The Federal Home Loan Bank of Chicago reported second-quarter earnings of $54 million, down 23% from the second quarter of 2005.The bank blamed lower interest income due to the flattening of the yield curve for the drop in earnings, including a $28 million drop in interest income from its Mortgage Partnership Finance program. The bank's MPF loan portfolio declined by $2.2 billion during the second quarter to $39.8 billion, and it's likely to see further runoff because it is operating under a supervisory agreement and capital constraints. The bank repurchased $1 billion in capital stock in the second quarter, including $795 million in voluntary stock and $205 million in capital stock by institutions that terminated their membership. The Chicago bank wants to develop "off-balance-sheet capabilities" for funding mortgage purchases. "We have not yet submitted a new business activity notice to the Federal Housing Finance Board," the bank said in its second quarter securities filing.

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