982) | |
| | | | | | |
| | | | | | |
| | | | | | |
MPF Loans held in portfolio | | 228 | | | (979) | | | 1,207 | |
Other | | (7) | | | (9) | | | 2 | |
Net cash provided by (used in) investing activities | | $ | (678) | | | $ | 4,470 | | | $ | (5,148) | |
Our investing activities consist predominantly of liquid assets, investment debt securities, advances, and MPF Loans in portfolio. The change in net cash provided by (used in) investing activities and changes in allocation within investing activities are discussed below for the six months ended June 30 unless otherwise stated.
•In 2021, our liquid assets increased2020 due to market volatility as a lackresult of investment opportunities given very low rates of yield on investment debt securities. In 2020 we reduced our liquid assets as we funded increased investment debt securities after we achievedthe COVID-19 pandemic.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Net cash flows from investing activities with significant activity
| | | | | | | | | | | | | | |
Three months ended March 31, | | 2022 | | 2021 |
| | | | |
| | | | |
| | | | |
Liquid assets consisting of interest bearing deposits, federal funds sold, and securities purchased under agreements to resell | | $ | (3,909) | | | $ | 3,735 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Investment debt securities | | 1,161 | | | 1,811 | |
| | | | |
| | | | |
| | | | |
Advances | | 424 | | | (679) | |
| | | | |
| | | | |
| | | | |
MPF Loans held in portfolio | | 29 | | | 112 | |
Other | | (4) | | | (3) | |
Net cash provided by (used in) investing activities | | $ | (2,299) | | | $ | 4,976 | |
Our investing activities consist predominantly of investments in liquid assets, investment debt securities, advances, and MPF Loans held in portfolio. The reasons for the changes in net cash provided by (used in) investing activities and changes in allocation within investing activities are discussed below for the three months ended March 31, unless otherwise stated.
•The cash flows relating to our liquid assets fluctuate depending on the needs of our members, our investing strategy, the economic environment, and/or regulatory requirements related to liquidity, our mission asset ratio and MBS and ABS investments at the beginning of the year.requirements. We maintain a sufficient pool of liquidity to support anticipated member demand for advances and letters of credit.
•OurIn 2022 our net cash inflows from investment debt securities is attributable to a reduction in investment in Small Business Administration securities that matured and were not replaced. In 2021 our net cash inflows is primarily due to Treasury securities that matured and were not replaced.
•In 2022 our net cash inflows from advances outstanding decreased slightly in 2021 as member demand for funding remained steady. We experiencedresulted from a significantly largerslight decrease in advances during the same period in 2020 asoutstanding advances. We believe many of our depository members had reduced need for advances as a result of an inflowcontinue to experience elevated levels of deposits on their balance sheets along with reducedthat have not been offset by loan demand, as well as while also having access to other liquidity sources as a result of certain government actions related to the COVID-19 pandemicpandemic. Although these factors continued to limit our depository members’ current need for advances, increased advance borrowing by insurance company members has partially offset the decrease by depository members. In 2021 our net cash outflow for advances resulted from an increase in advance borrowing by insurance company members that more than offset reduced depository member demand for funding.
.
•Net investment inIn both 2022 and 2021 our net cash inflows from MPF Loans held in portfolio declined slightly in 2021 due to customer paydowns in mortgage loans as a result of refinancing opportunities relative to an increase in mortgage loans in 2020was due to new-acquisition volume outpacing paydownsthat was outpaced by paydown and maturities.maturity activity.
Net cash flows from financing activities with significant activity
| | | | | | | | | | | | | | | | | | | | |
Six months ended June 30, | | 2021 | | 2020 | | Change |
| | | | | | |
| | | | | | |
| | | | | | |
Consolidated obligation discount notes | | $ | (2,911) | | | $ | (4,183) | | | $ | 1,272 | |
| | | | | | |
| | | | | | |
| | | | | | |
Consolidated obligation bonds | | 429 | | | 1,062 | | | (633) | |
Other | | (237) | | | 683 | | | (920) | |
Net cash provided by (used in) financing activities | | $ | (2,719) | | | $ | (2,438) | | | $ | (281) | |
| | | | | | | | | | | | | | |
Three months ended March 31, | | 2022 | | 2021 |
| | | | |
| | | | |
| | | | |
Consolidated obligation discount notes | | $ | 1,895 | | | $ | (3,384) | |
| | | | |
| | | | |
| | | | |
Consolidated obligation bonds | | 234 | | | (2,156) | |
Other | | (311) | | | (138) | |
Net cash provided by (used in) financing activities | | $ | 1,818 | | | $ | (5,678) | |
Our financing activities primarily reflect cash flows related to issuing and repaying consolidated obligation bonds and discount notes. The change in net cash provided by (used in) financing activities and change in funding allocations are discussed below for the sixthree months ended June 30March 31, unless otherwise stated.
•In 2022 our cash inflows from both 2021 and 2020, we paid down discount notes and bonds reflects an increase in debt financing to match the overall increase in assets outstanding as discussed in investing activities above, with a relative increased our usemix of bonds to align with advantageous funding opportunitiesopportunities. In 2021 our cash outflows on both discount notes and bonds was due to a reduction in our shrinking balance sheet.debt financing to match the overall decline in assets as discussed in investing activities above.
•The change in Other primarily reflects changes in member deposits at our Bank. In 2021,2022, members withdrew a smalllarger amount of deposits compared to a large increase in deposits in 2020.2021.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Capital Resources
Capital Rules
WeThe Bank implemented thean amended and restated Capital Plan, of the Federal Home Loan Bank of Chicago, effective as of May 3, 2021 (the Capital Plan).
Under theour Capital Plan our stock consists of two sub-classes of stock, Class B1 activity stock and Class B2 membership stock (together, Class B stock), both with a par value of $100 per share and redeemable on five years' written notice, subject to certain conditions. EachUnder the Capital Plan, each member is required to own capital stock in an amount equal to the greater of a membership stock requirement or an activity stock requirement. All stock that supports a member’s activity stock requirement with the Bank is classified as Class B1 activity stock. Any additional amount of stock necessary for the total amount of Class B stock held to equal a member’s minimum investment amount will be classified as Class B2 membership stock. Members purchase Class B2 membership stock to satisfy their membership stock requirement with the Bank. Stock held in excess of a member’s minimum investment requirement is classified as Class B2 excess capital stock. Any dividend declared on Class B1 activity stock must be greater than or equal to the dividend on Class B2 membership stock for the same period. The higher dividend paid on Class B1 activity stock since late 2013 acknowledges that members, through their utilization of Bank products, provide support to the entire cooperative.
Under the Capital Plan, each member’s activity stock requirement is set at 4.5% for advances other than those borrowed under the Reduced Capitalization Advance Program (RCAP) as further discussed below. The Capital Plan provides that the Board of Directors may periodically adjust members' activity stock requirement for advances between a range of 2% and 5% of a member's outstanding advances.
Additionally, for MPF on-balance sheet products (which includes MPF Original, MPF 125, MPF 35, and MPF Government loans), the activity stock requirement is 2% of the principal loan amount sold into new master commitments executed on or after May 3, 2021.commitments. Under the Capital Plan, the range within which our Board may adjust this requirement is between 0% and 5%. For letters of credit, the activity stock requirement is 0.10% of the notional amount of all new letters of credit issued, on or after May 3, 2021, and all existing letters of credit renewed, extended or increased on or after May 3, 2021.increased. Under the Capital Plan, the range for the letter of credit activity stock requirement is 0.10% to 2%.
Federal Home Loan Bank of Chicago(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Under the Capital Plan, each member’s membership stock requirement is the greater of either $10,000 or 0.40% of a member's mortgage assets. The Capital Plan provides that the Board may periodically adjust members’ membership stock requirement between a range of 0.20% to 1% of a member’s mortgage assets. A member’s investment in membership stock is capped at $5 million, subject to adjustment by the Board within a range between $1 million and $25 million.
Membership stock requirements are recalculated annually, whereas the activity stock requirement and any automatic conversion betweenof Class B2 membership stock andto Class B1 activity stock related to activity continue to apply on a daily basis.
We may only redeem or repurchase capital stock from a member if, following the redemption or repurchase, the member continues to meet its minimum investment requirement and we remain in compliance with our regulatory capital requirements as discussed in Note 11 - Capital and Mandatorily Redeemable Capital Stock (MRCS) to the condensed financial statements. Members that withdraw from membership must wait at least five years after their membership was terminated and all of their capital stock was redeemed or repurchased before being readmitted to membership in any FHLB.
For details on our capital stock requirements under our capital plan for year-end 2019 and 2020,2021, see Capital Resources on page 62 of our 20202021 Form 10-K. Under the terms of our Capital Plan, our Board of Directors is authorized to amend the Capital Plan, and the FHFA must approve all such amendments before they become effective.
For details on our minimum regulatory capital requirements see Note 11 - Capital and Mandatorily Redeemable Capital Stock (MRCS) to the condensed financial statements in this Form 10-Q, and Minimum Capital Requirements in Note 12 - Capital and Mandatorily Redeemable Capital Stock (MRCS) to the financial statements of our 20202021 Form 10-K.
Reduced Capitalization Advance Program (RCAP)
RCAP allows members to borrow one or more advances with an activity stock requirement of only 2% for the life of the advance instead of the current 4.5% requirement under our Capital Plan’s general provisions. At June 30, 2021,March 31, 2022, RCAP advances outstanding total $21.3$21.0 billion to 383341 members compared to $21.9$20.6 billion to 449351 members at December 31, 2020.2021. The advances issued through our COVID-19 relief programand recovery programs are all RCAP advances. We may implement future programs for advances with a reduced activity stock requirement that may or may not have the same characteristics as current RCAP offerings.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Repurchase of Excess Capital Stock
Members may request repurchase of excess capital stock on any business day. Additionally, starting on March 15, 2021, and continuing on a monthly basis, the Bank plans towill repurchase excess capital stock held by each member or former member that exceeds certain limitsthresholds set by the Bank. All repurchases of excess capital stock, including any future monthly repurchases, will continue until otherwise announced, but remain subject to our regulatory requirements, certain financial and capital thresholds, and prudent business practices. For details on the financial and capital thresholds relating to repurchases, see Repurchase of Excess Capital Stock on page 6566 of our 20202021 Form 10-K.
Federal Home Loan Bank of Chicago(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Capital Amounts
The following table reconciles our capital reported in our Condensed Statements of Condition to the amount of capital stock reported for regulatory purposes. MRCS is included in the calculation of the regulatory capital and leverage ratios but is recorded in other liabilities in our Condensed Statements of Condition.
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
Capital Stock | | $ | 2,007 | | | $ | 2,010 | |
Mandatorily redeemable capital stock (MRCS) recorded as a liability | | 248 | | | 279 | |
Regulatory capital stock | | 2,255 | | | 2,289 | |
Retained earnings | | 4,139 | | | 4,072 | |
Regulatory capital | | $ | 6,394 | | | $ | 6,361 | |
| | | | |
| | | | |
Capital stock | | $ | 2,007 | | | $ | 2,010 | |
Retained earnings | | 4,139 | | | 4,072 | |
Accumulated other comprehensive income (loss) | | 487 | | | 207 | |
GAAP capital | | $ | 6,633 | | | $ | 6,289 | |
| | | | | | | | | | | | | | |
| | March 31, 2022 | | December 31, 2021 |
Capital Stock | | $ | 2,132 | | | $ | 2,149 | |
Mandatorily redeemable capital stock (MRCS) recorded as a liability | | 300 | | | 247 | |
Regulatory capital stock | | 2,432 | | | 2,396 | |
Retained earnings | | 4,334 | | | 4,261 | |
Regulatory capital | | $ | 6,766 | | | $ | 6,657 | |
| | | | |
| | | | |
Capital stock | | $ | 2,132 | | | $ | 2,149 | |
Retained earnings | | 4,334 | | | 4,261 | |
Accumulated other comprehensive income (loss) | | 177 | | | 342 | |
GAAP capital | | $ | 6,643 | | | $ | 6,752 | |
Accumulated other comprehensive income (loss) in the above table consists of changes in market value of various balance sheet accounts where the change is not recorded in earnings but areis instead recorded in equity capital as the income (loss) is not yet realized. For details on these changes please see Note 12 - Accumulated Other Comprehensive Income (Loss) to the condensed financial statements.
We may not pay dividends if we fail to satisfy our minimum capital and liquidity requirements under the FHLB Act and FHFA regulations. On JulyApril 28, 2021,2022, our Board of Directors declared a 5.00%5.125% dividend (annualized) for Class B1 activity stock and a 2.00%2.125% dividend (annualized) for Class B2 membership stock based on our preliminary financial results for the secondfirst quarter of 2021.2022. This dividend totaled $25$27 million (recorded as $22$24 million dividends on capital stock and $3 million interest expense on mandatorily redeemable capital stock) and is scheduled for payment on AugustMay 12, 2021.2022.
Although we continue to work to maintain our financial strength to support a reasonable dividend, any future dividend payment remains subject to declaration by our Board and will depend on future operating results, our Retained Earnings and Dividend Policy and any other factors the Board determines to be relevant. For further information see on our Retained Earnings & Dividends on page 66 in our 2020 Form 10-K.and Dividend Policy, see the discussion below.
We continue to allocate 20% of our net income each quarter to a restricted retained earnings account in accordance with the Joint Capital Enhancement Agreement that we entered into with the other FHLBs, as further discussed in Joint Capital Enhancement Agreement in Note 12 - Capital and Mandatorily Redeemable Capital Stock (MRCS) to the financial statements of our 20202021 Form 10-K.
Additionally, an FHFA Advisory Bulletin sets forth guidance for each FHLB to maintain a ratio of at least two percent of capital stock to total assets. In accordance with this guidance, the FHFA considers the proportion of capital stock to assets, measured on a daily average basis at month end, when assessing each FHLB’s capital management practices.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Retained Earnings and Dividend Policy
Our Board of Directors has adopted a Retained Earnings and Dividend Policy (the “Policy”) which, as last updated in March 2022, provides the Bank with guidelines for establishing adequate retained earnings to create long-term value for members and paying dividends that achieve the Bank’s objectives.
Specifically, the Policy requires the Bank to monitor retained earnings compared to a retained earnings target on a quarterly basis to determine the appropriate level of retained earnings, any dividend payments, and/or any other capital activities. The retained earnings target has two components: risk and regulatory retained earnings requirements (which determines the amount of retained earnings the Bank needs to manage risks, maintain shareholder value, and meet regulatory requirements) and a desired corridor of retained earnings requirement (which assesses the amount of retained earnings the Bank desires to have to maintain the scale of the Bank).
Under the Policy, the Board may, but is not required to, declare a dividend out of net income (with certain adjustments as described below) and/or retained earnings after consideration of the retained earnings target and the Board’s and management's assessment of the current adequacy of retained earnings. For these purposes, adjusted net income is net income resulting directly from certain business activities, excluding income from such activities as advance prepayments, transfers of debt to other FHLBs, and gains/losses resulting from certain hedging practices.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Credit Risk Management
In light of the economic and financial disruptions related to the COVID-19 pandemic, we are closely monitoring our credit risk exposure. Notwithstanding increasing COVID-19 vaccination rates and the easing of restrictive measures, uncertainty remains with respect to the speed and extent to which normal economic and operating conditions can resume, and with the ultimate effect of the COVID-19 pandemic on our business, financial condition, and results of operations. For a discussion of the credit risks facing the Bank as a result of the COVID-19 pandemic, including as a result of increased forbearances granted by Bank members or PFIs or a decline in the fair value of Bank investments, see Risk Factors starting on page 23 of our 2020 Form 10-K.
Managing Our Credit Risk Exposure Related to Member Credit Products
Our credit risk rating system focuses primarily on our member'smembers' overall financial health and takes into account the member's asset quality, earnings, and capital position. For further information please see Credit Risk starting on page 69 in our 20202021 Form 10-K.
The following table presents the number of members and related credit outstanding to them by credit risk rating. Credit outstanding consists primarily of outstanding advances and letters of credit. MPF credit enhancement obligations, member derivative exposures, and other obligations make up the rest. Of the total credit outstanding, $45.7$47.3 billion were advances (par value) and $12.8$11.2 billion were letters of credit at June 30, 2021,March 31, 2022, compared to $45.8$47.7 billion and $16.4$11.3 billion at December 31, 2020.2021.
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Rating | Rating | | Borrowing Members | | Credit Outstanding | | Collateral Loan Value | | Borrowing Members | | Credit Outstanding | | Collateral Loan Value | Rating | | Borrowing Members | | Credit Outstanding | | Collateral Loan Value | | Borrowing Members | | Credit Outstanding | | Collateral Loan Value |
1-3 | 1-3 | | 548 | | | $ | 58,199 | | | $ | 130,751 | | | 556 | | | $ | 62,021 | | | $ | 149,125 | | 1-3 | | 542 | | | $ | 58,414 | | | $ | 134,444 | | | 545 | | | $ | 58,542 | | | $ | 131,923 | |
4 | 4 | | 6 | | | 358 | | | 618 | | | 9 | | | 573 | | | 790 | | 4 | | 7 | | | 334 | | | 482 | | | 6 | | | 464 | | | 611 | |
5 | 5 | | 8 | | | 43 | | | 53 | | | 9 | | | 28 | | | 61 | | 5 | | 5 | | | 26 | | | 33 | | | 7 | | | 30 | | | 44 | |
Total | Total | | 562 | | | $ | 58,600 | | | $ | 131,422 | | | 574 | | | $ | 62,622 | | | $ | 149,976 | | Total | | 554 | | | $ | 58,774 | | | $ | 134,959 | | | 558 | | | $ | 59,036 | | | $ | 132,578 | |
Members assigned a 4 rating in the above table were required to submit specific collateral listings and the members assigned a 5 rating were required to deliver collateral to us or to a third party custodian on our behalf.
In response to the COVID-19 pandemic, we began accepting Paycheck Protection Program (PPP) loans as eligible collateral. In addition, as many of our members assist borrowers affected by the COVID-19 pandemic, we are accepting as eligible collateral loans temporarily granted forbearance due to the pandemic as long as the loans continue to meet all other eligibility requirements as defined in our collateral guidelines. To the extent that these loans become delinquent or do not meet the Bank’s eligibility guidelines in the future, the value of collateral pledged to secure member credit may be negatively impacted.
Federal Home Loan Bank of Chicago(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
MPF Loans and Related Exposures
For details on our allowance for credit losses on MPF Loans, please see Note 8 - Allowance for Credit Losses to the condensed financial statements.
Credit Risk Exposure - Our credit risk exposure on conventional MPF Loans held in portfolio is the potential for financial loss due to borrower default and depreciation in the value of the real estate collateral securing the MPF Loan, offset by our ability to recover losses from PMI, Recoverable CE Fees, and the CE Amount which may include SMI. The PFI is required to pledge collateral to secure any portion of its CE Amount that is a direct obligation of the PFI. For further details see Loss Structure for Credit Risk Sharing Products on page 9 of our 20202021 Form 10-K, and Credit Risk Exposure and Setting Credit Enhancement Levels starting on page 72 of our 20202021 Form 10-K.
Under our MPF Program for non-government insured or guaranteedconventional loans held in our portfolio, the loan payment forbearance offered to borrowers impacted by the COVID-19 pandemic allows a borrower to defer loan payments for up to 180 days without requiring documentation from the borrower to support the relief requested. Borrowers that continue to be impacted by COVID-19 may request extensions of the loan payment forbearance for additional periods of up to 365 days, not exceeding a total cumulative forbearance period of 1824 months. A hardship certification from the borrower supporting the continued hardship due to the COVID-19 pandemic is required for approval of additional payment forbearance. During forbearance, late fees are not assessed. At the end of forbearance, borrowers are presented with options for bringing their mortgage loan to a current status.
For government insured or guaranteed loansGovernment Loans held in our portfolio, the forbearance plan requirements of the insuring or guaranteeingguarantying agency must be followed. For MPF Xtra loans that are serviced by PFIs or a servicing aggregator approved by the MPF Program, Fannie Mae’s forbearance plan requirements must be followed. The CARES Act requires that servicers servicing government insured or guaranteed loans and loans purchased by Fannie Mae offer their borrowersfollowed, which allows a payment forbearance plan where the initial forbearance period isborrower to defer loan payments for up to 180 days with the availability of an additional 180 days for COVID-19 related hardship. Fannie Mae has amended its plan from the CARES Act requirements, to offer their borrowers initial forbearance period of up to 180 days with the availability of additional periods of up to 365 days, not exceeding a total cumulative forbearance period of 18 months.
Borrowers who are in existing forbearance plans who have resolvedare evaluated for reinstatement, repayment, deferment, permanent loan modification, or liquidation options, as appropriate for their COVID-19 related financial hardships, and who are able to resume making their original monthly payments, are offered deferral plans allowing them to resume making those payments while deferring the COVID-19 related forbearance arrears to the earlier of the loan being paid off, the loan maturity date, or sale of the property.situation.
In addition, the foreclosure moratorium will continue until at least December 31, 2021
Federal Home Loan Bank of Chicago (U.S. Dollars in accordance with the recently published Consumer Financial Protection Bureau (CFPB) “Protections for Borrowers Affected by the COVID–19 Emergency Under the Real Estate Settlement Procedures Act (RESPA), Regulation X”. This CFPB rulemaking extends the foreclosure moratorium through the end of 2021; however, it permits the foreclosure of certain loans such as those loans on vacant property and those loans that weretables in a delinquency status prior to March 2020. Other than the foreclosure moratorium exceptions noted in the CFPB’s rule, barring any extensions of the CFPB’s requirements or other regulatory limitations, foreclosures are expected to fully resume on January 1, 2022.millions except per share amounts unless otherwise indicated)
Mortgage Repurchase Risk
We are exposed to mortgage repurchase risk in connection with our sale of MPF Loans to Fannie Mae under the MPF Xtra product, to third party investors under the MPF Direct Product, and to Ginnie Mae for MPF Loans securitized in Ginnie Mae MBS if a loan eligibility requirement or other representation or warranty is breached. We may require the PFI from which we purchased the ineligible MPF Loan to repurchase that loan from us or indemnify us for related losses or request indemnification from the PFI’s MPF Bank. Of these three products, our MPF Xtra product is our most popular, and during the three months ended March 31, 2022 and 2021, we purchased and concurrently delivered $0.6 billion and $2.6 billion, respectively, in unpaid principal balance of these loans to Fannie Mae.
For additional details on our mortgage repurchase risk in connection with our sale of MPF Loans to third party investors and MPF Loans securitized into MBS when a loan eligibility requirement or other warranty is breached, see Mortgage Repurchase Risk on page 74 in our 20202021 Form 10-K.
Federal Home Loan Bank of Chicago(U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Investment Debt Securities
We hold a variety of investment debt securities, mostly government backed or insured securities, and we believe these investments are currently low risk. Except for an immaterial amount, all are rated at least AA and there were no material changes in the credit ratings of these securities since December 31, 2020.2021. For further details see Investment Debt Securities on page 7677 in our 20202021 Form 10-K.
Unsecured Short-Term Investments
See Unsecured Short-Term Investments on page 7779 in our 20202021 Form 10-K for further details on our unsecured short-term investments as well as policies and procedures to limit and monitor our unsecured credit risk exposure.
The following table presents the credit ratings of our unsecured investment counterparties, organized by the domicile of the counterparty or, where the counterparty is a U.S. branch or agency office of a foreign commercial bank, by the domicile of the counterparty's parent. This table does not reflect the foreign sovereign government's credit rating. The rating used was the lowest rating among the three largest NRSROs. The unsecured investment credit exposure presented in the table may not reflect the average or maximum exposure during the period as the table reflects only the balances at period end.
| As of June 30, 2021 | | | AA | | A | | | Total | |
As of March 31, 2022 | | As of March 31, 2022 | | | AA | | A | | | Total |
Domestic U.S. | Domestic U.S. | | | | | | | | | Domestic U.S. | | | | | | | | |
Interest-Bearing Deposits | Interest-Bearing Deposits | | | $ | — | | | $ | 855 | | | | $ | 855 | | Interest-Bearing Deposits | | | $ | — | | | $ | 855 | | | | $ | 855 | |
| U.S. branches and agency offices of foreign commercial banks - Federal Funds sold: | | | | | | | | | |
Foreign commercial banks - federal funds sold: | | Foreign commercial banks - federal funds sold: | | | | | | | | |
Australia | Australia | | | — | | | 1,000 | | | | 1,000 | | Australia | | | — | | | 1,000 | | | | 1,000 | |
| Canada | Canada | | | — | | | 1,875 | | | | 1,875 | | Canada | | | — | | | 2,175 | | | | 2,175 | |
Finland | Finland | | | 500 | | | — | | | | 500 | | Finland | | | 406 | | | — | | | | 406 | |
France | | | — | | | 100 | | | | 100 | | |
| | Netherlands | Netherlands | | | — | | | 700 | | | | 700 | | Netherlands | | | — | | | 350 | | | | 350 | |
Norway | | | 600 | | | — | | | | 600 | | |
| Sweden | | Sweden | | | — | | | 500 | | | | 500 | |
| Total U.S. branches and agency offices of foreign commercial banks | | | 1,100 | | | 3,675 | | | | 4,775 | | |
| Total unsecured credit exposure | Total unsecured credit exposure | | | $ | 1,100 | | | $ | 4,530 | | | | $ | 5,630 | | Total unsecured credit exposure | | | $ | 406 | | | $ | 4,880 | | | | $ | 5,286 | |
|
All $5.630$5.286 billion of the unsecured credit exposure shown in the above table were overnight investments.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Managing Our Credit Risk Exposure Related to Derivative Agreements
See Note 9 - Derivatives and Hedging Activities to the condensed financial statements for a discussion of how we manage our credit risk exposure related to derivative agreements. We have credit exposure on net asset positions where we have not received adequate collateral from our counterparties. We also have credit exposure on net liability positions where we have pledged collateral in excess of our liability to a counterparty.
The following table presents our derivative positions where we have such credit exposures. The rating used was the lowest rating among the three largest NRSROs. Non-cash collateral pledged consists of initial margin we posted through our FCMs, on behalf of the DCOs for cleared derivatives and is included in our derivative positions with credit exposure. We had no material concentration of credit risk with any one bilateral derivative counterparty.
| | | Net Derivative Fair Value Before Collateral | | Cash Collateral Pledged | | Noncash Collateral Pledged | | Net Credit Exposure to Counterparties a | | Net Derivative Fair Value Before Collateral | | Cash Collateral Pledged | | Noncash Collateral Pledged | | Net Credit Exposure to Counterparties | a |
As of June 30, 2021 | | | | | | | | | |
Nonmember counterparties - | | |
| Overcollateralized liability positions - | | |
Bilateral derivatives - | | |
| A | | $ | (107) | | | $ | 110 | | | $ | — | | | $ | 3 | | |
BBB | | (132) | | | 139 | | | — | | | 7 | | |
| Cleared derivatives | | (61) | | | — | | | 582 | | | 521 | | |
Nonmember counterparties | | (300) | | | 249 | | | 582 | | | 531 | | |
Member institutions | | 3 | | | — | | | — | | | 3 | | |
Total | | $ | (297) | | | $ | 249 | | | $ | 582 | | | $ | 534 | | |
| As of December 31, 2020 | | |
As of March 31, 2022 | | As of March 31, 2022 | | | | | | | | | |
Nonmember counterparties - | Nonmember counterparties - | | Nonmember counterparties - | |
Undercollateralized asset positions - | Undercollateralized asset positions - | | Undercollateralized asset positions - | |
Bilateral derivatives - | Bilateral derivatives - | | Bilateral derivatives - | |
| A | A | | $ | 2 | | | $ | (2) | | | $ | — | | | $ | — | | A | | $ | — | | | $ | 1 | | | $ | — | | | $ | 1 | | |
| Overcollateralized liability positions - | Overcollateralized liability positions - | | Overcollateralized liability positions - | |
Bilateral derivatives - | Bilateral derivatives - | | Bilateral derivatives - | |
| A | A | | (125) | | | 6 | | | 120 | | | 1 | | A | | (515) | | | 539 | | | — | | | 24 | | |
BBB | BBB | | (147) | | | — | | | 147 | | | — | | BBB | | (631) | | | 650 | | | — | | | 19 | | |
| Cleared derivatives | Cleared derivatives | | (8) | | | — | | | 623 | | | 615 | | Cleared derivatives | | (58) | | | — | | | 623 | | | 565 | | |
Nonmember counterparties | Nonmember counterparties | | (278) | | | 4 | | | 890 | | | 616 | | Nonmember counterparties | | (1,204) | | | 1,190 | | | 623 | | | 609 | | |
CO bond firm commitments | | CO bond firm commitments | | (1) | | | 16 | | | — | | | 15 | | |
Member counterparties | Member counterparties | | 5 | | | — | | | — | | | 5 | | Member counterparties | | 2 | | | — | | | — | | | 2 | | |
Total | Total | | $ | (273) | | | $ | 4 | | | $ | 890 | | | $ | 621 | | Total | | $ | (1,203) | | | $ | 1,206 | | | $ | 623 | | | $ | 626 | | |
|
a Less than $1 million is shown as zero.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Legislative and Regulatory Developments
Significant regulatory actions and developments are summarized below.
LIBOR TransitionAdjustable Interest Rate (LIBOR) Act
On March 15, 2022, President Biden signed into law the Economic Continuity and Stability Act, which includes the Adjustable Interest Rate (LIBOR) Act (the “LIBOR Act”). The LIBOR Act addresses certain issues of contractual uncertainty arising from the phase out of the publication of LIBOR, which issues are discussed in LIBOR Transition – 2021 ISDA Interest Rate Derivatives Definitionson page 46. The LIBOR Act provides a national, uniform approach to legacy contracts without adequate fallback provisions commencing from the LIBOR replacement date of June 30, 2023 or such other date as the Federal Reserve Board may designate. For relevant contracts, the LIBOR Act will automatically impose a rate selected by the Federal Reserve Board based upon the secured overnight financing rate (“SOFR”) including any applicable tenor spread adjustment. The legislation also includes a safe harbor against liability for parties with contractual discretion who choose the Federal Reserve Board's SOFR-based rate to replace LIBOR. Notwithstanding enactment of the LIBOR Act, the contractual consequences of LIBOR cessation for some existing LIBOR-indexed instruments may still be unclear. Accordingly, the Bank continues to take steps to mitigate the risks that arise from the phase out of LIBOR.
Amendment to FINRA Rule 4210: Margining of Covered Agency Transactions.
On June 11, 2021, ISDA published 2021 ISDA Interest Rate Derivatives Definitions (2021 ISDA Definitions),February 25, 2022, the Financial Industries Regulatory Authority (“FINRA”) extended the implementation date of its amendments to FINRA Rule 4210 delaying the effectiveness of margining requirements for covered agency transactions until October 26, 2022. Once the margining requirements are effective, the Bank may be required to collateralize its transactions that are covered agency transactions, which will updateinclude to be announced transactions (“TBAs”). These collateralization requirements could have the effect of reducing the overall profitability of engaging in covered agency transactions, including TBAs. We do not expect this rule to have a material effect on our financial condition or results of operations.
Proposed SEC Rule on Climate-related Disclosures.
On March 21, 2022, the SEC issued a proposed rule on climate-related disclosures that would require the Bank to expand the breadth, specificity and consolidaterigor of climate-related disclosures in its periodic reports. More specifically, the frequently supplemented 2006 ISDA Definitions asproposed rule would require the standard definitions for uncleared interest rate derivatives. The 2021 ISDA Definitions incorporate prior supplementsBank to disclose its:
•direct and certain indirect greenhouse gas emissions;
•climate transition plan, climate-related targets and goals, and progress toward any such plan, targets, or goals;
•climate-related risks over various time horizons and their impacts;
•climate-related financial statement metrics and related information, both qualitative and quantitative, in the notes to the 2006 ISDA DefinitionsBank’s financial statements; and
•corporate governance of climate-related risks and risk management processes.
Under the propose rule, compliance would be phased in, additionwith the Bank becoming subject to other changes made to conform to updates in market practicecertain disclosure requirements for its annual report for fiscal year 2024 and regulation. Both the 2006 ISDA Definitions as supplemented effective January 25, 2021, and the 2021 ISDA Definitions contain ISDA-recommended fallbacksadditional disclosure requirements for interest rate derivatives referencing an interbank offered rate, including U.S. Dollar LIBOR. ISDA has announced that implementation of the 2021 ISDA Definitions is expected to take placeits annual report for clearing houses, trading venues and other market infrastructures between October 1-4, 2021. While the FHLBs may continue to use the current 2006 ISDA Definitions, ISDA will not incorporate any further supplements following implementation of the 2021 ISDA Definitions.fiscal year 2025.
We are evaluatingcontinue to review the proposed rule, but expect that it would result in increased costs and complexity associated with the Bank’s SEC reporting. While the Bank is unable to quantify the anticipated costs at this time, the Bank expects that compliance would require operational enhancements impacting many aspects of the Bank’s business. The Bank is unable to predict at this time whether the SEC will finalize the proposed rule, the extent to usewhich any final rule will deviate from the 2021 ISDA Definitions for future derivatives transactions.proposed rule and the extent to which the Bank would be required to comply with any final rule.
COVID-19 Developments
Federal Reserve Board (FRB) Extends Paycheck Protection Program (PPP) Liquidity Facility
On June 25, 2021, the FRB announced a final extension of its PPP Liquidity Facility (PPPLF) by an additional month to July 30, 2021. The PPPLF provides collateralized PPP loan liquidity to eligible Federal Reserve member financial institutions in order to facilitate PPP loan originations at such financial institutions. The extension would allow additional processing time for banks, community development financial institutions, and other financial institutions to pledge to the facility any PPP loans approved by the Small Business Administration through the June 30, 2021 expiration of the PPP program.
Additional COVID-19 Presidential, Legislative and Regulatory Developments
In light of the COVID-19 pandemic, the former and current Presidents of the United States, through executive orders, governmental agencies, including the SEC, OCC, Federal Reserve, FDIC, National Credit Union Administration, CFTC and the FHFA, as well as state governments and agencies, have taken, and may continue to take, actions to provide various forms of relief from, and guidance regarding, the financial, operational, credit, market, and other effects of the pandemic, and the Congress has and may continue to enact pandemic relief legislation, some of which may have a direct or indirect impact on the Bank or its members. Many of these actions are temporary in nature. We continue to monitor these actions and guidance as they evolve and to evaluate their potential impact on us.
For further discussion of the risks and potential risks relating to the COVID-19 pandemic, see Risk Factors starting on page 23 of our 2020 Form 10-K.
Other Legislative Matters
Affordable Housing and Community Investment
Legislation has been introduced in the U.S. Senate and House of Representatives that, if enacted in its proposed form, would require that the FHLBs set aside higher percentages of their earnings for their affordable housing and community investment programs than is currently required under law. The FHLBs are actively monitoring these proposals.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Our Asset/Liability Management Committee and its subcommittees provide oversight of our risk management practices and policies. This includes routine reporting to senior Bank management and the Board of Directors, as well as maintaining the Income and Market Value Risk Policy, which defines our interest rate risk limits. The table below reflects the expected change in market value of equity for the stated increase or decrease in interest rates based on our models and related loss limit for each scenario established in the policy. For our down scenario shock analysis, the down shocks are constrained by scenarios provided by our regulator, which currently are limited so that shocked rates will not go negative.negative but are subject to change. As a result, we floored the down shock scenario at 10 bps. Due to the low rate environment, this floor setting was triggered in ourfor some down shock scenarios presented below.
| | | June 30, 2021 | | December 31, 2020 | | March 31, 2022 | | December 31, 2021 |
Scenario as of | Scenario as of | | Change in Market Value of Equity | | Loss Limit | | Change in Market Value of Equity | | Loss Limit | Scenario as of | | Change in Market Value of Equity | | Loss Limit | | Change in Market Value of Equity | | Loss Limit |
-200 bp | -200 bp | | $ | 330 | | | $ | (450) | | | $ | 421 | | | $ | (450) | | -200 bp | | $ | 26 | | | $ | (450) | | | $ | 487 | | | $ | (450) | |
-100 bp | -100 bp | | 44 | | | (200) | | | 225 | | | (200) | | -100 bp | | (8) | | | (200) | | | (44) | | | (200) | |
-50 bp | -50 bp | | 23 | | | (90) | | | 140 | | | (90) | | -50 bp | | 17 | | | (90) | | | (19) | | | (90) | |
-25 bp | -25 bp | | 8 | | | (45) | | | 96 | | | (45) | | -25 bp | | 9 | | | (45) | | | (11) | | | (45) | |
+25 bp | +25 bp | | (12) | | | (45) | | | (11) | | | (45) | | +25 bp | | (11) | | | (45) | | | (11) | | | (45) | |
+50 bp | +50 bp | | (29) | | | (90) | | | (31) | | | (90) | | +50 bp | | (21) | | | (90) | | | (28) | | | (90) | |
+100 bp | +100 bp | | (72) | | | (200) | | | (84) | | | (200) | | +100 bp | | (46) | | | (200) | | | (75) | | | (200) | |
+200 bp | +200 bp | | (165) | | | (450) | | | (187) | | | (450) | | +200 bp | | (103) | | | (450) | | | (181) | | | (450) | |
Measurement of Market Risk Exposure
To measure our exposure, we discount the cash flows generated from modeling the terms and conditions of all interest rate-sensitive securities using current interest rates to determine their fair values or spreads to the swap curve for securities where third party prices are used. This includes considering explicit and embedded options using a lattice model or Monte Carlo simulation. We estimate yield curve, option, and basis risk exposures by calculating the fair value change in relation to various parallel changes in interest rates, implied volatility, prepayment speeds, spreads to the swap curve and mortgage rates.
The table below summarizes our sensitivity to various interest rate risk exposures in terms of changes in market value.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Option Risk | | Basis Risk |
| Yield Curve Risk | | Implied Volatility | | Prepayment Speeds | | Spread to Swap Curve | | Mortgage Spread |
As of June 30, 2021 | $ | 2 | | | $ | 3 | | | $ | (1) | | | $ | (16) | | | $ | — | |
As of December 31, 2020 | — | | | (1) | | | (4) | | | (25) | | | 1 | |
| | | | | | | | | | | | | | |
| | As of March 31, 2022 | | As of December 31, 2021 |
Yield Curve Risk | | $ | 4 | | | $ | 4 | |
Option Risk | | | | |
Implied Volatility | | 5 | | | 5 | |
| | | | |
Basis Risk | | | | |
Spread to Swap Curve | | (6) | | | (12) | |
| | | | |
Yield curve risk – Change in market value for a one basis point parallel increase in the swap curve.
Option risk (implied volatility) – Change in market value for a one percent parallel increase in the swaption volatility.
Option risk (prepayment speeds) – Change in market value for a one percent increase in prepayment speeds.
Basis risk (spread to swap curve) – Change in market value for a one basis point parallel increase in the spread to the swap curve.
Basis risk (mortgage spread) – Change in market value for a one basis point increase in mortgage rates.
As of June 30, 2021,March 31, 2022, our sensitivity to changes in implied volatility using these modelsa lattice model and Monte Carlo simulation was $3$5 million, compared to $(1)unchanged from $5 million at December 31, 2020.2021. These sensitivities are limited in that they do not incorporate other risks, including but not limited to non-parallel changes in yield curves, prepayment speeds, and basis risk related to differences between the swap and the other curves. Option positions embedded in our mortgage assets and callable debt impact our yield curve risk profile, such that swap curve changes significantly greater than one basis point cannot be linearly interpolated from the table above.
Federal Home Loan Bank of Chicago (U.S. Dollars in tables in millions except per share amounts unless otherwise indicated)
Duration of equity is another measure to express interest rate sensitivity. We report the results of our duration of equity calculations to the FHFA each quarter. We measure duration of equity in a base case using the actual yield curve as of a specified date and then shock it with an instantaneous shift of the entire curve.
The following table presents the duration of equity reported by us to the FHFA in accordance with the FHFA's guidance, which prescribes that down and up interest-rate shocks equal 200 basis points. The results are shown by duration of equity in years. We continue to monitor impacts of the COVID-19 pandemic and inflation trends on the markets and the economy which may impact our mortgage prepayment speed projections and duration of equity in 2022.
| | | | | | | | | | | | | | | | | | | | |
| | Duration of equity in years |
Scenario as of | | Down 200 bps | | Base | | Up 200 bps |
June 30, 2021 | | 1.0 | | 0.5 | | 1.3 |
December 31, 2020 | | 1.4 | | 0.6 | | 1.4 |
| | | | | | | | | | | | | | |
| | Duration of equity in years |
Scenario as of | | March 31, 2022 | | December 31, 2021 |
Down 200 bps | | -1.4 | | 1.1 |
Base | | 0.6 | | 0.4 |
Up 200 bps | | 0.8 | | 1.5 |
As of June 30, 2021,March 31, 2022, on a U.S. GAAP basis, our fair value surplus (relative to book value) was $438$431 million, and our market value of equity to book value of equity ratio was 106%, compared to $330$458 million and 105%107% at December 31, 2020.2021. Our market to book value of total capital for regulatory risk-based capital purposes differs from this GAAP calculation, as discussed in Note 11 - Capital and Mandatorily Redeemable Capital Stock (MRCS) to the condensed financial statements.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
Under the supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, as of the end of the period covered by this report (the Evaluation Date). Based on this evaluation, the principal executive officer and principal financial officer concluded as of the Evaluation Date that the disclosure controls and procedures were effective such that information relating to us that is required to be disclosed in reports filed with the SEC (i) is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and (ii) is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting
For the most recent quarter presented in this Form 10-Q, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Consolidated Obligations
Our disclosure controls and procedures include controls and procedures for accumulating and communicating information relating to our joint and several liability for the consolidated obligations of other FHLBs. For further information, see Item 9A. Controls and Procedures on page 88 of our 20202021 Form 10-K.
Federal Home Loan Bank of Chicago
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
For a discussion of the litigation relating to PLMBS bonds purchased by the Bank, see Item 3. Legal Proceedings on page 36 of our 2020 Form 10-K.
The Bank may also be subject to various other legal proceedings arising in the normal course of business. After consultation with legal counsel, management is not aware of any other proceedings that might have a material effect on the Bank's financial condition or results of operations.
Item 1A. Risk Factors.
In addition to the information presented in this report, readers should carefully consider the factors set forth in the Risk Factors section starting on page 2322 in our 20202021 Form 10-K, which could materially affect our business, financial condition, or future results. These risks are not the only risks facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also severely affect us.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Federal Home Loan Bank of Chicago
Item 6. Exhibits.
| | | | | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
101.INS | Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document. ba |
| |
101.SCH | Inline XBRL Taxonomy Extension Schema Document ba |
| |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document ba |
| |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document ba |
| |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document ba |
| |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document ba |
| |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) ba |
a Filed as Exhibit 4.1 with our Form 10-Q on May 6, 2021, SEC File No.: 000-51401
ba Filed herewith.
Federal Home Loan Bank of Chicago
Glossary of Terms
Advances: Secured loans to members.
ABS: Asset backed securities.
AFS: Available-for-sale debt securities.
AOCI: Accumulated Other Comprehensive Income.
Capital Plan: Capital Plan of the Federal Home Loan Bank of Chicago, effective May 3, 2021.
CARES Act: The Coronavirus, Aid, Relief, and Economic Security Act, enacted March 27, 2020.
CE Amount: A PFI's assumption of credit risk, beyond any Recoverable CE Fees in the FLA, on conventional MPF Loan products held in an MPF Bank's portfolio that are funded by, or sold to, an MPF Bank by providing credit enhancement either through a direct liability to pay credit losses up to a specified amount or through a contractual obligation to provide SMI. Does not apply to the MPF Government, MPF Xtra, MPF Direct or MPF Government MBS product.
CE Fee: Credit enhancement fee. PFIs are paid a credit enhancement fee for managing credit risk and in some instances, all or a portion of the CE Fee may be performance based.
CFTC: Commodity Futures Trading CommissionCommission.
Consolidated Obligations (CO): FHLB debt instruments (bonds and discount notes) which are the joint and several liability of all FHLBs; issued by the Office of Finance.
Consolidated obligation bonds: Consolidated obligations that make periodic interest payments with a term generally over one year, although we have issued for terms of less than one year.
DCO: Derivatives Clearing Organization. A clearinghouse, clearing association, clearing corporation, or similar entity that enables each party to an agreement, contract, or transaction to substitute, through novation or otherwise, the credit of the DCO for the credit of the parties; arranges or provides, on a multilateral basis, for the settlement or netting of obligations; or otherwise provides clearing services or arrangements that mutualize or transfer credit risk among participants.
Discount notes: Consolidated obligations with a term of one year or less, which sell at less than their face amount and are redeemed at par value when they mature.
Excess capital stock: Capital stock held by members in excess of their minimum investment requirement.
Fannie Mae: Federal National Mortgage Association.
FASB: Financial Accounting Standards Board.
FCM: Futures Commission Merchant.
FFELP: Federal Family Education Loan Program.
FHFA: Federal Housing Finance Agency - The Housing and Economic Recovery Act of 2008 enacted on July 30, 2008 created the Federal Housing Finance Agency which became the regulator of the FHLBs.
FHLB Act: The Federal Home Loan Bank Act of 1932, as amended.
FHLBs: The 11 Federal Home Loan Banks or subset thereof.
FHLB System: The 11 FHLBs and the Office of Finance.
FHLB Chicago: The Federal Home Loan Bank of Chicago.
Federal Home Loan Bank of Chicago
FLA: First loss account is a memo account used to track the MPF Bank's exposure to losses until the CE Amount is available to cover losses.
Freddie Mac: Federal Home Loan Mortgage Corporation.
GAAP: Generally Accepted Accounting Principles in the United States of America.
Ginnie Mae: Government National Mortgage Association.
Ginnie Mae MBS: Mortgage backed securities guaranteed by Ginnie Mae.
Government Loans: Mortgage loans insured or guaranteed by the Federal Housing Administration (FHA), the Department of Housing and Urban Development (HUD), the Department of Veteran Affairs (VA) or Department of Agriculture Rural Housing Service (RHS).
GSE: Government sponsored enterprise.
HFS: Held for sale.
HTM: Held-to-maturity debt securities.
LIBOR: London Interbank Offered Rate.
Liquidity AB: Advisory Bulletin 2018-07 Liquidity Guidance, issued by the FHFA on August 23, 2018.
Master Commitment (MC): Pool of MPF Loans purchased or funded by an MPF Bank.
MBS: Mortgage backed securities.
Moody's: Moody's Investors Service.
MPF®: Mortgage Partnership Finance.
MPF Banks: FHLBs that participate in the MPF program.
MPF Direct product: The MPF Program product under which we acquire non-conforming (jumbo) MPF Loans from PFIs without any CE Amount and concurrently resell them to a third party investor.
MPF Government MBS product: The MPF Program product under which we aggregate Government Loans acquired from PFIs in order to issue securities guaranteed by the Ginnie Mae that are backed by such Government Loans.
MPF Loans: Conventional and government mortgage loans secured by one-to-four family residential properties with maturities from five to 30 years or participations in such mortgage loans that are acquired under the MPF Program.
MPF Program: A secondary mortgage market structure that provides liquidity to FHLB members that are PFIs through the purchase or funding by an FHLB of MPF Loans.
MPF Xtra® product: The MPF Program product under which we acquire MPF Loans from PFIs without any CE Amount and concurrently resell them to Fannie Mae.
MRCS: Mandatorily redeemable capital stock.
NRSRO: Nationally Recognized Statistical Rating Organization.
Office of Finance: A joint office of the FHLBs established by the Finance Board to facilitate issuing and servicing of consolidated obligations.
OIS: Overnight Index SwapSwap.
Federal Home Loan Bank of Chicago
OTTI: Other-than-temporary impairment.
PFI: Participating Financial Institution. A PFI is a member (or eligible housing associate) of an MPF Bank that has applied to and been accepted to do business with its MPF Bank under the MPF Program.
PLMBS: Private label mortgage backed securities.
PMI: Primary Mortgage Insurance.
PPP: Paycheck Protection Program.
RCAP: Reduced Capitalization Advance Program.
Recorded Investment: Recorded investment in a loan is its amortized cost plus related accrued interest receivable, if any. Recorded investment is not net of an allowance for credit losses but is net of any direct charge-off on a loan. Amortized cost is defined as either the amount funded or the cost to purchase MPF Loans. Specifically, the amortized cost includes the initial fair value amount of the delivery commitment as of the purchase or settlement date, agent fees (i.e., market risk premiums or discounts paid to or received from PFIs), if any, subsequently adjusted, if applicable, for accretion, amortization, collection of cash, charge-offs, and cumulative basis adjustments related to fair value hedges.
Recoverable CE Fee: Under the MPF Program, the PFI may receive a contingent performance based credit enhancement fee whereby such fees are reduced up to the amount of the FLA by losses arising under the Master Commitment.
Regulatory capital: Regulatory capital stock plus retained earnings.
Regulatory capital stock: The sum of the paid-in value of capital stock and mandatorily redeemable capital stock.
REO: Real estate ownedowned.
SEC: Securities and Exchange Commission.
SOFR: Secured Overnight Financing Rate.
SOFR SARM MBS: SOFR Structured Adjustable Rate Mortgage MBS.
SMI: Supplemental mortgage insurance.
System or FHLB System: The Federal Home Loan Bank System consisting of the 11 Federal Home Loan Banks and the Office of Finance.
UPB: Unpaid Principal Balance.
U.S.: United StatesStates.
Federal Home Loan Bank of Chicago
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | | | | |
| | | | |
| | FEDERAL HOME LOAN BANK OF CHICAGO |
| | | | |
| | /s/ Michael A. Ericson |
| | Name: | | Michael A. Ericson |
| | Title: | | President and Chief Executive Officer |
Date: | August 5, 2021May 10, 2022 | | | (Principal Executive Officer) |
| | | | |
| | /s/ Roger D. Lundstrom |
| | Name: | | Roger D. Lundstrom |
| | Title: | | Executive Vice President and Chief Financial Officer |
Date: | August 5, 2021May 10, 2022 | | | (Principal Financial Officer and Principal Accounting Officer) |