UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

____________________________________

FORM 10-Q

______________________________________________________



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

For the quarterly period ended September 30, ~~2017~~2019



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

Commission File Number: 000-51398

FEDERAL HOME LOAN BANK OF SAN FRANCISCO

(Exact name of registrant as specified in its charter)

___________________________________________



Federally chartered corporation		94-6000630
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)

333 Bush Street, Suite 2700
~~600 California Street~~ San Francisco,	CA	~~94108~~94104
(Address of principal executive offices)		(Zip code)

~~(415)~~ (415) 616-1000

(Registrant’s telephone number, including area code)

___________________________________________

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 for the past 90 days. x☒Yeso☐ No

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ such files). x☒Yeso☐ No

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 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	o ☐	Accelerated filer	o☐

Non-accelerated filer	x ~~(Do not check if a smaller reporting company)~~ ☒	Smaller reporting company	o☐

		Emerging growth company	o☐

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. o☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o☐ Yes x☒ No

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.



	Shares Outstanding as of October 31, ~~2017~~2019
Class B Stock, par value $100	~~33,616,335~~30,990,794

Federal Home Loan Bank of San Francisco

Form 10-Q

Index



PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	3
	Statements of Condition (Unaudited)	3
	Statements of Income (Unaudited)	4
	Statements of Comprehensive Income (Unaudited)	5
	Statements of Capital Accounts (Unaudited)	6
	Statements of Cash Flows (Unaudited)	7
	Notes to Financial Statements (Unaudited)	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
	Quarterly Overview	55
	Financial Highlights	57
	~~Quarterly Overview~~Results of Operations	58
	Financial ~~Highlights~~Condition	6070
	~~Results of Operations~~Liquidity and Capital Resources	6181
	~~Financial Condition~~Risk Management	7384
	~~Liquidity~~Critical Accounting Policies and ~~Capital Resources~~Estimates	85100
	~~Risk Management~~Recently Issued Accounting Standards and Interpretations	87101
	~~Critical Accounting Policies and Estimates~~Recent Developments	~~106~~101
	~~Recently Issued Accounting Standards and Interpretations~~	~~107~~
	~~Recent Developments~~	~~107~~
	Off-Balance Sheet Arrangements and Other Commitments	~~108~~101

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	~~108~~102

Item 4.	Controls and Procedures	~~113~~107

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	~~115~~108

Item 1A.	Risk Factors	~~115~~108

Item 6.	Exhibits	~~116~~108

Signatures		~~117~~109

PART I. FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Federal Home Loan Bank of San Francisco

Statements of Condition

(Unaudited)



(In millions-except par value)	September 30, 2019		December 31, 2018
Assets:
Cash and due from banks	$	81	$	13
Interest-bearing deposits	2,035		2,555
Securities purchased under agreements to resell	7,700		7,300
Federal funds sold	3,871		3,845
Trading securities^(a)	4		661
Available-for-sale (AFS) securities^(b)	15,316		6,931
Held-to-maturity (HTM) securities (fair values were $8,586 and $11,047, respectively)^(a)	8,564		11,089
Advances (includes $3,967 and $5,133 at fair value under the fair value option, respectively)	62,826		73,434
Mortgage loans held for portfolio, net of allowance for credit losses of $0 and $0, respectively	3,382		3,066
Accrued interest receivable	133		133
Derivative assets, net	23		185
Other assets	218		114
Total Assets	$	104,153	$	109,326
Liabilities:
Deposits	$	652	$	262
Consolidated obligations:
Bonds (includes $577 and $2,019 at fair value under the fair value option, respectively)	67,431		72,276
Discount notes	28,605		29,182
Total consolidated obligations	96,036		101,458
Mandatorily redeemable capital stock	138		227
Borrowings from other FHLBanks	—		250
Accrued interest payable	178		155
Affordable Housing Program (AHP) payable	158		182
Derivative liabilities, net	1		10
Other liabilities	420		252
Total Liabilities	97,583		102,796
Commitments and Contingencies (Note 17)
Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
29 shares and 29 shares, respectively	2,898		2,949
Unrestricted retained earnings	2,715		2,699
Restricted retained earnings	690		647
Total Retained Earnings	3,405		3,346
Accumulated other comprehensive income/(loss) (AOCI)	267		235
Total Capital	6,570		6,530
Total Liabilities and Capital	$	104,153	$	109,326

(In millions-except par value) September 30,
2017
December 31,
2016
Assets:
Cash and due from banks $ 7
$ 2
Interest-bearing deposits 699
590
Securities purchased under agreements to resell 13,975
15,500
Federal funds sold 11,826
4,214
Trading securities^(a)
1,165
2,066
Available-for-sale (AFS) securities^(a)
4,015
4,489
Held-to-maturity (HTM) securities (fair values were $14,155 and $14,141, respectively)^(a)
14,095
14,127
Advances (includes $5,678 and $3,719 at fair value under the fair value option, respectively) 61,629
49,845
Mortgage loans held for portfolio, net of allowance for credit losses of $0 and $0, respectively 1,774
826
Accrued interest receivable 106
79
Premises, software, and equipment, net 32
33
Derivative assets, net 92
66
Other assets 88
104
Total Assets $ 109,503
$ 91,941
Liabilities:
Deposits $ 140
$ 169
Consolidated obligations:
Bonds (includes $968 and $1,507 at fair value under the fair value option, respectively) 72,266
50,224
Discount notes 29,902
33,506
Total consolidated obligations 102,168
83,730
Mandatorily redeemable capital stock 342
457
Borrowings from other Federal Home Loan Banks (FHLBanks) —
1,345
Accrued interest payable 106
67
Affordable Housing Program (AHP) payable 208
205
Derivative liabilities, net 3
2
Other liabilities 187
429
Total Liabilities 103,154
86,404
Commitments and Contingencies (Note 17)

Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
28 shares and 24 shares, respectively 2,815
2,370
Unrestricted retained earnings 2,664
888
Restricted retained earnings 562
2,168
Total Retained Earnings 3,226
3,056
Accumulated other comprehensive income/(loss) (AOCI) 308
111
Total Capital 6,349
5,537
Total Liabilities and Capital $ 109,503
$ 91,941


(a)	At September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, none of these securities were pledged as collateral that may be repledged.


(b)	At September 30, 2019, $321 of these securities were pledged as collateral that may be repledged. At December 31, 2018, none of these securities were pledged as collateral that may be repledged.

The accompanying notes are an integral part of these financial statements.

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Income

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2017			2016			2019			2018			2019			2018
Interest Income:
Advances	$	240		$	125		$	586		$	346		$	389		$	389		$	1,343		$	1,138
Prepayment fees on advances, net	1			3			1			5
Interest-bearing deposits	2			—			5			1			14			12			40			22
Securities purchased under agreements to resell	3			4			7			9			45			31			144			63
Federal funds sold	33			7			78			19			22			34			99			127
Trading securities	4			3			12			6			1			4			8			12
AFS securities	60			63			181			199			100			59			261			172
HTM securities	76			62			210			188			65			85			219			253
Mortgage loans held for portfolio	15			7			35			22			18			26			55			70
Total Interest Income	434			274			1,115			795			654			640			2,169			1,857
Interest Expense:
Consolidated obligations:
Bonds	205			95			468			303			409			364			1,306			1,010
Discount notes	75			45			196			96			128			117			480			373
Deposits	1			—			2			—			2			1			6			3
Mandatorily redeemable capital stock	7			11			25			33			3			5			11			16
Total Interest Expense	288			151			691			432			542			487			1,803			1,402
Net Interest Income	146			123			424			363			112			153			366			455
Provision for/(reversal of) credit losses on mortgage loans	—			—			—			—			—			—			—			—
Net Interest Income After Mortgage Loan Loss Provision	146			123			424			363			112			153			366			455
Other Income/(Loss):
Total other-than-temporary impairment (OTTI) loss	—			(1		)	(8		)	(19		)	(3		)	(3		)	(8		)	(19		)
Net amount of OTTI loss reclassified to/(from) AOCI	(6		)	(2		)	(7		)	5			1			—			—			10
Net OTTI loss, credit-related	(6		)	(3		)	(15		)	(14		)	(2		)	(3		)	(8		)	(9		)
Net gain/(loss) on trading securities	—			1			—			3			—			(1		)	(1		)	(2		)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(5		)	(18		)	(1		)	22			20			(12		)	111			(65		)
Net gain/(loss) on derivatives and hedging activities	2			15			(26		)	(73		)	(20		)	18			(109		)	66
Gains on litigation settlements, net	—			240			119			451
Other	5			6			15			14			5			5			18			14
Total Other Income/(Loss)	(4		)	241			92			403			3			7			11			4
Other Expense:
Compensation and benefits	18			17			56			53			20			19			61			59
Other operating expense	19			20			49			52			17			16			50			46
Federal Housing Finance Agency	2			1			5			4			2			1			5			4
Office of Finance	1			1			4			3			2			1			5			4
Quality Jobs Fund expense	10			—			50			—			5			5			15			20
Other	1			—			6			—
Other, net													1			4			2			5
Total Other Expense	51			39			170			112			47			46			138			138
Income/(Loss) Before Assessment	91			325			346			654			68			114			239			321
AHP Assessment	10			34			37			69			7			12			25			34
Net Income/(Loss)	$	81		$	291		$	309		$	585		$	61		$	102		$	214		$	287

The accompanying notes are an integral part of these financial statements.

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Comprehensive Income

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended September 30,					Nine Months Ended September 30,
(In millions)	2017		2016			2017		2016			2019			2018		2019		2018
Net Income/(Loss)	$	81	$	291		$	309	$	585		$	61		$	102	$	214	$	287
Other Comprehensive Income/(Loss):
Net unrealized gain/(loss) on AFS securities											(17		)	1		30		1
Net change in pension and postretirement benefits	—		(2		)	—		(1		)	—			—		—		1
Net non-credit-related OTTI gain/(loss) on AFS securities:
Net change in fair value of other-than-temporarily impaired securities	75		68			188		71			(15		)	5		1		25
Net amount of OTTI loss reclassified to/(from) other income/(loss)	6		2			7		(5		)	(1		)	—		—		(10		)
Total net non-credit-related OTTI gain/(loss) on AFS securities	81		70			195		66			(16		)	5		1		15
Net non-credit-related OTTI gain/(loss) on HTM securities:
Accretion of non-credit-related OTTI loss	—		2			2		4			—			1		1		2
Total net non-credit-related OTTI gain/(loss) on HTM securities	—		2			2		4			—			1		1		2
Total other comprehensive income/(loss)	81		70			197		69			(33		)	7		32		19
Total Comprehensive Income/(Loss)	$	162	$	361		$	506	$	654		$	28		$	109	$	246	$	306

The accompanying notes are an integral part of these financial statements.

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Capital Accounts

(Unaudited)



	Capital Stock Class B—Putable					Retained Earnings											Total Capital
(In millions)	Shares		Par Value			Restricted		Unrestricted			Total			AOCI			Total Capital
Balance, June 30, 2018	29		$	2,850		$	612	$	2,707		$	3,319		$	330		$	6,499
Comprehensive income/(loss)						21		81			102			7			109
Issuance of capital stock	3		299														299
Repurchase of capital stock	(3	)	(266		)												(266		)
Cash dividends paid on capital stock (7.00%)								(51		)	(51		)				(51		)
Balance, September 30, 2018	29		$	2,883		$	633	$	2,737		$	3,370		$	337		$	6,590

Balance, June 30, 2019	30		$	2,967		$	678	$	2,719		$	3,397		$	300		$	6,664
Comprehensive income/(loss)						12		49			61			(33		)	28
Issuance of capital stock	1		141														141
Repurchase of capital stock	(2	)	(206		)												(206		)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	—		(4		)												(4		)
Cash dividends paid on capital stock (7.00%)								(53		)	(53		)				(53		)
Balance, September 30, 2019	29		$	2,898		$	690	$	2,715		$	3,405		$	267		$	6,570


	Capital Stock Class B—Putable					Retained Earnings											Total Capital			Capital Stock Class B—Putable					Retained Earnings										Total Capital
(In millions)	Shares		Par Value			Restricted			Unrestricted			Total			AOCI		Total Capital			Shares		Par Value			Restricted		Unrestricted			Total			AOCI		Total Capital
Balance, December 31, 2015	23		$	2,253		$	2,018		$	610		$	2,628		$	15	$	4,896
Balance, December 31, 2017																				32		$	3,243		$	575	$	2,670		$	3,245		$	318	$	6,806
Comprehensive income/(loss)						107			478			585			69		654								58		229			287			19		306
Issuance of capital stock	8		806														806			10		980													980
Repurchase of capital stock	(6	)	(604		)												(604		)	(13	)	(1,338		)											(1,338		)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	(1	)	(56		)												(56		)	—		(2		)											(2		)
Cash dividends paid on capital stock (8.70%)									(146		)	(146		)			(146		)
Balance, September 30, 2016	24		$	2,399		$	2,125		$	942		$	3,067		$	84	$	5,550
Balance, December 31, 2016	24		$	2,370		$	2,168		$	888		$	3,056		$	111	$	5,537
Cash dividends paid on capital stock (7.00%)																											(162		)	(162		)			(162		)
Balance, September 30, 2018																				29		$	2,883		$	633	$	2,737		$	3,370		$	337	$	6,590

Balance, December 31, 2018																				29		$	2,949		$	647	$	2,699		$	3,346		$	235	$	6,530
Comprehensive income/(loss)						165			144			309			197		506								43		171			214			32		246
Issuance of capital stock	7		722														722			8		837													837
Repurchase of capital stock	(3	)	(275		)												(275		)	(8	)	(884		)											(884		)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	—		(2		)												(2		)	—		(4		)											(4		)
Transfers from restricted retained earnings						(1,771		)	1,771			—					—
Cash dividends paid on capital stock (7.69%)									(139		)	(139		)			(139		)
Balance, September 30, 2017	28		$	2,815		$	562		$	2,664		$	3,226		$	308	$	6,349
Cash dividends paid on capital stock (7.00%)																											(155		)	(155		)			(155		)
Balance, September 30, 2019																				29		$	2,898		$	690	$	2,715		$	3,405		$	267	$	6,570

The accompanying notes are an integral part of these financial statements.

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Cash Flows

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2019			2018
Cash Flows from Operating Activities:
Net Income /(Loss)	$	309		$	585
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Net Income/(Loss)							$	214		$	287
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization	(61		)	(60		)	(37		)	(52		)
Change in net fair value of trading securities	—			(3		)	1			2
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option	1			(22		)	(111		)	65
Change in net derivatives and hedging activities	9			(2		)	(422		)	142
Net OTTI loss, credit-related	15			14			8			9
Other adjustments							11			—
Net change in:
Accrued interest receivable	(31		)	1			1			(56		)
Other assets	13			(11		)	(13		)	—
Accrued interest payable	40			55			16			28
Other liabilities	(22		)	(13		)	(20		)	(22		)
Total adjustments	(36		)	(41		)	(566		)	116
Net cash provided by/(used in) operating activities	273			544			(352		)	403
Cash Flows from Investing Activities:
Net change in:
Interest-bearing deposits	(135		)	221			223			(1,108		)
Securities purchased under agreements to resell	1,525			(2,000		)	(400		)	5,450
Federal funds sold	(7,612		)	(2,295		)	(26		)	6,820
Premises, software, and equipment	(11		)	(9		)
Trading securities:
Proceeds from maturities of long-term	901			276
Purchases of long-term	—			(905		)
Proceeds							656			500
AFS securities:
Proceeds from maturities of long-term	722			853
Proceeds							457			564
Purchases							(8,126		)	(1,542		)
HTM securities:
Net (increase)/decrease in short-term	850			—
Proceeds from maturities of long-term	2,354			2,094
Purchases of long-term	(3,404		)	(3,403		)
Proceeds							2,530			3,648
Purchases							—			(1,179		)
Advances:
Principal collected	1,166,975			1,126,547
Made to members	(1,178,768		)	(1,131,447		)
Repaid							988,903			1,309,095
Originated							(977,846		)	(1,301,222		)
Mortgage loans held for portfolio:
Principal collected	115			130			556			205
Purchases	(1,046		)	(150		)	(910		)	(1,014		)
Proceeds from sales of foreclosed assets	2			2
Other investing activities, net							(36		)	—
Net cash provided by/(used in) investing activities	(17,532		)	(10,086		)	5,981			20,217

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Cash Flows (continued)

(Unaudited)


	Nine Months Ended September 30,						Nine Months Ended September 30,
(In millions)	2017			2016			2019			2018
Cash Flows from Financing Activities:
Net change in:
Deposits	(38		)	(898		)
Borrowings from other FHLBanks	(1,345		)	—
Net change in deposits and other financing activities							375			(30		)
Net change in borrowings from other FHLBanks							(250		)	—
Net (payments)/proceeds on derivative contracts with financing elements	—			8			70			—
Net proceeds from issuance of consolidated obligations:
Bonds	55,849			29,370			57,223			53,346
Discount notes	123,224			100,571			107,298			108,204
Payments for matured and retired consolidated obligations:
Bonds	(33,790		)	(31,105		)	(62,141		)	(66,940		)
Discount notes	(126,827		)	(90,002		)	(107,841		)	(114,612		)
Proceeds from issuance of capital stock	722			806			837			980
Payments for repurchase/redemption of mandatorily redeemable capital stock	(117		)	(60		)	(93		)	(84		)
Payments for repurchase of capital stock	(275		)	(604		)	(884		)	(1,338		)
Cash dividends paid	(139		)	(146		)	(155		)	(162		)
Net cash provided by/(used in) financing activities	17,264			7,940			(5,561		)	(20,636		)
Net increase/(decrease) in cash and due from banks	5			(1,602		)	68			(16		)
Cash and due from banks at beginning of the period	2			1,637			13			31
Cash and due from banks at end of the period	$	7		$	35		$	81		$	15
Supplemental Disclosures:
Interest paid	$	666		$	398		$	1,807		$	1,386
AHP payments	40			33			51			50
Supplemental Disclosures of Noncash Investing and Financing Activities:
Transfers of mortgage loans to real estate owned	1			1
Transfers of mortgage loans to other assets							—			1
Transfers of other-than-temporarily impaired HTM securities to AFS securities							—			12
Transfers of capital stock to mandatorily redeemable capital stock	2			56			4			2

The accompanying notes are an integral part of these financial statements.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements

(Unaudited)

(Dollars in millions except per share amounts)

Note 1 — Basis of Presentation

The information about the Federal Home Loan Bank of San Francisco (Bank) included in these unaudited financial

statements reflects all adjustments that, in the opinion of the Bank, are necessary for a fair statement of results for

the periods presented. These adjustments are of a ~~normal~~ recurring nature, unless otherwise disclosed. The results of

operations in these interim statements are not necessarily indicative of the results to be expected for any subsequent

period or for the entire year ending December 31, ~~2017.~~2019. These unaudited financial statements should be read in

conjunction with the Bank’s Annual Report on Form 10-K for the year ended December 31, ~~2016 (2016~~2018 (2018 Form

~~10-K)~~ 10‑K).

There have been no changes to the basis of presentation of the Bank’s financial instruments meeting netting requirements or of the Bank’s investments in variable interest entities disclosed in the “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” section of the Bank’s 2018 Form 10-K.

Use of Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income, expenses, gains, and losses during the reporting period. The most significant of these estimates ~~include~~ include:

estimating the allowance for credit losses on the advances and mortgage loan portfolios;

accounting for derivatives;

estimating fair values of investments classified as trading and available-for-sale (AFS), derivatives and associated hedged items carried at fair value in accordance with the accounting for derivative instruments and associated hedging activities, and financial instruments carried at fair value under the fair value ~~option, and~~ option;

accounting for other-than-temporary impairment (OTTI) for investment securities; and

estimating the prepayment speeds on mortgage-backed securities (MBS) and mortgage loans for the accounting of amortization of premiums and accretion of discounts on MBS and mortgage loans.

Actual results could differ significantly from these estimates.

~~Financial Instruments Meeting Netting Requirements.~~ The Bank presents certain financial instruments, including derivative instruments and securities purchased under agreements to resell, on a net basis when they have a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). The Bank has elected to offset its derivative asset and liability positions, as well as cash collateral received or pledged, when the netting requirements are met. The Bank did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the netting requirements, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these agreements is provided in Note 15 – Derivatives and Hedging Activities. ~~Based~~All derivatives are recognized on the Statements of Condition at their fair values and are reported as either derivative assets or derivative liabilities, net of cash collateral, and accrued interest received from or pledged to clearing agents or counterparties.

Beginning January 1, 2019, the Bank prospectively adopted new hedge accounting guidance, which, among other things, affected the presentation of gains and losses on derivatives and hedging activities for qualifying hedges. Upon adoption, changes in the fair value of a derivative that is designated as a fair value hedge, along with changes in the fair value of the ~~related collateral held,~~hedged asset or liability (hedged item) that are attributable to the hedged risk (including changes that reflect losses or gains on firm commitments), are recorded in net interest income in the same line as the earnings effect of the hedged item. Net gains and losses on derivatives and hedging activities for qualifying hedges recorded in net interest income include unrealized and realized gains and losses, which include net interest settlements. For AFS securities ~~purchased under agreements to resell were fully collateralized for the periods presented.~~

~~Variable Interest Entities.~~ ~~The Bank’s investments in variable interest entities (VIEs) are limited to private-label residential mortgage-backed securities (PLRMBS). On an ongoing basis,~~that have been hedged and qualify as a fair value hedge, the Bank ~~performs a quarterly evaluation~~

~~to determine whether it is~~records the ~~primary beneficiary~~portion of the change in ~~any VIE. The Bank evaluated its investments in VIEs as~~the fair value of September 30, 2017, to determine whether it is a primary beneficiary of any of these investments. The primary beneficiary is required to consolidate a VIE. The Bank determined that consolidation accounting is not required because the Bank is not the primary beneficiary of these VIEs for the periods presented. The Bank does not have the power to significantly affect the economic performance of any of these investments because it does not act as a key decision maker nor does it have the unilateral ability to replace a key decision maker. In addition, the Bank does not design, sponsor, transfer, service, or provide credit or liquidity support in any of its investments in VIEs. The Bank’s maximum loss exposure for these investments is limitedinvestment related to the ~~carrying value.~~risk being hedged in interest income together with the related change in the fair value of the derivative, and records the remainder of the change in the fair value of the investment in Accumulated Other Comprehensive Income (AOCI) as “Net unrealized gain/(loss) on AFS securities.”

Prior to January 1, 2019, for fair value hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedged item) was

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

recorded in other income as “Net gain/(loss) on derivatives and hedging activities.” For AFS securities that were hedged and qualified as a fair value hedge, the Bank recorded the portion of the change in the fair value of the investment related to the risk being hedged in other income as “Net gain/(loss) on derivatives and hedging activities” together with the related change in the fair value of the derivative, and recorded the remainder of the change in the fair value of the investment in AOCI as “Net unrealized gain/(loss) on AFS securities.”

Reclassifications of Prior Period Amounts Related to Presentation of Purchases and Proceeds of Securities on the Statements of Cash Flows. The Bank retrospectively reclassified cash flow amounts in prior periods to reflect short-term investment securities purchases and proceeds on a gross, rather than net, basis. The reclassifications made to prior periods to present gross cash flows did not have a material impact on the Statements of Cash Flows.

Descriptions of the Bank’s significant accounting policies are included in “Item 8. Financial Statements and

Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s ~~2016~~2018 Form 10-K. Other

changes to these policies as of September 30, ~~2017,~~2019, are discussed in Note 2 – Recently Issued and Adopted Accounting Guidance.

Note 2 — Recently Issued and Adopted Accounting Guidance

~~Targeted Improvements to Accounting for Hedging Activities.~~ ~~On August 28, 2017, the Financial Accounting Standards Board (FASB)~~The following table provides a summary of recently issued ~~amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of~~accounting standards which may have an entity’s risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:

~~Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.~~

~~Measurement of the hedged item in a partial-term fair value hedge of interest rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged.~~

Consideration only of how changes in the benchmark interest rate affect a decision to settle a prepayable instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest rate risk.

For a cash flow hedge of interest rate risk of a variable-rate financial instrument, an entity could designate as the hedged risk the variability in cash flows attributable to the contractually specified interest rate.

This guidance becomes effective for the Bank for interim and annual periods beginning on January 1, 2019, and early adoption is permitted. The amended presentation and disclosure guidance is required only prospectively. The Bank does not intend to adopt this guidance early. The Bank is in the process of evaluating this guidance, and its effect on the ~~Bank’s~~ financial ~~condition, results of operations, cash flows, and financial statement disclosures has not yet been determined.~~statements.



Accounting Standards Update (ASU)	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (ASU 2018-15)	This guidance aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).	This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted.	The Bank does not intend to adopt this guidance early. The adoption of this guidance is not expected to have any effect on the Bank’s financial condition, results of operations, cash flows, or financial statement disclosures.
Changes to the Disclosure Requirements for Defined Benefit Plans (ASU 2018-14)	This guidance modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans to improve disclosure effectiveness.	This guidance becomes effective for the Bank for the annual period ended December 31, 2020, and the annual periods thereafter. Early adoption is permitted.	The Bank does not intend to adopt this guidance early. The adoption of this guidance may affect the Bank’s disclosures but will not have any effect on the Bank’s financial condition, results of operations, or cash flows.
Changes to the Disclosure Requirements for Fair Value Measurement (ASU 2018-13)	This guidance modifies the disclosure requirements for fair value measurements to improve disclosure effectiveness.	This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted.	The Bank does not intend to adopt this guidance early. The adoption of this guidance may affect the Bank’s disclosures but will not have any effect on the Bank’s financial condition, results of operations, or cash flows.

~~Premium Amortization on Purchased Callable Debt Securities.~~ On March 30, 2017, the FASB issued amended guidance to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This guidance affects all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2019, and early adoption is permitted. This guidance should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this guidance is not expected to have any effect on the Bank’s financial condition, results of operations, or cash flows.

~~Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost.~~ On March 10, 2017, the FASB issued amended guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the Statements of Income and allow only the service cost component of net benefit cost to be eligible for capitalization. This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2018, and early adoption is permitted. This guidance should be applied retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the Statements of Income

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

and prospectively, on and after the effective date, for the capitalization of the service cost component of net periodic pension cost and net periodic postretirement benefit in assets. The adoption of this guidance is not expected to have a material effect on the Bank’s financial condition, results of operations, cash flows, and financial statement disclosures.



Accounting Standards Update (ASU)	Description	Effective Date	Effect on the Financial Statements or Other Significant Matters
Measurement of Credit Losses on Financial Instruments (ASU 2016-13)	The guidance replaces the current incurred loss model and requires entities to measure expected credit losses based on consideration of a broad range of relevant information, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount.	This guidance is effective for the Bank for the interim and annual periods beginning on January 1, 2020. Early adoption is permitted.	The Bank does not intend to adopt this guidance early. Based on the Bank’s assessments, this guidance is expected to have no effect on advances or U.S. obligations and Government-Sponsored Enterprises (GSEs) investments. The adoption of this guidance is expected to have an immaterial effect on the remaining investment portfolio given the specific terms, issuer guarantees, and collateralized/securitized nature of these instruments and on mortgage loans. The ultimate effect on the Bank’s financial condition, results of operations, and cash flows will depend on the composition of financial assets held by the Bank at the adoption date, as well as on economic conditions and forecasts at that time.
Targeted Improvements to Accounting for Hedging Activities (ASU 2017-12)	This guidance amends the accounting for derivatives and hedging activities to better portray the economic results of an entity’s risk management activities in its financial statements. In October 2018, the Financial Accounting Standards Board (FASB) issued amendments to the guidance that permit the use of the overnight index swap rate based on the Secured Overnight Financing Rate (SOFR) as an eligible U.S. benchmark interest rate for hedge accounting purposes to facilitate the London Interbank Offered Rate (LIBOR) to SOFR transition.	This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2019.	The guidance was applied as of January 1, 2019. Upon adoption, the Bank modified the presentation of fair value hedge results on the Bank’s Statements of Income, as well as relevant disclosures, prospectively. However, the adoption of this guidance did not have a material effect on the Bank’s financial condition, results of operations, or cash flows.
Premium Amortization on Purchased Callable Debt Securities (ASU 2017-08)	This guidance shortens the amortization period for certain purchased callable debt securities held at a premium to be amortized to the earliest call date rather than contractual maturity. This guidance does not require an accounting change for securities held at a discount, which continue to be amortized to their contractual maturity.	This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2019.	This guidance was adopted using a modified retrospective basis as of January 1, 2019. The adoption of this guidance did not have any effect on the Bank’s financial condition, results of operations, or cash flows.

~~Classification of Certain Cash Receipts and Cash Payments.~~ On August 26, 2016, the FASB issued amendments to clarify guidance on the classification of certain cash receipts and payments in the Statements of Cash Flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified on the Statements of Cash Flows. This guidance is effective for the Bank for interim and annual periods beginning on January 1, 2018, and early adoption is permitted. The guidance should be applied using a retrospective transition method to each period presented. The Bank does not intend to adopt this guidance early. The adoption of this guidance is not expected to have any effect on the Bank’s financial condition, results of operations, or cash flows.

~~Measurement of Credit Losses on Financial Instruments.~~ On June 16, 2016, the FASB issued amended guidance for the accounting for credit losses on financial instruments. The amendments require entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate under the circumstances. In addition, under the new guidance, a financial asset, or a group of financial assets, is required to be measured at its amortized cost to be presented at the net amount expected to be collected over the contractual term of the financial assets. Among other things, the guidance also requires:

The Statement of Income to reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.

The entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis in a similar manner to other financial assets measured at amortized cost basis. The initial allowance for credit losses is required to be added to the purchase price.

Credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost.

~~Public entities to further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination (i.e., vintage).~~

The guidance is effective for the Bank for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018. The guidance should be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, the entities are required to use a prospective transition approach for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination and for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Bank does not intend to adopt the guidance early. The Bank is in the process of evaluating this guidance and expects the adoption of the guidance may result in an increase in the allowance for credit losses given the requirement to assess losses for the entire estimated life of the financial asset, including an allowance for debt securities. The effect on the Bank’s financial condition, results of operations, and cash flows will depend on the composition of financial assets held by the Bank at the adoption date, as well as on economic conditions and forecasts at that time.

~~Contingent Put and Call Options in Debt Instruments.~~ On March 14, 2016, the FASB issued amendments to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The guidance requires entities to apply only the four-step decision sequence when assessing whether the economic characteristics and risks of call

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

(put) options are clearly and closely related to the economic characteristics and risks of their debt hosts. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2017. The adoption of this guidance had no effect on the Bank’s financial condition, results of operations, and cash flows.

~~Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.~~ On March 10, 2016, the FASB issued amendments to clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under U.S. GAAP does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2017, and early adoption was permitted. The amendments provide entities with the option to apply the guidance using either a prospective approach or a modified retrospective approach, retrospectively applied to all derivative instruments that meet the specific conditions. The Bank elected to early adopt the guidance prospectively on January 1, 2016. The adoption of this guidance had no effect on the Bank’s financial condition, results of operations, and cash flows.

~~Recognition of Lease Assets and Lease Liabilities.~~ On February 25, 2016, the FASB issued guidance that requires recognition of lease assets and lease liabilities on the Statements of Condition and disclosure of key information about leasing arrangements. In particular, this guidance requires a lessee of operating or finance leases to recognize on the Statements of Condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. Under previous U.S. GAAP, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases on the Statements of Condition. While this guidance does not fundamentally change lessor accounting, some changes have been made to align that guidance with the lessee guidance and other areas within U.S. GAAP.

The guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2019, and early application is permitted. The guidance requires lessors and lessees to recognize and measure leases at the beginning of the earliest period presented in the financial statements using a modified retrospective approach. The Bank does not intend to adopt this guidance early. Upon adoption, the Bank expects to report higher assets and liabilities as a result of recording right-of-use assets and lease liabilities for its existing leases on the Statements of Condition. The Bank is in the process of evaluating this guidance, but its effect on the Bank’s financial condition, results of operations, and cash flows is not expected to be material.

~~Recognition and Measurement of Financial Assets and Financial Liabilities.~~ On January 5, 2016, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance includes, but is not limited to, the following:

~~Requires equity investments (with certain exceptions) to be measured at fair value with changes in fair value recognized in net income;~~

Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments;

Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the Statement of Condition or in the accompanying notes to the financial statements;

Eliminates the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the Statement of Condition.

The guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2018, and early adoption is only permitted for certain provisions. The amendments, in general, should be applied by means of

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

a cumulative-effect adjustment to the Statements of Condition as of the beginning of the period of adoption. The adoption of this guidance is expected to affect the Bank’s disclosures. However, the requirement to present the instrument-specific credit risk in other comprehensive income is not expected to have any effect on the Bank’s financial condition, results of operations, and cash flows.

~~Revenue from Contracts with Customers.~~ On May 28, 2014, the FASB issued its guidance on revenue from contracts with customers. This guidance outlines a comprehensive model for recognizing revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, and lease contracts.

The guidance provides entities with the option of using either of the following adoption methods: a full retrospective method, applied retrospectively to each prior reporting period presented; or a modified retrospective method, with the cumulative effect of retrospectively applying this guidance recognized at the date of initial application.

On August 12, 2015, the FASB issued an amendment to defer the effective date of the guidance issued in May 2014 by one year. In 2016, the FASB issued additional amendments to clarify certain aspects of the new revenue guidance. However, the amendments do not change the core principle in the new revenue standard. The guidance is effective for the Bank for interim and annual periods beginning on January 1, 2018. Early application is permitted only as of the interim and annual reporting periods beginning after December 15, 2016. The Bank does not intend to adopt this guidance early. Given that the majority of the Bank’s financial instruments and other contractual rights that generate revenue are covered by other accounting guidance under U.S. GAAP, the effect of this guidance on the Bank’s financial condition, results of operations, and cash flows is not expected to be material.

Note 3 — Trading Securities

The estimated fair value of trading securities as of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, was as follows:



	September 30, 2019		December 31, 2018
GSEs – Federal Farm Credit Bank (FFCB) bonds	$	—	$	656
MBS – Other U.S. obligations – Ginnie Mae	4		5
Total	$	4	$	661

September 30, 2017
December 31, 2016
Government-Sponsored Enterprises (GSEs) – Federal Farm Credit Bank (FFCB) bonds $ 1,158
$ 2,058
MBS – Other U.S. obligations – Ginnie Mae 7
8
Total $ 1,165
$ 2,066

The net unrealized gain/(loss) on trading securities was de minimis and $1$(1) for the three months ended September 30, ~~2017~~2019 and ~~2016~~2018, respectively. The net unrealized gain/(loss) on trading securities was ~~de minimis~~$(1) and $3$(2) for the nine months ended September 30, ~~2017~~2019 and ~~2016~~,2018, respectively. These amounts represent the changes in the fair value of the securities during the reported periods.

Note 4 — Available-for-Sale Securities

~~Available-for-sale (AFS)~~AFS securities by major security type as of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, were as follows:



September 30, 2019
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. obligations – Treasury securities	$	5,290	$	—		$	—	$	(3	)	$	5,287
MBS:
GSEs – multifamily:
Freddie Mac	797		—			3		—			800
Fannie Mae	6,476		—			13		(15		)	6,474
Subtotal – GSEs – multifamily	7,273		—			16		(15		)	7,274
PLRMBS:
Prime	232		—			20		—			252
Alt-A	2,235		(10		)	279		(1		)	2,503
Subtotal PLRMBS	2,467		(10		)	299		(1		)	2,755
Total MBS	9,740		(10		)	315		(16		)	10,029
Total	$	15,030	$	(10	)	$	315	$	(19	)	$	15,316

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

September 30, 2017

Amortized
Cost⁽¹⁾

OTTI
Recognized in
AOCI

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated Fair Value
PLRMBS:
Prime $ 357
$ —
$ 30
$ —
$ 387
Alt-A, option ARM 753
(9 ) 123
—
867
Alt-A, other 2,574
(26 ) 213
—
2,761
Total $ 3,684
$ (35 ) $ 366
$ —
$ 4,015


December 31, 2016
December 31, 2018
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Amortized Cost⁽¹⁾		OTTI Recognized in AOCI			Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
MBS – GSEs – multifamily:
Freddie Mac													$	409	$	—		$	—	$	(2	)	$	407
Fannie Mae													3,397		—			—		(30		)	3,367
Subtotal MBS – GSEs – multifamily													3,806		—			—		(32		)	3,774
PLRMBS:
Prime	$	413	$	(1	)	$	22	$	—		$	434	267		—			21		—			288
Alt-A, option ARM	853		(31		)	77		(2		)	897
Alt-A, other	3,087		(82		)	154		(1		)	3,158
Alt-A													2,603		(20		)	288		(2		)	2,869
Subtotal PLRMBS													2,870		(20		)	309		(2		)	3,157
Total	$	4,353	$	(114	)	$	253	$	(3	)	$	4,489	$	6,676	$	(20	)	$	309	$	(34	)	$	6,931


(1)	Amortized cost includes unpaid principal balance, unamortized premiums and discounts, ~~and~~ previous OTTI recognized in ~~earnings.~~earnings, and valuation adjustments for hedging activities.

~~Expected maturities of PLRMBS will differ from contractual maturities because borrowers generally have the right to prepay the underlying obligations without prepayment fees.~~

At September 30, ~~2017~~,2019, the amortized cost of the Bank’s ~~PLRMBS~~MBS classified as AFS included premiums of $64, discounts of $52, and credit-related OTTI of ~~$836~~.$601. At December 31, ~~2016~~,2018, the amortized cost of the Bank’s ~~PLRMBS~~MBS classified as AFS included premiums of $19, discounts of $53, and credit-related OTTI of ~~$941~~.$690.

The following ~~table summarizes~~tables summarize the AFS securities with unrealized losses as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position. Total unrealized losses in the following table will not agree to total gross unrealized losses in the table above. The unrealized losses in the following table also include non-credit-related OTTI losses recognized in AOCI. For OTTI analysis of AFS securities and for information on AFS securities in unrealized loss positions that are not considered to be other-than-temporarily impaired, see Note 6 – Other-Than-Temporary Impairment Analysis.



September 30, 2019
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. obligations – Treasury securities	$	4,685	$	3	$	—	$	—	$	4,685	$	3
MBS:
GSEs – multifamily:
Freddie Mac	246		—		—		—		246		—
Fannie Mae	2,619		11		628		4		3,247		15
Subtotal MBS – GSEs – multifamily	2,865		11		628		4		3,493		15
PLRMBS:
Prime	—		—		8		—		8		—
Alt-A	86		3		148		8		234		11
Subtotal PLRMBS	86		3		156		8		242		11
Subtotal MBS	2,951		14		784		12		3,735		26
Total	$	7,636	$	17	$	784	$	12	$	8,420	$	29

1413

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



December 31, 2018
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
MBS – GSEs – multifamily:
Freddie Mac	$	382	$	2	$	—	$	—	$	382	$	2
Fannie Mae	3,211		30		—		—		3,211		30
Subtotal MBS – GSEs – multifamily	3,593		32		—		—		3,593		32
PLRMBS:
Prime	6		—		8		—		14		—
Alt-A	204		3		343		19		547		22
Subtotal PLRMBS	210		3		351		19		561		22
Total	$	3,803	$	35	$	351	$	19	$	4,154	$	54

Redemption Terms. The amortized cost and estimated fair value of non-MBS investments by contractual maturity (based on contractual final principal payment) and of MBS as of September 30, 2019, are shown below. There were no non-MBS investments as of December 31, 2018. Expected maturities of MBS will differ from contractual maturities because borrowers may have the right to call or prepay the underlying obligations with or without call or prepayment fees.



September 30, 2019
Year of Contractual Maturity	Amortized Cost⁽¹⁾		Estimated Fair Value
AFS securities other than MBS:
Due in 1 year or less	$	1,510	$	1,509
Due after 1 year through 5 years	3,780		3,778
Subtotal	5,290		5,287
MBS	9,740		10,029
Total	$	15,030	$	15,316


(1)	Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and previous OTTI recognized in earnings.

~~As indicated in the tables above, as of~~ ~~September 30, 2017~~, the Bank’s investments classified as AFS had unrealized losses related to PLRMBS, which were primarily due to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

See Note 6 – Other-Than-Temporary Impairment Analysis for information on the transfers of securities between the AFS portfolio and the ~~HTM~~held-to-maturity (HTM) portfolio.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Note 5 — Held-to-Maturity Securities

The Bank classifies the following securities as HTM because the Bank has the positive intent and ability to hold these securities to maturity:


September 30, 2017
September 30, 2019
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Estimated Fair Value		Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Estimated Fair Value
Certificates of deposit	$	500	$	—		$	500	$	—	$	—		$	500
Housing finance agency bonds:
California Housing Finance Agency (CalHFA) bonds	202		—			202		—		(13		)	189		$	32	$	—		$	32	$	—	$	—		$	32
MBS:
Other U.S. obligations – single-family:
Ginnie Mae	793		—			793		7		—			800		508		—			508		5		—			513
GSEs – single-family:
Freddie Mac	2,209		—			2,209		19		(6		)	2,222		1,186		—			1,186		9		(2		)	1,193
Fannie Mae	3,930		—			3,930		44		(3		)	3,971		2,033		—			2,033		23		(1		)	2,055
Subtotal GSEs – single-family	6,139		—			6,139		63		(9		)	6,193		3,219		—			3,219		32		(3		)	3,248
GSEs – multifamily:
Freddie Mac	3,379		—			3,379		5		(1		)	3,383		2,975		—			2,975		—		(10		)	2,965
Fannie Mae	2,201		—			2,201		1		—			2,202		1,378		—			1,378		—		(3		)	1,375
Subtotal GSEs – multifamily	5,580		—			5,580		6		(1		)	5,585		4,353		—			4,353		—		(13		)	4,340
Subtotal GSEs	11,719		—			11,719		69		(10		)	11,778		7,572		—			7,572		32		(16		)	7,588
PLRMBS:
Prime	557		—			557		5		(6		)	556		298		—			298		1		(4		)	295
Alt-A, other	331		(7		)	324		11		(3		)	332
Alt-A															156		(2		)	154		6		(2		)	158
Subtotal PLRMBS	888		(7		)	881		16		(9		)	888		454		(2		)	452		7		(6		)	453
Total MBS	13,400		(7		)	13,393		92		(19		)	13,466		8,534		(2		)	8,532		44		(22		)	8,554
Total	$	14,102	$	(7	)	$	14,095	$	92	$	(32	)	$	14,155	$	8,566	$	(2	)	$	8,564	$	44	$	(22	)	$	8,586

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


December 31, 2016
December 31, 2018
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Estimated Fair Value		Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains		Gross Unrecognized Holding Losses			Estimated Fair Value
Certificates of deposit	$	1,350	$	—		$	1,350	$	—	$	—		$	1,350
Housing finance agency bonds:
California Housing Finance Agency (CalHFA) bonds	225		—			225		—		(18		)	207		$	100	$	—		$	100	$	—	$	(3	)	$	97
MBS:
Other U.S. obligations – single-family:
Ginnie Mae	951		—			951		5		(1		)	955		609		—			609		—		(6		)	603
GSEs – single-family:
Freddie Mac	2,793		—			2,793		23		(15		)	2,801		1,506		—			1,506		6		(21		)	1,491
Fannie Mae	5,037		—			5,037		47		(14		)	5,070		2,598		—			2,598		17		(16		)	2,599
Subtotal GSEs – single-family	7,830		—			7,830		70		(29		)	7,871		4,104		—			4,104		23		(37		)	4,090
GSEs – multifamily:
Freddie Mac	1,556		—			1,556		—		(1		)	1,555		3,944		—			3,944		—		(17		)	3,927
Fannie Mae	1,058		—			1,058		—		(1		)	1,057		1,743		—			1,743		—		(1		)	1,742
Subtotal GSEs – multifamily	2,614		—			2,614		—		(2		)	2,612		5,687		—			5,687		—		(18		)	5,669
Subtotal GSEs	10,444		—			10,444		70		(31		)	10,483		9,791		—			9,791		23		(55		)	9,759
PLRMBS:
Prime	707		—			707		2		(15		)	694		383		—			383		1		(6		)	378
Alt-A, other	459		(9		)	450		11		(9		)	452
Alt-A															209		(3		)	206		7		(3		)	210
Subtotal PLRMBS	1,166		(9		)	1,157		13		(24		)	1,146		592		(3		)	589		8		(9		)	588
Total MBS	12,561		(9		)	12,552		88		(56		)	12,584		10,992		(3		)	10,989		31		(70		)	10,950
Total	$	14,136	$	(9	)	$	14,127	$	88	$	(74	)	$	14,141	$	11,092	$	(3	)	$	11,089	$	31	$	(73	)	$	11,047


(1)	Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and previous OTTI recognized in earnings. The carrying value of HTM securities represents amortized cost after adjustment for non-credit-related OTTI recognized in AOCI.

At September 30, ~~2017,~~2019, the amortized cost of the Bank’s MBS classified as HTM included premiums of ~~$20,~~$9, discounts of ~~$25,~~$13, and credit-related OTTI of $7. At December 31, ~~2016~~,2018, the amortized cost of the Bank’s MBS classified as HTM included premiums of ~~$29~~,$14, discounts of ~~$34~~,$19, and credit-related OTTI of $8.$7.

The following tables summarize the HTM securities with unrealized losses as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position. Total unrealized losses in the following ~~table~~tables will not agree to the total gross unrecognized holding losses in the ~~table~~tables above. The unrealized losses in the following ~~table~~tables also include non-credit-related OTTI losses recognized in AOCI. For OTTI analysis of HTM securities and for information on HTM securities in unrealized loss positions that are not considered to be other-than-temporarily impaired, see Note 6 – Other-Than-Temporary Impairment Analysis.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

September 30, 2017
Less Than 12 Months 12 Months or More Total

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Housing finance agency bonds:
CalHFA bonds $ —
$ —
$ 189
$ 13
$ 189
$ 13
MBS:
Other U.S. obligations – single-family:
Ginnie Mae 31
—
—
—
31
—
GSEs – single-family:
Freddie Mac 1,028
6
3
—
1,031
6
Fannie Mae 412
2
153
1
565
3
Subtotal GSEs – single-family 1,440
8
156
1
1,596
9
GSEs – multifamily:
Freddie Mac 833
1
—
—
833
1
Fannie Mae 1,097
—
—
—
1,097
—
Subtotal GSEs – multifamily

1,930
1
—
—
1,930
1
Subtotal GSEs 3,370
9
156
1
3,526
10
PLRMBS:
Prime 15
—
226
6
241
6
Alt-A, other —
—
232
10
232
10
Subtotal PLRMBS 15
—
458
16
473
16
Total MBS 3,416
9
614
17
4,030
26
Total $ 3,416
$ 9
$ 803
$ 30
$ 4,219
$ 39



September 30, 2019
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
MBS – Other U.S. obligations – single-family:
Ginnie Mae	$	30	$	—	$	20	$	—	$	50	$	—
MBS – GSEs – single-family:
Freddie Mac	132		—		440		2		572		2
Fannie Mae	69		—		314		1		383		1
Subtotal MBS – GSEs – single-family	201		—		754		3		955		3
MBS – GSEs – multifamily:
Freddie Mac	1,499		4		1,348		6		2,847		10
Fannie Mae	715		1		661		2		1,376		3
Subtotal MBS – GSEs – multifamily	2,214		5		2,009		8		4,223		13
Subtotal MBS – GSEs	2,415		5		2,763		11		5,178		16
PLRMBS:
Prime	64		—		115		4		179		4
Alt-A	70		1		72		3		142		4
Subtotal PLRMBS	134		1		187		7		321		8
Total	$	2,579	$	6	$	2,970	$	18	$	5,549	$	24



December 31, 2018
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Housing finance agency bonds:
CalHFA bonds	$	—	$	—	$	80	$	3	$	80	$	3
MBS:
Other U.S. obligations – single-family:
Ginnie Mae	33		—		529		6		562		6
GSEs – single-family:
Freddie Mac	79		—		1,085		21		1,164		21
Fannie Mae	923		3		693		13		1,616		16
Subtotal GSEs – single-family	1,002		3		1,778		34		2,780		37
GSEs – multifamily:
Freddie Mac	3,826		16		67		1		3,893		17
Fannie Mae	757		1		360		—		1,117		1
Subtotal GSEs – multifamily	4,583		17		427		1		5,010		18
Subtotal GSEs	5,585		20		2,205		35		7,790		55
PLRMBS:
Prime	153		1		128		5		281		6
Alt-A	84		—		119		6		203		6
Subtotal PLRMBS	237		1		247		11		484		12
Total MBS	5,855		21		2,981		52		8,836		73
Total	$	5,855	$	21	$	3,061	$	55	$	8,916	$	76

December 31, 2016
Less Than 12 Months 12 Months or More Total

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Estimated
Fair Value

Unrealized
Losses

Housing finance agency bonds:
CalHFA bonds $ —
$ —
$ 193
$ 18
$ 193
$ 18
MBS:
Other U.S. obligations – single-family:
Ginnie Mae 190
1
—
—
190
1
GSEs – single-family:
Freddie Mac 1,498
15
3
—
1,501
15
Fannie Mae 2,665
12
96
2
2,761
14
Subtotal GSEs – single-family 4,163
27
99
2
4,262
29
GSEs – multifamily:
Freddie Mac 1,007
1
—
—
1,007
1
Fannie Mae 387
1
—
—
387
1
Subtotal GSEs – multifamily 1,394
2
—
—
1,394
2
Subtotal GSEs 5,557
29
99
2
5,656
31
PLRMBS:
Prime 1
—
517
15
518
15
Alt-A, other —
—
452
18
452
18
Subtotal PLRMBS 1
—
969
33
970
33
Total MBS 5,748
30
1,068
35
6,816
65
Total $ 5,748
$ 30
$ 1,261
$ 53
$ 7,009
$ 83
Redemption Terms. The amortized cost, carrying value, and estimated fair value of non-MBS investments by contractual maturity (based on contractual final principal payment) and of MBS as of September 30, 2019, and December 31, 2018, are shown below. Expected maturities of MBS will differ from contractual maturities because

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

As indicated in the tables above, the Bank’s investments classified as HTM had unrealized losses on CalHFA bonds and MBS. The unrealized losses associated with the CalHFA bonds were mainly due to an illiquid market, credit concerns regarding the underlying mortgage collateral, and credit concerns regarding the monoline insurance providers, causing these investments to be valued at a discount to their acquisition cost. For its agency MBS, the Bank expects to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses. The unrealized losses associated with the PLRMBS were primarily due to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

~~Redemption Terms.~~ ~~The amortized cost, carrying value, and estimated fair value of non-MBS securities by contractual maturity (based on contractual final principal payment) and of MBS as of~~ ~~September 30, 2017, and~~ ~~December 31, 2016, are shown below. Expected maturities of MBS will differ from contractual maturities because~~ borrowers ~~generally~~may have the right to call or prepay the underlying obligations with or without call or prepayment fees.



September 30, 2019
Year of Contractual Maturity	Amortized Cost⁽¹⁾		Carrying Value⁽¹⁾		Estimated Fair Value
HTM securities other than MBS:
Due after 10 years	$	32	$	32	$	32
Subtotal	32		32		32
MBS	8,534		8,532		8,554
Total	$	8,566	$	8,564	$	8,586

September 30, 2017
Year of Contractual Maturity
Amortized
Cost⁽¹⁾

Carrying
Value⁽¹⁾

Estimated
Fair Value

HTM securities other than MBS:
Due in 1 year or less $ 500
$ 500
$ 500
Due after 5 years through 10 years 25
25
24
Due after 10 years 177
177
165
Subtotal 702
702
689
MBS 13,400
13,393
13,466
Total $ 14,102
$ 14,095
$ 14,155


December 31, 2016
December 31, 2018
Year of Contractual Maturity	Amortized Cost⁽¹⁾		Carrying Value⁽¹⁾		Estimated Fair Value		Amortized Cost⁽¹⁾		Carrying Value⁽¹⁾		Estimated Fair Value
HTM securities other than MBS:
Due in 1 year or less	$	1,350	$	1,350	$	1,350
Due after 5 years through 10 years	35		35		34
Due after 10 years	190		190		173		$	100	$	100	$	97
Subtotal	1,575		1,575		1,557		100		100		97
MBS	12,561		12,552		12,584		10,992		10,989		10,950
Total	$	14,136	$	14,127	$	14,141	$	11,092	$	11,089	$	11,047


(1)	Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and previous OTTI recognized in earnings. The carrying value of HTM securities represents amortized cost after adjustment for non-credit-related OTTI recognized in AOCI.

See Note 6 – Other-Than-Temporary Impairment Analysis for information on the transfers of securities between the AFS portfolio and the HTM portfolio.

Note 6 — Other-Than-Temporary Impairment Analysis

On a quarterly basis, the Bank evaluates its individual AFS and HTM investment securities in an unrealized loss position for OTTI. As part of this evaluation, the Bank considers whether it intends to sell each debt security and whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery of the amortized cost basis. If either of these conditions is met, the Bank recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the statement of condition date. For securities in an unrealized loss position that do not meet either of these conditions, the Bank considers

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

whether it expects to recover the entire amortized cost basis of the security by comparing its best estimate of the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. If the Bank’s best estimate of the present value of the cash flows expected to be collected is less than the amortized cost basis, the difference is considered the credit loss.

~~PLRMBS.~~ Private-Label Residential Mortgage-Backed Securities (PLRMBS). A significant input to the Bank’s cash flow analysis of its PLRMBS is the forecast of future housing price changes. The OTTI Governance Committee of the Federal Home Loan Banks (FHLBanks) developed a short-term housing price forecast with projected changes ranging from a decrease of 6.0% to an increase of ~~13.0%~~10.0% over the 12-month period beginning July 1, ~~2017.~~2019. For the vast majority of markets, the projected short-term housing price changes range from an increase of ~~1.0%~~2.0% to an increase of 6.0%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

For all the PLRMBS in its AFS and HTM portfolios, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.

For securities determined to be other-than-temporarily impaired as of September 30, ~~2017~~2019 (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), the following table presents a

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

summary of the significant inputs used in measuring the amount of credit loss recognized in earnings during the third quarter of ~~2017~~,2019, and the related current credit enhancement for the Bank.



September 30, 2019
	Significant Inputs for Other-Than-Temporarily Impaired PLRMBS			Current
	Prepayment Rates	Default Rates	Loss Severities	Credit Enhancement
Collateral Type at Origination	Weighted Average % ⁽¹⁾	Weighted Average % ⁽¹⁾	Weighted Average % ⁽¹⁾	Weighted Average % ⁽¹⁾
Alt-A	13.6	20.2	41.8	1.9

September 30, 2017
Significant Inputs for Other-Than-Temporarily Impaired PLRMBS Current
Prepayment Rates Default Rates Loss Severities Credit Enhancement
Year of Securitization
Weighted Average % ⁽¹⁾

Weighted Average % ⁽¹⁾

Weighted Average % ⁽¹⁾

Weighted Average % ⁽¹⁾
Alt-A, other
2007 8.7 44.1 46.0 —
2005 13.5 19.0 35.9 4.8
Total Alt-A, other 11.6 28.9 39.9 2.9
Total 11.6 28.9 39.9 2.9

~~(1) Weighted average percentage is based on unpaid principal balance.~~


(1)	Weighted average percentage is based on unpaid principal balance.

Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before the Bank will experience a loss on the security. The calculated averages represent the dollar-weighted averages of all the PLRMBS investments in each category shown. The classification is based on the model used to run the estimated cash flows for the CUSIP, which may not necessarily be the same as the classification at the time of origination.

The following table presents the credit-related OTTI, which is recognized in earnings, for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

Three Months Ended
September 30,

Nine Months Ended
September 30,
2017
2016
2017
2016
Balance, beginning of the period $ 1,158
$ 1,224
$ 1,183
$ 1,255
Additional charges on securities for which OTTI was previously recognized⁽¹⁾
6
3
15
14
Securities matured during the period ⁽²⁾
(1 ) —
(1 ) —
Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the securities⁽³⁾
(17 ) (19 ) (51 ) (61 )
Balance, end of the period $ 1,146
$ 1,208
$ 1,146
$ 1,208

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Balance, beginning of the period	$	1,050		$	1,103		$	1,077		$	1,129
Additional charges on securities for which OTTI was previously recognized⁽¹⁾	2			3			8			9
Securities matured during the period⁽²⁾	(3		)	—			(5		)	—
Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the securities⁽³⁾	(15		)	(15		)	(46		)	(47		)
Balance, end of the period	$	1,034		$	1,091		$	1,034		$	1,091

(1)

For the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to July 1, ~~2017~~2019 and ~~2016,~~2018, respectively. For the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to January 1, ~~2017~~2019 and ~~2016,~~2018, respectively.


(2)	Represents reductions related to securities having reached final maturity during the period, which therefore are no longer held by the Bank at the end of the period.

(3)

The total accretion or amortization associated with other-than-temporarily impaired PLRMBS (amount recognized in interest income) totaled $21 and $20 for the three months ended September 30, 2019 and 2018, respectively. The total net accretion/(amortization) associated with other-than-temporarily impaired PLRMBS (amount recognized in interest income) totaled $58 and $62 for the nine months ended September 30, 2019 and 2018, respectively.

~~(2) Represents reductions related to securities having reached final maturity during the period, which therefore are no longer held by~~

In general, the Bank ~~at the end of the period.~~

(3) The total accretion or amortization associated with other-than-temporarily impaired PLRMBS (amount recognized in interest income) totaled $24 and $24, for the three months ended September 30, 2017 and 2016, respectively. The total accretion or amortization associated with other-than-temporarily impaired PLRMBS (amount recognized in interest income) totaled $70 and $76 for the nine months ended ~~September 30, 2017~~ ~~and 2016, respectively.~~

Changes in circumstances may cause the Bank to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. The sale or transfer of an HTM security because of certain changes in circumstances, such as evidence of significant deterioration in the issuers’ creditworthiness, is not considered to be inconsistent with its original classification. In addition, other events that are isolated, nonrecurring, or unusual for the Bank that could not have been reasonably anticipated may cause the Bank to sell or transfer an HTM security without necessarily calling into question its intent to hold other debt securities to maturity.

~~The Bank elected~~elects to transfer any PLRMBS that incurred a credit-related OTTI charge during the applicable period from the Bank’s ~~held-to-maturity~~HTM portfolio to its ~~available-for-sale~~AFS portfolio at their fair values. The Bank recognized an OTTI credit loss on these ~~held-to-maturity~~HTM PLRMBS, which the Bank believes is evidence of a significant decline in the issuers’ creditworthiness. The decline in the issuers’ creditworthiness is the basis for the transfers to the ~~available-for-sale~~AFS portfolio. These transfers allow the Bank the option to sell these securities prior to maturity in view of changes in interest rates, changes in prepayment risk, or other factors, while recognizing the Bank’s intent to hold these securities for an indefinite period of time. The Bank does not intend to sell its other-than-temporarily impaired securities and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.

The following table summarizes the PLRMBS transferred from the Bank’s HTM portfolio to its AFS portfolio during the three and nine months ended September 30, 2018. The amounts shown represent the values when the

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

securities were transferred from the HTM portfolio to the AFS portfolio. The Bank did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three and nine months ended September 30, ~~2017~~ ~~and 2016.~~2019.



	Three Months Ended September 30, 2018								Nine Months Ended September 30, 2018
	Amortized Cost		OTTI Recognized in AOCI		Gross Unrecognized Holding Gains (Losses)		Estimated Fair Value		Amortized Cost		OTTI Recognized in AOCI		Gross Unrecognized Holding Gains (Losses)		Estimated Fair Value
Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Alt-A	$	—	$	—	$	—	$	—	$	12	$	—	$	—	$	12
Total	$	—	$	—	$	—	$	—	$	12	$	—	$	—	$	12

The following tables present the Bank’s AFS and HTM PLRMBS that incurred OTTI losses anytime during the life of the securities at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, by loan collateral type:


September 30, 2017
September 30, 2019
	Available-for-Sale Securities						Held-to-Maturity Securities								Available-for-Sale Securities						Held-to-Maturity Securities
	Unpaid Principal Balance		Amortized Cost		Estimated Fair Value		Unpaid Principal Balance		Amortized Cost		Carrying Value		Estimated Fair Value		Unpaid Principal Balance		Amortized Cost		Estimated Fair Value		Unpaid Principal Balance		Amortized Cost		Carrying Value		Estimated Fair Value
Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	431	$	357	$	387	$	—	$	—	$	—	$	—	$	281	$	232	$	252	$	—	$	—	$	—	$	—
Alt-A, option ARM	1,003		753		867		—		—		—		—
Alt-A, other	3,075		2,574		2,761		66		62		55		66
Alt-A															2,776		2,235		2,503		42		38		35		42
Total	$	4,509	$	3,684	$	4,015	$	66	$	62	$	55	$	66	$	3,057	$	2,467	$	2,755	$	42	$	38	$	35	$	42



December 31, 2018
	Available-for-Sale Securities						Held-to-Maturity Securities
	Unpaid Principal Balance		Amortized Cost		Estimated Fair Value		Unpaid Principal Balance		Amortized Cost		Carrying Value		Estimated Fair Value
Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	323	$	267	$	288	$	—	$	—	$	—	$	—
Alt-A	3,225		2,603		2,869		52		47		44		51
Total	$	3,548	$	2,870	$	3,157	$	52	$	47	$	44	$	51

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

December 31, 2016
Available-for-Sale Securities Held-to-Maturity Securities

Unpaid
Principal
Balance

Amortized
Cost

Estimated
Fair Value

Unpaid
Principal
Balance

Amortized
Cost

Carrying
Value

Estimated
Fair Value

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime $ 498
$ 413
$ 434
$ —
$ —
$ —
$ —
Alt-A, option ARM 1,134
853
897
—
—
—
—
Alt-A, other 3,650
3,087
3,158
93
88
79
91
Total $ 5,282
$ 4,353
$ 4,489
$ 93
$ 88
$ 79
$ 91

For the Bank’s PLRMBS that were not other-than-temporarily impaired as of September 30, ~~2017~~,2019, the Bank has experienced net unrealized losses primarily because of illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost. The Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a result, the Bank determined that, as of September 30, ~~2017~~,2019, all of the gross unrealized losses on these PLRMBS are temporary. These securities were included in the securities that the Bank reviewed and analyzed for OTTI as discussed above, and the analyses performed indicated that these securities were not other-than-temporarily impaired.

All Other Available-for-Sale and Held-to-Maturity Investments. For the Bank’s investments in housing finance agency bonds, which were issued by CalHFA, the gross unrealized losses were mainly due to an illiquid market,

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

credit concerns regarding the underlying mortgage collateral, and credit concerns regarding the monoline insurance providers, causing these investments to be valued at a discount to their acquisition cost. The Bank independently modeled cash flows for the underlying collateral, using assumptions for default rates and loss severity that a market participant would deem reasonable, and concluded that the available credit support within the CalHFA structure more than offset the projected underlying collateral losses. The Bank determined that, as of September 30, ~~2017~~,2019, all of the gross unrealized losses on the bonds are temporary because the underlying collateral and credit enhancements were sufficient to protect the Bank from losses. As a result, the Bank expects to recover the entire amortized cost basis of these securities.

For its agency MBS and U.S. Treasury obligations, the Bank expects to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses. As a result, the Bank determined that, as of September 30, ~~2017~~,2019, all of the gross unrealized losses on its agency MBS and U.S. Treasury obligations are temporary.

For more information related to the Bank’s accounting policies for OTTI, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2018 Form 10-K.

Note 7 — Advances

The Bank offers a wide range of fixed and adjustable rate advance products with different maturities, interest rates, payment characteristics, and option features. Fixed rate advances generally have maturities ranging from one day to 30 years. Adjustable rate advances generally have maturities ranging from less than 30 days to 10 years, with the interest rates resetting periodically at a fixed spread to ~~LIBOR or to another~~a specified index.

Redemption Terms. The Bank had advances outstanding, excluding overdrawn demand deposit accounts, at interest rates ranging from ~~0.71%~~ to ~~8.57%~~ at ~~September 30, 2017, and 0.43%~~1.15% to 8.57% at September 30, 2019, and 1.02% to 8.57% at December 31, ~~2016~~,2018, as summarized below.



	September 30, 2019				December 31, 2018
Redemption Term	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding			Weighted Average Interest Rate
Overdrawn demand and overnight deposit accounts	$	2	1.55	%	$	—		—	%
Within 1 year	30,373		2.26		42,285			2.40
After 1 year through 2 years	18,538		2.33		13,662			2.57
After 2 years through 3 years	7,507		2.30		11,238			2.70
After 3 years through 4 years	1,947		2.80		2,409			2.45
After 4 years through 5 years	2,916		2.82		2,815			2.99
After 5 years	1,156		3.01		1,086			3.23
Total par value	62,439		2.34	%	73,495			2.51	%
Valuation adjustments for hedging activities	293				(32		)
Valuation adjustments under fair value option	94				(29		)
Total	$	62,826			$	73,434

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

September 30, 2017 December 31, 2016
Contractual Maturity
Amount
Outstanding

Weighted
Average
Interest Rate

Amount
Outstanding

Weighted
Average
Interest Rate

Within 1 year $ 33,122
1.24 % $ 22,902
0.78 %
After 1 year through 2 years 13,436
1.49
7,608
1.36
After 2 years through 3 years 5,597
1.61
9,410
1.22
After 3 years through 4 years 6,670
1.53
2,083
1.39
After 4 years through 5 years 1,790
2.07
6,423
1.24
After 5 years 1,036
3.01
1,431
2.60
Total par value 61,651
1.41 % 49,857
1.09 %
Valuation adjustments for hedging activities (39 ) (22 )
Valuation adjustments under fair value option 17
10

Total $ 61,629
$ 49,845

Many of the Bank’s advances are prepayable at the borrower’s option. However, when advances are prepaid, the borrower is generally charged a prepayment fee intended to make the Bank financially indifferent to the prepayment. In addition, for certain advances with full or partial prepayment symmetry, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. The Bank had advances with full prepayment symmetry outstanding totaling $11,926 at September 30, 2019, and $3,405 at December 31, 2018. The Bank had advances with partial prepayment symmetry outstanding totaling ~~$4,325~~$3,799 at September 30, ~~2017~~,2019, and ~~$3,647~~$4,410 at December 31, ~~2016~~.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

2018. Some advances may be repaid on pertinent call dates without prepayment fees (callable advances). The Bank had callable advances outstanding totaling ~~$17,903~~$13,324 at September 30, ~~2017~~,2019, and ~~$15,505~~$13,255 at December 31, ~~2016~~.2018.

The ~~Bank’s~~Bank had putable advances totaling $20 at September 30, ~~2017~~,2019, and $20 at December 31, ~~2016, included~~ ~~$25~~ ~~and $125 of putable advances, respectively.~~2018. At the Bank’s discretion, the Bank may terminate these advances on predetermined exercise dates and offer replacement funding at prevailing market rates, subject to certain conditions. The Bank would typically exercise such termination rights when interest rates increase relative to contractual rates.

The following table summarizes advances at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, by the earlier of the year of ~~contractual maturity~~redemption term or next call date for callable advances and by the earlier of the year of ~~contractual maturity~~redemption term or next put date for putable advances.



	Earlier of Redemption Term or Next Call Date				Earlier of Redemption Term or Next Put Date
	September 30, 2019		December 31, 2018		September 30, 2019		December 31, 2018
Overdrawn demand and overnight deposit accounts	$	2	$	—	$	2	$	—
Within 1 year	36,647		46,740		30,388		42,295
After 1 year through 2 years	12,688		14,762		18,543		13,672
After 2 years through 3 years	7,110		5,688		7,507		11,238
After 3 years through 4 years	1,933		2,409		1,947		2,409
After 4 years through 5 years	2,903		2,812		2,916		2,815
After 5 years	1,156		1,084		1,136		1,066
Total par value	$	62,439	$	73,495	$	62,439	$	73,495

Earlier of Contractual
Maturity or Next Call Date

Earlier of Contractual
Maturity or Next Put Date
September 30, 2017
December 31, 2016
September 30, 2017
December 31, 2016
Within 1 year $ 39,971
$ 25,784
$ 33,122
$ 22,927
After 1 year through 2 years 8,694
11,078
13,436
7,583
After 2 years through 3 years 8,797
4,465
5,597
9,410
After 3 years through 4 years 1,470
5,782
6,670
2,083
After 4 years through 5 years 1,778
1,421
1,790
6,423
After 5 years 941
1,327
1,036
1,431
Total par value $ 61,651
$ 49,857
$ 61,651
$ 49,857

Credit and Concentration Risk. The following tables present the concentration in advances to the top five borrowers and their affiliates at September 30, ~~2017~~2019 and ~~2016.~~2018. The tables also present the interest income from

these advances before the impact of interest rate exchange agreements associated with these advances for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018.



	September 30, 2019				Three Months Ended September 30, 2019				Nine Months Ended September 30, 2019
Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances
MUFG Union Bank, National Association	$	14,100	22	%	$	92	24	%	$	287	22	%
First Republic Bank	11,200		18		62		16		175		13
Wells Fargo & Company
Wells Fargo Financial National Bank West⁽²⁾	8,000		13		49		13		150		12
Wells Fargo Bank, National Association⁽³⁾	41		—		1		—		2		—
Subtotal Wells Fargo & Company	8,041		13		50		13		152		12
Bank of the West	5,556		9		41		10		124		9
JPMorgan Chase Bank, National Association⁽³⁾	5,056		8		33		9		144		11
Subtotal	43,953		70		278		72		882		67
Others	18,486		30		110		28		427		33
Total par value	$	62,439	100	%	$	388	100	%	$	1,309	100	%

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



	September 30, 2018				Three Months Ended September 30, 2018				Nine Months Ended September 30, 2018
Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances
MUFG Union Bank, National Association	$	11,900	17	%	$	66	18	%	$	170	15	%
First Republic Bank	9,700		14		49		13		130		12
JPMorgan Chase Bank, National Association⁽³⁾	8,360		12		57		15		161		15
Bank of the West	7,458		11		40		11		104		10
Wells Fargo & Company
Wells Fargo Financial National Bank⁽²⁾	4,000		6		23		7		62		5
Wells Fargo Bank, National Association⁽³⁾	49		—		1		—		2		—
Subtotal Wells Fargo & Company	4,049		6		24		7		64		5
Subtotal	41,467		60		236		64		629		57
Others	28,147		40		135		36		469		43
Total par value	$	69,614	100	%	$	371	100	%	$	1,098	100	%

September 30, 2017
Three Months Ended
September 30, 2017

Nine Months Ended
September 30, 2017
Name of Borrower Advances
Outstanding
Percentage of
Total
Advances
Outstanding

Interest
Income from
Advances⁽¹⁾

Percentage of
Total Interest
Income from
Advances

Interest
Income from
Advances⁽¹⁾

Percentage of
Total Interest
Income from
Advances
JPMorgan Chase Bank, National Association⁽²⁾
$ 11,864
19 % $ 45
18 % $ 131
21 %
First Republic Bank 8,750
14
31
13
79
13
Bank of the West 7,809
13
29
11
62
10
MUFG Union Bank, National Association 5,600
9
16
7
24
4
Charles Schwab Bank 5,000
8
5
2
10
2
Subtotal 39,023
63
126
51
306
50
Others 22,628
37
120
49
302
50
Total par value $ 61,651
100 % $ 246
100 % $ 608
100 %

September 30, 2016
Three Months Ended
September 30, 2016

Nine Months Ended
September 30, 2016
Name of Borrower
Advances
Outstanding

Percentage of
Total
Advances
Outstanding

Interest
Income from
Advances⁽¹⁾

Percentage of
Total Interest
Income from
Advances

Interest
Income from
Advances⁽¹⁾

Percentage of
Total Interest
Income from
Advances

JPMorgan Chase Bank, National Association⁽²⁾
$ 14,810
27 % $ 31
22 % $ 83
21 %
Bank of the West 6,855
12
13
9
37
9
First Republic Bank 4,700
9
18
13
52
13
MUFG Union Bank, National Association 3,901
7
4
3
8
2
Citibank, N.A.⁽²⁾
3,000
5
3
3
10
3
Subtotal 33,266
60
69
50
190
48
Others 22,475
40
70
50
203
52
Total par value $ 55,741
100 % $ 139
100 % $ 393
100 %


(1)	Interest income amounts exclude the interest effect of interest rate exchange agreements with derivative counterparties; as a result, the total interest income amounts will not agree to the Statements of Income. The amount of interest income from advances can vary depending on the amount outstanding, terms to maturity, interest rates, and repricing characteristics.


(2)	Effective April 15, 2019, Wells Fargo Financial National Bank was renamed Wells Fargo Financial National Bank West.


(3)	Nonmember institution.

The Bank held a security interest in collateral from each of the top five advances borrowers and their affiliates sufficient to support their respective advances outstanding, and the Bank does not expect to incur any credit losses on these advances.

For information related to the Bank’s credit risk on advances and allowance methodology for credit losses, see Note 9 – Allowance for Credit Losses.

Interest Rate Payment Terms. Interest rate payment terms for advances at September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, are detailed below:



	September 30, 2019		December 31, 2018
Par value of advances:
Fixed rate:
Due within 1 year	$	15,883	$	20,437
Due after 1 year	20,735		19,727
Total fixed rate	36,618		40,164
Adjustable rate:
Due within 1 year	14,491		21,848
Due after 1 year	11,330		11,483
Total adjustable rate	25,821		33,331
Total par value	$	62,439	$	73,495

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

September 30, 2017
December 31, 2016
Par value of advances:
Fixed rate:
Due within 1 year $ 22,708
$ 13,486
Due after 1 year 13,053
10,845
Total fixed rate 35,761
24,331
Adjustable rate:
Due within 1 year 10,414
9,416
Due after 1 year 15,476
16,110
Total adjustable rate 25,890
25,526
Total par value $ 61,651
$ 49,857

The Bank may use derivatives to adjust the repricing and options characteristics of advances to more closely match the characteristics of the Bank’s funding liabilities. In general, whenever a member executes a fixed or variable rate advance with embedded options, the Bank will simultaneously execute an interest rate exchange agreement with terms that offset the terms and embedded options in the advance. The combination of the advance and the interest rate exchange agreement effectively creates a variable rate asset. This type of hedge relationship receives fair value option accounting treatment. In addition, for certain advances for which the Bank has elected the fair value option, the Bank will simultaneously execute an interest rate exchange agreement with terms that economically offset the terms of the advance. However, this type of hedge is treated as an economic hedge because these combinations generally do not meet the requirements for fair value hedge accounting treatment. For more information, see Note 15 – Derivatives and Hedging Activities and Note 16 – Fair Value.

The Bank did not have any advances with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative at September 30, ~~2017~~,2019, or December 31, ~~2016~~.2018. The Bank has generally elected to account for certain advances with embedded features under the fair value option, and these advances are carried at fair value on the Statements of Condition. For more information, see Note 15 – Derivatives and Hedging Activities and Note 16 – Fair Value.

~~Prepayment Fees, Net.~~ The Bank charges borrowers prepayment fees or pays borrowers prepayment credits when the principal on certain advances is paid prior to original maturity. The Bank records prepayment fees net of any associated fair value adjustments related to prepaid advances that were hedged. The net amount of prepayment fees is reflected as interest income in the Statements of Income for the three and ~~nine~~ ~~months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016, as follows:~~

Three Months Ended Nine Months Ended
September 30, 2017
September 30, 2016
September 30, 2017
September 30, 2016
Prepayment fees received $ 1
$ 3
$ 1
$ 4
Fair value adjustments —
—
—
1
Net $ 1
$ 3
$ 1
$ 5
Advance principal prepaid $ 2,990
$ 896
$ 5,998
$ 2,755

~~Note 8 — Mortgage Loans Held for Portfolio~~

Under the Mortgage Partnership Finance® (MPF®) Program, the Bank may purchase from members, for its own portfolio, conventional conforming fixed rate mortgage loans under the MPF Original product and mortgage loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) under the MPF Government product. In addition, the Bank may facilitate the purchase of conforming fixed rate mortgage loans from members for concurrent sale to Fannie Mae under the MPF Xtra® product; of jumbo fixed rate mortgage loans for concurrent sale to Redwood Residential Acquisition Corporation, a subsidiary of Redwood

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Trust, Inc., a real estate investment trust, under the MPF Direct product; and of government-insured or government-guaranteed mortgage loans that will be packaged into securities backed by the mortgage loans and guaranteed by Ginnie Mae under the MPF Government MBS product. When members sell mortgage loans under the MPF Xtra, MPF Direct, and MPF Government MBS products, the loans are sold to a third-party investor and are not recorded on the Bank’s Statements of Condition. As of September 30, 2017, the Bank had approved 21 members as participating financial institutions since renewing its participation in the MPF Program in 2013.Note 8 — Mortgage Loans Held for Portfolio

From May 2002 through October 2006, the Bank purchased conventional conforming fixed rate mortgage loans from its participating financial institutions under the MPF Original and MPF Plus products. Participating members originated or purchased the mortgage loans, credit-enhanced them and sold them to the Bank, and generally retained the servicing of the loans.

The following table presents information as of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, on mortgage loans, all of which are secured by one- to four-unit residential properties and single-unit second homes.



	September 30, 2019			December 31, 2018
Fixed rate medium-term mortgage loans	$	22		$	16
Fixed rate long-term mortgage loans	3,280			2,951
Subtotal	3,302			2,967
Unamortized premiums	83			104
Unamortized discounts	(3		)	(5		)
Mortgage loans held for portfolio	3,382			3,066
Less: Allowance for credit losses	—			—
Total mortgage loans held for portfolio, net	$	3,382		$	3,066

September 30, 2017
December 31, 2016
Fixed rate medium-term mortgage loans $ 37
$ 55
Fixed rate long-term mortgage loans 1,678
759
Subtotal 1,715
814
Unamortized premiums 64
18
Unamortized discounts (5 ) (6 )
Mortgage loans held for portfolio 1,774
826
Less: Allowance for credit losses —
—
Total mortgage loans held for portfolio, net $ 1,774
$ 826

Medium-term loans have original contractual terms of 15 years or less, and long-term loans have contractual terms of more than 15 years.

For more information related to the Bank’s accounting policies for the Mortgage Partnership Finance® (MPF®) Program, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2018 Form 10-K. For information related to the Bank’s credit risk on mortgage loans and allowance methodology for credit losses, see Note 9 – Allowance for Credit Losses.

Note 9 — Allowance for Credit Losses

The Bank has established an allowance methodology for each of its portfolio segments: advances, letters of credit, and other extensions of credit, collectively referred to as “credit products,” mortgage loans held for portfolio, term securities purchased under agreements to resell, and term Federal funds sold. For more information on these portfolio segments, see “Item 8. Financial Statements and Supplementary Data – Note 10 – Allowance for Credit Losses” in the Bank’s ~~2016~~2018 Form 10-K.

Credit Products. The Bank manages its credit exposure related to credit products through an integrated approach that generally provides for a credit limit to be established for each borrower, includes an ongoing review of each borrower’s financial condition, and is coupled with conservative collateral and lending policies to limit the risk of loss while taking into account borrowers’ needs for a reliable funding source. At September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, none of the Bank’s credit products were past due, on nonaccrual status, or considered impaired. There were no troubled debt restructurings related to credit products during the nine months ended September 30, ~~2017,~~2019, or during ~~2016.~~

2018.

Based on the collateral pledged as security for advances, the Bank’s credit analyses of borrowers’ financial condition, and the Bank’s credit extension and collateral policies as of September 30, ~~2017,~~2019, the Bank expects to collect all amounts due according to the contractual terms. Therefore, no allowance for losses on credit products was deemed necessary by the Bank. The Bank has never experienced any credit losses on its credit products.

Mortgage Loans Held for Portfolio. The following table presents information on delinquent mortgage loans as of September 30, 2019, and December 31, 2018.

2524

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

~~No member institutions were placed into receivership during the first nine months of 2017 or from October 1 to October 31, 2017.~~

~~Mortgage Loans Held for Portfolio.~~ ~~The following table presents information on delinquent mortgage loans as of~~ ~~September 30, 2017, and~~ ~~December 31, 2016~~.


	September 30, 2017			December 31, 2016			September 30, 2019			December 31, 2018
	Recorded Investment⁽¹⁾			Recorded Investment⁽¹⁾			Recorded Investment⁽¹⁾			Recorded Investment⁽¹⁾
30 – 59 days delinquent	$	10		$	7		$	13		$	15
60 – 89 days delinquent	1			3			2			2
90 days or more delinquent	13			15			6			9
Total past due	24			25			21			26
Total current loans	1,759			805			3,381			3,058
Total mortgage loans	$	1,783		$	830		$	3,402		$	3,084
In process of foreclosure, included above⁽²⁾	$	4		$	5		$	2		$	3
Nonaccrual loans	$	13		$	15		$	6		$	9
Loans past due 90 days or more and still accruing interest	$	—		$	—
Serious delinquencies as a percentage of total mortgage loans outstanding⁽³⁾	0.72		%	1.79		%	0.19		%	0.31		%


(1)	The recorded investment in a loan is the unpaid principal balance of the loan, adjusted for accrued interest, net deferred loan fees or costs, unamortized premiums or discounts, and direct write-downs. The recorded investment is not net of any valuation allowance.


(2)	Includes loans for which the servicer has reported a decision to foreclose or to pursue a similar alternative, such as deed-in-lieu. Loans in process of foreclosure are included in past due or current loans depending on their delinquency status.


(3)	Represents loans that are 90 days or more past due or in the process of foreclosure as a percentage of the recorded investment of total mortgage loans outstanding.

The amounts of charge-offs and recoveries of allowance for credit losses on the mortgage loan portfolio were de minimis during the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~

2018.

The ~~allowance for credit losses and~~ recorded investment by impairment methodology for individually and collectively evaluated impaired loans ~~are~~is as follows:



	September 30, 2019		December 31, 2018
Recorded investment, end of the period:
Individually evaluated for impairment	$	5	$	7
Collectively evaluated for impairment	3,397		3,077
Total recorded investment	$	3,402	$	3,084

September 30, 2017
December 31, 2016
Allowance for credit losses, end of period:
Individually evaluated for impairment $ —
$ —
Collectively evaluated for impairment —
—
Total allowance for credit losses $ —

$ —
Recorded investment, end of period:
Individually evaluated for impairment $ 9
$ 12
Collectively evaluated for impairment 1,774
818
Total recorded investment $ 1,783
$ 830

The allowance for credit losses for loans collectively evaluated for impairment totaled de minimis amounts as of September 30, 2019, and December 31, 2018. The Bank had no allowance for credit losses for loans individually evaluated for impairment as of September 30, 2019, and December 31, 2018.

The recorded investment and unpaid principal balance ~~and related allowance~~ of impaired loans individually evaluated for impairment ~~are as follows:~~

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

September 30, 2017 December 31, 2016
Recorded Investment
Unpaid Principal Balance
Related Allowance
Recorded Investment
Unpaid Principal Balance
Related Allowance
With no related allowance $ 9
$ 9
$ —
$ 12
$ 12
$ —
With an allowance —
—
—
—
—
—
Total $ 9
$ 9
$ —
$ 12
$ 12
$ —

totaled $5 and $5, respectively, at September 30, 2019. The ~~average~~ recorded investment onand unpaid principal balance of impaired loans individually evaluated for impairment ~~is as follows:~~totaled $7 and $7, respectively, at December 31, 2018.

Three Months Ended Nine Months Ended
September 30, 2017
September 30, 2016
September 30, 2017
September 30, 2016
With no related allowance $ 9
$ 12
$ 10
$ 12
With an allowance —
—
—
—
Total $ 9
$ 12
$ 10
$ 12

The Federal Housing Finance Agency’s (Finance Agency) acquired member asset (AMA) regulation permits the Bank to purchase and hold specified mortgage loans from its members. The Bank and any participating financial institution share in the credit risk of the loans sold by that institution as specified in a master agreement. ~~Loans~~The Bank purchased loans under the MPF Program ~~generally have a~~that were credit ~~risk exposure~~enhanced to an AMA investment-grade level at the time of purchase, equivalent to assets rated AA, if purchased prior to April 2017, or to assets rated BBB for loans purchased since April 2017, taking into consideration the credit risk sharing structure mandated by the Finance Agency’s acquired member assets (AMA) regulation. The MPF Program structures potential credit losses on conventional MPF loans into layers with respect to each pool of loans purchased bywhere the Bank has a high degree of confidence that it will be paid principal and interest in all material respects, even under ~~a single master commitment, as follows:~~


1.	~~The first layer of protection against loss is the liquidation value of the real property securing the loan.~~


2.	~~The next layer of protection comes from the primary mortgage insurance that is required for loans with a loan-to-value ratio greater than~~ ~~80%, if still in place.~~


3.	Losses that exceed the liquidation value of the real property and any primary mortgage insurance, up to an agreed-upon amount called the first loss account for each master commitment, are incurred by the Bank.


4.	Losses in excess of the first loss account for each master commitment, up to an agreed-upon amount called the credit enhancement amount, are covered by the participating financial institution’s credit enhancement obligation at the time losses are incurred.


5.	~~Losses in excess of the first loss account and the participating financial institution’s remaining credit enhancement for the master commitment, if any, are incurred by the Bank.~~

~~Allowance for Credit Losses on MPF Loans~~ –~~The Bank evaluates the allowance for credit losses on MPF mortgage loans based on two components. The first component applies~~reasonably likely adverse changes to each individual loan that is specifically identified as impaired. The Bank evaluates the exposure on these loans by considering the first layer of loss protection (the liquidation value of the real property securing the loan) and the availability and collectability of credit enhancements under the terms of each master commitment and records a provision for credit losses. For this component, the Bank established a de minimis allowance for credit losses for MPF Original and MPF Plus loans as of September 30, 2017, and December 31, 2016.

The second component applies to loans that are not specifically identified as impaired and is based on the Bank’s estimate of probable credit losses on those loans as of the financial statement date. The Bank evaluates the credit loss exposure on a loan pool basis considering various observable data, such as delinquency statistics, past performance, current performance, loan portfolio characteristics, collateral valuations, industry data, and prevailingexpected economic conditions. The Bank also considers the availability and collectability of credit enhancements from participating financial institutions or from mortgage insurers under the terms of each master commitment. For this component, the Bank established an allowance for credit losses for MPF Original and MPF Plus loans totaling de minimis amounts as of September 30, 2017, and December 31, 2016.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Troubled Debt Restructurings –Troubled debt restructuring (TDR) is considered to have occurred when a concession is granted to the debtor for economic or legal reasons related to the debtor’s financial difficulties and that concession would not have been considered otherwise. An MPF loan considered a TDR is individually evaluated for impairment when determining its related allowance for credit losses. Credit loss is measured by factoring in expected cash flow shortfalls incurred as of the reporting date as well as the economic loss attributable

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

to delaying the original contractual principal and interest due dates, if applicable.

The recorded investment of the ~~Bank's~~Bank’s nonperforming MPFloans classified as TDRs totaled $3$2 as of September 30, ~~2017,~~2019, and $3$2 as of December 31, ~~2016. During~~2018.

For more information related to the ~~three~~Bank’s accounting policies for collateral-dependent loans, see “Item 8. Financial Statements and ~~nine months ended September 30, 2017 and 2016,~~Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the ~~difference between~~Bank’s 2018 Form 10-K. For more information related to the ~~pre- and post-modification recorded investment in TDRs that occurred during the year was de minimis. None of the~~Bank’s allowance for credit losses methodology on MPF loans ~~classified as TDRs within~~and credit risk of MPF loans, see “Item 8. Financial Statements and Supplementary Data – Note 10 – Allowance for Credit Losses” in the ~~previous 12 months experienced a payment default.~~Bank’s 2018 Form 10-K.

Term Federal Funds Sold. The Bank invests in Federal funds sold with counterparties that are considered by the Bank to be of investment quality, and these investments are evaluated for purposes of an allowance for credit losses only if the investment is not paid when due. All investments in Federal funds sold as of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, were repaid or are expected to be repaid according to the contractual terms.

Note 10 — Deposits

The Bank maintains demand deposit accounts that are directly related to the extension of credit to members and offers short-term deposit programs to members and qualifying nonmembers. In addition, a member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of these funds to the owners of the mortgage loans. The Bank classifies these types of deposits as non-interest-bearing deposits.

~~Deposits as of~~ ~~September 30, 2017, and~~ ~~December 31, 2016, were as follows:~~

September 30, 2017
December 31, 2016
Interest-bearing deposits:
Demand and overnight $ 126
$ 167
Total interest-bearing deposits 126
167
Non-interest-bearing deposits:
Other 14
2
Total non-interest-bearing deposits

14
2
Total $ 140
$ 169

~~Interest Rate Payment Terms.~~ Deposits classified as demand, overnight, and other pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit. ~~Interest~~

Deposits and interest rate payment terms for deposits at as of September 30, ~~2017~~,2019, and December 31, ~~2016, are detailed in the following table:~~

2018, were as follows:



	September 30, 2019				December 31, 2018
	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate
Interest-bearing deposits – Adjustable rate	$	509	1.55	%	$	240	2.10	%
Non-interest-bearing deposits	143				22
Total	$	652			$	262

September 30, 2017 December 31, 2016

Amount
Outstanding

Weighted
Average
Interest Rate

Amount
Outstanding

Weighted
Average
Interest Rate

Interest-bearing deposit – Adjustable rate $ 126
0.85 % $ 167
0.01 %
Non-interest-bearing deposits 14
2

Total $ 140
$ 169

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Note 11 — Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are jointly issued by the FHLBanks through the Office of Finance, which serves as the FHLBanks’ agent. As provided by the ~~FHLBank~~Federal Home Loan Bank Act of 1932, as amended (FHLBank Act) or by regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. For a discussion of the joint and several liability regulation, see “Item 8. Financial ~~Statement~~Statements and Supplementary Data – Note 20 – Commitments and Contingencies” in the Bank’s ~~2016~~2018 Form 10-K. In connection with each issuance of consolidated obligations, each FHLBank specifies the type, term, and amount of debt it requests to have issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of the consolidated obligations issued and is the primary obligor for that portion of the consolidated obligations issued. The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance.

Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds at September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

September 30, 2017 December 31, 2016
Contractual Maturity
Amount
Outstanding

Weighted
Average
Interest Rate

Amount
Outstanding

Weighted
Average
Interest Rate

Within 1 year $ 54,277
1.12 % $ 33,879
0.82 %
After 1 year through 2 years 10,129
1.26
10,597
0.99
After 2 years through 3 years 2,269
1.66
1,318
1.32
After 3 years through 4 years 1,837
1.70
1,055
1.84
After 4 years through 5 years 1,622
2.02
1,350
1.59
After 5 years 2,146
2.66
2,021
2.42
Total par value 72,280
1.24 % 50,220
0.98 %
Unamortized premiums 10
15

Unamortized discounts (10 ) (9 )
Valuation adjustments for hedging activities (12 ) 6

Fair value option valuation adjustments (2 ) (8 )
Total $ 72,266
$ 50,224



	September 30, 2019					December 31, 2018
Contractual Maturity	Amount Outstanding			Weighted Average Interest Rate		Amount Outstanding			Weighted Average Interest Rate
Within 1 year	$	46,641		1.94	%	$	56,968		2.29	%
After 1 year through 2 years	15,556			1.95		7,741			2.20
After 2 years through 3 years	1,698			2.21		2,842			2.08
After 3 years through 4 years	712			2.13		2,094			2.12
After 4 years through 5 years	797			2.11		600			2.56
After 5 years	2,021			3.04		2,091			3.03
Total par value	67,425			1.99	%	72,336			2.29	%
Unamortized premiums	1					3
Unamortized discounts	(10		)			(10		)
Valuation adjustments for hedging activities	13					(48		)
Fair value option valuation adjustments	2					(5		)
Total	$	67,431				$	72,276

The ~~Bank’s~~Bank��s participation in consolidated obligation bonds outstanding includes callable bonds of ~~$8,300~~$8,684 at September 30, ~~2017~~,2019, and ~~$4,670~~$11,285 at December 31, ~~2016~~.2018. When a callable bond for which the Bank is the primary obligor is issued, the Bank may simultaneously enter into an interest rate swap (in which the Bank pays a variable rate and receives a fixed rate) with a call feature that mirrors the call option embedded in the bond (a sold callable swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of ~~$5,414~~$4,495 at September 30, ~~2017~~,2019, and ~~$2,125~~$7,660 at December 31, ~~2016~~.2018. The combined sold callable swaps and callable bonds enable the Bank to meet its funding needs at costs not otherwise directly attainable solely through the issuance of non-callable debt, while effectively converting the Bank’s net payment to an adjustable rate.

The Bank’s participation in consolidated obligation bonds at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, was as follows:



	September 30, 2019		December 31, 2018
Par value of consolidated obligation bonds:
Non-callable	$	58,741	$	61,051
Callable	8,684		11,285
Total par value	$	67,425	$	72,336

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

September 30, 2017
December 31, 2016
Par value of consolidated obligation bonds:
Non-callable $ 63,980
$ 45,550
Callable 8,300
4,670
Total par value $ 72,280
$ 50,220

The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, by the earlier of the year of contractual maturity or next call date.



Earlier of Contractual Maturity or Next Call Date	September 30, 2019		December 31, 2018
Within 1 year	$	53,335	$	65,878
After 1 year through 2 years	13,511		5,626
After 2 years through 3 years	326		616
After 3 years through 4 years	125		85
After 4 years through 5 years	77		70
After 5 years	51		61
Total par value	$	67,425	$	72,336

Earlier of Contractual
Maturity or Next Call Date
September 30, 2017
December 31, 2016
Within 1 year $ 61,801
$ 38,099
After 1 year through 2 years 9,394
10,747
After 2 years through 3 years 894
743
After 3 years through 4 years 85
455
After 4 years through 5 years 5
85
After 5 years 101
91
Total par value $ 72,280
$ 50,220

Consolidated obligation discount notes are consolidated obligations issued to raise short-term funds. These notes are issued at less than their face value and redeemed at par value when they mature. The Bank’s participation in consolidated obligation discount notes, all of which are due within one year, was as follows:

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

September 30, 2017 December 31, 2016

Amount
Outstanding

Weighted Average
Interest Rate ⁽¹⁾

Amount
Outstanding

Weighted Average
Interest Rate ⁽¹⁾

Par value $ 29,949
1.04 % $ 33,529
0.46 %
Unamortized discounts (47 ) (23 )
Total $ 29,902
$ 33,506



	September 30, 2019					December 31, 2018
	Amount Outstanding			Weighted Average Interest Rate ⁽¹⁾		Amount Outstanding			Weighted Average Interest Rate ⁽¹⁾
Par value	$	28,673		2.01	%	$	29,273		2.32	%
Unamortized discounts	(68		)			(91		)
Total	$	28,605				$	29,182


(1)	Represents yield to maturity excluding concession fees.

~~(1) Represents yield to maturity excluding concession fees.~~

Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, are detailed in the following table. For information on the general terms and types of

consolidated obligations outstanding, see “Item 8. Financial Statements and Supplementary Data – Note 12 –

Consolidated Obligations” in the Bank’s ~~2016~~2018 Form ~~10-K.~~10K.



	September 30, 2019		December 31, 2018
Par value of consolidated obligations:
Bonds:
Fixed rate	$	12,438	$	16,735
Adjustable rate	54,487		53,668
Step-up	300		1,558
Step-down	100		275
Range bonds	100		100
Total bonds, par value	67,425		72,336
Discount notes, par value	28,673		29,273
Total consolidated obligations, par value	$	96,098	$	101,609

September 30, 2017
December 31, 2016
Par value of consolidated obligations:
Bonds:
Fixed rate $ 16,899
$ 15,960
Adjustable rate 54,501
33,435
Step-up 580
515
Step-down 200
200
Fixed rate that converts to adjustable rate —
10
Range bonds 100
100
Total bonds, par value 72,280
50,220
Discount notes, par value 29,949
33,529
Total consolidated obligations, par value $ 102,229
$ 83,749

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

The Bank did not have any bonds with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative at September 30, ~~2017~~,2019, or December 31, ~~2016~~.2018. The Bank has generally elected to account for certain bonds with embedded features under the fair value option, and these bonds are carried at fair value on the Statements of Condition. For more information, see Note 15 – Derivatives and Hedging Activities and Note 16 – Fair Value.

~~Note 12 — Accumulated Other Comprehensive Income/(Loss)~~

~~The following table summarizes the changes in AOCI for the three months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~:

Net Non-Credit-Related OTTI Loss on AFS Securities
Net Non-Credit-Related OTTI Loss on HTM Securities
Pension and Postretirement Benefits

Total
AOCI

Balance, June 30, 2016 $ 39
$ (12 ) $ (13 ) 14
Other comprehensive income/(loss) before reclassifications:
Net change in pension and postretirement benefits (2 ) (2 )
Net change in fair value 68
68
Accretion of non-credit-related OTTI loss 2
2
Reclassification from other comprehensive income/(loss) to net income/(loss):

Non-credit-related OTTI to credit-related OTTI 2
—
2
Net current period other comprehensive income/(loss) 70
2
(2 ) 70
Balance, September 30, 2016 $ 109
$ (10 ) $ (15 ) $ 84

Balance, June 30, 2017 $ 250
$ (7 ) $ (16 ) $ 227
Other comprehensive income/(loss) before reclassifications:
Net change in fair value 75

75
Accretion of non-credit-related OTTI loss

—

—
Reclassification from other comprehensive income/(loss) to net income/(loss):
Non-credit-related OTTI to credit-related OTTI 6
—

6
Net current period other comprehensive income/(loss) 81
—
—
81
Balance, September 30, 2017 $ 331
$ (7 ) $ (16 ) $ 308

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Note 12 — Accumulated Other Comprehensive Income/(Loss)

The following table summarizes the changes in AOCI for the ~~nine~~three months ended September 30, ~~2017~~2019 and ~~2016~~2018:


	Net Non-Credit-Related OTTI Loss on AFS Securities			Net Non-Credit-Related OTTI Loss on HTM Securities			Pension and Postretirement Benefits			Total AOCI			Net Unrealized Gain/(Loss) on AFS Securities			Net Non-Credit-Related OTTI Loss on AFS Securities			Net Non-Credit-Related OTTI Loss on HTM Securities			Pension and Postretirement Benefits			Total AOCI
Balance, December 31, 2015	$	43		$	(14	)	$	(14	)	15
Balance, June 30, 2018													$	—		$	347		$	(5	)	$	(12	)	$	330
Other comprehensive income/(loss) before reclassifications:
Net change in pension and postretirement benefits							(1		)	(1		)
Non-credit-related OTTI loss	(12		)	—						(12		)
Net change in fair value	71									71			1			5									6
Accretion of non-credit-related OTTI loss				4						4									1						1
Reclassification from other comprehensive income/(loss) to net income/(loss):
Non-credit-related OTTI to credit-related OTTI	7			—						7
Net current period other comprehensive income/(loss)	66			4			(1		)	69			1			5			1			—			7
Balance, September 30, 2016	$	109		$	(10	)	$	(15	)	$	84
Balance, September 30, 2018													$	1		$	352		$	(4	)	$	(12	)	$	337

Balance, December 31, 2016	$	136		$	(9	)	$	(16	)	$	111
Balance, June 30, 2019													$	15		$	304		$	(2	)	$	(17	)	$	300
Other comprehensive income/(loss) before reclassifications:
Non-credit-related OTTI loss	(3		)	—						(3		)				(1		)	—						(1		)
Net change in fair value	188									188			(17		)	(15		)							(32		)
Accretion of non-credit-related OTTI loss				2						2
Reclassification from other comprehensive income/(loss) to net income/(loss):
Non-credit-related OTTI to credit-related OTTI	10			—						10
Net current period other comprehensive income/(loss)	195			2			—			197			(17		)	(16		)	—			—			(33		)
Balance, September 30, 2017	$	331		$	(7	)	$	(16	)	$	308
Balance, September 30, 2019													$	(2	)	$	288		$	(2	)	$	(17	)	$	267

The following table summarizes the changes in AOCI for the nine months ended September 30, 2019 and 2018:



	Net Unrealized Gain/(Loss) on AFS Securities			Net Non-Credit-Related OTTI Loss on AFS Securities			Net Non-Credit-Related OTTI Loss on HTM Securities			Pension and Postretirement Benefits			Total AOCI
Balance, December 31, 2017	$	—		$	337		$	(6	)	$	(13	)	$	318
Other comprehensive income/(loss) before reclassifications:
Net change in pension and postretirement benefits										1			1
Non-credit-related OTTI loss				(11		)	—						(11		)
Net change in fair value	1			25									26
Accretion of non-credit-related OTTI loss							2						2
Reclassification from other comprehensive income/(loss) to net income/(loss):
Non-credit-related OTTI to credit-related OTTI				1			—						1
Net current period other comprehensive income/(loss)	1			15			2			1			19
Balance, September 30, 2018	$	1		$	352		$	(4	)	$	(12	)	$	337

Balance, December 31, 2018	$	(32	)	$	287		$	(3	)	$	(17	)	$	235
Other comprehensive income/(loss) before reclassifications:
Non-credit-related OTTI loss				(3		)	—						(3		)
Net change in fair value	30			1									31
Accretion of non-credit-related OTTI loss							1						1
Reclassification from other comprehensive income/(loss) to net income/(loss):
Non-credit-related OTTI to credit-related OTTI				3			—						3
Net current period other comprehensive income/(loss)	30			1			1			—			32
Balance, September 30, 2019	$	(2	)	$	288		$	(2	)	$	(17	)	$	267

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Note 13 — Capital

Capital Requirements. Under the Housing and Economic Recovery Act of 2008, the Director of the Finance Agency is responsible for setting the risk-based capital standards for the FHLBanks. The FHLBank Act and regulations governing the operations of the FHLBanks require that the Bank’s minimum capital stock requirement for shareholders must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. The Bank must maintain: (i) total regulatory capital in an amount equal to at least 4% of its total assets, (ii) leverage capital in an amount equal to at least 5% of its total assets, and (iii) permanent capital in an amount that is greater than or equal to its risk-based capital requirement. Because the Bank issues only Class B stock, regulatory capital and permanent capital for the Bank are both composed of retained earnings and Class B stock, including mandatorily redeemable capital stock (which is classified as a liability for financial reporting purposes). Regulatory capital and permanent capital do not include AOCI. Leverage capital is defined as the sum of permanent capital, weighted by a 1.5 multiplier, plus non-permanent capital.

The risk-based capital requirement is equal to the sum of the Bank’s credit risk, market risk, and operations risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency. The Finance Agency may require an FHLBank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

As of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, the Bank was in compliance with these capital rules and requirements as shown in the following table.



	September 30, 2019						December 31, 2018
	Required			Actual			Required			Actual
Risk-based capital	$	1,550		$	6,441		$	1,899		$	6,522
Total regulatory capital	$	4,166		$	6,441		$	4,373		$	6,522
Total regulatory capital ratio	4.00		%	6.18		%	4.00		%	5.97		%
Leverage capital	$	5,208		$	9,660		$	5,466		$	9,783
Leverage ratio	5.00		%	9.28		%	5.00		%	8.95		%

September 30, 2017 December 31, 2016
Required
Actual
Required
Actual
Risk-based capital $ 2,049
$ 6,383
$ 2,241
$ 5,883
Total regulatory capital $ 4,380
$ 6,383
$ 3,678
$ 5,883
Total regulatory capital ratio 4.00 % 5.83 % 4.00 % 6.40 %
Leverage capital $ 5,475
$ 9,575
$ 4,597
$ 8,825
Leverage ratio 5.00 % 8.74 % 5.00 % 9.60 %

Mandatorily Redeemable Capital Stock. The Bank had mandatorily redeemable capital stock totaling ~~$342~~$138 outstanding to ~~seven~~3 institutions at September 30, ~~2017~~,2019, and ~~$457~~$227 outstanding to ~~six~~3 institutions at December 31, ~~2016~~.2018. The change in mandatorily redeemable capital stock for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~,2018, was as follows:


	Three Months Ended						Nine Months Ended						Three Months Ended						Nine Months Ended
	September 30, 2017			September 30, 2016			September 30, 2017			September 30, 2016			September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Balance at the beginning of the period	$	404		$	486		$	457		$	488		$	138		$	255		$	227		$	309
Reclassified from/(to) capital during the period	—			4			2			56			4			—			4			2
Redemption of mandatorily redeemable capital stock	(7		)	(1		)	(61		)	(1		)
Repurchase of excess mandatorily redeemable capital stock	(55		)	(5		)	(56		)	(59		)	(4		)	(28		)	(93		)	(84		)
Balance at the end of the period	$	342		$	484		$	342		$	484		$	138		$	227		$	138		$	227

Cash dividends on mandatorily redeemable capital stock were recorded as interest expense in the amount of $7$3 and ~~$11~~$5 for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively, and in the amount of ~~$25~~$11 and ~~$33~~$16 for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.

The Bank’s mandatorily redeemable capital stock is discussed more fully in “Item 8. Financial Statements and

Supplementary Data – Note 15 – Capital” in the Bank’s ~~2016~~2018 Form 10-K.

The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Contractual Redemption Period September 30, 2017
December 31, 2016
After 2 years through 3 years $ 325
$ —
After 3 years through 4 years —
379
Past contractual redemption date because of remaining activity⁽¹⁾
17
78
Total $ 342
$ 457



Contractual Redemption Period	September 30, 2019		December 31, 2018
Within 1 year	$	135	$	—
After 1 year through 2 years	—		224
Past contractual redemption date because of remaining activity⁽¹⁾	3		3
Total	$	138	$	227


(1)	Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because of outstanding activity.

Excess Stock Repurchase, Retained Earnings, and Dividend Framework. ~~The~~ By Finance Agency regulation, dividends may be paid only out of current net earnings or previously retained earnings. As required by the Finance Agency, the Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) summarizes the Bank’s capital management principles and objectives, as well as its policies and practices, with respect to retained earnings, dividend payments, and the repurchase of excess capital stock.The Bank may be restricted from paying dividends if the Bank is not in compliance with any of its minimum capital requirements or if payment would cause the Bank to fail to meet any of its minimum capital requirements. In addition, the Bank may not pay dividends if any principal or interest due on any consolidated obligations has not been paid in full or is not expected to be paid in full, or, under certain circumstances, if the Bank fails to satisfy certain liquidity requirements under applicable Finance Agency regulations.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

The Bank’s Board of Directors reviews the Framework at least annually and may amend the Framework from time to time. ~~In January 2017, the~~The Framework ~~was amended and approved by the Bank’s Board of Directors to include~~includes a dividend philosophy to endeavor to pay a quarterly dividend at an annualized rate between 5% and 7%~~, which was intended to be considered by the Bank’s Board of Directors beginning with the Bank’s second quarter 2017 dividend declaration.~~. The decision to declare any dividend and the dividend rate are at the discretion of the Bank’s Board of Directors, which may choose to follow the dividend philosophy as guidance in the dividend declaration.

The Bank’s Risk Management Policy limits the payment of dividends if the ratio of the Bank’s estimated market value of total capital to par value of capital stock falls below certain levels. If this ratio at the end of any quarter is less than 100% but greater than or equal to 70%, any dividend would be limited to an annualized rate no greater than the daily average of the ~~three-month LIBOR~~Federal funds effective rate for the applicable quarter (subject to certain conditions), and if this ratio is less than 70%, the Bank would be restricted from paying a dividend. The ratio of the Bank’s estimated market value of total capital to par value of capital stock was ~~219%~~224% as of September 30, ~~2017.~~

2019.

In addition, the Bank monitors the condition of its PLRMBS portfolio, the ratio of the Bank’s estimated market value of total capital to par value of capital stock, its overall financial performance and retained earnings, developments in the mortgage and credit markets, and other relevant information as the basis for determining the payment of dividends and the repurchase of excess capital stock ~~each quarter.~~in future quarters.

Retained Earnings – ~~The following tables summarize the activity related to retained earnings for the three and nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~:

Restricted Retained Earnings Related to:
Unrestricted Retained Earnings
Valuation Adjustments
Other
Joint Capital Enhancement Agreement
Total Restricted Retained Earnings
Total Retained Earnings
Balance, June 30, 2016 $ 761
$ —
$ 1,650
$ 417
$ 2,067
$ 2,828
Net income 233
—
—
—
58
58
291
Cash dividends on capital stock (52 ) —
(52 )
Balance, September 30, 2016 $ 942
$ —
$ 1,650
$ 475
$ 2,125
$ 3,067

Balance, June 30, 2017 $ 872
$ 21
$ 1,750
$ 546
$ 2,317
$ 3,189
Net income 65
—
—
16
16
81
Cash dividends on capital stock (44 ) —
(44 )
Transfers from restricted retained earnings 1,771
(21 ) (1,750 ) —
(1,771 ) —
Balance, September 30, 2017 $ 2,664
$ —
$ —
$ 562
$ 562
$ 3,226

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Restricted Retained Earnings Related to:
Unrestricted Retained Earnings
Valuation Adjustments
Other
Joint Capital Enhancement Agreement
Total Restricted Retained Earnings
Total Retained Earnings
Balance, December 31, 2015 $ 610
$ 10
$ 1,650
$ 358
$ 2,018
$ 2,628
Net income 478
(10 ) —
117
107
585
Cash dividends on capital stock (146 ) —
(146 )
Balance, September 30, 2016 $ 942
$ —
$ 1,650
$ 475
$ 2,125
$ 3,067

Balance, December 31, 2016 $ 888
$ 18
$ 1,650
$ 500
$ 2,168
$ 3,056
Net income 144
3
100
62
165
309
Cash dividends on capital stock (139 ) —
(139 )
Transfers from restricted retained earnings 1,771
(21 ) (1,750 ) —
(1,771 ) —
Balance, September 30, 2017 $ 2,664
$ —
$ —
$ 562
$ 562
$ 3,226

The Bank’s Framework assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings, which are not made available in the current dividend ~~period. Prior~~period, and maintains an amount of total retained earnings at least equal to ~~July 2017,~~its required retained earnings as described in the Framework. As determined using the Bank’s ~~Framework had three categories~~methodology, the required level of ~~restricted retained earnings: Valuation Adjustments, Other (which represented a targeted amount), and the Joint Capital Enhancement (JCE Agreement). Under the Framework, the Bank’s~~total retained earnings methodology determined the Bank’s required amount of restricted retained earnings. As determined by the Bank’s Framework, from July 2015 to January 2017, the Bank’s restricted retained earnings requirement was ~~$2,000, and~~$2,500 from January ~~2017 to~~2018 through July ~~2017, the Bank’s restricted retained earnings requirement was $2,300.~~

2019. In July ~~2017,~~2019, the ~~Bank’s Board of Directors approved the transfer of all amounts classified as restricted retained earnings, other than the amounts related~~methodology was further revised to the JCE Agreement, to unrestricted retained earnings. As a conforming change related to the transfer, the Bank’s Board of Directors amended the Framework to eliminate two of the categories of restricted retained earnings (Valuation Adjustments and Other) and approved revisions to the Bank’s retained earnings methodology to provide ~~for~~ a required level of ~~all~~ retained earnings of ~~$2,300 for loss protection, capital compliance, and business growth.~~$2,400. The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the ~~JCE~~Joint Capital Enhancement Agreement) and unrestricted retained earnings. The Bank’s retained earnings requirement may be changed at any time. The Board of Directors periodically reviews the retained earnings methodology and analysis to determine whether any adjustments are appropriate.

~~For more information on~~The Bank’s restricted retained earnings totaled $690 and ~~the~~$647 at September 30, 2019, and December 31, 2018, respectively. The Bank’s ~~Framework, see “Item 8.~~unrestricted retained earnings totaled $2,715 and $2,699 at September 30, 2019, and December 31, 2018, respectively.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements ~~and Supplementary Data – Note 15 – Capital” in the Bank’s 2016 Form 10-K.~~(continued)

Dividend Payments – Finance Agency rules state that FHLBanks may declare and pay dividends only from previously retained earnings or current net earnings, and may not declare or pay dividends based on projected or anticipated earnings. There is no requirement that the Board of Directors declare and pay any dividend. A decision by the Board of Directors to declare or not declare a dividend is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks.

In addition, Finance Agency rules do not permit the Bank to pay dividends in the form of capital stock if its excess

capital stock exceeds 1% of its total assets. Excess capital stock is defined as the aggregate of the capital stock held by each shareholder in excess of its minimum capital stock requirement, as established by the Bank’s capital plan. As of September 30, ~~2017,~~2019, the Bank’s excess capital stock totaled ~~$452,~~$178, or ~~0.41%~~0.17% of total assets.

In the third quarter of ~~2017,~~2019, the Bank paid dividends at an annualized rate of 7.00%, totaling ~~$51,~~$56, including ~~$44~~$53 in dividends on capital stock and $7$3 in dividends on mandatorily redeemable capital stock. In the third quarter of ~~2016,~~2018, the Bank paid dividends at an annualized rate of ~~9.17%~~7.00%, totaling ~~$63,~~$56, including ~~$52~~$51 in dividends on capital stock and $5 in dividends on mandatorily redeemable capital stock.

In the first nine months of 2019, the Bank paid dividends at an annualized rate of 7.00%, totaling $166, including $155 in dividends on capital stock and $11 in dividends on mandatorily redeemable capital stock.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

In the first nine months of ~~2017,~~2018, the Bank paid dividends at an annualized rate of ~~7.69%~~7.00%, totaling ~~$164,~~$178, including ~~$139~~$162 in dividends on capital stock and ~~$25~~$16 in dividends on mandatorily redeemable capital stock. In the first nine months of 2016, the Bank paid dividends at an annualized rate of 8.70%, totaling $179, including $146 in dividends on capital stock and $33 in dividends on mandatorily redeemable capital stock.

For the periods referenced above, the Bank paid dividends in cash. Dividends on capital stock are recognized as dividends on the Statements of Capital Accounts, and dividends on mandatorily redeemable capital stock are recognized as interest expense on the Statements of Income.

On October ~~26, 2017,~~24, 2019, the Bank’s Board of Directors declared a cash dividend on the capital stock outstanding during the third quarter of ~~2017~~2019 at an annualized rate of 7.00%, totaling ~~$55,~~$54, including ~~$48~~$51 in dividends on capital stock and $7$3 in dividends on mandatorily redeemable capital stock. The Bank recorded the dividend on October ~~26, 2017.~~24, 2019. The Bank expects to pay the dividend on November ~~13, 2017.~~12, 2019. Dividends on mandatorily redeemable capital stock will be recognized as interest expense in the fourth quarter of ~~2017.~~2019.

Excess Capital Stock – The Bank’s capital plan provides that the Bank may repurchase some or all of a shareholder’s excess capital stock, including any excess mandatorily redeemable capital stock, at the Bank’s discretion, subject to certain statutory and regulatory requirements. ~~The Bank must give the shareholder 15 days’ written notice; however, the shareholder may waive this notice period.~~ The Bank may also repurchase all of a member’s excess capital stock at a member’s request, at the Bank’s discretion, subject to certain statutory and regulatory requirements. A shareholder’s excess capital stock is defined as any capital stock holdings in excess of the shareholder’s minimum capital stock requirement, as established by the Bank’s capital plan. The Bank’s practice is to repurchase the surplus capital stock of all members and the excess capital stock of all former members on a daily schedule. Surplus capital stock is defined as any stock holdings in excess of 115% of a member’s minimum stock requirement. The Bank calculates the amount of stock to be repurchased each business day based on the shareholder’s capital stock outstanding after all stock transactions are completed for the day, ensuring that each member and former member would continue to meet its minimum capital stock requirement after the repurchase. The Bank may change this practice at any time. The Bank repurchased ~~$98~~$210 and ~~$275~~$294 in excess capital stock induring the third quarter of ~~2017~~2019 and ~~2016,~~2018, respectively, and ~~$331~~$977 and ~~$663~~$1,422 in excess capital stock induring the first nine months of ~~2017~~2019 and ~~2016,~~2018, respectively.

The Bank is required to redeem any mandatorily redeemable capital stock that is in excess of a former member’s minimum stock requirement on or after the expiration of the five-year redemption date. During the third quarter of ~~2017~~2019 and ~~2016,~~2018, the Bank redeemed ~~$7 and $1, respectively,~~a de minimis amount in mandatorily redeemable capital stock, for which the five-year redemption period had expired, at its $100 par value. The stock was redeemed on the scheduled redemption dates or, for stock that was not excess stock on its scheduled redemption date because of outstanding

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

activity with the Bank, on the first available repurchase date after the stock was no longer required to support outstanding activity with the Bank.

On October 26, 2017, the Bank announced that it plans to repurchase the surplus capital stock of all members and the excess capital stock of all nonmember shareholders on November 14, 2017. Surplus capital stock is defined as any stock holdings in excess of 115% of a member’s minimum stock requirement.

Excess capital stock totaled ~~$452~~$178 and $166 as of September 30, ~~2017, which included surplus capital stock of $261. Excess capital stock totaled $488 as of~~2019, and December 31, ~~2016, which included surplus capital stock of $325.~~

2018, respectively.

For more information on ~~excess capital stock,~~restricted retained earnings and the Bank’s Framework, see “Item 8. Financial Statements and Supplementary Data ��– Note 15

– Capital” in the Bank’s ~~2016~~2018 Form 10-K.

Concentration. ~~JPMorgan Chase Bank, National Association, a nonmember institution,~~ The following table presents the concentration in capital stock held ~~$339,~~by institutions whose capital stock ownership represented 10% or ~~11%,~~more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of September 30, ~~2017, and $400, or 14% as of December 31, 2016. No other institution held 10% or more of the Bank’s outstanding capital stock, as of September 30, 2017,~~2019, or December 31, ~~2016.~~

2018.



	September 30, 2019				December 31, 2018
Name of Institution	Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding		Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding
MUFG Union Bank, National Association	$	402	13	%	$	456	14	%
First Republic Bank	329		11		273		9
Subtotal	731		24		729		23
Others	2,305		76		2,447		77
Total	$	3,036	100	%	$	3,176	100	%

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Note 14 — Segment Information

The Bank uses an analysis of financial results based on the financial components and adjusted net interest income of two operating segments, the advances-related business and the mortgage-related business, as well as other financial information, to review and assess financial performance and determine financial management strategies related to the operations of these ~~two~~2 business segments. For purposes of segment reporting, adjusted net interest income includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivatives and hedging activities” in other income and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” Other key financial information, such as any credit-related OTTI losses on the Bank’s PLRMBS, other expenses, and assessments, is not included in the segment reporting analysis, but is incorporated into the Bank’s overall assessment of financial performance.

For more information on these operating segments, see “Item 8. Financial Statements and Supplementary Data –

Note 17 – Segment Information” in the Bank’s ~~2016~~2018 Form 10-K.

The following table presents the Bank’s adjusted net interest income by operating segment and reconciles total adjusted net interest income to income before the ~~AHP~~Affordable Housing Program (AHP) assessment for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~.2018.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Advances-
Related
Business

Mortgage-
Related
Business⁽¹⁾

Adjusted
Net
Interest
Income

Amortization
of Basis
Adjustments⁽²⁾

Income/(Expense)
on Economic
Hedges⁽³⁾

Interest
Expense on
Mandatorily
Redeemable
Capital
Stock⁽⁴⁾

Net
Interest
Income After Mortgage Loan Loss Provision

Other
Income/
(Loss)

Other
Expense

Income
Before AHP
Assessment

Three months ended:
September 30, 2017 $ 62
$ 82
$ 144
$ 1
$ (10 ) $ 7
$ 146
$ (4 ) $ 51
$ 91
September 30, 2016 42
84
126
(1 ) (7 ) 11
123
241
39
325
Nine months ended:
September 30, 2017 167
246
413
(1 ) (35 ) 25
424
92
170
346
September 30, 2016 115
254
369
(5 ) (22 ) 33
363
403
112
654



	Advances- Related Business		Mortgage- Related Business⁽¹⁾		Adjusted Net Interest Income		Amortization of Basis Adjustments and Gain/(Loss) on Fair Value Hedges⁽²⁾			Income/(Expense) on Economic Hedges⁽³⁾			Interest Expense on Mandatorily Redeemable Capital Stock⁽⁴⁾		Net Interest Income After Mortgage Loan Loss Provision		Other Income/ (Loss)		Other Expense		Income Before AHP Assessment
Three months ended:
September 30, 2019	$	72	$	60	$	132	$	20		$	(3	)	$	3	$	112	$	3	$	47	$	68
September 30, 2018	82		71		153		—			(5		)	5		153		7		46		114
Nine months ended:
September 30, 2019	$	237	$	186	$	423	$	54		$	(8	)	$	11	$	366	$	11	$	138	$	239
September 30, 2018	239		219		458		(1		)	(12		)	16		455		4		138		321

(1)

The mortgage-related business includes total accretion or amortization associated with other-than-temporarily impaired PLRMBS, which are recognized in interest income, totaled ~~$24~~$21 and ~~$24~~$20 for the three months ended September 30, ~~2017~~2019 and ~~2016;~~2018, respectively; and totaled ~~$70~~$58 and ~~$76~~$62 for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively. The mortgage-related business does not include credit-related OTTI losses of $6$2 and $3 for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, and ~~$15~~$8 and ~~$14~~$9 for the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.


(2)	Represents amortization of amounts deferred for adjusted net interest income purposes only and changes in ~~accordance with~~fair value of the ~~Bank’s~~ ~~Excess Stock Repurchase, Retained Earnings,~~derivative hedging instrument and ~~Dividend Framework~~the hedged item attributable to the hedged risk for designated fair value hedges recorded in net interest income.

(3)

The Bank includes income and expense associated with net settlements from economic hedges in adjusted net interest income in its analysis of financial performance for its ~~two~~2 operating segments. For financial reporting purposes, the Bank does not include these amounts in net interest income in the Statements of Income, but instead records them in other income in “Net gain/(loss) on derivatives and hedging activities.”


(4)	The Bank excludes interest expense on mandatorily redeemable capital stock from adjusted net interest income in its analysis of financial performance for its ~~two~~2 operating segments.

The following table presents total assets by operating segment at September 30, ~~2017~~,2019, and December 31, ~~2016.~~2018.



	Advances- Related Business		Mortgage- Related Business		Total Assets
September 30, 2019	$	82,143	$	22,010	$	104,153
December 31, 2018	88,272		21,054		109,326

Advances-
Related Business

Mortgage-
Related Business

Total
Assets

September 30, 2017 $ 90,265
$ 19,238
$ 109,503
December 31, 2016 74,018
17,923
91,941

Note 15 — Derivatives and Hedging Activities

General. The Bank may enter into interest rate swaps (including callable, putable, and basis swaps); and cap and floor agreements (collectively, interest rate exchange agreements or derivatives). Most of the Bank’s interest rate exchange agreements are executed in conjunction with the origination of advances or the issuance of consolidated ~~obligation bonds~~obligations to create variable rate structures. The interest rate exchange agreements are generally executed at

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

the same time the advances and ~~bonds~~consolidated obligations are transacted and generally have the same maturity dates as the related ~~advances and bonds.~~hedged instrument. The Bank transacts most of its derivatives with large banks and major broker-dealers. Some of these banks and broker-dealers or their affiliates buy, sell, and distribute consolidated obligations. ~~Over-the-counter derivatives~~Derivatives may be either uncleared or cleared. In an uncleared derivative transaction, the Bank’s counterparty is the executing bank or broker-dealer. In a cleared derivative transaction, the Bank may execute the transaction either directly with the executing bank or broker-dealer or on a swap execution facility, but in either case, the Bank’s counterparty is a derivatives clearing organization or clearinghouse once the derivative transaction has been accepted for clearing. The Bank is not a derivatives dealer and does not trade derivatives for short-term profit.

Additional uses of interest rate exchange agreements include: (i) offsetting embedded features in assets and liabilities, (ii) hedging anticipated issuance of debt, (iii) matching against consolidated obligation discount notes ~~or bonds~~ to create the equivalent of callable or non-callable fixed rate debt, (iv) modifying the repricing frequency of assets and liabilities, (v) matching against certain advances and consolidated obligations for which the Bank elected the fair value option, and (vi) exactly offsetting other derivatives cleared at a derivatives clearing organization. The Bank’s use of interest rate exchange agreements results in one of the following classifications: (i) a fair value hedge of an underlying financial instrument or (ii) an economic hedge of assets, or liabilities, or ~~(iii) an intermediary transaction for members.~~other derivatives.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

The Bank primarily uses the following ~~derivative~~interest rate exchange agreement instruments:

Interest Rate Swaps – An interest rate swap is an agreement between two entities to exchange cash flows in the future. The agreement sets the dates on which the cash flows will be paid and the manner in which the cash flows will be calculated. One of the simplest forms of an interest rate swap involves the promise by one party to pay cash flows equivalent to the interest on a notional principal amount at a predetermined fixed rate for a given period of time. In return for this promise, the party receives cash flows equivalent to the interest on the same notional principal amount at a variable rate for the same period of time. The variable rate received or paid by the Bank in most interest rate exchange agreements is either indexed to ~~LIBOR.~~LIBOR or to the overnight index swap rate.

Interest Rate Caps and Floors – In a cap agreement, additional cash flow is generated if the price or interest rate of an underlying variable rate rises above a certain threshold (or cap) price. In a floor agreement, additional cash flow is generated if the price or interest rate of an underlying variable rate falls below a certain threshold (or floor) price. Caps and floors may be used in conjunction with assets or liabilities. In general, caps and floors are designed as protection against the interest rate on a variable rate asset or liability rising above or falling below a certain level.

Hedging Activities. The Bank documents at inception all relationships between derivatives designated as hedging instruments and hedged items, its risk management objectives and strategies for undertaking various hedge transactions, and its method of assessing hedge effectiveness. Derivatives designated as fair value hedges may be transacted to hedge: (i) assets and liabilities on the Statement of Condition, (ii) firm commitments, or (iii) forecasted transactions. The Bank also formally assesses (both at hedge inception and on an ongoing basis) whether the hedging derivatives have been effective in offsetting changes in the fair value of hedged items attributable to the hedged risk and whether those derivatives may be expected to remain effective hedges in future periods. The Bank typically uses regression analyses or other statistical analyses to assess the effectiveness of its hedges. When it is determined that a derivative has not been or is not expected to be effective as a hedge, the Bank discontinues hedge accounting prospectively.

The Bank discontinues hedge accounting prospectively when: (i) it determines that the derivative is no longer effective in offsetting changes in the fair value of a hedged item (including hedged items such as firm commitments or forecasted transactions); (ii) the derivative and/or the hedged item expires or is sold, terminated, or exercised; (iii) it is no longer probable that the forecasted transaction will occur in the originally expected period; (iv) a hedged firm commitment no longer meets the definition of a firm commitment; (v) it determines that designating the derivative as a hedging instrument is no longer appropriate; or (vi) it decides to use the derivative to offset changes in the fair value of other derivatives or instruments carried at fair value.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

The Bank may have the following types of hedged items:

Investments–The Bank may invest in U.S. Treasury and agency obligations, agency MBS, and the taxable portion of highly rated state or local housing finance agency obligations. In the past, the Bank has also invested in PLRMBS rated AAA at the time of acquisition. The interest rate and prepayment risk associated with these investment securities is managed through a combination of debt issuance and derivatives. The Bank may manage prepayment risk and interest rate risk by funding investment securities with consolidated obligations that have call features or by hedging the prepayment risk with a combination of consolidated obligations and callable swaps. The Bank may execute callable swaps in conjunction with the issuance of certain liabilities to create funding that is economically equivalent to fixed rate callable debt. Although these derivatives are economic hedges against prepayment risk and are designated to individual liabilities, they do not receive either fair value or cash flow hedge accounting treatment. Investment securities may be classified as trading, AFS, or HTM.

The Bank may also manage the risk arising from changing market prices or cash flows of investment securities classified as trading or AFS by entering into interest rate exchange agreements ~~(economic hedges)~~ that offset the changes in fair value or cash flows of the securities. ~~The~~Hedge relationships that involve trading securities are designated as economic hedges, while hedge relationships that involve AFS securities are designated as fair value hedges. For trading securities that have been designated as an economic hedge, the market value changes of both the trading securities and the associated interest rate exchange agreements are included in other income in the Statements of Income. Beginning January 1, 2019, the Bank adopted new hedge accounting guidance, which, among other things, affects the presentation of gains and losses on derivatives and hedging activities for qualifying hedges, including fair value hedges of AFS securities. For AFS securities that have been hedged and qualify as a fair value hedge, the Bank records the portion of the change in the fair value of the investment related to the risk being hedged in interest income together with the related change in the fair value of the derivative, and records the remainder of the change in the fair value of the investment in AOCI as “Net unrealized gain/(loss) on AFS securities.”

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Prior to January 1, 2019, for AFS securities that were hedged and qualified as a fair value hedge, the Bank recorded the portion of the change in the fair value of the investment related to the risk being hedged in non-interest income as “Net gain/(loss) on derivatives and hedging activities” together with the related change in the fair value of the derivative, and recorded the remainder of the change in the fair value of the investment in AOCI as “Net unrealized gain/(loss) on AFS securities.”

Advances– The Bank offers a wide range of advances structures to meet members’ funding needs. These advances may have maturities up to 30 years with fixed or adjustable rates and may include early termination features or options. The Bank may use derivatives to adjust the repricing and options characteristics of advances to more closely match the characteristics of the Bank’s funding liabilities. In general, whenever a member executes a fixed rate advance, fixed rate advance with embedded options, or a variable rate advance with embedded options, the Bank will simultaneously execute an interest rate exchange agreement with terms that offset the terms and any embedded options in the advance. The combination of the advance and the interest rate exchange agreement effectively creates a variable rate asset.

~~In addition, for certain~~ Fixed rate advances ~~for which the Bank has elected the fair value option, the Bank will simultaneously execute~~without options that are offset with an interest rate exchange agreement are generally treated as fair value hedges. Advances with ~~terms that~~embedded options are recorded using the fair value option and are economically ~~offset the terms of the advance.~~hedged using interest rate exchange agreements.

Mortgage Loans–The Bank’s investment portfolio includes fixed rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractions in the expected repayment of these investments, depending on changes in estimated prepayment speeds. The Bank manages the interest rate risk and prepayment risk associated with fixed rate mortgage loans through a combination of debt issuance and derivatives. The Bank uses both callable and non-callable debt to achieve cash flow patterns and market value sensitivities for liabilities similar to those expected on the mortgage loans. Net income could be reduced if the Bank replaces prepaid mortgage loans with lower-yielding assets and the Bank’s higher funding costs are not reduced accordingly.

The Bank executes callable swaps in conjunction with the issuance of certain consolidated obligations to create funding that is economically equivalent to fixed rate callable bonds. Although these derivatives are economic hedges against the prepayment risk of specific loan pools and are referenced to individual liabilities, they do not receive either fair value or cash flow hedge accounting treatment.

Consolidated Obligations – Consolidated obligation bonds may be structured to meet the Bank’s or the investors’ needs. Common structures include fixed rate bonds with or without call options and adjustable rate bonds with or without embedded options. In general, when bonds are issued, the Bank simultaneously executes an interest rate exchange agreement with terms that offset the terms and embedded options, if any, of the consolidated obligation bond. This combination of the consolidated obligation bond and the interest rate exchange agreement effectively creates an adjustable rate bond. ~~The cost of this funding combination is generally lower than the cost that would be available through the issuance of an adjustable rate bond alone.~~ These transactions generally receive fair value hedge accounting treatment.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

When the Bank issues consolidated obligation discount notes, it may also simultaneously enter into an interest rate exchange agreement to convert the fixed rate discount note to an adjustable rate discount note. This type of hedge is treated as an economic hedge.

In addition, when certain consolidated obligation bonds for which the Bank has elected the fair value option are issued, the Bank simultaneously executes an interest rate exchange agreement with terms that economically offset the terms of the consolidated obligation bond. However, this type of hedge is treated as an economic hedge because these combinations do not meet the requirements for fair value hedge accounting treatment.

~~Intermediation and~~ Offsetting Derivatives– As an additional service to its members, the Bank has in the past entered into offsetting interest rate exchange agreements, acting as an intermediary between offsetting derivative transactions with members and other counterparties. This intermediation allows members indirect access to the derivatives market. The Bank ~~also~~ enters into derivatives to offset the economic effect of other derivatives that are no longer designated to advances, investments, or consolidated obligations. ~~Neither type of offsetting~~Offsetting derivatives ~~receives~~do not receive hedge accounting treatment and ~~both~~ are separately marked to market through earnings. The net result of the accounting for these derivatives does not significantly affect the operating results of the Bank.

~~The notional principal~~

Table of ~~the interest rate exchange agreements associated with derivatives with members or offsetting derivatives with other counterparties was $64 and $89, at~~ ~~September 30, 2017, and~~ ~~December 31, 2016, respectively.~~Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

The notional amount of an interest rate exchange agreement serves as a factor in determining periodic interest payments or cash flows received and paid. However, the notional amount of derivatives represents neither the actual amounts exchanged nor the overall exposure of the Bank to credit risk and market risk. The risks of derivatives can be measured meaningfully on a portfolio basis by taking into account the counterparties, the types of derivatives, the items being hedged, and any offsets between the derivatives and the items being hedged.

For more information related to the Bank’s accounting policies for derivatives, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2018 Form 10-K.

The following table summarizes the notional amount and fair value of derivative instruments, including the effect of netting adjustments and cash collateral as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018. For purposes of this disclosure, the derivative values include the fair value of derivatives and related accrued interest.


	September 30, 2017								December 31, 2016								September 30, 2019								December 31, 2018
	Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets			Derivative Liabilities			Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	22,382	$	61		$	20		$	20,741	$	67		$	32		$	44,027	$	11		$	528		$	40,504	$	20	$	93
Total	22,382		61			20			20,741		67			32			44,027		11			528			40,504		20		93
Derivatives not designated as hedging instruments:
Interest rate swaps	34,771		51			44			42,135		67			49			50,955		14			21			59,398		65		54
Interest rate caps and floors	1,563		2			1			2,180		6			—			1,010		—			1			1,563		1		—
Mortgage delivery commitments	10		—			—			13		—			—			95		—			—			12		—		—
Total	36,344		53			45			44,328		73			49			52,060		14			22			60,973		66		54
Total derivatives before netting and collateral adjustments	$	58,726	114			65			$	65,069	140			81			$	96,087	25			550			$	101,477	86		147
Netting adjustments and cash collateral⁽¹⁾			(22		)	(62		)			(74		)	(79		)			(2		)	(549		)			99		(137		)
Total derivative assets and total derivative liabilities			$	92		$	3				$	66		$	2				$	23		$	1				$	185	$	10

(1)

Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents and/or counterparty. Cash collateral posted and related accrued interest was $555 and $257 at September 30, 2019, and December 31, 2018, respectively. Cash collateral received and related accrued interest was $7 and $22 at September 30, 2019, and December 31, 2018, respectively.

Beginning on January 1, 2019, changes in fair value of the derivative hedging instrument 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. Prior to January 1, 2019, for fair value hedges, any hedge ineffectiveness (which represented the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedged item) was recorded in other income as “Net gain/(loss) on derivatives and hedging activities.”

The following tables present, by type of hedged item, the gains and losses on fair value hedging relationships and the impact of those derivatives on the Bank’s Statements of Income for the three and nine months ended September 30, 2019 and 2018. Beginning on January 1, 2019, the gains and losses on derivatives include unrealized changes in fair value as well as net interest settlements.

4037

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



	Three Months Ended September 30, 2019⁽¹⁾
	Interest Income/(Expense)
	Advances			AFS Securities			Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	389		$	100		$	(409	)
Gain/(loss) on fair value hedging relationships
Derivatives⁽²⁾	$	(36	)	$	(224	)	$	2
Hedged items	37			209			(4		)
Net gain/(loss) on fair value hedging relationships	$	1		$	(15	)	$	(2	)



	Three Months Ended September 30, 2018⁽¹⁾
	Interest Income/(Expense)							Other Income/(Loss)
	Advances		AFS Securities		Consolidated Obligation Bonds			Net Gain/(Loss) on Derivatives and Hedging Activities
Total income/(expense) presented in the Statements of Income	$	389	$	59	$	(364	)	$	18
Gain/(loss) on fair value hedging relationships
Derivatives⁽²⁾	$	16	$	1	$	(6	)	$	22
Hedged items								(23		)
Net gain/(loss) on fair value hedging relationships	$	16	$	1	$	(6	)	$	(1	)



	Nine Months Ended September 30, 2019⁽¹⁾
	Interest Income/(Expense)
	Advances			AFS Securities			Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	1,343		$	261		$	(1,306	)
Gain/(loss) on fair value hedging relationships
Derivatives⁽²⁾	$	(292	)	$	(594	)	$	43
Hedged items	325			552			(61		)
Net gain/(loss) on fair value hedging relationships	$	33		$	(42	)	$	(18	)



	Nine Months Ended September 30, 2018⁽¹⁾
	Interest Income/(Expense)							Other Income/(Loss)
	Advances		AFS Securities		Consolidated Obligation Bonds			Net Gain/(Loss) on Derivatives and Hedging Activities
Total income/(expense) presented in the Statements of Income	$	1,138	$	172	$	(1,010	)	$	66
Gain/(loss) on fair value hedging relationships
Derivatives⁽²⁾	$	36	$	1	$	(13	)	$	52
Hedged items								(49		)
Net gain/(loss) on fair value hedging relationships	$	36	$	1	$	(13	)	$	3

(1)

~~Amounts~~Upon adoption of new hedge accounting guidance applied prospectively on January 1, 2019, interest amounts reported for 2019 for advances, investment securities, and consolidated obligation bonds include the ~~netting of derivative assets~~realized and ~~liabilities by counterparty, including cash collateral~~unrealized gain/(loss) on hedged items and ~~related accrued~~derivatives in qualifying hedge relationships. Other income amounts reported for 2018 include the realized and unrealized gain/(loss) on hedged items and derivatives in qualifying hedge relationships.


(2)	Includes net interest ~~where the netting requirements have been met. Cash collateral posted and related accrued interest was~~ ~~$47~~ ~~and~~ ~~$22~~ at ~~September 30, 2017, and December 31, 2016, respectively.~~ ~~Cash collateral received and related accrued interest was~~ $7 ~~and~~ ~~$16~~ at ~~September 30, 2017, and December 31, 2016, respectively.~~settlements.

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 as of September 30, 2019.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



	September 30, 2019
Hedged Item Type	Amortized Cost of Hedged Asset/(Liability)⁽¹⁾			Basis Adjustments for Active Hedging Relationships Included in Amortized Cost
Advances	$	27,428		$	293
AFS securities	12,563			642
Consolidated obligation bonds	(5,207		)	(13		)


(1)	Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.

The following table presents the components of net gain/(loss) on derivatives and hedging activities as presented in the Statements of Income for the three and nine months ended September 30, ~~2017~~2019 and ~~2016~~.

Three Months Ended Nine Months Ended
September 30, 2017
September 30, 2016
September 30, 2017
September 30, 2016
Gain/(Loss)
Gain/(Loss)
Gain/(Loss)
Gain/(Loss)
Derivatives designated as hedging instruments:
Interest rate swaps $ 1
$ —
$ (1 ) $ (4 )
Total net gain/(loss) related to fair value hedge ineffectiveness 1
—
(1 ) (4 )
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps 5
21
(3 ) (43 )
Interest rate caps and floors —
—
(5 ) (6 )
Net settlements (10 ) (7 ) (35 ) (22 )
Mortgage delivery commitments 6
1
18
2
Total net gain/(loss) related to derivatives not designated as hedging instruments 1
15
(25 ) (69 )
Net gain/(loss) on derivatives and hedging activities $ 2
$ 15
$ (26 ) $ (73 )

~~The following tables present, by type of hedged item, the gains and losses on derivatives and the related hedged items in~~2018. For fair value hedging relationships, ~~and~~ the ~~impact~~portion of ~~those derivatives on the Bank’s~~ net ~~interest~~gain/(loss) representing hedge ineffectiveness is recorded in other income for ~~the three and nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~.

periods prior to January 1, 2019.

Three Months Ended
September 30, 2017 September 30, 2016
Hedged Item Type Gain/(Loss)
on Derivatives
Gain /(Loss) on Hedged Item
Net Fair
Value Hedge
Ineffectiveness

Effect of
Derivatives on
Net Interest Income⁽¹⁾

Gain/(Loss)
on Derivatives
Gain /(Loss) on Hedged Item
Net Fair
Value Hedge
Ineffectiveness

Effect of
Derivatives on
Net Interest Income⁽¹⁾

Advances $ 13
$ (11 ) $ 2
$ (5 ) $ 44
$ (43 ) $ 1
$ (13 )
Consolidated obligation bonds (9 ) 8
(1 ) 6
(70 ) 69
(1 ) 46
Total $ 4
$ (3 ) $ 1
$ 1
$ (26 ) $ 26
$ —
$ 33

Nine Months Ended
September 30, 2017 September 30, 2016
Hedged Item Type
Gain/(Loss)
on Derivatives

Gain /(Loss) on Hedged Item

Net Fair
Value Hedge
Ineffectiveness

Effect of
Derivatives on
Net Interest Income⁽¹⁾

Gain/(Loss)
on Derivatives
Gain /(Loss) on Hedged Item
Net Fair
Value Hedge
Ineffectiveness

Effect of
Derivatives on
Net Interest Income⁽¹⁾

Advances $ 17
$ (17 ) $ —
$ (22 ) $ (23 ) $ 23
$ —
$ (46 )
Consolidated obligation bonds (19 ) 18
(1 ) 21
(87 ) 83
(4 ) 149
Total $ (2 ) $ 1
$ (1 ) $ (1 ) $ (110 )
$ 106

$ (4 )
$ 103



	Three Months Ended						Nine Months Ended
	September 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
	Gain/(Loss)			Gain/(Loss)			Gain/(Loss)			Gain/(Loss)
Derivatives designated as hedging instruments:
Interest rate swaps				$	(1	)				$	3
Derivatives not designated as hedging instruments:
Economic hedges:
Interest rate swaps	$	(17	)	23			$	(102	)	65
Interest rate caps and floors	(1		)	—			(2		)	1
Net settlements	(3		)	(5		)	(8		)	(12		)
Mortgage delivery commitments	1			2			3			11
Total net gain/(loss) related to derivatives not designated as hedging instruments	(20		)	20			(109		)	65
Price alignment amount⁽¹⁾	—			(1		)	—			(2		)
Net gain/(loss) on derivatives and hedging activities	$	(20	)	$	18		$	(109	)	$	66


(1)	~~The net interest~~This amount is for derivatives for which variation margin on cleared derivatives ~~in fair value hedge relationships~~ is ~~presented in the interest income/expense line item of the respective hedged item.~~characterized as a daily settled contract.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Credit Risk – The Bank is subject to credit risk ~~as a result of~~from potential nonperformance by counterparties to the interest rate exchange agreements. All of the Bank’s agreements governing uncleared derivative transactions contain master netting provisions to help mitigate the credit risk exposure to each counterparty. The Bank manages counterparty credit risk through credit analyses and collateral requirements and by following the requirements of the Bank’s risk management policies, credit guidelines, and Finance Agency and other regulations. The Bank also requires credit support agreements on all uncleared derivatives.

For cleared derivatives, the clearinghouse is the Bank’s counterparty. The requirement that the Bank post initial and variation margin through a clearing agent, to the clearinghouse, exposes the Bank to institutional credit risk in the event that the clearing agent or the clearinghouse fails to meet its obligations. The use of cleared derivatives, however, mitigates the Bank’s overall credit risk exposure because a central counterparty is substituted for individual ~~counterparties~~counterparties. Variation margin and ~~variation~~initial margin isare posted ~~daily~~ for changes in the value and risk profile of cleared ~~derivatives through a clearing agent.~~derivatives. The Bank has analyzed the enforceability of offsetting rights applicable to its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable bankruptcy law and Commodity Futures Trading Commission rules in the event of a clearinghouse or clearing agent insolvency and under applicable clearinghouse rules upon a non-insolvency-based event of default of the clearinghouse or clearing agent. Based on this analysis, the Bank presents a

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular clearinghouse.

Based on the Bank’s credit analyses and the collateral requirements, the Bank does not expect to incur any credit losses on its derivative transactions.

The Bank’s agreements for uncleared derivative transactions contain provisions that link the Bank’s credit rating from Moody’s Investors Service and S&P Global Ratings to various rights and obligations. Certain of these derivative agreements provide that, if the Bank’s long-term debt rating falls below a specified rating (ranging from A3/A- to Baa3/BBB-), the Bank’s counterparty would have the right, but not the obligation, to terminate all of its outstanding derivative transactions with the Bank; the Bank’s agreements with its clearing agents for cleared derivative transactions have similar provisions with respect to the debt rating of FHLBank System consolidated bonds. If this occurs, the Bank may choose to enter into replacement hedges, either by transferring the existing transactions to another counterparty or entering into new replacement transactions, based on prevailing market rates. The aggregate fair value of all uncleared derivative instruments with credit risk-related contingent features that were in a net derivative liability position (before cash collateral and related accrued interest) at September 30, ~~2017~~,2019, was ~~$5,~~$537, for which the Bank had posted cash collateral of $6$542 in the ordinary course of business.

The Bank may present derivative instruments, related cash collateral received or pledged, and associated accrued interest by clearing agent or by counterparty when the netting requirements have been met.

The following table presents separately the fair value of derivative assets and derivative liabilities that have met the netting requirements, including the related collateral received from or pledged to counterparties as of September 30, ~~2017,~~2019, and December 31, ~~2016~~.

2018.



	September 30, 2019
	Derivative Instruments Meeting Netting Requirements
	Amount Recognized		Gross Amount of Netting Adjustments and Cash Collateral			Total Derivative Assets and Total Derivative Liabilities		Noncash Collateral Not Offset That Can Be Sold or Repledged			Net Amount
Derivative Assets
Uncleared	$	18	$	(12	)	$	6	$	—		$	6
Cleared	7		10			17		(321		)	338
Total						$	23				$	344
Derivative Liabilities
Uncleared	$	549	$	(548	)	$	1	$	—		$	1
Cleared	1		(1		)	—		—			—
Total						$	1				$	1

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



	December 31, 2018
	Derivative Instruments Meeting Netting Requirements
	Amount Recognized		Gross Amount of Netting Adjustments and Cash Collateral			Total Derivative Assets and Total Derivative Liabilities
Derivative Assets
Uncleared	$	83	$	(82	)	$	1
Cleared	3		181			184
Total						$	185
Derivative Liabilities
Uncleared	$	129	$	(119	)	$	10
Cleared	18		(18		)	—
Total						$	10

September 30, 2017 December 31, 2016

Derivative
Assets

Derivative
Liabilities

Derivative
Assets

Derivative
Liabilities

Derivative instruments meeting netting requirements
Gross recognized amount
Uncleared derivatives $ 24
$ 22
$ 41
$ 37
Cleared derivatives 90
43
99
44
Total gross recognized amount 114
65
140
81
Gross amounts of netting adjustments and cash collateral
Uncleared derivatives (20 ) (19 ) (37 ) (35 )
Cleared derivatives (2 ) (43 ) (37 ) (44 )
Total gross amount of netting adjustments and cash collateral (22 ) (62 ) (74 ) (79 )
Total derivative assets and total derivative liabilities
Uncleared derivatives 4
3
4
2
Cleared derivatives 88
—
62
—
Total derivative assets and derivative liabilities presented in the Statements of Condition 92
3
66
2
Non-cash collateral received or pledged not offset
Can be sold or repledged - Uncleared derivatives —
—
—
—
Net unsecured amount
Uncleared derivatives 4
3
4
2
Cleared derivatives 88
—
62
—
Total net unsecured amount $ 92
$ 3
$ 66
$ 2

Note 16 — Fair Value

The following fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank at September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases fair values cannot be precisely quantified or verified and may change as economic and market factors and evaluation of those factors change. The Bank continues to refine its valuation methodologies as markets and products develop and the pricing for certain products becomes more or less transparent. While the Bank believes that its valuation methodologies are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a materially different estimate of fair value as of the reporting date. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Therefore, the fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment as to how a market participant would estimate the fair values. The fair value summary table does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of total assets and liabilities.

The following tables present the carrying value, the estimated fair value, and the fair value hierarchy level of the Bank’s financial instruments at September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018. The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, certain advances, certain consolidated obligations, and certain other assets at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. The Bank records all other financial assets and liabilities at amortized cost. Refer to the following tables for further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis.

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Notes to Financial Statements (continued)


	September 30, 2017													September 30, 2019
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Netting Adjustments⁽¹⁾			Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral⁽¹⁾
Assets
Cash and due from banks	$	7	$	7	$	7	$	—	$	—	$	—		$	81	$	81	$	81	$	—	$	—	$	—
Interest-bearing deposits	699		699		699		—		—		—			2,035		2,035		2,035		—		—		—
Securities purchased under agreements to resell	13,975		13,975		—		13,975		—		—			7,700		7,700		—		7,700		—		—
Federal funds sold	11,826		11,826		—		11,826		—		—			3,871		3,871		—		3,871		—		—
Trading securities	1,165		1,165		—		1,165		—		—			4		4		—		4		—		—
AFS securities	4,015		4,015		—		—		4,015		—			15,316		15,316		—		12,561		2,755		—
HTM securities	14,095		14,155		—		13,078		1,077		—			8,564		8,586		—		8,101		485		—
Advances	61,629		61,712		—		61,712		—		—			62,826		62,880		—		62,880		—		—
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans	1,774		1,786		—		1,786		—		—			3,382		3,385		—		3,385		—		—
Accrued interest receivable	106		106		—		106		—		—			133		133		—		133		—		—
Derivative assets, net⁽¹⁾	92		92		—		114		—		(22		)	23		23		—		25		—		(2		)
Other assets⁽²⁾	9		9		9		—		—		—			18		18		18		—		—		—
Liabilities
Deposits	140		140		—		140		—		—			652		652		—		652		—		—
Consolidated obligations:
Bonds	72,266		72,214		—		72,214		—		—			67,431		67,389		—		67,389		—		—
Discount notes	29,902		29,903		—		29,903		—		—			28,605		28,608		—		28,608		—		—
Total consolidated obligations	102,168		102,117		—		102,117		—		—			96,036		95,997		—		95,997		—		—
Mandatorily redeemable capital stock	342		342		342		—		—		—			138		138		138		—		—		—
Accrued interest payable	106		106		—		106		—		—			178		178		—		178		—		—
Derivative liabilities, net⁽¹⁾	3		3		—		65		—		(62		)	1		1		—		550		—		(549		)
Other
Standby letters of credit	22		22		—		22		—		—			31		31		—		31		—		—
Commitments to issue consolidated obligation bonds⁽³⁾	—		1		—		1		—		—

4442

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



	December 31, 2018
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral⁽¹⁾
Assets
Cash and due from banks	$	13	$	13	$	13	$	—	$	—	$	—
Interest-bearing deposits	2,555		2,555		2,555		—		—		—
Securities purchased under agreements to resell	7,300		7,299		—		7,299		—		—
Federal funds sold	3,845		3,846		—		3,846		—		—
Trading securities	661		661		—		661		—		—
AFS securities	6,931		6,931		—		3,774		3,157		—
HTM securities	11,089		11,047		—		10,362		685		—
Advances	73,434		73,462		—		73,462		—		—
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans	3,066		2,975		—		2,975		—		—
Accrued interest receivable	133		133		—		133		—		—
Derivative assets, net⁽¹⁾	185		185		—		86		—		99
Other assets⁽²⁾	16		16		16		—		—		—
Liabilities
Deposits	262		262		—		262		—		—
Consolidated obligations:
Bonds	72,276		72,079		—		72,079		—		—
Discount notes	29,182		29,178		—		29,178		—		—
Total consolidated obligations	101,458		101,257		—		101,257		—		—
Mandatorily redeemable capital stock	227		227		227		—		—		—
Borrowings from other FHLBanks	250		250		—		250		—		—
Accrued interest payable	155		155		—		155		—		—
Derivative liabilities, net⁽¹⁾	10		10		—		147		—		(137		)
Other
Standby letters of credit	27		27		—		27		—		—

December 31, 2016

Carrying
Value

Estimated Fair Value
Level 1
Level 2
Level 3

Netting Adjustments⁽¹⁾

Assets
Cash and due from banks $ 2
$ 2
$ 2
$ —
$ —
$ —
Interest-bearing deposits 590
590
590
—
—
—
Securities purchased under agreements to resell 15,500
15,500
—
15,500
—
—
Federal funds sold 4,214
4,214
—
4,214
—
—
Trading securities 2,066
2,066
—
2,066
—
—
AFS securities 4,489
4,489
—
—
4,489
—
HTM securities 14,127
14,141
—
12,788
1,353
—
Advances 49,845
49,921
—
49,921
—
—
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans 826
845
—
845
—
—
Accrued interest receivable 79
79
—
79
—
—
Derivative assets, net⁽¹⁾
66
66
—
140
—
(74 )
Other assets⁽²⁾
11
11
11
—
—
—
Liabilities
Deposits 169
169
—
169
—
—
Consolidated obligations:
Bonds 50,224
50,188
—
50,188
—
—
Discount notes 33,506
33,505
—
33,505
—
—
Total consolidated obligations 83,730
83,693
—
83,693
—
—
Mandatorily redeemable capital stock 457
457
457
—
—
—
Borrowings from other FHLBanks 1,345
1,345
—
1,345
—
—
Accrued interest payable 67
67
—
67
—
—
Derivative liabilities, net⁽¹⁾
2
2
—
81
—
(79 )
Other
Standby letters of credit 24
24
—
24
—
—


(1)	Amounts ~~include~~represent the application of the netting ~~of derivative assets~~requirements that allow the Bank to settle positive and ~~liabilities by counterparty, including~~negative positions, and also cash collateral and related accrued interest ~~where~~held or placed with the ~~netting requirements have been met~~. same clearing agents and/or counterparty.


(2)	Represents publicly traded mutual funds held in a grantor trust.


~~(3)~~	~~Estimated fair values of these commitments are presented as a net gain or (loss). For more information regarding these commitments, see Note 17 – Commitments and Contingencies.~~

Fair Value Hierarchy. The fair value hierarchy is used to prioritize the fair value methodologies and valuation techniques as well as the inputs to the valuation techniques used to measure fair value for assets and liabilities carried at fair value on the Statements of Condition. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). An entity must disclose the level within the fair value hierarchy in which the measurements are classified for all financial assets and liabilities measured on a recurring or non-recurring basis.

The application of the fair value hierarchy to the Bank’s financial assets and financial liabilities that are carried at fair value either on a recurring or non-recurring basis is as follows:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date. An active market for the asset or liability is a market in which

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following:

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

(1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3 – Unobservable inputs for the asset or liability.

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following assets and liabilities, including those for which the Bank has elected the fair value option, are carried at fair value on the Statements of Condition as of September 30, ~~2017~~:2019:

Trading securities

AFS securities

Certain advances

Derivative assets and liabilities

Certain consolidated obligation bonds

Certain other assets

For instruments carried at fair value, the Bank reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. Such reclassifications are reported as transfers in or out as of the beginning of the quarter in which the changes occur. For the periods presented, the Bank did not have any reclassifications for transfers in or out of the fair value hierarchy levels.

Summary of Valuation Methodologies and Primary Inputs.

~~Cash~~The valuation methodologies and ~~Due from Banks~~–~~The estimated~~primary inputs used to develop the measurement of fair value ~~equals the carrying value.~~

~~Federal Funds Sold~~for assets and ~~Securities Purchased Under Agreements to Resell~~ ~~– The estimated~~liabilities that are measured at fair value on a recurring or nonrecurring basis in the Statements of overnight Federal funds sold and securities purchased under agreements to resell approximates the carrying value. The estimated fair value of term Federal funds sold and term securities purchased under agreements to resell has been determined by calculating the present value of expected cash flows for the instruments and reducing the amount for accrued interest receivable. The discount rates used in these calculationsCondition are ~~the replacement rates for comparable instruments with similar terms.~~listed below.

~~Interest-Bearing Deposits~~ –The fair value of deposits is generally equal to the carrying value of the deposits because the deposits are primarily overnight deposits or due on demand. The Bank determines the fair values of term deposits by calculating the present value of expected future cash flows from the deposits and reducing the amount for accrued interest receivable. The discount rates used in these calculations are the cost of deposits with similar terms.

Investment Securities – MBS – To value its MBS, the Bank obtains prices from multiple designated third-party pricing vendors when available. The pricing vendors use various proprietary models to price these securities. The inputs to those models are derived from various sources including, but not limited to: benchmark yields, reported trades, dealer estimates, issuer spreads, prices on benchmark securities, bids, offers, and other market-related data. Since many securities do not trade on a daily basis, the pricing vendors use available information as applicable, such as benchmark yield curves, benchmarking of like securities, sector groupings, and matrix pricing, to determine the prices for individual securities. Each pricing vendor has an established challenge process in place for all security valuations, which facilitates resolution of price discrepancies identified by the Bank.

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

At least annually, the Bank conducts reviews of the multiple pricing vendors to update and confirm its understanding of the vendors’ pricing processes, methodologies, and control procedures.

The Bank’s valuation technique for estimating the fair values of its MBS first requires the establishment of a median vendor price for each security. If three prices are received, the middle price is the median price; if two prices are received, the average of the two prices is the median price; and if one price is received, it is the median price (and also the default fair value) subject to additional validation. All vendor prices that are within a specified

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

tolerance threshold of the median price are included in the cluster of vendor prices that are averaged to establish a default fair value. All vendor prices that are outside the threshold (outliers) are subject to further analysis including, but not limited to, comparison to prices provided by an additional third-party valuation service, prices for similar securities and/or dealer estimates, or use of internal model prices, which are deemed to be reflective of all relevant facts and circumstances that a market participant would consider. Such analysis is also applied in those limited instances where no third-party vendor price or only one third-party vendor price is available in order to arrive at an estimated fair value. If an outlier (or some other price identified in the analysis) is determined to be a better estimate of fair value, then the outlier (or the other price, as appropriate) is used as the fair value rather than the default fair value. If, instead, the analysis confirms that an outlier is (or outliers are) not representative of fair value and the default fair value is the best estimate, then the default fair value is used as the fair value.

If all vendor prices received for a security are outside the tolerance threshold level of the median price, then there is no default fair value, and the fair value is determined by an evaluation of all outlier prices (or the other prices, as appropriate) as described above.

As of September 30, ~~2017~~,2019, multiple vendor prices were received for most of the Bank’s MBS, and the fair value estimates for most of those securities were determined in accordance with the Bank’s valuation technique based on these vendor prices. Based on the Bank’s reviews of the pricing methods employed by the third-party pricing vendors and the relative lack of dispersion among the vendor prices (or, in those instances in which there were outliers, the Bank’s additional analyses), the Bank believes that its fair value estimates are reasonable and that the fair value measurements are classified appropriately in the fair value hierarchy. Based on limited market liquidity for PLRMBS, the fair value measurements for these securities were classified as Level 3 within the fair value hierarchy.

Investment Securities – ~~FFCB Bonds and CalHFA Bonds~~ Non-MBS –~~The Bank estimates~~To determine the estimated fair values of ~~these securities~~non-MBS investments, the Bank uses a market approach using prices from third-party pricing vendors, generally consistent with the ~~methodology described above~~methodologies for ~~Investment Securities – MBS~~.MBS. The Bank believes that its methodologies result in fair values that are reasonable and similar in all material respects based on the nature of the financial instruments being measured.

Advances Recorded Under the Fair Value Option –Because quoted prices are not available for advances, the fair values are measured using model-based valuation techniques (such as calculating the present value of future cash flows and reducing the amount for accrued interest receivable).

The Bank’s primary inputs for measuring the fair value of advances recorded under the fair value option are market-based consolidated obligation yield curve (CO Curve) inputs obtained from the Office of Finance. The CO Curve is then adjusted to reflect the rates on replacement advances with similar terms and collateral. These spread adjustments are not market-observable and are evaluated for significance in the overall fair value measurement and the fair value hierarchy level of the advance. The Bank obtains market-observable inputs for complex ~~advances.~~advances recorded under the fair value option. These inputs may include volatility assumptions, which are market-based expectations of future interest rate volatility implied from current market prices for similar options (swaption volatility and volatility skew). The discount rates used in these calculations are the replacement advance rates for advances with similar terms. Pursuant to the Finance Agency’s advances regulation, advances with an original term to maturity or repricing period greater than six months generally require a prepayment fee sufficient to make the Bank financially indifferent to the borrower’s decision to prepay the advances. The Bank determined that no adjustment is required to the fair value measurement of advances for prepayment fees. In addition, the Bank did not adjust its fair value measurement of advances recorded under the fair value option for creditworthiness primarily because advances were fully collateralized.

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

~~Mortgage Loans Held for Portfolio~~ – The estimated fair value for seasoned mortgage loans represents modeled prices based on observable market prices for seasoned agency mortgage-backed passthrough securities adjusted for differences in coupon, average loan rate, credit, and cash flow remittance between the Bank’s mortgage loans and the referenced instruments, while the estimated fair value for newly originated mortgage loans represents modeled prices based on MPF commitment rates. Market prices are highly dependent on the underlying prepayment assumptions. Changes in the prepayment speeds often have a material effect on the fair value estimates. These underlying prepayment assumptions are susceptible to material changes in the near term because they are made at a specific point in time.

~~Loans to and from Other FHLBanks~~ –~~Because these are overnight transactions, the estimated fair value approximates the recorded carrying value.~~

~~Accrued Interest Receivable and Payable~~ ~~– The estimated fair value approximates the carrying value of accrued interest receivable and accrued interest payable.~~

Other Assets – The estimated fair value of grantor trust assets is based on quoted market prices.

Derivative Assets and Liabilities –In general, derivative instruments transacted and held by the Bank for risk management activities are traded in over-the-counter markets where quoted market prices are not readily available.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

These derivatives are interest rate-related. For these derivatives, the Bank measures fair value using internally developed discounted cash flow models that use market-observable inputs, such as ~~the overnight index~~ swap ~~(OIS) curve~~rates and volatility assumptions, which are market-based expectations of future interest rate volatility implied from current market prices for similar options (swaption volatility and volatility skew), adjusted for counterparty credit risk, as necessary.

The Bank is subject to credit risk because of the risk of potential nonperformance by its derivative counterparties. To mitigate this risk, the Bank executes uncleared derivative transactions only with highly rated derivative dealers and major banks (derivative dealer counterparties) that meet the Bank’s eligibility criteria. In addition, the Bank has entered into master netting agreements and bilateral credit support agreements with all active derivative dealer counterparties that provide for delivery of collateral at specified levels to limit the Bank’s net unsecured credit exposure to these counterparties. Under these policies and agreements, the amount of unsecured credit exposure to an individual derivative dealer counterparty is ~~either (i) limited to an absolute dollar credit exposure limit according to the counterparty’s long-term debt or deposit credit rating, as determined by rating agencies or (ii)~~ set at zero (subject to a minimum transfer amount). The Bank clears its cleared derivative transactions only through clearing agents that meet the Bank’s eligibility requirements, and the Bank’s credit exposure to the clearinghouse is secured by variation margin received from the clearinghouse. All credit exposure from derivative transactions entered into by the Bank with member counterparties that are not derivative dealers must be fully secured by eligible collateral. The Bank evaluated the potential for the fair value of the instruments to be affected by counterparty credit risk and determined that no adjustments to the overall fair value measurements were required.

The fair values of the derivative assets and liabilities include accrued interest receivable/payable and cash collateral remitted to/received from counterparties. The estimated fair values of the accrued interest receivable/payable and cash collateral approximate their carrying values because of their short-term nature. The fair values of derivatives that met the netting requirements are presented on a net basis. If these netted amounts are positive, they are classified as an asset and, if negative, they are classified as a liability.

~~Deposits~~ –The fair value of deposits is generally equal to the carrying value of the deposits because the deposits are primarily overnight deposits or due on demand. The Bank determines the fair values of term deposits by calculating the present value of expected future cash flows from the deposits and reducing the amount for accrued interest payable. The discount rates used in these calculations are the cost of deposits with similar terms.

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Consolidated Obligations Recorded Under the Fair Value Option –Because quoted prices in active markets are not generally available for identical liabilities, the Bank measures fair values using internally developed models that use primarily market-observable inputs. The Bank’s primary input for measuring the fair value of consolidated obligation bonds is a market-based CO Curve obtained from the Office of Finance. The Office of Finance constructs the CO Curve using the Treasury yield curve as a base curve, which is adjusted by indicative consolidated obligation spreads obtained from market-observable sources. These market indications are generally derived from pricing indications from dealers, historical pricing relationships, and market activity for similar liabilities, such as recent GSE issuances or secondary market activity. For consolidated obligation bonds with embedded options, the Bank also obtains market-observable inputs, such as volatility assumptions, which are market-based expectations of future interest rate volatility implied from current market prices for similar options (swaption volatility and volatility skew).

Adjustments may be necessary to reflect the Bank’s credit quality or the credit quality of the FHLBank System when valuing consolidated obligation bonds measured at fair value. The Bank monitors its own creditworthiness and the creditworthiness of the other FHLBanks and the FHLBank System to determine whether any adjustments are necessary for creditworthiness in its fair value measurement of consolidated obligation bonds. The credit ratings of the FHLBank System and any changes to the credit ratings are the basis for the Bank to determine whether the fair values of consolidated obligations recorded under the fair value option have been significantly affected during the reporting period by changes in the instrument-specific credit risk.

~~Mandatorily Redeemable Capital Stock~~ –The estimated fair value of capital stock subject to mandatory redemption is generally at par value as indicated by contemporaneous purchases, redemptions, and repurchases at par value. Fair value includes estimated dividends earned at the time of reclassification from capital to liabilities, until such amount is paid, and any subsequently declared capital stock dividend. The Bank’s capital stock can only be acquired by members at par value and redeemed or repurchased at par value, subject to statutory and regulatory requirements. The Bank’s capital stock is not traded, and no market mechanism exists for the exchange of Bank capital stock outside the cooperative ownership structure.

~~Commitments~~ – The estimated fair value of standby letters of credit is based on the present value of fees currently charged for similar agreements and is recorded in other liabilities. The estimated fair value of off-balance sheet fixed rate commitments to fund advances and commitments to issue consolidated obligations takes into account the difference between current and committed interest rates.

Subjectivity of Estimates Related to Fair Values of Financial Instruments. Estimates of the fair value of financial assets and liabilities using the methodologies described above are subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, methods to determine possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Fair Value Measurements. The tables below present the fair value of assets and liabilities, which are recorded on a recurring or nonrecurring basis at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, by level within the fair value hierarchy.



September 30, 2019
	Fair Value Measurement Using:						Netting Adjustments and Cash
	Level 1		Level 2		Level 3		Collateral⁽¹⁾			Total
Recurring fair value measurements – Assets:
Trading securities – MBS – Other U.S. obligations – Ginnie Mae	$	—	$	4	$	—	$	—		$	4
AFS securities:
U.S. obligations – Treasury securities	—		5,287		—		—			5,287
MBS:
GSEs – multifamily	—		7,274		—		—			7,274
PLRMBS	—		—		2,755		—			2,755
Subtotal MBS	—		7,274		2,755		—			10,029
Total AFS securities	—		12,561		2,755		—			15,316
Advances⁽²⁾	—		3,967		—		—			3,967
Derivative assets, net: interest rate-related	—		25		—		(2		)	23
Other assets	18		—		—		—			18
Total recurring fair value measurements – Assets	$	18	$	16,557	$	2,755	$	(2	)	$	19,328
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds⁽³⁾	$	—	$	577	$	—	$	—		$	577
Derivative liabilities, net: interest rate-related	—		550		—		(549		)	1
Total recurring fair value measurements – Liabilities	$	—	$	1,127	$	—	$	(549	)	$	578
Nonrecurring fair value measurements – Assets:⁽⁴⁾
Impaired mortgage loans held for portfolio	$	—	$	—	$	1	$	—		$	1
Total nonrecurring fair value measurements – Assets	$	—	$	—	$	1	$	—		$	1

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

September 30, 2017
Fair Value Measurement Using: Netting

Level 1
Level 2
Level 3

Adjustments⁽¹⁾

Total
Recurring fair value measurements – Assets:
Trading securities:
GSEs – FFCB bonds $ —
$ 1,158
$ —
$ —
$ 1,158
MBS:
Other U.S. obligations – Ginnie Mae —
7
—
—
7
Total trading securities —
1,165
—
—
1,165
AFS securities:
PLRMBS —
—
4,015
—
4,015
Total AFS securities —
—
4,015
—
4,015
Advances⁽²⁾
—
5,678
—
—
5,678
Derivative assets, net: interest rate-related —
114
—
(22 ) 92
Other assets 9
—
—
—
9
Total recurring fair value measurements – Assets $ 9
$ 6,957
$ 4,015
$ (22 ) $ 10,959
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds⁽³⁾
$ —
$ 968
$ —
$ —
$ 968
Derivative liabilities, net: interest rate-related —
65
—
(62 ) 3
Total recurring fair value measurements – Liabilities $ —
$ 1,033
$ —
$ (62 ) $ 971
Nonrecurring fair value measurements – Assets:⁽⁴⁾

REO $ —
$ —
$ —
$ —
$ —
Impaired mortgage loans held for portfolio —
—
3
—
3
Total nonrecurring fair value measurements – Assets $ —
$ —
$ 3
$ —
$ 3

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~


December 31, 2016
December 31, 2018
	Fair Value Measurement Using:						Netting					Fair Value Measurement Using:						Netting Adjustments and Cash
	Level 1		Level 2		Level 3		Adjustments⁽¹⁾			Total		Level 1		Level 2		Level 3		Collateral⁽¹⁾			Total
Recurring fair value measurements – Assets:
Trading securities:
GSEs – FFCB bonds	$	—	$	2,058	$	—	$	—		$	2,058	$	—	$	656	$	—	$	—		$	656
MBS:
Other U.S. obligations – Ginnie Mae	—		8		—		—			8
MBS – Other U.S. obligations – Ginnie Mae												—		5		—		—			5
Total trading securities	—		2,066		—		—			2,066		—		661		—		—			661
AFS securities:
MBS – GSEs – multifamily												—		3,774		—		—			3,774
PLRMBS	—		—		4,489		—			4,489		—		—		3,157		—			3,157
Total AFS securities	—		—		4,489		—			4,489		—		3,774		3,157		—			6,931
Advances⁽²⁾	—		3,719		—		—			3,719		—		5,133		—		—			5,133
Derivative assets, net: interest rate-related	—		140		—		(74		)	66		—		86		—		99			185
Other assets	11		—		—		—			11		16		—		—		—			16
Total recurring fair value measurements – Assets	$	11	$	5,925	$	4,489	$	(74	)	$	10,351	$	16	$	9,654	$	3,157	$	99		$	12,926
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds⁽³⁾	$	—	$	1,507	$	—	$	—		$	1,507	$	—	$	2,019	$	—	$	—		$	2,019
Derivative liabilities, net: interest rate-related	—		81		—		(79		)	2		—		147		—		(137		)	10
Total recurring fair value measurements – Liabilities	$	—	$	1,588	$	—	$	(79	)	$	1,509	$	—	$	2,166	$	—	$	(137	)	$	2,029
Nonrecurring fair value measurements – Assets:⁽⁴⁾
REO	$	—	$	—	$	—	$	—		$	—
Impaired mortgage loans held for portfolio	—		—		5		—			5		$	—	$	—	$	2	$	—		$	2
Total nonrecurring fair value measurements – Assets	$	—	$	—	$	5	$	—		$	5	$	—	$	—	$	2	$	—		$	2


(1)	Amounts represent the ~~netting~~application of ~~derivative assets and liabilities by counterparty, including cash collateral, where~~ the netting requirements ~~have been met.~~that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed by the Bank, with the same clearing agents and/or counterparty.


(2)	Represents advances recorded under the fair value option at September 30, ~~2017~~2019, and December 31, ~~2016~~2018.


(3)	Represents consolidated obligation bonds recorded under the fair value option at September 30, ~~2017~~2019, and December 31, ~~2016~~.2018.


(4)	The fair value information presented is as of the date the fair value adjustment was recorded during the nine months ended September 30, ~~2017~~,2019, and the year ended December 31, ~~2016.~~ 2018.

The following tables present a reconciliation of the Bank’s AFS PLRMBS that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~

2018.


	Three Months Ended						Three Months Ended
	September 30, 2017			September 30, 2016			September 30, 2019			September 30, 2018
Balance, beginning of the period	$	4,164		$	4,864		$	2,929		$	3,510
Total gain/(loss) realized and unrealized included in:
Interest income	22			25			20			19
Net OTTI loss, credit-related	(6		)	(3		)	(2		)	(3		)
Unrealized gain/(loss) of other-than-temporarily impaired securities included in AOCI	75			68			(15		)	5
Net amount of OTTI loss reclassified to/(from) other income/(loss)	6			2			(1		)	—
Settlements	(246		)	(266		)	(176		)	(182		)
Balance, end of the period	$	4,015		$	4,690		$	2,755		$	3,349
Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets and liabilities still held at the end of the period	$	17		$	22		$	16		$	16

5148

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



	Nine Months Ended
	September 30, 2019			September 30, 2018
Balance, beginning of the period	$	3,157		$	3,833
Total gain/(loss) realized and unrealized included in:
Interest income	57			61
Net OTTI loss, credit-related	(8		)	(9		)
Unrealized gain/(loss) of other-than-temporarily impaired securities included in AOCI	1			25
Net amount of OTTI loss reclassified to/(from) other income/(loss)	—			(10		)
Settlements	(452		)	(563		)
Transfers of HTM securities to AFS securities	—			12
Balance, end of the period	$	2,755		$	3,349
Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets and liabilities still held at the end of the period	$	46		$	52

Nine Months Ended
September 30, 2017
September 30, 2016
Balance, beginning of the period $ 4,489
$ 5,414
Total gain/(loss) realized and unrealized included in:
Interest income 68
77
Net OTTI loss, credit-related (15 ) (14 )
Unrealized gain/(loss) of other-than-temporarily impaired securities included in AOCI 188
71
Net amount of OTTI loss reclassified to/(from) other income/(loss) 7
(5 )
Settlements (722 ) (853 )
Balance, end of the period $ 4,015
$ 4,690
Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets and liabilities still held at the end of the period $ 53
$ 63

Fair Value Option. The fair value option provides an entity with an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires an entity to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in net income. Interest income and interest expense on advances and consolidated bonds carried at fair value are recognized solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized in non-interest income or non-interest expense.

For more information on the Bank’s election of the fair value option, see “Item 8. Financial Statements and Supplementary Data – Note 19 – Fair Values” in the Bank’s ~~2016~~2018 Form 10-K.

The Bank has elected the fair value option for certain financial instruments to assist in mitigating potential earnings volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. The potential earnings volatility associated with using fair value only for the derivative is the Bank’s primary reason for electing the fair value option for financial assets and liabilities that do not qualify for hedge accounting or that have not previously met or may be at risk for not meeting the hedge effectiveness requirements.

The following tables summarize the activity related to financial assets and liabilities for which the Bank elected the fair value option during the three and nine months ended September 30, ~~2017~~2019 and ~~2016:~~

2018:


	Three Months Ended												Three Months Ended
	September 30, 2017						September 30, 2016						September 30, 2019						September 30, 2018
	Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds
Balance, beginning of the period	$	5,490		$	1,118		$	3,752		$	2,925		$	4,529		$	943		$	6,083		$	1,404
New transactions elected for fair value option	450			255			227			40			—			—			188			851
Maturities and terminations	(259		)	(405		)	(165		)	(1,485		)	(583		)	(365		)	(873		)	(50		)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds held under fair value option	(5		)	—			(18		)	—
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings													22			2			(15		)	(3		)
Change in accrued interest	2			—			—			(3		)	(1		)	(3		)	—			—
Balance, end of the period	$	5,678		$	968		$	3,796		$	1,477		$	3,967		$	577		$	5,383		$	2,202

5249

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)



	Nine Months Ended
	September 30, 2019						September 30, 2018
	Advances			Consolidated Obligation Bonds			Advances			Consolidated Obligation Bonds
Balance, beginning of the period	$	5,133		$	2,019		$	6,431		$	949
New transactions elected for fair value option	74			—			1,752			1,314
Maturities and terminations	(1,363		)	(1,448		)	(2,723		)	(50		)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings	125			14			(78		)	(13		)
Change in accrued interest	(2		)	(8		)	1			2
Balance, end of the period	$	3,967		$	577		$	5,383		$	2,202

Nine Months Ended
September 30, 2017 September 30, 2016
Advances

Consolidated
Obligation Bonds

Advances

Consolidated
Obligation Bonds

Balance, beginning of the period $ 3,719
$ 1,507
$ 3,677
$ 4,233
New transactions elected for fair value option 2,510
1,090
658
490
Maturities and terminations (558 ) (1,635 ) (584 ) (3,265 )
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds held under fair value option 4
5
45
23
Change in accrued interest 3
1
—
(4 )
Balance, end of the period $ 5,678
$ 968
$ 3,796
$ 1,477

For instruments for which the fair value option has been elected, the related contractual interest income and contractual interest expense are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments for which the fair value option has been elected are recorded as net gains/ (losses) on financial instruments held under the fair value option in the Statements of ~~Income. The change~~Income, except for changes in fair value ~~does not include changes in~~related to instrument-specific credit ~~risk.~~risk which are recorded in AOCI on the Statements of Condition. For advances and consolidated obligations recorded under the fair value option, the Bank determined that ~~no adjustments~~none of the remaining changes in fair value were related to ~~the fair values of these instruments for~~ instrument-specific credit risk ~~were necessary~~ for the three and nine months ended September 30, ~~2017~~2019 and ~~2016.~~2018. In determining that there has been no change in instrument-specific credit risk period to period, the Bank primarily considered the following factors:

The Bank is a federally chartered GSE, and as a result of this status, the consolidated obligations have historically received the same credit ratings as the government bond credit rating of the United States, even though they are not obligations of the United States and are not guaranteed by the United States.

The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations of each of the FHLBanks.

The following table presents the difference between the aggregate remaining contractual principal balance outstanding and aggregate fair value of advances and consolidated obligation bonds for which the Bank elected the fair value option at September 30, ~~2017~~,2019, and December 31, ~~2016~~:

2018:


	September 30, 2017							December 31, 2016							September 30, 2019						December 31, 2018
	Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance			Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance			Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance
Advances⁽¹⁾	$	5,661	$	5,678	$	17		$	3,709	$	3,719	$	10		$	3,873	$	3,967	$	94	$	5,162	$	5,133	$	(29	)
Consolidated obligation bonds	970		968		(2		)	1,515		1,507		(8		)	575		577		2		2,024		2,019		(5		)


(1)	At September 30, ~~2017~~2019, and December 31, ~~2016~~, 2018, none of these advances were 90 days or more past due or had been placed on nonaccrual status.

Note 17 — Commitments and Contingencies

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The regulations provide a general framework for addressing the possibility that an FHLBank may be unable to repay the consolidated obligations for which it is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of September 30, ~~2017~~,2019, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of the FHLBanks

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

was ~~$1,028,710~~$1,010,271 at September 30, ~~2017~~,2019, and ~~$989,311~~$1,031,617 at December 31, ~~2016~~.2018. The par value of the Bank’s participation in consolidated obligations was ~~$102,229~~$96,098 at September 30, ~~2017~~,2019, and ~~$83,749~~$101,609 at December 31, ~~2016~~.2018. For more information on the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 20 – Commitments and Contingencies” in the Bank’s ~~2016~~2018 Form 10-K.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Off-balance sheet commitments as of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, were as follows:



	September 30, 2019						December 31, 2018
	Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit outstanding	$	16,212	$	4,492	$	20,704	$	13,661	$	4,418	$	18,079
Commitments to issue consolidated obligation discount notes, par	—		—		—		350		—		350
Commitments to issue consolidated obligation bonds, par	40		—		40		—		—		—
Commitments to purchase mortgage loans	95		—		95		12		—		12

September 30, 2017 December 31, 2016

Expire Within
One Year

Expire After
One Year

Total

Expire Within
One Year

Expire After
One Year

Total
Standby letters of credit outstanding $ 8,285
$ 7,177
$ 15,462
$ 11,094
$ 4,066
$ 15,160
Commitments to fund additional advances 1
—
1
5
1
6
Commitments to issue consolidated obligation discount notes, par 703
—
703
846
—
846
Commitments to issue consolidated obligation bonds, par 424
—
424
655
—
655
Commitments to purchase mortgage loans 10
—
10
13
—
13

Standby letters of credit are generally issued for a fee on behalf of members to support their obligations to third parties. If the Bank is required to make a payment for a beneficiary’s drawing under a letter of credit, the amount is immediately due and payable by the member to the Bank and is charged to the member’s demand deposit account with the Bank. The original terms of these standby letters of credit range from 337 days to 15 years,, including a final expiration in ~~2032.~~2034. The Bank monitors the creditworthiness of members that have standby letters of credit. The value of the Bank’s obligations related to standby letters of credit is recorded in other liabilities and amounted to ~~$22~~$31 at September 30, ~~2017~~,2019, and ~~$24~~$27 at December 31, ~~2016~~.2018. Standby letters of credit are fully collateralized at the time of issuance. Based on the Bank’s credit analyses of members’ financial condition and collateral requirements, the Bank deemed it unnecessary to record any additional liability on the letters of credit outstanding as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018.

~~Commitments~~There were no commitments to fund advances ~~totaled~~ $1at September 30, ~~2017~~,2019, and $6 at December 31, ~~2016~~.2018. Advances funded under advance commitments are fully collateralized at the time of funding (see Note 9 – Allowance for Credit Losses). Based on the Bank’s credit analyses of members’ financial condition and collateral requirements, the Bank deemed it unnecessary to record any additional liability on the advance commitments outstanding as of ~~September 30, 2017, and~~ ~~December 31, 2016~~.

The Bank may enter into commitments that unconditionally obligate it to purchase mortgage loans from its members. Commitments are generally for periods not exceeding 60 days. Delivery commitments are recorded at fair value as derivative assets or derivative liabilities in the Statements of Condition.

The Bank executes over-the-counter uncleared interest rate exchange agreements with major banks and derivative entities affiliated with broker-dealers and has executed uncleared interest rate exchange agreements in the past with the Bank’s members. The Bank enters into master agreements with netting provisions and into bilateral credit support agreements with all active derivative dealer counterparties. All member counterparty master agreements, excluding those with derivative dealers, are subjectWe have pledged securities as collateral related to the terms of the Bank’s Advances and Security Agreement with members, and all member counterparties (except for those that are derivative dealers) must fully collateralize the Bank’s net credit exposure. For cleared derivatives, the clearinghouse is the Bank’s counterparty, and the Bank has clearing agreements with clearing agents that provide for delivery of initial margin to, and exchange of variation margin with, the clearinghouse.derivatives. See Note 15 – Derivatives and Hedging Activities for additional information about the Bank’s pledged collateral and other credit-risk-related contingent features.

As of September 30, 2019, the Bank had pledged total collateral of $875, including securities with a carrying value of $321, all of which may be repledged, and cash collateral of $554 to counterparties and the clearinghouse that had market risk exposure to the Bank related to derivatives. As of December 31, 2018, the Bank had pledged total collateral of $257, which was comprised entirely of cash.

The Bank may be subject to various pending legal proceedings that may arise in the ordinary course of business. After consultation with legal counsel, the Bank does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on its financial condition or results of operations.

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

Note 18 — Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks

Transactions with Members and Nonmembers. The following tables set forth information at the dates and for the periods indicated with respect to transactions with members that have an officer or director serving on the Bank’s Board of Directors.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

September 30, 2017
December 31, 2016
Assets:
Advances $ 2,641
$ 3,756
Mortgage loans held for portfolio 14
17
Accrued interest receivable 4
4
Liabilities:
Deposits $ 3
$ 3
Capital:
Capital Stock $ 121
$ 129



	September 30, 2019		December 31, 2018
Assets:
Advances	$	3,711	$	4,192
Mortgage loans held for portfolio	9		11
Accrued interest receivable	6		7
Liabilities:
Deposits	$	30	$	11
Capital:
Capital Stock	$	130	$	149


	Three Months Ended				Nine Months Ended			Three Months Ended				Nine Months Ended
	September 30, 2017		September 30, 2016		September 30, 2017	September 30, 2016		September 30, 2019		September 30, 2018		September 30, 2019		September 30, 2018
Interest Income:
Advances	$	10	$	9	29	$	26	$	22	$	21	$	66	$	52
Mortgage loans held for portfolio	1		—		1	1

All transactions with members, nonmembers, and their affiliates are entered into in the ordinary course of business. As of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, no shareholder owned more than 10% of the total voting interests in the Bank because of the statutory limit on members' voting rights. For more information on transactions with members and nonmembers, see “Item 8. Financial Statements and Supplementary Data – Note 21 – Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks” in the Bank’s ~~2016~~2018 Form 10-K.

Transactions with Other FHLBanks. The Bank may occasionally enter into transactions with other FHLBanks. These transactions are summarized below.

Deposits with other FHLBanks. The Bank may, from time to time, maintain deposits with other FHLBanks. Deposits with other FHLBanks totaled ~~$1 and~~ a de minimis amount and $1 at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, respectively, which were recorded in the Statements of Condition in the Cash and due from banks line item.

Overnight Funds. The Bank may borrow or lend unsecured overnight funds from or to other FHLBanks. All such transactions are at current market rates. Interest income and interest expense related to these transactions with other FHLBanks are included in ~~other~~ interest income and interest expense ~~from other borrowings~~ in the Statements of Income. Balances outstanding at period end with other FHLBanks, if any, are identified in the Bank’s financial statements. During the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Bank extended overnight loans to other FHLBanks for ~~$1,005~~$1,450 and ~~$205,~~$280, respectively. During the nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Bank borrowed ~~$215~~$1,545 and ~~$1,125,~~$1,520, respectively, from other FHLBanks. The impact to net interest income related to these transactions was de minimis ~~during both~~for all periods in this report.

MPF Mortgage Loans. The Bank pays a transaction services fee to the FHLBank of Chicago for its participation in the MPF program. This fee is assessed monthly and is based on the amount of mortgage loans in which the Bank invested and which remain outstanding on its Statements of Condition. For the three ~~and nine~~ months ended September 30, ~~2017,~~2019 and 2018, the Bank recorded ~~a de minimis amount~~$1 and $1, respectively, in MPF membership fee expense and transaction services fee expense to the FHLBank of Chicago, which ~~was~~were recorded in the Statements of Income as other expense. For the

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

~~three and~~ nine months ended September 30, ~~2016,~~2019 and 2018, the Bank recorded ~~a de minimis amount~~$2 and $2, respectively, in MPF membership fee expense and transaction services fee expense to the FHLBank of Chicago.

In addition, the Bank receives a counterparty fee from the FHLBank of Chicago for facilitating the sale of loans under the MPF program. For the three and nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, the Bank recorded a de minimis ~~amount~~amounts in MPF counterparty fee income from the FHLBank of Chicago, which ~~was~~were recorded in the Statements of Income as other income.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Consolidated Obligations. The Bank may, from time to time, transfer to or assume from another FHLBank the outstanding primary liability for FHLBank consolidated obligations. During the nine months ended September 30, ~~2017~~2019 and ~~2016~~,2018, the Bank did not transfer any debt to other FHLBanks or assume any debt from other FHLBanks.

Transactions with the Office of Finance. The Bank’s proportionate share of the cost of operating the Office of Finance is identified in the Statements of Income.

Note 19 — Subsequent Events

There were no material subsequent events identified, subsequent to September 30, ~~2017,~~2019, until the time of the Form ~~10-Q~~10‑Q filing with the Securities and Exchange Commission.

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ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained in this quarterly report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of San Francisco (Bank) or the Federal Home Loan Bank System (FHLBank System), are “forward-looking statements.” These statements may use forward-looking terms, such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “probable,” “project,” “should,” “will,” or their negatives or other variations on these terms, and include statements related to, among others, gains and losses on derivatives, plans to pay dividends and repurchase excess capital stock, future other-than-temporary impairment losses, future classification of securities, and reform legislation. The Bank cautions that by their nature, forward-looking statements involve risk or uncertainty that could cause actual results to differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These risks and uncertainties include, among others, the following:

changes in economic and market conditions, including conditions in the mortgage, housing, and capital markets;

the volatility of market prices, rates, and indices;

the timing and volume of market activity;

political events, including legislative, regulatory, judicial, or other developments that affect the Bank, its members, counterparties, or investors in the consolidated obligations of the Federal Home Loan Banks (FHLBanks), such as the impact of any government-sponsored enterprises (GSE) legislative reforms, changes in the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), changes in applicable sections of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, or changes in other statutes or regulations applicable to the FHLBanks;

changes in the Bank’s capital ~~structure;~~structure and composition;

the ability of the Bank to pay dividends or redeem or repurchase capital stock;

membership changes, including changes resulting from mergers or changes in the principal place of business of Bank members;

the soundness of other financial institutions, including Bank members, nonmember borrowers, other counterparties, and the other FHLBanks;

changes in Bank members’ demand for Bank advances;

changes in the value or liquidity of collateral underlying advances to Bank members or nonmember borrowers or collateral pledged by the Bank’s derivative counterparties;

changes in the fair value and economic value of, impairments of, and risks associated with the Bank’s investments in mortgage loans and mortgage-backed securities (MBS) or other assets and the related credit enhancement protections;

changes in the Bank’s ability or intent to hold MBS and mortgage loans to maturity;

competitive forces, including the availability of other sources of funding for Bank members;

the willingness of the Bank’s members to do business with the Bank;

changes in investor demand for consolidated obligations (including the terms of consolidated obligations) and/or the terms of interest rate exchange or similar agreements;

the impact of any changes and developments in FHLBank System-wide debt issuance and governance practices;

the ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the Bank has joint and several liability;

changes in key Bank personnel;

technology changes and enhancements, and the Bank’s ability to develop and support technology and information systems sufficient to manage the risks of the Bank’s business effectively; ~~and~~

changes in the FHLBanks’ long-term credit ~~ratings.~~ratings;

the possible discontinuance of the London Interbank Offered Rate (LIBOR) or any other interest rate benchmark and the adverse consequence it could have for market participants, including the Bank; and

the satisfaction of any claims and payment of administrative expenses upon the Financing Corporation’s dissolution.

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Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under “Item 1A. Risk Factors” in the

Bank’s Annual Report on Form 10-K for the year ended December 31, ~~2016 (2016~~2018 (2018 Form 10-K).

~~Table of Contents~~

Quarterly Overview

The Bank serves eligible financial institutions in Arizona, California and Nevada, the three states that make up the Eleventh District of the FHLBank System. The Bank’s primary business is providing competitively priced, collateralized loans, known as advances, to its member institutions and certain qualifying housing associates. The ~~Bank's~~Bank’s principal source of funds is debt issued in the capital markets. All 11 FHLBanks issue debt in the form of consolidated obligations through the Office of Finance as their agent, and all 11 FHLBanks are jointly and severally liable for the repayment of all consolidated obligations.

Net income for the third quarter of 2019 was ~~$81~~$61 million, compared with net income of ~~$291~~$102 million for the third quarter of ~~2016.~~ 2018. The $41 million decrease in net income relative to the prior-year period primarily reflected an increase in net fair value losses associated with derivatives, hedged items, and financial instruments carried at fair value, which reduced both net interest income and other income.

Net interest income for the third quarter of 2019 was $112 million, compared with $153 million for the third quarter of 2018. The $41 million decrease in net interest income primarily reflected lower spreads on interest-earning assets and the impact of new hedge accounting guidance adopted on January 1, 2019, which requires changes in the fair value of a derivative that was designated as a fair value hedge, along with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk, to be recorded in net interest income with the earnings effect of the hedged item. The guidance was applied prospectively, so the gains and losses on fair value hedges in the prior-year period are presented in other income. Net fair value losses on designated fair value hedges recorded in net interest income for the third quarter of 2019 were $11 million. The decline in net interest income was also due to a retrospective adjustment of the effective yields on mortgage loans driven by a lower interest rate environment.

Retained earnings ~~grew to $3.2~~were $3.4 billion at September 30, ~~2017, from $3.1~~2019, and $3.3 billion at December 31, ~~2016, and~~2018, resulting from net income of $214 million in the ~~Bank paid~~first nine months of 2019, partially offset by dividends at an annualized rate of 7.00%, totaling ~~$51~~$166 million, including ~~$44~~$155 million in dividends on capital stock and $7$11 million in dividends on mandatorily redeemable capital stock during the ~~third quarter of 2017.~~

Net interest income increased by $23 million compared to the prior year period. The increase reflected higher average balances of interest-earning assets, combined with a higher net interest margin. Other income decreased by $245 million, primarily because other income in the third quarter of 2016 included a gain on settlements of $240 million (after netting certain legal fees and expenses) relating to the Bank's private-label residential mortgage-backed securities (PLRMBS) litigation. The decrease in other income also reflected a voluntary charitable contribution of $10 million made by the Bank during the third quarter of 2017 for the Quality Jobs Fund as well as a voluntary contribution of $1 million to the Affordable Housing Program (AHP) to offset the impact on the AHP assessment of the charitable contribution expense. In the first quarter of 2017, the Board of Directors approved an allocation of $100 million for the Quality Jobs Fund, a donor-advised fund established to support quality jobs growth and small business expansion, which is being funded by the Bank in incremental amounts over a two-year period.

~~During the~~ first nine months of ~~2017, total~~2019.

Total assets ~~increased $17.6~~decreased $5.1 billion to $109.5 billion at September 30, 2017, from $91.9 billion at December 31, 2016, primarily reflecting an increase in period end advance balances, which increased to $61.6 billion at September 30, 2017, from $49.8 billion at December 31, 2016. In addition, investments increased $4.8 billion, to $45.8 billion at September 30, 2017, from $41.0 billion at December 31, 2016, primarily reflecting an increase in Federal funds sold.

~~Accumulated other comprehensive income increased by $197 million~~ during the first nine months of ~~2017,~~2019, to ~~$308~~$104.2 billion at September 30, 2019, from $109.3 billion at December 31, 2018. Total advances decreased $10.6 billion, to $62.8 billion at September 30, 2019, from $73.4 billion at December 31, 2018. Investments increased $5.1 billion, to $37.5 billion at September 30, 2019, from $32.4 billion at December 31, 2018, primarily reflecting an increase in available-for-sale (AFS) securities.

Accumulated other comprehensive income (AOCI) increased by $32 million during the first nine months of 2019, to $267 million at September 30, ~~2017,~~2019, from~~$111~~ $235 million at December 31, ~~2016,~~2018, primarily as a result of improvement in the fair value of ~~PLRMBS~~MBS classified as ~~available-for-sale.~~AFS.

On October ~~26, 2017,~~24, 2019, the Bank’s Board of Directors declared a quarterly cash dividend on the capital stock outstanding during the third quarter of ~~2017~~2019 at an annualized rate of 7.00%. The dividend will total ~~$55~~$54 million, including $7$3 million in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the fourth quarter of ~~2017.~~2019. The Bank recorded the dividend on October ~~26, 2017~~,24, 2019, and expects to pay the dividend on or about November ~~13, 2017~~.

12, 2019.

As of September 30, ~~2017,~~2019, the Bank was in compliance with all of its regulatory capital requirements. The Bank’s total regulatory capital ratio was ~~5.8%~~6.2%, exceeding the 4.0% requirement. The Bank had $6.4 billion in permanent capital, exceeding its risk-based capital requirement of ~~$2.0~~$1.5 billion.

~~The Bank plans to repurchase the surplus capital stock~~

Table of all members and the excess capital stock of all nonmember shareholders on November 14, 2017. Surplus capital stock is defined as any stock holdings in excess of 115% of a member’s minimum capital stock requirement.Contents

~~Table of Contents~~

~~developments in the mortgage and credit markets,~~market conditions, and other relevant information as the basis for determining the payment of dividends ~~and the repurchase of excess capital stock~~ in future quarters.

~~Hurricanes Harvey~~On October 2, 2019, the Financing Corporation, formed pursuant to the Federal Savings and ~~Irma.~~ ~~During~~Loan Insurance Corporation Recapitalization Act of 1987 to provide financing for the ~~third quarter~~resolution of ~~2017, two significant hurricanes struck~~failed savings and loan associations, commenced the ~~southeastern coast~~process of dissolution in accordance with relevant statutory requirements and the terms of a plan of dissolution approved by the Director of the ~~United States. On August 25, 2017, Hurricane Harvey made landfall near Corpus Christi, Texas, causing substantial damage~~Federal Housing Finance Agency (Finance Agency). Subject to the satisfaction of any claims and ~~flooding~~the payment of other administrative expenses upon the Financing Corporation’s dissolution, which is expected to ~~southeastern Texas, including~~occur in the ~~Houston metropolitan area. On September 10, 2017, Hurricane Irma made landfall~~first half of 2020, any surplus and remaining cash on hand of the ~~Florida mainland near Marco Island, Florida. Hurricane Irma then moved northward through Florida and into Georgia, causing significant damage~~Financing Corporation is expected to ~~property~~be distributed to the FHLBanks, as the Financing Corporation’s sole stockholders, in ~~Florida, Georgia, and certain other southeastern states.~~

proportion to their ownership in the Financing Corporation’s nonvoting capital stock. The ~~Bank has analyzed~~Bank’s ownership in the ~~potential impact that damage related to Hurricanes Irma and Harvey might have on~~Financing Corporation’s nonvoting capital stock is 19.96%. The receipt by the ~~Bank’s advances, letters~~FHLBanks of ~~credit, mortgage loans, and PLRMBS securities. Based on the information currently available, the Bank does not expect that the potential losses resulting~~any such distribution from the ~~hurricanes~~Financing Corporation will ~~have~~be treated as a ~~material effect on~~partial return of their prior capital contributions to the ~~Bank’s financial condition or results of operations. The Bank continues~~Financing Corporation and credited to evaluate the impact of the hurricanes on its advances, letters of credit, mortgage loans held for portfolio, and PLRMBS investments. If additional information becomes available indicating that any of these assets have been impaired and the amount of the loss can be reasonably estimated, the Bank will record appropriate reserves at that time. their unrestricted retained earnings.

5956

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Financial Highlights

The following table presents a summary of certain financial information for the Bank for the periods indicated.

Financial Highlights

(Unaudited)


(Dollars in millions)	September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016			September 30, 2016			September 30, 2019			June 30, 2019			March 31, 2019			December 31, 2018			September 30, 2018
Selected Balance Sheet Items at Quarter End
Total Assets	$	109,503		$	101,923		$	91,290		$	91,941		$	95,612		$	104,153		$	106,762		$	110,577		$	109,326		$	102,973
Advances	61,629			55,179			49,052			49,845			55,888			62,826			67,189			70,262			73,434			69,359
Mortgage Loans Held for Portfolio, Net	1,774			1,383			966			826			677			3,382			3,327			3,160			3,066			2,892
Investments⁽¹⁾	45,775			45,035			40,983			40,986			38,773			37,490			35,180			36,494			32,381			30,292
Consolidated Obligations:⁽²⁾
Bonds	72,266			60,966			49,493			50,244			50,021			67,431			73,915			74,094			72,276			71,405
Discount Notes	29,902			33,335			35,028			33,506			38,230			28,605			24,901			28,281			29,182			24,030
Mandatorily Redeemable Capital Stock	342			404			403			457			484			138			138			227			227			227
Capital Stock —Class B —Putable	2,815			2,687			2,280			2,370			2,399			2,898			2,967			2,959			2,949			2,883
Unrestricted Retained Earnings	2,664			872			850			888			942			2,715			2,719			2,732			2,699			2,737
Restricted Retained Earnings	562			2,317			2,300			2,168			2,125			690			678			668			647			633
Accumulated Other Comprehensive Income/(Loss) (AOCI)	308			227			143			111			84			267			300			287			235			337
Total Capital	6,349			6,103			5,573			5,537			5,550			6,570			6,664			6,646			6,530			6,590
Selected Operating Results for the Quarter
Net Interest Income	$	146		$	144		$	134		$	108		$	123		$	112		$	110		$	144		$	146		$	153
Provision for/(Reversal of) Credit Losses on Mortgage Loans	—			—			—			—			—			—			—			—			—			—
Other Income/(Loss)	(4		)	(16		)	112			82			241			3			(7		)	15			(15		)	7
Other Expense	51			39			80			46			39			47			48			43			49			46
Affordable Housing Program Assessment	10			9			18			17			34			7			6			12			9			12
Net Income/(Loss)	$	81		$	80		$	148		$	127		$	291		$	61		$	49		$	104		$	73		$	102
Selected Other Data for the Quarter
Net Interest Margin⁽³⁾	0.55		%	0.59		%	0.58		%	0.46		%	0.51		%	0.44		%	0.41		%	0.52		%	0.55		%	0.60		%
Operating Expenses as a Percent of Average Assets	0.14			0.15			0.14			0.18			0.15			0.15			0.15			0.12			0.15			0.14
Return on Average Assets	0.30			0.33			0.63			0.54			1.20			0.24			0.18			0.37			0.27			0.40
Return on Average Equity	5.19			5.56			10.59			9.27			21.05			3.65			2.91			6.34			4.40			6.26
Annualized Dividend Rate	7.00			7.00			9.08			22.51			9.17			7.00			7.00			7.00			13.44			7.00
Dividend Payout Ratio⁽⁴⁾	53.39			51.21			36.45			108.38			17.99			86.78			108.09			48.21			138.72			50.41
Average Equity to Average Assets Ratio	5.84			5.87			5.97			5.83			5.71			6.47			6.16			5.87			6.21			6.36
Selected Other Data at Quarter End
Regulatory Capital Ratio⁽⁵⁾	5.83			6.16			6.39			6.40			6.22			6.18			6.09			5.96			5.97			6.29
Duration Gap (in months)	1			1			1			1			1			1			1			1			1			1


(1)	Investments consist of interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.

(2)

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all of the FHLBanks have joint and several liability for FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the ~~Federal Housing~~ Finance Agency ~~(Finance Agency)~~ to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of September 30, ~~2017~~2019, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of all FHLBanks at the dates indicated was as follows:

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Par Value
(In millions)

September 30, 2017 $ 1,028,710
June 30, 2017 1,011,526
March 31, 2017 959,280
December 31, 2016 989,311
September 30, 2016 967,728



	Par Value (In millions)
September 30, 2019	$	1,010,271
June 30, 2019	1,048,412
March 31, 2019	1,010,895
December 31, 2018	1,031,617
September 30, 2018	1,019,098


(3)	Net interest margin is net interest income (annualized) divided by average interest-earning assets.


(4)	This ratio is calculated as dividends per share divided by net income per share.


(5)	This ratio is calculated as regulatory capital divided by total assets. Regulatory capital includes retained earnings, Class B capital stock, and mandatorily redeemable capital stock (which is classified as a liability), but excludes AOCI.

Results of Operations

Net Interest Income. The primary source of the Bank’s earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments, including net accretion of related income from improvement in expected cash flows on certain other-than-temporarily-impaired private-label residential mortgage-backed securities (PLRMBS), less interest paid on consolidated obligations, deposits, mandatorily redeemable capital stock, and other borrowings. The Average Balance Sheets tables that follow present the average balances of interest-earning asset categories and the sources that funded those interest-earning assets (liabilities and capital) for the three and nine months ended September 30, ~~2017~~2019 and ~~2016,~~2018, together with the related interest income and expense. ~~They~~It also ~~present~~presents the average rates on total interest-earning assets and the average costs of total funding sources.

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Third Quarter of ~~2017~~2019 Compared to Third Quarter of ~~2016~~

2018

																													Average Balance Sheets

	Three Months Ended														Three Months Ended
	September 30, 2017							September 30, 2016							September 30, 2019⁽¹⁾							September 30, 2018
(Dollars in millions)	Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate
Assets
Interest-earning assets:
Interest-bearing deposits	$	800		$	2	1.16	%	$	690		$	—	0.43	%	$	2,458		$	14	2.27	%	$	2,249		$	12	1.97	%
Securities purchased under agreements to resell	1,061			3		1.05		3,702			4		0.39		7,712			45		2.29		6,254			31		1.97
Federal funds sold	11,037			33		1.19		7,276			7		0.40		3,834			22		2.28		6,290			34		2.15
Trading securities:
Mortgage-backed securities (MBS)	7			—		2.26		8			—		1.96		4			—		3.81		5			—		3.10
Other investments	1,188			4		1.40		1,550			3		0.62		249			1		2.50		657			4		2.30
Available-for-sale (AFS) securities:⁽¹⁾⁽²⁾
MBS⁽²⁾⁽⁴⁾	3,778			60		6.27		4,677			63		5.39		9,113			85		3.68		3,654			59		6.46
Held-to-maturity (HTM) securities:⁽¹⁾
Other investments⁽⁴⁾															2,533			15		2.39		—			—		—
Held-to-maturity (HTM) securities:⁽²⁾
MBS	13,024			73		2.19		10,985			61		2.22		9,014			65		2.84		12,582			84		2.65
Other investments	1,045			3		1.31		243			1		0.95		38			—		2.62		172			1		2.55
Mortgage loans held for portfolio	1,592			15		3.68		644			7		4.32		3,369			18		2.09		2,799			26		3.64
Advances⁽³⁾	71,245			241		1.34		65,586			128		0.78
Advances⁽⁴⁾															62,788			389		2.46		66,763			389		2.31
Total interest-earning assets	104,777			434		1.64		95,361			274		1.15		101,112			654		2.57		101,425			640		2.50
Other assets⁽⁴⁾⁽⁵⁾	958			—				913			—
Other assets⁽⁵⁾⁽⁶⁾															816			—				905			—
Total Assets	$	105,735		$	434			$	96,274		$	274			$	101,928		$	654			$	102,330		$	640
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽³⁾	$	68,930		$	205	1.18	%	$	46,875		$	95	0.80	%
Bonds⁽⁴⁾															$	70,841		$	409	2.29	%	$	71,363		$	364	2.02	%
Discount notes	29,256			75		1.01		42,259			45		0.43		22,956			128		2.21		23,319			117		1.99
Deposits and other borrowings	298			1		1.06		227			—		0.20		344			2		2.18		258			1		1.84
Mandatorily redeemable capital stock	372			7		7.51		487			11		9.05		139			3		9.96		244			5		7.62
Borrowings from other FHLBanks	2			—		1.18		1			—		0.41
Total interest-bearing liabilities	98,858			288		1.15		89,849			151		0.67		94,280			542		2.28		95,184			487		2.03
Other liabilities⁽⁴⁾⁽⁵⁾	701			—				925			—				1,056			—				640			—
Total Liabilities	99,559			288				90,774			151				95,336			542				95,824			487
Total Capital	6,176			—				5,500			—				6,592			—				6,506			—
Total Liabilities and Capital	$	105,735		$	288			$	96,274		$	151			$	101,928		$	542			$	102,330		$	487
Net Interest Income				$	146						$	123						$	112						$	153
Net Interest Spread⁽⁶⁾⁽⁷⁾						0.49	%						0.48	%						0.29	%						0.47	%
Net Interest Margin⁽⁷⁾⁽⁸⁾						0.55	%						0.51	%						0.44	%						0.60	%
Interest-earning Assets/Interest-bearing Liabilities	105.99		%					106.13		%					107.25		%					106.56		%


(1)	Upon adoption of new hedging guidance applied prospectively on January 1, 2019, interest amounts reported for 2019 for advances, investment securities, and consolidated obligation bonds include the realized and unrealized gain/(loss) on hedged items and derivatives in qualifying hedge relationships.


(2)	The average balances of AFS securities and HTM securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value or non-credit-related OTTI losses.


~~(2)~~(3)	Interest income on AFS securities includes accretion of yield adjustments on other-than-temporarily impaired PLRMBS (resulting from improvement in expected cash flows) totaling ~~$17~~$15 million and ~~$19~~$15 million for the three months ended September 30, ~~2017~~2019 and ~~2016,~~2018, respectively.


~~(3)~~(4)	Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:

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Three Months Ended
September 30, 2017 September 30, 2016
(In millions)
(Amortization)/
Accretion of
Hedging
Activities

Net Interest
Settlements

Total Net Interest
Income/(Expense)

(Amortization)/
Accretion of
Hedging
Activities

Net Interest
Settlements

Total Net Interest
Income/(Expense)

Advances $ 1
$ (5 ) $ (4 ) $ —
$ (13 ) $ (13 )
Consolidated obligation bonds (1 ) 6
5
1
46
47



	Three Months Ended
	September 30, 2019
(In millions)	Advances		AFS Securities			Consolidated Obligation Bonds			Total
Gain/(loss) on designated fair value hedges	$	—	$	(11	)	$	—		$	(11	)
Net interest settlements on derivatives	1		(4		)	(2		)	(5		)
Total net interest income/(expense)	$	1	$	(15	)	$	(2	)	$	(16	)



	Three Months Ended
	September 30, 2018
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds			Total
(Amortization)/accretion of hedging activities	$	1	—		$	—		$	1
Net interest settlements on derivatives	16		1		(6		)	11
Total net interest income/(expense)	$	17	$	1	$	(6	)	$	12


~~(4)~~(5)	Includes forward settling transactions and valuation adjustments for certain cash items.


~~(5)~~(6)	Includes non-credit-related OTTI losses on AFS and HTM securities.


~~(6)~~(7)	Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.


~~(7)~~(8)	Net interest margin is net interest income (annualized) divided by average interest-earning assets.

Net interest income in the third quarter of ~~2017~~2019 was ~~$146~~$112 million, a ~~19% increase~~27% decrease from ~~$123~~$153 million in the third quarter of ~~2016.~~2018. The following table details the changes in interest income and interest expense for the third quarter of ~~2017~~2019 compared to the third quarter of ~~2016.~~2018. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.

Table of Contents


Change in Net Interest Income: Rate/Volume Analysis Three Months Ended September 30, 2017, Compared to Three Months Ended September 30, 2016
Change in Net Interest Income: Rate/Volume Analysis Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018										Change in Net Interest Income: Rate/Volume Analysis Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018

	Increase/ (Decrease)			Attributable to Changes in⁽¹⁾						Increase/ (Decrease)			Attributable to Changes in⁽¹⁾
(In millions)				Average Volume			Average Rate						Average Volume			Average Rate
Interest-earning assets:
Interest-bearing deposits	$	2		$	—		$	2		$	2		$	1		$	1
Securities purchased under agreements to resell	(1		)	(4		)	3			14			8			6
Federal funds sold	26			5			21			(12		)	(14		)	2
Trading securities: Other investments	1			(1		)	2			(3		)	(3		)	—
AFS securities:
MBS	(3		)	(13		)	10
MBS⁽²⁾										26			60			(34		)
Other investments⁽²⁾										15			15			—
HTM securities:
MBS	12			13			(1		)	(19		)	(25		)	6
Other investments	2			2			—			(1		)	(1		)	—
Mortgage loans held for portfolio	8			9			(1		)	(8		)	4			(12		)
Advances⁽²⁾	113			12			101			—			(24		)	24
Total interest-earning assets	160			23			137			14			21			(7		)
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽²⁾	110			55			55			45			(3		)	48
Discount notes	30			(17		)	47			11			(2		)	13
Deposits and other borrowings	1			—			1			1			1			—
Mandatorily redeemable capital stock	(4		)	(2		)	(2		)	(2		)	(3		)	1
Total interest-bearing liabilities	137			36			101			55			(7		)	62
Net interest income	$	23		$	(13	)	$	36		$	(41	)	$	28		$	(69	)


(1)	Combined rate/volume variances, a third element of the calculation, are allocated to the rate and volume variances based on their relative sizes.


(2)	Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.

The net interest margin was 5544 basis points for the third quarter of ~~2017, 4~~2019, 16 basis points ~~higher~~lower than the net interest margin for the third quarter of ~~2016,~~2018, which was 5160 basis points. The net interest spread was 4929 basis points for the third quarter of ~~2017, 1~~2019, 18 basis ~~point higher~~points lower than the net interest spread for the third quarter of ~~2016,~~2018, which was 4847 basis points. These ~~increases~~decreases were primarily ~~related~~due to ~~higher average balances of interest-earning assets, combined with higher spreads on those assets.~~

~~Table of Contents~~

~~For securities previously identified as other-than-temporarily impaired, the Bank updates its estimate of future~~

~~estimated cash flows on a regular basis. If there is no additional impairment on the security, the yield of the security~~

~~is adjusted upward on a prospective basis and accreted into interest income when there is a significant increase in~~

the expected cash flows. As a result of improvements in the estimated cash flows of securities previously identified as other-than-temporarily impaired, the accretion of yield adjustments is likely to continue to be a positive source of net interest income in future periods.

Member demand for wholesale funding from the Bank can vary greatly depending on a number of factors, including economic and market conditions, competition from other wholesale funding sources, member deposit inflows and outflows, the activity level of the primary and secondary mortgage markets, and strategic decisions made by individual member institutions. As a result, Bank asset levels and operating results may vary significantly from period to period.

~~Other Income/(Loss).~~ ~~The following table presents the components of “Other Income/(Loss)” for the three months ended September 30, 2017 and 2016.~~

Other Income/(Loss)

Three Months Ended
(In millions) September 30, 2017
September 30, 2016
Other Income/(Loss):
Total OTTI loss $ —
$ (1 )
Net amount of OTTI loss reclassified to/(from) AOCI (6 ) (2 )
Net OTTI loss, credit-related (6 ) (3 )
Net gain/(loss) on trading securities⁽¹⁾

—
1
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option (5 ) (18 )
Net gain/(loss) on derivatives and hedging activities 2
15
Gains on litigation settlements, net —
240
Other 5
6
Total Other Income/(Loss) $ (4 ) $ 241

~~(1) The net gain/(loss) on trading securities that were economically hedged totaled a de minimis amount for the three months ended September 30, 2017 and 2016, respectively.~~

~~Net Other-Than-Temporary Impairment Loss, Credit-Related –~~ Each quarter, the Bank updates its OTTI analysis to reflect current housing market conditions, changes in anticipated housing market conditions, observed and anticipated borrower behavior, and updated information on the loans supporting the Bank’s PLRMBS.

Additional information about the OTTI loss is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Investments” and in “Item 1. Financial Statements – Note 6 – Other-Than-Temporary Impairment Analysis.”

~~Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option –~~ ~~The following table presents the net gain/(loss) on advances and consolidated obligation bonds held under the fair value option for the three months ended~~ ~~September 30, 2017~~ ~~and 2016.~~

~~Table of Contents~~

Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option

Three Months Ended
(In millions) September 30, 2017
September 30, 2016
Advances $ (5 ) $ (18 )
Consolidated obligation bonds —
—
Total $ (5 ) $ (18 )

Under the fair value option, the Bank elected to carry certain assets and liabilities at fair value. In general, transactions elected for the fair value option are in economic hedge relationships. Gains or losses on these transactions are generally offset by losses or gains on the derivatives that economically hedge these instruments.

~~The net gains/(losses) on advances and consolidated obligation bonds held under the fair value option were primarily driven by~~ the effects of changes in market interest rates, interest rate ~~spreads, interest rate volatility, and other market factors relative to the actual terms on the advances and consolidated obligation bonds during the period.~~

~~Additional information about advances and consolidated obligation bonds held under the fair value option is provided in “Item 1. Financial Statements– Note 16 – Fair Value.”~~

~~Net Gain/(Loss) on Derivatives and Hedging Activities –~~ The following table shows the accounting classification of hedges and the categories of hedged items that contributed to the gains and losses on derivatives and hedged items that were recorded in “Net gain/(loss) on derivatives and hedging activities” in the third quarter of ~~2017~~ ~~and 2016.~~

Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives and Hedging Activities
Three Months Ended September 30, 2017, Compared to Three Months Ended September 30, 2016

Three Months Ended
(In millions) September 30, 2017 September 30, 2016
Gain/(Loss)

Income/
(Expense) on

Gain/(Loss)

Income/
(Expense) on

Hedged Item
Fair Value
Hedges, Net

Economic
Hedges

Economic
Hedges

Total

Fair Value
Hedges, Net

Economic
Hedges

Economic
Hedges

Total
Advances:
Elected for fair value option $ —
$ 8
$ (5 ) $ 3
$ —
$ 29
$ (11 ) $ 18
Not elected for fair value option 2
(2 ) —
—
1
(5 ) 1
(3 )
Consolidated obligation bonds:

Elected for fair value option —
(1 ) 1
—
—
(2 ) 2
—
Not elected for fair value option (1 ) (3 ) 2
(2 ) (1 ) (6 ) 6
(1 )
Consolidated obligation discount notes:
Not elected for fair value option —
2
(8 ) (6 ) —
5
(5 ) —
Non-MBS investments:
Not elected for fair value option —
1
—
1
—
—
—
—
Mortgage delivery commitment:
Not elected for fair value option —
6
—
6
—
1
—
1
Total $ 1
$ 11
$ (10 ) $ 2
$ —
$ 22
$ (7 ) $ 15

~~During the third quarter of~~ ~~2017~~, net gains on derivatives and hedging activities totaled $2 million compared to net gains of $15 million in the third quarter of 2016. These amounts included expense of $10 million and expense of $7 million resulting from net settlements on derivative instruments used in economic hedges in the third quarter of

~~Table of Contents~~

~~2017~~ and 2016, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on fair value and economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the ~~period.~~

~~The ongoing impact of these valuation adjustments~~period and due to net fair value losses on ~~the Bank cannot be predicted and the effects of these valuation adjustments may lead to significant volatility in future earnings, including earnings available for dividends.~~

~~Additional information about derivatives and~~ hedging activities ~~is provided in “Item 1. Financial Statements– Note 15 – Derivatives and Hedging Activities.”~~

~~Other Expense.~~ During the third quarter of 2017, other expenses totaled $51 million, compared to $39 million in the third quarter of 2016, reflecting the voluntary charitable contributions made during the third quarter of 2017.

~~Quality Jobs Fund Expenseand Other~~– In the first quarter of 2017, the Board of Directors approved an allocation of $100 million for the Quality Jobs Fund, a donor-advised fund established to support quality jobs growth and small business expansion to be funded by the Bank in incremental amounts over the next two years. During the third quarter of 2017, the Bank made a voluntary charitable contribution of $10 million for the Quality Jobs Fund, as well as a voluntary contribution of $1 million to the Affordable Housing Program (AHP) to offset the impact on the AHP assessment of the charitable contribution expense.

~~Table of Contents~~

~~Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016~~

Average Balance Sheets

Nine Months Ended
September 30, 2017 September 30, 2016
(Dollars in millions)
Average
Balance

Interest
Income/
Expense

Average
Rate

Average
Balance

Interest
Income/
Expense

Average
Rate

Assets
Interest-earning assets:
Interest-bearing deposits $ 708
$ 5
0.95 % $ 590
$ 1
0.36 %
Securities purchased under agreements to resell 1,034
7
0.85
3,228
9
0.36
Federal funds sold 10,653
78
0.99
6,705
19
0.38
Trading securities:
Mortgage-backed securities (MBS) 7
—
2.18
9
—
1.89
Other investments 1,398
12
1.16
1,364
6
0.57
Available-for-sale (AFS) securities:⁽¹⁾

MBS⁽²⁾
3,997
181
6.04
4,972
199
5.35
Held-to-maturity (HTM) securities:⁽¹⁾

MBS 12,422
201
2.16
10,379
186
2.39
Other investments 1,017
9
1.17
259
2
0.86
Mortgage loans held for portfolio 1,213
35
3.86
637
22
4.63
Advances⁽³⁾
66,440
587
1.18
62,447
351
0.75
Loans to other FHLBanks 2
—
0.86
1
—
0.38
Total interest-earning assets 98,891
1,115
1.51
90,591
795
1.17
Other assets⁽⁴⁾⁽⁵⁾
943
—
711
—

Total Assets $ 99,834
$ 1,115
$ 91,302
$ 795

Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽³⁾
$ 58,163
$ 468
1.08 % $ 52,453
$ 303
0.77 %
Discount notes 34,381
196
0.76
32,119
96
0.40
Deposits and other borrowings 266
2
0.83
361
—
0.18
Mandatorily redeemable capital stock 408
25
8.37
501
33
8.77
Borrowings from other FHLBanks 11
—
0.56
7
—
0.37
Total interest-bearing liabilities 93,229
691
0.99
85,441
432
0.68
Other liabilities⁽⁴⁾
722
—
718
—

Total Liabilities 93,951
691
86,159
432

Total Capital 5,883
—
5,143
—

Total Liabilities and Capital $ 99,834
$ 691
$ 91,302
$ 432

Net Interest Income $ 424
$ 363

Net Interest Spread⁽⁶⁾
0.52 % 0.49 %
Net Interest Margin⁽⁷⁾
0.57 % 0.54 %
Interest-earning Assets/Interest-bearing Liabilities 106.07 % 106.03 %


~~(1)~~	~~The average balances of AFS securities and HTM securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value or non-credit-related OTTI losses.~~


~~(2)~~	Interest income on AFS securities includes accretion of yield adjustments on other-than-temporarily impaired PLRMBS (resulting from improvement in expected cash flows) totaling $51 million and $61 million for the nine months ended September 30, 2017 and 2016, respectively.


~~(3)~~	~~Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:~~

~~Table of Contents~~

Nine Months Ended
September 30, 2017 September 30, 2016
(In millions)
(Amortization)/
Accretion of
Hedging
Activities

Net Interest
Settlements

Total Net Interest
Income/(Expense)

(Amortization)/
Accretion of
Hedging
Activities

Net Interest
Settlements

Total Net Interest
Income/(Expense)

Advances $ 1
$ (22 ) $ (21 ) $ —
$ (46 ) $ (46 )
Consolidated obligation bonds (1 ) 21
20
4
149
153


~~(4)~~	~~Includes forward settling transactions and valuation adjustments for certain cash items.~~


~~(5)~~	~~Includes non-credit-related OTTI losses on AFS and HTM securities.~~


~~(6)~~	~~Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.~~


~~(7)~~	~~Net interest margin is net interest income (annualized) divided by average interest-earning assets.~~

Net interest income in the first nine months of 2017 was $424 million, a 17% increase from $363 million in the first nine months of 2016. The following table details the changes in interest income and interest expense for the first nine months of 2017 compared to the first nine months of 2016. Changes in both volume and interest rates influence changesincluded in net interest income ~~net interest spread, and net interest margin.~~

Change in Net Interest Income: Rate/Volume Analysis
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016

Increase/
(Decrease)

Attributable to Changes in⁽¹⁾
(In millions) Average Volume
Average Rate
Interest-earning assets:
Interest-bearing deposits $ 4
$ —
$ 4
Securities purchased under agreements to resell (2 ) (9 ) 7
Federal funds sold 59
16
43
Trading securities: Other investments 6
—
6
AFS securities:
MBS (18 ) (42 ) 24
HTM securities:
MBS 15
34
(19 )
Other investments 7
6
1
Mortgage loans held for portfolio 13
17
(4 )
Advances⁽²⁾
236
24
212
Total interest-earning assets 320
46
274
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽²⁾
165
35
130
Discount notes 100
7
93
Deposits and other borrowings 2
—
2
Mandatorily redeemable capital stock (8 ) (6 ) (2 )
Total interest-bearing liabilities 259
36
223
Net interest income $ 61
$ 10
$ 51


~~(1)~~	~~Combined rate/volume variances, a third element of the calculation, are allocated to the rate and volume variances based on their relative sizes.~~


~~(2)~~	~~Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.~~

~~The net interest margin was 57 basis points for the first nine months~~beginning January 1, 2019, upon implementation of 2017, 3 basis points higher than the net interest margin for the first nine months of 2016, which was 54 basis points. The net interest spread was 52 basis points for the first nine months of 2017, 3 basis points higher than the net interest spread for the first nine months of 2016, which was 49 basis points. These increases were primarily related to higher average balances of interest-earning assets, combined with higher spreads on those assets.

~~Table of Contents~~

Accounting Standards Update (ASU) 2017-12.

For securities previously identified as other-than-temporarily impaired, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional impairment on the security, the yield of the security is adjusted upward on a prospective basis and accreted into interest income when there is a significant increase in the expected cash flows. As a result of improvements in the estimated cash flows of securities previously identified as other-than-temporarily impaired, the net accretion of ~~yield adjustments~~income is likely to continue to be a positive source of net interest income in future periods.

Table of Contents

Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the ~~nine~~three months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

													Other Income/(Loss)

	Nine Months Ended						Three Months Ended
(In millions)	September 30, 2017			September 30, 2016			September 30, 2019			September 30, 2018
Other Income/(Loss):
Total OTTI loss	$	(8	)	$	(19	)	$	(3	)	$	(3	)
Net amount of OTTI loss reclassified to/(from) AOCI	(7		)	5			1			—
Net OTTI loss, credit-related	(15		)	(14		)	(2		)	(3		)
Net gain/(loss) on trading securities⁽¹⁾	—			3			—			(1		)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(1		)	22			20			(12		)
Net gain/(loss) on derivatives and hedging activities(2)	(26		)	(73		)	(20		)	18
Gains on litigation settlements, net	119			451
Other	15			14			5			5
Total Other Income/(Loss)	$	92		$	403		$	3		$	7


(1)	The net gain/(loss) on trading securities that were economically hedged totaled ~~$1 million~~de minimis amounts for the ~~nine~~three months ended September 30, ~~2017~~2019 and ~~2016, respectively.~~2018.


(2)	Upon adoption of new hedging guidance applied prospectively on January 1, 2019, amounts reported for 2019 exclude the realized and unrealized gain/(loss) on hedged items and derivatives in qualifying hedge relationships.

Net Other-Than-Temporary Impairment Loss, Credit-Related – Each quarter, the Bank updates its ~~OTTI~~other-than-temporary impairment (OTTI) analysis to reflect current ~~housing market conditions, changes in~~and anticipated housing market conditions, observed and anticipated borrower behavior, and updated information on the loans supporting the Bank’s PLRMBS.

Additional information about the OTTI loss is provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Investments” and in “Item 1. Financial ~~Statements–~~Statements – Note 6 – Other-Than-Temporary Impairment Analysis.”

Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) recognized in earnings on advances and consolidated obligation bonds held under the fair value option for the ~~nine~~three months ended September 30, ~~2017~~2019 and ~~2016.~~2018.

~~Table of Contents~~


Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option
Net Gain/(Loss) on Advances and Consolidated Obligations Bonds Held Under Fair Value Option							Net Gain/(Loss) on Advances and Consolidated Obligations Bonds Held Under Fair Value Option

	Nine Months Ended						Three Months Ended
(In millions)	September 30, 2017			September 30, 2016			September 30, 2019			September 30, 2018
Advances	$	4		$	45		$	22		$	(15	)
Consolidated obligation bonds	(5		)	(23		)	(2		)	3
Total	$	(1	)	$	22		$	20		$	(12	)

The net gains/(losses) on advances and consolidated obligation bonds held under the fair value option were primarily driven by the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the advances and consolidated obligation bonds during the period.

Table of Contents

Additional information about advances and consolidated obligation bonds held under the fair value option is provided in “Item 1. Financial ~~Statements–~~Statements – Note 16 – Fair Value.”

Net Gain/(Loss) on Derivatives and Hedging Activities – Prior to January 1, 2019, for fair value hedges, the amount by which the change in the fair value of the derivative differed from the change in the fair value of the hedged item was recorded in other income as “Net gain/(loss) on derivatives and hedging activities.” The following table shows the accounting classification of hedges and the categories of hedged items that contributed to the gains and losses on derivatives and hedged items that were recorded in “Net gain/(loss) on derivatives and hedging activities” in the ~~first nine months~~third quarter of ~~2017~~2019 and ~~2016.~~

2018.


Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives and Hedging Activities Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016
Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives and Hedging Activities Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018																									Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives and Hedging Activities Three Months Ended September 30, 2019, Compared to Three Months Ended September 30, 2018

	Nine Months Ended																								Three Months Ended
(In millions)	September 30, 2017												September 30, 2016												September 30, 2019⁽¹⁾									September 30, 2018
	Gain/(Loss)						Income/ (Expense) on						Gain/(Loss)						Income/ (Expense) on						Gain/(Loss) on			Income/ (Expense) on						Gain/(Loss)						Income/ (Expense) on
Hedged Item	Fair Value Hedges, Net			Economic Hedges			Economic Hedges			Total			Fair Value Hedges, Net			Economic Hedges			Economic Hedges			Total			Economic Hedges			Economic Hedges			Total			Fair Value Hedges, Net			Economic Hedges			Economic Hedges			Total
Advances:
Elected for fair value option	$	—		$	4		$	(18	)	$	(14	)	$	—		$	(31	)	$	(35	)	$	(66	)	$	(21	)	$	2		$	(19	)	$	—		$	5		$	5		$	10
Not elected for fair value option	(1		)	—			1			—			—			5			2			7			2			(2		)	—			(2		)	7			(3		)	2
Consolidated obligation bonds:
Elected for fair value option	—			3			3			6			—			7			13			20			1			—			1			—			(1		)	(1		)	(2		)
Not elected for fair value option	—			—			5			5			(4		)	(8		)	20			8			4			(2		)	2			—			5			(8		)	(3		)
Consolidated obligation discount notes:
Not elected for fair value option	—			(11		)	(26		)	(37		)	—			(18		)	(22		)	(40		)	(3		)	(1		)	(4		)	—			7			2			9
MBS:
Not elected for fair value option	—			(4		)	—			(4		)	—			(4		)	—			(4		)	(1		)	—			(1		)	1			—			—			1
Mortgage delivery commitment:
Not elected for fair value option	—			18			—			18			—			2			—			2			1			—			1			—			2			—			2
Price alignment amount⁽²⁾																									—			—			—			—			(1		)	—			(1		)
Total	$	(1	)	$	10		$	(35	)	$	(26	)	$	(4	)	$	(47	)	$	(22	)	$	(73	)	$	(17	)	$	(3	)	$	(20	)	$	(1	)	$	24		$	(5	)	$	18


(1)	Upon adoption of new hedge accounting guidance applied prospectively on January 1, 2019, amounts reported for 2019 exclude the realized and unrealized gain/(loss) on hedged items and derivatives in qualifying hedge relationships.


(2)	This amount is for derivatives for which variation margin is characterized as a daily settled contract.

During the ~~first nine months~~third quarter of ~~2017~~,2019, net losses on derivatives and hedging activities totaled ~~$26~~$20 million compared to net ~~losses~~gains of ~~$73~~$18 million in the ~~first nine months~~third quarter of ~~2016.~~2018. These amounts included expense of ~~$35~~$3 million and

~~Table of Contents~~

expense of ~~$22~~$5 million resulting from net settlements on derivative instruments used in economic hedges in the ~~first nine months~~third quarter of ~~2017~~2019 and ~~2016,~~2018, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on fair value and economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.

The ongoing impact of these valuation adjustments on the Bank cannot be predicted and the effects of these valuation adjustments may lead to significant volatility in future earnings, including earnings available for dividends.

Additional information about derivatives and hedging activities is provided in “Item 1. Financial ~~Statements–~~Statements – Note 15 – Derivatives and Hedging Activities.”

~~Gains on Litigation Settlements, Net –~~

Table of Contents

Other Expense. During the ~~first nine months~~third quarter of ~~2017~~ ~~and 2016,~~gains relating to settlements with certain defendants in connection with the Bank’s PLRMBS litigation (after netting certain legal fees and expenses) totaled $119 million and $451 million, respectively.

~~Other Expense.~~ ~~During the first nine months of 2017,~~2019, other expenses totaled ~~$170~~$47 million, compared to ~~$112~~$46 million in the ~~first nine months~~third quarter of ~~2016, reflecting the voluntary charitable contributions made during the first nine months of 2017.~~2018.

Quality Jobs Fund Expenseand Other– In During the ~~first~~third quarter of ~~2017, the Board of Directors approved an allocation of $100 million for the Quality Jobs Fund, a donor-advised fund established to support quality jobs growth~~2019 and ~~small business expansion to be funded by the Bank in incremental amounts over the next two years. During the first nine months of 2017,~~2018, the Bank made voluntary charitable contributions of ~~$50~~$5 million and $5 million, respectively, for the Quality Jobs Fund, as well as voluntary contributions of $6$1 million and $1 million, respectively, to the Affordable Housing Program (AHP) to offset the impact on the AHP assessment of the charitable contribution expense.

Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018



Average Balance Sheets

	Nine Months Ended
	September 30, 2019⁽¹⁾							September 30, 2018
(Dollars in millions)	Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate
Assets
Interest-earning assets:
Interest-bearing deposits	$	2,222		$	40	2.41	%	$	1,601		$	22	1.81	%
Securities purchased under agreements to resell	8,021			144		2.40		4,625			63		1.82
Federal funds sold	5,263			99		2.51		9,616			127		1.77
Trading securities:
MBS	4			—		3.77		6			—		2.90
Other investments	406			8		2.65		745			12		2.04
AFS securities:⁽²⁾
MBS⁽³⁾⁽⁴⁾	8,061			246		4.08		3,429			172		6.72
Other investments⁽⁴⁾	854			15		2.39		—			—		—
HTM securities:⁽²⁾
MBS	9,838			218		2.95		13,225			246		2.49
Other investments	56			1		2.81		430			7		2.16
Mortgage loans held for portfolio	3,247			55		2.24		2,539			70		3.68
Advances⁽⁴⁾	69,233			1,343		2.59		75,794			1,138		2.01
Loans to other FHLBanks	9			—		2.95		1			—		1.70
Total interest-earning assets	107,214			2,169		2.71		112,011			1,857		2.22
Other assets⁽⁵⁾⁽⁶⁾	984			—				856			—
Total Assets	$	108,198		$	2,169			$	112,867		$	1,857
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽⁴⁾	$	73,014		$	1,306	2.39	%	$	75,050		$	1,010	1.80	%
Discount notes	26,993			480		2.38		30,001			373		1.66
Deposits and other borrowings	301			6		2.30		284			3		1.55
Mandatorily redeemable capital stock	188			11		8.10		274			16		7.70
Borrowings from other FHLBanks	7			—		2.43		6			—		1.66
Total interest-bearing liabilities	100,503			1,803		2.40		105,615			1,402		1.77
Other liabilities⁽⁵⁾	1,033			—				583			—
Total Liabilities	101,536			1,803				106,198			1,402
Total Capital	6,662			—				6,669			—
Total Liabilities and Capital	$	108,198		$	1,803			$	112,867		$	1,402
Net Interest Income				$	366						$	455
Net Interest Spread⁽⁷⁾						0.31	%						0.45	%
Net Interest Margin⁽⁸⁾						0.46	%						0.54	%
Interest-earning Assets/Interest-bearing Liabilities	106.68		%					106.06		%

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(1)	Upon adoption of new hedging guidance applied prospectively on January 1, 2019, interest amounts reported for 2019 for advances, investment securities, and consolidated obligation bonds include the realized and unrealized gain/(loss) on hedged items and derivatives in qualifying hedge relationships.


(2)	The average balances of AFS securities and HTM securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value or non-credit-related OTTI losses.


(3)	Interest income on AFS securities includes accretion of yield adjustments on other-than-temporarily impaired PLRMBS (resulting from improvement in expected cash flows) totaling $46 million and $47 million for the nine months ended September 30, 2019 and 2018, respectively.


(4)	Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:



	Nine Months Ended
	September 30, 2019
(In millions)	Advances			AFS Securities			Consolidated Obligation Bonds			Total
Gain/(loss) on designated fair value hedges	$	(2	)	$	(33	)	$	(1	)	$	(36	)
Net interest settlements on derivatives	35			(9		)	(17		)	9
Total net interest income/(expense)	$	33		$	(42	)	$	(18	)	$	(27	)



	Nine Months Ended
	September 30, 2018
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds			Total
(Amortization)/accretion of hedging activities	$	1	$	—	$	—		$	1
Net interest settlements on derivatives	36		1		(13		)	24
Total net interest income/(expense)	$	37	$	1	$	(13	)	$	25


(5)	Includes forward settling transactions and valuation adjustments for certain cash items.


(6)	Includes non-credit-related OTTI losses on AFS and HTM securities.


(7)	Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.


(8)	Net interest margin is net interest income (annualized) divided by average interest-earning assets.

Net interest income in the first nine months of 2019 was $366 million, a 20% decrease from $455 million in the first nine months of 2018. The following table details the changes in interest income and interest expense for the first nine months of 2019 compared to the first nine months of 2018. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.

Table of Contents



Change in Net Interest Income: Rate/Volume Analysis Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018

	Increase/ (Decrease)			Attributable to Changes in⁽¹⁾
(In millions)				Average Volume			Average Rate
Interest-earning assets:
Interest-bearing deposits	$	18		$	10		$	8
Securities purchased under agreements to resell	81			56			25
Federal funds sold	(28		)	(70		)	42
Trading securities: Other investments	(4		)	(7		)	3
AFS securities:
MBS⁽²⁾	74			162			(88		)
Other investments⁽²⁾	15			15			—
HTM securities:
MBS	(28		)	(69		)	41
Other investments	(6		)	(8		)	2
Mortgage loans held for portfolio	(15		)	17			(32		)
Advances⁽²⁾	205			(105		)	310
Total interest-earning assets	312			1			311
Interest-bearing liabilities:
Consolidated obligations:
Bonds⁽²⁾	296			(28		)	324
Discount notes	107			(40		)	147
Deposits and other borrowings	3			—			3
Mandatorily redeemable capital stock	(5		)	(6		)	1
Total interest-bearing liabilities	401			(74		)	475
Net interest income	$	(89	)	$	75		$	(164	)


(1)	Combined rate/volume variances, a third element of the calculation, are allocated to the rate and volume variances based on their relative sizes.


(2)	Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.

The net interest margin was 46 basis points for the first nine months of 2019, 8 basis points lower than the net interest margin for the first nine months of 2018, which was 54 basis points. The net interest spread was 31 basis points for the first nine months of 2019, 14 basis point lower than the net interest spread for the first nine months of 2018, which was 45 basis points. These decreases were primarily due to the effects of changes in market interest rates, interest rate volatility, and other market factors during the period and due to net fair value losses on hedging activities included in net interest income beginning January 1, 2019, upon implementation of ASU 2017-12.

Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the nine months ended September 30, 2019 and 2018.

Table of Contents



Other Income/(Loss)

	Nine Months Ended
(In millions)	September 30, 2019			September 30, 2018
Other Income/(Loss):
Total OTTI loss	$	(8	)	$	(19	)
Net amount of OTTI loss reclassified to/(from) AOCI	—			10
Net OTTI loss, credit-related	(8		)	(9		)
Net gain/(loss) on trading securities⁽¹⁾	(1		)	(2		)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	111			(65		)
Net gain/(loss) on derivatives and hedging activities⁽²⁾	(109		)	66
Other	18			14
Total Other Income/(Loss)	$	11		$	4


(1)	The net gain/(loss) on trading securities that were economically hedged totaled $(1) million and $1 million for the nine months ended September 30, 2019 and 2018, respectively.


(2)	Upon adoption of new hedge accounting guidance applied prospectively on January 1, 2019, amounts reported for 2019 exclude the realized and unrealized gain/(loss) on hedged items and derivatives in qualifying hedge relationships.

OTTI Loss, Credit-Related – Each quarter, the Bank updates its OTTI analysis to reflect current and anticipated housing market conditions, observed and anticipated borrower behavior, and updated information on the loans supporting the Bank’s PLRMBS.

Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) on advances and consolidated obligation bonds held under the fair value option for the nine months ended September 30, 2019 and 2018.



Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option

	Nine Months Ended
(In millions)	September 30, 2019			September 30, 2018
Advances	$	125		$	(78	)
Consolidated obligation bonds	(14		)	13
Total	$	111		$	(65	)

Additional information about advances and consolidated obligation bonds held under the fair value option is provided in “Item 1. Financial Statements – Note 16 – Fair Value.”

Table of Contents



Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives and Hedging Activities Nine Months Ended September 30, 2019, Compared to Nine Months Ended September 30, 2018

	Nine Months Ended
(In millions)	September 30, 2019⁽¹⁾									September 30, 2018
	Gain/(Loss) on			Income/ (Expense) on						Gain/(Loss)						Income/ (Expense) on
Hedged Item	Economic Hedges			Economic Hedges			Total			Fair Value Hedges, Net			Economic Hedges			Economic Hedges			Total
Advances:
Elected for fair value option	$	(127	)	$	17		$	(110	)	$	—		$	74		$	8		$	82
Not elected for fair value option	12			(7		)	5			3			(5		)	(4		)	(6		)
Consolidated obligation bonds:
Elected for fair value option	12			(3		)	9			—			(12		)	(1		)	(13		)
Not elected for fair value option	45			(15		)	30			(1		)	(39		)	(11		)	(51		)
Consolidated obligation discount notes:
Not elected for fair value option	(45		)	—			(45		)	—			48			(4		)	44
MBS:
Not elected for fair value option	(1		)	—			(1		)	1			—			—			1
Mortgage delivery commitment:
Not elected for fair value option	3			—			3			—			11			—			11
Price alignment amount⁽²⁾	—			—			—			—			(2		)	—			(2		)
Total	$	(101	)	$	(8	)	$	(109	)	$	3		$	75		$	(12	)	$	66


(1)	Upon adoption of new hedge accounting guidance applied prospectively on January 1, 2019, amounts reported for 2019 exclude the realized and unrealized gain/(loss) on hedged items and derivatives in qualifying hedge relationships.


(2)	This amount is for derivatives for which variation margin on cleared derivatives is characterized as a daily settled contract.

During the first nine months of 2019, net losses on derivatives and hedging activities totaled $109 million compared to net gains of $66 million in the first nine months of 2018. These amounts included expense of $8 million and expense of $12 million resulting from net settlements on derivative instruments used in economic hedges in the first nine months of 2019 and 2018, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on fair value and economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.

Additional information about derivatives and hedging activities is provided in “Item 1. Financial Statements – Note 15 – Derivatives and Hedging Activities.”

Other Expense. During the first nine months of 2019, other expenses totaled $138 million, compared to $138 million in the first nine months of 2018.

Quality Jobs Fund Expenseand Other– During the first nine months of 2019 and 2018, the Bank made voluntary charitable contributions of $15 million and $20 million, respectively, for the Quality Jobs Fund, as well as voluntary contributions of $2 million and $2 million, respectively, to the AHP to offset the impact on the AHP assessment of the charitable contribution expense.

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Return on Average Equity

Return on average equity (ROE) was ~~5.19%~~3.65% (annualized) for the third quarter of ~~2017,~~2019, compared to ~~21.05%~~6.26% (annualized) for the third quarter of ~~2016.~~2018. The decrease primarily reflected lower net income for the third quarter of ~~2017,~~2019, which decreased ~~72%~~40%, from ~~$291~~$102 million in the third quarter of ~~2016~~2018 to ~~$81~~$61 million in the third quarter of 2017. The decrease in net income primarily reflected a gain on settlements of $240 million (after netting certain legal fees and expenses) in the prior-year period relating to the Bank's PLRMBS litigation. In addition, the decrease in net income reflected the voluntary charitable contributions made during the third quarter of 2017.2019.

~~Return on average equity (ROE)~~ROE was ~~7.03%~~4.29% (annualized) for the first nine months of ~~2017~~,2019, compared to ~~15.19%~~5.76% (annualized) for the first nine months of ~~2016.~~2018. The decrease primarily reflected lower net income for the first nine months of ~~2017~~ ~~resulting primarily~~2019, which decreased 25%, from ~~lower gains on settlements relating to the Bank’s PLRMBS litigation (after netting certain legal fees and expenses) for~~$287 million in the first nine months of ~~2017 and from the voluntary charitable contributions made during~~2018 to $214 million in the first nine months of ~~2017.~~

2019.

Dividends and Retained Earnings

The Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) summarizes the Bank’s capital management principles and objectives, as well as its policies and practices, with respect to retained earnings, dividend payments, and the repurchase of excess capital stock. As required by the regulations governing the operations of the FHLBanks, the Framework is reviewed at least annually by the Bank’s Board of Directors. The Board of Directors may amend the Framework from time to time.

In accordance with the Framework, the Bank retains certain amounts in restricted retained earnings, which are not made available for dividends in the current dividend period. The Bank may be restricted from paying dividends if it

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is not in compliance with any of its minimum capital requirements or if payment would cause the Bank to fail to meet any of its minimum capital requirements. In addition, the Bank may not pay dividends if any principal or interest due on any consolidated obligation has not been paid in full or is not expected to be paid in full, or, under certain circumstances, if the Bank fails to satisfy certain liquidity requirements under applicable regulations.

The regulatory liquidity requirements state that each FHLBank must: (i) maintain eligible high quality assets (advances with a maturity not exceeding five years, U.S. Treasury securities investments, and deposits in banks or trust companies) in an amount equal to or greater than the deposits received from members, and (ii) hold contingent liquidity in an amount sufficient to meet its liquidity needs for at least five business days without access to the consolidated obligations markets. At September 30, 2017, advances maturing within five years totaled $60.6 billion, significantly in excess of the $140 million of member deposits on that date. At December 31, 2016, advances maturing within five years totaled $48.4 billion, significantly in excess of the $169 million of member deposits on that date.

As of September 30, 2017, and December 31, 2016, the Bank held estimated total sources of funds in an amount that would have allowed the Bank to meet its liquidity needs for more than five consecutive business days without issuing new consolidated obligations, subject to certain conditions. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk” in the Bank’s 2016 Form 10-K.

Finance Agency rules do not permit the Bank to pay dividends in the form of capital stock if its excess capital stock exceeds 1% of its total assets. Excess capital stock is defined as the aggregate of the capital stock held by each shareholder in excess of its minimum capital stock requirement, as established by the Bank’s capital plan. As of September 30, 2017, the Bank’s excess capital stock totaled $452 million, or ~~0.41%~~ ~~of total assets.~~

In the third quarter of ~~2017,~~2019, the Bank paid dividends at an annualized rate of 7.00%, totaling ~~$51~~$56 million, including ~~$44~~$53 million in dividends on capital stock and $7$3 million in dividends on mandatorily redeemable capital stock. In the third quarter of ~~2016,~~2018, the Bank paid dividends at an annualized rate of ~~9.17%~~7.00%, totaling ~~$63~~$56 million, including ~~$52~~$51 million in dividends on capital stock and $5 million in dividends on mandatorily redeemable capital stock.

In the first nine months of 2019, the Bank paid dividends at an annualized rate of 7.00%, totaling $166 million, including $155 million in dividends on capital stock and $11 million in dividends on mandatorily redeemable capital stock.

In the first nine months of ~~2017,~~2018, the Bank paid dividends at an annualized rate of ~~7.69%~~7.00%, totaling ~~$164~~$178 million, including ~~$139~~$162 million in dividends on capital stock and ~~$25~~$16 million in dividends on mandatorily redeemable capital stock. In the first nine months of 2016, the Bank paid dividends at an annualized rate of 8.70%, totaling $179 million, including $146 million in dividends on capital stock and $33 million in dividends on mandatorily redeemable capital stock.

The Bank paid these dividends in cash. Dividends on capital stock are recognized as dividends on the Statements of Capital Accounts, and dividends on mandatorily redeemable capital stock are recognized as interest expense on the Statements of Income.

In January 2017, the Framework was amended and approved by the Bank’s Board of Directors to include a dividend philosophy to endeavor to pay a quarterly dividend at an annualized rate between 5% and 7%, which was intended to be considered by the Bank’s Board of Directors beginning with the Bank’s second quarter 2017 dividend declaration. The decision to declare any dividend and the dividend rate are at the discretion of the Bank’s Board of Directors, which may choose to follow the dividend philosophy as guidance in the dividend declaration.

On October ~~26, 2017,~~24, 2019, the Bank’s Board of Directors declared a cash dividend on the capital stock outstanding during the third quarter of ~~2017~~2019 at an annualized rate of 7.00%, totaling ~~$55~~$54 million, including ~~$48~~$51 million in dividends on capital stock and $7$3 million in dividends on mandatorily redeemable capital stock. The Bank recorded the dividend on October ~~26, 2017.~~24, 2019. The Bank expects to pay the dividend on November ~~13, 2017.~~12, 2019. Dividends on mandatorily redeemable capital stock will be recognized as interest expense in the fourth quarter of ~~2017.~~

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2019.

The Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings, which are not made available in the current dividend ~~period. Prior~~period, and maintains an amount of total retained earnings at least equal to ~~July 2017,~~its required retained earnings as described in the Framework. As determined using the Bank’s ~~Framework had three categories~~methodology, the required level of ~~restricted retained earnings: Valuation Adjustments, Other (which represented a targeted amount), and the Joint Capital Enhancement (JCE Agreement). Under the Framework, the Bank’s~~total retained earnings methodology determined the Bank’s required amount of restricted retained earnings. As determined by the Bank’s Framework, from July 2015 to January 2017, the Bank’s restricted retained earnings requirement was ~~$2,000, and~~$2.5 billion from January ~~2017 to~~2018 through July ~~2017, the Bank’s restricted retained earnings requirement was $2,300.~~

2019. In July ~~2017,~~2019, the ~~Bank’s Board of Directors approved the transfer of all amounts classified as restricted retained earnings, other than the amounts related~~methodology was further revised to the JCE Agreement, to unrestricted retained earnings. As a conforming change related to the transfer, the Bank’s Board of Directors amended the Framework to eliminate two of the categories of restricted retained earnings (Valuation Adjustments and Other) and approved revisions to the Bank’s retained earnings methodology to provide ~~for~~ a required level of ~~all~~ retained earnings of ~~$2,300 for loss protection, capital compliance, and business growth.~~$2.4 billion. The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the ~~JCE~~Joint Capital Enhancement Agreement) and unrestricted retained earnings.

~~Retained earnings related to the JCE Agreement totaled $562 million and $500 million at September 30, 2017, and December 31, 2016, respectively. Additional restricted~~ The Bank’s retained earnings ~~totaled $1.7 billion~~requirement may be changed at ~~December 31, 2016.~~any time. The Board of Directors periodically reviews the retained earnings methodology and analysis to determine whether any adjustments are appropriate. Total restricted retained earnings were ~~$562~~$690 million and ~~$2.2 billion~~$647 million as of September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.

The Bank will continue to monitor the condition of its ~~PLRMBS portfolio, the ratio of the Bank’s estimated market value of total~~balance sheet, its financial performance, its capital ~~to par value of capital stock, its~~position, overall financial ~~performance and retained earnings, developments in the mortgage and credit markets,~~market conditions, and other relevant information as the basis for determining the payment of dividends in future quarters.

For more information, see “Item 1. Financial Statements – Note 13 – Capital” in this report and see “Item 1. Business – Dividends and Retained ~~Earnings”~~Earnings,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk,” and “Item 8. Financial Statements and

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Supplementary Data – Note 15 – Capital – Excess Stock Repurchase, Retained Earnings, and Dividend ~~Framework.”~~Framework” in the Bank’s ~~2016~~

2018 Form ~~10–~~10‑K.

Financial Condition

Total assets were ~~$109.5~~$104.2 billion at September 30, ~~2017,~~2019, compared to ~~$91.9~~$109.3 billion at December 31, ~~2016.~~2018. Advances ~~increased~~decreased by ~~$11.8~~$10.6 billion, or ~~24%~~14%, to ~~$61.6~~$62.8 billion at September 30, ~~2017,~~2019, from ~~$49.8~~$73.4 billion at December 31, ~~2016.~~2018. MBS investments increased by $0.7 billion, or 4%, to $18.6 billion at September 30, 2019, from $17.9 billion at December 31, 2018. Average total assets were ~~$105.7 billion~~ ~~for the third quarter of 2017, a~~ ~~10%increase~~ ~~compared to~~ ~~$96.3 billion~~ ~~for the third quarter of 2016. Average total assets were $99.8 billion for the first~~ ~~nine~~ ~~months of 2017, a 9% increase compared to $91.3 billion for the first~~ ~~nine~~ ~~months of 2016. Average advances were~~ ~~$71.2 billion~~ ~~for the third quarter of 2017, a~~ 9%~~increase~~ ~~from $65.6~~$101.9 billion for the third quarter of ~~2016. Average advances~~2019 and were ~~$66.4 billion for the first~~ ~~nine~~ ~~months of 2017, a 6% increase from $62.4 billion for the first~~ ~~nine~~ ~~months of 2016. Average non-MBS investments were $15.1~~$102.3 billion for the third quarter of ~~2017,~~2018. Average total assets were $108.2 billion for the first nine months of 2019, a ~~12% increase from $13.5~~4% decrease compared to $112.9 billion for the first nine months of 2018. Average advances were $62.8 billion for the third quarter of ~~2016.~~2019, a 6% decrease from $66.8 billion for the third quarter of 2018. Average ~~non-MBS investments~~advances were ~~$14.8~~$69.2 billion for the first nine months of ~~2017,~~2019, a ~~22% increase~~9% decrease from ~~$12.1~~$75.8 billion for the first nine months of ~~2016.~~

2018. Average MBS were $18.1 billion for the third quarter of 2019, a 12% increase from $16.2 billion for the third quarter of 2018. Average MBS investments were $17.9 billion for the first nine months of 2019, a 7% increase from $16.7 billion for the first nine months of 2018.

Advances outstanding at September 30, ~~2017,~~2019, included ~~net~~ unrealized ~~losses~~gains of ~~$22~~$387 million, of which ~~$39~~$293 million represented unrealized ~~losses~~gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and ~~$17~~$94 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option. Advances outstanding at December 31, ~~2016,~~2018, included unrealized losses of ~~$12~~$61 million, of which ~~$22~~$32 million represented unrealized losses on advances hedged in accordance with the accounting for derivative instruments and hedging activities and ~~$10~~$29 million represented unrealized ~~gains~~losses on economically hedged advances that are carried at fair value in accordance with the fair value

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option. The overall increase in the unrealized ~~losses~~gains on the hedged advances and advances carried at fair value from December 31, ~~2016,~~2018, to September 30, ~~2017,~~2019, was primarily attributable to the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the terms on the Bank’s advances during the period.

Total liabilities were ~~$103.2~~$97.6 billion at September 30, ~~2017, an increase~~2019, a decrease of ~~$16.8~~$5.2 billion from ~~$86.4~~$102.8 billion at December 31, ~~2016, primarily~~2018, reflecting a ~~$18.5~~$5.5 billion ~~increase~~decrease in consolidated obligations outstanding to ~~$102.2~~$96.0 billion at September 30, ~~2017,~~2019, from ~~$83.7~~$101.5 billion at December 31, ~~2016, partially offset by a $1.3 billion decrease in borrowings from other FHLBanks.~~2018. Average total liabilities were ~~$99.6~~$95.3 billion for the third quarter of ~~2017, a~~ ~~10%increase~~ ~~compared to~~ ~~$90.8~~2019 and were $95.8 billion for the third quarter of ~~2016.~~2018. Average total liabilities were ~~$94.0~~$101.5 billion for the first nine months of ~~2017,~~2019, a ~~9% increase~~4% decrease compared to ~~$86.2~~$106.2 billion for the first nine months of ~~2016.~~2018. Average consolidated obligations were ~~$98.2~~$93.8 billion for the third quarter of ~~2017~~2019 and ~~$89.1~~$94.7 billion for the third quarter of ~~2016.~~2018. Average consolidated obligations were ~~$92.5~~$100.0 billion for the first nine months of ~~2017~~2019 and ~~$84.6~~$105.1 billion for the first nine months of ~~2016.~~

2018.

Consolidated obligations outstanding at September 30, ~~2017,~~2019, included unrealized ~~gains~~losses of ~~$12~~$13 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized ~~gains~~losses of $2 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. Consolidated obligations outstanding at December 31, ~~2016,~~2018, included unrealized ~~losses~~gains of $6$48 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized gains of $8$5 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. The ~~increase~~decrease in the net unrealized ~~gains~~losses on the hedged consolidated obligation bonds and on the consolidated obligation bonds carried at fair value from December 31, ~~2016,~~2018, to September 30, ~~2017,~~2019, were primarily attributable to the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the ~~Bank's~~Bank’s consolidated obligation bonds during the period.

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The Bank has never been asked or

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required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of September 30, ~~2017,~~2019, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of the FHLBanks was ~~$1,028.7~~$1,010.3 billion at September 30, ~~2017,~~2019, and ~~$989.3~~$1,031.6 billion at December 31, ~~2016.~~

2018.

Changes in the long-term credit ratings of individual FHLBanks do not necessarily affect the credit rating of the consolidated obligations issued on behalf of the FHLBanks. Rating agencies may change or withdraw a rating from time to time because of various factors, including operating results or actions taken, business developments, or changes in their opinion regarding, among other factors, the general outlook for a particular industry or the economy.

The Bank ~~evaluated the publicly disclosed FHLBank regulatory actions and long-term credit ratings of the other FHLBanks as of September 30, 2017, and as of each period end presented, and~~ does not believe, as of the date of this report, that it is probable that the Bank will be required to repay any principal or interest associated with consolidated obligations for which the Bank is not the primary obligor.

Certain Bank assets, liabilities, and derivatives are indexed to LIBOR. The Bank recognizes that the possible discontinuation of LIBOR presents risks and challenges that could have an impact on the Bank’s business. For information about the risks to the Bank from discontinuation of LIBOR, see “Part I. Item 1A. Risk Factors” in the Bank’s 2018 Form 10‑K. Accordingly, the Bank has established the LIBOR Transition Working Group, led by the Chief Financial Officer, and developed a LIBOR Phase Out Transition Plan (Transition Plan). Among other things, the Transition Plan addresses three key strategies to mitigate the risks to the Bank associated with the discontinuation of LIBOR: (i) execute hedging strategies that permit alternative reference rates, including the Secured Overnight Financing Rate (SOFR), (ii) transact SOFR-indexed advances and bonds, and (iii) where practicable, implement improved fallback provisions for the discontinuation of LIBOR in new and legacy contracts. In addition, the Transition Plan limits new LIBOR transactions with maturities beyond the end of 2021 consistent with the limits set by the Finance Agency’s Supervisory Letter issued on September 27, 2019. The Transition Plan states that the Bank’s Asset and Liability Management Committee has primary responsibility for driving the transition from LIBOR to SOFR and that the Bank’s Business Development Committee is responsible for advance product development to facilitate our members’ transition from LIBOR to an alternative index.

Market activity in SOFR-indexed financial instruments continues to increase. During the nine months ended September 30, 2019, the Bank issued $37.8 billion in SOFR-indexed consolidated obligation bonds. For more information on LIBOR-indexed advances see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.” For more information on LIBOR-indexed investments and derivatives, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management.”

Segment Information

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includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivatives and hedging activities” in other income and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” Other key financial information, such as any credit-related OTTI losses on the Bank’s PLRMBS, other expenses, and assessments, is not included in the segment reporting analysis, but is incorporated into the Bank’s overall assessment of financial performance. For a reconciliation of the Bank’s operating segment adjusted net interest income to the Bank’s total net interest income, see “Item 1. Financial Statements – Note 14 – Segment Information.”

Advances-Related Business. The advances-related business consists of advances and other credit products, related financing and hedging instruments, ~~and~~ liquidity and other non-MBS investments associated with the Bank’s role as a liquidity provider, and capital. Assets associated with this segment ~~increased $16.3~~decreased $6.2 billion to ~~$90.3~~$82.1 billion ~~(82%~~(79% of total assets) at September 30, ~~2017~~,2019, from ~~$74.0~~$88.3 billion (81% of total assets) at December 31, ~~2016~~.2018.

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Adjusted net interest income for this segment is derived primarily from the difference, or spread, between the yield on advances and non-MBS investments and the cost of the consolidated obligations funding these assets, including the net settlements from associated interest rate exchange agreements, and from earnings ~~on capital.~~attributed to the Bank’s capital stock and retained earnings.

Adjusted net interest income for this segment was ~~$62~~$72 million in the third quarter of ~~2017, an~~ ~~increase~~2019, a decrease of ~~$20~~$10 million, or ~~48%,~~12% compared ~~to $42~~with $82 million in the third quarter of ~~2016~~.2018. The decrease was primarily due to a decline in both spreads and balances on advances-related assets. In the first nine months of ~~2017~~,2019, adjusted net interest income for this segment was ~~$167~~$237 million, an ~~increase~~a decrease of ~~$52~~$2 million, or ~~45%~~1%, compared to ~~$115~~$239 million in the first nine months of ~~2016. The increase~~2018. This decrease was primarily due to a decline in advances balances, partially offset by an improvement in spreads ~~and higher balances on~~in advances-related ~~assets and higher earnings from an increase in spreads on non-MBS investments, partially offset by lower earnings from advance prepayment fees.~~assets.

Adjusted net interest income for this segment represented ~~43%~~55% and ~~33%~~54% of total adjusted net interest income for the third quarter of ~~2017~~,2019 and ~~2016~~,2018, respectively, and ~~40%~~56% and ~~31%~~52% of total adjusted net interest income for the first nine months of ~~2017~~2019 and ~~2016~~,2018, respectively.

~~Members and nonmember borrowers prepaid $3.0 billion of advances in the third quarter of~~ ~~2017~~ ~~compared to $896 million in the third quarter of~~ ~~2016. Interest income was increased by net prepayment fees of $1 million and $3 million in the third quarter of 2017 and 2016, respectively. Members and nonmember borrowers prepaid~~ ~~$6.0 billion~~ ~~of advances in the first nine months of~~ ~~2017~~ ~~compared to~~ ~~$2.8 billion~~ ~~in the first nine months of~~ ~~2016. Interest income was increased by net prepayment fees of $1 million in the first nine months of 2017 and $5 million in the first nine months of 2016.~~

Advances – The par value of advances outstanding ~~increased~~decreased by ~~$11.9~~$11.1 billion, or ~~24%~~15%, to ~~$61.7~~$62.4 billion at September 30, ~~2017,~~2019, from ~~$49.8~~$73.5 billion at December 31, ~~2016.~~2018. Average advances outstanding were ~~$71.2~~$62.8 billion infor the third quarter of ~~2017~~,2019, a ~~9% increase~~6% decrease from ~~$65.6~~$66.8 billion infor the third quarter of ~~2016~~.2018. Average advances outstanding were ~~$66.4~~$69.2 billion infor the first nine months of ~~2017~~,2019, a ~~6% increase~~9% decrease from ~~$62.4~~$75.8 billion infor the first nine months of ~~2016~~.

2018. Outstanding balances of advances may significantly increase and decrease from period to period because of a member’s liquidity and financial strategies.

As of September 30, ~~2017,~~2019, advances outstanding to the Bank’s top five borrowers and their affiliates ~~increased~~decreased by ~~$6.6~~$1.8 billion, and advances outstanding to the Bank’s other borrowers ~~increased~~decreased by ~~$5.3~~$9.3 billion. Advances to the top five borrowers ~~increased~~decreased to ~~$39.0~~$44.0 billion at September 30, ~~2017,~~2019, from ~~$32.4~~$45.8 billion at December 31, ~~2016.~~2018. (See “Item 1. Financial Statements – Note 87 – ~~Advances–~~Advances – Credit and Concentration Risk” for further information.)

The Bank has a significant long-term funding arrangement with a member that contributes to the level of outstanding advances. It is possible that our advances may increase or decrease to the extent our members elect to use alternative funding resources.

The ~~$11.9~~$11.1 billion ~~increase~~decrease in advances outstanding ~~primarily~~ reflected a ~~$11.5~~$4.1 billion ~~increase~~decrease in adjustable rate advances, a $3.6 billion decrease in fixed rate advances, and a ~~$1.1 billion increase in adjustable rate advances, partially offset by a $0.7~~$3.4 billion decrease in variable rate advances.

The Bank has begun to offer SOFR-indexed advances to its members. The components of the advances portfolio at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, are presented in the following table.

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																	Advances Portfolio by Product Type

	September 30, 2017				December 31, 2016				September 30, 2019				December 31, 2018
(Dollar in millions)	Par Value		Percentage of Total Par Value		Par Value		Percentage of Total Par Value		Par Value		Percentage of Total Par Value		Par Value		Percentage of Total Par Value
Adjustable – LIBOR	$	3,157	5	%	$	3,232	6	%	$	8,760	14	%	$	13,532	18	%
Adjustable – LIBOR, callable at borrower’s option	16,495		27		15,396		31		13,250		21		12,500		17
Adjustable – LIBOR, with caps and/or floors and PPS⁽¹⁾	83		—		30		—		30		—		83		—
Adjustable – Other Indices	2		—		2		—
Adjustable – SOFR									5		—		—		—
Subtotal adjustable rate advances	19,737		32		18,660		37		22,045		35		26,115		35
Fixed	29,977		49		20,448		42		20,606		33		31,462		43
Fixed – amortizing	215		—		214		—		243		1		218		—
Fixed – with PPS⁽¹⁾	3,711		6		3,060		6		3,539		6		3,819		5
Fixed – with FPS⁽¹⁾									11,926		19		3,405		5
Fixed – with caps and PPS⁽¹⁾	425		1		375		1		210		—		485		1
Fixed – callable at borrower’s option	1,302		2		2		—		74		—		752		1
Fixed – callable at borrower’s option with PPS⁽¹⁾	106		—		107		—		—		—		3		—
Fixed – putable at Bank’s option	25		—		50		—
Fixed – putable at Bank’s option with PPS⁽¹⁾	—		—		75		—		20		—		20		—
Subtotal fixed rate advances	35,761		58		24,331		49		36,618		59		40,164		55
Daily variable rate	6,153		10		6,866		14		3,776		6		7,216		10
Total par value	$	61,651	100	%	$	49,857	100	%	$	62,439	100	%	$	73,495	100	%

(1)

Partial prepayment symmetry (PPS) ~~is a~~and full prepayment symmetry (FPS) are product ~~feature~~features under which the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. Any prepayment credit on an advance with PPS would be limited to the lesser of 10% of the par value of the advance or the gain recognized on the termination of the associated interest rate swap, which may also include a similar contractual gain limitation.

The table below presents the par value of LIBOR-indexed advances by redemption term at September 30, 2019.



LIBOR-Indexed Advances by Redemption Term

(In millions)
September 30, 2019

(Redemption term)	Par Value
Due in 2019	$	2,200
Due in 2020	9,110
Due in 2021	10,450
Due in 2022 and thereafter⁽¹⁾	280
Total LIBOR-Indexed Advances	$	22,040


(1)	For more information on the Bank’s Transition Plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

For a discussion of advances credit risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Advances.”

Non-MBS Investments –The Bank’s non-MBS investment portfolio consists of financial instruments that are used primarily to facilitate the Bank’s role as a cost-effective provider of credit and liquidity to members and to support the operations of the Bank. The Bank’s total non-MBS investment portfolio was ~~$28.4~~$18.9 billion and ~~$23.9~~$14.5 billion as of September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, respectively. The increase in the total size of the non-MBS investment portfolio reflects ~~higher balances~~new purchases of ~~Federal funds sold, partially offset by lower balances~~U.S. Treasury bonds.

Table of ~~securities purchased under agreements to resell, agency securities, and certificates of deposit.~~Contents

Interest rate payment terms for non-MBS investments classified as ~~HTM~~trading, AFS, and held-to-maturity (HTM) at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, are detailed in the following table:

									Non-MBS Investments: Interest Rate Payment Terms

(In millions)	September 30, 2017		December 31, 2016		September 30, 2019		December 31, 2018
Fair value of trading securities:
Adjustable rate					$	—	$	656
Total trading securities					$	—	$	656
Amortized cost of AFS securities:
Fixed rate					$	5,290	$	—
Total AFS securities					$	5,290	$	—
Amortized cost of HTM securities other than MBS:
Fixed rate	$	500	$	1,350
Adjustable rate	202		225		$	32	$	100
Total	$	702	$	1,575	$	32	$	100

~~Cash and Due from Banks –~~ ~~Cash and due from banks was~~ ~~$7 million~~ at ~~September 30, 2017, a~~ ~~$5 million~~ ~~increase compared to~~ ~~December 31, 2016. Cash and due from banks increased due to the lack of other investment opportunities.~~

~~Table of Contents~~

Borrowings – Total liabilities (primarily consolidated obligations) funding the advances-related business ~~increased~~decreased to ~~$83.9~~$75.6 billion at September 30, ~~2017~~,2019, from ~~$68.5~~$81.7 billion at December 31, ~~2016~~.2018. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” and “Item 1. Financial Statements – Note 17 – Commitments and Contingencies.”

To meet the specific needs of certain investors, fixed and adjustable rate consolidated obligation bonds may contain embedded call options or other features that result in complex coupon payment terms. When these consolidated obligation bonds are issued on behalf of the Bank, typically the Bank simultaneously enters into interest rate exchange agreements with features that offset the complex features of the bonds and, in effect, convert the bonds to adjustable rate ~~instruments tied to an index, primarily LIBOR.~~instruments. For example, the Bank uses fixed rate callable bonds that are typically offset with interest rate exchange agreements with call features that offset the call options embedded in the callable bonds. ~~This combined financing structure enables the Bank to meet its funding needs at costs not generally attainable solely through the issuance of comparable term non-callable debt.~~

At September 30, ~~2017~~,2019, the notional amount of interest rate exchange agreements associated with the advances-related business totaled ~~$53.7~~$82.9 billion,, of which ~~$29.5~~$43.8 billion were hedging advances, ~~$23.4~~$33.9 billion were hedging consolidated obligations, ~~$0.7~~and $5.2 billion were economically hedging ~~trading securities, and $0.1 billion were offsetting derivatives.~~non-MBS investments. At December 31, ~~2016~~,2018, the notional amount of interest rate exchange agreements associated with the advances-related business totaled ~~$59.4~~$89.4 billion,, of which ~~$18.7~~$39.3 billion were hedging advances, ~~$39.9~~$49.6 billion were hedging consolidated obligations, ~~$0.7~~and $0.5 billion were economically hedging trading ~~securities, and $0.1 billion were offsetting derivatives.~~securities. The hedges associated with advances and consolidated obligations were primarily used to convert the fixed rate cash flows ~~and non-LIBOR-indexed cash flows~~ of the advances and consolidated obligations to adjustable rate ~~LIBOR-indexed~~ cash flows or to manage the interest rate sensitivity and net repricing gaps of assets, liabilities, and interest rate exchange agreements.

FHLBank System consolidated obligation bonds and discount notes, along with similar debt securities issued by other GSEs such as Fannie Mae and Freddie Mac, are generally referred to as agency debt. The costs of debt issued by the FHLBanks and the other GSEs generally rise and fall with increases and decreases in general market interest rates.

AsThe following table presents a comparison of selected market interest rates as of September 30, ~~2017,~~2019, and December 31, 2018. The Federal Reserve lowered the target range for overnight Federal funds ~~and rates on~~for the second time since yearend. As of September 30, 2019, the SOFR, 3-month U.S. Treasury ~~bills,~~Bill, 3-month LIBOR, 2-year U.S. Treasury notes, and 5-year U.S. Treasury ~~notes increased compared with~~note rates declined relative to December 31, ~~2016.~~2018.

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Selected Market Interest Rates

Market Instrument September 30, 2017 December 31, 2016 September 30, 2016 December 31, 2015
Federal Reserve target range for overnight Federal funds 1.00-1.25
% 0.50-0.75
% 0.25-0.50
% 0.25-0.50
%
3-month Treasury bill 1.05
0.50
0.27
0.16

3-month LIBOR 1.33
1.00
0.85
0.61

2-year Treasury note 1.49
1.19
0.76
1.05

5-year Treasury note 1.94
1.93
1.15
1.76

The following table presents a comparison of the average issuance cost of FHLBank System consolidated obligation bonds and discount notes converted to LIBOR-indexed liabilities through interest rate swaps in the first ~~nine~~ ~~months of~~ ~~2017~~ ~~and~~ ~~2016. The average issuance cost relative to LIBOR of bonds improved while the average issuance cost of discount notes deteriorated in the first~~ ~~nine~~ ~~months of~~ ~~2017~~ ~~compared to the same period in~~ ~~2016~~.

~~Table of Contents~~

Spread to LIBOR of Average Cost of
Consolidated Obligations for the Nine Months Ended
(In basis points) September 30, 2017 September 30, 2016
Consolidated obligation bonds -22.8 –10.5
Consolidated obligation discount notes (one month and greater) -27.6 –28.3



Selected Market Interest Rates

Market Instrument	September 30, 2019		December 31, 2018		September 30, 2018		December 31, 2017
Federal Reserve target range for overnight Federal funds	1.75-2.00	%	2.25-2.50	%	2.00-2.25	%	1.25-1.50	%
Secured Overnight Financing Rate	2.35		3.00		N/A		N/A
3-month Treasury bill	1.78		2.36		2.16		1.36
3-month LIBOR	2.09		2.81		2.40		1.69
2-year Treasury note	1.62		2.49		2.82		1.89
5-year Treasury note	1.55		2.51		2.95		2.21

Mortgage-Related Business. The mortgage-related business consists of MBS investments, mortgage loans acquired through the Mortgage Partnership ~~Finance (MPF)~~Finance® (MPF®) Program, and the related financing and hedging instruments. (“Mortgage Partnership Finance,” “MPF,” and “MPF Xtra” are registered trademarks of the FHLBank of Chicago.) Adjusted net interest income for this segment is derived primarily from the difference, or spread, between the yield on the MBS investments and mortgage loans and the cost of the consolidated obligations funding those assets, including the net settlements from associated interest rate exchange agreements.

At September 30, ~~2017~~,2019, assets associated with this segment were ~~$19.2~~$22.0 billion (~~18%~~ (21% of total assets), an increase of ~~$1.3~~$0.9 billion from ~~$17.9~~$21.1 billion at December 31, ~~2016~~ (~~19%~~2018 (19% of total assets).

Adjusted net interest income for this segment was ~~$82~~$60 million in the third quarter of ~~2017~~,2019, a decrease of $2$11 million, or 2%15%, ~~from $84~~compared with $71 million in the third quarter of ~~2016~~.2018. In the first nine months of ~~2017~~,2019, adjusted net interest income for this segment was ~~$246~~$186 million, a decrease of $33 million, or 15%, a ~~decrease~~ of $8compared to $219 million~~, or~~ 3%~~, from~~ ~~$254 million~~ in the first nine months of ~~2016~~.2018. The decrease in adjusted net interest income was ~~primarily~~ due to ~~a decrease in accretion of yield adjustments on certain other-than-temporarily impaired PLRMBS, resulting from improvement in expected cash flows. Earnings from~~ lower spreads ~~were largely~~on mortgage-related assets, primarily caused by lower spreads on new MBS investments, higher premium amortization expense, and lower accretion-related income, which more than offset bythe impact of higher average balances onof MBS investments and mortgage loans.

Adjusted net interest income for this segment represented ~~57%~~45% and ~~67%~~46% of total adjusted net interest income for the third quarter of ~~2017~~2019 and ~~2016,~~2018, respectively, and ~~60%~~44% and ~~69%~~48% of total adjusted net interest income for the first nine months of ~~2017~~2019 and ~~2016,~~2018, respectively.

MBS Investments – The Bank’s MBS portfolio was ~~$17.4~~$18.6 billion at September 30, ~~2017~~,2019, compared with ~~$17.0~~$17.9 billion at December 31, ~~2016~~.2018. During the first nine months of ~~2017,~~2019, the Bank’s MBS portfolio increased primarily because of ~~$3.4~~$2.8 billion in new agency MBS ~~investments,~~investment purchases and an increase in basis adjustments for active hedging relationships of $0.6 billion, partially offset by ~~$3.1~~$2.9 billion in principal repayments. Average MBS investments were ~~$16.8~~$18.1 billion in the third quarter of ~~2017,~~2019, an increase of ~~$1.1~~$1.9 billion from ~~$15.7~~$16.2 billion in the third quarter of ~~2016.~~2018. Average MBS investments were ~~$16.4~~$17.9 billion in the first nine months of ~~2017~~,2019, an increase of ~~$1.0~~$1.2 billion from ~~$15.4~~$16.7 billion in the first nine months of ~~2016.~~2018. For a discussion of the composition of the Bank’s MBS ~~portfolio and the Bank’s OTTI analysis of that~~ portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – ~~Investments” and “Item 1. Financial Statements – Note 6 – Other-Than-Temporary Impairment Analysis.~~Investments.”

Intermediate-term and long-term fixed rate MBS investments are subject to prepayment risk, and intermediate-term and long-term adjustable rate MBS investments are also subject to interest rate cap risk. The Bank has managed these risks predominately by purchasing intermediate-term fixed rate MBS (rather than long-term fixed rate MBS), funding the fixed rate MBS with a mix of non-callable and callable debt, and using interest rate exchange agreements with interest rate risk characteristics similar to callable debt. The Bank has purchased interest rate caps to hedge some of the interest rate cap risk associated with the long-term adjustable rate MBS investments.

Interest rate payment terms for MBS ~~securities~~investments classified as trading, AFS, and HTM at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, are shown in the following table:

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									MBS Investments: Interest Rate Payment Terms

(In millions)	September 30, 2017		December 31, 2016		September 30, 2019		December 31, 2018
Amortized cost of MBS:
Passthrough securities:
Fair value of trading securities:
Adjustable rate					$	4	$	5
Total trading securities					$	4	$	5
Amortized cost of AFS securities:
Fixed rate	$	50	$	84	$	7,863	$	4,506
Adjustable rate	2,489		1,414		1,877		2,170
Subtotal	2,539		1,498
Collateralized mortgage obligations:
Total AFS securities					$	9,740	$	6,676
Amortized cost of HTM securities:
Fixed rate	5,089		6,427		$	2,331	$	2,950
Adjustable rate	9,456		8,989		6,203		8,042
Subtotal	14,545		15,416
Total	$	17,084	$	16,914
Total HTM securities					$	8,534	$	10,992

Certain MBS classified as fixed rate passthrough securities and fixed rate collateralized mortgage obligations have an initial fixed interest rate that subsequently converts to an adjustable interest rate on a specified date as follows:

(In millions) September 30, 2017
December 31, 2016
Passthrough securities:
Converts in 1 year or less $ 22
$ 48
Converts after 1 year through 5 years 26
32
Total $ 48
$ 80
Collateralized mortgage obligations:
Converts in 1 year or less $ 8
$ 91
Total $ 8
$ 91

MPF Program – Under the MPF Program, the Bank may purchase from members, for its own portfolio, conventional conforming fixed rate mortgage loans under the MPF Original product and mortgage loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA) under the MPF Government product. In addition, the Bank may facilitate the purchase of conforming fixed rate mortgage loans from members for concurrent sale to Fannie Mae under the MPF Xtra product; of jumbo fixed rate mortgage loans for concurrent sale to Redwood Residential Acquisition Corporation, a subsidiary of Redwood Trust, Inc., a real estate investment trust, under the MPF Direct product; and of government-insured or government-guaranteed mortgage loans that will be packaged into securities backed by the mortgage loans and guaranteed by Ginnie Mae under the MPF Government MBS product. When members sell mortgage loans under the MPF Xtra, MPF Direct, and MPF Government MBS products, the loans are sold to a third-party investor and are not recorded on the Bank’s Statements of Condition.

As of September 30, ~~2017~~,2019, all mortgage loans purchased by the Bank under the MPF Program were qualifying conventional conforming fixed rate, first lien mortgage loans with fully amortizing loan terms of up to 30 years. A conventional loan is one that is not insured by the federal government or any of its agencies. Conforming loan size, which is established annually as required by Finance Agency regulations, may not exceed the loan limits set by the Finance Agency each year. All MPF loans are secured by owner-occupied, one- to four-unit residential properties or single-unit second homes.

~~Table of Contents~~

~~As of~~ ~~September 30, 2017, the Bank had approved 21 members as participating financial institutions since renewing its participation in the MPF Program in 2013.~~ The Bank purchased ~~$1,046~~$910 million in eligible loans under the MPF Original product during ~~the first nine months~~ ~~2017~~.

2019.

Mortgage loan balances increased to ~~$1,774 million~~$3.4 billion at September 30, ~~2017,~~2019, from ~~$826 million~~$3.1 billion at December 31, ~~2016,~~2018, an increase of ~~$948 million.~~$0.3 billion. Average mortgage loans were ~~$1,592 million~~$3.4 billion in the third quarter of ~~2017,~~2019, an increase of ~~$948 million~~$0.6 billion from ~~$644 million~~$2.8 billion in the third quarter of ~~2016.~~2018. Average mortgage loans were ~~$1,213 million~~$3.2 billion in the first nine months of ~~2017,~~2019, an increase of ~~$576 million~~$0.7 billion from ~~$637 million~~$2.5 billion in the first nine months of ~~2016.~~2018.

At September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, the Bank held conventional conforming fixed rate mortgage loans purchased under one of two MPF products, MPF Plus or MPF Original, which are described in greater detail in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF ~~Program.”~~Program” in the Bank’s ~~2016~~2018 Form 10-K. Mortgage loan balances at September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, were as follows:

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													Mortgage Loan Balances by MPF Product Type

(In millions)	September 30, 2017			December 31, 2016			September 30, 2019			December 31, 2018
MPF Plus	$	286		$	354		$	186		$	213
MPF Original	1,429			460			3,116			2,754
Subtotal	1,715			814			3,302			2,967
Unamortized premiums	64			18			83			104
Unamortized discounts	(5		)	(6		)	(3		)	(5		)
Mortgage loans held for portfolio	1,774			826			3,382			3,066
Less: Allowance for credit losses	—			—			—			—
Mortgage loans held for portfolio, net	$	1,774		$	826		$	3,382		$	3,066

The Bank performs periodic reviews of its mortgage loan portfolio to identify probable credit losses in the portfolio and to determine the likelihood of collection on the loans in the portfolio. For more information on the Bank’s mortgage loan portfolio, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF Program” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates – Allowance for Credit Losses – Mortgage Loans Acquired Under the MPF Program” in the Bank’s ~~2016~~2018 Form ~~10-K.~~10‑K.

Borrowings – Total consolidated obligations funding the mortgage-related business increased ~~$1.3~~$0.9 billion to ~~$19.2~~$22.0 billion at September 30, ~~2017,~~2019, from ~~$17.9~~$21.1 billion at December 31, ~~2016, paralleling the increase in MBS investments.~~2018. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” and “Item 1. Financial Statements – Note 17 – Commitments and Contingencies.”

The notional amount of ~~interest rate exchange agreements~~derivative instruments associated with the mortgage-related business totaled ~~$5.0~~$13.2 billion at September 30, ~~2017~~,2019, of which ~~$3.5~~$5.5 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio, $7.6 billion were associated with MBS, and $0.1 billion were associated with mortgage delivery commitments. The notional amount of derivative instruments associated with the mortgage-related business totaled $12.1 billion at December 31, 2018, of which $6.9 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio and ~~$1.5~~$5.2 billion were associated with MBS. ~~The notional amount~~

For information on the Bank’s management of interest rate ~~exchange agreements associated with~~risk and market risk related to the mortgage-related business ~~totaled $5.6 billion at~~ ~~December 31, 2016, of which $3.4 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio~~segment, see “Item 3. Quantitative and ~~$2.2 billion were associated with MBS.~~

Qualitative Disclosures About Market Risk.”

~~Table of Contents~~

Interest Rate Exchange Agreements

A derivative transaction or interest rate exchange agreement is a financial contract whose fair value is generally derived from changes in the value of an underlying asset or liability. The Bank uses interest rate swaps; interest rate cap and floor agreements; and callable and putable interest rate swaps (collectively, interest rate exchange agreements) to manage its exposure to ~~interest rate~~market risks inherent in its ordinary course of business, including its lending, investment, and funding activities. For more information on the primary strategies that the Bank employs

for using interest rate exchange agreements and the associated market risks, see “Item 7. Management’s Discussion

and Analysis of Financial Condition and Results of Operations – Risk Management – Market Risk – Interest Rate

Exchange Agreements” in the Bank’s ~~2016~~2018 Form 10-K.

The following table summarizes the Bank’s interest rate exchange agreements by type of hedged item, hedging instrument, associated hedging strategy, accounting designation as specified under the accounting for derivative instruments and hedging activities, and notional amount as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018.

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													Interest Rate Exchange Agreements

(In millions)			Notional Amount						Notional Amount
Hedging Instrument	Hedging Strategy	Accounting Designation	September 30, 2017		December 31, 2016		Hedging Strategy	Accounting Designation	September 30, 2019		December 31, 2018
Hedged Item: Advances
Pay fixed, receive adjustable interest rate swap	Fixed rate advance converted to a LIBOR adjustable rate	Fair Value Hedge	$	15,398	$	11,880	Fixed rate advance converted to an adjustable rate	Fair Value Hedge	$	27,093	$	30,045
Basis swap	Adjustable rate advance converted to another adjustable rate index to reduce interest rate sensitivity and repricing gaps	Economic Hedge⁽¹⁾	2		2
Pay adjustable, receive adjustable basis swap							Adjustable rate advance converted to another adjustable rate index	Economic Hedge⁽¹⁾	7,550		—
Received fixed, pay adjustable interest rate swap	LIBOR adjustable rate advance converted to a fixed rate	Economic Hedge⁽¹⁾	1,972		1,432		Adjustable rate advance converted to a fixed rate	Economic Hedge⁽¹⁾	2,160		2,237
Pay fixed, receive adjustable interest rate swap	Fixed rate advance converted to a LIBOR adjustable rate	Economic Hedge⁽¹⁾	6,450		1,681		Fixed rate advance converted to an adjustable rate	Economic Hedge⁽¹⁾	3,006		1,815
Pay fixed, receive adjustable interest rate swap; swap may be callable at the Bank’s option or putable at the counterparty’s option	Fixed rate advance (with or without an embedded cap) converted to a LIBOR adjustable rate; advance and swap may be callable or putable; matched to advance accounted for under the fair value option	Economic Hedge⁽¹⁾	5,577		3,677		Fixed rate advance (with or without an embedded cap) converted to an adjustable rate; advance and swap may be callable or putable; matched to advance accounted for under the fair value option	Economic Hedge⁽¹⁾	3,918		5,079
Interest rate cap or floor	Interest rate cap or floor embedded in an adjustable rate advance; matched to advance accounted for under the fair value option	Economic Hedge⁽¹⁾	83		30		Interest rate cap or floor embedded in an adjustable rate advance; matched to advance accounted for under the fair value option	Economic Hedge⁽¹⁾	30		83
Subtotal Economic Hedges⁽¹⁾			14,084		6,822				16,664		9,214
Total			29,482		18,702				43,757		39,259
Hedged Item: Non-Callable Bonds
Receive fixed or structured, pay adjustable interest rate swap	Fixed rate or structured rate non-callable bond converted to a LIBOR adjustable rate	Fair Value Hedge	5,352		8,371		Fixed rate or structured rate non-callable bond converted to an adjustable rate	Fair Value Hedge	3,062		4,496
Receive fixed or structured, pay adjustable interest rate swap	Fixed rate or structured rate non-callable bond converted to a LIBOR adjustable rate	Economic Hedge⁽¹⁾	1,444		6,550		Fixed rate or structured rate non-callable bond converted to an adjustable rate	Economic Hedge⁽¹⁾	525		1,596
Receive fixed or structured, pay adjustable interest rate swap	Fixed rate or structured rate non-callable bond converted to a LIBOR adjustable rate; matched to non-callable bond accounted for under the fair value option	Economic Hedge⁽¹⁾	140		590		Fixed rate or structured rate non-callable bond converted to an adjustable rate; matched to non-callable bond accounted for under the fair value option	Economic Hedge⁽¹⁾	170		235
Basis swap	Fixed rate or adjustable rate non-callable bond previously converted to an adjustable rate index, converted to another adjustable rate to reduce interest rate sensitivity and repricing gaps	Economic Hedge⁽¹⁾	1,625		500		Fixed rate or adjustable rate non-callable bond previously converted to an adjustable rate index, converted to another adjustable rate index to reduce interest rate sensitivity and repricing gaps	Economic Hedge⁽¹⁾	4,235		19,710
Pay fixed, receive adjustable interest rate swap	Fixed rate or adjustable rate non-callable bond, which may have been previously converted to LIBOR, converted to fixed rate debt that offsets the interest rate risk of mortgage assets	Economic Hedge⁽¹⁾	3,000		—
Subtotal Economic Hedges⁽¹⁾			6,209		7,640				4,930		21,541
Total			11,561		16,011				7,992		26,037

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														Interest Rate Exchange Agreements (continued)

(In millions)			Notional Amount							Notional Amount
Hedging Instrument	Hedging Strategy	Accounting Designation	September 30, 2017		December 31, 2016			Hedging Strategy	Accounting Designation	September 30, 2019		December 31, 2018
Hedged Item: Callable Bonds
Receive fixed or structured, pay adjustable interest rate swap with an option to call at the counterparty’s option	Fixed or structured rate callable bond converted to a LIBOR adjustable rate; swap is callable	Fair Value Hedge	1,632		490			Fixed or structured rate callable bond converted to an adjustable rate; swap is callable	Fair Value Hedge	2,013		2,214
Receive fixed or structured, pay adjustable interest rate swap with an option to call at the counterparty’s option	Fixed or structured rate callable bond converted to a LIBOR adjustable rate; swap is callable	Economic Hedge⁽¹⁾	2,927		685			Fixed or structured rate callable bond converted to an adjustable rate; swap is callable	Economic Hedge⁽¹⁾	2,077		3,657
Receive fixed or structured, pay adjustable interest rate swap with an option to call at the counterparty’s option	Fixed or structured rate callable bond converted to a LIBOR adjustable rate; swap is callable; matched to callable bond accounted for under the fair value option	Economic Hedge⁽¹⁾	855		950			Fixed or structured rate callable bond converted to an adjustable rate; swap is callable; matched to callable bond accounted for under the fair value option	Economic Hedge⁽¹⁾	405		1,789
Subtotal Economic Hedges⁽¹⁾			3,782		1,635					2,482		5,446
Total			5,414		2,125					4,495		7,660
Hedged Item: Discount Notes
Pay fixed, receive adjustable callable interest rate swap	Discount note, which may have been previously converted to LIBOR, converted to fixed rate callable debt that offsets the prepayment risk of mortgage assets	Economic Hedge⁽¹⁾	1,510		1,535			Discount note, which may have been previously converted to an adjustable rate, converted to fixed rate callable debt that offsets the prepayment risk of mortgage assets	Economic Hedge⁽¹⁾	1,205		1,725
Basis swap or receive fixed, pay adjustable interest rate swap	Discount note converted to one-month LIBOR or other short-term adjustable rate to hedge repricing gaps	Economic Hedge⁽¹⁾	8,005		23,244			Discount note converted to short-term adjustable rate to hedge repricing gaps	Economic Hedge⁽¹⁾	24,654		20,095
Pay fixed, receive adjustable non-callable interest rate swap	Discount note, which may have been previously converted to LIBOR, converted to fixed rate non-callable debt that offsets the interest rate risk of mortgage assets	Economic Hedge⁽¹⁾	450		450			Discount note, which may have been previously converted to an adjustable rate, converted to fixed rate non-callable debt that offsets the interest rate risk of mortgage assets	Economic Hedge⁽¹⁾	1,050		960
Total			9,965		25,229					26,909		22,780
Hedged Item: Trading Securities
Hedged Item: Investment Securities							Hedged Item: Investment Securities
Pay fixed, receive adjustable interest rate swap								Fixed rate investment securities converted to an adjustable rate	Fair Value Hedge	11,859		3,749
Basis swap	Basis swap hedging adjustable rate Federal Farm Credit Bank (FFCB) bonds	Economic Hedge⁽¹⁾	750		750			Basis swap hedging adjustable rate Federal Farm Credit Bank (FFCB) bonds	Economic Hedge⁽¹⁾	—		500
Interest rate cap	Stand-alone interest rate cap used to offset cap risk embedded in floating rate MBS	Economic Hedge⁽¹⁾	1,480		2,150			Interest rate cap used to offset cap risk embedded in floating rate investment securities	Economic Hedge⁽¹⁾	980		1,480
Total			2,230		2,900
Hedged Item: Intermediary Positions and Offsetting Derivatives
Pay fixed, receive adjustable interest rate swap and receive fixed, pay adjustable interest rate swap	Interest rate swap used to offset the economic effect of interest rate swap that is no longer designated to advances, investments, or consolidated obligations	Economic Hedge⁽¹⁾	64		89
Subtotal Economic Hedges⁽¹⁾										980		1,980
Total			64		89					12,839		5,729
Stand-Alone Derivatives
Mortgage delivery commitments	N/A	N/A	10		13			N/A	N/A	95		12
Total			10		13					95		12
Total Notional Amount			$	58,726	$	65,069				$	96,087	$	101,477


(1)	Economic hedges are derivatives that are matched to balance sheet instruments or other derivatives that do not meet the requirements for hedge accounting under the accounting for derivative instruments and hedging activities.

The following tables categorize the notional amounts and estimated fair values of the Bank’s ~~interest rate exchange agreements,~~derivative instruments, unrealized gains and losses from the related hedged items, and estimated fair value gains and losses from financial instruments carried at fair value by type of accounting treatment and product as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018.

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Interest Rate Exchange Agreements Notional Amounts and Estimated Fair Values
Derivative Instruments Notional Amounts and Estimated Fair Values															Derivative Instruments Notional Amounts and Estimated Fair Values

September 30, 2017
September 30, 2019
(In millions)	Notional Amount		Fair Value of Derivatives			Unrealized Gain/(Loss) on Hedged Items			Financial Instruments Carried at Fair Value			Difference			Notional Amount		Fair Value of Derivatives			Unrealized Gain/(Loss) on Hedged Items			Financial Instruments Carried at Fair Value			Difference
Fair value hedges:
Advances	$	15,398	$	38		$	(38	)	$	—		$	—		$	27,093	$	5		$	293		$	—		$	298
Non-callable bonds	5,352		(9		)	9			—			—			3,062		(4		)	(14		)	—			(18		)
Callable bonds	1,632		(3		)	3			—			—			2,013		(1		)	1			—			—
Treasury securities															5,250		—			(5		)	—			(5		)
MBS															6,609		(519		)	647			—			128
Subtotal	22,382		26			(26		)	—			—			44,027		(519		)	922			—			403
Not qualifying for hedge accounting:	Not qualifying for hedge accounting:														Not qualifying for hedge accounting:
Advances	14,084		6			—			6			12			16,664		(8		)	—			83			75
Non-callable bonds	6,209		1			—			(1		)	—			4,930		4			—			(2		)	2
Callable bonds	3,782		(13		)	—			6			(7		)	2,482		(1		)	—			1			—
Discount notes	9,965		18			—			—			18			26,909		—			—			—			—
FFCB bonds	750		(1		)	—			—			(1		)
MBS	1,480		1			—			—			1			980		—			—			—			—
Mortgage delivery commitments	10		—			—			—			—			95		—			—			—			—
Offsetting derivatives	64		—			—			—			—
Subtotal	36,344		12			—			11			23			52,060		(5		)	—			82			77
Total excluding accrued interest	58,726		38			(26		)	11			23			96,087		(524		)	922			82			480
Accrued interest	—		11			(9		)	8			10			—		(1		)	18			9			26
Total	$	58,726	$	49		$	(35	)	$	19		$	33		$	96,087	$	(525	)	$	940		$	91		$	506


December 31, 2016
December 31, 2018
(In millions)	Notional Amount		Fair Value of Derivatives			Unrealized Gain/(Loss) on Hedged Items			Financial Instruments Carried at Fair Value			Difference			Notional Amount		Fair Value of Derivatives			Unrealized Gain/(Loss) on Hedged Items			Financial Instruments Carried at Fair Value			Difference
Fair value hedges:
Advances	$	11,880	$	23		$	(22	)	$	—		$	1		$	30,045	$	(14	)	$	(32	)	$	—		$	(46	)
Non-callable bonds	8,371		7			(8		)	—			(1		)	4,496		(9		)	17			—			8
Callable bonds	490		(1		)	2			—			1			2,214		(30		)	31			—			1
MBS															3,749		(42		)	91			—			49
Subtotal	20,741		29			(28		)	—			1			40,504		(95		)	107			—			12
Not qualifying for hedge accounting:	Not qualifying for hedge accounting:														Not qualifying for hedge accounting:
Advances	6,822		—			—			2			2			9,214		11			—			(43		)	(32		)
Non-callable bonds	7,640		—			—			(1		)	(1		)	21,541		5			—			—			5
Callable bonds	1,635		(16		)	—			10			(6		)	5,446		(46		)	—			14			(32		)
Discount notes	25,229		29			—			—			29			22,780		24			—			—			24
FFCB bonds	750		(1		)	—			—			(1		)	500		(1		)	—			—			(1		)
MBS	2,150		6			—			—			6			1,480		1			—			—			1
Mortgage delivery commitments	13		—			—			—			—			12		—			—			—			—
Offsetting derivatives	89		—			—			—			—
Subtotal	44,328		18			—			11			29			60,973		(6		)	—			(29		)	(35		)
Total excluding accrued interest	65,069		47			(28		)	11			30			101,477		(101		)	107			(29		)	(23		)
Accrued interest	—		12			(10		)	6			8			—		40			(63		)	4			(19		)
Total	$	65,069	$	59		$	(38	)	$	17		$	38		$	101,477	$	(61	)	$	44		$	(25	)	$	(42	)

Credit Risk. For a discussion of derivatives credit exposure, see “Management’s Discussion and Analysis of

Financial Condition and Results of Operations – Risk Management – Derivative Counterparties.”

8480

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Concentration Risk. The following table presents the concentration in derivatives with derivative counterparties whose outstanding notional balances represented 10% or more of the Bank’s total notional amount of derivatives outstanding as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.

2018.

																					Concentration of Derivative Counterparties

(Dollars in millions)	September 30, 2017					December 31, 2016					September 30, 2019					December 31, 2018
Derivative Counterparty	Credit Rating⁽¹⁾	Notional Amount		Percentage of Total Notional Amount		Credit Rating⁽¹⁾	Notional Amount		Percentage of Total Notional Amount		Credit Rating⁽¹⁾	Notional Amount		Percentage of Total Notional Amount		Credit Rating⁽¹⁾	Notional Amount		Percentage of Total Notional Amount
Uncleared
Others	At least BBB	$	12,577	21	%	At least BBB	$	10,032	15	%	At least BBB	$	16,241	17	%	At least BBB	$	24,282	24	%
Subtotal uncleared		12,577		21			10,032		15			16,241		17			24,282		24
Cleared
LCH Ltd⁽²⁾
Credit Suisse Securities (USA) LLC	A	23,797		41		A	30,548		47		A	53,191		55		A	46,425		46
Morgan Stanley & Co. LLC	A	22,342		38		A	20,994		33		A	26,560		28		A	30,758		30
Deutsche Bank Securities Inc.		—		—		BBB	3,482		5
Subtotal cleared		46,139		79			55,024		85			79,751		83			77,183		76
Total⁽³⁾		$	58,716	100	%		$	65,056	100	%		$	95,992	100	%		$	101,465	100	%


(1)	The credit ratings used by the Bank are based on the lower of Moody’s Investors Service (Moody’s) or S&P Global Ratings (S&P) ratings.

(2)

London Clearing House (LCH) Ltd is the Bank’s counterparty for all of its cleared ~~swaps.~~swaps and was upgraded from A+ to AA- by S&P on May 21, 2019. On August 1, 2019, S&P placed LCH Ltd’s AA- rating on CreditWatch Negative after its ultimate parent London Stock Exchange Group PLC (LSE Group) announced a major acquisition. For purposes of clearing swaps with LCH Ltd, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC are the Bank’s clearing agents, and Deutsche Bank Securities Incorporated was one of the Bank’s clearing agents until March 2017. LCH Ltd’s parent, LCH Group Holdings Limited, was rated A+ by S&P. On May 31, 2017, S&P lowered the rating to A and withdrew the rating at LCH Group Holdings Limited’s request. LCH Ltd’s ultimate parent, London Stock Exchange Group, plc., is rated A3 by Moody’s and A- by S&P.agents.


(3)	Total notional amount at September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, does not include ~~$10~~$95 million and ~~$13~~$12 million of mortgage delivery commitments with members, respectively.

Liquidity and Capital Resources

The Bank’s financial strategies are designed to enable the Bank to safely expand and contract its assets, liabilities, and

capital as membership composition and member credit needs change. The Bank’s liquidity and capital resources are

designed to support its financial strategies. The Bank’s primary source of liquidity is its access to the debt capital

markets through consolidated obligation issuance. The maintenance of the Bank’s capital resources is governed by

its capital plan.

Liquidity

The Bank strives to maintain the liquidity necessary to repay maturing consolidated obligations for which it is the

primary obligor, meet other obligations and commitments, and meet expected and unexpected member credit

demands. The Bank monitors its financial position ~~in order~~ to maintain ready access to ~~sufficient liquid~~available funds to

meet normal transaction requirements, take advantage of appropriate investment opportunities, and ~~cover~~

manage unforeseen liquidity demands.

The Bank generally manages operational, contingent, and ~~structural liquidity~~refinancing risks using a portfolio of cash and short-term investments and access to the debt capital markets. In addition, the Bank maintains alternate sources of funds, detailed in its contingent ~~liquidity~~funding plan, which also includes an explanation of how sources of funds may be allocated under stressed market conditions, such as short-term operational disruptions at the Bank or the Office of Finance or short-term disruptions in the debt capital markets. The Bank maintains cash deposits, short-term and high-quality money market investments, and government and agency securities in amounts ~~that may average up to three times the Bank’s capital as a primary source of funds~~ to satisfy these requirements and objectives.

~~Table of Contents~~

The Bank has a regulatory contingent liquidity requirement to maintain at least 5 business days of liquidity to enable it to meet its obligations without issuance of new consolidated obligations. In addition, the Finance Agency

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has established base case liquidity guidelinesthat~~require~~ each FHLBank to maintain sufficient on-balance sheet liquidity ~~in an amount~~ at least equal to its anticipated cash outflows, ~~for two different scenarios. Both scenarios assume~~assuming no new consolidated obligation issuance, renewal of all maturing advances, a specified percentage drawdown on letters of credit balances, and ~~no reliance on repurchase agreements and permit the sale of~~ certain ~~existing~~Treasury investments as ~~determined by~~a source of funds. The Finance Agency’s guidance provides that base case liquidity should generally be maintained for 10 to 30 days. In addition, Finance Agency guidance specifies tolerance levels related to the ~~Finance Agency.~~size of each FHLBank’s funding gaps to measure the difference between assets and liabilities that are scheduled to mature during a specified period, expressed as a percentage of total assets. The ~~two scenarios differ only in~~guidance limits three-month and one-year funding gaps between the ~~treatment~~range of ~~maturing advances. One scenario assumes that~~–10% to –20% and –25% to –35%, respectively. Funding gaps are measured at monthend, using the ~~Bank does not renew any maturing advances. For this scenario,~~average ratio for the Bank must have sufficient liquidity to meet its obligations for 15 calendar days. The second scenario requires the Bank to renew maturing advances for certain members based on specific criteria established by the Finance Agency. For this scenario, the Bank must have sufficient liquidity to meet its obligations for 5 calendar days.

three most recent monthends.

In addition to the regulatory contingent liquidity requirement and the Finance Agency’s guidelines on contingent liquidity, the Bank models its cash commitments and expected cash flows on a daily basis to determine its projected liquidity position. If a market or operational disruption occurred that prevented the issuance of new consolidated obligations, the Bank could meet its obligations by: (i) allowing short-term liquid investments to mature, (ii) using eligible securities as collateral for repurchase agreement borrowings, and (iii) if necessary, allowing advances to mature without renewal. In addition, the Bank may be able to borrow on a short-term unsecured basis from other financial institutions (Federal funds purchased) or other FHLBanks (inter-FHLBank borrowings).

~~The Bank actively monitors~~As of September 30, 2019, and ~~manages structural liquidity risks, which~~December 31, 2018, the Bank ~~defines as maturity mismatches greater than 90 days for~~held total sources ~~and uses~~ of funds ofin an amount that would have allowed the ~~advances~~Bank to meet its liquidity needs for more than five consecutive business segment. Structural liquidity maturity mismatches are identified using maturity gap analysis and valuation sensitivity metrics that quantify the risk associated with the Bank’s structural liquidity position.

days without issuing new consolidated obligations, subject to certain conditions. The following table shows the Bank’s principal financial obligations due, estimated sources of funds available to meet those obligations, and the net difference between funds available and funds needed for the ~~5-business-day~~5-business day period following September 30, ~~2017,~~2019, and December 31, ~~2016.~~

2018.

									Principal Financial Obligations Due and Funds Available for Selected Period

	As of September 30, 2017		As of December 31, 2016		As of September 30, 2019		As of December 31, 2018
(In millions)	5 Business Days		5 Business Days		5 Business Days		5 Business Days
Obligations due:
Demand deposits	$	147	$	184	$	659	$	283
Loans from other FHLBanks	—		1,345		—		250
Discount note and bond maturities and expected exercises of bond call options	3,615		2,412		3,832		4,485
Subtotal obligations due	3,762		3,941		4,491		5,018
Sources of available funds:
Maturing investments	24,497		19,175		14,497		11,312
Available cash	3		1		76		11
Proceeds from scheduled settlements of discount notes and bonds	804		1,346		40		350
Maturing advances and scheduled prepayments	4,166		7,121		4,751		6,946
Subtotal sources of available funds	29,470		27,643		19,364		18,619
Net funds available	$	25,708	$	23,702	$	14,873	$	13,601

For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of

Operations – Liquidity and Capital Resources – Liquidity” and “Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations – Risk Management – Liquidity Risk” in the Bank’s ~~2016~~2018 Form 10‑K.

~~10-K.~~

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Regulatory Capital Requirements

The FHLBank Act and Finance Agency regulations specify that each FHLBank must meet certain minimum regulatory capital standards. The Bank must maintain: (i) total regulatory capital in an amount equal to at least 4% of its total assets, (ii) leverage capital in an amount equal to at least 5% of its total assets, and (iii) permanent capital in an amount that is greater than or equal to its risk-based capital requirement. Because the Bank issues only Class B stock, regulatory capital and permanent capital for the Bank are both composed of retained earnings and Class B stock, including mandatorily redeemable capital stock (which is classified as a liability for financial reporting purposes). Regulatory capital and permanent capital do not include AOCI. Leverage capital is defined as the sum of permanent capital weighted by a 1.5 multiplier plus non-permanent capital. The risk-based capital requirement is equal to the sum of the Bank’s credit risk, market risk, and operations risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency.

The following table shows the Bank’s compliance with the Finance Agency’s capital requirements at September 30, ~~2017~~,2019, and December 31, ~~2016. The Bank’s risk-based capital requirement decreased to $2.0 billion at~~ ~~September 30, 2017, from $2.2 billion at~~ ~~December 31, 2016~~. 2018.

																									Regulatory Capital Requirements

	September 30, 2017						December 31, 2016						September 30, 2019						December 31, 2018
(Dollars in millions)	Required			Actual			Required			Actual			Required			Actual			Required			Actual
Risk-based capital	$	2,049		$	6,383		$	2,241		$	5,883		$	1,550		$	6,441		$	1,899		$	6,522
Total regulatory capital	4,380			6,383			3,678			5,883			$	4,166		$	6,441		$	4,373		$	6,522
Total regulatory capital ratio	4.00		%	5.83		%	4.00		%	6.40		%	4.00		%	6.18		%	4.00		%	5.97		%
Leverage capital	$	5,475		$	9,575		$	4,597		$	8,825		$	5,208		$	9,660		$	5,466		$	9,783
Leverage ratio	5.00		%	8.74		%	5.00		%	9.60		%	5.00		%	9.28		%	5.00		%	8.95		%

The Bank repurchased ~~$331~~$977 million in excess capital stock during the first nine months of ~~2017.~~2019. As a result of ~~recent~~ changes in the Bank’s capital plan, both capital stock and retained earnings are required to support regulatory capital compliance.

~~In accordance with its practice,~~The Bank’s capital plan provides that the Bank ~~plans~~may repurchase some or all of a shareholder’s excess capital stock, including any excess mandatorily redeemable capital stock, at the Bank’s discretion, subject to certain statutory and regulatory requirements. The Bank may also repurchase all of a member’s excess capital stock at a member’s request, at the Bank’s discretion, subject to certain statutory and regulatory requirements. A shareholder’s excess capital stock is defined as any capital stock holdings in excess of the shareholder’s minimum capital stock requirement, as established by the Bank’s capital plan. The Bank’s practice is to repurchase the surplus capital stock of all members and the excess

capital stock of all ~~nonmember shareholders~~former members on ~~November 14, 2017~~.

a daily schedule. Surplus capital stock is defined as any stock holdings in excess of 115% of a member’s minimum stock requirement. The Bank calculates the amount of stock to be repurchased each business day based on the shareholder’s capital stock outstanding after all stock transactions are completed for the day, ensuring that each member and former member would continue to meet its minimum capital stock requirement after the repurchase. The Bank may change this practice at any time.

The Bank’s capital requirements are more fully discussed in “Item 8. Financial Statements and Supplementary Data – Note 15 – Capital” in the Bank’s ~~2016 Form~~2018 10-K.

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Risk Management

The Bank has an integrated corporate governance and internal control framework designed to support effective management of the Bank’s business activities and the risks inherent in these activities. As part of this framework, the Bank’s Board of Directors has adopted a Risk Governance Policy that outlines the key roles and responsibilities of the Board of Directors and management and sets forth how the Bank is organized to achieve its risk management objectives, including the implementation of the Bank’s strategic objectives, risk management strategies, corporate governance, and standards of conduct. The policy also establishes the Bank’s risk governance organizational structure and identifies the general roles and responsibilities of the Board of Directors and management in establishing risk management policies, procedures, and guidelines; in overseeing the enterprise risk profile; and in implementing enterprise risk management processes and business strategies. The policy establishes an independent risk oversight function to identify, assess, measure, monitor, and report on the enterprise risk profile and risk management capabilities of the Bank. For more information, see “Item 7. Management’s Discussion and Analysis of

Financial Condition and Results of Operations – Risk Management” in the Bank’s ~~2016 Form~~2018 10-K.

~~Table of Contents~~

Advances. The Bank manages the credit risk of advances and other credit products by setting the credit and collateral terms available to individual members and housing associates based on their creditworthiness and on the quality and value of the assets they pledge as collateral. The Bank also has procedures to assess the mortgage loan quality and documentation standards of institutions that pledge mortgage loan collateral. In addition, the Bank has collateral policies and restricted lending procedures in place to help manage its exposure to institutions that experience difficulty in meeting their capital requirements or other standards of creditworthiness. These credit and collateral policies balance the Bank’s dual goals of meeting the needs of members and housing associates as a reliable source of liquidity and mitigating credit risk by adjusting credit and collateral terms in view of deterioration in creditworthiness. The Bank has never experienced a credit loss on an advance.

The Bank determines the maximum amount and maximum term of the advances it will make to a member or housing associate based on the institution’s creditworthiness and eligible collateral pledged in accordance with the Bank’s credit and collateral policies and regulatory requirements. The Bank may review and change the maximum amount and maximum term at any time. The maximum amount a member or housing associate may borrow is also limited by the amount and type of collateral pledged because all advances must be fully collateralized.

To identify the credit strength of each borrower and potential borrower, other than insurance companies, community development financial institutions (CDFIs), and housing associates, the Bank assigns each member and each nonmember borrower an internal credit quality rating from one to ten, with one as the highest credit quality rating. These ratings are based on results from the Bank’s credit model, which considers financial, regulatory, and other qualitative information, including regulatory examination reports. The internal ratings are reviewed on an ongoing basis using current available information and are revised, if necessary, to reflect the institution’s current financial position. Credit and collateral terms may be adjusted based on the results of this credit analysis.

The Bank determines the maximum amount and maximum term of the advances it will make to an insurance company based on an ongoing risk assessment that considers the member's financial and regulatory standing and other qualitative information deemed relevant by the Bank. This evaluation results in the assignment of an internal credit quality rating from one to ten, with one as the highest credit quality rating. Approved terms are designed to meet the needs of the individual member while mitigating the unique credit and collateral risks associated with insurance companies, including risks related to the resolution process for insurance companies, which is significantly different from the resolution processes established for the Bank’s insured depository members.

The Bank determines the maximum amount and maximum term of the advances it will make to a CDFI based on an ongoing risk assessment that considers information from the CDFI’s audited annual financial statements, supplemented by additional information deemed relevant by the Bank. Approved terms are designed to meet the needs of the individual member while mitigating the unique credit and collateral risks of CDFIs, which do not file quarterly regulatory financial reports and are not subject to the same inspection and regulation requirements as the Bank’s insured depository members.

The Bank determines the maximum amount and maximum term of the advances it will make to a housing associate based on an ongoing risk assessment that considers the housing associate’s financial and regulatory standing and other qualitative information deemed relevant by the Bank. Approved terms are designed to meet the needs of the individual housing associate while mitigating the unique credit and collateral risks of housing associates, which do not file quarterly regulatory financial reports and are not subject to the same inspection and regulation requirements as the Bank’s insured depository members.

Pursuant to the Bank’s lending agreements with its borrowers, the Bank limits extensions of credit to individual borrowers to a percentage of the market value or unpaid principal balance of the borrower’s pledged collateral, known as the borrowing ~~capacity.~~capacity, which the Bank can change from time to time. The borrowing capacity percentage varies according to several factors, including the charter type of the institution, the collateral type, the value assigned to the collateral, the results of the Bank’s collateral field review of the borrower’s collateral, the pledging method used for loan collateral (specific identification or blanket lien), the amount of loan data provided (detailed or summary reporting), the data reporting frequency (monthly or quarterly), the borrower’s financial strength and condition, and any institution-specific

~~Table of Contents~~

collateral risks. Under the terms of the Bank’s lending agreements, the aggregate borrowing capacity of a borrower’s pledged eligible collateral must meet or exceed the total amount of the borrower’s outstanding advances, other extensions of credit, and certain other borrower obligations and liabilities. The Bank monitors each borrower’s aggregate borrowing capacity and collateral requirements on a daily basis by comparing the institution’s borrowing capacity to its obligations to the Bank.

In addition, the total amount of advances made available to each member or housing associate may be limited by the financing availability assigned by the Bank, which is generally expressed as a percentage of the member’s or housing associate’s ~~assets.~~assets, which the Bank can change from time to time. The amount of financing availability is generally determined by the creditworthiness of the member or housing associate.

When a nonmember financial institution acquires some or all of the assets and liabilities of a member, including outstanding advances and Bank capital stock, the Bank may allow the advances to remain outstanding, at its discretion. The nonmember borrower is required to meet the Bank’s applicable credit, collateral, and capital stock requirements, including requirements regarding creditworthiness and collateral borrowing capacity.

Table of Contents

The following tables present a summary of the status of the credit outstanding and overall collateral borrowing capacity of the Bank’s member and nonmember borrowers as of September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018. During the nine months ended September 30, ~~2017~~,2019, the Bank’s internal credit ratings stayed the same or improved for the majority of members and nonmember borrowers.



Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Credit Quality Rating

(Dollars in millions)
September 30, 2019
	All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
					Collateral Borrowing Capacity⁽²⁾
Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding⁽¹⁾		Total		Used
1-3	272	149	$	81,025	$	244,569	33	%
4-6	54	32	2,118		12,528		17
7-10	6	5	36		74		49
Subtotal	332	186	83,179		257,171		32
CDFIs	7	5	90		96		94
Housing associates	2	—	—		—		—
Total	341	191	$	83,269	$	257,267	32	%


Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Credit Quality Rating

(Dollars in millions)
September 30, 2017
December 31, 2018
	All Members and Nonmembers	Members and Nonmembers with Credit Outstanding							All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
					Collateral Borrowing Capacity⁽²⁾								Collateral Borrowing Capacity⁽²⁾
Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding⁽¹⁾		Total		Used		Number	Number	Credit Outstanding⁽¹⁾		Total		Used
1-3	267	155	$	67,655	$	216,958	31	%	267	161	$	90,322	$	242,351	37	%
4-6	58	27	9,322		22,161		42		56	35	1,183		5,576		21
7-10	6	2	17		49		35		3	2	7		34		21
Subtotal	331	184	76,994		239,168		32		326	198	91,512		247,961		37
CDFIs	6	4	78		103		76		9	5	123		133		92
Housing associates	2	1	93		97		96		2	1	41		118		35
Total	339	189	$	77,165	$	239,368	32	%	337	204	$	91,676	$	248,212	37	%


(1)	Includes advances, letters of credit, the market value of swaps, estimated prepayment fees for certain borrowers, and the credit enhancement obligation on MPF loans.


(2)	Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.



Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Unused Borrowing Capacity

(Dollars in millions)
September 30, 2019
Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding⁽¹⁾		Collateral Borrowing Capacity⁽²⁾
0% – 10%	5	$	788	$	858
11% – 25%	8	2,544		3,202
26% – 50%	25	19,879		35,070
More than 50%	153	60,058		218,137
Total	191	$	83,269	$	257,267

Table of Contents

December 31, 2016

All Members and
Nonmembers
Members and Nonmembers with Credit Outstanding

Collateral Borrowing Capacity⁽²⁾
Member or Nonmember
Credit Quality Rating
Number
Number

Credit
Outstanding⁽¹⁾

Total
Used
1-3 266
155
$ 55,290
$ 181,405
30 %
4-6 62
28
9,662
22,606
43
7-10 3
2
17
46
37
Subtotal 331
185
64,969
204,057
32
CDFIs 6
3
60
82
73
Housing associates 2
1
10
16
63
Total 339
189
$ 65,039
$ 204,155
32 %



December 31, 2018
Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding⁽¹⁾		Collateral Borrowing Capacity⁽²⁾
0% – 10%	5	$	128	$	134
11% – 25%	6	554		690
26% – 50%	33	54,697		93,168
More than 50%	160	36,297		154,220
Total	204	$	91,676	$	248,212


(1)	Includes advances, letters of credit, the market value of swaps, estimated prepayment fees for certain borrowers, and the credit enhancement obligation on MPF loans.


(2)	Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.

Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Unused Borrowing Capacity

(Dollars in millions)
September 30, 2017
Unused Borrowing Capacity
Number of Members and Nonmembers with
Credit Outstanding

Credit
Outstanding⁽¹⁾

Collateral
Borrowing
Capacity⁽²⁾

0% – 10% 3
$ 212
$ 229
11% – 25% 6
592
754
26% – 50% 28
31,965
50,035
More than 50% 152
44,396
188,350
Total 189
$ 77,165
$ 239,368

December 31, 2016
Unused Borrowing Capacity
Number of Members and Nonmembers with
Credit Outstanding

Credit
Outstanding⁽¹⁾

Collateral
Borrowing
Capacity⁽²⁾

0% – 10% 2
$ 26
$ 27
11% – 25% 9
1,791
2,261
26% – 50% 30
33,096
52,503
More than 50% 148
30,126
149,364
Total 189
$ 65,039
$ 204,155


~~(1)~~	~~Includes advances, letters of credit, the market value of swaps, estimated prepayment fees for certain borrowers, and the credit enhancement obligation on MPF loans.~~


~~(2)~~	~~Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.~~

Based on the collateral pledged as security for advances, the Bank’s credit analyses of borrowers’ financial condition, and the Bank’s credit extension and collateral policies, the Bank expects to collect all amounts due according to the contractual terms of the advances. Therefore, no allowance for credit losses on advances is deemed necessary by the Bank. The Bank has never experienced any credit losses on advances.

Securities pledged as collateral are assigned borrowing capacities that reflect the securities’ pricing volatility and market liquidity risks. Securities are delivered to the Bank’s custodian when they are pledged. The Bank prices securities collateral on a daily basis or twice a month, depending on the availability and reliability of external pricing sources. Securities that are normally priced twice a month may be priced more frequently in volatile market conditions. The Bank benchmarks the borrowing capacities for securities collateral to the market on a periodic basis and may review and change the borrowing capacity for any security type at any time. As of September 30, ~~2017~~,2019, the borrowing capacities assigned to U.S. Treasury and agency securities ranged from ~~75%~~80% to ~~98%~~99% of their market

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value. The borrowing capacities assigned to private-label MBS, which must be rated AAA or AA when initially pledged, generally ranged from 65% to ~~85%~~90% of their market value, depending on the underlying collateral (residential mortgage loans, home equity loans, or commercial real estate loans), the rating, and the subordination structure of the respective securities.

The following table presents the securities collateral pledged by all members and by nonmembers with credit outstanding at September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018.


Composition of Securities Collateral Pledged by Members and by Nonmembers with Credit Outstanding	Composition of Securities Collateral Pledged by Members and by Nonmembers with Credit Outstanding								Composition of Securities Collateral Pledged by Members and by Nonmembers with Credit Outstanding

(In millions)	September 30, 2017				December 31, 2016				September 30, 2019				December 31, 2018
Securities Type with Current Credit Ratings	Current Par		Borrowing Capacity		Current Par		Borrowing Capacity		Current Par		Borrowing Capacity		Current Par		Borrowing Capacity
U.S. Treasury (bills, notes, bonds)	$	366	$	356	$	2,377	$	2,315	$	152	$	153	$	1,966	$	1,899
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools)	3,241		3,146		3,147		3,063		2,962		2,917		3,276		3,168
Agency pools and collateralized mortgage obligations	23,030		22,187		8,986		8,559		8,270		8,018		9,245		8,643
PLRMBS – publicly registered investment-grade-rated senior tranches	3		3		1		—
Private-label commercial MBS – publicly registered investment-grade-rated senior tranches									5		5		3		3
PLRMBS – private placement investment-grade-rated senior tranches	72		54		83		62		50		38		58		43
Municipal Bonds – investment-grade-rated	57		51		61		55		2		2		—		—
Total	$	26,769	$	25,797	$	14,655	$	14,054	$	11,441	$	11,133	$	14,548	$	13,756

With respect to loan collateral, most borrowers may choose to pledge loan collateral by specific identification or under a blanket lien. Insurance companies, CDFIs, and housing associates are required to pledge loan collateral by specific identification with monthly reporting. All other borrowers pledging by specific identification must provide a detailed listing of all the loans pledged to the Bank on a monthly basis. With a blanket lien, a borrower generally

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pledges the following loan types, whether or not the individual loans are eligible to receive borrowing capacity: all loans secured by real estate; all loans made for commercial, corporate, or business purposes; and all participations in these loans. Borrowers pledging under a blanket lien may provide a detailed listing of loans or may use a summary reporting method.

The Bank may require certain borrowers to deliver pledged loan collateral to the Bank for one or more reasons, including the following: the borrower is a de novo institution (chartered within the last three years), an insurance company, a CDFI, or a housing associate; the Bank is concerned about the borrower’s creditworthiness; or the Bank is concerned about the maintenance of its collateral or the priority of its security interest. With the exception of insurance companies, CDFIs, and housing associates, borrowers required to deliver loan collateral must pledge those loans under a blanket lien with detailed reporting.

As of September 30, ~~2017~~,2019, of the loan collateral pledged to the Bank, ~~25%~~24% was pledged by 27 institutions by specific identification, ~~51%~~50% was pledged by ~~124~~115 institutions under a blanket lien with detailed reporting, and ~~24%~~26% was pledged by ~~128~~131 institutions under a blanket lien with summary reporting.

As of September 30, ~~2017~~,2019, the Bank’s maximum borrowing capacities as a percentage of the assigned market value of mortgage loan collateral pledged under a blanket lien with detailed reporting were as follows: 90% for first lien residential mortgage loans, 88% for multifamily mortgage loans, 88% for commercial mortgage loans, and 77% for second lien residential mortgage loans. The maximum borrowing capacity for small business, small agribusiness, and small farm loans was 50% of the unpaid principal balance, although most of these loans are pledged under blanket lien with summary reporting, with a maximum borrowing capacity of 25%. The highest borrowing capacities are available to borrowers that pledge under a blanket lien with detailed reporting because the detailed loan information allows the Bank to assess the value of the collateral more precisely and because additional collateral is pledged under the blanket lien that may not receive borrowing capacity but may be liquidated to repay

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advances in the event of default. The Bank may review and change the maximum borrowing capacity for any type of loan collateral at any time.

The table below presents the mortgage loan collateral pledged by all members and by nonmembers with credit outstanding at September 30, ~~2017~~,2019, and December 31, ~~2016~~.

2018.


Composition of Loan Collateral Pledged by Members and by Nonmembers with Credit Outstanding	Composition of Loan Collateral Pledged by Members and by Nonmembers with Credit Outstanding								Composition of Loan Collateral Pledged by Members and by Nonmembers with Credit Outstanding

(In millions)	September 30, 2017				December 31, 2016				September 30, 2019				December 31, 2018
Loan Type	Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity
First lien residential mortgage loans	$	154,370	$	129,112	$	124,257	$	107,775	$	178,746	$	154,741	$	171,487	$	144,748
Second lien residential mortgage loans and home equity lines of credit	23,296		12,678		23,238		13,302		17,953		9,723		19,149		10,539
Multifamily mortgage loans	25,960		19,926		23,191		19,082		31,808		24,530		29,200		22,054
Commercial mortgage loans	66,736		47,326		62,586		44,802		73,236		52,490		74,039		52,365
Loan participations⁽¹⁾	5,178		3,659		5,450		4,375		4,825		3,641		5,207		3,818
Small business, small farm, and small agribusiness loans	3,548		870		3,016		765		4,091		1,009		3,774		932
Other	1		—		—		—		3		—		—		—
Total	$	279,089	$	213,571	$	241,738	$	190,101	$	310,662	$	246,134	$	302,856	$	234,456


(1)	The unpaid principal balance for loan participations is 100% of the outstanding loan amount. The borrowing capacity for loan participations is based on the participated amount pledged to the Bank.

The Bank holds a security interest in subprime residential mortgage loans pledged as collateral. Subprime loans are defined as loans with a borrower FICO score of 660 or less at origination, or if the original FICO score is not available, as loans with a current borrower FICO score of 660 or less. At September 30, ~~2017~~,2019, and December 31, ~~2016~~,2018, the unpaid principal balance of these loans totaled ~~$10~~$7 billion and $9$8 billion, respectively. The Bank reviews

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and assigns borrowing capacities to subprime mortgage loans as it does for all other types of loan collateral, taking into account the known credit attributes in the pricing of the loans. All advances, including those made to borrowers pledging subprime mortgage loans, are required to be fully collateralized. The Bank limits the amount of borrowing capacity that may be supported by subprime collateral.

Investments. The Bank has adopted credit policies and exposure limits for investments that promote risk limitation, diversification, and liquidity. These policies determine eligible counterparties and restrict the amounts and terms of the Bank’s investments with any given counterparty according to the Bank’s own capital position as well as the capital and creditworthiness of the counterparty.

The Bank monitors its investments for substantive changes in relevant market conditions and any declines in fair value. For securities in an unrealized loss position because of factors other than movements in interest rates, such as widening of mortgage asset spreads, the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing the best estimate of the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. If the Bank’s best estimate of the present value of the cash flows expected to be collected is less than the amortized cost basis, the difference is considered the credit loss.

When the fair value of an individual investment security falls below its amortized cost, the Bank evaluates whether the decline is other than temporary. The Bank recognizes an OTTI when it determines that it will be unable to recover the entire amortized cost basis of the security and the fair value of the investment security is less than its amortized cost. The Bank considers its intent to hold the security and whether it is more likely than not that the Bank will be required to sell the security before its anticipated recovery of the remaining cost basis, and other factors. The Bank generally views changes in the fair value of the securities caused by movements in interest rates to be temporary.

The following tables present the Bank’s investment credit exposure at the dates indicated, based on the lowest of the long-term credit ratings provided by Moody’s, S&P, or ~~comparable~~ Fitch Ratings (Fitch) ratings.

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																											Investment Credit Exposure

(In millions)
September 30, 2017
September 30, 2019
	Carrying Value														Carrying Value
	Credit Rating⁽¹⁾														Credit Rating⁽¹⁾
Investment Type	AAA		AA		A		BBB		Below Investment Grade		Unrated		Total		AA		A		BBB		Below Investment Grade		Unrated		Total
Non-MBS
Certificates of deposit	$	—	$	—	$	500	$	—	$	—	$	—	$	500
Housing finance agency bonds:
CalHFA bonds	—		—		202		—		—		—		202
GSEs:
FFCB bonds	—		1,158		—		—				—		1,158
Housing finance agency bonds – CalHFA bonds															$	—	$	32	$	—	$	—	$	—	$	32
U.S. obligations – Treasury securities															5,287		—		—		—		—		5,287
Total non-MBS	—		1,158		702		—		—		—		1,860		5,287		32		—		—		—		5,319
MBS:
Other U.S. obligations – single-family:
Ginnie Mae	—		800		—		—		—		—		800		512		—		—		—		—		512
GSEs – single-family:
Freddie Mac	—		2,209		—		—		—		—		2,209		1,186		—		—		—		—		1,186
Fannie Mae⁽²⁾	—		3,916		8		—		6		—		3,930		2,025		5		—		3		—		2,033
Subtotal	—		6,125		8		—		6		—		6,139		3,211		5		—		3		—		3,219
GSEs – multifamily:
Freddie Mac	—		3,379		—		—		—		—		3,379		3,775		—		—		—		—		3,775
Fannie Mae	—		2,201		—		—		—		—		2,201		7,852		—		—		—		—		7,852
Subtotal	—		5,580		—		—		—		—		5,580		11,627		—		—		—		—		11,627
Total GSEs	—		11,705		8		—		6		—		11,719		14,838		5		—		3		—		14,846
PLRMBS:
Prime	—		—		12		216		684		32		944		47		39		98		230		136		550
Alt-A, option ARM	—		—		—		—		867		—		867
Alt-A, other	3		9		13		65		2,685		310		3,085
Alt-A															64		39		79		1,768		707		2,657
Total PLRMBS	3		9		25		281		4,236		342		4,896		111		78		177		1,998		843		3,207
Total MBS	3		12,514		33		281		4,242		342		17,415		15,461		83		177		2,001		843		18,565
Total securities	3		13,672		735		281		4,242		342		19,275		20,748		115		177		2,001		843		23,884
Interest-bearing deposits	—		50		649		—				—		699		—		2,035		—		—		—		2,035
Securities purchased under agreements to resell	—		13,975		—		—		—		—		13,975		7,700		—		—		—		—		7,700
Federal funds sold⁽³⁾	—		3,018		8,308		500		—		—		11,826		1,571		2,300		—		—		—		3,871
Total investments	$	3	$	30,715	$	9,692	$	781	$	4,242	$	342	$	45,775	$	30,019	$	4,450	$	177	$	2,001	$	843	$	37,490

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(In millions)
December 31, 2016
December 31, 2018
	Carrying Value														Carrying Value
	Credit Rating⁽¹⁾														Credit Rating⁽¹⁾
Investment Type	AAA		AA		A		BBB		Below Investment Grade		Unrated		Total		AA		A		BBB		Below Investment Grade		Unrated		Total
Non-MBS
Certificates of deposit	$	—	$	600	$	750	$	—	$	—	$	—	$	1,350
Housing finance agency bonds:
CalHFA bonds	—		—		225		—		—		—		225
GSEs:
FFCB bonds	—		2,058		—		—		—		—		2,058
Housing finance agency bonds – CalHFA bonds															$	—	$	100	$	—	$	—	$	—	$	100
GSEs – FFCB bonds															656		—		—		—		—		656
Total non-MBS	—		2,658		975		—		—		—		3,633		656		100		—		—		—		756
MBS:
Other U.S. obligations – single-family:
Ginnie Mae	—		959		—		—		—		—		959		614		—		—		—		—		614
GSEs – single-family:
Freddie Mac	—		2,793		—		—		—		—		2,793		1,506		—		—		—		—		1,506
Fannie Mae⁽²⁾	—		5,020		10		—		7		—		5,037		2,588		6		—		4		—		2,598
Subtotal	—		7,813		10		—		7		—		7,830		4,094		6		—		4		—		4,104
GSEs – multifamily:
Freddie Mac	—		1,556		—		—		—		—		1,556		4,351		—		—		—		—		4,351
Fannie Mae	—		1,058		—		—		—		—		1,058		5,110		—		—		—		—		5,110
Subtotal	—		2,614		—		—		—		—		2,614		9,461		—		—		—		—		9,461
Total GSEs	—		10,427		10		—		7		—		10,444		13,555		6		—		4		—		13,565
PLRMBS:
Prime	—		1		1		295		842		2		1,141		57		31		127		309		147		671
Alt-A, option ARM	—		—		—		—		897		—		897
Alt-A, other	5		15		17		128		3,440		3		3,608
Alt-A															101		36		95		2,089		754		3,075
Total PLRMBS	5		16		18		423		5,179		5		5,646		158		67		222		2,398		901		3,746
Total MBS	5		11,402		28		423		5,186		5		17,049		14,327		73		222		2,402		901		17,925
Total securities	5		14,060		1,003		423		5,186		5		20,682		14,983		173		222		2,402		901		18,681
Interest-bearing deposits	—		—		590		—		—		—		590		15		2,540		—		—		—		2,555
Securities purchased under agreements to resell	—		15,500		—		—		—		—		15,500		7,300		—		—		—		—		7,300
Federal funds sold⁽³⁾	—		1,576		2,585		53		—		—		4,214		1,421		2,298		126		—		—		3,845
Total investments	$	5	$	31,136	$	4,178	$	476	$	5,186	$	5	$	40,986	$	23,719	$	5,011	$	348	$	2,402	$	901	$	32,381


(1)	Credit ratings of BB and lower are below investment grade.


(2)	The Bank has one security guaranteed by Fannie Mae but rated D by S&P because of extraordinary expenses incurred during bankruptcy of the security's sponsor.


(3)	Includes ~~$135~~$141 million and ~~$130~~$141 million at September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively, in Federal funds sold to a member counterparty determined by the Bank to have an internal credit rating equivalent to an AA rating.

For all securities in its AFS and HTM portfolios, for Federal funds sold, and for securities purchased under agreements to resell, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.

The Bank invests in short-term unsecured interest-bearing deposits, short-term unsecured Federal funds sold, securities purchased under agreements to resell, and negotiable certificates of deposit with member and nonmember counterparties, all of which are highly rated.

The Bank actively monitors its credit exposures and the credit quality of its counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, likelihood of parental or sovereign support, and the current market perceptions of the counterparties. The Bank may also consider general macroeconomic and market

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conditions and political stability when establishing limits on unsecured investments with U.S. branches and agency offices of foreign commercial banks. As a result of deteriorating financial condition or concerns about adverse economic or market developments, the Bank may reduce limits or terms on unsecured investments or suspend a counterparty.

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Finance Agency regulations limit the amount of unsecured credit that an individual FHLBank may extend to a single counterparty. This limit is calculated with reference to a percentage of either the FHLBank’s or the counterparty’s capital and to the counterparty’s overall credit rating. Under these regulations, the lesser of the FHLBank’s total regulatory capital or the counterparty’s Tier 1 capital is multiplied by a percentage specified in the regulation. The percentages used to determine the maximum amount of term extensions of unsecured credit range from 1% to 15%, depending on the counterparty’s overall credit rating. Term extensions of unsecured credit include on-balance sheet transactions, off-balance sheet commitments, and derivative transactions, but exclude overnight Federal funds sales, even if subject to a continuing contract. (See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Derivative Counterparties” for additional information related to derivatives exposure.)

Finance Agency regulations also permit the FHLBanks to extend additional unsecured credit to the same single counterparty for overnight sales of Federal funds, even if subject to a continuing contract. However, an FHLBank’s total unsecured credit to a single counterparty (total term plus additional overnight Federal funds unsecured credit) may not exceed twice the regulatory limit for term exposures (2% to 30% of the lesser of the FHLBank’s total regulatory capital or the counterparty’s Tier 1 capital, based on the counterparty’s overall credit rating). In addition, the FHLBanks are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks.

Under Finance Agency regulations, the total amount of unsecured credit that an FHLBank may extend to a group of affiliated counterparties for term extensions of unsecured credit and overnight Federal funds sales, combined, may not exceed 30% of the FHLBank’s total capital. These limits on affiliated counterparty groups are in addition to the limits on extensions of unsecured credit applicable to any single counterparty within the affiliated group.

The following table presents the unsecured credit exposure with counterparties by investment type at September 30, ~~2017~~,2019, and December 31, ~~2016~~.2018.

									Unsecured Investment Credit Exposure by Investment Type

	Carrying Value⁽¹⁾				Carrying Value⁽¹⁾
(In millions)	September 30, 2017		December 31, 2016		September 30, 2019		December 31, 2018
Interest-bearing deposits	$	699	$	590	$	2,035	$	2,555
Certificates of deposit	500		1,350
Federal funds sold	11,826		4,214		3,871		3,845
Total	$	13,025	$	6,154	$	5,906	$	6,400


(1)	Excludes unsecured investment credit exposure to U.S. government agencies and instrumentalities, government-sponsored enterprises, and supranational entities and does not include related accrued interest as of September 30, ~~2017~~,2019, and December 31, ~~2016.~~ 2018.

The following table presents the credit ratings of the unsecured investment credit exposures presented by the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks, based on the lowest of the credit ratings provided by Moody’s, S&P, or ~~comparable~~ Fitch ratings. This table does not reflect the foreign sovereign government’s credit rating. At September 30, ~~2017~~, ~~24%~~2019, 27% of the carrying value of unsecured investments held by the Bank were rated AA, and ~~83%~~40% of the Bank’s total unsecured investments were to U.S. branches and agency offices of foreign commercial banks.

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															Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty

(In millions)
September 30, 2017
September 30, 2019
	Carrying Value⁽¹⁾								Carrying Value⁽¹⁾
	Credit Rating⁽²⁾								Credit Rating⁽²⁾
Domicile of Counterparty	AA		A		BBB		Total		AA		A		Total
Domestic⁽³⁾	$	185	$	2,075	$	—	$	2,260	$	141	$	3,385	$	3,526
U.S. subsidiaries of foreign commercial banks	—		—		—		—
Total domestic and U.S. subsidiaries of foreign commercial banks	185		2,075		—		2,260
U.S. branches and agency offices of foreign commercial banks:
Australia	1,033		—		—		1,033		1,180		—		1,180
Canada	500		1,626		—		2,126		—		700		700
France	—		1,138		—		1,138		—		250		250
Germany	—		—		500		500
Japan	—		1,876		—		1,876
Netherlands	—		688		—		688
Norway	—		688		—		688
Sweden	1,350		688		—		2,038
United Kingdom	—		678		—		678
Singapore									250		—		250
Total U.S. branches and agency offices of foreign commercial banks	2,883		7,382		500		10,765		1,430		950		2,380
Total unsecured credit exposure	$	3,068	$	9,457	$	500	$	13,025	$	1,571	$	4,335	$	5,906


(1)	Excludes unsecured investment credit exposure to U.S. government agencies and instrumentalities, government-sponsored enterprises, and supranational entities and does not include related accrued interest as of September 30, ~~2017~~2019.


(2)	Does not reflect changes in ratings, outlook, or watch status occurring after September 30, ~~2017~~2019. These ratings represent the lowest rating available for each unsecured investment owned by the Bank, based on the ratings provided by Fitch, Moody’s, ~~S&P,~~ or ~~comparable Fitch ratings.~~S&P. The Bank’s internal rating may differ from this rating.


(3)	Includes ~~$135~~$141 million at September 30, ~~2017,~~2019, in Federal funds sold to a member counterparty determined by the Bank to have an internal credit rating equivalent to an AA rating.

The following table presents the contractual maturity of the Bank’s unsecured investment credit exposure by the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks. At September 30, ~~2017, 81%~~2019, 96% of the carrying value of unsecured investments held by the Bank had overnight maturities.

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															Contractual Maturity of Unsecured Investment Credit Exposure by Domicile of Counterparty

(In millions)
September 30, 2017
September 30, 2019
	Carrying Value⁽¹⁾								Carrying Value⁽¹⁾
Domicile of Counterparty	Overnight		Due 2 Days Through 30 Days		Due 31 Days Through 90 Days		Total		Overnight		Due 31 Days Through 90 Days		Total
Domestic	$	2,260	$	—	$	—	$	2,260	$	3,526	$	—	$	3,526
U.S. subsidiaries of foreign commercial banks	—		—		—		—
Total domestic and U.S. subsidiaries of foreign commercial banks	2,260		—		—		2,260
U.S. branches and agency offices of foreign commercial banks:
Australia	483		300		250		1,033		1,180		—		1,180
Canada	1,376		—		750		2,126		700		—		700
France	1,138		—		—		1,138		250		—		250
Germany	—		500		—		500
Japan	1,176		—		700		1,876
Netherlands	688		—		—		688
Norway	688		—		—		688
Sweden	2,038		—		—		2,038
United Kingdom	678		—		—		678
Singapore									—		250		250
Total U.S. branches and agency offices of foreign commercial banks	8,265		800		1,700		10,765		2,130		250		2,380
Total unsecured credit exposure	$	10,525	$	800	$	1,700	$	13,025	$	5,656	$	250	$	5,906


(1)	Excludes unsecured investment credit exposure to U.S. government agencies and instrumentalities, government-sponsored enterprises, and supranational entities and does not include related accrued interest as of September 30, ~~2017~~. 2019.

The Bank’s investments may also include housing finance agency bonds issued by housing finance agencies located in Arizona, California, and Nevada, the three states that make up the Bank’s district. These bonds are federally taxable mortgage revenue bonds, collateralized by pools of first lien residential mortgage loans and credit-enhanced by bond insurance. The bonds held by the Bank are issued by the California Housing Finance Agency (CalHFA) and insured by either National Public Financial Guarantee (formerly MBIA Insurance Corporation), or Assured

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Guaranty Municipal Corporation (formerly Financial Security Assurance Incorporated). At September 30, ~~2017~~,2019, all of the bonds were rated at least A by Moody’s or S&P.&P.

For the Bank’s investments in housing finance agency bonds, which were issued by CalHFA, the gross unrealized losses were mainly due to an illiquid market, credit concerns regarding the underlying mortgage collateral, and credit concerns regarding the monoline insurance providers, causing these investments to be valued at a discount to their acquisition cost. The Bank independently modeled cash flows for the underlying collateral, using assumptions for default rates and loss severity that a market participant would deem reasonable, and concluded that the available credit support within the CalHFA structure more than offset the projected underlying collateral losses. The Bank determined that, as of September 30, ~~2017~~,2019, all of the gross unrealized losses on the CalHFA bonds are temporary because the underlying collateral and credit enhancements were sufficient to protect the Bank from losses. As a result, the Bank expects to recover the entire amortized cost basis of these securities. If conditions in the housing and mortgage markets and general business and economic conditions deteriorate, the fair value of the CalHFA bonds may decline further and the Bank may experience OTTI in future periods.

The Bank’s MBS investments include PLRMBS, all of which were AAA-rated at the time of purchase, and

agency residential MBS, which are backed by Fannie Mae, Freddie Mac, or Ginnie Mae. Some of the PLRMBS were issued by and/or purchased from members, former members, or their affiliates. The Bank has investment credit limits and terms for these investments that do not differ for members and nonmembers. Regulatory policy limits total MBS investments to three times the Bank’s regulatory capital at the time of purchase. At September 30, ~~2017~~,2019, the

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Bank’s MBS portfolio was ~~268%~~284% of Bank regulatory capital (as determined in accordance with regulations governing the operations of the FHLBanks). The Bank has not purchased any PLRMBS since the first quarter of 2008.

The Bank executes all MBS investments without preference to the status of the counterparty or the issuer of the investment as a nonmember, member, or affiliate of a member. When the Bank executes non-MBS investments with members, the Bank may give consideration to their secured credit availability and the Bank’s advances price levels.

At September 30, ~~2017~~,2019, PLRMBS representing ~~21%~~13% of the amortized cost of the Bank’s MBS portfolio were labeled Alt-A by the issuer. These PLRMBS are generally collateralized by mortgage loans that are considered less risky than subprime loans but more risky than prime loans. These loans are generally made to borrowers with credit scores that are high enough to qualify for a prime mortgage loan, but the loans may not meet standard underwriting guidelines for documentation requirements, property type, or loan-to-value ratios.

As of September 30, ~~2017~~,2019, the Bank’s investment in MBS had gross unrealized losses totaling ~~$61~~$50 million,~~, most~~ $19 million of which were related to PLRMBS. These gross unrealized losses were primarily due to illiquidity in the MBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

For its agency MBS, the Bank expects to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses. As a result, the Bank determined that, as of September 30, ~~2017~~,2019, all of the gross unrealized losses on its agency MBS are temporary.

To assess whether it expects to recover the entire amortized cost basis of its PLRMBS, the Bank performed a cash flow analysis for all of its PLRMBS as of September 30, ~~2017~~,2019, using two third-party models. The ~~first model projects prepayments, default rates, and loss severities on~~FHLBanks’ OTTI Committee developed a short-term housing price forecast with projected changes ranging from a decrease of 6.0% to an increase of 10.0% over the ~~underlying collateral based on borrower characteristics and~~12-month period beginning July 1, 2019. For the ~~particular attributes~~vast majority of markets, the ~~loans underlying the Bank’s securities, in conjunction with assumptions related primarily to future changes in housing prices and interest rates.~~ A ~~significant input to the first model is the forecast of future~~projected short-term housing price changes range from an increase of 2.0% to an increase of 6.0%. Thereafter, a unique path is projected for ~~the relevant states and core-based statistical areas (CBSAs), which are~~each geographic area based on an assessment of the regional housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the U.S. Office of Management and Budget. As currently defined, a CBSA must contain at least one urban area with a population of 10,000 or more people.

~~The month-by-month projections of future loan performance~~internally developed framework derived from the first model, which reflect projected prepayments, default rates, and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in each securitization structure in accordance with the structure’s prescribed cash flow and loss allocation rules. When the credit enhancement for the senior securities in a securitization is derived from the presence of subordinated securities, losses are generally allocated first to the subordinated securities until their principal balance is reduced to zero. historical data.

The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined ~~based on the model approach described above~~ reflects

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a best-estimate scenario and includes a base case housing price forecast that reflects the expectations for near- and long-term housing price behavior.

The FHLBanks’ OTTI Committee developed a short-term housing price forecast with projected changes ranging from a decrease of 6.0% to an increase of 13.0% over the 12-month period beginning July 1, 2017. For the vast majority of markets, the projected short-term housing price changes range from an increase of 1.0% to an increase of 6.0%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

In addition to evaluating its PLRMBS under a base case (or best estimate) scenario, the Bank performed a cash flow analysis for each of these securities under a more adverse housing price scenario. This more adverse scenario was

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primarily based on a short-term housing price forecast that was five percentage points below the base case forecast, followed by a recovery path with annual rates of housing price growth that were 33.0% lower than the base case.

The following table shows the base case scenario and what the credit-related OTTI loss would have been under the more adverse housing price scenario at September 30, ~~2017~~:2019:

																									OTTI Analysis Under Base Case and Adverse Case Scenarios

	Housing Price Scenario												Housing Price Scenario
	Base Case						Adverse Case						Base Case						Adverse Case
(Dollars in millions)	Number of Securities	Unpaid Principal Balance		Credit- Related OTTI⁽¹⁾			Number of Securities	Unpaid Principal Balance		Credit- Related OTTI⁽¹⁾			Number of Securities	Unpaid Principal Balance		Credit- Related OTTI⁽¹⁾			Number of Securities	Unpaid Principal Balance		Credit- Related OTTI⁽¹⁾
Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Alt-A, other	9	$	173	$	(6	)	10	$	187	$	(8	)
Prime													1	$	43	$	—		1	$	43	$	—
Alt-A													8	187		(2		)	9	197		(3		)
Total	9	$	173	$	(6	)	10	$	187	$	(8	)	9	$	230	$	(2	)	10	$	240	$	(3	)


(1)	Amounts are for the three months ended September 30, ~~2017~~. 2019.

For more information on the Bank’s OTTI analysis and reviews, see “Item 1. Financial Statements – Note 6 – Other-Than-Temporary Impairment Analysis.”

The following table presents the ratings of the Bank’s PLRMBS as of September 30, ~~2017~~,2019, by collateral type at ~~origination and by year of securitization.~~

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origination.

Unpaid Principal Balance of PLRMBS by Year of Securitization and Credit Rating

(In millions)
September 30, 2017
Unpaid Principal Balance

Credit Rating⁽¹⁾

Collateral Type at Origination and Year of Securitization AAA
AA
A
BBB
Below Investment Grade
Unrated
Total
Prime
2008 $ —
$ —
$ —
$ —
$ 119
$ —
$ 119
2007 —
—
—
—
256
35
291
2006 —
—
—
—
29
—
29
2005 —
—
—
14
36
—
50
2004 and earlier —
—
12
201
283
2
498
Total Prime —
—
12
215
723
37
987
Alt-A, option ARM
2007 —
—
—
—
725
—
725
2006 —
—
—
—
134
—
134
2005 —
—
—
—
144
—
144
Total Alt-A, option ARM —
—
—
—
1,003
—
1,003
Alt-A, other
2008 —
—
—
—
80
—
80
2007 —
—
—
—
780
204
984
2006 —
—
—
—
293
108
401
2005 —
2
—
—
1,496
52
1,550
2004 and earlier 3
7
13
64
304
2
393
Total Alt-A, other 3
9
13
64
2,953
366
3,408
Total par value $ 3
$ 9
$ 25
$ 279
$ 4,679
$ 403
$ 5,398



Unpaid Principal Balance of PLRMBS by Credit Rating

(In millions)
September 30, 2019
	Unpaid Principal Balance
	Credit Rating⁽¹⁾
Collateral Type at Origination	AA		A		BBB		Below Investment Grade		Unrated		Total
Prime	$	47	$	38	$	97	$	238	$	157	$	577
Alt-A	64		39		81		1,946		806		2,936
Total par value	$	111	$	77	$	178	$	2,184	$	963	$	3,513


(1)	The credit ratings used by the Bank are based on the lowest of Fitch, Moody’s, or S&P ~~or comparable Fitch ratings~~.ratings. Credit ratings of BB and lower are below investment grade.

The following table presents the ratings of the Bank’s other-than-temporarily impaired PLRMBS at September 30, ~~2017~~,2019, by collateral type at ~~origination and by year of securitization.~~origination.

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Unpaid Principal Balance of Other-Than-Temporarily Impaired PLRMBS
by Year of Securitization and Credit Rating

(In millions)
September 30, 2017
Unpaid Principal Balance

Credit Rating⁽¹⁾

Collateral Type at Origination and Year of Securitization AA
Below Investment Grade
Unrated
Total
Prime
2008 $ —
$ 111
$ —
$ 111
2007 —
221
35
256
2006 —
11
—
11
2005 —
17
—
17
2004 and earlier —
36
—
36
Total Prime —
396
35
431
Alt-A, option ARM
2007 —
725
—
725
2006 —
134
—
134
2005 —
144
—
144
Total Alt-A, option ARM —
1,003
—
1,003
Alt-A, other
2008 —
80
—
80
2007 —
767
204
971
2006 —
293
108
401
2005 —
1,496
52
1,548
2004 and earlier 3
138
—
141
Total Alt-A, other 3
2,774
364
3,141
Total par value $ 3
$ 4,173
$ 399
$ 4,575



Unpaid Principal Balance of Other-Than-Temporarily Impaired PLRMBS by Credit Rating

(In millions)
September 30, 2019
	Unpaid Principal Balance
	Credit Rating⁽¹⁾
Collateral Type at Origination	AA		A		BBB		Below Investment Grade		Unrated		Total
Prime	$	2	$	—	$	3	$	125	$	151	$	281
Alt-A	16		12		78		1,909		803		2,818
Total par value	$	18	$	12	$	81	$	2,034	$	954	$	3,099


(1)	The credit ratings used by the Bank are based on the lowest of Fitch, Moody’s, or S&P ~~or comparable Fitch ratings~~.ratings. Credit ratings of BB and lower are below investment grade.

For the Bank’s PLRMBS, the following table shows the amortized cost, estimated fair value, credit- and non-credit-related OTTI, performance of the underlying collateral based on the classification at the time of origination, and credit enhancement statistics by type of ~~collateral and year of securitization.~~collateral. Credit enhancement is defined as the percentage of subordinated tranches and over-collateralization, if any, in a security structure that will absorb losses before the Bank will experience a loss on the security, expressed as a percentage of the underlying collateral balance. The credit enhancement figures include the additional credit enhancement required by the Bank (above the amounts required for an AAA rating by the credit rating agencies) for selected securities starting in late 2004, and for all securities starting in late 2005. The calculated weighted averages represent the dollar-weighted averages of all the PLRMBS in each category shown. The classification (prime or Alt-A) is based on the model used to run the estimated cash flows for the security, which may not necessarily be the same as the classification at the time of origination.

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PLRMBS Credit Characteristics

(Dollars in millions)
September 30, 2017

Underlying Collateral Performance and
Credit Enhancement Statistics
Collateral Type at Origination and Year of Securitization
Amortized
Cost

Gross
Unrealized
Losses⁽²⁾

Estimated
Fair
Value

Total
OTTI⁽¹⁾

Non-
Credit-
Related
OTTI⁽¹⁾

Credit-
Related
OTTI⁽¹⁾

Weighted
Average
60+ Days
Collateral
Delinquency
Rate

Original
Weighted
Average
Credit
Support

Current
Weighted
Average
Credit
Support

Prime
2008 $ 103
$ —
$ 115
$ —
$ —
$ —
12.78 % 30.00 % 10.35 %
2007 241
(2 ) 251
(1 ) 1
—
13.03
22.90
2.32
2006 24
—
27
—
—
—
13.99
12.37
4.27
2005 49
—
50
—
—
—
11.78
11.94
15.53
2004 and earlier 497
(4 ) 500
—
—
—
6.43
4.50
13.63
Total Prime 914
(6 ) 943
(1 ) 1
—
9.63
13.61
9.72
Alt-A, option ARM
2007 599
(8 ) 652
—
—
—
18.77
44.20
13.58
2006 100
—
120
—
—
—
16.28
44.91
3.95
2005 54
(1 ) 95
—
—
—
15.26
22.81
5.20
Total Alt-A, option ARM 753
(9 ) 867
—
—
—
17.93
41.23
11.09
Alt-A, other
2008 77
—
77
—
—
—
5.58
31.80
22.11
2007 835
(15 ) 874
(6 ) (5 ) (11 ) 17.58
27.00
9.29
2006 283
—
348
—
—
—
17.73
18.45
0.57
2005 1,322
(18 ) 1,401
(1 ) (3 ) (4 ) 11.54
14.44
4.19
2004 and earlier 388
(3 ) 393
—
—
—
9.58
8.26
19.01
Total Alt-A, other 2,905
(36 ) 3,093
(7 ) (8 ) (15 ) 13.65
18.23
7.37
Total $ 4,572
$ (51 ) $ 4,903
$ (8 ) $ (7 ) $ (15 ) 13.71 % 21.66 % 8.49 %



PLRMBS Credit Characteristics

(Dollars in millions)
September 30, 2019
																Underlying Collateral Performance and Credit Enhancement Statistics
Collateral Type at Origination	Amortized Cost		Gross Unrealized Losses⁽²⁾			Estimated Fair Value		Total OTTI⁽¹⁾			Non- Credit- Related OTTI⁽¹⁾		Credit- Related OTTI⁽¹⁾			Weighted Average 60+ Days Collateral Delinquency Rate		Original Weighted Average Credit Support		Current Weighted Average Credit Support
Prime	$	530	$	(4	)	$	547	$	—		$	—	$	—		10.31	%	14.96	%	9.66	%
Alt-A	2,391		(15		)	2,661		(8		)	—		(8		)	12.04		24.08		6.39
Total	$	2,921	$	(19	)	$	3,208	$	(8	)	$	—	$	(8	)	11.76	%	22.58	%	6.93	%


(1)	Amounts are for the ~~nine months~~year ended September 30, ~~2017.~~2019.

~~(2) Represents total gross unrealized losses, including non-credit-related other-than-temporary impairment recognized in AOCI. The unpaid principal~~

balance of Prime, Alt-A, option ARM, and Alt-A, other in a gross unrealized loss position was $259 million, $185 million, and $853 million, respectively, at September 30, 2017, and the amortized cost of Prime, Alt-A, option ARM, and Alt-A, other in a gross unrealized loss position was $260 million, $162 million, and $779 million, respectively, at September 30, 2017.

(2)

Represents total gross unrealized losses, including non-credit-related other-than-temporary impairment recognized in AOCI. The unpaid principal balance of Prime and Alt-A in a gross unrealized loss position was $190 million and $421 million, respectively, at September 30, 2019, and the amortized cost of Prime and Alt-A in a gross unrealized loss position was $190 million and $386 million, respectively, at September 30, 2019.

The following table presents a summary of the significant inputs used to determine potential OTTI credit losses in the Bank’s PLRMBS portfolio at September 30, ~~2017.~~2019.

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Significant Inputs to OTTI Credit Analysis for All PLRMBS

September 30, 2017
Significant Inputs Current
Prepayment Rates Default Rates Loss Severities Credit Enhancement
Year of Securitization Weighted Average % Weighted Average % Weighted Average % Weighted Average %
Prime
2008 15.0 9.6 31.7 15.2
2007 11.0 2.9 20.9 8.7
2006 12.4 3.0 23.4 6.8
2005 18.2 4.5 19.9 12.6
2004 and earlier 18.5 3.2 21.6 12.7
Total Prime 16.9 4.9 24.3 13.0
Alt-A, option ARM
2007 8.0 34.5 43.5 13.7
2006 7.3 36.3 38.6 3.9
2005 8.0 25.0 35.6 5.2
Total Alt-A, option ARM 7.9 33.4 41.7 11.2
Alt-A, other
2007 12.0 23.2 39.4 4.8
2006 10.6 25.5 39.0 7.5
2005 13.9 19.3 35.3 4.4
2004 and earlier 16.5 10.7 30.9 19.2
Total Alt-A, other 13.1 20.4 36.5 6.9
Total 12.7 20.7 35.8 8.5



Significant Inputs to OTTI Credit Analysis for All PLRMBS

September 30, 2019
	Significant Inputs			Current
	Prepayment Rates	Default Rates	Loss Severities	Credit Enhancement
Collateral Type at Origination	Weighted Average %	Weighted Average %	Weighted Average %	Weighted Average %
Prime	20.1	7.4	26.3	13.4
Alt-A	14.9	16.0	39.6	6.2
Total	15.5	15.0	38.1	7.0

Credit enhancement is defined as the subordinated tranches and over-collateralization, if any, in a security structure that will generally absorb losses before the Bank will experience a loss on the security, expressed as a percentage of the underlying collateral balance. The calculated averages represent the dollar-weighted averages of all the PLRMBS investments in each category shown. The classification (prime or Alt-A) is based on the model used to run the estimated cash flows for the security, which may not necessarily be the same as the classification at the time of origination.

The following table presents the fair value of the Bank’s PLRMBS as a percentage of the unpaid principal balance by collateral type at ~~origination and year of securitization.~~

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origination.

Fair Value of PLRMBS as a Percentage of Unpaid Principal Balance by Year of Securitization

Collateral Type at Origination and Year of Securitization September 30,
2017
June 30,
2017
March 31,
2017
December 31,
2016
September 30,
2016
Prime
2008 96.60 % 92.68 % 92.93 % 92.87 % 92.11 %
2007 86.17
83.80
84.87
83.93
82.68
2006 93.98
93.21
92.25
92.38
91.84
2005 100.02
99.55
99.44
98.97
98.37
2004 and earlier 100.21
99.70
99.09
98.68
97.75
Weighted average of all Prime 95.44
94.14
94.15
93.71
92.80
Alt-A, option ARM
2007 90.00
87.34
83.66
83.05
81.85
2006 89.62
86.82
83.04
80.76
80.08
2005 65.67
62.10
57.79
57.58
56.73
Weighted average of all Alt-A, option ARM 86.46
83.66
79.82
79.05
77.92
Alt-A, other
2008 96.70
94.73
93.62
93.31
91.83
2007 88.80
87.38
86.49
85.88
86.23
2006 87.02
85.55
83.63
82.57
82.78
2005 90.35
88.96
87.31
87.11
86.71
2004 and earlier 100.21
99.54
99.10
98.51
97.90
Weighted average of all Alt-A, other 90.80
89.60
88.33
87.86
87.69
Weighted average of all PLRMBS 90.84 % 89.36 % 87.89 % 87.40 % 86.96 %



Fair Value of PLRMBS as a Percentage of Unpaid Principal Balance

Collateral Type at Origination	September 30, 2019		June 30, 2019		March 31, 2019		December 31, 2018		September 30, 2018
Weighted average of all Prime	94.56	%	94.95	%	94.82	%	94.54	%	96.25	%
Weighted average of all Alt-A	90.67		90.82		90.39		89.56		91.02
Weighted average of all PLRMBS	91.31	%	91.50	%	91.13	%	90.41	%	91.92	%

The Bank determined that, as of September 30, ~~2017~~,2019, the gross unrealized losses on the PLRMBS that have not had an OTTI loss are primarily due to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost. The Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire amortized cost basis of these securities. As a result, the Bank determined that, as of September 30, ~~2017~~,2019, all of the gross unrealized losses on these securities are temporary. The Bank will continue to monitor and analyze the performance of these securities to assess the likelihood of the recovery of the entire amortized cost basis of these securities as of each balance sheet date.

If conditions in the housing and mortgage markets and general business and economic conditions deteriorate, the fair value of MBS may decline further and the Bank may experience OTTI of additional PLRMBS in future periods, as well as further impairment of PLRMBS that were identified as other-than-temporarily impaired as of September 30, ~~2017~~.2019. Additional future credit-related OTTI losses could adversely affect the Bank’s earnings and retained earnings and its ability to pay dividends and repurchase capital stock. The Bank cannot predict whether it will be required to record additional credit-related OTTI losses on its PLRMBS in the future.

The Bank has exposure to investment securities with interest rates indexed to LIBOR. The tables below present the unpaid principal balance of adjustable rate investment securities by interest rate index and LIBOR-indexed investment securities by contractual maturity at September 30, 2019. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.

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Adjustable Rate Investment Securities by Interest Rate Index

(In millions)
September 30, 2019

(Interest rate index)	Trading Securities		AFS Securities		HTM Securities
Non-MBS:
LIBOR	$	—	$	—	$	32
Total non-MBS	$	—	$	—	$	32
MBS:
LIBOR	$	—	$	2,313	$	6,143
Other	4		8		63
Total MBS	$	4	$	2,321	$	6,206
Total adjustable rate investment securities	$	4	$	2,321	$	6,238



LIBOR-Indexed Investment Securities by Contractual Maturity

(In millions)
September 30, 2019

(Contractual maturity)	AFS Securities		HTM Securities
Non-MBS:
Due in 2022 and thereafter	$	—	$	32
MBS:
Due in 2022 and thereafter⁽¹⁾⁽²⁾	$	2,313	$	6,143
Total LIBOR-indexed investment securities	$	2,313	$	6,175


(1)	MBS are presented by contractual maturity; however, their expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment fees.


(2)	For more information on the Bank’s Transition Plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

Derivative Counterparties. The Bank has also adopted credit policies and exposure limits for uncleared derivatives credit exposure. Over-the-counter derivatives may be either entered into directly with a counterparty (uncleared derivatives) or executed either with an executing dealer or on a swap execution facility and then cleared through a futures commission merchant (clearing agent) with a derivatives clearing organization (cleared derivatives).

Uncleared Derivatives. The Bank selects only highly rated derivative dealers and major banks (derivative dealer counterparties) that meet the Bank’s eligibility criteria to act as counterparties for its uncleared derivative activities. In addition, for all uncleared derivative transactions, the Bank has entered into master netting agreements and bilateral credit support agreements with all active derivative dealer counterparties that provide for delivery of collateral at specified levels to limit the Bank’s

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net unsecured credit exposure to these counterparties. Under these policies and agreements, the amount of unsecured credit exposure to an individual derivative dealer counterparty is set at zero (subject to a minimum transfer amount). All credit exposure from derivative transactions entered into by the Bank with member counterparties that are not derivative dealers (including interest rate swaps, caps, and floors), for which the Bank serves as an intermediary, must be fully secured by eligible collateral, and all such derivative transactions are subject to both the Bank’s Advances and Security Agreement and a master netting agreement.

The Bank is subject to the risk of potential nonperformance by the counterparties to derivative agreements. A counterparty generally must deliver collateral to the Bank if the total market value of the Bank’s exposure to that counterparty rises above a specific trigger point. Currently, all of the Bank’s active uncleared derivative

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counterparties have a zero threshold. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its uncleared derivative transactions with counterparties as of September 30, ~~2017~~.2019.

Cleared Derivatives. The Bank is subject to nonperformance by the derivatives clearing organizations (clearinghouses) and clearing agents. The requirement that the Bank post initial and variation margin through ~~the~~a clearing agent, to the clearinghouse, exposes the Bank to institutional credit risk in the event that the clearing agent or the clearinghouse fails to meet its obligations. ~~However, the~~The use of cleared derivatives, however, mitigates the Bank’s overall credit risk exposure because a central counterparty is substituted for individual ~~counterparties~~counterparties. Variation margin and ~~variation~~initial margin isare posted ~~daily~~ for changes in the value and risk profile of cleared ~~derivatives through a clearing agent.~~derivatives. The Bank does not anticipate any credit losses on its cleared derivatives as of September 30, ~~2017~~.

2019.

The following table presents the Bank’s credit exposure to its derivative dealer counterparties at the dates indicated.

																							Credit Exposure to Derivative Dealer Counterparties

(In millions)
September 30, 2017
September 30, 2019
Counterparty Credit Rating⁽¹⁾	Notional Amount		Net Fair Value of Derivatives Before Collateral		Cash Collateral Pledged to/ (from) Counterparty			Non-cash Collateral Pledged to/ (from) Counterparty		Net Credit Exposure to Counterparties		Notional Amount		Net Fair Value of Derivatives Before Collateral			Cash Collateral Pledged to/ (from) Counterparty		Noncash Collateral Pledged to/ (from) Counterparty		Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
A	$	1,987	$	2	$	2		$	—	$	4
BBB	3,059		4		(4		)	—		—
Cleared derivatives⁽²⁾	46,139		47		41			—		88		$	79,752	$	6		$	11	$	321	$	338
Liability positions with credit exposure:
Uncleared derivatives
AA												2,314		(68		)	69		—		1
A	1,306		—		—			—		—		10,826		(410		)	414		—		4
BBB												757		(59		)	60		—		1
Total derivative positions with credit exposure to nonmember counterparties	52,491		53		39			—		92		93,649		(531		)	554		321		344
Member institutions⁽³⁾	10		—		—			—		—		95		—			—		—		—
Total	52,501		$	53	$	39		$	—	$	92	93,744		$	(531	)	$	554	$	321	$	344
Derivative positions without credit exposure	6,225											2,343
Total notional	$	58,726										$	96,087

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December 31, 2016
December 31, 2018
Counterparty Credit Rating⁽¹⁾	Notional Amount		Net Fair Value of Derivatives Before Collateral		Cash Collateral Pledged to/ (from) Counterparty			Non-cash Collateral Pledged to/ (from) Counterparty		Net Credit Exposure to Counterparties		Notional Amount		Net Fair Value of Derivatives Before Collateral			Cash Collateral Pledged to/ (from) Counterparty			Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
AA												$	1,020	$	—		$	—		$	—
A												2,121		17			(16		)	1
Liability positions with credit exposure:
Uncleared derivatives
A	$	2,872	$	9	$	(6	)	$	—	$	3	1,223		(2		)	2			—
BBB	826		2		(1		)	—		1		1,915		—			—			—
Cleared derivatives⁽²⁾	55,024		54		8			—		62		77,183		(15		)	199			184
Total derivative positions with credit exposure to nonmember counterparties	58,722		65		1			—		66		83,462		—			185			185
Member institutions⁽³⁾	13		—		—			—		—		12		—			—			—
Total	58,735		$	65	$	1		$	—	$	66	83,474		$	—		$	185		$	185
Derivative positions without credit exposure	6,334											18,003
Total notional	$	65,069										$	101,477


(1)	The credit ratings used by the Bank are based on the lower of Moody's or S&P ratings.

(2)

Represents derivative transactions cleared with LCH Ltd, the Bank’s clearinghouse, which ~~is not rated.~~was upgraded from A+ to AA- by S&P on May 21, 2019. On August 1, 2019, S&P placed LCH Ltd’s ~~parent, LCH Group Holdings Limited, was rated A+ by S&P. On May 31, 2017, S&P lowered the~~AA- rating ~~to A and withdrew the rating at LCH Group Holdings Limited’s request. LCH Ltd’s~~on CreditWatch Negative after its ultimate parent ~~London Stock Exchange~~LSE Group ~~plc., is rated A3 by Moody’s and A- by S&P.~~announced a major acquisition.


(3)	Member institutions include mortgage delivery commitments with members.

The increase or decrease in the credit exposure net of cash collateral, from one period to the next, may be affected by changes in several variables, such as the size and composition of the portfolio, market values of derivatives, and accrued interest.

Based on the master netting arrangements, its credit analyses, and the collateral requirements in place with each counterparty, the Bank does not expect to incur any credit losses on its derivative agreements.

The Bank continues to execute LIBOR-indexed derivatives to manage interest rate risk and to monitor marketwide efforts to address fallback language related to LIBOR-indexed derivative transactions. The Bank has also begun to implement the Overnight Index Swap (OIS) rate as an alternative interest rate hedging strategy for certain financial instruments, rather than using LIBOR when entering into new derivative transactions. In addition, a SOFR-based derivatives market has begun to emerge. The tables below present the notional amount of variable rate derivatives by interest rate index and termination date at September 30, 2019. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.

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Variable Rate Derivatives Outstanding by Interest Rate Index

(In millions)
September 30, 2019

(Interest rate index)	Notional Amount⁽¹⁾
LIBOR	$	41,692
SOFR	23,647
OIS	40,923
Total Notional Amount	$	106,262


(1)	The total notional amount exceeds the actual total notional amount of derivatives outstanding because the Bank has basis swaps that are indexed to both LIBOR and SOFR.



LIBOR-Indexed Derivatives by Termination Date

(In millions)
September 30, 2019

(Termination date)	Notional Amount
Terminates in 2019	$	8,660
Terminates in 2020	18,000
Terminates in 2021	8,524
Terminates in 2022 and thereafter⁽¹⁾	6,508
Total Notional Amount	$	41,692


(1)	For more information on the Bank’s Transition Plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, if applicable, and the reported amounts of income, expenses, gains, and losses during the reporting period. Changes in these judgments, estimates, and assumptions could potentially affect the Bank’s financial position and results of operations significantly. Although the Bank believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.

In the Bank’s ~~2016~~2018 Form 10-K, the following accounting policies and estimates were identified as critical because they require the Bank to make subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates are: estimating the allowance for credit losses on the advances and mortgage loan portfolios; accounting for derivatives; estimating fair values of investments classified as trading and AFS, derivatives and associated hedged items carried at fair value in accordance with the accounting for derivative instruments and associated hedging activities, and financial instruments carried at fair value under the fair value option; accounting for ~~OTTI~~other-than-temporary impairment for investment securities; and estimating the prepayment speeds on MBS and mortgage loans for the accounting of amortization of premiums and accretion of discounts on MBS and mortgage loans.

There have been no significant changes in the judgments and assumptions made during the first nine months of ~~2017~~2019 in applying the Bank’s critical accounting policies. These policies and the judgments, estimates, and

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assumptions are also described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and “Item 8. Financial Statements and

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Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s ~~2016~~2018 Form 10-K and in “Item 1. Financial ~~Statements–~~Statements – Note 16 – Fair Value.”

Recently Issued Accounting Guidance and Interpretations

See “Item 1. Financial Statements – Note 2 – Recently Issued and Adopted Accounting Guidance” for a discussion of recently issued accounting standards and interpretations.

Recent Developments

~~FHLBank~~Advisory Bulletin (AB) 2019-03 Capital ~~Requirements.~~Stock Management. On ~~July 3, 2017,~~August 14, 2019, the Finance Agency ~~published~~issued a ~~proposed rule to adopt, with amendments, the regulations of the Federal Housing Finance Board (predecessor to the Finance Agency) pertaining to the~~final AB providing guidance that augments existing statutory and regulatory capital requirements ~~for~~to require each FHLBank to maintain a ratio of at least two percent of capital stock to total assets in order to help preserve the FHLBanks. The proposed rule would carry over most of the existing regulations without material change but would substantively revise the credit risk component of the risk-based capital requirement, as well as the limitations on extensions of unsecured credit. The main revisions would remove requirementscooperative structure incentives that the FHLBanks calculate credit risk capital charges and unsecured credit limits based on ratings issued by a nationally recognized statistical rating organization, and instead require that the FHLBanks establish and use their own internal rating methodology. With respectencourage members to derivatives, the proposed rule would impose a new capital charge for cleared derivatives, which under the existing rule do not carry a capital charge, to align with the Dodd-Frank Act’s clearing mandate. The proposed rule also would revise the percentages usedremain fully engaged in the ~~regulation’s tables to calculate credit risk capital charges for advances and for non-mortgage assets. The Finance Agency proposes to retain for now the percentages used~~oversight of their investment in the tables to calculate capital charges for mortgage-related assets, and to address the methodology for residential mortgage assets at a later date. While a March 2009 regulatory directive pertaining to certain liquidity matters will continue to remainFHLBank. Beginning in ~~place,~~February 2020, the Finance Agency ~~also proposes~~will consider the proportion of capital stock to ~~rescind certain minimum regulatory liquidity requirements for the FHLBanks and address these liquidity requirements in~~assets, measured on a ~~separate rulemaking.~~

daily average basis at monthend, when assessing each FHLBank’s capital management practices.

The Bank ~~submitted a joint comment letter with the other FHLBanks on August 31, 2017. The Bank is continuing to evaluate the proposed rule but~~ does not ~~currently~~ expect ~~this rule, if adopted in final form,~~the AB to ~~materially affect its~~have a material impact on the Bank’s capital management practices, financial condition, or results of operations.

~~FHLBank Membership for Non-Federally-Insured Credit Unions.~~Finance Agency Supervisory Letter.On ~~June 5, 2017,~~September 27, 2019, the Finance Agency issued a ~~final rule effective July 5, 2017, governing FHLBank membership that would implement statutory amendments~~Supervisory Letter to the ~~Federal Home Loan Bank Act authorizing~~ FHLBanks ~~to accept applications for membership from state-chartered credit unions without federal share insurance, provided~~ that certain prerequisites have been met. The new rule generally treats these credit unions the same as other depository institutions with an additional requirement that they obtain: (1) an affirmative statement from their state regulator that they meet the requirements for federal insurance as of the date of their application for FHLBank membership; (2) a written statement from the state regulator that it cannot or will not make any determination regarding eligibility for federal insurance; or (3) if the regulator fails or refuses to respond to the credit union’s request within six months, confirmation of the failure to receive a response.

~~The Bank does not expect this rule to materially affect its financial condition or results of operation.~~

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~~Minority and Women Inclusion.~~ ~~On July 25, 2017,~~ the Finance Agency ~~published~~stated is designed to ensure the FHLBanks will be able to identify and prudently manage the risks associated with the termination of LIBOR in a ~~final rule, effective August 24, 2017, amending its Minority~~safe and ~~Women Inclusion regulations~~sound manner. The Supervisory Letter provides among other things that, by March 31, 2020, the FHLBanks should limit and cease entering into new LIBOR-indexed financial assets, liabilities, and derivatives with maturities beyond December 31, 2021, for all product types except investments. With respect to ~~clarify~~investments, the ~~scope of the FHLBanks’ obligation to promote diversity~~FHLBanks must, by December 31, 2019, stop purchasing investments that reference LIBOR and ~~ensure inclusion.~~mature after December 31, 2021. The final rule updates the existing Finance Agency regulations aimed at promoting diversity and the inclusion and use of minorities, women, and individuals with disabilities, and the businesses they own (MWDOB) in all FHLBank business and activities, including management, employment, and contracting. The final rule will:

~~require~~Supervisory Letter also directs the FHLBanks to ~~develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion~~update their pledged collateral certification reporting requirements by March 31, 2020, in an effort to encourage members to distinguish LIBOR-indexed collateral maturing after December 31, 2021. The FHLBanks are expected to cease entering into ~~their existing strategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;~~

~~encourage~~LIBOR-indexed financial instruments maturing after December 31, 2021, by the ~~FHLBanks~~deadlines specified in the Supervisory Letter, subject to ~~expand contracting opportunities for minorities, women, and individuals with disabilities through subcontracting arrangements;~~

~~require the FHLBanks to develop policies that address reasonable accommodations for employees to observe their religious beliefs;~~

~~require the FHLBanks to provide information in their annual reports to~~limited exceptions granted by the Finance Agency ~~about their efforts~~under the Supervisor Letter for LIBOR-indexed products serving compelling mission, risk mitigating, and/or hedging purposes that do not currently have readily available alternatives.

As a result of the Supervisory Letter, the Bank’s Transition Plan was revised to ~~advance diversity and inclusion through financial~~limit new LIBOR transactions ~~identification~~with maturities beyond the end of ~~ways in which FHLBanks might be able to improve MWDOB business~~2021 consistent with the ~~FHLBank~~limits set by ~~enhancing customer access by MWDOB businesses, including through its affordable housing and community investment programs and strategies for promoting~~ the ~~diversity of supervisors and managers; and~~

~~require the FHLBanks to classify and provide additional data in their annual reports about the number of and amounts paid under its contracts with MWDOB.~~

The Bank does not expect this final rule to materially affect its financial condition or results of operations, but anticipates that it may result in increased compliance costs and substantially increase the amount of tracking, monitoring, and reporting that would be required of the Bank.

Supervisory Letter.

Off-Balance Sheet Arrangements ~~Guarantees,~~ and Other Commitments

In accordance with regulations governing the operations of the FHLBanks, each FHLBank, including the Bank, is jointly and severally liable for the FHLBank System’s consolidated obligations issued under Section 11(a) of the FHLBank Act, and in accordance with the FHLBank Act, each FHLBank, including the Bank, is jointly and severally liable for consolidated obligations issued under Section 11(c) of the FHLBank Act. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor.

~~The Bank determined that it was not necessary to recognize a liability for the fair value of the Bank's joint and~~

~~several liability for all consolidated obligations. The joint and several obligations are mandated by the FHLBank~~

~~Act or regulations governing the operations of the FHLBanks and are not the result of arms-length transactions~~

~~among the FHLBanks. The FHLBanks have no control over the amount of the guarantee or the determination of~~

~~how each FHLBank would perform under the joint and several obligations. Because the FHLBanks are subject to~~

~~the authority of the Finance Agency as it relates to decisions involving the allocation of the joint and several~~

~~liability for the FHLBanks' consolidated obligations, the FHLBanks' joint and several obligations are excluded from~~

~~the initial recognition and measurement provisions. Accordingly, the Bank has not recognized a liability for its joint~~

~~and several obligations related to other FHLBanks' participations in the consolidated obligations.~~ The par value of the outstanding consolidated obligations of the FHLBanks was ~~$1,028.7~~$1,010.3 billion at September 30, ~~2017~~,2019, and ~~$989.3~~$1,031.6 billion at December 31, ~~2016~~.2018. The par value of the Bank’s participation in consolidated obligations was ~~$102.2~~$96.1 billion at September 30, ~~2017,~~2019, and ~~$83.7~~$101.6 billion at December 31, ~~2016.~~2018. The Bank had committed to the issuance of ~~$1.1 billion~~$40 million and ~~$1.5 billion~~$350 million in consolidated obligations at September 30, ~~2017,~~2019, and December 31, ~~2016,~~2018, respectively.

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In addition, in the ordinary course of business, the Bank engages in financial transactions that, in accordance with U.S. GAAP, are not recorded on the Bank’s Statement of Condition or may be recorded on the Bank’s Statement of Condition in amounts that are different from the full contract or notional amount of the transactions. For example, the Bank routinely enters into commitments to extend advances and issues standby letters of credit. These commitments and standby letters of credit may represent future cash requirements of the Bank, although the standby letters of credit usually expire without being drawn upon. Standby letters of credit are subject to the same underwriting and collateral requirements as advances made by the Bank. At September 30, ~~2017~~,2019, the Bank had ~~$1 million~~ inno advance commitments and ~~$15.5~~$20.7 billion in standby letters of credit outstanding. At December 31, ~~2016~~,2018, the Bank had ~~$6 million~~ inno advance commitments and ~~$15.2~~$18.1 billion in standby letters of credit outstanding.

For additional information, see “Item 1. Financial Statements – Note 17 – Commitments and Contingencies.”

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~~ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~


ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is defined as the risk to the ~~Bank's~~Bank’s market value of capital and future earnings (excluding the impact of any cumulative net gains or losses on derivatives and associated hedged items and on financial instruments carried at fair value) as a result of movements in market interest rates, interest rate spreads, interest rate volatility, and other market factors (market rate factors). This profile reflects the Bank’s objective of maintaining a conservative asset-liability mix and its commitment to providing value to its members through products and dividends without subjecting their investments in Bank capital stock to significant market risk.

The Bank’s Risk Management Policy includes a market risk management objective aimed at maintaining a relatively low adverse exposure of the market value of capital and future earnings (excluding the impact of any cumulative net gains or losses on derivatives and associated hedged items and on financial instruments carried at fair value) to changes in market rate factors. See “Total Bank Market Risk” below.

Market risk identification and measurement are primarily accomplished through market value of capital sensitivity analyses and projected earnings and adjusted return on capital sensitivity analyses. The Risk Management Policy approved by the Bank’s Board of Directors establishes market risk policy limits and market risk measurement standards at the total Bank level as well as at the business segment level. Additional guidelines approved by the Bank’s Enterprise Risk Committee apply to the Bank’s two business segments, the advances-related business and the mortgage-related business. These guidelines provide limits that are monitored at the segment level and are consistent with the Bank’s policy limits. Market risk is managed for each business segment on a daily basis, as discussed below in “Segment Market Risk.” Compliance with Bank policies and guidelines is reviewed by the Bank’s Board of Directors on a regular basis, along with a corrective action plan if applicable.

Total Bank Market Risk

Market Value of Capital Sensitivity

The Bank uses market value of capital sensitivity (the interest rate sensitivity of the net fair value of all assets, liabilities, and interest rate exchange agreements) as an important measure of the Bank’s exposure to changes in interest rates.

The Bank’s market value of capital sensitivity policy limits the potential adverse impact of an instantaneous parallel shift of a plus or minus 100-basis-point change in interest rates from current rates (base case) to no worse than ~~–4.0%~~4.0% of the estimated market value of capital. In addition, the policy limits the potential adverse impact of an instantaneous plus or minus 100-basis-point change in interest rates measured from interest rates that are 200 basis points above or below the base case to no worse than ~~–6.0%~~6.0% of the estimated market value of capital. In the case where a market risk sensitivity compliance metric cannot be estimated with a parallel shift in interest rates because of prevailing low interest rates, the sensitivity metric is not reported. The Bank’s measured market value of capital sensitivity was within the policy limits as of September 30, ~~2017.~~2019.

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To determine the Bank’s estimated risk sensitivities to interest rates for the market value of capital sensitivity, the Bank uses a third-party proprietary asset and liability system to calculate estimated market values under alternative interest rate scenarios. The system analyzes all of the Bank’s financial instruments, including derivatives, on a transaction-level basis using sophisticated valuation models with consistent and appropriate behavioral assumptions and current position data. The system also includes a third-party mortgage prepayment model.

At least annually, the Bank reexamines the major assumptions and methodologies used in the model, including interest rate curves, spreads for discounting, and mortgage prepayment assumptions. The Bank also compares the mortgage prepayment assumptions in the third-party model to other sources, including actual mortgage prepayment history.

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The table below presents the sensitivity of the market value of capital (the market value of all of the Bank’s assets, liabilities, and associated interest rate exchange agreements, with mortgage assets valued using market spreads implied by current market prices) to changes in interest rates. The table presents the estimated percentage change in the Bank’s market value of capital that would be expected to result from changes in interest rates under different interest rate scenarios, using market spread assumptions.

Market Value of Capital Sensitivity

Estimated Percentage Change in Market Value of Bank Capital

for Various Changes in Interest Rates

Market Value of Capital Sensitivity

Estimated Percentage Change in Market Value of Bank Capital

for Various Changes in Interest Rates

Market Value of Capital Sensitivity

Estimated Percentage Change in Market Value of Bank Capital

for Various Changes in Interest Rates

Interest Rate Scenario⁽¹⁾

September 30, 2017

December 31, 2016

September 30, 2019

December 31, 2018

+200 basis-point change above current rates

–3.8

–4.3

–2.9

–3.3

+100 basis-point change above current rates

–1.8

–2.0

–1.4

–100 basis-point change below current rates⁽²⁾

+2.4

+2.5

+1.4

+1.1

–200 basis-point change below current rates⁽²⁾

+6.3

+8.1

+2.6


(1)	Instantaneous change from actual rates at dates indicated.


~~(2)~~	~~Interest rates for each maturity are limited to non-negative interest rates.~~

The Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates as of September 30, ~~2017,~~2019, are comparable to the estimates as of December 31, ~~2016. LIBOR interest rates as~~2018, with the exception of ~~September 30, 2017, were 38~~the “down 200 basis ~~points higher for~~point” scenario. Given the ~~1-year term, 3 basis points higher for the 5-year term, and 5 basis points lower for the 10-year term. Because~~significant decline in interest rates in the ~~declining rate scenarios are limited to non-negative~~first half of 2019, interest rates ~~and~~on a subset of the ~~current interest~~Bank’s floating rate ~~environment is so low, the interest rates in the declining rate scenarios~~instruments cannot decrease to the same extent that ~~the~~ interest rates in the rising rate scenarios can ~~increase.~~

increase because of embedded interest rate floors. LIBOR interest rates as of September 30, 2019, were 92 basis points lower for the 1-year term, 107 basis points lower for the 5-year term, and 115 basis points lower for the 10-year term.

The ~~Bank's~~Bank’s Risk Management Policy provides guidelines for the payment of dividends and the repurchase of excess capital stock based on the ratio of the ~~Bank's~~Bank’s estimated market value of total capital to par value of capital stock. If this ratio at the end of any quarter is: (i) less than 100% but greater than or equal to 90%, any dividend would be limited to an annualized rate no greater than the daily average of the ~~three-month LIBOR~~Federal funds effective rate for the applicable quarter (subject to certain conditions), and any excess capital stock repurchases would not exceed $500 million (subject to certain conditions); (ii) less than 90% but greater than or equal to 70%, any dividend and any excess capital stock repurchases would be subject to the same limitations and conditions as in (i) above, except that any excess capital stock repurchases would not exceed 4% of the ~~Bank's~~Bank’s outstanding capital stock as of the repurchase date; and (iii) less than 70%, the Bank would not pay a dividend, not repurchase excess capital stock (but continue to redeem excess capital stock as provided in the ~~Bank's~~Bank’s Capital Plan), limit the acquisition of certain assets, and review the ~~Bank's~~Bank’s risk policies. A decision by the Board of Directors to declare or not declare any dividend or repurchase any excess capital stock is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks. The ratio of the ~~Bank's~~Bank’s estimated market value of total capital to par value of capital stock was ~~219%~~224% as of September 30, ~~2017.~~2019.

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Adjusted Return on Capital – The adjusted return on capital is a measure used by the Bank to assess financial performance. The adjusted return on capital is based on current period economic earnings that exclude the effects of unrealized net gains or losses resulting from the Bank’s derivatives and associated hedged items and from financial instruments carried at fair value, which will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms to maturity or by the call or put date of the assets and liabilities held under the fair value option, hedged assets and liabilities, and derivatives.Economic earnings also exclude the interest expense on mandatorily redeemable capital stock and the 20% of net income allocated to the Bank’s restricted retained earnings account in accordance with the FHLBanks’ ~~JCE~~Joint Capital Enhancement Agreement. Economic earnings exclude these amounts in order to more accurately reflect the amount of earnings that may be available to be paid as dividends to shareholders.

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The Bank limits the sensitivity of projected financial performance through a Board of Directors policy limit on projected adverse changes in the adjusted return on capital. The Bank’s adjusted return on capital sensitivity policy limits the potential adverse impact of an instantaneous parallel shift of a plus or minus 200-basis-point change in interest rates from current rates (base case) to no worse than –120 basis points from the base case projected adjusted return on capital. With the indicated interest rate shifts, the adjusted return on capital for the projected 12-month horizon would be expected to decrease by 14–52 basis points in the –200 basis points scenario, ~~well~~which is within the policy limit of –120 basis points.

Duration Gap – Duration gap is the difference between the estimated durations (market value sensitivity) of assets and liabilities (including the impact of interest rate exchange agreements) and reflects the extent to which estimated maturity and repricing cash flows for assets and liabilities are matched. The Bank monitors duration gap analysis at the total Bank level and does not have a policy limit. ~~The Bank’s duration gap was one month at September 30, 2017, and one month at December 31, 2016.~~

													Total Bank Duration Gap Analysis

	September 30, 2017			December 31, 2016			September 30, 2019			December 31, 2018
	Amount (In millions)		Duration Gap⁽¹⁾ (In months)	Amount (In millions)		Duration Gap⁽¹⁾⁽²⁾ (In months)	Amount (In millions)		Duration Gap⁽¹⁾ (In months)	Amount (In millions)		Duration Gap⁽¹⁾ (In months)
Assets	$	109,503	5	$	91,941	6	$	104,153	3	$	109,326	4
Liabilities	103,154		4	86,404		5	97,583		2	102,796		3
Net	$	6,349	1	$	5,537	1	$	6,570	1	$	6,530	1


(1)	Duration gap values include the impact of interest rate exchange agreements.


~~(2)~~	~~Because of the current low interest rate environment, the duration gap is estimated using an instantaneous, one-sided parallel change upward of 100 basis points from base case interest rates.~~

Segment Market Risk. The financial performance and interest rate risks of each business segment are managed within prescribed guidelines and policy limits.

Advances-Related Business – Interest rate risk arises from the advances-related business primarily through the use of shareholder-contributed capital and retained earnings to fund fixed rate investments of targeted amounts and maturities. In general, advances result in very little net interest rate risk for the Bank because most fixed rate advances with original maturities greater than three months and all advances with embedded options are simultaneously hedged with an interest rate swap or option with terms offsetting the advance. The interest rate swap or option generally is maintained as a hedge for the life of the advance. These hedged advances effectively create a pool of variable rate assets, which, in combination with the strategy of raising debt swapped to variable rate liabilities, creates an advances portfolio with low net interest rate risk.

Money market investments used for liquidity management generally have maturities of one month or less. In addition, to increase the Bank’s liquidity position, the Bank invests in ~~non-MBS agency~~Treasury securities, generally with terms of less than three years. These fixed rate investments ~~may be~~are swapped to variable rate ~~or fixed rate, and the interest rate risk resulting from the fixed rate coupon is hedged with an interest rate swap or fixed rate debt.~~

investments.

The interest rate risk in the advances-related business is primarily associated with the Bank’s strategy for investing capital (capital stock, including mandatorily redeemable capital stock, and retained earnings). The Bank’s strategy is generally to invest 50% of capital in short-term investments (maturities of three months or less) and 50% in

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intermediate-term investments (a laddered portfolio of investments with maturities of up to four years). However, this strategy may be altered from time to time depending on market conditions. The strategy to invest 50% of capital in short-term assets is intended to mitigate the market value of capital risks associated with the potential repurchase or redemption of excess capital stock. Excess capital stock usually results from a decline in a borrower’s outstanding advances or by a membership termination. Under the Bank’s capital plan, capital stock, when repurchased or redeemed, is required to be repurchased or redeemed at its par value of $100 per share, subject to

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certain regulatory and statutory limits. The strategy to invest 50% of capital in a laddered portfolio of investments with short to intermediate maturities is intended to take advantage of the higher earnings available from a generally positively sloped yield curve, when intermediate-term investments generally have higher yields than short-term investments.

The Bank updates the repricing and maturity gaps for actual asset, liability, and derivative transactions that occur in the advances-related segment each day. The Bank regularly compares the targeted repricing and maturity gaps to the actual repricing and maturity gaps to identify rebalancing needs for the targeted gaps. On a weekly basis, the Bank evaluates the projected impact of expected maturities and scheduled repricings of assets, liabilities, and interest rate exchange agreements on the interest rate risk of the advances-related segment. ~~The analyses are prepared under base case and alternate interest rate scenarios to assess the effect of options embedded in the advances, related financing, and hedges.~~ These analyses are ~~also~~ used to measure and manage potential reinvestment risk (when the remaining term of advances is shorter than the remaining term of the financing) and potential refinancing risk (when the remaining term of advances is longer than the remaining term of the financing).

Because of the short-term and variable rate nature of the assets, liabilities, and derivatives of the advances-related business, the Bank’s interest rate risk guidelines address the amounts of net assets that are expected to mature or reprice in a given period. The market value sensitivity analyses and net interest income simulations are also used to identify and measure risk and variances to the target interest rate risk exposure in the advances-related segment.

Mortgage-Related Business– The Bank’s mortgage assets include MBS, most of which are classified as ~~held-to-maturity (HTM)~~HTM or ~~available-for-sale (AFS),~~AFS, with a small amount classified as trading, and mortgage loans held for portfolio purchased under the MPF Program. The Bank is exposed to interest rate risk from the mortgage-related business because the principal cash flows of the mortgage assets and the liabilities that fund them are not exactly matched through time and across all possible interest rate scenarios, given the impact of mortgage prepayments and the existence of interest rate caps on certain adjustable rate MBS.

~~Historically,~~The Bank manages the ~~Bank purchased a mix~~interest rate risk and market risk of ~~intermediate-term~~the mortgage-related segment through its investment in low risk assets and selected funding and hedging strategies. The total carrying value of MBS and mortgage loans at September 30, 2019, was $22.0 billion, including $18.6 billion in MBS and $3.4 billion in mortgage loans. The total carrying value of MBS and mortgage loans at December 31, 2018, was $21.0 billion, including $17.9 billion in MBS and $3.1 billion in mortgage loans. Floating rate securities, and fixed rate ~~and adjustable rate MBS. The last purchase of a fixed rate MBS was in March 2014. Since March 2014, all MBS purchases were agency adjustable rate MBS. MPF loans~~multifamily securities that have been ~~acquired are medium-~~converted to floating rate through the use of interest rate swaps, were $15.6 billion, or 71%, of MBS and mortgage loans at September 30, 2019, and $14.2 billion, or 68%, of MBS and mortgage loans at December 31, 2018. Intermediate and long-term fixed rate ~~mortgage assets. This results in a mortgage portfolio that has a diversified set of~~assets, whose interest rate ~~risk attributes.~~

and market risks have been partially offset through the use of fixed rate non-callable debt, fixed rate callable debt, and certain interest rate swaps whose characteristics mimic that of fixed rate callable debt, were $6.4 billion, or 29%, of MBS and mortgage loans, at September 30, 2019, and $6.8 billion, or 32%, of MBS and mortgage loans at December 31, 2018.

The estimated market risk of the mortgage-related business is managed both at the time an asset is purchased and on an ongoing basis for the total portfolio. At the time of purchase (for all significant mortgage asset acquisitions), the Bank analyzes the estimated earnings sensitivity and estimated market value sensitivity, taking into consideration the estimated mortgage prepayment sensitivity of the mortgage assets and anticipated funding and hedging activities under various interest rate scenarios. The related funding and hedging transactions are executed at or close to the time of purchase of a mortgage asset.

At least monthly, the Bank reviews the estimated market risk profile of the entire portfolio of mortgage assets and related funding and hedging transactions. The Bank then considers rebalancing strategies to modify the estimated mortgage portfolio market risk profile. Periodically, the Bank performs more in-depth analyses, which include an

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analysis of the impacts of non-parallel shifts in the yield curve and assessments of the impacts of unanticipated mortgage prepayment behavior. Based on these analyses, the Bank may take actions to rebalance the mortgage portfolio’s market risk profile. These rebalancing strategies may include entering into new funding and hedging transactions, forgoing or modifying certain funding or hedging transactions normally executed with new mortgage purchases, or terminating certain funding and hedging transactions for the mortgage asset portfolio.

The Bank manages the estimated interest rate risk associated with mortgage assets, including mortgage prepayment risk, through a combination of debt issuance and derivatives. The Bank may obtain funding through callable and non-callable FHLBank System debt and may execute derivative transactions to achieve principal cash flow patterns and market value sensitivities for the liabilities and derivatives that provide a significant offset to the interest rate and mortgage prepayment risks associated with the mortgage assets. Debt issued to finance mortgage assets may be

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fixed rate debt, callable fixed rate debt, or adjustable rate debt. Derivatives may be used as temporary hedges of anticipated debt issuance or long-term hedges of debt used to finance the mortgage assets. The derivatives used to hedge the interest rate risk of fixed rate mortgage assets generally may be callable and non-callable pay-fixed interest rate swaps. Derivatives may also be used to offset the interest rate cap risk embedded in adjustable rate MBS.

As discussed above in “Total Bank Market Risk – Market Value of Capital Sensitivity” the Bank uses market value of capital sensitivity as a primary market value metric for measuring the Bank’s exposure to interest rates. The Bank’s interest rate risk policies and guidelines for the mortgage-related business address the market value of capital sensitivity of the assets, liabilities, and derivatives of the mortgage-related business.

The following table presents results of the estimated market value of capital sensitivity analysis attributable to the mortgage-related business as of September 30, ~~2017,~~2019, and December 31, ~~2016.~~

2018.

Market Value of Capital Sensitivity

Estimated Percentage Change in Market Value of Bank Capital

Attributable to the Mortgage-Related Business for Various Changes in Interest Rates

Market Value of Capital Sensitivity

Estimated Percentage Change in Market Value of Bank Capital

Attributable to the Mortgage-Related Business for Various Changes in Interest Rates

Market Value of Capital Sensitivity

Estimated Percentage Change in Market Value of Bank Capital

Attributable to the Mortgage-Related Business for Various Changes in Interest Rates

Interest Rate Scenario⁽¹⁾

September 30, 2017

December 31, 2016

September 30, 2019

December 31, 2018

+200 basis-point change

–1.9

–2.2

–0.9

–1.2

+100 basis-point change

–0.9

–1.0

–0.4

–100 basis-point change⁽²⁾

+1.5

+1.3

+0.4

+0.2

–200 basis-point change⁽²⁾

+4.0

+3.8

+3.3

+0.8


(1)	Instantaneous change from actual rates at dates indicated.


~~(2)~~	~~Interest rates for each maturity are limited to non-negative interest rates.~~

For the mortgage-related business, the Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates as of September 30, ~~2017,~~2019, are comparable to the estimates as of December 31, ~~2016. LIBOR interest rates as~~2018, with the exception of ~~September 30, 2017, were 38~~the “down 200 basis ~~points higher for~~point” scenario. Given the ~~1-year term, 3 basis points higher for the 5-year term, and 5 basis points lower for the 10-year term. Because~~significant decline in interest rates in the ~~declining rate scenarios are limited to non-negative~~first half of 2019, interest rates ~~and~~on a subset of the ~~current interest~~Bank’s floating rate ~~environment is so low, the interest rates in the declining rate scenarios~~instruments cannot decrease to the same extent that ~~the~~ interest rates in the rising rate scenarios can ~~increase.~~increase because of embedded interest rate floors. LIBOR interest rates as of September 30, 2019, were 92 basis points lower for the 1-year term, 107 basis points lower for the 5-year term, and 115 basis points lower for the 10-year term.

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ITEM 4.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The senior management of the Federal Home Loan Bank of San Francisco (Bank) is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Securities Exchange Act of 1934 (1934 Act) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Bank’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Bank’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the Bank’s disclosure controls and procedures, the Bank’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Bank’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of controls and procedures.

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Management of the Bank has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with the participation of the president and chief executive officer and ~~senior~~executive vice president and chief financial officer as of the end of the period covered by this report. Based on that evaluation, the Bank’s president and chief executive officer and ~~senior~~executive vice president and chief financial officer have concluded that the Bank’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

Internal Control Over Financial Reporting

During the three months ended September 30, ~~2017,~~2019, there were no changes in the Bank’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

Consolidated Obligations

The Bank’s disclosure controls and procedures include controls and procedures for accumulating and communicating information in compliance with the Bank’s disclosure and financial reporting requirements relating to the joint and several liability for the consolidated obligations of the Federal Home Loan Banks (FHLBanks). Because the FHLBanks are independently managed and operated, the Bank’s management relies on information that is provided or disseminated by the Federal Housing Finance Agency (Finance Agency), the Office of Finance, and the other FHLBanks, as well as on published FHLBank credit ratings, in determining whether the joint and several liability regulation is reasonably likely to result in a direct obligation for the Bank or whether it is reasonably possible that the Bank will accrue a direct liability.

The Bank’s management also relies on the operation of the joint and several liability regulation. The joint and several liability regulation requires that each FHLBank file with the Finance Agency a quarterly certification that it will remain capable of making full and timely payment of all of its current obligations, including direct obligations, coming due during the next quarter. In addition, if an FHLBank cannot make such a certification or if it projects that it may be unable to meet its current obligations during the next quarter on a timely basis, it must file a notice with the Finance Agency. Under the joint and several liability regulation, the Finance Agency may order any FHLBank to make principal and interest payments on any consolidated obligations of any other FHLBank, or allocate the outstanding liability of an FHLBank among all remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis.

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PART II. OTHER INFORMATION


ITEM 1.	LEGAL PROCEEDINGS

The Federal Home Loan Bank of San Francisco (Bank) may be subject to various legal proceedings arising in the normal course of business.

For information regarding the lawsuit filed by former Bank officer, Lawrence H. Parks, and another former officer of the Bank, against the Bank and certain of the Bank’s current and former directors, chief executive officer, and two employees, see “Part II. Item 1. Legal Proceedings” in the Bank’s Form 10-Q for the quarter ended March 31, 2019.

After consultation with legal counsel, the Bank is not aware of any other legal proceedings that are expected to have a material effect on its financial condition or results of operations or that are otherwise material to the Bank.


ITEM 1A.	RISK FACTORS

For a discussion of risk factors, see “Part I. Item 1A. Risk Factors” in the Bank’s ~~2016~~2018 Form 10-K. There have been no material changes from the risk factors disclosed in the “Part I. Item 1A. Risk Factors” section of the Bank’s ~~2016~~2018 Form 10-K.

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ITEM 6. EXHIBITS



Exhibit No.		Description

31.1			Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2			Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1			Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2			Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

~~101~~	101.INS		~~Pursuant to Rule 405 of Regulation S-T,~~Inline XBRL Instance Document - The instance document does not appear in the ~~following financial information from the Bank's quarterly report on Form 10-Q for the period ended September 30, 2017, is formatted in XBRL~~ interactive data ~~files: (i) Statements of Condition at September 30, 2017, and December 31, 2016; (ii) Statements of Income for~~file because its XBRL tags are embedded within the ~~Three and Nine Months Ended September 30, 2017 and 2016; (iii) Statements of Comprehensive Income for~~inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document

104		Cover Page Interactive Data File - The cover page interactive data file does not appear in the ~~Three and Nine Months Ended September 30, 2017 and 2016; (iv) Statements of Capital Accounts for~~Interactive Data File because its XBRL tags are embedded within the ~~Nine Months Ended September 30, 2017 and 2016; (v) Statements of Cash Flows for the Nine Months Ended September 30, 2017 and 2016; and (vi) Notes to Financial Statements.~~Inline XBRL document.

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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, on November ~~3, 2017.~~8, 2019.



	Federal Home Loan Bank of San Francisco

	/S/ J. GREGORY SEIBLY
	J. Gregory Seibly President and Chief Executive Officer

	/S/ KENNETH C. MILLER
	Kenneth C. Miller ~~Senior~~Executive Vice President and Chief Financial Officer (Principal Financial Officer)

~~117~~109



	September 30, 2017		December 31, 2016
Government-Sponsored Enterprises (GSEs) – Federal Farm Credit Bank (FFCB) bonds	$	1,158	$	2,058
MBS – Other U.S. obligations – Ginnie Mae	7		8
Total	$	1,165	$	2,066



	September 30, 2017				Three Months Ended September 30, 2017				Nine Months Ended September 30, 2017
Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances
JPMorgan Chase Bank, National Association⁽²⁾	$	11,864	19	%	$	45	18	%	$	131	21	%
First Republic Bank	8,750		14		31		13		79		13
Bank of the West	7,809		13		29		11		62		10
MUFG Union Bank, National Association	5,600		9		16		7		24		4
Charles Schwab Bank	5,000		8		5		2		10		2
Subtotal	39,023		63		126		51		306		50
Others	22,628		37		120		49		302		50
Total par value	$	61,651	100	%	$	246	100	%	$	608	100	%



	September 30, 2016				Three Months Ended September 30, 2016				Nine Months Ended September 30, 2016
Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽¹⁾		Percentage of Total Interest Income from Advances
JPMorgan Chase Bank, National Association⁽²⁾	$	14,810	27	%	$	31	22	%	$	83	21	%
Bank of the West	6,855		12		13		9		37		9
First Republic Bank	4,700		9		18		13		52		13
MUFG Union Bank, National Association	3,901		7		4		3		8		2
Citibank, N.A.⁽²⁾	3,000		5		3		3		10		3
Subtotal	33,266		60		69		50		190		48
Others	22,475		40		70		50		203		52
Total par value	$	55,741	100	%	$	139	100	%	$	393	100	%



	September 30, 2017		December 31, 2016
Allowance for credit losses, end of period:
Individually evaluated for impairment	$	—	$	—
Collectively evaluated for impairment	—		—
Total allowance for credit losses	$	—	$	—
Recorded investment, end of period:
Individually evaluated for impairment	$	9	$	12
Collectively evaluated for impairment	1,774		818
Total recorded investment	$	1,783	$	830



	September 30, 2017						December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance	$	9	$	9	$	—	$	12	$	12	$	—
With an allowance	—		—		—		—		—		—
Total	$	9	$	9	$	—	$	12	$	12	$	—



	September 30, 2017		December 31, 2016
Interest-bearing deposits:
Demand and overnight	$	126	$	167
Total interest-bearing deposits	126		167
Non-interest-bearing deposits:
Other	14		2
Total non-interest-bearing deposits	14		2
Total	$	140	$	169



					Restricted Retained Earnings Related to:
	Unrestricted Retained Earnings				Valuation Adjustments			Other			Joint Capital Enhancement Agreement		Total Restricted Retained Earnings			Total Retained Earnings
Balance, June 30, 2016	$	761			$	—		$	1,650		$	417	$	2,067		$	2,828
Net income	233			—	—			—			58		58			291
Cash dividends on capital stock	(52		)										—			(52		)
Balance, September 30, 2016	$	942			$	—		$	1,650		$	475	$	2,125		$	3,067

Balance, June 30, 2017	$	872			$	21		$	1,750		$	546	$	2,317		$	3,189
Net income	65				—			—			16		16			81
Cash dividends on capital stock	(44		)										—			(44		)
Transfers from restricted retained earnings	1,771				(21		)	(1,750		)	—		(1,771		)	—
Balance, September 30, 2017	$	2,664			$	—		$	—		$	562	$	562		$	3,226



	Par Value (In millions)
September 30, 2017	$	1,028,710
June 30, 2017	1,011,526
March 31, 2017	959,280
December 31, 2016	989,311
September 30, 2016	967,728



	Spread to LIBOR of Average Cost of Consolidated Obligations for the Nine Months Ended
(In basis points)	September 30, 2017	September 30, 2016
Consolidated obligation bonds	-22.8	–10.5
Consolidated obligation discount notes (one month and greater)	-27.6	–28.3



Fair Value of PLRMBS as a Percentage of Unpaid Principal Balance by Year of Securitization

Collateral Type at Origination and Year of Securitization	September 30, 2017		June 30, 2017		March 31, 2017		December 31, 2016		September 30, 2016
Prime
2008	96.60	%	92.68	%	92.93	%	92.87	%	92.11	%
2007	86.17		83.80		84.87		83.93		82.68
2006	93.98		93.21		92.25		92.38		91.84
2005	100.02		99.55		99.44		98.97		98.37
2004 and earlier	100.21		99.70		99.09		98.68		97.75
Weighted average of all Prime	95.44		94.14		94.15		93.71		92.80
Alt-A, option ARM
2007	90.00		87.34		83.66		83.05		81.85
2006	89.62		86.82		83.04		80.76		80.08
2005	65.67		62.10		57.79		57.58		56.73
Weighted average of all Alt-A, option ARM	86.46		83.66		79.82		79.05		77.92
Alt-A, other
2008	96.70		94.73		93.62		93.31		91.83
2007	88.80		87.38		86.49		85.88		86.23
2006	87.02		85.55		83.63		82.57		82.78
2005	90.35		88.96		87.31		87.11		86.71
2004 and earlier	100.21		99.54		99.10		98.51		97.90
Weighted average of all Alt-A, other	90.80		89.60		88.33		87.86		87.69
Weighted average of all PLRMBS	90.84	%	89.36	%	87.89	%	87.40	%	86.96	%

Title of each class

Trading Symbol(s)

Name of each exchange on which registered