Federal Home Loan Bank of Chicago - FORM 8-K - EX-99.1 - EXHIBIT - April 22, 2014

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Exhibit 99.1

April 22, 2014

To Our Members:

The Federal Home Loan Bank of Chicago (FHLBC) expects to report net income of $81 million for the first quarter of 2014 when we file our Form 10-Q with the Securities and Exchange Commission next month. As a result of our continued strong results, retained earnings grew to more than $2.1 billion at March 31, 2014. This achievement allows us to continue to pursue our two strategic goals at full speed:
 
1.
Build the member-focused Bank. We continue to focus on conducting a meaningful dialogue with you about your business with the goal of innovating and then delivering excellent products and services to you. We have been gratified with the response to our efforts to enhance the value proposition of membership in the Bank. Look for stories that illustrate this approach using the “Vision & Value” theme in our upcoming annual report.
2.
Build the Mortgage Partnership Finance® (MPF®) Program platform to support community lenders in Illinois and Wisconsin, and across the U.S. to provide them with access to the secondary mortgage market and a growing array of outlets for the loans they originate.

One way we are innovating is by pursuing a fundamentally different economic model for a Home Loan Bank-one that, we believe, provides outstanding value to you. Our strong and growing retained earnings allow us to be available during all economic scenarios to support your short-term financing needs. Secondly, the retained earnings acts as a layer of protection for your stock investment in the Bank to protect its value and maintain its liquidity while paying a reasonable dividend. Finally but importantly, this new approach allows us to provide you with greater leverage to borrow from the Bank. The successful Reduced Capitalization Advance Program, which we offered for the first time during the fourth quarter of 2013, is an excellent example of how this works. We will be exploring other ways to enhance the value of membership as our retained earnings continue to grow.

First Quarter 2014 Dividend
The Board of Directors of the FHLBC has declared a cash dividend for both the average activity-based capital stock (Class B1) and average membership-based capital stock (Class B2), based on the Bank’s preliminary financial results for the first quarter of 2014.

The dividend declared per share of Class B1 activity stock is at an annualized rate of 1.50%. The dividend declared per share of Class B2 membership stock is at an annualized rate of 0.50%. The actual effective combined dividend rate on the total stock held by each member will depend on its level of activity with the FHLBC during the first quarter and the relative number of shares of membership and activity stock. The dividend will be paid by crediting your account on May 15, 2014.


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Summer Management Conference: August 7-8
We hope attending the FHLBC management conference has become your new summer tradition and that this year is no exception. Please plan to join us on August 7-8 in Chicago to learn from these distinguished speakers:

•
Gen. Colin Powell, USA (Ret.), Secretary of State (2001-2005)
•
Joseph F. Coughlin, Ph.D., Director of Massachusetts Institute of Technology AgeLab
•
Marci Rossell, Economist and Senior Economic Advisor to Delphin Investments
•
Dr. Michael Stegman, Counselor to the Secretary for Housing Finance Policy, Department of the Treasury

Look for the invitation to the FHLBC management conference in the near future.

First Quarter 2014 Financial Highlights
The results discussed here are preliminary and unaudited. Please refer to the attached Condensed Statements of Income and Statements of Condition. We expect to file our first quarter 2014 Form 10-Q with the Securities and Exchange Commission next month. You will be able to access it on our website, www.fhlbc.com or through the SEC’s reporting website, http://www.sec.gov/edgar/
searchedgar/companysearch.html.

•
We recorded net income of $81 million for the first quarter of 2014, up slightly from $80 million in the first quarter of 2013.
•
We recognized a decline in interest expense during the first quarter of 2014 compared to the first quarter of 2013, due in large part to our fourth quarter repurchase and extinguishment of certain higher-cost debt.
•
Losses on derivatives and hedging activities were $14 million in the first quarter of 2014 compared to gains of $2 million during the first quarter of 2013 as hedging costs returned to more normal levels.
•
Total assets increased $3.2 billion during the first quarter of 2014, to $72.0 billion at
March 31, 2014.
•
We reached $2.1 billion in retained earnings at March 31, 2014.
•
We remained in compliance with all of our regulatory capital requirements.

As always, thank you for your membership in the Federal Home Loan Bank of Chicago. It is an honor to serve you, and we are grateful that we have achieved a position of financial strength that affords us the ability to focus on helping our members achieve success for their businesses and their communities.

Best regards,



Matt Feldman
President and CEO


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This letter contains forward-looking statements which are based upon our current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “anticipates,” “believes,” “expects,” “could,” “plans,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. We caution that, by their nature, forward-looking statements involve risk or uncertainty, that actual results could differ materially from those expressed or implied in these forward-looking statements, and that actual events could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking
statements involve risks and uncertainties including, but not limited to, instability in the credit and debt markets, economic conditions (including effects on, among other things, mortgage-backed securities), changes in mortgage
interest rates and prepayment speeds on mortgage assets, our ability to successfully transition to a new business model and to pay future dividends (including enhanced dividends on activity-based capital stock), our ability to meet required conditions to repurchase or redeem excess capital stock from our members, including maintaining compliance with our minimum regulatory capital requirements and determining our financial condition is sound enough to support such repurchases and redemptions, and the risk factors set forth in our periodic filings with the Securities and Exchange Commission, which are available on our website at www.fhlbc.com. We assume no obligation to update any forward-looking statements made in this letter. The financial results discussed in this letter are preliminary and unaudited. “Mortgage Partnership Finance,” “MPF,” “MPF Xtra,” and “Downpayment Plus” are registered trademarks of the Federal Home Loan Bank of Chicago.


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Condensed Statements of Condition
 
 
 
 
 
 
(Dollars in millions)
 

(Preliminary and Unaudited)
 
 
 
 
 
 
 
 
March 31, 2014
 
December 31, 2013
 
Change
Cash and due from banks
 
$
726

 
$
971

 
(25
)%
Federal Funds sold, securities purchased under agreement to resell, and deposits
 
9,844

 
5,050

 
95
 %
Investment securities
 
31,570

 
31,352

 
1
 %
Advances
 
22,372

 
23,489

 
(5
)%
MPF Loans held in portfolio, net
 
7,294

 
7,695

 
(5
)%
Other
 
233

 
240

 
(3
)%
     Total assets
 
$
72,039

 
$
68,797

 
5
 %
 
 
 
 
 
 

Consolidated obligation discount notes
 
$
26,889

 
$
31,089

 
(14
)%
Consolidated obligation bonds
 
39,183

 
31,987

 
22
 %
Subordinated notes
 
944

 
944

 
—
 %
Other
 
1,053

 
1,012

 
4
 %
     Total liabilities
 
68,069

 
65,032

 
5
 %
 
 
 
 
 
 

Capital stock
 
1,705

 
1,670

 
2
 %
Retained earnings
 
2,107

 
2,028

 
4
 %
Accumulated other comprehensive income
 
158

 
67

 
136
 %
     Total capital
 
3,970

 
3,765

 
5
 %
Total liabilities and capital
 
$
72,039

 
$
68,797

 
5
 %
 
 
 
 
 
 
 

Condensed Statements of Income
 
 
 
 
 
 
(Dollars in millions)
 

(Preliminary and Unaudited)
 
 
 
 
 
 
 
 
For the three months ended March 31,
 
 
2014
 
2013
 
Change
Interest income
 
$
355

 
$
403

 
(12
)%
Interest expense
 
(228
)
 
(290
)
 
(21
)%
Provision for credit losses
 
3

 
—

 
—
 %
Net interest income
 
130

 
113

 
15
 %
Non-interest gain (loss)
 
(10
)
 
1

 
(1,100
)%
Other non-interest expense
 
(30
)
 
(25
)
 
20
 %
Assessments
 
(9
)
 
(9
)
 
—
 %
Net income
 
$
81

 
$
80

 
1
 %
 
 
 
 
 
 
 
Net yield on interest-earning assets
 
0.74
%
 
0.67
%
 
0.07
 %
 
 
 
 
 
 
 

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Federal Home Loan Bank of Chicago Reports