Table of Contents


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

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 SeptemberJune 30, 20172022
OR
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 of the United States94-6000630
(State or other jurisdiction of
incorporation or organization)
(I.R.S. employer
identification number)
600 California333 Bush Street,
San Francisco, CA
Suite 2700		94108
San Francisco,CA94104
(Address of principal executive offices)(Zip code)
(415) 616-1000
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each classTrading Symbol(s)Name of each exchange on which registered
———
___________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.    x☒  Yes    o☐  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☒  Yes    o☐  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☐Accelerated filer☐
Non-accelerated filer☒Smaller reporting company☐
Large accelerated fileroAccelerated filero
Non-accelerated filer
x  (Do not check if a smaller reporting company)
Smaller reporting companyo
Emerging growth companyo☐

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
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 OctoberJuly 31, 2017
2022
Class B Stock, par value $100 per share33,616,33529,016,759 


Table of Contents

Federal Home Loan Bank of San Francisco
Form 10-Q
Index
PART I.
FINANCIAL INFORMATION
Item 1.Financial Statements
Financial Statements1
3
Statements of Condition (Unaudited)
31
Statements of Income (Unaudited)
42
Statements of Comprehensive Income (Unaudited)
53
Statements of Capital Accounts (Unaudited)
64
Statements of Cash Flows (Unaudited)
75
Notes to Financial Statements (Unaudited)
97
Item 2.
5741
Quarterly Overview
5843
Financial Highlights
6044
Results of Operations
6145
Financial Condition
7357
Liquidity and Capital Resources
8566
Risk Management
8767
Critical Accounting Policies and Estimates
10676
Recently Issued Accounting StandardsGuidance and Interpretations
10776
Recent Developments
10776
Off-Balance Sheet Arrangements and Other Commitments
108
Item 3.
10876
Item 4.
11380
PART II.
Item 1.
11582
Item 1A.
11582
Item 6.2.
11682
Item 3.
82
Item 4.
82
Item 5.
82
Item 6.
83
11784


Table of Contents

PART I. FINANCIAL INFORMATION


ITEM 1.FINANCIAL STATEMENTS

Federal Home Loan Bank of San Francisco
Statements of Condition
(Unaudited)
(In millions-except par value)June 30,
2022		December 31,
2021
Assets:
Cash and due from banks$54 $55 
Interest-bearing deposits1,840 1,125 
Securities purchased under agreements to resell17,000 15,500 
Federal funds sold9,832 5,348 
Trading securities1 252 
Available-for-sale (AFS) securities, net of allowance for credit losses of $17 and $17, respectively (amortized cost of $11,730 and $10,009, respectively)(a)
11,823 10,332 
Held-to-maturity (HTM) securities (fair values were $2,640 and $3,235, respectively)2,657 3,211 
Advances (includes $1,652 and $1,772 at fair value under the fair value option, respectively)43,221 17,027 
Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $1, respectively863 980 
Accrued interest receivable55 45 
Derivative assets, net42 8 
Other assets214 238 
Total Assets$87,602 $54,121 
Liabilities:
Deposits$1,014 $769 
Consolidated obligations:
Bonds (includes $2,209 and $627 at fair value under the fair value option, respectively)26,076 22,716 
Discount notes53,132 23,987 
Total consolidated obligations79,208 46,703 
Mandatorily redeemable capital stock5 3 
Borrowings from other FHLBanks200 — 
Accrued interest payable49 33 
Affordable Housing Program (AHP) payable108 115 
Derivative liabilities, net74 5 
Other liabilities200 269 
Total Liabilities80,858 47,897 
Commitments and Contingencies (Note 13)00
Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
28 shares and 21 shares, respectively2,754 2,061 
Unrestricted retained earnings3,198 3,124 
Restricted retained earnings692 708 
Total Retained Earnings3,890 3,832 
Accumulated other comprehensive income/(loss) (AOCI)100 331 
Total Capital6,744 6,224 
Total Liabilities and Capital$87,602 $54,121 
(In millions-except par value)September 30,
2017
 December 31,
2016
Assets:   
Cash and due from banks$7
 $2
Interest-bearing deposits699
 590
Securities purchased under agreements to resell13,975
 15,500
Federal funds sold11,826
 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, respectively1,774
 826
Accrued interest receivable106
 79
Premises, software, and equipment, net32
 33
Derivative assets, net92
 66
Other assets88
 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 notes29,902
 33,506
Total consolidated obligations102,168
 83,730
Mandatorily redeemable capital stock342
 457
Borrowings from other Federal Home Loan Banks (FHLBanks)—
 1,345
Accrued interest payable106
 67
Affordable Housing Program (AHP) payable208
 205
Derivative liabilities, net3
 2
Other liabilities187
 429
Total Liabilities103,154
 86,404
Commitments and Contingencies (Note 17)


Capital:   
Capital stock—Class B—Putable ($100 par value) issued and outstanding:   
28 shares and 24 shares, respectively2,815
 2,370
Unrestricted retained earnings2,664
 888
Restricted retained earnings562
 2,168
Total Retained Earnings3,226
 3,056
Accumulated other comprehensive income/(loss) (AOCI)308
 111
Total Capital6,349
 5,537
Total Liabilities and Capital$109,503
 $91,941

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

(a)At June 30, 2022, and December 31, 2021, $332 million and $252 million, respectively, of these securities were pledged as collateral that may be repledged.
The accompanying notes are an integral part of these financial statements.

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Federal Home Loan Bank of San Francisco
Statements of Income
(Unaudited)
Three Months Ended June 30,Six Months Ended June 30,
Three Months Ended September 30, 
Nine Months Ended
September 30,
(In millions)2017
 2016
 2017
 2016
(In millions)2022202120222021
Interest Income:       Interest Income:
Advances$240
 $125
 $586
 $346
Advances$117 $48 $158 $105 
Prepayment fees on advances, net1
 3
 1
 5
Prepayment fees on advances, net— 7 (2)15 
Interest-bearing deposits2
 —
 5
 1
Interest-bearing deposits3 1 3 1 
Securities purchased under agreements to resell3
 4
 7
 9
Securities purchased under agreements to resell13 — 14 — 
Federal funds sold33
 7
 78
 19
Federal funds sold21 1 24 2 
Trading securities4
 3
 12
 6
Trading securities— 20 — 41 
AFS securities60
 63
 181
 199
AFS securities84 50 138 111 
HTM securities76
 62
 210
 188
HTM securities10 11 17 24 
Mortgage loans held for portfolio15
 7
 35
 22
Mortgage loans held for portfolio13 4 30 27 
Total Interest Income434
 274
 1,115
 795
Total Interest Income261 142 382 326 
Interest Expense:       Interest Expense:
Consolidated obligations:       Consolidated obligations:
Bonds205
 95
 468
 303
Bonds50 14 62 36 
Discount notes75
 45
 196
 96
Discount notes83 3 89 7 
Deposits1
 —
 2
 —
Deposits2 — 2 — 
Mandatorily redeemable capital stock7
 11
 25
 33
Total Interest Expense288
 151
 691
 432
Total Interest Expense135 17 153 43 
Net Interest Income146
 123
 424
 363
Net Interest Income126 125 229 283 
Provision for/(reversal of) credit losses on mortgage loans—
 —
 —
 —
Net Interest Income After Mortgage Loan Loss Provision146
 123
 424
 363
Provision for/(reversal of) credit lossesProvision for/(reversal of) credit losses3 (2)— (8)
Net Interest Income After Provision for/(Reversal of) Credit LossesNet Interest Income After Provision for/(Reversal of) Credit Losses123 127 229 291 
Other Income/(Loss):       Other Income/(Loss):
Total other-than-temporary impairment (OTTI) loss—
 (1) (8) (19)
Net amount of OTTI loss reclassified to/(from) AOCI(6) (2) (7) 5
Net OTTI loss, credit-related(6) (3) (15) (14)
Net gain/(loss) on trading securities—
 1
 —
 3
Net gain/(loss) on trading securities— (19)— (37)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(5) (18) (1) 22
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(12)(5)(33)(31)
Net gain/(loss) on derivatives and hedging activities2
 15
 (26) (73)
Gains on litigation settlements, net—
 240
 119
 451
Other5
 6
 15
 14
Net gain/(loss) on derivativesNet gain/(loss) on derivatives(20)(8)(12)10 
Private-label residential mortgage-backed securities (PLRMBS) trust settlementPrivate-label residential mortgage-backed securities (PLRMBS) trust settlement— — 28 — 
Standby letters of credit feesStandby letters of credit fees3 4 7 8 
Other, netOther, net(2)2 (3)3 
Total Other Income/(Loss)(4) 241
 92
 403
Total Other Income/(Loss)(31)(26)(13)(47)
Other Expense:       Other Expense:
Compensation and benefits18
 17
 56
 53
Compensation and benefits22 24 46 48 
Other operating expense19
 20
 49
 52
Other operating expense13 13 25 24 
Federal Housing Finance Agency2
 1
 5
 4
Federal Housing Finance Agency1 2 3 4 
Office of Finance1
 1
 4
 3
Office of Finance2 1 3 3 
Quality Jobs Fund expense10
 —
 50
 —
Other1
 —
 6
 —
Other, netOther, net— (1)(1)(1)
Total Other Expense51
 39
 170
 112
Total Other Expense38 39 76 78 
Income/(Loss) Before Assessment91
 325
 346
 654
Income/(Loss) Before Assessment54 62 140 166 
AHP Assessment10
 34
 37
 69
AHP Assessment6 7 14 17 
Net Income/(Loss)$81
 $291
 $309
 $585
Net Income/(Loss)$48 $55 $126 $149 
The accompanying notes are an integral part of these financial statements.


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Federal Home Loan Bank of San Francisco
Statements of Comprehensive IncomeIncome/(Loss)
(Unaudited)

 Three Months Ended September 30, Nine Months Ended
September 30,
(In millions)2017
 2016
 2017
2016
Net Income/(Loss)$81
 $291
 $309
$585
Other Comprehensive Income/(Loss):      
Net change in pension and postretirement benefits—
 (2) —
(1)
Net non-credit-related OTTI gain/(loss) on AFS securities:      
Net change in fair value of other-than-temporarily impaired securities75
 68
 188
71
Net amount of OTTI loss reclassified to/(from) other income/(loss)6
 2
 7
(5)
Total net non-credit-related OTTI gain/(loss) on AFS securities81
 70
 195
66
Net non-credit-related OTTI gain/(loss) on HTM securities:      
Accretion of non-credit-related OTTI loss—
 2
 2
4
Total net non-credit-related OTTI gain/(loss) on HTM securities—
 2
 2
4
Total other comprehensive income/(loss)81
 70
 197
69
Total Comprehensive Income/(Loss)$162
 $361
 $506
$654

Three Months Ended June 30,Six Months Ended June 30,
(In millions)2022202120222021
Net Income/(Loss)$48 $55 $126 $149 
Other Comprehensive Income/(Loss):
Net unrealized gain/(loss) on AFS securities(80)27 (229)164 
Net change in pension and postretirement benefits(2)— (2)— 
Total other comprehensive income/(loss)(82)27 (231)164 
Total Comprehensive Income/(Loss)$(34)$82 $(105)$313 
The accompanying notes are an integral part of these financial statements.


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Federal Home Loan Bank of San Francisco
Statements of Capital Accounts
(Unaudited)

Capital Stock
Class B—Putable		Retained EarningsTotal
Capital
(In millions)SharesPar ValueRestrictedUnrestrictedTotalAOCI
Balance, March 31, 202122 $2,238 $761 $2,983 $3,744 $367 $6,349 
Comprehensive income/(loss)— 55 55 27 82 
Issuance of capital stock3 327 327 
Repurchase of capital stock(2)(293)(293)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net— (3)(3)
Cash dividends paid on capital stock (6.00%)(34)(34)(34)
Balance, June 30, 202123 $2,269 $761 $3,004 $3,765 $394 $6,428 
Balance, March 31, 202221 $2,097 $692 $3,183 $3,875 $182 $6,154 
Comprehensive income/(loss)— 48 48 (82)(34)
Issuance of capital stock22 2,214 2,214 
Repurchase of capital stock(15)(1,557)(1,557)
Cash dividends paid on capital stock (6.00%)(33)(33)(33)
Balance, June 30, 202228 $2,754 $692 $3,198 $3,890 $100 $6,744 

Capital Stock
Class B—Putable		Retained EarningsTotal
Capital
(In millions)(In millions)SharesPar ValueRestrictedUnrestrictedTotalAOCI
Capital Stock
Class B—Putable
 Retained Earnings   
Total
Capital

(In millions)Shares
 Par Value
 Restricted
 Unrestricted
 Total
 AOCI
 
Balance, December 31, 201523
 $2,253
 $2,018
 $610
 $2,628
 $15
 $4,896
Balance, December 31, 2020Balance, December 31, 202023 $2,284 $761 $2,919 $3,680 $230 $6,194 
Comprehensive income/(loss)    107
 478
 585
 69
 654
Comprehensive income/(loss)— 149 149 164 313 
Issuance of capital stock8
 806
         806
Issuance of capital stock3 328 328 
Repurchase of capital stock(6) (604)         (604)Repurchase of capital stock(3)(340)(340)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net(1) (56)         (56)Capital stock reclassified from/(to) mandatorily redeemable capital stock, net— (3)(3)
Cash dividends paid on capital stock (8.70%)      (146) (146)   (146)
Balance, September 30, 201624
  $2,399
 $2,125
  $942
 $3,067
 $84
 $5,550
Balance, December 31, 201624
 $2,370
 $2,168
 $888
 $3,056
 $111
 $5,537
Cash dividends paid on capital stock (5.47%)Cash dividends paid on capital stock (5.47%)(64)(64)(64)
Balance, June 30, 2021Balance, June 30, 202123 $2,269 $761 $3,004 $3,765 $394 $6,428 
Balance, December 31, 2021Balance, December 31, 202121 $2,061 $708 $3,124 $3,832 $331 $6,224 
Comprehensive income/(loss)

 

 165
 144
 309
 197
 506
Comprehensive income/(loss)— 126 126 (231)(105)
Issuance of capital stock7
 722
 
 
   
 722
Issuance of capital stock31 3,089 3,089 
Repurchase of capital stock(3) (275) 
 
   
 (275)Repurchase of capital stock(23)(2,364)(2,364)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net—
 (2) 

 

   

 (2)Capital stock reclassified from/(to) mandatorily redeemable capital stock, net(1)(32)(32)
Transfers from restricted retained earnings
 

 (1,771) 1,771
 —
 
 —
Transfers from restricted retained earnings(16)16 — — 
Cash dividends paid on capital stock (7.69%)
 

 
 (139) (139) 
 (139)
Balance, September 30, 201728
 $2,815
 $562
 $2,664
 $3,226
 $308
 $6,349
Cash dividends paid on capital stock (6.00%)Cash dividends paid on capital stock (6.00%)(68)(68)(68)
Balance, June 30, 2022Balance, June 30, 202228 $2,754 $692 $3,198 $3,890 $100 $6,744 
The accompanying notes are an integral part of these financial statements.

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Federal Home Loan Bank of San Francisco
Statements of Cash Flows
(Unaudited)
 Nine Months Ended September 30,
(In millions)2017
 2016
Cash Flows from Operating Activities:   
Net Income /(Loss)$309
 $585
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:   
Depreciation and amortization(61) (60)
Change in net fair value of trading securities—
 (3)
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option1
 (22)
Change in net derivatives and hedging activities9
 (2)
Net OTTI loss, credit-related15
 14
Net change in:   
Accrued interest receivable(31) 1
Other assets13
 (11)
Accrued interest payable40
 55
Other liabilities(22) (13)
Total adjustments(36) (41)
Net cash provided by/(used in) operating activities273
 544
Cash Flows from Investing Activities:   
Net change in:   
Interest-bearing deposits(135) 221
Securities purchased under agreements to resell1,525
 (2,000)
Federal funds sold(7,612) (2,295)
Premises, software, and equipment(11) (9)
Trading securities:   
Proceeds from maturities of long-term901
 276
Purchases of long-term—
 (905)
AFS securities:   
Proceeds from maturities of long-term722
 853
HTM securities:   
Net (increase)/decrease in short-term850
 —
Proceeds from maturities of long-term2,354
 2,094
Purchases of long-term(3,404) (3,403)
Advances:   
Principal collected1,166,975
 1,126,547
Made to members(1,178,768) (1,131,447)
Mortgage loans held for portfolio:   
Principal collected115
 130
Purchases(1,046) (150)
Proceeds from sales of foreclosed assets2
 2
Net cash provided by/(used in) investing activities(17,532) (10,086)


Six Months Ended June 30,
(In millions)20222021
Cash Flows from Operating Activities:
Net Income/(Loss)$126 $149 
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization/(accretion)111 32 
Provision for/(reversal of) credit losses— (8)
Change in net fair value of trading securities— 37 
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option33 31 
Change in net derivatives and hedging activities909 358 
PLRMBS trust settlement(28)— 
Other adjustments, net3 4 
Net change in:
Accrued interest receivable(11)21 
Other assets20 1 
Accrued interest payable20 5 
Other liabilities(36)(12)
PLRMBS contingent liability(41)— 
Total adjustments980 469 
Net cash provided by/(used in) operating activities1,106 618 
Cash Flows from Investing Activities:
Net change in:
Interest-bearing deposits(1,195)7 
Securities purchased under agreements to resell(1,500)3,250 
Federal funds sold(4,484)(3,058)
Trading securities:
Proceeds from maturities and paydowns251 1,301 
AFS securities:
Proceeds from maturities and paydowns626 7,860 
Purchases(3,046)(4,275)
HTM securities:
Proceeds from maturities and paydowns538 1,106 
Advances:
Repaid541,868 64,052 
Originated(568,637)(57,541)
Mortgage loans held for portfolio:
Principal collected130 641 
Purchases— (7)
Other investing activities, net(2)— 
Net cash provided by/(used in) investing activities(35,451)13,336 
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Federal Home Loan Bank of San Francisco
Statements of Cash Flows (continued)
(Unaudited)


Six Months Ended June 30,
Nine Months Ended September 30,
(In millions)2017
 2016
(In millions)20222021
Cash Flows from Financing Activities:   Cash Flows from Financing Activities:
Net change in:   
Deposits(38) (898)
Borrowings from other FHLBanks(1,345) —
Net change in deposits and other financing activitiesNet change in deposits and other financing activities404 174 
Net change in borrowings from other Federal Home Loan BanksNet change in borrowings from other Federal Home Loan Banks200 — 
Net (payments)/proceeds on derivative contracts with financing elements—
 8
Net (payments)/proceeds on derivative contracts with financing elements(7)(36)
Net proceeds from issuance of consolidated obligations:   Net proceeds from issuance of consolidated obligations:
Bonds55,849
 29,370
Bonds12,402 11,062 
Discount notes123,224
 100,571
Discount notes98,975 36,865 
Payments for matured and retired consolidated obligations: 
 Payments for matured and retired consolidated obligations:
Bonds(33,790)
(31,105)Bonds(8,371)(26,588)
Discount notes(126,827)
(90,002)Discount notes(69,886)(35,474)
Proceeds from issuance of capital stock722

806
Proceeds from issuance of capital stock3,089 328 
Payments for repurchase/redemption of mandatorily redeemable capital stock(117)
(60)Payments for repurchase/redemption of mandatorily redeemable capital stock(30)(2)
Payments for repurchase of capital stock(275) (604)Payments for repurchase of capital stock(2,364)(340)
Cash dividends paid(139)
(146)Cash dividends paid(68)(64)
Net cash provided by/(used in) financing activities17,264

7,940
Net cash provided by/(used in) financing activities34,344 (14,075)
Net increase/(decrease) in cash and due from banks5

(1,602)Net increase/(decrease) in cash and due from banks(1)(121)
Cash and due from banks at beginning of the period2
 1,637
Cash and due from banks at beginning of the period55 174 
Cash and due from banks at end of the period$7

$35
Cash and due from banks at end of the period$54 $53 
Supplemental Disclosures:   Supplemental Disclosures:
Interest paid$666
 $398
Interest paid$71 $60 
AHP payments40
 33
AHP payments21 15 
Supplemental Disclosures of Noncash Investing and Financing Activities:   Supplemental Disclosures of Noncash Investing and Financing Activities:
Transfers of mortgage loans to real estate owned1
 1
Transfers of HTM securities to AFS securitiesTransfers of HTM securities to AFS securities16 — 
Transfers of capital stock to mandatorily redeemable capital stock2
 56
Transfers of capital stock to mandatorily redeemable capital stock32 3 
The accompanying notes are an integral part of these financial statements.

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Federal Home Loan Bank of San Francisco
Notes to Financial Statements
(Unaudited)






(Dollars in millions except per share amounts)

Note 1 — Basis of Presentation

and Significant Accounting Policies
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, 2017.2022. 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 (20162021 (2021 Form
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 “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 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 estimating the allowance for credit losses on the advances and mortgage loan portfolios; include:
•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,option; and 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 and credit losses previously recorded prior to the adoption of accounting guidance related to the measurement of credit losses 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 on the fair value of the related collateral held, the 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, the Bank performs a quarterly evaluation
to determine whether it is the primary beneficiary in any VIE. The Bank evaluated its investments in VIEs as 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 limited to the carrying value.



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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



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 20162021 Form 10-K. Other
changes to these policies as of SeptemberJune 30, 2017,2022, 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) issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of 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 thatPrivate-label Residential Mortgage-backed Securities (PLRMBS) Trust Settlement. A PLRMBS trust settlement 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 designateincome/(loss) 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.

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“Private-label residential mortgage-backed 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 costtrust settlement” in the Statements of IncomeIncome. A trust settlement is considered realized and allow onlyrecorded when the service cost componentBank receives cash or assets that are readily convertible to known amounts of net benefit costcash or claims to cash, when the Bank enters into a signed agreement that is not subject to appeal, where the counterparty has the ability to pay, and the amount to be eligible for capitalization. This guidance is effective forreceived can be reasonably estimated. Prior to being realized or realizable, the Bank for interimconsiders potential settlements to be gain contingencies, 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 costtherefore they are not recorded in the Statements of IncomeIncome.

One of the Bank’s PLRMBS is held within a trust that has been the subject of litigation by the trustee since 2012. Upon final resolution of the litigation, to which the Bank was not a party, the trustee was required to transmit settlement proceeds to the trust. As a result of the distribution of the settlement proceeds in the first quarter of 2022 to the beneficial owners of the securities in the trust, including the Bank, the Bank recorded settlement proceeds of $28 million as income.
10
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





Note 2 — Recently Issued Accounting Guidance
and prospectively, on and after the effective date, for the capitalizationThe following table provides a summary 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 torecently issued accounting standards that may have a materialan effect on the Bank’s financial condition, results of operations, cash flows, and financial statement disclosures.statements.

Accounting Standards Update (ASU)DescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended (ASU 2020-04)This guidance provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include:
• contract modifications,
• hedging relationships, and
• sale or transfer of debt securities classified as held-to-maturity (HTM).		This guidance is effective immediately for the Bank and the Bank may elect to apply the amendments prospectively through December 31, 2022.The Bank has assessed the guidance and has elected some of the optional expedients and exceptions provided related to the discounting transition for uncleared derivative transactions on a prospective basis during 2021, which did not have a material effect.
Troubled Debt Restructurings and Vintage Disclosures
(ASU 2022-02)
This guidance eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses methodology while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases.The guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2023. Early adoption is permitted.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.

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.
Note 3 — Investments
The Bank does not intendmakes short-term investments in interest-bearing deposits, securities purchased under agreements to adopt this guidance early. resell, and Federal funds sold, and may make other investments in debt securities, which are classified as trading, AFS, or HTM.
Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold. The adoptionBank invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received an investment grade credit rating of this guidance is not expected to haveBBB or greater by a nationally recognized statistical rating organization (NRSRO). At June 30, 2022, and December 31, 2021, NaN of these investments were with counterparties rated below BBB nor with unrated counterparties. These may differ from 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 collectabilityinternal ratings 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 heldinvestments 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

if applicable.
11
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At June 30, 2022, and December 31, 2021, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the relevant contractual terms. NaN allowance for credit losses was recorded for these assets at June 30, 2022, and December 31, 2021. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of $1 million and a de minimis amount, respectively, as of June 30, 2022, and de minimis amounts as of December 31, 2021.
(put) optionsBased upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that 0 allowance for credit losses was needed for its securities purchased under agreements to resell at June 30, 2022, and December 31, 2021. The carrying value of securities purchased under agreements to resell excludes $1 million and a de minimis amount of accrued interest receivable as of June 30, 2022, and December 31, 2021, respectively.
Debt Securities
The Bank invests in debt securities, which are clearly and closelyclassified as either trading, AFS, or HTM. Within these investments, the Bank is primarily subject to credit risk 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 eventPLRMBS 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 theare supported by 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.mortgage loans. The Bank is in the processprohibited by Finance Agency regulations from purchasing certain higher risk securities, such as equity securities and debt instruments that are not investment quality at time 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.purchase.

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 theTrading Securities. The estimated 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;trading securities as of June 30, 2022, and December 31, 2021, was as follows:
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.

(In millions)June 30, 2022December 31, 2021
U.S. obligations – Treasury notes$— $250 
MBS – Other U.S. obligations1 2 
Total$1 $252 
The guidance becomes effectiveunrealized net gain/(loss) on trading securities held at June 30, 2022, was de minimis amounts for the Bankthree and six months ended June 30, 2022. The unrealized net gain/(loss) on trading securities held at June 30, 2021, was $(14) million and $(27) million for the interimthree and annual periods beginning on January 1, 2018,six months ended June 30, 2021, respectively.
Available-for-Sale Securities. AFS securities by major security type as of June 30, 2022, and early adoption is only permitted for certain provisions. The amendments, in general, should be applied by means ofDecember 31, 2021, were as follows:

June 30, 2022
(In millions)
Amortized
Cost(1)
Allowance for Credit LossesGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated Fair Value
U.S. obligations – Treasury notes$3,437 $— $— $(3)$3,434 
MBS:
Government Sponsored Enterprises (GSEs) – multifamily7,039 — 29 (6)7,062 
PLRMBS1,254 (17)104 (14)1,327 
Total MBS8,293 (17)133 (20)8,389 
Total$11,730 $(17)$133 $(23)$11,823 
12
9

Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





December 31, 2021
(In millions)
Amortized
Cost(1)
Allowance for Credit LossesGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated Fair Value
U.S. obligations – Treasury notes$503 $— $1 $— $504 
MBS:
GSEs – multifamily8,056 — 164 — 8,220 
PLRMBS1,450 (17)179 (4)1,608 
Total MBS9,506 (17)343 (4)9,828 
Total$10,009 $(17)$344 $(4)$10,332 
a cumulative-effect adjustment to the Statements(1)    Amortized cost includes unpaid principal balance, unamortized premiums and discounts, net charge-offs, and valuation adjustments for hedging activities, and excludes accrued interest receivable 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,$37 million 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$29 million at June 30, 2022, 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, and December 31, 2016, was as follows:2021, respectively.

 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 Mae7
 8
Total$1,165
 $2,066

The net unrealized gain/(loss) on trading securities was de minimis and $1 for the three months ended SeptemberAt June 30, 2017 and 2016, respectively. The net unrealized gain/(loss) on trading securities was de minimis and $3 for the nine months ended September 30, 2017 and 2016, 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) securities by major security type as of September 30, 2017, and December 31, 2016, were as follows:

13

Table of Contents
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 ARM753
 (9) 123
 —
 867
Alt-A, other2,574
 (26) 213
 —
 2,761
Total$3,684
 $(35) $366
 $—
 $4,015

December 31, 2016         
 
Amortized
Cost(1)

 
OTTI
Recognized in
AOCI

 
Gross
Unrealized
Gains

 
Gross
Unrealized
Losses

 Estimated Fair Value
PLRMBS:         
Prime$413
 $(1) $22
 $—
 $434
Alt-A, option ARM853
 (31) 77
 (2) 897
Alt-A, other3,087
 (82) 154
 (1) 3,158
Total$4,353
 $(114) $253
 $(3) $4,489

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

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, 2017,2022, the amortized cost of the Bank’s PLRMBSMBS classified as AFS included credit-related OTTIpremiums of $836.$54 million, discounts of $38 million, and previous credit losses related to the prior methodology of evaluating credit losses of $380 million for PLRMBS. At December 31, 2016,2021, the amortized cost of the Bank’s PLRMBSMBS classified as AFS included credit-related OTTIpremiums of $941.$59 million, discounts of $41 million, and previous credit losses related to the prior methodology of evaluating credit losses of $405 million for PLRMBS.

The following table summarizestables summarize the AFS securities with unrealized losses as of SeptemberJune 30, 2017,2022, and December 31, 2016.2021. 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
June 30, 2022
 Less Than 12 Months12 Months or MoreTotal
(In millions)Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
U.S. obligations – Treasury notes$2,325 $3 $— $— $2,325 $3 
MBS – GSEs – multifamily1,653 6 — — 1,653 6 
PLRMBS252 9 59 5 311 14 
Total$4,230 $18 $59 $5 $4,289 $23 
December 31, 2021
Less Than 12 Months12 Months or MoreTotal
(In millions)Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
PLRMBS$19 $— $152 $4 $171 $4 
Total$19 $— $152 $4 $171 $4 
Redemption Terms – The amortized cost and estimated fair value of U.S. Treasury securities classified as AFS by contractual maturity (based on contractual final principal payment) and of MBS classified as AFS as of June 30, 2022, and December 31, 2021, are shown below. Expected maturities of MBS classified as AFS will differ from contractual maturities because borrowers may have the following table will not agreeright to total gross unrealized losses incall or prepay 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, see Note 6 – Other-Than-Temporary Impairment Analysis.

underlying obligations with or without call or prepayment fees.
10
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

PLRMBS:           
Prime$—
 $—
 $12
 $—
 $12
 $—
Alt-A, option ARM—
 —
 153
 9
 153
 9
Alt-A, other—
 —
 523
 26
 523
 26
Total$—
 $—
 $688
 $35
 $688
 $35

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Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





June 30, 2022
(In millions)
Year of Contractual MaturityAmortized
Cost		Estimated
Fair Value
U.S. obligations – Treasury notes:
Due in 1 year or less$400 $400 
Due after 1 year through 5 years3,037 3,034 
Subtotal3,437 3,434 
MBS8,293 8,389 
Total$11,730 $11,823 
December 31, 2021
(In millions)
Year of Contractual MaturityAmortized
Cost		Estimated
Fair Value
U.S. obligations – Treasury notes – Due in 1 year or less$503 $504 
MBS9,506 9,828 
Total$10,009 $10,332 
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

PLRMBS:           
Prime$—
 $—
 $14
 $1
 $14
 $1
Alt-A, option ARM14
 —
 249
 33
 263
 33
Alt-A, other57
 —
 1,048
 83
 1,105
 83
Total$71
 $—
 $1,311
 $117
 $1,382
 $117

As indicatedPrepayment Fees, Net – The Bank records prepayment fees net of any associated fair value adjustments related to prepaid MBS that were hedged. The net amount of prepayment fees is reflected as AFS interest income in the tables above,Statements of Income for the three and six months ended June 30, 2022, as follows:
Three Months EndedSix Months Ended
(In millions)June 30, 2022June 30, 2022
Prepayment fees received/(paid)$9 $19 
Fair value adjustments4 (2)
Net$13 $17 
MBS principal prepaid$185 $247 
There were no prepayments of SeptemberAFS MBS during the three and six months ended June 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.2021.

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

Note 5 — Held-to-Maturity Securities

Securities. The Bank classifies the following securities as HTM because the Bank has the positive intent and ability to hold these securities to maturity:
June 30, 2022
(In millions)
Amortized
Cost(1)
Gross
Unrecognized
Holding
Gains(2)
Gross
Unrecognized
Holding
Losses(2)
Estimated
Fair Value
MBS – Other U.S. obligations – single-family$88 $— $(1)$87 
MBS – GSEs:
MBS – GSEs – single-family844 4 (6)842 
MBS – GSEs – multifamily1,552 — (5)1,547 
Subtotal MBS – GSEs2,396 4 (11)2,389 
PLRMBS173 — (9)164 
Total$2,657 $4 $(21)$2,640 
11
September 30, 2017           
  
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) bonds202
 —
 202
 —
 (13) 189
MBS:           
Other U.S. obligations – single-family:           
Ginnie Mae793
 —
 793
 7
 —
 800
GSEs – single-family:           
Freddie Mac2,209
 —
 2,209
 19
 (6) 2,222
Fannie Mae3,930
 —
 3,930
 44
 (3) 3,971
Subtotal GSEs – single-family6,139
 —
 6,139
 63
 (9) 6,193
GSEs – multifamily:

           
Freddie Mac3,379
 —
 3,379
 5
 (1) 3,383
Fannie Mae2,201
 —
 2,201
 1
 —
 2,202
Subtotal GSEs – multifamily
5,580
 —
 5,580
 6
 (1) 5,585
Subtotal GSEs11,719
 —
 11,719
 69
 (10) 11,778
PLRMBS:           
Prime557
 —
 557
 5
 (6) 556
Alt-A, other331
 (7) 324
 11
 (3) 332
Subtotal PLRMBS888
 (7) 881
 16
 (9) 888
Total MBS13,400
 (7) 13,393
 92
 (19) 13,466
Total$14,102
 $(7) $14,095
 $92
 $(32) $14,155

15

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





December 31, 2021
(In millions)
Amortized
Cost(1)
Gross
Unrecognized
Holding
Gains(2)
Gross
Unrecognized
Holding
Losses(2)
Estimated
Fair Value
MBS – Other U.S. obligations – single-family$113 $2 $— $115 
MBS – GSEs:
MBS – GSEs – single-family1,011 16 (1)1,026 
MBS – GSEs – multifamily1,870 5 (1)1,874 
Subtotal MBS – GSEs2,881 21 (2)2,900 
PLRMBS217 5 (2)220 
Total$3,211 $28 $(4)$3,235 
(1)    Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and net charge offs, and excludes accrued interest receivable of $3 million and $2 million at June 30, 2022, and December 31, 2021, respectively.
December 31, 2016           
  
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) bonds225
 —
 225
 —
 (18) 207
MBS:           
Other U.S. obligations – single-family:           
Ginnie Mae951
 —
 951
 5
 (1) 955
GSEs – single-family:           
Freddie Mac2,793
 —
 2,793
 23
 (15) 2,801
Fannie Mae5,037
 —
 5,037
 47
 (14) 5,070
Subtotal GSEs – single-family7,830
 —
 7,830
 70
 (29) 7,871
GSEs – multifamily:           
Freddie Mac1,556
 —
 1,556
 —
 (1) 1,555
Fannie Mae1,058
 —
 1,058
 —
 (1) 1,057
Subtotal GSEs – multifamily2,614
 —
 2,614
 —
 (2) 2,612
Subtotal GSEs10,444
 —
 10,444
 70
 (31) 10,483
PLRMBS:           
Prime707
 —
 707
 2
 (15) 694
Alt-A, other459
 (9) 450
 11
 (9) 452
Subtotal PLRMBS1,166
 (9) 1,157
 13
 (24) 1,146
Total MBS12,561
 (9) 12,552
 88
 (56) 12,584
Total$14,136

$(9)
$14,127

$88

$(74)
$14,141
(2)    Gross unrecognized holding gains/(losses) represent the difference between estimated fair value and net carrying value.

(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.

Expected maturities of MBS classified as HTM 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.
At SeptemberJune 30, 2017,2022, the amortized cost of the Bank’s MBS classified as HTM included premiums of $20,$3 million, discounts of $25,$4 million, and credit-related OTTIa de minimis amount of $7.previous credit losses related to the prior methodology of evaluating credit losses for PLRMBS. At December 31, 2016,2021, the amortized cost of the Bank’s MBS classified as HTM included premiums of $29,$3 million, discounts of $34,$4 million, and credit-related OTTIprevious credit losses related to the prior methodology of $8.evaluating credit losses of $6 million for PLRMBS.

Allowance for Credit Losses on AFS and HTM Securities. The following tables summarizetable presents a rollforward of the allowance for credit losses on investment securities associated with PLRMBS classified as AFS for the three and six months ended June 30, 2022 and 2021. The Bank recorded no allowance for credit losses associated with HTM securities with unrealized losses as of Septemberduring the three and six months ended June 30, 2017,2022 and 2021.
Three Months EndedSix Months Ended
(In millions)June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Balance, beginning of the period$14 $15 $17 $21 
(Charge-offs)/recoveries— — — (1)
Provision for/(reversal of) credit losses3 (1)— (6)
Balance, end of the period$17 $14 $17 $14 
To evaluate investment securities for credit loss at June 30, 2022, and December 31, 2016.2021, the Bank employed the following methodologies, based on the type of security.
AFS and HTM Securities (Excluding PLRMBS) – The unrealized lossesBank’s AFS and HTM securities are aggregatedprincipally U.S. obligations and MBS issued by major security typeGinnie Mae, Freddie Mac, and Fannie Mae that are backed by single-family or multifamily mortgage loans. The Bank only purchases securities considered investment quality. Excluding PLRMBS investments, at June 30, 2022, and December 31, 2021, substantially all of AFS securities and HTM securities, based on amortized cost, were rated A, or above, by an NRSRO, based on the lengthlowest long-term credit rating for each security. These may differ from any internal ratings of time that individualthe securities have beenby the Bank, if applicable.
At June 30, 2022, and December 31, 2021, certain of the Bank’s AFS securities were in a continuousan unrealized loss position. Total unrealizedThese losses inare considered temporary as the following tableBank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will not agreebe required to the total gross unrecognized holding losses in the table above. The unrealized losses in the following table also include non-credit-related OTTI losses recognized in AOCI. For OTTI analysissell these securities before its anticipated recovery of HTM securities, see Note 6 – Other-Than-Temporary Impairment Analysis.


each security's remaining amortized cost basis.
16
12

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 Mae31
 —
 —
 —
 31
 —
GSEs – single-family:           
Freddie Mac1,028
 6
 3
 —
 1,031
 6
Fannie Mae412
 2
 153
 1
 565
 3
Subtotal GSEs – single-family1,440
 8
 156
 1
 1,596
 9
GSEs – multifamily:           
Freddie Mac833
 1
 —
 —
 833
 1
Fannie Mae1,097
 —
 —
 —
 1,097
 —
Subtotal GSEs – multifamily

1,930
 1
 —
 —
 1,930
 1
Subtotal GSEs3,370
 9
 156
 1
 3,526
 10
PLRMBS:           
Prime15
 —
 226
 6
 241
 6
Alt-A, other—
 —
 232
 10
 232
 10
Subtotal PLRMBS15
 —
 458
 16
 473
 16
Total MBS3,416
 9
 614
 17
 4,030
 26
Total$3,416
 $9
 $803
 $30
 $4,219
 $39
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 Mae190
 1
 —
 —
 190
 1
GSEs – single-family:           
Freddie Mac1,498
 15
 3
 —
 1,501
 15
Fannie Mae2,665
 12
 96
 2
 2,761
 14
Subtotal GSEs – single-family4,163
 27
 99
 2
 4,262
 29
GSEs – multifamily:           
Freddie Mac1,007
 1
 —
 —
 1,007
 1
Fannie Mae387
 1
 —
 —
 387
 1
Subtotal GSEs – multifamily1,394
 2
 —
 —
 1,394
 2
Subtotal GSEs5,557
 29
 99
 2
 5,656
 31
PLRMBS:           
Prime1
 —
 517
 15
 518
 15
Alt-A, other—
 —
 452
 18
 452
 18
Subtotal PLRMBS1
 —
 969
 33
 970
 33
Total MBS5,748
 30
 1,068
 35
 6,816
 65
Total$5,748
 $30
 $1,261
 $53
 $7,009
 $83

17

Table of Contents
Federal Home LoanFurther, the Bank of San Francisco
Notes to Financial Statements (continued)




has not experienced any payment defaults on the instruments. As a result, no allowance for credit losses was recorded on these AFS securities at June 30, 2022, and December 31, 2021.
As indicated in the tables above, the Bank’s investments classified as HTM had unrealized losses on CalHFA bondsof June 30, 2022, 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,December 31, 2021, the Bank expectshad not established an allowance for credit loss on any of its HTM securities because the securities: (i) were all highly rated or had short remaining terms to recovermaturity and (ii) had not experienced, nor did the entire amortized cost basisBank expect, any payment default on the instruments.
Private-Label Residential Mortgage-Backed Securities – The Bank also holds investments in PLRMBS. The Bank has not purchased any PLRMBS since the first quarter of 2008. However, many of these securities becausehave subsequently experienced significant credit deterioration. As of June 30, 2022, and December 31, 2021, approximately 5% of PLRMBS (AFS and HTM combined, based on amortized cost) were rated A, or above, by an NRSRO; and the remaining securities were either rated less than A, or were unrated. To determine whether an allowance for credit loss is necessary on these securities, the Bank uses cash flow analyses. For certain PLRMBS where underlying collateral data is not available, alternative procedures as determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protectby the Bank from losses. The unrealized losses associated with the PLRMBS were primarily dueare used to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlyingassess these securities which caused these assets to be valued at discounts to their amortized cost.for credit loss measurement.

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 have the right to prepay the underlying obligations without prepayment fees.

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 years25
 25
 24
Due after 10 years177
 177
 165
Subtotal702
 702
 689
MBS13,400
 13,393
 13,466
Total$14,102
 $14,095
 $14,155
December 31, 2016     
Year of Contractual Maturity
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 years35
 35
 34
Due after 10 years190
 190
 173
Subtotal1,575
 1,575
 1,557
MBS12,561
 12,552
 12,584
Total$14,136
 $14,127
 $14,141

(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,At each quarter end, 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

18

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 ofcompares the present value of the cash flows expected to be collected fromon its PLRMBS, using the security witheffective interest rate, to the amortized cost basis of the security. If securities to determine whether a credit loss exists. The expected credit losses are measured using:
•expected housing price changes;
•expected interest rate assumptions;
•the Bank’s best estimate ofremaining payment terms for the present value ofsecurity;
•expected default rates based on underlying loan-level borrower and loan characteristics;
•loss severities on the collateral supporting each unique PLRMBS based on underlying loan-level borrower and loan characteristics; and
•prepayment speeds based on underlying loan-level borrower and loan characteristics.
The projected cash flows expected to be collected is less thanare based on a number of assumptions and expectations, and the amortized cost basis, the difference is considered the credit loss.

PLRMBS. A significant input to the Bank’sresults of these models can vary significantly with changes in these assumptions and expectations. The 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) developedflows determined reflect management’s expectations and include a short-termbase case 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.

near- and long-term horizons.
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 determinedPLRMBS with previous credit losses related to be other-than-temporarily impaired asthe prior methodology of September 30, 2017evaluating credit losses (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), the following table presents a summarymeasurement of the fair value of PLRMBS classified as Level 3 as of June 30, 2022, uses significant inputs used in measuringthat include, based on unpaid principal balance, the amountweighted average percentage of creditprepayment rates, 10.9%; default rates, 7.5%; and loss recognized in earnings during the third quarterseverities, 49.4%. The weighted average percentage of2017, and the related current credit enhancement for the Bank.

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       
20078.7 44.1 46.0 —
200513.5 19.0 35.9 4.8
Total Alt-A, other11.6 28.9 39.9 2.9
Total11.6 28.9 39.9 2.9

(1) Weighted average percentage isthese securities, based on unpaid principal balance.

balance, was 8.7% as of June 30, 2022. 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 istotal net accretion recognized in earnings,interest income associated with PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses totaled $15 million and $16 million for the three and nine months ended SeptemberJune 30, 20172022 and 2016.2021, respectively, and $29 million and $33 million for the six months ended June 30, 2022 and 2021, respectively. Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the securities totaled $10 million and $13 million for the three months ended June 30, 2022 and 2021, respectively, and $18 million and $26 million for the six months ended June 30, 2022 and 2021, respectively.
13
 
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

19

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)






(1)
For the three months ended September 30, 2017 and 2016, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to July 1, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to January 1, 2017 and 2016, respectively.
(2) Represents reductions related to securities having reached final maturity during the period, which therefore are no longer held byIn 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 electedelects to transfer any PLRMBS that incurred a credit-related OTTI chargecredit loss during the applicable period from the Bank’s held-to-maturityHTM portfolio to its available-for-saleAFS portfolio at their fair values. The Bank previously recognized an OTTIa credit loss on these held-to-maturityHTM PLRMBS, which the Bank believes is evidence of a significant decline in the issuers’ creditworthiness.credit quality of the underlying collateral. The decline in the issuers’ creditworthinesscredit quality of the underlying collateral is the basis for the transfers to the available-for-saleAFS 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 intendtransferred PLRMBS from its HTM portfolio 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 remainingAFS portfolio with an amortized cost basis.

of $16 million and fair value of $19 million during the six months ended June 30, 2022. The Bank did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three and nine months ended SeptemberJune 30, 2017 and 2016.

The following tables present the Bank’s AFS and HTM PLRMBS that incurred OTTI losses anytime2022, nor during the life of the securities at Septemberthree and six months ended June 30, 2017, and December 31, 2016, by loan collateral type:2021.

September 30, 2017             
 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$431
 $357
 $387
 $—
 $—
 $—
 $—
Alt-A, option ARM1,003
 753
 867
 —
 —
 —
 —
Alt-A, other3,075
 2,574
 2,761
 66
 62
 55
 66
Total$4,509
 $3,684
 $4,015
 $66
 $62
 $55
 $66


20

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 ARM1,134
 853
 897
 —
 —
 —
 —
Alt-A, other3,650
 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, the Bank has experienced net unrealizedrecorded a provision for credit losses primarilyof $3 million and a de minimis amount during the three and six months ended June 30, 2022, largely because of illiquiditydeclines in the PLRMBS marketfair values and market expectationsthe present value of expected cash flows of certain PLRMBS. The Bank recorded a reversal of credit losses of $1 million and $6 million during the three and six months ended June 30, 2021, respectively, primarily resulting from lower default rates as well as improved projected credit performance in part related to a more optimistic economic outlook because 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,monetary 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, 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 issuedfiscal stimulus measures taken 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, 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, 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, all of the gross unrealized losses on its agency MBS are temporary.government.


Note 74 — 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 anothera 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%0.13% to 8.57% at June 30, 2022, and 0.13% to 8.57% at December 31, 2016,2021, as summarized below.

(Dollars in millions)June 30, 2022December 31, 2021
Redemption Term
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Overdrawn demand and overnight deposit accounts$13 1.40 %$— — %
Within 1 year(2)
29,998 1.80 4,129 0.85 
After 1 year through 2 years3,483 1.80 2,744 1.52 
After 2 years through 3 years4,215 1.57 3,092 1.59 
After 3 years through 4 years2,152 1.94 2,618 1.31 
After 4 years through 5 years2,453 2.03 3,063 1.90 
After 5 years1,312 3.12 1,212 2.12 
Total par value43,626 1.84 %16,858 1.45 %
Valuation adjustments for hedging activities(398)103 
Valuation adjustments under fair value option(7)66 
Total$43,221 $17,027 
21(1)Carrying amounts exclude accrued interest receivable of $8 million and $5 million at June 30, 2022, and December 31, 2021, respectively.

Table of Contents(2)Advances outstanding with redemption terms within three months totaled $20.7 billion and $2.6 billion at June 30, 2022, and December 31, 2021, respectively.
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 years13,436
 1.49
 7,608
 1.36
After 2 years through 3 years5,597
 1.61
 9,410
 1.22
After 3 years through 4 years6,670
 1.53
 2,083
 1.39
After 4 years through 5 years1,790
 2.07
 6,423
 1.24
After 5 years1,036
 3.01
 1,431
 2.60
Total par value61,651
 1.41% 49,857
 1.09%
Valuation adjustments for hedging activities(39)   (22)  
Valuation adjustments under fair value option17
   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 no longer offers advances with partial
14
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


prepayment symmetry. The Bank had advances with full prepayment symmetry outstanding totaling $12.3 billion at June 30, 2022, and $9.0 billion at December 31, 2021. The Bank had advances with partial prepayment symmetry outstanding totaling $4,325$1.3 billion at SeptemberJune 30, 2017,2022, and $3,647$1.4 billion at December 31, 2016.2021. Some advances may be repaid on pertinent call dates without prepayment fees (callable advances). The Bank had callable advances outstanding totaling $17,903$365 million at SeptemberJune 30, 2017,2022, and $15,505$70 million at December 31, 2016.2021.

The Bank’sBank had putable advances totaling $20 million at SeptemberJune 30, 2017,2022, and $220 million at December 31, 2016, included $25 and $125 of putable advances, respectively.2021. 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 SeptemberJune 30, 2017,2022, and December 31, 2016,2021, by the earlier of the year of contractual maturityredemption term or next call date for callable advances and by the earlier of the year of contractual maturityredemption term or next put date for putable advances.
Earlier of Redemption
Term or Next Call Date		Earlier of Redemption
Term or Next Put Date
(In millions)June 30, 2022December 31, 2021June 30, 2022December 31, 2021
Overdrawn demand and overnight deposit accounts$13 $— $13 $— 
Within 1 year30,318 4,199 30,018 4,349 
After 1 year through 2 years3,483 2,744 3,483 2,744 
After 2 years through 3 years4,225 3,042 4,215 3,092 
After 3 years through 4 years2,152 2,618 2,152 2,618 
After 4 years through 5 years2,463 3,063 2,453 3,063 
After 5 years972 1,192 1,292 992 
Total par value$43,626 $16,858 $43,626 $16,858 
 
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 years8,694
 11,078
 13,436
 7,583
After 2 years through 3 years8,797
 4,465
 5,597
 9,410
After 3 years through 4 years1,470
 5,782
 6,670
 2,083
After 4 years through 5 years1,778
 1,421
 1,790
 6,423
After 5 years941
 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 SeptemberJune 30, 20172022 and 2016.2021. 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 ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.


(Dollars in millions)June 30, 2022Three Months Ended
June 30, 2022		Six Months Ended
June 30, 2022
Name of BorrowerAdvances
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
First Republic Bank$11,000 25 %$20 15 %$29 14 %
MUFG Union Bank, National Association8,950 21 22 17 35 17 
Silicon Valley Bank3,500 8 1 1 2 1 
First Technology Federal Credit Union(2)
3,248 7 11 8 19 10 
Western Alliance Bank2,000 5 6 4 6 3 
Subtotal28,698 66 60 45 91 45 
Others14,928 34 74 55 111 55 
Total par value$43,626 100 %$134 100 %$202 100 %
22
15

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





(Dollars in millions)June 30, 2021Three Months Ended
June 30, 2021		Six Months Ended
June 30, 2021
Name of BorrowerAdvances
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
First Republic Bank$9,000 38 %$35 32 %$76 33 %
MUFG Union Bank, National Association4,075 17 28 25 59 25 
First Technology Federal Credit Union(2)
1,371 6 6 6 13 6 
Luther Burbank Savings(2)
1,005 4 4 4 8 3 
Banc of California, National Association496 2 3 3 5 2 
     Subtotal15,947 67 76 70 161 69 
Others7,880 33 33 30 71 31 
Total par value$23,827 100 %$109 100 %$232 100 %
(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.
 September 30, 2017 
Three Months Ended
September 30, 2017
 
Nine Months Ended
September 30, 2017
Name of BorrowerAdvances
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 Bank8,750
 14
 31
 13
 79
 13
Bank of the West7,809
 13
 29
 11
 62
 10
MUFG Union Bank, National Association5,600
 9
 16
 7
 24
 4
Charles Schwab Bank5,000
 8
 5
 2
 10
 2
     Subtotal39,023
 63
 126
 51
 306
 50
Others22,628
 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 West6,855
 12
 13
 9
 37
 9
First Republic Bank4,700
 9
 18
 13
 52
 13
MUFG Union Bank, National Association3,901
 7
 4
 3
 8
 2
Citibank, N.A.(2)
3,000
 5
 3
 3
 10
 3
     Subtotal33,266
 60
 69
 50
 190
 48
Others22,475
 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)Nonmember institution.

(2)    An officer or director of the member is a Bank director.
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 advancesCredit Risk Exposure and allowance methodology for credit losses, see Note 9 – Allowance for Credit Losses.

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

23

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 year13,053
 10,845
Total fixed rate35,761
 24,331
Adjustable rate:   
Due within 1 year10,414
 9,416
Due after 1 year15,476
 16,110
Total adjustable rate25,890
 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, or December 31, 2016. 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 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

24

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.

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, and December 31, 2016, on mortgage loans, all of which are secured by one- to four-unit residential properties and single-unit second homes.

  
September 30, 2017
 December 31, 2016
Fixed rate medium-term mortgage loans$37
 $55
Fixed rate long-term mortgage loans1,678
 759
Subtotal1,715
 814
Unamortized premiums64
 18
Unamortized discounts(5) (6)
Mortgage loans held for portfolio1,774
 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 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 Form 10-K.

Credit Products.The Bank manages its credit exposure related to credit productsadvances 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.
In addition, the Bank lends to member financial institutions that have their principal place of business in Arizona, California, or Nevada, in accordance with federal law and Finance Agency regulations. Specifically, the Bank is required to obtain sufficient collateral to fully secure credit products up to the member’s total credit limit. Borrowers may pledge the following eligible assets to secure advances:
•one-to-four-family first lien residential mortgage loans;
•securities issued, insured, or guaranteed by the U.S. government or any of its agencies, including without limitation MBS backed by Fannie Mae, Freddie Mac, or Ginnie Mae;
•cash or deposits in the Bank;
•certain other real estate-related collateral, such as certain privately issued MBS, multifamily loans, commercial real estate loans, and second lien residential mortgage loans or home equity loans; and
•small business, small farm, and small agribusiness loans that are fully secured by collateral (such as real estate, equipment and vehicles, accounts receivable, and inventory) from members that are community financial institutions.
At SeptemberJune 30, 2017,2022, and December 31, 2016,2021, none of the Bank’s credit products were past due or on nonaccrual status, or considered impaired.status. There were no troubled debt restructurings related to credit products during the ninethree and six months ended SeptemberJune 30, 2017, or during 2016.

2022 and 2021.
Based on the collateral pledged as security for advances, the Bank’s credit analyses of borrowers’ financial condition, repayment history on advances, and the Bank’s credit extension and collateral policies as of SeptemberJune 30, 2017,2022, the Bank expects to collect all amounts due according to the contractual terms. Therefore, no allowance for losses on credit productsadvances was deemed necessary by the Bank. The Bank has never experienced anyas of June 30, 2022, and December 31, 2021.
For more information on the credit losses on its credit products.

risk exposure and security terms of advances, see “Item 8. Financial Statements and Supplementary Data – Note 5 - Advances” in the Bank’s 2021 Form 10-K.
25
16

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





Interest Rate Payment Terms. Interest rate payment terms for advances at June 30, 2022, and December 31, 2021, are detailed below:

(In millions)June 30, 2022December 31, 2021
Par value of advances:
Fixed rate:
Due within 1 year$23,508 $2,768 
Due after 1 year13,615 12,729 
Total fixed rate37,123 15,497 
Adjustable rate – due within 1 year6,503 1,361 
Total par value$43,626 $16,858 
No member institutionsThe 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 June 30, 2022, or December 31, 2021. 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 11 – Derivatives and Hedging Activities and Note 12 – 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 placed into receivership duringhedged. The net amount of prepayment fees is reflected in the first nineStatements of Income for the three and six months of 2017 or from October 1 to October 31, 2017.ended June 30, 2022 and 2021, as follows:

Three Months EndedSix Months Ended
(In millions)June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Prepayment fees received/(paid)$(3)$17 $(4)$26 
Fair value adjustments3 (10)2 (11)
Net$— $7 $(2)$15 
Advance principal prepaid$1,941 $2,202 $2,226 $3,676 
Note 5 — Mortgage Loans Held for Portfolio.Portfolio
The following table presents information as of June 30, 2022, and December 31, 2021, on delinquent mortgage loans asheld for portfolio, all of Septemberwhich are secured by one- to four-unit residential properties and single-unit homes.
(In millions)June 30, 2022December 31, 2021
Fixed rate medium-term mortgage loans$15 $18 
Fixed rate long-term mortgage loans809 936 
Subtotal824 954 
Unamortized premiums42 28 
Unamortized discounts(2)(1)
Mortgage loans held for portfolio(1)
864 981 
Less: Allowance for credit losses(1)(1)
Total mortgage loans held for portfolio, net$863 $980 
(1)Excludes accrued interest receivable of $5 million and $6 million at June 30, 2017,2022, and December 31, 2016.2021, respectively.

Medium-term loans have original contractual terms of 15 years or less, and long-term loans have contractual terms of more than 15 years.
17
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


 September 30, 2017
 December 31, 2016
 
Recorded
Investment(1)

 
Recorded
Investment(1)

30 – 59 days delinquent$10
 $7
60 – 89 days delinquent1
 3
90 days or more delinquent13
 15
Total past due24
 25
Total current loans1,759
 805
Total mortgage loans$1,783
 $830
In process of foreclosure, included above(2)
$4
 $5
Nonaccrual loans$13
 $15
Loans past due 90 days or more and still accruing interest$—
 $—
Serious delinquencies as a percentage of total mortgage loans outstanding(3)
0.72% 1.79%
Payment Status of Mortgage Loans. Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. A past due loan is one where the borrower has failed to make a scheduled full payment of principal and interest within 30 days of its due date. Other delinquency statistics include nonaccrual loans and loans in process of foreclosure. The following tables present the payment status for mortgage loans and other delinquency statistics for the Bank’s mortgage loans at June 30, 2022, and December 31, 2021.

June 30, 2022
(Dollars in millions)Origination Year
Payment Status2018 to 2022Prior to 2018
Amortized Cost(1)
30 – 59 days delinquent$1 $6 $7 
60 – 89 days delinquent1 1 2 
90 days or more delinquent14 12 26 
Total past due16 19 35 
Total current loans474 355 829 
Total mortgage loans held for portfolio$490 $374 $864 
In process of foreclosure, included above(2)
$3 
Nonaccrual loans(3)
$26 
Serious delinquencies as a percentage of total mortgage loans outstanding(4)
3.04 %
(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.

December 31, 2021
(Dollars in millions)Origination Year
Payment Status2017 to 2021Prior to 2017
Amortized Cost(1)
30 – 59 days delinquent$7 $2 $9 
60 – 89 days delinquent1 2 3 
90 days or more delinquent26 10 36 
Total past due34 14 48 
Total current loans729 204 933 
Total mortgage loans held for portfolio$763 $218 $981 
In process of foreclosure, included above(2)
$1 
Nonaccrual loans(3)
$36 
Serious delinquencies as a percentage of total mortgage loans outstanding(4)
3.64 %
(1)    The amortized cost in a loan is the unpaid principal balance of the loan, adjusted for net deferred loan fees or costs, unamortized premiums or discounts, and direct write-downs.
(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)    At June 30, 2022, and December 31, 2021, $17 million and $21 million, respectively, of mortgage loans on nonaccrual status did not have an associated allowance for credit losses because these loans were either previously charged off to the expected recoverable value or the fair value of the underlying collateral, including any credit enhancements, is greater than the amortized cost of the loans.
(4)    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.
Allowance for Credit Losses on Mortgage Loans Held for Portfolio. Mortgage loans held for portfolio are evaluated on a loan-level basis for expected credit losses, factoring in the credit enhancement structure at the master commitment level. The Bank determines its allowance for credit losses on mortgage loans held for portfolio through analyses that include consideration of various loan portfolio and collateral related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. The Bank uses models that employ a variety of methods, such as projected cash flows, to estimate expected credit losses over the life of the loans. These models rely on a number of inputs, such as current and forecasted property values and interest rates as well as historical borrower behavior experience. At June 30, 2022, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 7.2% over a one-year forecast horizon before reverting to long-term housing price appreciation rates of 4.0% after five additional years in the
18
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


forecast based on historical averages. At December 31, 2021, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 8.4% over a one-year forecast horizon before reverting to long-term housing price appreciation rates of 3.3% after five additional years in the forecast based on historical averages. The Bank also incorporates associated credit enhancements, if any, to determine its estimate of expected credit losses.
Certain mortgage loans held for portfolio may be evaluated for credit losses by the Bank using the practical expedient for collateral-dependent assets. A mortgage loan is considered collateral-dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. The Bank may estimate the fair value of this collateral by applying an appropriate loss severity rate or using third-party estimates or property valuation models. The expected credit loss of a collateral-dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The Bank will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit loss.
The amountsfollowing table presents a rollforward of the allowance for credit losses on the mortgage loan portfolio for the three and six months ended June 30, 2022 and 2021. The amount of charge-offs and recoveries of allowance for credit losses on the mortgage loan portfolio were de minimis duringfor the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.

Three Months EndedSix Months Ended
(In millions)June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Balance, beginning of the period$1 $3 $1 $4 
Provision for/(reversal of) credit losses— (1)— (2)
Balance, end of the period$1 $2 $1 $2 
The allowance for credit losses and recorded investment by impairment methodology for individually and collectively evaluated impaired loans are as follows:
 September 30, 2017
 December 31, 2016
Allowance for credit losses, end of period:   
Individually evaluated for impairment$—
 $—
Collectively evaluated for impairment—
 —
Total allowance for credit losses$—

$—
Recorded investment, end of period:   
Individually evaluated for impairment$9
 $12
Collectively evaluated for impairment1,774
 818
Total recorded investment$1,783
 $830

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

26

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
 $—

The average recorded investment on impaired loans individually evaluated for impairment is as follows:
 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 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 purchased under the MPF Program generally have a credit risk exposure 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 by the Bank 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 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 prevailing 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.


27

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 reasonsmore information related to the debtor’s financial difficultiesBank’s accounting policies for mortgage loans held for portfolio, see “Item 8. Financial Statements 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 factoringSupplementary Data – Note 1 – Summary of Significant Accounting Policies” in expected cash flow shortfalls incurred as of the reporting date as well as the economic loss attributable to delaying the original contractual principal and interest due dates, if applicable.Bank’s 2021 Form 10-K.


The recorded investment of the Bank's nonperforming MPFloans classified as TDRs totaled $3 as of September 30, 2017, and $3 as of December 31, 2016. During the three and nine months ended September 30, 2017 and 2016, the difference between the pre- and post-modification recorded investment in TDRs that occurred during the year was de minimis. None of the MPF loans classified as TDRs within the previous 12 months experienced a payment default.

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, and December 31, 2016, were repaid or are expected to be repaid according to the contractual terms.

Note 106 — 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 held for portfolio 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 deposits126
 167
Non-interest-bearing deposits:   
Other14
 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 rate payment terms for deposits at September 30, 2017, and December 31, 2016, are detailed in the following table:

19
 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 deposits14
   2
  
Total$140
   $169
  



28

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





Deposits and interest rate payment terms for deposits as of June 30, 2022, and December 31, 2021, were as follows:
June 30, 2022December 31, 2021
(Dollars in millions)Amount
Outstanding		Weighted
Average
Interest Rate		Amount
Outstanding		Weighted
Average
Interest Rate
Interest-bearing deposits:
Adjustable rate$1,003 1.40 %$722 0.01 %
Fixed rate2 0.66 18 0.01 
Total interest-bearing deposits1,005 740 
Non-interest-bearing deposits9 29 
Total$1,014 $769 

Note 117 — Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are jointly issued by the FHLBanksFederal Home Loan Banks (FHLBanks) through the Office of Finance, which serves as the FHLBanks’ agent. As provided by the FHLBankFederal 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 StatementStatements and Supplementary Data – Note 2016 – Commitments and Contingencies” in the Bank’s 20162021 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 SeptemberJune 30, 2017,2022, and December 31, 2016.2021.

(Dollars in millions)June 30, 2022December 31, 2021
Contractual MaturityAmount
Outstanding		Weighted
Average
Interest Rate		Amount
Outstanding		Weighted
Average
Interest Rate
Within 1 year$11,050 1.49 %$7,349 0.18 %
After 1 year through 2 years2,468 0.80 1,757 0.67 
After 2 years through 3 years4,695 0.96 4,230 0.63 
After 3 years through 4 years3,897 0.93 1,855 0.72 
After 4 years through 5 years3,196 1.06 5,368 0.89 
After 5 years1,588 1.60 2,303 1.42 
Total par value26,894 1.21 %22,862 0.64 %
Unamortized premiums2 3 
Unamortized discounts(4)(4)
Valuation adjustments for hedging activities(772)(139)
Fair value option valuation adjustments(44)(6)
Total$26,076 $22,716 
 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 years10,129
 1.26
 10,597
 0.99
After 2 years through 3 years2,269
 1.66
 1,318
 1.32
After 3 years through 4 years1,837
 1.70
 1,055
 1.84
After 4 years through 5 years1,622
 2.02
 1,350
 1.59
After 5 years2,146
 2.66
 2,021
 2.42
Total par value72,280
 1.24% 50,220
 0.98%
Unamortized premiums10
   15
  
Unamortized discounts(10)   (9)  
Valuation adjustments for hedging activities(12)   6
  
Fair value option valuation adjustments(2)   (8)  
Total$72,266
   $50,224
  

The Bank’s participation in consolidated obligation bonds outstanding includes callable bonds of $8,300$20.0 billion at SeptemberJune 30, 2017,2022, and $4,670$14.6 billion at December 31, 2016.2021. 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(wherein 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
20
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


option in a swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of $5,414$18.4 billion at SeptemberJune 30, 2017,2022, and $2,125$12.8 billion at December 31, 2016.2021. The combined sold callable swaps and callable bonds enable the Bank to meet its funding needs at lower costs not otherwise directly attainable solely through the issuance ofrelative to similar tenor non-callable debt, while effectively converting the Bank’s net payment to an adjustable rate.

The Bank’s participation in consolidated obligation bonds at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, was as follows:

(In millions)June 30, 2022December 31, 2021
Par value of consolidated obligation bonds:
Non-callable$6,929 $8,242 
Callable19,965 14,620 
Total par value$26,894 $22,862 
29

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
Callable8,300
 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 SeptemberJune 30, 2017,2022, and December 31, 2016,2021, by the earlier of the year of contractual maturity or next call date.
(In millions)(In millions)
Earlier of Contractual
Maturity or Next Call Date
September 30, 2017
 December 31, 2016
Earlier of Contractual
Maturity or Next Call Date		June 30, 2022December 31, 2021
Within 1 year$61,801
 $38,099
Within 1 year$25,846 $21,770 
After 1 year through 2 years9,394
 10,747
After 1 year through 2 years765 969 
After 2 years through 3 years894
 743
After 2 years through 3 years77 72 
After 3 years through 4 years85
 455
After 3 years through 4 years87 — 
After 4 years through 5 years5
 85
After 4 years through 5 years71 3 
After 5 years101
 91
After 5 years48 48 
Total par value$72,280
 $50,220
Total par value$26,894 $22,862 
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:
 June 30, 2022December 31, 2021
(Dollars in millions)Amount
Outstanding
Weighted Average
Interest Rate (1)
Amount
Outstanding
Weighted Average
Interest Rate (1)
Par value$53,242 1.23 %$23,989 0.04 %
Unamortized discounts(110)(2)
Total$53,132 $23,987 
 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
  

(1)Represents yield to maturity excluding concession fees.

Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, 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 128 –
Consolidated Obligations” in the Bank’s 20162021 Form 10-K.
21
  
September 30, 2017
 December 31, 2016
Par value of consolidated obligations:   
Bonds:   
Fixed rate$16,899
 $15,960
Adjustable rate54,501
 33,435
Step-up580
 515
Step-down200
 200
Fixed rate that converts to adjustable rate—
 10
Range bonds100
 100
Total bonds, par value72,280
 50,220
Discount notes, par value29,949
 33,529
Total consolidated obligations, par value$102,229
 $83,749

30

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





(In millions)June 30, 2022December 31, 2021
Par value of consolidated obligations:
Bonds:
Fixed rate$19,686 $16,654 
Adjustable rate4,955 5,575 
Step-up2,253 633 
Total bonds, par value26,894 22,862 
Discount notes, par value53,242 23,989 
Total consolidated obligations, par value$80,136 $46,851 

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 SeptemberJune 30, 2017,2022, or December 31, 2016.2021. 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 1611 – Derivatives and Hedging Activities and Note 12 – Fair Value.

Note 128 — Accumulated Other Comprehensive Income/(Loss)

The following table summarizes the changes in AOCIAccumulated Other Comprehensive Income (AOCI) for the three months ended SeptemberJune 30, 20172022 and 2016:
2021:
 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 value68
     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 OTTI2
 —
   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 value75
 

 

 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 OTTI6
 —
 

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


Net Unrealized Gain/(Loss) on AFS SecuritiesPension and Postretirement BenefitsTotal
AOCI
Balance, March 31, 2021$381 $(14)$367 
Other comprehensive income/(loss):
Net change in fair value27 27 
Net current period other comprehensive income/(loss)27 — 27 
Balance, June 30, 2021$408 $(14)$394 
Balance, March 31, 2022$191 $(9)$182 
Other comprehensive income/(loss):
Net change in pension and postretirement benefits(2)(2)
Net change in fair value(80)(80)
Net current period other comprehensive income/(loss)(80)(2)(82)
Balance, June 30, 2022$111 $(11)$100 
31
22

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





The following table summarizes the changes in AOCI for the ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:

(In millions)Net Unrealized Gain/(Loss) on AFS SecuritiesPension and Postretirement BenefitsTotal
AOCI
Balance, December 31, 2020$244 $(14)$230 
Other comprehensive income/(loss):
Net change in fair value164 164 
Net current period other comprehensive income/(loss)164 — 164 
Balance, June 30, 2021$408 $(14)$394 
Balance, December 31, 2021$340 $(9)$331 
Other comprehensive income/(loss):
Net change in pension and postretirement benefits(2)(2)
Net change in fair value(229)(229)
Net current period other comprehensive income/(loss)(229)(2)(231)
Balance, June 30, 2022$111 $(11)$100 

 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
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 value71
     71
Accretion of non-credit-related OTTI loss  4
   4
Reclassification from other comprehensive income/(loss) to net income/(loss):       
Non-credit-related OTTI to credit-related OTTI7
 —
   7
Net current period other comprehensive income/(loss)66
 4
 (1) 69
Balance, September 30, 2016$109
 $(10) $(15) $84
        
Balance, December 31, 2016$136
 $(9) $(16) $111
Other comprehensive income/(loss) before reclassifications:       
Non-credit-related OTTI loss(3) —
   (3)
Net change in fair value188
     188
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 OTTI10
 —
   10
Net current period other comprehensive income/(loss)195
 2
 —
 197
Balance, September 30, 2017$331
 $(7) $(16) $308
Note 9 — Capital

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. For further information related to the Bank’s capital requirements, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K.
As of June 30, 2022, and December 31, 2021, the Bank complied with these capital rules and requirements as shown in the following table.
June 30, 2022December 31, 2021
(Dollars in millions)RequiredActualRequiredActual
Risk-based capital$764 $6,649 $1,054 $5,896 
Total regulatory capital$3,504 $6,649 $2,165 $5,896 
Total regulatory capital ratio4.00 %7.59 %4.00 %10.89 %
Leverage capital$4,380 $9,973 $2,706 $8,844 
Leverage ratio5.00 %11.38 %5.00 %16.34 %
Mandatorily Redeemable Capital Stock. 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, includinghad mandatorily redeemable capital stock (which is classifiedtotaling $5 million outstanding to 3 institutions at June 30, 2022, and $3 million outstanding to 3 institutions at December 31, 2021. The change in mandatorily redeemable capital stock for the three and six months ended June 30, 2022 and 2021 was 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.


follows:
32
23

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





As of September 30, 2017, and December 31, 2016, the Bank was in compliance with these capital rules and requirements as shown in the following table.
 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 ratio4.00% 5.83% 4.00% 6.40%
Leverage capital$5,475
 $9,575
 $4,597
 $8,825
Leverage ratio5.00% 8.74% 5.00% 9.60%

Mandatorily Redeemable Capital Stock. The Bank had mandatorily redeemable capital stock totaling $342 outstanding to seven institutions at September 30, 2017, and $457 outstanding to six institutions at December 31, 2016. The change in mandatorily redeemable capital stock for the three and nine months ended September 30, 2017 and 2016, was as follows:
Three Months EndedSix Months Ended
Three Months Ended Nine Months Ended
September 30, 2017
 September 30, 2016
 September 30, 2017
 September 30, 2016
(In millions)(In millions)June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Balance at the beginning of the period$404
 $486
 $457
 $488
Balance at the beginning of the period$7 $1 $3 $2 
Reclassified from/(to) capital during the period—
 4
 2
 56
Reclassified from/(to) capital during the period— 3 32 3 
Redemption of mandatorily redeemable capital stock(7) (1) (61) (1)
Repurchase of excess mandatorily redeemable capital stock(55) (5) (56) (59)
Repurchase/redemption of mandatorily redeemable capital stockRepurchase/redemption of mandatorily redeemable capital stock(2)(1)(30)(2)
Balance at the end of the period$342
 $484
 $342
 $484
Balance at the end of the period$5 $3 $5 $3 
Cash dividends on mandatorily redeemable capital stock were recorded as interest expense in the amount of $7 and $11de minimis amounts for both of the three and six months ended SeptemberJune 30, 20172022 and 2016, respectively,2021.
The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at June 30, 2022, and inDecember 31, 2021.
Contractual Redemption PeriodJune 30, 2022December 31, 2021
After 3 years through 4 years$1 $— 
After 4 years through 5 years3 2 
Past contractual redemption date because of remaining activity(1)
1 1 
Total$5 $3 
(1)    Represents mandatorily redeemable capital stock that is past the amountend of $25 and $33 for the nine months ended September 30, 2017 and 2016, respectively.

contractual redemption period because of outstanding activity.
The Bank’s mandatorily redeemable capital stock is discussed more fully in “Item 8. Financial Statements and
Supplementary Data – Note 1511 – Capital” in the Bank’s 20162021 Form 10-K.

The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at September 30, 2017, and December 31, 2016.
Contractual Redemption PeriodSeptember 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

(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 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.

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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 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.

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 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% as of September 30, 2017.

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.

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 income233
—
—
 —
 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 income65
 —
 —
 16
 16
 81
Cash dividends on capital stock(44)       —
 (44)
Transfers from restricted retained earnings1,771
 (21) (1,750) —
 (1,771) —
Balance, September 30, 2017$2,664
 $—
 $—
 $562
 $562
 $3,226


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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 income478
 (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 income144
 3
 100
 62
 165
 309
Cash dividends on capital stock(139)       —
 (139)
Transfers from restricted retained earnings1,771
 (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 to July 2017, the Bank’s Framework had three categoriesperiod, and maintains an amount of restricted retained earnings: Valuation Adjustments, Other (which represented a targeted amount), and the Joint Capital Enhancement (JCE Agreement). Under the Framework, the Bank’stotal retained earnings methodology determined the Bank’sat least equal to its 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,as described in the Framework. The methodology may be revised from time to time, and from January 2017 to July 2017, the Bank’s restricted retained earnings requirement was $2,300.

In July 2017, the Bank’s Board of Directors approved the transfer of all amounts classified as restricted retained earnings, other than the amounts related 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 allrequired retained earnings under the methodology may change due to updating data and assumptions used in the methodology. The required level of $2,300 for loss protection, capital compliance,retained earnings was $1.7 billion and business growth. $1.5 billion at June 30, 2022, and December 31, 2021, respectively. In July 2022, the required level of retained earnings was increased from $1.7 billion to $2.6 billion.
The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the JCEJoint Capital Enhancement (JCE) Agreement) and unrestricted retained earnings.

The JCE Agreement provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. As a result of the Bank exceeding this threshold, the Bank reclassified $16 million from restricted retained earnings to unrestricted retained during the six months ended June 30, 2022. The Bank made no reclassifications from restricted retained earnings to unrestricted retained earnings during the three months ended June 30, 2022, nor during the three and six months ended June 30, 2021. The Bank’s restricted retained earnings totaled $692 million and $708 million at June 30, 2022, and December 31, 2021, respectively. The Bank’s unrestricted retained earnings totaled $3.2 billion and $3.1 billion at June 30, 2022, and December 31, 2021, respectively.
For more information on restricted retained earnings and the Bank’s Framework, see “Item 8. Financial Statements and Supplementary Data – Note 1511 – Capital” in the Bank’s 20162021 Form 10-K.

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 Boardboard of Directorsdirectors declare and pay any dividend. A decision by the Boardboard of Directorsdirectors to declare or not declare a dividend is a discretionary matter and is subject to the
24
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


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, the Bank’s excessExcess capital stock totaled $452,$107 million, or 0.41%0.12% of total assets.

assets as of June 30, 2022. Excess capital stock totaled $120 million, or 0.22% of total assets as of December 31, 2021.
In the thirdsecond quarter of 2017,2022, the Bank paid dividends at an annualized rate of 7.00%6.00%, totaling $51,$33 million, including $44$33 million in dividends on capital stock and $7a de minimis amount in dividends on mandatorily redeemable capital stock. In the thirdsecond quarter of 2016,2021, the Bank paid dividends at an annualized rate of 9.17%6.00%, totaling $63,$34 million, including $52$34 million in dividends on capital stock and $11a de minimis amount in dividends on mandatorily redeemable capital stock.


35

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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



In the first ninesix months of 2017,2022, the Bank paid dividends at an annualized rate of 7.69%6.00%, totaling $164,$68 million, including $139$68 million in dividends on capital stock and $25a de minimis amount in dividends on mandatorily redeemable capital stock. In the first ninesix months of 2016,2021, the Bank paid dividends at an annualized rate of 8.70%5.47%, totaling $179,$64 million, including $146$64 million in dividends on capital stock and $33a de minimis amount 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,July 28, 2022, the Bank’s Boardboard of Directorsdirectors declared a quarterly cash dividend on the capital stock outstanding during the thirdsecond quarter of 20172022 at an annualized rate of 7.00%6.00%, totaling $55, including $48 in dividends on capital stock and $7 in dividends on mandatorily redeemable capital stock.$40 million. The Bank recorded the dividend on October 26, 2017. The BankJuly 28, 2022, and expects to pay the dividend on November 13, 2017. Dividends on mandatorily redeemable capital stock will be recognized as interest expense in the fourth quarter of 2017.August 10, 2022.

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$1.6 billion and $275$294 million in excess capital stock induring the thirdsecond quarter of 20172022 and 2016,2021, respectively, and $331$2.4 billion and $663$341 million in excess capital stock induring the first ninesix months of 2017ended June 30, 2022 and 2016,2021, 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 thirdsecond quarter of 20172022 and 2016,2021, 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.value per share. 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 activity with the Bank, on the first available repurchase date after the stock was no longer required to support outstanding activity with the Bank.

25
On October 26, 2017, theFederal Home Loan Bank announced that it plansof San Francisco
Notes 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 as of September 30, 2017, which included surplus capital stock of $261. Excess capital stock totaled $488 as of December 31, 2016, which included surplus capital stock of $325.

For more information on excess capital stock, see “Item 8. Financial Statements and Supplementary Data �� Note 15(continued)
– Capital” in the Bank’s 2016 Form 10-K.


Concentration. JPMorgan Chase First Republic Bank National Association, a nonmember institution, held $339,$297 million, or 11%, of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of SeptemberJune 30, 2017, and $400, or 14% as of December 31, 2016.2022. No other institution held 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of SeptemberJune 30, 2017,2022. No institution held 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of December 31, 2016.2021.


36

Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



Note 1410 — 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 two2 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”derivatives” in other income/(loss), excludes interest income and expense associated with changes in fair value from fair value hedges that are recorded in the same line as the earnings effect of the hedged item, 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, andAffordable Housing Program (AHP) assessments isare not included in the segment reporting analysis but isare 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 1713 – Segment Information” in the Bank’s 20162021 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 assessment for the three and ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.
(In millions)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)
Net Interest Income After Provision for/(Reversal of) Credit LossesOther Income/(Loss)Other ExpenseIncome/(Loss) Before AHP Assessment
Three months ended:
June 30, 2022$55 $68 $123 $(7)$7 $123 $(31)$38 $54 
June 30, 202149 60 109 3 (21)127 (26)39 62 
Six months ended:
June 30, 2022$86 $136 $222 $(14)$7 $229 $(13)$76 $140 
June 30, 2021101 138 239 (7)(45)291 (47)78 166 
 
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, 201642
 84
 126
 (1) (7) 11
 123
 241
 39
 325
Nine months ended:
September 30, 2017167
 246
 413
 (1) (35) 25
 424
 92
 170
 346
September 30, 2016115
 254
 369
 (5) (22) 33
 363
 403
 112
 654
(1)    The mortgage-related business includes total accretion or amortization associated with PLRMBS that had previous credit losses related to the prior methodology of evaluating credit losses, which are recognized in interest income, totaled $15 million and $16 million for the three months ended June 30, 2022 and 2021; and totaled $29 million and $33 million for the six months ended June 30, 2022 and 2021, respectively. The mortgage-related business includes a provision for/(reversal of) credit losses of $3 million and $(2) million for the three months ended June 30, 2022 and 2021, and a de minimis amount and $(8) million for the six months ended June 30, 2022 and 2021, respectively.

(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 and $24 for the three months ended September 30, 2017 and 2016; and totaled $70 and $76 for the nine months ended September 30, 2017 and 2016, respectively. The mortgage-related business does not include credit-related OTTI losses of $6 and $3 for the three months ended September 30, 2017 and 2016, and $15 and $14 for the nine months ended September 30, 2017 and 2016, respectively.
(2)
Represents amortization of amounts deferred for adjusted net interest income purposes only, in accordance with the Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework.
(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 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 operating segments.

(2)    Represents amortization of amounts deferred for adjusted net interest income purposes only and changes in fair value of the derivative hedging instrument and 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 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/(loss) in “Net gain/(loss) on derivatives.”
The following table presents total assets by operating segment at SeptemberJune 30, 2017,2022, and December 31, 2016.2021.
(In millions)Advances-
Related Business		Mortgage-
Related Business		Total
Assets
June 30, 2022$75,658 $11,944 $87,602 
December 31, 202140,064 14,057 54,121 

26
  
Advances-
Related Business

 
Mortgage-
Related Business

 
Total
Assets

September 30, 2017$90,265
 $19,238
 $109,503
December 31, 201674,018
 17,923
 91,941

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Note 1511 — 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 bondsobligations to create variable rate structures. The interest rate exchange agreements are generally executed at

37

Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



the same time the advances and bondsconsolidated 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 may be either uncleared or cleared. In an uncleared derivative transaction,
For more information related to 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, (ii) an economic hedge of assets or liabilities, or (iii) an intermediary transaction for members.

The Bank primarily uses the following derivative 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 indexed to LIBOR.

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.

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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 by entering into interest rate exchange agreements (economic hedges) that offset the changes in fair value or cash flows of the securities. 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.

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 or variable rate advance with embedded options, the Bank will simultaneously execute an interest rate exchange agreement with terms that offset the termsinstruments and embedded optionshedging activities, see “Item 8. Financial Statements and Supplementary Data – Note 14 – Derivatives and Hedging Activities” in the advance. The combinationBank’s 2021 Form 10-K. For more information related to the Bank’s accounting policies for derivatives, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of the advance and the interest rate exchange agreement effectively creates a variable rate asset.

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.

Mortgage Loans–The Bank’s investment portfolio includes fixed rate mortgage loans. The prepayment options embedded in mortgage loans can result in extensions or contractionsSignificant Accounting Policies” 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.2021 Form 10-K.

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.


39

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 derivatives receives 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 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.

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.

The following table summarizes the notional amount and fair value of derivative instruments, including the effect of netting adjustments and cash collateral as of SeptemberJune 30, 2017,2022, and December 31, 2016.2021. For purposes of this disclosure, the derivative values include the fair value of derivatives and related accrued interest.

 June 30, 2022December 31, 2021
(In millions)Notional
Amount of
Derivatives		Derivative
Assets		Derivative
Liabilities		Notional
Amount of
Derivatives		Derivative
Assets		Derivative
Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps$44,125 $615 $817 $31,526 $223 $148 
Derivatives not designated as hedging instruments:
Interest rate swaps66,034 19 118 31,540 2 21 
Interest rate caps and floors550 1 — 550 — — 
Total66,584 20 118 32,090 2 21 
Total derivatives before netting and collateral adjustments$110,709 635 935 $63,616 225 169 
Netting adjustments and cash collateral(1)
(593)(861)(217)(164)
Total derivative assets and total derivative liabilities$42 $74 $8 $5 
(1)    Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral, including accrued interest, held or placed with the same clearing agents or counterparty. Cash collateral posted, including accrued interest, was $558 million and $77 million at June 30, 2022, and December 31, 2021, respectively. Cash collateral received, including accrued interest, was $290 million and $130 million at June 30, 2022, and December 31, 2021, respectively.
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 six months ended June 30, 2022 and 2021.
27
 September 30, 2017 December 31, 2016
 
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
Total22,382
 61
 20
 20,741
 67
 32
Derivatives not designated as hedging instruments:           
Interest rate swaps34,771
 51
 44
 42,135
 67
 49
Interest rate caps and floors1,563
 2
 1
 2,180
 6
 —
Mortgage delivery commitments10
 —
 —
 13
 —
 —
Total36,344
 53
 45
 44,328
 73
 49
Total derivatives before netting and collateral adjustments$58,726
 114
 65
 $65,069
 140
 81
Netting adjustments and cash collateral(1)
  (22) (62)   (74) (79)
Total derivative assets and total derivative liabilities  $92
 $3
   $66
 $2


40

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





(1)
Amounts include the netting of derivative assets and liabilities by counterparty, including cash collateral and related accrued 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.

Three Months Ended June 30, 2022
Interest Income/(Expense)
AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$117 $84 $(50)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$137 $280 $(162)
Hedged items(147)(282)173 
Net gain/(loss) on fair value hedging relationships(10)(2)11 
Net amortization of gain on discontinued fair value hedging relationships(7)(27)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(17)$(29)$11 
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 and 2016.
Three Months Ended June 30, 2021
Interest Income/(Expense)
AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$48 $50 $(14)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$(35)$(219)$31 
Hedged items$(22)$198 $(14)
Net gain/(loss) on fair value hedging relationships(57)(21)17 
Net amortization of gain on discontinued fair value hedging relationships(5)(27)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(62)$(48)$17 
Six Months Ended June 30, 2022
Interest Income/(Expense)
(In millions)AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$158 $138 $(62)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$457 $709 $(598)
Hedged items(487)(721)633 
Net gain/(loss) on fair value hedging relationships(30)(12)35 
Net amortization of gain on discontinued fair value hedging relationships(14)(54)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(44)$(66)$35 
28
 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 ineffectiveness1
 —
 (1) (4)
Derivatives not designated as hedging instruments:       
Economic hedges:       
Interest rate swaps5
 21
 (3) (43)
Interest rate caps and floors—
 —
 (5) (6)
Net settlements(10) (7) (35) (22)
Mortgage delivery commitments6
 1
 18
 2
Total net gain/(loss) related to derivatives not designated as hedging instruments1
 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 fair value hedging relationships and the impact of those derivatives on the Bank’s net interest income for the three and nine months ended September 30, 2017 and 2016.

 Three Months Ended
 September 30, 2017 September 30, 2016
Hedged Item TypeGain/(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

(1)
The net interest on derivatives in fair value hedge relationships is presented in the interest income/expense line item of the respective hedged item.


41

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





Six Months Ended June 30, 2021
Interest Income/(Expense)
(In millions)AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$105 $111 $(36)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$99 $257 $(16)
Hedged items(219)(293)40 
Net gain/(loss) on fair value hedging relationships(120)(36)24 
Net amortization of gain on discontinued fair value hedging relationships(8)(54)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(128)$(90)$24 
(1)Includes net interest 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 June 30, 2022, and December 31, 2021.
June 30, 2022December 31, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsAdvancesAFS SecuritiesConsolidated Obligation Bonds
Amortized cost of hedged asset/(liability)(1)
$19,495 $10,475 $(16,212)$13,613 $8,559 $(13,557)
Fair value hedging basis adjustments:
Active hedging relationships included in amortized cost$(500)$(1,021)$772 $(15)$(329)$139 
Discontinued hedging relationships included in amortized cost102 818 — 118 901 — 
Total amount of fair value hedging basis adjustments$(398)$(203)$772 $103 $572 $139 
(1)Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.
The following table presents the components of net gain/(loss) on derivatives as presented in the Statements of Income for the three and six months ended June 30, 2022 and 2021.
(In millions)Three Months EndedSix Months Ended
 June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Derivatives not designated as hedging instrumentsGain/(Loss)Gain/(Loss)Gain/(Loss)Gain/(Loss)
Economic hedges:
Interest rate swaps$(27)$13 $(19)$55 
Net interest settlements7 (21)7 (45)
Net gain/(loss) on derivatives$(20)$(8)$(12)$10 
Credit Risk – Risk. The Bank is subject to credit risk as a result offrom 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 thatif the clearing agent or the clearinghouse fails to meet its obligations. The use of cleared derivatives, however, mitigates the Bank’sa clearinghouse, or central counterparty, lowers overall credit
29
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


risk exposure because a central counterparty is substituted for individual counterpartiesit employs standard valuation and initial and variation margin processes and is specifically designed to withstand remote but plausible counterparty default credit events. Variation margin is posted dailyor collected for changes in the value of cleared derivatives through a clearing agent.the portfolio, and initial margin is posted for changes in risk profile of the portfolio. 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 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 SeptemberJune 30, 2017,2022, was $5,$490 million, for which the Bank had posted cash collateral of $6$529 million 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 presentstables present 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 SeptemberJune 30, 2017,2022, and December 31, 2016.2021.

June 30, 2022
Derivative Instruments Meeting Netting Requirements
(In millions)Amount RecognizedGross Amount of Netting Adjustments and Cash CollateralTotal Derivative Assets and Total Derivative LiabilitiesNoncash Collateral Not Offset That
 Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared$618 $(576)$42 $— $42 
Cleared17 (17)— (332)332 
Total$42 $374 
Derivative Liabilities
Uncleared$828 $(816)$12 $— $12 
Cleared107 (45)62 — 62 
Total$74 $74 
42
30

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





December 31, 2021
Derivative Instruments Meeting Netting Requirements
(In millions)Amount RecognizedGross Amount of Netting Adjustments and Cash CollateralTotal Derivative Assets and Total Derivative LiabilitiesNoncash Collateral Not Offset That
 Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared$224 $(224)$— $— $— 
Cleared1 7 8 (252)260 
Total$8 $260 
Derivative Liabilities
Uncleared$161 $(156)$5 $— $5 
Cleared8 (8)— — — 
Total$5 $5 

 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 derivatives90
 43
 99
 44
Total gross recognized amount114
 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 derivatives4
 3
 4
 2
Cleared derivatives88
 —
 62
 —
Total derivative assets and derivative liabilities presented in the Statements of Condition92
 3
 66
 2
Non-cash collateral received or pledged not offset       
Can be sold or repledged - Uncleared derivatives—
 —
 —
 —
Net unsecured amount       
Uncleared derivatives4
 3
 4
 2
Cleared derivatives88
 —
 62
 —
Total net unsecured amount$92
 $3
 $66
 $2

Note 1612 — 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 SeptemberJune 30, 2017,2022, and December 31, 2016.2021. 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 net carrying value or carrying value, as applicable, the estimated fair value, and the fair value hierarchy level of the Bank’s financial instruments at SeptemberJune 30, 2017,2022, and December 31, 2016.


2021. 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.
43
31

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





June 30, 2022
(In millions)
Carrying
Value(1)
Estimated Fair ValueLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks$54 $54 $54 $— $— $— 
Interest-bearing deposits1,840 1,840 1,840 — — — 
Securities purchased under agreements to resell17,000 17,000 — 17,000 — — 
Federal funds sold9,832 9,832 — 9,832 — — 
Trading securities1 1 — 1 — — 
AFS securities11,823 11,823 — 10,496 1,327 — 
HTM securities2,657 2,640 — 2,476 164 — 
Advances43,221 43,064 — 43,064 — — 
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans863 778 — 778 — — 
Accrued interest receivable55 55 — 55 — — 
Derivative assets, net(2)
42 42 — 635 — (593)
Other assets(3)
21 21 21 — — — 
Liabilities
Deposits1,014 1,014 — 1,014 — — 
Consolidated obligations:
Bonds26,076 25,790 — 25,790 — — 
Discount notes53,132 53,099 — 53,099 — — 
Total consolidated obligations79,208 78,889 — 78,889 — — 
Mandatorily redeemable capital stock5 5 5 — — — 
Borrowings from other FHLBanks200 200 — 200 — — 
Accrued interest payable49 49 — 49 — — 
Derivative liabilities, net(2)
74 74 — 935 — (861)
32
 September 30, 2017
  
Carrying
Value

 Estimated Fair Value
 Level 1
 Level 2
 Level 3
 
Netting Adjustments(1)

Assets           
Cash and due from banks$7
 $7

$7

$—
 $—
 $—
Interest-bearing deposits699
 699
 699
 —
 —
 —
Securities purchased under agreements to resell13,975
 13,975
 —
 13,975
 —
 —
Federal funds sold11,826
 11,826
 —
 11,826
 —
 —
Trading securities1,165
 1,165
 —
 1,165
 —
 —
AFS securities4,015
 4,015
 —
 —
 4,015
 —
HTM securities14,095
 14,155
 —
 13,078
 1,077
 —
Advances61,629
 61,712
 —
 61,712
 —
 —
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans1,774
 1,786
 —
 1,786
 —
 —
Accrued interest receivable106
 106
 —
 106
 —
 —
Derivative assets, net(1)
92
 92
 —
 114
 —
 (22)
Other assets(2)
9
 9
 9
 —
 —
 —
Liabilities           
Deposits140
 140
 —
 140
 —
 —
Consolidated obligations:           
Bonds72,266
 72,214
 —
 72,214
 —
 —
Discount notes29,902
 29,903
 —
 29,903
 —
 —
Total consolidated obligations102,168
 102,117
 —
 102,117
 —
 —
Mandatorily redeemable capital stock342
 342

342

—
 —
 —
Accrued interest payable106

106

—

106
 —
 —
Derivative liabilities, net(1)
3
 3
 —
 65
 —
 (62)
Other           
Standby letters of credit22
 22

—

22
 —
 —
Commitments to issue consolidated obligation bonds(3)
—
 1
 —
 1
 —
 —


44

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





December 31, 2021
(In millions)
Carrying
Value(1)
Estimated Fair ValueLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks$55 $55 $55 $— $— $— 
Interest-bearing deposits1,125 1,125 1,125 — — — 
Securities purchased under agreements to resell15,500 15,500 — 15,500 — — 
Federal funds sold5,348 5,348 — 5,348 — — 
Trading securities252 252 — 252 — — 
AFS securities10,332 10,332 — 8,724 1,608 — 
HTM securities3,211 3,235 — 3,015 220 — 
Advances17,027 17,072 — 17,072 — — 
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans980 981 — 981 — — 
Accrued interest receivable45 45 — 45 — — 
Derivative assets, net(2)
8 8 — 225 — (217)
Other assets(3)
25 25 25 — — — 
Liabilities
Deposits769 769 — 769 — — 
Consolidated obligations:
Bonds22,716 22,635 — 22,635 — — 
Discount notes23,987 23,986 — 23,986 — — 
Total consolidated obligations46,703 46,621 — 46,621 — — 
Mandatorily redeemable capital stock3 3 3 — — — 
Accrued interest payable33 33 — 33 — — 
Derivative liabilities, net(2)
5 5 — 169 — (164)
(1)    For certain financial instruments, the amounts represent net carrying value, which includes an allowance for credit losses.
 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 deposits590
 590
 590
 —
 —
 —
Securities purchased under agreements to resell15,500
 15,500
 —
 15,500
 —
 —
Federal funds sold4,214
 4,214
 —
 4,214
 —
 —
Trading securities2,066
 2,066
 —
 2,066
 —
 —
AFS securities4,489
 4,489
 —
 —
 4,489
 —
HTM securities14,127
 14,141
 —
 12,788
 1,353
 —
Advances49,845
 49,921
 —
 49,921
 —
 —
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans826
 845
 —
 845
 —
 —
Accrued interest receivable79
 79
 —
 79
 —
 —
Derivative assets, net(1)
66
 66
 —
 140
 —
 (74)
Other assets(2)
11
 11
 11
 —
 —
 —
Liabilities           
Deposits169
 169
 —
 169
 —
 —
Consolidated obligations:           
Bonds50,224
 50,188
 —
 50,188
 —
 —
Discount notes33,506
 33,505
 —
 33,505
 —
 —
Total consolidated obligations83,730
 83,693
 —
 83,693
 —
 —
Mandatorily redeemable capital stock457
 457
 457
 —
 —
 —
Borrowings from other FHLBanks1,345
 1,345
 —
 1,345
 —
 —
Accrued interest payable67
 67
 —
 67
 —
 —
Derivative liabilities, net(1)
2
 2
 —
 81
 —
 (79)
Other           
Standby letters of credit24
 24
 —
 24
 —
 —
(2)    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 or counterparty.

(1)
Amounts include the netting of derivative assets and liabilities by counterparty, including cash collateral and related accrued interest, where the netting requirements have been met.
(2)(3)    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 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:

45
33

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.

Valuations are derived from techniques that use significant assumptions not observable in the market, which include pricing models, discounted cash flow models, or similar techniques.
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 SeptemberJune 30, 2017:2022:
•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 level 3 of the fair value hierarchy levels.hierarchy.

Summary of Valuation Methodologies and Primary Inputs.

Cash and Due from Banks–The estimated fair value equals the carrying value.

Federal Funds Sold and Securities Purchased Under Agreements to Resell – The estimated fair value 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 calculations are the replacement rates for comparable instruments with similar terms.
Interest-Bearing Deposits –The fair value of deposits is generally equal For information related 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,valuation methodologies and control procedures.

The Bank’s valuation technique for estimatingprimary inputs used to develop 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 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 estimatemeasurement 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, 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 –The Bank estimates the fair values of these securities using the methodology described above for Investment Securities – MBS.

Advances –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 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. 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 for creditworthiness primarily because advances were fully collateralized.


47

Table of Contents
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. 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 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.


48

Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



Consolidated Obligations –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 creditworthinessvalue on a recurring or nonrecurring basis in the Statements of Condition, see “Item 8. Financial Statements and Supplementary Data – Note 15 – Fair Value” in 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 obligationsBank’s 2021 Form 10-K. There have been significantly affectedno significant changes in these valuation methodologies and primary inputs during the reporting period by changes in the instrument-specific credit risk.six months ended June 30, 2022.

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.

34
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Fair Value Measurements. The following tables below present the fair value of assets and liabilities, which are recorded on a recurring or nonrecurring basis at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, by level within the fair value hierarchy.



June 30, 2022
Fair Value Measurement Using:
Netting Adjustments
 and Cash Collateral(1)
(In millions)Level 1Level 2Level 3Total
Recurring fair value measurements – Assets:
Trading securities:
MBS – Other U.S. obligations$— $1 $— $— $1 
AFS securities:
U.S. obligations – Treasury notes— 3,434 — — 3,434 
MBS:
GSEs – multifamily— 7,062 — — 7,062 
PLRMBS— — 1,327 — 1,327 
Subtotal AFS MBS— 7,062 1,327 — 8,389 
Total AFS securities— 10,496 1,327 — 11,823 
Advances(2)
— 1,652 — — 1,652 
Derivative assets, net: interest rate-related— 635 — (593)42 
Other assets21 — — — 21 
Total recurring fair value measurements – Assets$21 $12,784 $1,327 $(593)$13,539 
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)
$— $2,209 $— $— $2,209 
Derivative liabilities, net: interest rate-related— 935 — (861)74 
Total recurring fair value measurements – Liabilities$— $3,144 $— $(861)$2,283 
Nonrecurring fair value measurements – Assets:(4)
Impaired mortgage loans held for portfolio$— $— $16 $— $16 
Total nonrecurring fair value measurements – Assets$— $— $16 $— $16 
49
35

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





December 31, 2021
Fair Value Measurement Using:
Netting Adjustments
 and Cash Collateral(1)
(In millions)Level 1Level 2Level 3Total
Recurring fair value measurements – Assets:
Trading securities:
U.S. obligations – Treasury notes$— $250 $— $— $250 
MBS – Other U.S. obligations— 2 — — 2 
Total trading securities— 252 — — 252 
AFS securities:
U.S. obligations – Treasury notes— 504 — — 504 
MBS:
GSEs – multifamily— 8,220 — — 8,220 
PLRMBS— — 1,608 — 1,608 
Subtotal AFS MBS— 8,220 1,608 — 9,828 
Total AFS securities— 8,724 1,608 — 10,332 
Advances(2)
— 1,772 — — 1,772 
Derivative assets, net: interest rate-related— 225 — (217)8 
Other assets25 — — — 25 
Total recurring fair value measurements – Assets$25 $10,973 $1,608 $(217)$12,389 
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)
$— $627 $— $— $627 
Derivative liabilities, net: interest rate-related— 169 — (164)5 
Total recurring fair value measurements – Liabilities$— $796 $— $(164)$632 
Nonrecurring fair value measurements – Assets:(4)
Impaired mortgage loans held for portfolio$— $— $23 $— $23 
Total nonrecurring fair value measurements – Assets$— $— $23 $— $23 
(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 by the Bank, with the same clearing agents or counterparty.
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 assets9
 —
 —
 —
 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
(2)Represents advances recorded under the fair value option at June 30, 2022, and December 31, 2021.

(3)Represents consolidated obligation bonds recorded under the fair value option at June 30, 2022, and December 31, 2021.

(4)The fair value information presented is as of the date the fair value adjustment was recorded during the six months ended June 30, 2022, and the year ended December 31, 2021.
50

Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



December 31, 2016         
 Fair Value Measurement Using: Netting
  
 Level 1
 Level 2
 Level 3
 
Adjustments(1)

 Total
Recurring fair value measurements – Assets:         
Trading securities:         
GSEs – FFCB bonds$—
 $2,058
 $—
 $—
 $2,058
MBS:         
Other U.S. obligations – Ginnie Mae—
 8
 —
 —
 8
Total trading securities—
 2,066
 —
 —
 2,066
AFS securities:         
PLRMBS—
 —
 4,489
 —
 4,489
Total AFS securities—
 —
 4,489
 —
 4,489
Advances(2)
—
 3,719
 —
 —
 3,719
Derivative assets, net: interest rate-related—
 140
 —
 (74) 66
Other assets11
 —
 —
 —
 11
Total recurring fair value measurements – Assets$11
 $5,925
 $4,489
 $(74) $10,351
Recurring fair value measurements – Liabilities:         
Consolidated obligation bonds(3)
$—
 $1,507
 $—
 $—
 $1,507
Derivative liabilities, net: interest rate-related—
 81
 —
 (79) 2
Total recurring fair value measurements – Liabilities$—
 $1,588
 $—
 $(79) $1,509
Nonrecurring fair value measurements – Assets:(4)
         
REO$—
 $—
 $—
 $—
 $—
Impaired mortgage loans held for portfolio—
 —
 5
 —
 5
Total nonrecurring fair value measurements – Assets$—
 $—
 $5
 $—
 $5

(1)Amounts represent the netting of derivative assets and liabilities by counterparty, including cash collateral, where the netting requirements have been met.
(2)
Represents advances recorded under the fair value option at September 30, 2017, and December 31, 2016.
(3)
Represents consolidated obligation bonds recorded under the fair value option at September 30, 2017, and December 31, 2016.
(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, and the year ended December 31, 2016.

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 ninesix months ended SeptemberJune 30, 20172022 and 2016.

2021.
36
 Three Months Ended
 September 30, 2017
 September 30, 2016
Balance, beginning of the period$4,164
 $4,864
Total gain/(loss) realized and unrealized included in:   
Interest income22
 25
Net OTTI loss, credit-related(6) (3)
Unrealized gain/(loss) of other-than-temporarily impaired securities included in AOCI75
 68
Net amount of OTTI loss reclassified to/(from) other income/(loss)6
 2
Settlements(246) (266)
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$17
 $22


51

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)





Three Months Ended
June 30, 2022June 30, 2021
Balance, beginning of the period$1,459 $1,926 
Total gain/(loss) realized and unrealized included in:
Interest income15 17 
(Provision for)/reversal of credit losses(3)1 
Unrealized gain/(loss) included in AOCI(52)20 
Settlements(92)(137)
Balance, end of the period$1,327 $1,827 
Total amount of unrealized gain/(loss) for the period included in AOCI relating to instruments held at the end of the period$(52)$21 
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$12 $18 
Six Months Ended
(In millions)June 30, 2022June 30, 2021
Balance, beginning of the period$1,608 $2,035 
Total gain/(loss) realized and unrealized included in:
Interest income29 34 
(Provision for)/reversal of credit losses— 6 
Other income/(loss)28 — 
Unrealized gain/(loss) included in AOCI(85)29 
Settlements(269)(277)
Transfers of HTM securities to AFS securities16 — 
Balance, end of the period$1,327 $1,827 
Total amount of unrealized gain/(loss) for the period included in AOCI relating to assets held at the end of the period$(85)$29 
Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets held at the end of the period$29 $39 
 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 income68
 77
Net OTTI loss, credit-related(15) (14)
Unrealized gain/(loss) of other-than-temporarily impaired securities included in AOCI188
 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 incomeother income/(loss) or non-interestother expense.

For more information on the Bank’s election of the fair value option, see “Item 8. Financial Statements and Supplementary Data – Note 1915 – Fair Values”Value” in the Bank’s 20162021 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 usingrecording fair value changes of only for the hedging 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.

37
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


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 ninesix months ended SeptemberJune 30, 20172022 and 2016:2021:

Three Months Ended
June 30, 2022June 30, 2021
AdvancesConsolidated
Obligation Bonds		AdvancesConsolidated
Obligation Bonds
Balance, beginning of the period$1,589 $1,924 $2,587 $31 
New transactions elected for fair value option310 310 20 220 
Maturities and terminations(221)(15)(617)(15)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings(26)(14)(6)(1)
Change in accrued interest— 4 — — 
Balance, end of the period$1,652 $2,209 $1,984 $235 
 Three Months Ended
 September 30, 2017 September 30, 2016
 Advances
 Consolidated
Obligation Bonds
 Advances
 Consolidated
Obligation Bonds
Balance, beginning of the period$5,490
 $1,118
 $3,752
 $2,925
New transactions elected for fair value option450
 255
 227
 40
Maturities and terminations(259) (405) (165) (1,485)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds held under fair value option(5) —
 (18) —
Change in accrued interest2
 —
 —
 (3)
Balance, end of the period$5,678
 $968
 $3,796
 $1,477


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Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



Six Months Ended
Nine Months EndedJune 30, 2022June 30, 2021
September 30, 2017 September 30, 2016
Advances
 
Consolidated
Obligation Bonds

 Advances
 
Consolidated
Obligation Bonds

(In millions)(In millions)AdvancesConsolidated
Obligation Bonds		AdvancesConsolidated
Obligation Bonds
Balance, beginning of the period$3,719
 $1,507
 $3,677
 $4,233
Balance, beginning of the period$1,772 $627 $2,147 $111 
New transactions elected for fair value option2,510
 1,090
 658
 490
New transactions elected for fair value option320 1,635 670 220 
Maturities and terminations(558) (1,635) (584) (3,265)Maturities and terminations(365)(15)(800)(95)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds held under fair value option4
 5
 45
 23
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earningsNet gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings(75)(42)(32)(1)
Change in accrued interest3
 1
 —
 (4)Change in accrued interest— 4 (1)— 
Balance, end of the period$5,678
 $968
 $3,796
 $1,477
Balance, end of the period$1,652 $2,209 $1,984 $235 
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 in fair value does not include changes in instrument-specific credit risk. For advances and consolidated obligations recorded under the fair value option, the Bank determined that no adjustmentsnone 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 ninesix months ended SeptemberJune 30, 20172022 and 2016.2021. 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 SeptemberJune 30, 2017,2022, and December 31, 2016:

2021:
38
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


June 30, 2022December 31, 2021
September 30, 2017 December 31, 2016
Principal Balance
 Fair Value
 
Fair Value
Over/(Under)
Principal Balance

 Principal Balance
 Fair Value
 
Fair Value
Over/(Under)
Principal Balance

(In millions)(In millions)Principal BalanceFair ValueFair Value
Over/(Under)
Principal Balance		Principal BalanceFair ValueFair Value
Over/(Under)
Principal Balance
Advances(1)
$5,661
 $5,678
 $17
 $3,709
 $3,719
 $10
Advances(1)
$1,659 $1,652 $(7)$1,706 $1,772 $66 
Consolidated obligation bonds970
 968
 (2) 1,515
 1,507
 (8)Consolidated obligation bonds2,253 2,209 (44)633 627 (6)

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

(1)    At June 30, 2022, and December 31, 2021, none of these advances were 90 days or more past due or had been placed on nonaccrual status.
Note 1713 — 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 SeptemberJune 30, 2017,2022, 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 $1,028,710$882.5 billion at SeptemberJune 30, 2017,2022, and $989,311$652.9 billion at December 31, 2016.2021. The par value of the Bank’s participation in consolidated obligations was $102,229$80.1 billion at SeptemberJune 30, 2017,2022, and $83,749$46.9 billion at December 31, 2016.2021. For more information on the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 2016 – Commitments and Contingencies” in the Bank’s 20162021 Form 10-K.


53

Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



Off-balance sheet commitments as of SeptemberJune 30, 2017,2022, and December 31, 2016,2021, were as follows:
June 30, 2022December 31, 2021
(In millions)Expire Within
One Year		Expire After
One Year		TotalExpire Within
One Year		Expire After
One Year		Total
Standby letters of credit outstanding$11,145 $5,514 $16,659 $11,842 $4,848 $16,690 
Commitments to issue consolidated obligation discount notes, par1,455 — 1,455 — — — 
Commitments to issue consolidated obligation bonds, par30 — 30 — — — 
 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 advances1
 —
 1
 5
 1
 6
Commitments to issue consolidated obligation discount notes, par703
 —
 703
 846
 —
 846
Commitments to issue consolidated obligation bonds, par424
 —
 424
 655
 —
 655
Commitments to purchase mortgage loans10
 —
 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. TheAt June 30, 2022, the original terms of these standby letters of credit range from 33 days1 day to 15 years,, including a final expiration in 2032.2037. 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$34 million at Septemberboth June 30, 2017,2022, and $24 at December 31, 2016.2021. 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 for credit losses on the letters of credit outstanding or other off-balance sheet commitments as of SeptemberJune 30, 2017,2022, and December 31, 2016.

Commitments to fund advances totaled $1 at September 30, 2017, and $6 at December 31, 2016. 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.

2021.
The Bank may enter into commitments that unconditionally obligate ithas pledged securities as collateral related 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-countercleared and 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 subject 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 1511 – Derivatives and Hedging Activities for additional information about the Bank’s pledged collateral and other credit-risk-relatedcredit risk-related contingent features. As of June 30, 2022, the Bank had pledged total collateral of $890 million, including securities with a carrying value of $332 million, all of which may be repledged, and cash collateral, including accrued interest, of $558 million to counterparties and the clearinghouse that had market risk exposure to the Bank related to derivatives. As of December 31, 2021, the Bank had pledged total collateral of $329 million,

39
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


including securities with a carrying value of $252 million, all of which may be repledged, and cash collateral, including accrued interest, of $77 million to counterparties and the clearinghouse that had market risk exposure to the Bank related to derivatives.
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.


54

Table of Contents
Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



Note 1814 — 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 Boardboard of Directors.directors.
(In millions)June 30, 2022December 31, 2021
Assets:
Advances$5,000 $3,107 
Accrued interest receivable2 2 
Liabilities:
Deposits$12 $34 
Capital:
Capital Stock$147 $117 
  
September 30, 2017
 December 31, 2016
Assets:   
Advances$2,641
 $3,756
Mortgage loans held for portfolio14
 17
Accrued interest receivable4
 4
Liabilities:   
Deposits$3
 $3
Capital:   
Capital Stock$121
 $129
Three Months EndedSix Months Ended
(In millions)June 30, 2022June 30, 2021June 30, 2022June 30, 2021
Interest Income – Advances$18 $13 $31 $26 

 Three Months Ended Nine Months Ended
 September 30, 2017
 September 30, 2016
 September 30, 2017
 September 30, 2016
Interest Income:       
Advances$10
 $9
 29
 $26
Mortgage loans held for portfolio1
 —
 1
 1

All transactions with members, nonmembers, and their affiliates are entered into in the ordinary course of business. As of SeptemberJune 30, 2017,2022, and December 31, 2016,2021, 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 2117 – Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks” in the Bank’s 20162021 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 amountamounts at SeptemberJune 30, 2017,2022, and December 31, 2016, respectively, which2021, and were recorded as “Interest-bearing deposits” in the Statements of Condition in the Cash and due from banks line item.Condition.

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 ninesix months ended SeptemberJune 30, 2017 and 2016,2022, the Bank extended overnight loans to other FHLBanks for $1,005 and $205, respectively.$1.9 billion. During the ninesix months ended SeptemberJune 30, 20172021, the Bank extended 0 overnight loans to other FHLBanks. During the six months ended June 30, 2022 and 2016,2021, the Bank borrowed $215$4.2 billion and $1,125,$110 million, respectively, from other FHLBanks. The impact to net interest income related to these transactions was de minimis during bothfor 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, the Bank recorded a de minimis amount and $1, respectively, in MPF transaction services fee expense to the FHLBank of Chicago, which was recorded in the Statements of Income as other expense. For the

55
40

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
three and nine months ended September 30, 2016, the Bank recorded a de minimis amount in MPF 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 and 2016, the Bank recorded a de minimis amount in MPF counterparty fee income from the FHLBank of Chicago, which was recorded in the Statements of Income as other income.

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 and 2016, 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, until the time of the Form 10-Q filing with the Securities and Exchange Commission.



56


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,” “plan,” “project,” “should,” “will,” “would,” “possible,” 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 redeem or repurchase excess capital stock, future other-than-temporary impairmentcredit 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;
•natural disasters, pandemics or other widespread health emergencies, terrorist attacks, civil unrest, geopolitical instability or conflicts, trade disruptions, economic or other sanctions, or other unanticipated or catastrophic events;
•changes to, and replacement of, the London Interbank Offered Rate (LIBOR) benchmark interest rate, and the use and acceptance of the Secured Overnight Financing Rate (SOFR) and any alternative reference rate;
•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;
41
•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;effectively (including cyber-security risks); and
•changes in the FHLBanks’ long-term credit ratings.

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 (20162021 (2021 Form 10-K).



57
42


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 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 second quarter of 2022 was $81$48 million, compared with net income of $291$55 million for the thirdsecond quarter of 2016. Retained earnings grew2021. The $7 million decrease in net income relative to $3.2 billion at September 30, 2017,the prior-year period was primarily attributable to a change of $5 million in other income/(loss) and an increase of $5 million in the provision for credit losses and was partially offset by an increase in net interest income of $1 million.
The $5 million change in other income/(loss) primarily resulted from $3.1 billion at December 31, 2016,an increase of $19 million in net fair value losses associated with non-hedge qualifying derivatives, mainly resulting from growth in short-term advances funded by economically hedged consolidated obligations, which was offset by a decrease in net fair value losses of $19 million on trading securities that matured since the second quarter of 2021. In addition, the fair value of grantor trust assets related to funding the Bank’s employee retirement plans, which are primarily invested in publicly traded mutual funds, declined by $3 million.
Additionally, an increase of $5 million in the provision for credit losses contributed to the decrease in net income for the quarter, largely because of declines in the fair values and the Bank paid dividends at an annualized ratepresent value of 7.00%, totaling $51 million, including $44 million in dividends on capital stock and $7 million in dividends on mandatorily redeemable capital stock during the third quarterexpected cash flows 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. during the second quarter of 2022.
The decrease$1 million increase in othernet interest income alsofor the second quarter of 2022 reflected a voluntary charitable contributionan increase in interest income of $119 million, primarily driven by higher yields on interest-earning assets (largely resulting from recent increases in interest rates on higher levels of new or renewed advances); an improvement 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 assessmentin retrospective adjustment of the charitable contribution expense. In the first quartereffective yields on mortgage loans and related delivery commitments; an increase of 2017, the Board$6 million in net gains on designated fair value hedges; and a $5 million increase in net prepayment fee income on advances and MBS. These improvements to net interest income were largely offset by an increase of Directors approved an allocation of $100$118 million for the Quality Jobs Fund, a donor-advised fund established to support quality jobs growthin interest expense based on higher funding levels and small business expansion, which is being funded by the Bank in incremental amounts over a two-year period.costs.

During the first nine months of 2017,At June 30, 2022, total assets increased $17.6were $87.6 billion, to $109.5an increase of $33.5 billion at September 30, 2017, from $91.9$54.1 billion at December 31, 2016, primarily reflecting an increase in period end advance balances, which2021. Advances increased to $61.6$43.2 billion at SeptemberJune 30, 2017,2022, up from $49.8$17.0 billion at December 31, 2016. In addition,2021, an increase of $26.2 billion, as demand for short-term advances increased. The increase in total assets also included an increase in total investments increased $4.8of $7.4 billion, to $45.8$43.2 billion at SeptemberJune 30, 2017,2022, up from $41.0$35.8 billion at December 31, 2016,2021. The increase in investments primarily reflecting an increasereflected increases in Federal funds sold.sold of $4.5 billion, U.S. Treasury securities of $2.7 billion, and securities purchased under agreements to resell of $1.5 billion. This increase in investments was partially offset by a decline in MBS of $2.0 billion.

Accumulated other comprehensive income increased(AOCI) decreased by $197$231 million during the first ninesix months of 2017,2022, to $308$100 million at SeptemberJune 30, 2017,2022, from$111 $331 million at December 31, 2016,2021, primarily as a resultreflecting lower fair values of improvement in the fair value of PLRMBSMBS classified as available-for-sale.

On October 26, 2017,available-for-sale (AFS), which primarily reflects the Bank’s Board of Directors declared a quarterly cash dividend on the capital stock outstandingincrease in market interest rates during the third quarterfirst half of 2017 at an annualized rate of 7.00%. The dividend will total $55 million, including $7 million in dividends on mandatorily redeemable capital stock that will be reflected as interest expense in the fourth quarter of 2017. The Bank recorded the dividend on October 26, 2017, and expects to pay the dividend on or about November 13, 2017.

2022.
As of SeptemberJune 30, 2017,2022, the Bank was in compliancecomplied with all of its regulatory capital requirements. The Bank’s total regulatory capital ratio was 5.8%lower compared to December 31, 2021, at 7.6%, exceeding the 4.0% requirement. The Bank had $6.4$6.6 billion in permanent capital at the end of the second quarter of 2022, exceeding its risk-based capital requirement of $2.0 billion.$764 million. Total retained earnings increased to $3.9 billion as of June 30, 2022, up from $3.8 billion at yearend 2021.

On July 28, 2022, the Bank’s board of directors declared a quarterly cash dividend on the average capital stock outstanding during the second quarter of 2022 at an annualized rate of 6.00% that will total $40 million. The quarterly dividend rate is consistent with the Bank's dividend philosophy of endeavoring to pay a quarterly dividend at a rate between 5% and 7% annualized. The Bank plans to repurchaserecorded the surplus capital stock of all membersdividend on July 28, 2022, and the excess capital stock of all nonmember shareholdersBank expects to pay the dividend 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.

August 10, 2022.
The Bank will continue to monitor theits financial condition, of its PLRMBS portfolio, the ratio of the Bank’s estimated market value of totalfinancial performance, its capital to par value of capital stock, itsposition, overall financial performance and retained earnings,

58


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 and Irma.  During the third quarter of 2017, two significant hurricanes struck the southeastern coast of the United States. On August 25, 2017, Hurricane Harvey made landfall near Corpus Christi, Texas, causing substantial damage and flooding to southeastern Texas, including the Houston metropolitan area. On September 10, 2017, Hurricane Irma made landfall on the Florida mainland near Marco Island, Florida. Hurricane Irma then moved northward through Florida and into Georgia, causing significant damage to property in Florida, Georgia, and certain other southeastern states.
The Bank has analyzed the potential impact that damage related to Hurricanes Irma and Harvey might have on the Bank’s advances, letters of credit, mortgage loans, and PLRMBS securities. Based on the information currently available, the Bank does not expect that the potential losses resulting from the hurricanes will have a material effect on the Bank’s financial condition or results of operations. The Bank continues 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. 



5943


On July 20, 2022, Federal Housing Finance Agency (Finance Agency) Director Sandra L. Thompson provided testimony to the U.S. House Committee on Financial Services, indicating that the Finance Agency intends to conduct a review and analysis of the FHLBank System so as to ensure that the FHLBank System is positioned to continue to serve the needs of today and tomorrow. The Finance Agency plans to engage a variety of stakeholders, in addition to holding public listening sessions throughout the country, as part of the review and analysis. The review and analysis could examine matters ranging from the FHLBanks’ membership base, operational efficiency, and effectiveness to more foundational questions about their mission, purpose, and organization. The Bank is unable to determine at this time what actions, if any, may be implemented as a result of the Finance Agency’s review and analysis or their potential impact on the Bank.
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)June 30,
2022		March 31,
2022		December 31,
2021		September 30,
2021		June 30,
2021
Selected Balance Sheet Items at Quarter End
Total Assets$87,602 $56,129 $54,121 $54,459 $54,244 
Advances43,221 20,246 17,027 22,613 24,194 
Mortgage Loans Held for Portfolio, Net863 914 980 1,134 1,301 
Investments(1)
43,153 34,629 35,768 30,364 28,403 
Consolidated Obligations:(2)
Bonds26,076 28,702 22,716 22,025 28,839 
Discount Notes53,132 19,744 23,987 24,814 17,598 
Capital Stock —Class B —Putable2,754 2,097 2,061 2,253 2,269 
Unrestricted Retained Earnings3,198 3,183 3,124 3,059 3,004 
Restricted Retained Earnings692 692 708 743 761 
Accumulated Other Comprehensive Income/(Loss) (AOCI)100 182 331 319 394 
Total Capital6,744 6,154 6,224 6,374 6,428 
Selected Operating Results for the Quarter
Net Interest Income$126 $103 $119 $120 $125 
Provision for/(Reversal of) Credit Losses3 (3)2 — (2)
Other Income/(Loss)(31)18 — (3)(26)
Other Expense38 38 43 38 39 
Affordable Housing Program Assessment6 8 7 8 7 
Net Income/(Loss)$48 $78 $67 $71 $55 
Selected Other Data for the Quarter
Net Interest Margin(3)
0.67 %0.78 %0.87 %0.85 %0.88 %
Return on Average Assets0.25 0.59 0.48 0.49 0.38 
Return on Average Equity2.85 4.91 4.08 4.34 3.45 
Annualized Dividend Rate6.00 6.00 6.00 6.00 6.00 
Dividend Payout Ratio(4)
69.80 44.63 53.84 48.99 60.67 
Average Equity to Average Assets Ratio8.81 11.91 11.70 11.32 11.07 
Selected Other Data at Quarter End
Regulatory Capital Ratio(5)
7.59 10.65 10.89 11.12 11.13 
Duration Gap (in months)0.9 1.1 0.4 0.3 0.5 
(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.
44
(Dollars in millions)September 30,
2017
 June 30,
2017
 March 31,
2017
 December 31,
2016
 September 30,
2016
Selected Balance Sheet Items at Quarter End         
Total Assets$109,503
 $101,923
 $91,290
 $91,941
 $95,612
Advances61,629
 55,179
 49,052
 49,845
 55,888
Mortgage Loans Held for Portfolio, Net1,774
 1,383
 966
 826
 677
Investments(1)
45,775
 45,035
 40,983
 40,986
 38,773
Consolidated Obligations:(2)
         
Bonds72,266
 60,966
 49,493
 50,244
 50,021
Discount Notes29,902
 33,335
 35,028
 33,506
 38,230
Mandatorily Redeemable Capital Stock342
 404
 403
 457
 484
Capital Stock —Class B —Putable2,815
 2,687
 2,280
 2,370
 2,399
Unrestricted Retained Earnings2,664
 872
 850
 888
 942
Restricted Retained Earnings562
 2,317
 2,300
 2,168
 2,125
Accumulated Other Comprehensive Income/(Loss) (AOCI)308
 227
 143
 111
 84
Total Capital6,349
 6,103
 5,573
 5,537
 5,550
Selected Operating Results for the Quarter         
Net Interest Income$146
 $144
 $134
 $108
 $123
Provision for/(Reversal of) Credit Losses on Mortgage Loans—
 —
 —
 —
 —
Other Income/(Loss)(4) (16) 112
 82
 241
Other Expense51
 39
 80
 46
 39
Affordable Housing Program Assessment10
 9
 18
 17
 34
Net Income/(Loss)$81
 $80
 $148
 $127
 $291
Selected Other Data for the Quarter         
Net Interest Margin(3)
0.55% 0.59% 0.58% 0.46% 0.51%
Operating Expenses as a Percent of Average Assets0.14
 0.15
 0.14
 0.18
 0.15
Return on Average Assets0.30
 0.33
 0.63
 0.54
 1.20
Return on Average Equity5.19
 5.56
 10.59
 9.27
 21.05
Annualized Dividend Rate7.00
 7.00
 9.08
 22.51
 9.17
Dividend Payout Ratio(4)
53.39
 51.21
 36.45
 108.38
 17.99
Average Equity to Average Assets Ratio5.84
 5.87
 5.97
 5.83
 5.71
Selected Other Data at Quarter End         
Regulatory Capital Ratio(5)
5.83
 6.16
 6.39
 6.40
 6.22
Duration Gap (in months)1
 1
 1
 1
 1
(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 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 June 30, 2022, 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:

(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.Par Value
(In millions)
June 30, 2022$882,481 
(2)March 31, 2022
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, 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:


60


 
Par Value
(In millions)

September 30, 2017$1,028,710
June 30, 20171,011,526
March 31, 2017959,280
December 31, 2016989,311
September 30, 2016967,728

699,530 
(3)December 31, 2021Net interest margin is net interest income (annualized) divided by average interest-earning assets.
652,862 
(4)September 30, 2021This ratio is calculated as dividends per share divided by net income per share.
641,438 
(5)June 30, 2021This 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.666,747 

(3)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
(4)This ratio is calculated as dividends per share declared, recorded, and paid during the period 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 PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses, 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 ninesix months ended SeptemberJune 30, 20172022 and 2016,2021, together with the related interest income and expense. They also present the average rates on total interest-earning assets and the average costs of total funding sources.



61
45


ThirdSecond Quarter of 20172022 Compared to ThirdSecond Quarter of 20162021

Average Balance Sheets
Three Months Ended
 June 30, 2022June 30, 2021
(Dollars in millions)Average
Balance		Interest
Income/
Expense		Average
Rate		Average
Balance		Interest
Income/
Expense		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits$1,611 $3 0.78 %$1,185 $1 0.15 %
Securities purchased under agreements to resell6,104 13 0.86 1,265 — 0.06 
Federal funds sold10,451 21 0.81 5,783 1 0.07 
Trading securities:
Mortgage-backed securities (MBS)1 — 1.91 2 — 2.27 
Other investments— — — 3,792 20 2.06 
Available-for-sale (AFS) securities:(1)
MBS(2)(3)(4)
8,555 79 3.70 9,832 49 2.02 
Other investments(3)
1,974 5 1.02 1,587 1 0.24 
Held-to-maturity (HTM) securities:
MBS2,735 10 1.43 4,121 11 1.11 
Mortgage loans held for portfolio(5)
883 13 5.74 1,433 4 0.94 
Advances(3)(6)
43,583 117 1.08 28,195 55 0.79 
Loans to other FHLBanks13 — 1.16 — — — 
Total interest-earning assets75,910 261 1.38 57,195 142 0.99 
Other assets(7)
466 — 1,041 — 
Total Assets$76,376 $261 $58,236 $142 
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)
$26,039 $50 0.75 %$31,035 $14 0.18 %
Discount notes41,718 83 0.80 18,971 3 0.05 
Deposits and other borrowings1,286 2 0.67 1,292 — 0.07 
Mandatorily redeemable capital stock5 — 6.54 4 — 2.52 
Borrowings from other FHLBanks106 — 1.01 1 — 0.06 
Total interest-bearing liabilities69,154 135 0.78 51,303 17 0.13 
Other liabilities(7)
493 — 488 — 
Total Liabilities69,647 135 51,791 17 
Total Capital6,729 — 6,445 — 
Total Liabilities and Capital$76,376 $135 $58,236 $17 
Net Interest Income$126 $125 
Net Interest Spread(8)
0.60 %0.86 %
Net Interest Margin(9)
0.67 %0.88 %
Interest-earning Assets/Interest-bearing Liabilities109.77 %111.48 %
(1)The average balances of AFS securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value.
(2)Interest income on AFS securities includes accretion of yield adjustments on certain PLRMBS (resulting from improvement in expected cash flows) with previous credit losses related to the prior methodology of evaluating credit losses, totaling $10 million and $13 million for the three months ended June 30, 2022 and 2021, respectively.
46
Average Balance Sheets
            
 Three 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$800
 $2
 1.16% $690
 $—
 0.43%
Securities purchased under agreements to resell1,061
 3
 1.05
 3,702
 4
 0.39
Federal funds sold11,037
 33
 1.19
 7,276
 7
 0.40
Trading securities:           
Mortgage-backed securities (MBS)7
 —
 2.26
 8
 —
 1.96
Other investments1,188
 4
 1.40
 1,550
 3
 0.62
Available-for-sale (AFS) securities:(1)
           
MBS(2)
3,778
 60
 6.27
 4,677
 63
 5.39
Held-to-maturity (HTM) securities:(1)
           
MBS13,024
 73
 2.19
 10,985
 61
 2.22
Other investments1,045
 3
 1.31
 243
 1
 0.95
Mortgage loans held for portfolio1,592
 15
 3.68
 644
 7
 4.32
Advances(3)
71,245
 241
 1.34
 65,586
 128
 0.78
Total interest-earning assets104,777
 434
 1.64
 95,361
 274
 1.15
Other assets(4)(5)
958
 —
   913
 —
  
Total Assets$105,735
 $434
   $96,274
 $274
  
Liabilities and Capital           
Interest-bearing liabilities:           
Consolidated obligations:           
Bonds(3)
$68,930
 $205
 1.18% $46,875
 $95
 0.80%
Discount notes29,256
 75
 1.01
 42,259
 45
 0.43
Deposits and other borrowings298
 1
 1.06
 227
 —
 0.20
Mandatorily redeemable capital stock372
 7
 7.51
 487
 11
 9.05
Borrowings from other FHLBanks2
 —
 1.18
 1
 —
 0.41
Total interest-bearing liabilities98,858
 288
 1.15
 89,849
 151
 0.67
Other liabilities(4)
701
 —
   925
 —
  
Total Liabilities99,559
 288
   90,774
 151
  
Total Capital6,176
 —
   5,500
 —
  
Total Liabilities and Capital$105,735
 $288
   $96,274
 $151
  
Net Interest Income  $146
     $123
  
Net Interest Spread(6)
    0.49%     0.48%
Net Interest Margin(7)
    0.55%     0.51%
Interest-earning Assets/Interest-bearing Liabilities105.99%     106.13%    

(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 $17 million and $19 million for the three 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:

62


(3)Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:
Three Months Ended
June 30, 2022
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(7)$(27)$— $(34)
Net gain/(loss) on derivatives and hedged items— 5 — 5 
Net interest settlements on derivatives(10)(7)11 (6)
Total net interest income/(expense)$(17)$(29)$11 $(35)
 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) $(13)
Consolidated obligation bonds(1) 6
 5
 1
 46
 47
Three Months Ended
June 30, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(5)$(27)$— $(32)
Net gain/(loss) on derivatives and hedged items(1)— — (1)
Net interest settlements on derivatives(56)(21)17 (60)
Total net interest income/(expense)$(62)$(48)$17 $(93)

(4)Interest income includes net prepayment fees on AFS MBS of $13 million for the three months ended June 30, 2022. There were no prepayments of AFS MBS during the three months ended June 30, 2021.
(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.

(5)Nonperforming mortgage loans are included in average balances used to determine average rate. Interest income from retrospective adjustment of the effective yields was $8 million and $(2) million for the three months ended June 30, 2022 and 2021, respectively. Interest income from the amortization of upfront loan costs and delivery commitments was $(3) million and $(8) million for the three months ended June 30, 2022 and 2021, respectively.
(6)Interest income includes net prepayment fees on advances of a de minimis amount and $7 million for the three months ended June 30, 2022 and 2021, respectively.
(7)Includes forward settling transactions and valuation adjustments for certain cash items.
(8)Net interest spread is calculated as the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
(9)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
Net interest income in the thirdsecond quarter of 20172022 was $146$126 million, a 19%1% increase from $123$125 million in the thirdsecond quarter of 2016.2021. The following table details the changes in interest income and interest expense for the thirdsecond quarter of 20172022 compared to the thirdsecond quarter of 2016.2021. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.

47
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 June 30, 2022, Compared to Three Months Ended June 30, 2021		Change in Net Interest Income: Rate/Volume Analysis
Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021
     
Increase/
(Decrease)

 
Attributable to Changes in(1)
 Increase/
(Decrease)
Attributable to Changes in(1)
(In millions) Average Volume
 Average Rate
(In millions)Average VolumeAverage Rate
Interest-earning assets:     Interest-earning assets:
Interest-bearing deposits$2
 $—
 $2
Interest-bearing deposits$2 $— $2 
Securities purchased under agreements to resell(1) (4) 3
Securities purchased under agreements to resell13 3 10 
Federal funds sold26
 5
 21
Federal funds sold20 1 19 
Trading securities: Other investments1
 (1) 2
Trading securities: Other investments(20)(20)— 
AFS securities:     AFS securities:
MBS(3) (13) 10
HTM securities:     
MBS12
 13
 (1)
Other investments2
 2
 —
MBS(2)
MBS(2)
30 (7)37 
Other investments(2)
Other investments(2)
4 — 4 
HTM securities: MBSHTM securities: MBS(1)(4)3 
Mortgage loans held for portfolio8
 9
 (1)Mortgage loans held for portfolio9 (2)11 
Advances(2)
113
 12
 101
Advances(2)
62 37 25 
Total interest-earning assets160
 23
 137
Total interest-earning assets119 8 111 
Interest-bearing liabilities:     Interest-bearing liabilities:
Consolidated obligations:     Consolidated obligations:
Bonds(2)
110
 55
 55
Bonds(2)
36 (2)38 
Discount notes30
 (17) 47
Discount notes80 6 74 
Deposits and other borrowings1
 —
 1
Deposits and other borrowings2 — 2 
Mandatorily redeemable capital stock(4) (2) (2)
Total interest-bearing liabilities137
 36
 101
Total interest-bearing liabilities118 4 114 
Net interest income$23
 $(13) $36
Net interest income$1 $4 $(3)

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

(2)Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.
The net interest margin was 5567 basis points for the thirdsecond quarter of 2017, 42022, 21 basis points higherlower than the net interest margin for the thirdsecond quarter of 2016,2021, which was 5188 basis points. The net interest spread was 4960 basis points for the thirdsecond quarter of 2017, 12022, 26 basis point higherpoints lower than the net interest spread for the thirdsecond quarter of 2016,2021, which was 4886 basis points. These increasesdecreases were primarily a result of an increase in costs of interest-bearing liabilities and higher balances of lower-yielding non-MBS investments and advances.
For PLRMBS with previous credit losses related to higher average balancesthe prior methodology of interest-earning assets, combined with higher spreads on those assets.

63



For securities previously identified as other-than-temporarily impaired,evaluating credit losses, the Bank updates its estimate of future
estimated cash flows on a regular basis. If there is no additional impairmentcredit loss 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
based on the expected cash flows. As a result of improvements in the estimated cash flows of these securities, previously identified as other-than-temporarily impaired, the net accretion of yield adjustmentsincome 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.

48
Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the three months ended SeptemberJune 30, 20172022 and 2016.
2021.
Other Income/(Loss)Other Income/(Loss)Other Income/(Loss)
   
Three Months EndedThree Months Ended
(In millions)September 30, 2017
 September 30, 2016
(In millions)June 30, 2022June 30, 2021
Other Income/(Loss):   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 trading securities(1)
$— $(19)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(5) (18)Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(12)(5)
Net gain/(loss) on derivatives and hedging activities2
 15
Gains on litigation settlements, net—
 240
Other5
 6
Net gain/(loss) on derivativesNet gain/(loss) on derivatives(20)(8)
Standby letters of credit feesStandby letters of credit fees3 4 
Other, netOther, net(2)2 
Total Other Income/(Loss)$(4) $241
Total Other Income/(Loss)$(31)$(26)

(1)The net gain/(loss) on trading securities that were economically hedged totaled a de minimis amount and $(19) million for the three months ended SeptemberJune 30, 20172022 and 2016,2021, 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) recognized in earnings on advances and consolidated obligation bonds held under the fair value option for the three months ended SeptemberJune 30, 20172022 and 2016.2021.

64


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 OptionNet Gain/(Loss) on Advances and Consolidated Obligations Bonds Held Under Fair Value Option
   
Three Months EndedThree Months Ended
(In millions)September 30, 2017
 September 30, 2016
(In millions)June 30, 2022June 30, 2021
Advances$(5) $(18)Advances$(26)$(6)
Consolidated obligation bonds—
 —
Consolidated obligation bonds14 1 
Total$(5) $(18)Total$(12)$(5)
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–Statements – Note 1612 – Fair Value.”

Net Gain/(Loss) on Derivatives – Under the accounting guidance for derivative instruments and Hedging Activities – hedging activities, the Bank is required to carry all of its derivative instruments on the Statements of Condition at fair value. Certain derivatives are associated with assets or liabilities but do not qualify as fair value hedges under the accounting guidance for derivative instruments and hedging activities. These economic hedges are recorded on the Statements of Condition at fair value with the unrealized gain or loss recorded in earnings without any offsetting unrealized gain or loss from the associated asset or liability.
The following table shows the accounting classification of economic 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”derivatives” in the thirdsecond quarter of 20172022 and 2016.

2021.
49
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
Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021		Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Three Months Ended June 30, 2022, Compared to Three Months Ended June 30, 2021
               
Three Months EndedThree Months Ended
(In millions)September 30, 2017 September 30, 2016(In millions)June 30, 2022June 30, 2021
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
Hedged ItemGain/(Loss) on
Economic
Hedges		Income/
(Expense) on
Economic
Hedges		TotalGain/(Loss) on
Economic
Hedges		Income/
(Expense) on
Economic
Hedges		Total
Advances:               Advances:
Elected for fair value option$—
 $8
 $(5) $3
 $—
 $29
 $(11) $18
Elected for fair value option$22 $(7)$15 $4 $(9)$(5)
Not elected for fair value option2
 (2) —
 —
 1
 (5) 1
 (3)Not elected for fair value option3 4 7 (5)1 (4)
Consolidated obligation bonds:        
 
 
  Consolidated obligation bonds:
Elected for fair value option—
 (1) 1
 —
 —
 (2) 2
 —
Elected for fair value option(16)1 (15)(1)1 — 
Not elected for fair value option(1) (3) 2
 (2) (1) (6) 6
 (1)Not elected for fair value option(10)— (10)1 1 2 
Consolidated obligation discount notes:               Consolidated obligation discount notes:
Not elected for fair value option—
 2
 (8) (6) —
 5
 (5) —
Not elected for fair value option(26)9 (17)— (1)(1)
Non-MBS investments:               Non-MBS investments:
Not elected for fair value option—
 1
 —
 1
 —
 —
 —
 —
Not elected for fair value option— — — 14 (14)— 
Mortgage delivery commitment:               
Not elected for fair value option—
 6
 —
 6
 —
 1
 —
 1
Total$1
 $11
 $(10) $2
 $—
 $22
 $(7) $15
Total$(27)$7 $(20)$13 $(21)$(8)

During the thirdsecond quarter of 2017,2022, net gainslosses on derivatives and hedging activities totaled $2$20 million compared to net gainslosses of $15$8 million in the thirdsecond quarter of 2016.2021. These amounts included expenseincome of $10$7 million and expense of $7$21 million resulting from net settlements on derivative instruments used in economic hedges in the thirdsecond quarter of

65


2017 2022 and 2016,2021, 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 1511 – Derivatives and Hedging Activities.”

50
Other Expense. During
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021
Average Balance Sheets
Six Months Ended
 June 30, 2022June 30, 2021
(Dollars in millions)Average
Balance		Interest
Income/
Expense		Average
Rate		Average
Balance		Interest
Income/
Expense		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits$1,467 $3 0.50 %$1,219 $1 0.14 %
Securities purchased under agreements to resell4,126 14 0.67 1,497 — 0.07 
Federal funds sold9,857 24 0.49 5,028 2 0.07 
Trading securities:
MBS1 — 1.84 2 — 2.40 
Other investments24 — 2.04 3,939 41 2.08 
AFS securities:(1)
MBS(2)(3)(4)
8,890 133 3.00 10,026 108 2.18 
Other investments(3)
1,217 5 0.89 2,819 3 0.20 
HTM securities:
MBS2,865 17 1.22 4,369 24 1.13 
Mortgage loans held for portfolio(5)
913 30 6.52 1,588 27 3.38 
Advances(3)(6)
35,267 156 0.89 29,009 120 0.83 
Loans to other FHLBanks10 — 0.79 — — — 
Total interest-earning assets64,637 382 1.19 59,496 326 1.10 
Other assets(7)
586 — 1,032 — 
Total Assets$65,223 $382 $60,528 $326 
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)
$25,607 $62 0.48 %$34,688 $36 0.21 %
Discount notes31,268 89 0.57 17,719 7 0.07 
Deposits and other borrowings1,202 2 0.41 1,201 — 0.08 
Mandatorily redeemable capital stock4 — 6.41 3 — 3.75 
Borrowings from other FHLBanks54 — 1.01 1 — 0.06 
Total interest-bearing liabilities58,135 153 0.53 53,612 43 0.16 
Other liabilities(7)
511 — 548 — 
Total Liabilities58,646 153 54,160 43 
Total Capital6,577 — 6,369 — 
Total Liabilities and Capital$65,223 $153 $60,529 $43 
Net Interest Income$229 $283 
Net Interest Spread(8)
0.66 %0.94 %
Net Interest Margin(9)
0.72 %0.96 %
Interest-earning Assets/Interest-bearing Liabilities111.19 %110.98 %
(1)The average balances of AFS securities are reflected at amortized cost. As a result, the third quarteraverage rates do not reflect changes in fair value.
(2)Interest income on AFS securities includes accretion of 2017, other expenses totaled $51yield adjustments on certain PLRMBS (resulting from improvement in expected cash flows) with previous credit losses related to the prior methodology of evaluating credit losses, totaling $18 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$26 million for the Quality Jobs Fund, a donor-advised fund established to support quality jobs growthsix months ended June 30, 2022 and small business expansion to be funded by2021, respectively.

51
(3)Interest income/expense and average rates include the Bank in incremental amounts over the next two years. During the third quartereffect of 2017, the Bank made a voluntary charitable contributionassociated interest rate exchange agreements, as follows:
Six Months Ended
June 30, 2022
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(14)$(54)$— $(68)
Net gain/(loss) on derivatives and hedged items1 8 — 9 
Net interest settlements on derivatives(31)(20)35 (16)
Total net interest income/(expense)$(44)$(66)$35 $(75)
Six Months Ended
June 30, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(8)$(54)$— $(62)
Net gain/(loss) on derivatives and hedged items1 9 — 10 
Net interest settlements on derivatives(121)(45)24 (142)
Total net interest income/(expense)$(128)$(90)$24 $(194)
(4)Interest income includes net prepayment fees on AFS MBS of $10$17 million for the Quality Jobs Fund, as well as a voluntary contributionsix months ended June 30, 2022. There were no prepayments of $1 millionAFS MBS during the six months ended June 30, 2021.
(5)Nonperforming mortgage loans are included in average balances used to the Affordable Housing Program (AHP) to offset the impact on the AHP assessmentdetermine average rate. Interest income from retrospective adjustment of the charitable contribution expense.effective yields was $18 million and $13 million for the six months ended June 30, 2022 and 2021, respectively. Interest income from the amortization of upfront loan costs and delivery commitments was $(5) million and $(15) million for the six months ended June 30, 2022 and 2021, respectively.

(6)Interest income includes net prepayment fees on advances of $(2) million and $15 million for the six months ended June 30, 2022 and 2021, respectively.

(7)Includes forward settling transactions and valuation adjustments for certain cash items.
66(8)Net interest spread is calculated as the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.


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 resell1,034
 7
 0.85
 3,228
 9
 0.36
Federal funds sold10,653
 78
 0.99
 6,705
 19
 0.38
Trading securities:           
Mortgage-backed securities (MBS)7
 —
 2.18
 9
 —
 1.89
Other investments1,398
 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)
           
MBS12,422
 201
 2.16
 10,379
 186
 2.39
Other investments1,017
 9
 1.17
 259
 2
 0.86
Mortgage loans held for portfolio1,213
 35
 3.86
 637
 22
 4.63
Advances(3)
66,440
 587
 1.18
 62,447
 351
 0.75
Loans to other FHLBanks2
 —
 0.86
 1
 —
 0.38
Total interest-earning assets98,891
 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 notes34,381
 196
 0.76
 32,119
 96
 0.40
Deposits and other borrowings266
 2
 0.83
 361
 —
 0.18
Mandatorily redeemable capital stock408
 25
 8.37
 501
 33
 8.77
Borrowings from other FHLBanks11
 —
 0.56
 7
 —
 0.37
Total interest-bearing liabilities93,229
 691
 0.99
 85,441
 432
 0.68
Other liabilities(4)
722
 —
   718
 —
  
Total Liabilities93,951
 691
   86,159
 432
  
Total Capital5,883
 —
   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 Liabilities106.07%     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:


67


 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.

(9)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
Net interest income in the first ninesix months of 20172022 was $424$229 million, a 17% increase19% decrease from $363$283 million in the first ninesix months of 2016.2021. The following table details the changes in interest income and interest expense for the first ninesix months of 20172022 compared to the first ninesix months of 2016.2021. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.

52
Change in Net Interest Income: Rate/Volume Analysis
Nine Months Ended September 30, 2017 Compared to Nine Months Ended September 30, 2016
Change in Net Interest Income: Rate/Volume Analysis
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021		Change in Net Interest Income: Rate/Volume Analysis
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021
     
Increase/
(Decrease)

 
Attributable to Changes in(1)
 Increase/
(Decrease)
Attributable to Changes in(1)
(In millions) Average Volume
 Average Rate
(In millions)Average VolumeAverage Rate
Interest-earning assets:     Interest-earning assets:
Interest-bearing deposits$4
 $—
 $4
Interest-bearing deposits$2 $— $2 
Securities purchased under agreements to resell(2) (9) 7
Securities purchased under agreements to resell14 3 11 
Federal funds sold59
 16
 43
Federal funds sold22 3 19 
Trading securities: Other investments6
 —
 6
Trading securities: Other investments(41)(40)(1)
AFS securities:     AFS securities:
MBS(18) (42) 24
HTM securities:     
MBS15
 34
 (19)
Other investments7
 6
 1
MBS(2)
MBS(2)
25 (13)38 
Other investments(2)
Other investments(2)
2 (2)4 
HTM securities: MBSHTM securities: MBS(7)(9)2 
Mortgage loans held for portfolio13
 17
 (4)Mortgage loans held for portfolio3 (15)18 
Advances(2)
236
 24
 212
Advances(2)
36 27 9 
Total interest-earning assets320
 46
 274
Total interest-earning assets56 (46)102 
Interest-bearing liabilities:     Interest-bearing liabilities:
Consolidated obligations:     Consolidated obligations:
Bonds(2)
165
 35
 130
Bonds(2)
26 (11)37 
Discount notes100
 7
 93
Discount notes82 8 74 
Deposits and other borrowings2
 —
 2
Deposits and other borrowings2 — 2 
Mandatorily redeemable capital stock(8) (6) (2)
Total interest-bearing liabilities259
 36
 223
Total interest-bearing liabilities110 (3)113 
Net interest income$61
 $10
 $51
Net interest income$(54)$(43)$(11)

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

(2)Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.
The net interest margin was 5772 basis points for the first ninesix months of 2017, 32022, 24 basis points higherlower than the net interest margin for the first ninesix months of 2016,2021, which was 5496 basis points. The net interest spread was 5266 basis points for the first ninesix months of 2017, 32022, 28 basis points higherpoint lower than the net interest spread for the first ninesix months of 2016,2021, which was 4994 basis points. These increasesdecreases were primarily a result of an increase in costs of interest-bearing liabilities and higher balances of lower-yielding non-MBS investments and advances.
For PLRMBS with previous credit losses related to higher average balancesthe prior methodology of interest-earning assets, combined with higher spreads on those assets.

68



For securities previously identified as other-than-temporarily impaired,evaluating credit losses, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional impairmentcredit loss 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 inbased on the expected cash flows. As a result of improvements in the estimated cash flows of these securities, previously identified as other-than-temporarily impaired, the net accretion of yield adjustmentsincome 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 ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.
53
Other Income/(Loss)Other Income/(Loss)Other Income/(Loss)
 
Nine Months EndedSix Months Ended
(In millions)September 30, 2017
 September 30, 2016
(In millions)June 30, 2022June 30, 2021
Other Income/(Loss):   Other Income/(Loss):
Total OTTI loss$(8) $(19)
Net amount of OTTI loss reclassified to/(from) AOCI(7) 5
Net OTTI loss, credit-related(15) (14)
Net gain/(loss) on trading securities(1)
—
 3
Net gain/(loss) on trading securities(1)
$— $(37)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(1) 22
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(33)(31)
Net gain/(loss) on derivatives and hedging activities(26) (73)
Gains on litigation settlements, net119
 451
Other15
 14
Net gain/(loss) on derivativesNet gain/(loss) on derivatives(12)10 
Private-label residential mortgage-backed securities trust settlementPrivate-label residential mortgage-backed securities trust settlement28 — 
Standby letters of credit feesStandby letters of credit fees7 8 
Other, netOther, net(3)3 
Total Other Income/(Loss)$92
 $403
Total Other Income/(Loss)$(13)$(47)

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

(1)The net gain/(loss) on trading securities that were economically hedged totaled a de minimis amount and $(37) million for the six months ended June 30, 2022 and 2021, 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 ninesix months ended SeptemberJune 30, 20172022 and 2016.2021.

69


Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value OptionNet Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value OptionNet Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option
   
Nine Months EndedSix Months Ended
(In millions)September 30, 2017
 September 30, 2016
(In millions)20222021
Advances$4
 $45
Advances$(75)$(32)
Consolidated obligation bonds(5) (23)Consolidated obligation bonds42 1 
Total$(1) $22
Total$(33)$(31)
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–Statements – Note 1612 – Fair Value.”

Net Gain/(Loss) on Derivatives and Hedging Activities – The following table shows the accounting classification of economic 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 derivativesderivatives” for the six months ended June 30, 2022 and hedging activities” in the first nine months2021.
54
Contents
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
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021		Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Six Months Ended June 30, 2022, Compared to Six Months Ended June 30, 2021
               
Nine Months EndedSix Months Ended
(In millions)September 30, 2017 September 30, 2016(In millions)June 30, 2022June 30, 2021
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
Hedged ItemGain/(Loss) on Economic
Hedges		Income/
(Expense) on Economic
Hedges		TotalGain/(Loss) on Economic
Hedges		Income/
(Expense) on Economic
Hedges		Total
Advances:               Advances:
Elected for fair value option$—
 $4
 $(18) $(14) $—
 $(31) $(35) $(66)Elected for fair value option$67 $(15)$52 $46 $(19)$27 
Not elected for fair value option(1) —
 1
 —
 —
 5
 2
 7
Not elected for fair value option21 9 30 (16)1 (15)
Consolidated obligation bonds:              

Consolidated obligation bonds:
Elected for fair value option—
 3
 3
 6
 —
 7
 13
 20
Elected for fair value option(39)2 (37)(1)1 — 
Not elected for fair value option—
 —
 5
 5
 (4) (8) 20
 8
Not elected for fair value option(42)1 (41)(3)1 (2)
Consolidated obligation discount notes:              

Consolidated obligation discount notes:
Not elected for fair value option—
 (11) (26) (37) —
 (18) (22) (40)Not elected for fair value option(27)10 (17)2 (1)1 
MBS:              

MBS:
Not elected for fair value option—
 (4) —
 (4) —
 (4) —
 (4)Not elected for fair value option1 — 1 — — — 
Mortgage delivery commitment:               
Non-MBS investments:Non-MBS investments:
Not elected for fair value option—
 18
 —
 18
 —
 2
 —
 2
Not elected for fair value option— — — 27 (28)(1)
Total$(1) $10
 $(35) $(26) $(4) $(47) $(22) $(73)Total$(19)$7 $(12)$55 $(45)$10 

During the first ninesix months of 2017,2022, net losses on derivatives and hedging activities totaled $26$12 million compared to net lossesgains of $73$10 million in the first ninesix months of 2016.2021. These amounts included income of $7 million and expense of $35 million and

70


expense of $22$45 million resulting from net settlements on derivative instruments used in economic hedges in the first ninesix months of 20172022 and 2016,2021, 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 1511 – Derivatives and Hedging Activities.”

PLRMBS Trust Settlement – One of the Bank’s PLRMBS investments is held within a trust that has been the subject of litigation by the trustee since 2012. Upon final resolution of the litigation, to which the Bank was not a party, the trustee was required to transmit settlement proceeds to the trust. As a result of the distribution of the settlement proceeds in the first quarter of 2022 to the beneficial owners of the securities in the trust, including the Bank, the Bank recorded settlement proceeds of $28 million as income in the first six months of 2022. The Bank recorded no settlement proceeds in the first six months of 2021.
Gains on Litigation Settlements, Net – Other Expense. During the second quarter of 2022, other expenses totaled $38 million, compared to $39 million in the second quarter of 2021. During the first ninesix months 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 2017,2022, other expenses totaled $170$76 million, compared to $112$78 million in the first ninesix months of 2016, reflecting the voluntary charitable contributions made during the first nine months2021.
55

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 first nine months of 2017, the Bank made voluntary charitable contributions of $50 million for the Quality Jobs Fund, as well as voluntary contributions of $6 million to the Affordable Housing Program (AHP) to offset the impact on the AHP assessment of the charitable contribution expense.

Return on Average Equity

Equity. Return on average equity (ROE) was 5.19%2.85% (annualized) for the thirdsecond quarter of 2017,2022, compared to 21.05%3.45% (annualized) for the thirdsecond quarter of 2016.2021. The decrease primarily reflected lower net income for the thirdsecond quarter of 2017,2022, which decreased 72%13%, from $291$55 million in the thirdsecond quarter of 20162021 to $81$48 million in the thirdsecond quarter of 2017. The decrease2022, and an increase in net income primarily reflected a gain on settlements of $240 million (after netting certain legal fees and expenses)average equity from $6.4 billion 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 thirdsecond quarter of 2017.2021 to $6.7 billion in the second quarter of 2022.

Return on average equity (ROE)ROE was 7.03%3.85% (annualized) for the first ninesix months of 2017,2022, compared to 15.19%4.72% (annualized) for the first ninesix months of 2016.2021. The decrease primarily reflected lower net income for the first ninesix months of 2017 resulting primarily2022, which decreased 15%, from lower gains on settlements relating to the Bank’s PLRMBS litigation (after netting certain legal fees and expenses) for$149 million in the first ninesix months of 2017 and from the voluntary charitable contributions made during2021 to $126 million in the first ninesix months of 2017.2022, and an increase in average equity from $6.4 billion in the first six months of 2021 to $6.6 billion in the first six months of 2022.

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

71


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.

Earnings. In the thirdsecond quarter of 2017,2022, the Bank paid dividends at an annualized rate of 7.00%6.00%, totaling $51$33 million, including $44$33 million in dividends on capital stock and $7 milliona de minimis amount in dividends on mandatorily redeemable capital stock. In the thirdsecond quarter of 2016,2021, the Bank paid dividends at an annualized rate of 9.17%6.00%, totaling $63$34 million, including $52$34 million in dividends on capital stock and $11 milliona de minimis amount in dividends on mandatorily redeemable capital stock.

In the first ninesix months of 2017,2022, the Bank paid dividends at an annualized rate of 7.69%6.00%, totaling $164$68 million, including $139$68 million in dividends on capital stock and $25 milliona de minimis amount in dividends on mandatorily redeemable capital stock. In the first ninesix months of 2016,2021, the Bank paid dividends at an annualized rate of 8.70%5.47%, totaling $179$64 million, including $146$64 million in dividends on capital stock and $33 milliona de minimis amount 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, the Bank’s Board of Directors declared a cash dividend on the capital stock outstanding during the third quarter of 2017 at an annualized rate of 7.00%, totaling $55 million, including $48 million in dividends on capital stock and $7 million in dividends on mandatorily redeemable capital stock. The Bank recorded the dividend on October 26, 2017. The Bank expects to pay the dividend on November 13, 2017. Dividends on mandatorily redeemable capital stock will be recognized as interest expense in the fourth quarter of 2017.


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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 to July 2017, the Bank’s Framework had three categoriesperiod, and maintains an amount of restricted retained earnings: Valuation Adjustments, Other (which represented a targeted amount), and the Joint Capital Enhancement (JCE Agreement). Under the Framework, the Bank’stotal retained earnings methodology determined the Bank’sat least equal to its 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,as described in the Framework. The methodology may be revised from time to time, and from January 2017 to July 2017, the Bank’s restricted retained earnings requirement was $2,300.

In July 2017, the Bank’s Board of Directors approved the transfer of all amounts classified as restricted retained earnings, other than the amounts related 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 allrequired retained earnings under the methodology may change due to updating data and assumptions used in the methodology. The required level of $2,300 for loss protection, capital compliance,retained earnings was $1.7 billion and business growth. $1.5 billion at June 30, 2022, and December 31, 2021, respectively. In July 2022, the required level of retained earnings was increased from $1.7 billion to $2.6 billion.
The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the JCEJoint Capital Enhancement (JCE) Agreement) and unrestricted retained earnings.

Retained earnings related to the The JCE Agreement provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. As a result of the Bank exceeding this threshold, the Bank reclassified $16 million from restricted retained earnings to unrestricted retained during the six months ended June 30, 2022. The Bank made no reclassifications from restricted retained earnings to unrestricted retained earnings during the three months ended June 30, 2022, nor during the three and six months ended June 30, 2021. The Bank’s unrestricted retained earnings totaled $562 million$3.2 billion and $500 million$3.1 billion at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, respectively. AdditionalThe Bank’s restricted retained earnings totaled $1.7 billion at December 31, 2016. Total restricted retained earnings were $562$692 million and $2.2 billion as of September$708 million at June 30, 2017,2022, and December 31, 2016,2021, respectively.

The Bank will continue to monitor 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 in future quarters.

For more information, see “Item 1. Financial Statements – Note 139 – 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 Supplementary Data – Note 1511 – Capital – Excess Stock Repurchase, Retained Earnings, and Dividend Framework.”Framework” in the Bank’s 20162021 Form 10-K.
Form 10–K.
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Financial Condition

Total assets were $109.5$87.6 billion at SeptemberJune 30, 2017,2022, compared to $91.9$54.1 billion at December 31, 2016.2021. Advances increased by $11.8$26.2 billion, or 24%154%, to $61.6$43.2 billion at SeptemberJune 30, 2017,2022, from $49.8$17.0 billion at December 31, 2016.2021. MBS investments decreased by $2.0 billion, or 15%, to $11.0 billion at June 30, 2022, from $13.0 billion at December 31, 2021. Average total assets were $105.7$76.4 billion for the thirdsecond quarter of 2017,2022, a 10%31% increase compared to $96.3 from $58.2 billion for the thirdsecond quarter of 2016.2021. Average total assets were $99.8$65.2 billion for the first ninesix months of 2017, a 9%2022, an 8% increase compared to $91.3from $60.5 billion for the first ninesix months of 2016.2021. Average advances were $71.2 billion for the third quarter of 2017, a 9%increase from $65.6$43.6 billion for the thirdsecond quarter of 2016.2022, a 55% increase from $28.2 billion for the second quarter of 2021. Average advances were $66.4$35.3 billion for the first ninesix months of 2017,2022, a 6%22% increase from $62.4$29.0 billion for the first ninesix months of 2016.2021. Average non-MBSMBS investments were $15.1$11.3 billion for the thirdsecond quarter of 2017,2022, a 12% increase19% decrease from $13.5$14.0 billion for the thirdsecond quarter of 2016.2021. Average non-MBSMBS investments were $14.8$11.8 billion for the first ninesix months of 2017, a 22% increase2022, an 18% decrease from $12.1$14.4 billion for the first ninesix months of 2016.

2021.
Advances outstanding at SeptemberJune 30, 2017,2022, included net unrealized losses of $22$405 million, of which $39$398 million represented unrealized losses on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $17$7 million represented unrealized gainslosses on economically hedged advances that are carried at fair value in accordance with the fair value option. Advances outstanding at December 31, 2016,2021, included net unrealized lossesgains of $12$169 million, of which $22$103 million represented unrealized lossesgains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $10$66 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value

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option. The overall increasechange in the net unrealized losses on the hedged advances and advances carried at fair value from December 31, 2016,2021, to SeptemberJune 30, 2017,2022, 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$80.9 billion at SeptemberJune 30, 2017,2022, an increase of $16.8$33.0 billion from $86.4$47.9 billion at December 31, 2016,2021, primarily reflecting a $18.5$32.5 billion increase in consolidated obligations outstanding to $102.2$79.2 billion at SeptemberJune 30, 2017,2022, from $83.7$46.7 billion at December 31, 2016, partially offset by a $1.3 billion decrease in borrowings from other FHLBanks.2021. Average total liabilities were $99.6$69.6 billion for the thirdsecond quarter of 2017,2022, a 10%34% increase compared to $90.8$51.8 billion for the thirdsecond quarter of 2016.2021. Average total liabilities were $94.0$58.6 billion for the first ninesix months of 2017, a 9%2022, an 8% increase compared to $86.2$54.2 billion for the first ninesix months of 2016.2021. Average consolidated obligations were $98.2$67.8 billion for the thirdsecond quarter of 20172022 and $89.1$50.0 billion for the thirdsecond quarter of 2016.2021. Average consolidated obligations were $92.5$56.9 billion for the first ninesix months of 20172022 and $84.6$52.4 billion for the first ninesix months of 2016.

2021.
Consolidated obligations outstanding at SeptemberJune 30, 2017,2022, included net unrealized gains of $12$772 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized gains of $2$44 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, 2016,2021, included net unrealized lossesgains of $6$139 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized gains of $8$6 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. The increasechange in the net unrealized gains on the hedged consolidated obligation bonds and on the consolidated obligation bonds carried at fair value from December 31, 2016,2021, to SeptemberJune 30, 2017,2022, 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'sBank’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 required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of SeptemberJune 30, 2017,2022, and through the filing date of this report, does not believe that it is probable that it will be asked to
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do so. The par value of the outstanding consolidated obligations of the FHLBanks was $1,028.7$882.5 billion at SeptemberJune 30, 2017,2022, and $989.3$652.9 billion at December 31, 2016.2021.

ChangesCertain Bank assets and derivatives are indexed to LIBOR. The Bank recognizes that the impending 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 “Item 1A. Risk Factors” in the long-term credit ratingsBank’s 2021 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 identifies key strategies to manage and mitigate the risks associated with the discontinuation of individualLIBOR and promotes the use of robust benchmarks, like SOFR, in the Bank’s financial activities. In addition, the Transition Plan prohibits new LIBOR transactions, 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.
On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks do not necessarily affectthat required each FHLBank to adhere to the credit ratingFallbacks Protocol (Protocol) by December 31, 2020, and, to the extent necessary, to amend any bilateral agreements regarding the adoption of the consolidated obligations issuedProtocol by December 15, 2020. On October 23, 2020, International Swaps and Derivatives Association, Inc. (ISDA) launched the Supplement to the 2006 ISDA Definitions (Supplement) and the ISDA 2020 Interbank Offered Rate (IBOR) Protocol. Both the Supplement and the Protocol took effect on behalfJanuary 25, 2021. As part of its LIBOR transition efforts, the Bank and all of its uncleared derivatives counterparties have adhered to the Protocol. On January 25, 2021, all of the FHLBanks. Rating agencies may changeBank’s outstanding legacy bilateral derivative transactions that referenced a covered IBOR, including U.S. dollar LIBOR, were amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation.
On March 5, 2021, the United Kingdom’s Financial Conduct Authority (FCA) further announced that LIBOR will either cease to be provided by any administrator or withdrawno longer be representative immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings.
Although the FCA does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on 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 outlooknon-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular industrycurrency or tenor, will continue to be published or be representative through any particular date. The FCA’s announcements constitutes an index cessation event under the economy.

The Bank evaluated the publicly disclosed FHLBank regulatory actionsProtocol and long-term credit ratings of the other FHLBanks as of September 30, 2017,Supplement, and as ofa result, the fallbacks spread adjustment for each period end presented, and does not believe,tenor was fixed as of the date of the announcement.
On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act was signed into law. The legislation provides a statutory fallback mechanism on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on SOFR including any applicable tenor spread adjustment, for certain contracts that reference LIBOR and contain no fallback provisions or insufficient fallback provisions. On July 20, 2022, the Federal Reserve Board requested comments on a proposed rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying specific benchmark replacements as LIBOR fallbacks by covered contract category. The proposed rule would provide default rules for certain contracts (covered contracts) that: reference LIBOR, are governed by U.S. law, do not mature on or before the LIBOR replacement date, and lack adequate provisions to identify a replacement rate for LIBOR. The proposed rule identifies separate Board-selected replacement rates for derivatives transactions, covered GSE contracts, and all other covered contracts. The proposed rule defines covered GSE contracts to include FHLBank advances.
The following tables present LIBOR-indexed variable rate financial instruments for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by due date or termination date at June 30, 2022, and December 31, 2021.
58
LIBOR-Indexed Financial Instruments
June 30, 2022
(In millions)Due/Terminates in 2022Due/Terminates through June 30, 2023Due/Terminates thereafterTotal
Assets indexed to LIBOR:
Par value of advances by redemption term$75 $— $— $75 
Unpaid principal balance of MBS by contractual maturity(1)
— 7 3,458 3,465 
Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared315 305 222 842 
Uncleared37 20 — 57 
Total$427 $332 $3,680 $4,439 
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared$— $52 $— $52 
Uncleared35 — — 35 
Total$35 $52 $— $87 
December 31, 2021
(In millions)Due/Terminates in 2022Due/Terminates through June 30, 2023Due/Terminates thereafterTotal
Assets indexed to LIBOR:
Par value of advances by redemption term$250 $— $10 $260 
Unpaid principal balance of MBS by contractual maturity(1)
— 12 4,098 4,110 
Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared517 309 562 1,388 
Uncleared112 23 10 145 
Total$879 $344 $4,680 $5,903 
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared$210 $52 $40 $302 
Uncleared35 — — 35 
Total$245 $52 $40 $337 
(1)Certain MBS with multiple indices where LIBOR is the majority index are included in this report, that it is probable thatamount.
As of June 30, 2022, and December 31, 2021, interest rate caps and floors indexed to LIBOR totaling $550 million were due to terminate after June 30, 2023.
Market activity in SOFR-indexed financial instruments continues to increase. During 2022 and in total since November 2018, the Bank will be requiredhas issued $6.5 billion and $210.0 billion, respectively, in SOFR-indexed consolidated obligation bonds. The Bank had consolidated obligation bonds indexed to repay any principal or interest associated with consolidated obligations for which the Bank is not the primary obligor.SOFR totaling $5.0 billion at June 30, 2022, and $5.6 billion at December 31, 2021.

For more information on LIBOR-indexed advances, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Segment Information – Advances-Related Business.” For more information on LIBOR-indexed investments and derivatives, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management.”
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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 business segments. For purposes of segment reporting, adjusted net interest income

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includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivativesderivatives” in other income/(loss), excludes interest income and expense associated with changes in fair value of the derivative hedging activities”instrument and the hedged item attributable to the hedged risk for designated fair value hedges that are recorded in othernet interest 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, andAffordable Housing Program (AHP) assessments isare not included in the segment reporting analysis but isare 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 1410 – 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$35.6 billion to $90.3$75.7 billion (82%(86% of total assets) at SeptemberJune 30, 2017,2022, from $74.0$40.1 billion (81%(74% of total assets) at December 31, 2016.

2021.
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$55 million in the thirdsecond quarter of 2017,2022, an increase of $20$6 million, or 48%12%, compared to $42$49 million in the thirdsecond quarter of 2016. In the first nine months2021. This quarterly increase was primarily a result of 2017, adjustedan improvement in spreads on advances-related assets and higher balances of advances and other credit products. Adjusted net interest income for this segment was $167$86 million an increasein the first six months of $522022, a decrease of $15 million, or 45%15%, compared to $115$101 million in the first ninesix months of 2016. The increase2021. This decrease was primarily due to an improvementa result of a decrease of $17 million in spreads and higher balances on advances-related assets and higher earnings from an increase in spreads on non-MBS investments, partially offset by lower earnings fromnet advance prepayment fees.fee income.

Adjusted net interest income for this segment represented 43% and 33%45% of total adjusted net interest income for the third quartersecond quarters of 2017,each 2022 and 2016,2021, and 40%39% and 31%42% of total adjusted net interest income for the first ninesix months of 20172022 and 2016,2021, 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 by $11.9$26.7 billion, or 24%158%, to $61.7$43.6 billion at SeptemberJune 30, 2017,2022, from $49.8$16.9 billion at December 31, 2016.2021. Average advances outstanding were $71.2$43.6 billion infor the thirdsecond quarter of 2017,2022, a 9%55% increase from $65.6$28.2 billion infor the thirdsecond quarter of 2016.2021. Average advances outstanding were $66.4$35.3 billion infor the first ninesix months of 2017,2022, a 6%22% increase from $62.4$29.0 billion infor the first ninesix months of 2016.2021. Outstanding balances of advances may significantly increase and decrease from period to period because of a member’s liquidity and financial strategies; therefore, period end balances may vary significantly from average balances for the period.

As of September 30, 2017, advancesAdvances outstanding to the Bank’s top five borrowers and their affiliates increased by $6.6$19.8 billion to $28.7 billion at June 30, 2022, from $8.9 billion at December 31, 2021. (See “Item 1. Financial Statements – Note 4 – Advances – Concentration Risk” for further information.) First Republic Bank is the Bank’s largest borrower and held $11.0 billion and $3.7 billion of the Bank’s advances at June 30, 2022, and December 31, 2021, respectively.
Several acquisitions have been announced or completed involving large regional financial institutions in the Bank’s district, which potentially reduce the opportunity to grow advances from these large regional financial institutions. On September 21, 2021, U.S. Bancorp entered into an agreement to acquire MUFG Union Bank, National Association (Union Bank). Union Bank held $9.0 billion and $2.1 billion of the Bank’s advances at June 30, 2022, and December 31, 2021, respectively. U.S. Bancorp is not a member of the Bank. If Union Bank is no longer a member of the Bank or any successor to Union Bank does not become a member of the Bank, and if no other
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advances are made to replace Union Bank’s outstanding advances, the Bank’s total advances may be significantly reduced due to the loss of a significant member.
Advances outstanding to the Bank’s other borrowers increased by $5.3$6.9 billion. Advances to the top five borrowers increased to $39.0 billion at September 30, 2017, from $32.4 billion at December 31, 2016. (See “Item 1. Financial Statements – Note 8 – Advances– Credit and Concentration Risk” for further information.)

The $11.9$26.7 billion increase in advances outstanding primarily reflected a $11.5$21.6 billion increase in fixed rate advances and a $1.1$5.2 billion increase in adjustablevariable rate advances, partially offset by a $0.7$0.1 billion decrease in variableadjustable rate advances.

The Bank has a significant long-term funding arrangement with a borrower that had, in prior periods, significantly contributed to the level of outstanding advances and may significantly contribute to the level of outstanding advances in the future; however, there can be no assurance that any advances will be made under this arrangement.
The components of the advances portfolio at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, are presented in the following table.

Advances Portfolio by Product Type
June 30, 2022December 31, 2021
(Dollars in millions)Par ValuePercentage of Total Par ValuePar ValuePercentage of Total Par Value
Adjustable – LIBOR$75 — %$250 1 %
Adjustable – SOFR100 — — — 
Adjustable – SOFR, callable at borrower’s option25 — — — 
Subtotal adjustable rate advances200 — 250 1 
Fixed23,460 54 4,765 28 
Fixed – amortizing49 — 69 — 
Fixed – with PPS(1)
1,299 3 1,406 9 
Fixed – with FPS(1)
11,955 27 8,957 54 
Fixed – with caps and PPS(1)
— — 10 — 
Fixed – callable at borrower’s option with FPS(1)
340 1 70 — 
Fixed – putable at Bank’s option— — 200 1 
Fixed – putable at Bank’s option with PPS(1)
20 — 20 — 
Subtotal fixed rate advances37,123 85 15,497 92 
Daily variable rate6,303 15 1,111 7 
Total par value$43,626 100 %$16,858 100 %
(1)Partial prepayment symmetry (PPS) and full prepayment symmetry (FPS) are product 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. Advances with PPS are no longer offered, and 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 following table presents the par value of LIBOR-indexed advances for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by redemption term at June 30, 2022, and December 31, 2021.
LIBOR-Indexed Advances by Redemption Term
(In millions)Par Value
Redemption TermJune 30, 2022December 31, 2021
Due in 2022$75 $250 
Due after June 30, 2023(1)
— 10 
Total LIBOR-Indexed Advances(2)
$75 $260 
(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.”
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Advances Portfolio by Product Type
        
 September 30, 2017 December 31, 2016
(Dollar in millions)Par Value
 Percentage of Total Par Value
 Par Value
 Percentage of Total Par Value
Adjustable – LIBOR$3,157
 5% $3,232
 6%
Adjustable – LIBOR, callable at borrower’s option16,495
 27
 15,396
 31
Adjustable – LIBOR, with caps and/or floors and PPS(1)
83
 —
 30
 —
Adjustable – Other Indices2
 —
 2
 —
Subtotal adjustable rate advances19,737
 32
 18,660
 37
Fixed29,977
 49
 20,448
 42
Fixed – amortizing215
 —
 214
 —
Fixed – with PPS(1)
3,711
 6
 3,060
 6
Fixed – with caps and PPS(1)
425
 1
 375
 1
Fixed – callable at borrower’s option1,302
 2
 2
 —
Fixed – callable at borrower’s option with PPS(1)
106
 —
 107
 —
Fixed – putable at Bank’s option25
 —
 50
 —
Fixed – putable at Bank’s option with PPS(1)
—
 —
 75
 —
Subtotal fixed rate advances35,761
 58
 24,331
 49
Daily variable rate6,153
 10
 6,866
 14
Total par value$61,651
 100% $49,857
 100%

(1)Partial prepayment symmetry (PPS) is a product feature 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.

(2)Total LIBOR-indexed advances include fixed rate advances with caps and PPS.
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$32.1 billion and $23.9$22.7 billion as of SeptemberJune 30, 2017,2022, and December 31, 2016,2021, respectively. The increase in the total size of the non-MBS investment portfolio reflects higher balances of Federal funds sold, partially offset by lower balances of securities purchased under agreements to resell, agency securities, and certificates of deposit.

Interest rate payment terms for non-MBS investments classified as HTMtrading and AFS at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, are detailed in the following table:
Non-MBS Investments: Interest Rate Payment Terms
(In millions)June 30, 2022December 31, 2021
Fair value of fixed rate trading securities$— $250 
Amortized cost of AFS securities3,437 503 
Non-MBS Investments: Interest Rate Payment Terms
    
(In millions)September 30, 2017
 December 31, 2016
Amortized cost of HTM securities other than MBS:   
Fixed rate$500

$1,350
Adjustable rate202

225
Total$702

$1,575

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.

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Borrowings – Total liabilities (primarily consolidated obligations) funding the advances-related business increased to $83.9$68.9 billion at SeptemberJune 30, 2017,2022, from $68.5$33.8 billion at December 31, 2016.2021. 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 1713 – 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 types of consolidated obligation bonds are issued on behalf of the Bank, typically the Bank simultaneouslytypically enters into interest rate exchange agreements with features that offset the complex features of the bonds and, in effect,to convert the bonds to adjustable rate instruments tied to an index, primarily LIBOR.instruments. For example, the Bank usesmay issue fixed rate callable bonds that are typically offset withand simultaneously execute an interest rate exchange agreementsagreement with call features thatto 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 SeptemberJune 30, 2017,2022, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $53.7$95.2 billion,, of which $29.5$26.7 billion were hedging advances, $23.4$63.7 billion were hedging consolidated obligations, $0.7$3.6 billion were economically hedging trading securities,non-MBS investments, and $0.1$1.2 billion were offsetting derivatives. At December 31, 2016,2021, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $59.4$48.0 billion,, of which $18.7$15.8 billion were hedging advances, $39.9$24.3 billion were hedging consolidated obligations, $0.7$0.8 billion were economically hedging trading securities,non-MBS investments, and $0.1$7.1 billion were offsetting derivatives. 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.

AsOn March 15, 2020, the Federal Open Market Committee (FOMC) lowered the Federal funds rate, to a target range of September 30, 2017,0.00% to 0.25%. At its June 2022 meeting, the FOMC raised the target range for overnightof the Federal funds rate by 0.75%, to 1.50% to 1.75%. At its July 2022 meeting, the FOMC raised the target range of the Federal funds rate by an additional 0.75%, to 2.25% to 2.50%, anticipating that ongoing increases in the target range will be appropriate. Interest rate changes may adversely impact and ratesincrease the volatility of reported earnings. The FOMC began reducing its holdings of Treasury securities and agency debt and MBS on 3-month U.S. Treasury bills, 3-month LIBOR, 2-year U.S. Treasury notes, and 5-year U.S. Treasury notes increased compared with December 31, 2016.
Selected Market Interest Rates
            
Market InstrumentSeptember 30, 2017 December 31, 2016 September 30, 2016 December 31, 2015
Federal Reserve target range for overnight Federal funds1.00-1.25
% 0.50-0.75
% 0.25-0.50
% 0.25-0.50
%
3-month Treasury bill1.05
  0.50
  0.27
  0.16
 
3-month LIBOR1.33
  1.00
  0.85
  0.61
 
2-year Treasury note1.49
  1.19
  0.76
  1.05
 
5-year Treasury note1.94
  1.93
  1.15
  1.76
 

June 1, 2022. The following table presents a comparison of selected market interest rates as 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.


selected dates.
77
62


Selected Market Interest Rates
Market InstrumentJune 30, 2022December 31, 2021June 30, 2021December 31, 2020
Federal Reserve target range for overnight Federal funds1.50-1.75%0.00-0.25%0.00-0.25%0.00-0.25%
Secured Overnight Financing Rate1.50 0.05 0.05 0.07 
3-month Treasury bill1.63 0.04 0.04 0.06 
2-year Treasury note2.96 0.73 0.25 0.12 
5-year Treasury note3.04 1.26 0.89 0.36 

 
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

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” and “MPF” 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, assets Assets associated with this segment were $19.2$11.9 billion (18% (14% of total assets), an increase of $1.3 at June 30, 2022, and $14.1 billion from $17.9 billion at December 31, 2016 (19%2021 (26% of total assets).

Adjusted net interest income for this segment was $82$68 million in the thirdsecond quarter of 2017, a decrease2022, an increase of $2$8 million, or 2%13%, from $84$60 million in the thirdsecond quarter of 2016. In2021. This quarterly increase was primarily a result of an increase in net prepayment fee income on AFS MBS and an improvement in retrospective adjustment of the first nine monthseffective yields on mortgage loans and related delivery commitments, partially offset by lower earnings from lower balances of 2017, adjustedmortgage-related products and current expected credit losses. Adjusted net interest income for this segment was $246$136 million, a decrease of $8 million, or 3%, from $254 million in the first ninesix months of 2016. The2022, a decrease of $2 million, or 1%, from $138 million in adjusted net interest incomethe first six months of 2021. This decrease was primarily due to a decreaseresult of lower earnings from lower balances of mortgage-related products and current expected credit losses, as well as higher premium amortization expense, partially offset by an increase in accretion of yield adjustmentsnet prepayment fee income on certain other-than-temporarily impaired PLRMBS, resultingAFS MBS; higher spreads from lower funding costs; and an improvement in expected cash flows. Earnings from lower spreads were largely offset by higher average balancesretrospective adjustment of the effective yields on MBS investmentsmortgage loans and mortgage loans.related delivery commitments.

Adjusted net interest income for this segment represented 57% and 67%55% of total adjusted net interest income for the third quartersecond quarters of 2017each 2022 and 2016,2021, and 60%61% and 69%58% of total adjusted net interest income for the first ninesix months of 20172022 and 2016,2021, respectively.

MBS Investments – The Bank’s MBS portfolio was $17.4$11.0 billion at SeptemberJune 30, 2017,2022, compared with $17.0$13.0 billion at December 31, 2016.2021. During the first ninesix months of 2017,2022, the Bank’s MBS portfolio increased primarily becausedecreased as a result of $3.4 billion in new MBS investments, partially offset by $3.1$1.1 billion in principal repayments.repayments, a $675 million decrease in basis adjustments, and $227 million of fair value losses. Average MBS investments were $16.8$11.3 billion in the thirdsecond quarter of 2017, an increase2022, a decrease of $1.1$2.7 billion from $15.7$14.0 billion in the thirdsecond quarter of 2016.2021. Average MBS investments were $16.4$11.8 billion in the first ninesix months of 2017, an increase2022, a decrease of $1.0$2.6 billion from $15.4$14.4 billion in the first ninesix months of 2016.2021. 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 StatementsCredit Risk – 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 securitiesclassified as trading, AFS, and held-to-maturity (HTM) at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, are shown in the following table:

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63


MBS: Interest Rate Payment Terms
(In millions)June 30, 2022December 31, 2021
Fair value of trading securities:
Adjustable rate$1 $2 
Total trading securities$1 $2 
Amortized cost of AFS securities:
Fixed rate$7,374 $8,423 
Adjustable rate919 1,083 
Total AFS securities$8,293 $9,506 
Amortized cost of HTM securities:
Fixed rate$310 $403 
Adjustable rate2,347 2,808 
Total HTM securities$2,657 $3,211 
MBS Investments: Interest Rate Payment Terms
    
(In millions)September 30, 2017
 December 31, 2016
Amortized cost of MBS:   
Passthrough securities:   
Fixed rate$50
 $84
Adjustable rate2,489
 1,414
Subtotal2,539
 1,498
Collateralized mortgage obligations:   
Fixed rate5,089
 6,427
Adjustable rate9,456
 8,989
Subtotal14,545
 15,416
Total$17,084
 $16,914

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 years26
 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 purchasepurchased 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,On December 17, 2020, the Bank mayannounced that it would no longer offer new commitments to directly purchase, or to 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.

From May 2002 through October 2006, the Bank purchased conventional conforming fixed rate mortgage loans from its participating financial institutionsmembers. On March 31, 2021, the Bank closed all remaining open commitments to purchase mortgage loans for its own portfolio 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.

As of September 30, 2017, 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.


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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 million in eligible loans under the MPF Original product during the first nine months 2017.

product.
Mortgage loan balances increaseddecreased to $1,774$863 million at SeptemberJune 30, 2017,2022, from $826$980 million at December 31, 2016, an increase2021, a decrease of $948$117 million. Average mortgage loans were $1,592$883 million in the thirdsecond quarter of 2017, an increase2022, a decrease of $948$550 million from $644 million$1.4 billion in the thirdsecond quarter of 2016.2021. Average mortgage loans were $1,213$913 million in the first ninesix months of 2017, an increase2022, a decrease of $576$675 million from $637 million$1.6 billion in the first ninesix months of 2016.2021.

At SeptemberJune 30, 2017,2022, and December 31, 2016,2021, 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 20162021 Form 10-K. Mortgage loan balances at SeptemberJune 30, 2017,2022, and December 31, 2016,2021, were as follows:

Mortgage Loan Balances by MPF Product TypeMortgage Loan Balances by MPF Product TypeMortgage Loan Balances by MPF Product Type
   
(In millions)September 30, 2017
 December 31, 2016
(In millions)June 30, 2022December 31, 2021
MPF Plus$286
 $354
MPF Plus$93 $106 
MPF Original1,429
 460
MPF Original731 848 
Subtotal1,715
 814
Subtotal824 954 
Unamortized premiums64
 18
Unamortized premiums42 28 
Unamortized discounts(5) (6)Unamortized discounts(2)(1)
Mortgage loans held for portfolio1,774
 826
Mortgage loans held for portfolio864 981 
Less: Allowance for credit losses—
 —
Less: Allowance for credit losses(1)(1)
Mortgage loans held for portfolio, net$1,774
 $826
Mortgage loans held for portfolio, net$863 $980 
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 1. Financial Statements – Note 5 – Mortgage Loans Held for Portfolio” in this report as well as “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 Discussion8. Financial Statements and AnalysisSupplementary Data – Note 1 – Summary of Financial Condition and Results of Operations – CriticalSignificant Accounting Policies and Estimates – Allowance for Credit Losses – Mortgage Loans Acquired Under the MPF Program”Policies” in the Bank’s 20162021 Form 10-K.

64
Borrowings – Total consolidated obligations funding the mortgage-related business increased $1.3decreased $2.2 billion to $19.2$11.9 billion at SeptemberJune 30, 2017,2022, from $17.9$14.1 billion at December 31, 2016, paralleling the increase in MBS investments.2021. 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 1713 – Commitments and Contingencies.”

The notional amount of interest rate exchange agreementsderivative instruments associated with the mortgage-related business totaled $5.0$15.5 billion at SeptemberJune 30, 2017,2022, of which $3.5$7.8 billion were associated with MBS and $7.7 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio and $1.5 billion were associated with MBS.portfolio. The notional amount of interest rate exchange agreementsderivative instruments associated with the mortgage-related business totaled $5.6$15.6 billion at December 31, 2016,2021, of which $3.4$8.0 billion were associated with MBS and $7.6 billion were hedging or were associated with consolidated obligations funding the mortgage portfolioportfolio.
For information on the Bank’s management of interest rate risk and $2.2 billion were associated with MBS.market risk related to the mortgage-related business segment, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Segment Market Risk – Mortgage-Related Business.”




80


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 ratemarket 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 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, and December 31, 2016.


81


Interest Rate Exchange Agreements
         
(In millions)     Notional Amount
Hedging Instrument Hedging Strategy Accounting Designation September 30,
2017
 December 31,
2016
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
Basis swap  Adjustable rate advance converted to another adjustable rate index to reduce interest rate sensitivity and repricing gaps  
Economic Hedge(1)
 2
 2
Received fixed, pay adjustable interest rate swap LIBOR adjustable rate advance converted to a fixed rate 
Economic Hedge(1)
 1,972
 1,432
Pay fixed, receive adjustable interest rate swap Fixed rate advance converted to a LIBOR adjustable rate 
Economic Hedge(1)
 6,450
 1,681
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
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
Subtotal Economic Hedges(1)
     14,084
 6,822
Total     29,482
 18,702
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
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
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
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
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
Total     11,561
 16,011


82


Interest Rate Exchange Agreements (continued)
         
(In millions)     Notional Amount
Hedging Instrument Hedging Strategy Accounting Designation September 30,
2017
 December 31,
2016
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
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
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
Subtotal Economic Hedges(1)
     3,782
 1,635
Total     5,414
 2,125
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
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
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
Total     9,965
 25,229
Hedged Item: Trading Securities        
Basis swap Basis swap hedging adjustable rate Federal Farm Credit Bank (FFCB) bonds 
Economic Hedge(1)
 750
 750
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
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
Total     64
 89
Stand-Alone Derivatives        
Mortgage delivery commitments N/A N/A 10
 13
Total     10
 13
Total Notional Amount     $58,726
 $65,069

(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 ofprimary strategies that the Bank’sBank employs for using interest rate exchange agreements unrealized gains and losses from the related hedged items,associated market risks, see “Item 7. Management’s Discussion and estimated fair value gainsAnalysis of Financial Condition and losses from financial instruments carried at fair value by typeResults of accounting treatment and product as of September 30, 2017, and December 31, 2016.Operations – Risk Management – Interest Rate Exchange Agreements” in the Bank’s 2021 Form 10-K.


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Interest Rate Exchange Agreements
Notional Amounts and Estimated Fair Values

         
September 30, 2017         
(In millions)
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) $—
 $—
Non-callable bonds5,352
 (9) 9
 —
 —
Callable bonds1,632
 (3) 3
 —
 —
Subtotal22,382
 26
 (26) —
 —
Not qualifying for hedge accounting:        
Advances14,084
 6
 —
 6
 12
Non-callable bonds6,209
 1
 —
 (1) —
Callable bonds3,782
 (13) —
 6
 (7)
Discount notes9,965
 18
 —
 —
 18
FFCB bonds750
 (1) —
 —
 (1)
MBS1,480
 1
 —
 —
 1
Mortgage delivery commitments10
 —
 —
 —
 —
Offsetting derivatives64
 —
 —
 —
 —
Subtotal36,344
 12
 —
 11
 23
Total excluding accrued interest58,726
 38
 (26) 11
 23
Accrued interest—
 11
 (9) 8
 10
Total$58,726
 $49
 $(35) $19
 $33

December 31, 2016         
(In millions)
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
Non-callable bonds8,371
 7
 (8) —
 (1)
Callable bonds490
 (1) 2
 —
 1
Subtotal20,741
 29
 (28) —
 1
Not qualifying for hedge accounting:        
Advances6,822
 —
 —
 2
 2
Non-callable bonds7,640
 —
 —
 (1) (1)
Callable bonds1,635
 (16) —
 10
 (6)
Discount notes25,229
 29
 —
 —
 29
FFCB bonds750
 (1) —
 —
 (1)
MBS2,150
 6
 —
 —
 6
Mortgage delivery commitments13
 —
 —
 —
 —
Offsetting derivatives89
 —
 —
 —
 —
Subtotal44,328
 18
 —
 11
 29
Total excluding accrued interest65,069
 47
 (28) 11
 30
Accrued interest—
 12
 (10) 6
 8
Total$65,069
 $59
 $(38) $17
 $38

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.”

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Concentration Risk. Derivative Counterparties. 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 SeptemberJune 30, 2017,2022, and December 31, 2016.

2021.
65
Concentration of Derivative CounterpartiesConcentration of Derivative CounterpartiesConcentration of Derivative Counterparties
        
(Dollars in millions)September 30, 2017 December 31, 2016(Dollars in millions)June 30, 2022December 31, 2021
Derivative Counterparty
Credit  
Rating(1)  
 
Notional
Amount

 
Percentage of
Total
Notional Amount

 
Credit  
Rating(1)  
 
Notional
Amount

 
Percentage of
Total
Notional Amount

Derivative Counterparty
Credit  
Rating(1)  
Notional
Amount		Percentage of
Total
Notional Amount
Credit  
Rating(1)  
Notional
Amount		Percentage of
Total
Notional Amount
Uncleared        Uncleared
OthersAt least BBB $12,577
 21% At least BBB $10,032
 15%OthersAt least BBB$24,338 22 %At least BBB$18,381 29 %
Subtotal uncleared 12,577
 21
 10,032
 15
Subtotal uncleared24,338 22 18,381 29 
Cleared        Cleared
LCH Ltd(2)
        
LCH Ltd(2)
Credit Suisse Securities (USA) LLCA 23,797
 41
 A 30,548
 47
Morgan Stanley & Co. LLCA 22,342
 38
 A 20,994
 33
Morgan Stanley & Co. LLCA26,878 24 A33,268 52 
Deutsche Bank Securities Inc.
 —
 —
 BBB 3,482
 5
Goldman Sachs & Co. LLCGoldman Sachs & Co. LLCA59,493 54 A11,967 19 
Subtotal cleared 46,139
 79
 55,024
 85
Subtotal cleared86,371 78 45,235 71 
Total(3)
 $58,716
 100% $65,056
 100%
TotalTotal$110,709 100 %$63,616 100 %

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

(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 and was rated AA- with a Stable CreditWatch by S&P at June 30, 2022, and December 31, 2021. For purposes of clearing swaps with LCH Ltd, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC are the Bank’s clearing agents.

Liquidity and Capital Resources

The Bank’s financial strategies are designed to enable the Bank to 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 strivesseeks 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 liquidavailable 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 liquidityrefinancing 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 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 short-term, 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.

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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 has established base case liquidity guidelinesthatrequire 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 assumeassuming 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 existingTreasury investments as determined bya source of funds. The Finance Agency’s guidance provides that base case liquidity should generally be maintained for 10 to 30 days. The Bank actively monitors and manages refinancing risk. Finance Agency guidance specifies tolerance levels related to the size of each FHLBank’s funding gaps to measure refinancing risk as the difference between assets and liabilities that are scheduled to mature during a specified period, expressed as a percentage of total assets. The guidance limits three-month and one-year funding gaps generally between the range of –10% to –20% and –25% to –35%, respectively. Funding gaps are measured at monthend, using the average ratio for the three most recent monthends. The Bank is also required to perform an annual liquidity stress test and report the results to the Finance Agency. The two scenarios differ only in the treatment
66

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 monitorsAs of June 30, 2022, and manages structural liquidity risks, whichDecember 31, 2021, the Bank defines as maturity mismatches greater than 90 days for sources and uses of funds, of the advances 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.

The following table shows the Bank’s principal financial obligations due, estimatedheld total sources of funds availablein an amount that would have allowed the Bank to meet thoseits liquidity needs without issuing new consolidated obligations andfor over 10 days, in accordance with the net difference between funds available and funds needed forFinance Agency guidance. In addition, the 5-business-day period following SeptemberBank’s funding gap positions as of June 30, 2017,2022, and December 31, 2016.

Principal Financial Obligations Due and Funds Available for Selected Period
    
 As of September 30, 2017 As of December 31, 2016
(In millions)5 Business Days 5 Business Days
Obligations due:   
Demand deposits$147
 $184
Loans from other FHLBanks—
 1,345
Discount note and bond maturities and expected exercises of bond call options3,615
 2,412
Subtotal obligations due3,762
 3,941
Sources of available funds:   
Maturing investments24,497
 19,175
Available cash3
 1
Proceeds from scheduled settlements of discount notes and bonds804
 1,346
Maturing advances and scheduled prepayments4,166
 7,121
Subtotal sources of available funds29,470
 27,643
Net funds available$25,708
 $23,702

2021, were within the tolerance levels provided by the Finance Agency guidance. The Bank had committed to the issuance of $1.5 billion in consolidated obligations at June 30, 2022. The Bank had no commitments to issue consolidated obligations at December 31, 2021.
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 20162021 Form
10-K.

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 Statements of Condition or may be recorded on the Bank’s Statements 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 June 30, 2022, the Bank had no advance commitments and $16.7 billion in standby letters of credit outstanding. At December 31, 2021, the Bank had no advance commitments and $16.7 billion in standby letters of credit outstanding.
For additional information, see “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”


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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, 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.  
Regulatory Capital Requirements
        
 September 30, 2017 December 31, 2016
(Dollars in millions)Required
 Actual
 Required
 Actual
Risk-based capital$2,049
 $6,383
 $2,241
 $5,883
Total regulatory capital4,380
 6,383
 3,678
 5,883
Total regulatory capital ratio4.00% 5.83% 4.00% 6.40%
Leverage capital$5,475
 $9,575
 $4,597
 $8,825
Leverage ratio5.00% 8.74% 5.00% 9.60%

The Bank repurchased $331 million in excess capital stock during the first nine months of 2017. 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 plans to repurchase the surplus capital stock of all members and the excess
capital stock of all nonmember shareholders on November 14, 2017.

The Bank’s capital requirements are more fully discussed in “Item 1, Financial Statements – Note 9 – Capital” in this report and “Item 8. Financial Statements and Supplementary Data – Note 1511 – Capital” in the Bank’s 20162021 Form 10-K.

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 Boardboard of Directorsdirectors has adopted a Risk Governance Policy that outlines the key roles and responsibilities of the Boardboard of Directorsdirectors 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, and corporate governance, and standards of conduct.governance. 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 20162021 Form 10-K.


87


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
67
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

88


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
For more information 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. 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 applicablemanagement of credit collateral,risk on its advances, see “Item 7. Management’s Discussion and capital stock requirements, including requirements regarding creditworthinessAnalysis of Financial Condition and collateral borrowing capacity.Results of Operations – Risk Management – Credit Risk – Advances” in the Bank’s 2021 Form 10-K.

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 SeptemberJune 30, 2017,2022, and December 31, 2016. During2021.
Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Credit Quality Rating
(Dollars in millions)
June 30, 2022

All Members and
Nonmembers		Members and Nonmembers with Credit Outstanding
   
Collateral Borrowing Capacity(2)
Member or Nonmember
Credit Quality Rating		NumberNumber
Credit
Outstanding(1)
TotalUsed
1-3259 132 $46,543 $248,317 19 %
4-662 34 13,758 29,448 47 
7-105 2 6 44 14 
Subtotal326 168 60,307 277,809 22 
Community development financial institutions (CDFIs)7 6 108 134 81 
Housing associates2 1 9 110 8 
Total335 175 $60,424 $278,053 22 %
December 31, 2021
 All Members and
Nonmembers		Members and Nonmembers with Credit Outstanding
   
Collateral Borrowing Capacity(2)
Member or Nonmember
Credit Quality Rating		NumberNumber
Credit
Outstanding(1)
TotalUsed
1-3260 127 $26,398 $213,172 12 %
4-664 32 7,158 33,733 21 
7-103 2 20 37 54 
Subtotal327 161 33,576 246,942 14 
CDFIs7 7 112 135 83 
Housing associates2 — — — — 
Total336 168 $33,688 $247,077 14 %
(1)Includes advances, letters of credit, the nine months ended September 30, 2017,market value of swaps, estimated prepayment fees for certain borrowers, and the Bank’s internal credit ratings stayedenhancement obligation on MPF loans.
(2)Collateral borrowing capacity does not represent any commitment to lend on the same or improved forpart of the majority of members and nonmember borrowers.
Bank.
68
Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Credit Quality Rating
          
(Dollars in millions)         
September 30, 2017         
  
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
1-3267
 155
 $67,655
 $216,958
 31%
4-658
 27
 9,322
 22,161
 42
7-106
 2
 17
 49
 35
Subtotal331
 184
 76,994
 239,168
 32
CDFIs6
 4
 78
 103
 76
Housing associates2
 1
 93
 97
 96
Total339
 189
 $77,165
 $239,368
 32%

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Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Unused Borrowing Capacity
(Dollars in millions)
June 30, 2022
Unused Borrowing CapacityNumber of Members and Nonmembers with
Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% – 10%12 $1,804 $1,875 
11% – 25%7 770 936 
26% – 50%17 21,968 39,620 
More than 50%139 35,882 235,622 
Total175 $60,424 $278,053 
December 31, 2021
Unused Borrowing CapacityNumber of Members and Nonmembers with
Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% – 10%5 $467 $512 
11% – 25%8 895 1,079 
26% – 50%15 1,837 3,032 
More than 50%140 30,489 242,454 
Total168 $33,688 $247,077 
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
1-3266
 155
 $55,290
 $181,405
 30%
4-662
 28
 9,662
 22,606
 43
7-103
 2
 17
 46
 37
Subtotal331
 185
 64,969
 204,057
 32
CDFIs6
 3
 60
 82
 73
Housing associates2
 1
 10
 16
 63
Total339
 189
 $65,039
 $204,155
 32%
(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.
(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
Total189
 $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
Total189
 $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.

(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 volatilitymarket valuations and market liquidityliquidation 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, the borrowing capacities assigned to U.S. Treasury and agency securities ranged from 75% to 98% of their market

90


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% 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 SeptemberJune 30, 2017,2022, and December 31, 2016.2021.
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(In millions)June 30, 2022December 31, 2021
Securities Type with Current Credit RatingsCurrent Par
 
Borrowing
Capacity

 Current Par
 
Borrowing
Capacity

Securities Type with Current Credit RatingsCurrent ParBorrowing
Capacity		Current ParBorrowing
Capacity
U.S. Treasury (bills, notes, bonds)$366
 $356
 $2,377
 $2,315
U.S. Treasury (bills, notes, bonds)$2,361 $2,177 $659 $631 
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools)3,241
 3,146
 3,147
 3,063
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools)4,478 4,041 4,192 3,978 
Agency pools and collateralized mortgage obligations23,030
 22,187
 8,986
 8,559
Agency pools and collateralized mortgage obligations27,760 24,003 17,571 16,553 
PLRMBS – publicly registered investment-grade-rated senior tranches3
 3
 1
 —
PLRMBS – private placement investment-grade-rated senior tranches72
 54
 83
 62
Private-label commercial MBS – publicly registered investment-grade-rated senior tranchesPrivate-label commercial MBS – publicly registered investment-grade-rated senior tranches84 58 4 3 
PLRMBS – private label investment-grade-rated senior tranchesPLRMBS – private label investment-grade-rated senior tranches359 199 311 194 
Municipal Bonds – investment-grade-rated57
 51
 61
 55
Municipal Bonds – investment-grade-rated10 8 — — 
Term deposits with the BankTerm deposits with the Bank2 2 18 18 
Total$26,769
 $25,797
 $14,655
 $14,054
Total$35,054 $30,488 $22,755 $21,377 
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
69
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 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 SeptemberJune 30, 2017,2022, of the loan collateral pledged to the Bank, 25%13% was pledged by 2721 institutions by specific identification, 51%57% was pledged by 124113 institutions under a blanket lien with detailed reporting, and 24%30% was pledged by 128132 institutions under a blanket lien with summary reporting. For each borrower that pledges loan collateral, the Bank conducts loan collateral field reviews once every six months or every one, two, or three years, depending on the risk profile of the borrower and the types of collateral pledged by the borrower.

As of SeptemberJune 30, 2017,2022, 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%85% for first lien residential mortgage loans, 88%81% for multifamily mortgage loans, 88%81% for commercial mortgage loans, and 77%70% 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 following table below presents the mortgage loan collateral pledged by all members and by nonmembers with credit outstanding at SeptemberJune 30, 2017,2022, and December 31, 2016.2021.
Composition of Loan Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
(In millions)June 30, 2022December 31, 2021
Loan TypeUnpaid Principal
Balance		Borrowing
Capacity		Unpaid Principal
Balance		Borrowing
Capacity
First lien residential mortgage loans$211,144 $158,261 $175,319 $140,994 
Second lien residential mortgage loans and home equity lines of credit13,253 6,583 13,659 6,653 
Multifamily mortgage loans50,025 32,420 41,239 28,517 
Commercial mortgage loans79,187 49,443 73,750 48,394 
Loan participations(1)
949 350 1,064 383 
Small business, small farm, and small agribusiness loans2,142 508 3,157 759 
Total$356,700 $247,565 $308,188 $225,700 
(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.
Composition of Loan Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
        
(In millions)September 30, 2017 December 31, 2016
Loan Type
Unpaid Principal
Balance

 
Borrowing
Capacity

 
Unpaid Principal
Balance

 
Borrowing
Capacity

First lien residential mortgage loans$154,370
 $129,112
 $124,257
 $107,775
Second lien residential mortgage loans and home equity lines of credit23,296
 12,678
 23,238
 13,302
Multifamily mortgage loans25,960
 19,926
 23,191
 19,082
Commercial mortgage loans66,736
 47,326
 62,586
 44,802
Loan participations(1)
5,178
 3,659
 5,450
 4,375
Small business, small farm, and small agribusiness loans3,548
 870
 3,016
 765
Other1
 —
 —
 —
Total$279,089
 $213,571
 $241,738
 $190,101

(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 SeptemberJune 30, 2017,2022, and December 31, 2016,2021, the unpaid principal balance of these loans totaled $10$4.9 billion and $9$5.4 billion, respectively. The Bank reviews 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.

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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 monitorsFor more information on the Bank’s management of credit risk on its investments, for substantive changessee “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments” 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.

2021 Form 10-K.
The following tables presenttable presents the Bank’s investment credit exposure at the dates indicated,June 30, 2022, based on the lowest of the long-term credit ratings provided by Moody’s, S&P, or comparable Fitch Ratings (Fitch) ratings.

Investment Credit Exposure
(In millions)
June 30, 2022
Carrying Value
 
Credit Rating(1)
Investment TypeAAAAAABBBBelow Investment GradeUnratedTotal
U.S. obligations – Treasury securities$— $3,434 $— $— $— $— $3,434 
MBS:
Other U.S. obligations – single-family— 89 — — — — 89 
MBS – GSEs:
GSEs – single-family(2)
5 834 3 — 2 — 844 
GSEs – multifamily— 8,614 — — — — 8,614 
Total MBS – GSEs5 9,448 3 — 2 — 9,458 
PLRMBS— 27 45 51 851 526 1,500 
Total MBS5 9,564 48 51 853 526 11,047 
Total securities5 12,998 48 51 853 526 14,481 
Interest-bearing deposits— — 1,840 — — — 1,840 
Securities purchased under agreements to resell— 16,000 1,000 — — — 17,000 
Federal funds sold— 2,350 6,420 1,062 — — 9,832 
Total investments$5 $31,348 $9,308 $1,113 $853 $526 $43,153 

(1)Credit ratings of BB and lower are below investment grade.
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Investment Credit Exposure
              
(In millions)             
September 30, 2017             
  Carrying Value
 
Credit Rating(1)
    
Investment TypeAAA
 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
Total non-MBS—
 1,158
 702
 —
 —
 —
 1,860
MBS:             
Other U.S. obligations – single-family:             
Ginnie Mae—
 800
 —
 —
 —
 —
 800
GSEs – single-family:             
Freddie Mac—
 2,209
 —
 —
 —
 —
 2,209
Fannie Mae(2)
—
 3,916
 8
 —
 6
 —
 3,930
Subtotal—
 6,125
 8
 —
 6
 —
 6,139
GSEs – multifamily:             
Freddie Mac—
 3,379
 —
 —
 —
 —
 3,379
Fannie Mae—
 2,201
 —
 —
 —
 —
 2,201
Subtotal—

5,580

—

—

—

—

5,580
Total GSEs—
 11,705
 8
 —
 6
 —
 11,719
PLRMBS:             
Prime—
 —
 12
 216
 684
 32
 944
Alt-A, option ARM—
 —
 —
 —
 867
 —
 867
Alt-A, other3
 9
 13
 65
 2,685
 310
 3,085
Total PLRMBS3
 9
 25
 281
 4,236
 342
 4,896
Total MBS3
 12,514
 33
 281
 4,242
 342
 17,415
Total securities3
 13,672
 735
 281
 4,242
 342
 19,275
Interest-bearing deposits—
 50
 649
 —
 

 —
 699
Securities purchased under agreements to resell—
 13,975
 —
 —
 —
 —
 13,975
Federal funds sold(3)
—
 3,018
 8,308
 500
 —
 —
 11,826
Total investments$3
 $30,715
 $9,692
 $781
 $4,242
 $342
 $45,775



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(In millions)             
December 31, 2016             
  Carrying Value
 
Credit Rating(1)
   
Investment TypeAAA
 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
Total non-MBS—
 2,658
 975
 —
 —
 —
 3,633
MBS:             
Other U.S. obligations – single-family:             
Ginnie Mae—
 959
 —
 —
 —
 —
 959
GSEs – single-family:             
Freddie Mac—
 2,793
 —
 —
 —
 —
 2,793
Fannie Mae(2)
—
 5,020
 10
 —
 7
 —
 5,037
Subtotal—
 7,813
 10
 —
 7
 —
 7,830
GSEs – multifamily:             
Freddie Mac—
 1,556
 —
 —
 —
 —
 1,556
Fannie Mae—
 1,058
 —
 —
 —
 —
 1,058
Subtotal—
 2,614
 —
 —
 —
 —
 2,614
Total GSEs—
 10,427
 10
 —
 7
 —
 10,444
PLRMBS:             
Prime—
 1
 1
 295
 842
 2
 1,141
Alt-A, option ARM—
 —
 —
 —
 897
 —
 897
Alt-A, other5
 15
 17
 128
 3,440
 3
 3,608
Total PLRMBS5
 16
 18
 423
 5,179
 5
 5,646
Total MBS5
 11,402
 28
 423
 5,186
 5
 17,049
Total securities5
 14,060
 1,003
 423
 5,186
 5
 20,682
Interest-bearing deposits—
 —
 590
 —
 —
 —
 590
Securities purchased under agreements to resell—
 15,500
 —
 —
 —
 —
 15,500
Federal funds sold(3)
—
 1,576
 2,585
 53
 —
 —
 4,214
Total investments$5
 $31,136
 $4,178
 $476
 $5,186
 $5
 $40,986

(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 million and $130 million at September 30, 2017, and December 31, 2016, respectively, in Federal funds sold to a member counterparty determined by the Bank to have an internal credit rating equivalent to an AA rating.

the security's sponsor.
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, and 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

94


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.

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 SeptemberJune 30, 2017,2022, and December 31, 2016.2021.
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Unsecured Investment Credit Exposure by Investment TypeUnsecured Investment Credit Exposure by Investment TypeUnsecured Investment Credit Exposure by Investment Type
   
Carrying Value(1)
Carrying Value(1)
(In millions)September 30, 2017
 December 31, 2016
(In millions)June 30, 2022December 31, 2021
Interest-bearing deposits$699
 $590
Interest-bearing deposits$1,840 $1,125 
Certificates of deposit500
 1,350
Federal funds sold11,826
 4,214
Federal funds sold9,832 5,348 
Total$13,025
 $6,154
Total$11,672 $6,473 

(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, and December 31, 2016.

(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 June 30, 2022, and December 31, 2021.
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 SeptemberJune 30, 2017, 24% of the carrying value of unsecured investments held by the Bank were rated AA, and 83%2022, 67% 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       
  
Carrying Value(1)
 
Credit Rating(2)
  
Domicile of CounterpartyAA
 A
 BBB
  Total
Domestic(3)
$185
 $2,075
 $—
  $2,260
U.S. subsidiaries of foreign commercial banks—
 —
 —
  —
Total domestic and U.S. subsidiaries of foreign commercial banks185
 2,075
 —
 2,260
U.S. branches and agency offices of foreign commercial banks:        
Australia1,033
 —
 —
 1,033
Canada500
 1,626
 —
  2,126
France—
 1,138
 —
 1,138
Germany—
 —
 500
 500
Japan—
 1,876
 —
 1,876
Netherlands—
 688
 —
 688
Norway—
 688
 —
 688
Sweden1,350
 688
 —
 2,038
United Kingdom—
 678
 —
 678
Total U.S. branches and agency offices of foreign commercial banks2,883
 7,382
 500
 10,765
Total unsecured credit exposure$3,068
 $9,457
 $500
  $13,025

(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.
(2)
Does not reflect changes in ratings, outlook, or watch status occurring after September 30, 2017. These ratings represent the lowest rating available for each unsecured investment owned by the Bank, based on the ratings provided by Moody’s, S&P, or comparable Fitch ratings. The Bank’s internal rating may differ from this rating.
(3)Includes $135 million at September 30, 2017, 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% of the carrying value of unsecured investments held by the Bank had overnight maturities.

Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty
(In millions)
June 30, 2022
Carrying Value(1)
 
Credit Rating(2)
Domicile of CounterpartyAAABBBTotal
Domestic$— $2,760 $1,062 $3,822 
U.S. branches and agency offices of foreign commercial banks:
Australia— 1,420 — 1,420 
Canada1,600 1,420 — 3,020 
Finland750 — — 750 
France— 100 — 100 
Germany— 400 — 400 
Netherlands— 460 — 460 
Switzerland— 1,000 — 1,000 
United Kingdom— 700 — 700 
Total U.S. branches and agency offices of foreign commercial banks2,350 5,500 — 7,850 
Total unsecured credit exposure$2,350 $8,260 $1,062 $11,672 
96(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 June 30, 2022.


Contractual Maturity of Unsecured Investment Credit Exposure by Domicile of Counterparty
        
(In millions)       
September 30, 2017       
  
Carrying Value(1)
Domicile of CounterpartyOvernight
 Due 2 Days Through 30 Days
 Due 31 Days Through 90 Days
 Total
Domestic$2,260
 $—
 $—
 $2,260
U.S. subsidiaries of foreign commercial banks—
 —
 —
 —
Total domestic and U.S. subsidiaries of foreign commercial banks2,260
 —
 —
 2,260
U.S. branches and agency offices of foreign commercial banks:       
Australia483
 300
 250
 1,033
Canada1,376
 —
 750
 2,126
France1,138
 —
 —
 1,138
Germany—
 500
 —
 500
Japan1,176
 —
 700
 1,876
Netherlands688
 —
 —
 688
Norway688
 —
 —
 688
Sweden2,038
 —
 —
 2,038
United Kingdom678
 —
 —
 678
Total U.S. branches and agency offices of foreign commercial banks8,265
 800
 1,700
 10,765
Total unsecured credit exposure$10,525
 $800
 $1,700
 $13,025

(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.

The Bank’s investments may also include housing finance agency bonds issued by housing finance agencies located(2)Does not reflect changes in Arizona, California, and Nevada,ratings, outlook, or watch status occurring after June 30, 2022. These ratings represent 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 heldlowest rating available for each unsecured investment owned by the Bank, are issuedbased on the ratings provided by the California Housing Finance Agency (CalHFA) and insured by either National Public Financial Guarantee (formerly MBIA Insurance Corporation), or Assured Guaranty Municipal Corporation (formerly Financial Security Assurance Incorporated). At September 30, 2017, all of the bonds were rated at least A by Fitch, Moody’s, or S&P.

For the&P. 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, all of the gross unrealized losses on the CalHFA bonds are temporary because the underlying collateral and credit enhancements were sufficient to protect the Bankinternal rating may differ 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.

this rating.
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, including unpaid principal balance, unamortized premiums and discounts, and net charge-offs, to three times the Bank’s regulatory capital at the time of purchase. At SeptemberJune 30, 2017,2022, the

97


Bank’s MBS portfolio was 268%168% 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.

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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, PLRMBS representing 21% 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 SeptemberJune 30, 2017,2022, the Bank’s investment in MBS had gross unrealized losses totaling $61$41 million,, most $23 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 SeptemberJune 30, 2017,2022, 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, using two third-party models. The first model projects prepayments, default rates, and loss severities on the underlying collateral based on borrower characteristics and the particular attributes of 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 housing price changes for the relevant states and core-based statistical areas (CBSAs), which are 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 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. 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 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

98


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:
OTTI Analysis Under Base Case and Adverse Case Scenarios
            
 Housing Price Scenario
 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)

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:           
Alt-A, other9
 $173
 $(6) 10
 $187
 $(8)
Total9
 $173
 $(6) 10
 $187
 $(8)

(1)
Amounts are for the three months ended September 30, 2017.

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, by collateral type at origination and by year of securitization.


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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 SecuritizationAAA
 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 earlier3
 7
 13
 64
 304
 2
 393
Total Alt-A, other3
 9
 13
 64
 2,953
 366
 3,408
Total par value$3
 $9
 $25
 $279
 $4,679
 $403
 $5,398

(1)
The credit ratings used by the Bank are based on the lowest of Moody’s, S&P, or comparable Fitch 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, by collateral type at origination and by year of securitization.

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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 SecuritizationAA
 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 earlier3
 138
 —
 141
Total Alt-A, other3
 2,774
 364
 3,141
Total par value$3
 $4,173
 $399
 $4,575

(1)
The credit ratings used by the Bank are based on the lowest of Moody’s, S&P, or comparable Fitch 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. 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%
2007241
 (2) 251
 (1) 1
 —
 13.03
 22.90
 2.32
200624
 —
 27
 —
 —
 —
 13.99
 12.37
 4.27
200549
 —
 50
 —
 —
 —
 11.78
 11.94
 15.53
2004 and earlier497
 (4) 500
 —
 —
 —
 6.43
 4.50
 13.63
Total Prime914
 (6) 943
 (1) 1
 —
 9.63
 13.61
 9.72
Alt-A, option ARM                 
2007599
 (8) 652
 —
 —
 —
 18.77
 44.20
 13.58
2006100
 —
 120
 —
 —
 —
 16.28
 44.91
 3.95
200554
 (1) 95
 —
 —
 —
 15.26
 22.81
 5.20
Total Alt-A, option ARM753
 (9) 867
 —
 —
 —
 17.93
 41.23
 11.09
Alt-A, other                 
200877
 —
 77
 —
 —
 —
 5.58
 31.80
 22.11
2007835
 (15) 874
 (6) (5) (11) 17.58
 27.00
 9.29
2006283
 —
 348
 —
 —
 —
 17.73
 18.45
 0.57
20051,322
 (18) 1,401
 (1) (3) (4) 11.54
 14.44
 4.19
2004 and earlier388
 (3) 393
 —
 —
 —
 9.58
 8.26
 19.01
Total Alt-A, other2,905
 (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%

(1)Amounts are for the nine months ended 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, 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.

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.


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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 SecuritizationWeighted Average % Weighted Average % Weighted Average % Weighted Average %
Prime       
200815.0 9.6 31.7 15.2
200711.0 2.9 20.9 8.7
200612.4 3.0 23.4 6.8
200518.2 4.5 19.9 12.6
2004 and earlier18.5 3.2 21.6 12.7
Total Prime16.9 4.9 24.3 13.0
Alt-A, option ARM       
20078.0 34.5 43.5 13.7
20067.3 36.3 38.6 3.9
20058.0 25.0 35.6 5.2
Total Alt-A, option ARM7.9 33.4 41.7 11.2
Alt-A, other       
200712.0 23.2 39.4 4.8
200610.6 25.5 39.0 7.5
200513.9 19.3 35.3 4.4
2004 and earlier16.5 10.7 30.9 19.2
Total Alt-A, other13.1 20.4 36.5 6.9
Total12.7 20.7 35.8 8.5

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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Fair Value of PLRMBS as a Percentage of Unpaid Principal Balance by Year of Securitization
          
Collateral Type at Origination and Year of SecuritizationSeptember 30,
2017
 June 30,
2017
 March 31,
2017
 December 31,
2016
 September 30,
2016
Prime         
200896.60% 92.68% 92.93% 92.87% 92.11%
200786.17
 83.80
 84.87
 83.93
 82.68
200693.98
 93.21
 92.25
 92.38
 91.84
2005100.02
 99.55
 99.44
 98.97
 98.37
2004 and earlier100.21
 99.70
 99.09
 98.68
 97.75
Weighted average of all Prime95.44
 94.14
 94.15
 93.71
 92.80
Alt-A, option ARM         
200790.00
 87.34
 83.66
 83.05
 81.85
200689.62
 86.82
 83.04
 80.76
 80.08
200565.67
 62.10
 57.79
 57.58
 56.73
Weighted average of all Alt-A, option ARM86.46
 83.66
 79.82
 79.05
 77.92
Alt-A, other         
200896.70
 94.73
 93.62
 93.31
 91.83
200788.80
 87.38
 86.49
 85.88
 86.23
200687.02
 85.55
 83.63
 82.57
 82.78
200590.35
 88.96
 87.31
 87.11
 86.71
2004 and earlier100.21
 99.54
 99.10
 98.51
 97.90
Weighted average of all Alt-A, other90.80
 89.60
 88.33
 87.86
 87.69
Weighted average of all PLRMBS90.84% 89.36% 87.89% 87.40% 86.96%

The Bank determined that, as of September 30, 2017, 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, 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 credit losses on PLRMBS in future periods, as well as further impairment of PLRMBS that were identified as other-than-temporarily impaired as of September 30, 2017.periods. Additional future credit-related OTTIcredit 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 OTTIan allowance for credit losses on its PLRMBS in the future.

Derivative Counterparties. The Bank has alsoexposure to MBS with interest rates indexed to LIBOR. The following tables present the unpaid principal balance of adjustable rate MBS by interest rate index and the unpaid principal balance of LIBOR-indexed MBS for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by redemption term at June 30, 2022, and December 31, 2021. 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.
Adjustable Rate MBS by Interest Rate Index
(In millions)
Interest Rate IndexJune 30, 2022December 31, 2021
LIBOR(1)
$3,465 $4,110 
Constant maturity Treasury56 64 
Total adjustable rate investment securities(2)
$3,521 $4,174 
LIBOR-Indexed MBS by Redemption Term
(In millions)
Redemption TermJune 30, 2022December 31, 2021
Due through June 30, 2023$7 $12 
Due thereafter(2)
3,458 4,098 
Total LIBOR-Indexed investment securities$3,465 $4,110 
(1)Certain MBS with multiple indices where LIBOR is the majority index are included in this amount.
(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 adopted credit policies and exposure limits for uncleared derivatives counterparty credit exposure. Over-the-counter derivativesInterest rate exchange agreements may be either entered into directly withuncleared or cleared at 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).clearinghouse.

Uncleared Derivatives. 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 activeits derivative dealer counterparties that provide for delivery of collateral at specified levelsmargin to limit the Bank’s

104
73


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 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 toits counterparty in a derivative agreements.transaction. A counterparty generally must deliver collateralor return margin to the Bank if the total market value of the Bank’sunsecured exposure to that counterparty rises above a specific trigger point. Currently, all ofexceeds the Bank’s active uncleared derivative counterparties have a zero threshold.minimum transfer amount. 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 SeptemberJune 30, 2017.2022.

Cleared Derivatives. TheDerivatives – In a cleared derivatives transaction, the Bank is subject to nonperformance by the derivativesclearinghouse and its futures commission merchant or clearing organizations (clearinghouses) and clearing agents.agent. The requirement that the Bank post initial and variation margin through thea clearing agent to the clearinghouse exposes the Bank to institutional credit risk in the event thatif the clearing agent or the clearinghouse fails to meet its obligations. However, theThe use of cleared derivatives mitigates the Bank’sa clearinghouse, or central counterparty, lowers overall credit risk exposure because a central counterparty is substituted for individual counterpartiesit employs standard valuation and initial and variation margin processes and is specifically designed to withstand remote but plausible counterparty default credit events. Variation margin is posted dailyor collected for changes in the value of the portfolio, and initial margin is posted for changes in risk profile of the portfolio. Because of an increase in market values of cleared derivatives through a clearing agent.during the first six months of 2022 and the first six months of 2021, there was an increase in variation margin collected on cleared derivatives that resulted in an increase in net cash provided by operating activities reported on the Statements of Cash Flows. The Bank does not anticipate any credit losses on its cleared derivatives as of SeptemberJune 30, 2017.

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         
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

Asset positions with credit exposure:         
Uncleared derivatives         
A$1,987
 $2
 $2
 $—
 $4
BBB3,059
 4
 (4) —
 —
Cleared derivatives(2)
46,139
 47
 41
 —
 88
Liability positions with credit exposure:         
Uncleared derivatives         
A1,306
 —
 —
 —
 —
Total derivative positions with credit exposure to nonmember counterparties52,491
 53
 39
 —
 92
Member institutions(3)
10
 —
 —
 —
 —
Total52,501
 $53
 $39
 $—
 $92
Derivative positions without credit exposure6,225
        
Total notional$58,726
        

105


December 31, 2016         
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

Asset positions with credit exposure:         
Uncleared derivatives         
A$2,872
 $9
 $(6) $—
 $3
BBB826
 2
 (1) —
 1
Cleared derivatives(2)
55,024
 54
 8
 —
 62
Total derivative positions with credit exposure to nonmember counterparties58,722
 65
 1
 —
 66
Member institutions(3)
13
 —
 —
 —
 —
Total58,735
 $65
 $1
 $—
 $66
Derivative positions without credit exposure6,334
        
Total notional$65,069
        

(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. 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.
(3)Member institutions include mortgage delivery commitments with members.

2022.
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 following tables present the Bank’s credit exposure to its derivative dealer counterparties at the dates indicated.
Credit Exposure to Derivative Dealer Counterparties
(In millions)
June 30, 2022
Counterparty Credit Rating(1)
Notional AmountNet Fair Value of Derivatives Before CollateralCash Collateral Pledged
to/ (from) Counterparty		Noncash Collateral Pledged
to/ (from) Counterparty		Net Credit
Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
A$6,280 $42 $(40)$— $2 
Liability positions with credit exposure:
Uncleared derivatives
A9,183 (239)259 — 20 
BBB5,989 (251)270 — 19 
Cleared derivatives(2)
86,371 (90)29 332 271 
Total derivative positions with credit exposure to nonmember counterparties107,823 $(538)$518 $332 $312 
Derivative positions without credit exposure2,886 
Total notional$110,709 
74
December 31, 2021
Counterparty Credit Rating(1)
Notional AmountNet Fair Value of Derivatives Before CollateralCash Collateral Pledged
to/ (from) Counterparty		Non-cash Collateral Pledged
to/ (from) Counterparty		Net Credit
Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
A$1,500 $9 $(9)$— $— 
Liability positions with credit exposure:
Uncleared derivatives
A42 (1)1 — — 
Cleared derivatives(2)
45,235 (7)15 252 260 
Total derivative positions with credit exposure to nonmember counterparties46,777 $1 $7 $252 $260 
Derivative positions without credit exposure16,839 
Total notional$63,616 
(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 was rated AA- with a Stable CreditWatch by S&P at June 30, 2022, and December 31, 2021.
The Bank primarily executes overnight index swap derivatives based on SOFR to manage interest rate risk. The following table presents the notional amount of interest rate swaps by interest rate index broken out by the pay or receive leg at June 30, 2022, and December 31, 2021.
LIBOR-Indexed Interest Rate Swaps by Interest Rate Index
(In millions)June 30, 2022December 31, 2021
Interest Rate IndexPay LegReceive LegPay LegReceive Leg
Fixed$36,365 $73,794 $25,846 $37,220 
LIBOR87 899 337 1,533 
SOFR73,367 34,513 35,887 22,526 
Overnight Index Swap – Effective Federal Funds Rate340 953 996 1,787 
Total notional amount$110,159 $110,159 $63,066 $63,066 
The following tables present the notional amount of interest rate swaps with LIBOR exposure for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by termination date broken out by the pay or receive leg and further bifurcated by cleared and uncleared derivative transactions at June 30, 2022, and December 31, 2021. As of June 30, 2022, and December 31, 2021, interest rate caps and floors indexed to LIBOR totaling $550 million were due to terminate after June 30, 2023. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.
LIBOR-Indexed Interest Rate Swaps by Termination Date
(In millions)
June 30, 2022
Pay LegReceive Leg
Termination DateClearedUnclearedClearedUncleared
Terminates in 2022$— $35 $315 $37 
Terminates through June 30, 202352 — 305 20 
Terminates thereafter(1)
— — 222 — 
Total Notional Amount$52 $35 $842 $57 
75
December 31, 2021
Pay LegReceive Leg
Termination DateClearedUnclearedClearedUncleared
Terminates in 2022$210 $35 $517 $112 
Terminates through June 30, 202352 — 309 23 
Terminates thereafter(1)
40 — 562 10 
Total Notional Amount$302 $35 $1,388 $145 
(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 20162021 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 for investment securities; and estimating the prepayment speeds on MBS and mortgage loans for the accounting of amortization of premiums and accretion of discounts and credit losses previously recorded prior to the adoption of accounting guidance related to the measurement of credit losses on MBS and mortgage loans.

There have been no significant changes in the judgments and assumptions made during the first ninesix months of 20172022 in applying the Bank’s critical accounting policies. These policies and the judgments, estimates, and 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 20162021 Form 10-K and in “Item 1. Financial Statements–Statements – Note 1612 – 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 Capital Requirements. On July 3, 2017, the Finance Agency published a proposed rule to adopt, with amendments, the regulations of the Federal Housing Finance Board (predecessor to the Finance Agency) pertaining to the capital requirementsThere are no recent developments for the FHLBanks. The proposed rule would carry over mostsecond quarter of the existing regulations without2022 that are expected to have a material change but would substantively reviseeffect on 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 requirements 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 respect 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 used 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 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 remain in place, the Finance Agency also proposes to rescind certain minimum regulatory liquidity requirements for the FHLBanks and address these liquidity requirements in a separate rulemaking.

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, to materially affect its financial condition or results of operations.

FHLBank Membership for Non-Federally-Insured Credit Unions.On June 5, 2017, the Finance Agency issued a final rule effective July 5, 2017, governing FHLBank membership that would implement statutory amendments 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 a final rule, effective August 24, 2017, amending its Minority and Women Inclusion regulations to clarify the scope of the FHLBanks’ obligation to promote diversity and ensure inclusion. 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 the FHLBanks to develop standalone diversity and inclusion strategic plans or incorporate diversity and inclusion into their existing strategic planning processes and adopt strategies for promoting diversity and ensuring inclusion;
encourage the FHLBanks 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 the Finance Agency about their efforts to advance diversity and inclusion through financial transactions, identification of ways in which FHLBanks might be able to improve MWDOB business with the FHLBank 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 anticipatesor 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.

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 billion at September 30, 2017, and $989.3 billion at December 31, 2016. The par value of the Bank’s participation in consolidated obligations was $102.2 billion at September 30, 2017, and $83.7 billion at December 31, 2016. The Bank had committedotherwise material to the issuance of $1.1 billion and $1.5 billion in consolidated obligations at September 30, 2017, and December 31, 2016, respectively.Bank.

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, the Bank had $1 million in advance commitments and $15.5 billion in standby letters of credit outstanding. At December 31, 2016, the Bank had $6 million in advance commitments and $15.2 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


Market risk is defined as the risk to the Bank'sBank’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
76
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 PolicyAppetite Framework 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 PolicyAppetite Framework approved by the Bank’s Boardboard of Directorsdirectors 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.Risk Appetite Framework. Market risk is managed for each business segment on a daily basis, as discussed below in “Segment Market Risk.” Compliance with Bank policieslimits and guidelines is reviewed by the Bank’s Boardboard of Directorsdirectors 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 policyrisk limits for 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) tois no worse than –4.0% ofa 3.0% change in the estimated market value of capital. In addition, the policyrisk limits for 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 tois no worse than –6.0%4.0% 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 SeptemberJune 30, 2017.

2022.
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 following 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.

77
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 
Interest Rate Scenario(1)
June 30, 2022December 31, 2021
+200 basis-point change above current rates–3.8%–4.3%+200 basis-point change above current rates–2.6%–2.3%
+100 basis-point change above current rates–1.8 –2.0 +100 basis-point change above current rates–1.3–0.9
–100 basis-point change below current rates(2)
+2.4 +2.5 
–100 basis-point change below current rates(2)
+1.0+0.5
–200 basis-point change below current rates(2)
+6.3 +6.3 
–200 basis-point change below current rates(2)
+1.7+4.9

(1)Instantaneous change from actual rates at dates indicated.
(1)Instantaneous change from actual rates at dates indicated.
(2)
Interest rates for each maturity are limited to non-negative interest rates.

(2)Interest rates for each maturity are limited to non-negative rates.
The Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates as of SeptemberJune 30, 2017,2022, are comparable towith the estimates as of December 31, 2016. LIBOR2021, with the exception of the declining rate scenarios. The increase in interest rates in the second quarter of 2022 resulted in a larger absolute downward rate shocks for all term points relative to yearend. Compared to yearend, interest rates as of SeptemberJune 30, 2017, were 382022, have increased ranging from 98 basis points higher for the 1-year term, 3one-month Treasury bill, 175 basis points higher for the 5-year term,five-year Treasury note, and 5148 basis points lower for the 10-year term. Because interest rates in the declining rate scenarios are limited to non-negative interest rates and the current interest rate environment is so low, the interest rates in the declining rate scenarios cannot decrease to the same extent that the interest rates in the rising rate scenarios can increase.

Treasury note.
The Bank'sBank’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'sBank’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 LIBORFederal 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'sBank’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 Capital Plan)Bank’s capital plan), limit the acquisition of certain assets, and review the Bank'sBank’s risk policies. A decision by the Boardboard of Directorsdirectors 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'sBank’s estimated market value of total capital to par value of capital stock was 219%248% as of SeptemberJune 30, 2017.2022.

Adjusted Return on Capital – The adjusted return on capital is a non-GAAP 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 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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stock.
The Bank limitsBank’s Risk Appetite Framework incorporates a limit on the sensitivity of projected financial performance through a Board of Directors policy limit onto projected adverse changes in the adjusted return on capital. The Bank’s adjusted return on capital sensitivity policy limitslimit to 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 a –120 basis points change from the base casebase-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 expectedis projected to decrease by 14 basis points in the –200 basis points scenario, wellremain 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 policyrisk limit. The Bank’s duration gap was one month at September 30, 2017, and one month at December 31, 2016.

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Total Bank Duration Gap AnalysisTotal Bank Duration Gap AnalysisTotal Bank Duration Gap Analysis
       
September 30, 2017 December 31, 2016 June 30, 2022December 31, 2021
Amount
(In millions)

 
Duration Gap(1)
(In months)

 
Amount
(In millions)

 
Duration Gap(1)(2)
(In months) 

(Dollars in millions)(Dollars in millions)Amount
(In millions)
Duration Gap(1)
(In months)
Amount
(In millions)
Duration Gap(1)
(In months)
Assets$109,503
 5
 $91,941
 6
Assets$87,602 2.1 $54,121 3.4 
Liabilities103,154
 4
 86,404
 5
Liabilities80,858 1.2 47,897 3.0 
Net$6,349
 1
 $5,537
 1
Net$6,744 0.9 $6,224 0.4 

(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.

(1)Duration gap values include the impact of interest rate exchange agreements.
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 offsettingto offset 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 agencyTreasury securities, generally with terms of less than three years. These fixed rate investments may beare 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.

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 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

111


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 impacteffect of mortgage prepayments and the existence of interest rate caps on certain adjustable rate MBS.

Historically,The Bank manages the Bank purchased a mix of intermediate-term 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 that have been acquired are medium- or long-term fixed rate mortgage assets. This results in a mortgage portfolio that has a diversified set of interest rate risk attributes.

The estimatedand 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 mortgagesegment through its investment in low-risk assets and anticipatedselected funding and hedging activities under variousstrategies. The total carrying value of MBS and mortgage loans at June 30, 2022, was $11.9 billion, including $11.0 billion in MBS and $0.9 billion in mortgage loans. The total carrying value of MBS and mortgage loans at December 31, 2021, was $14.0 billion, including $13.0 billion in MBS and $1.0 billion in mortgage loans. Floating rate securities, and fixed rate multifamily securities that have been converted to floating rate through the use of interest rate scenarios. The related fundingswaps, were $10.4 billion, or 87%, of MBS and hedging transactions are executedmortgage loans at June 30, 2022, and $12.2 billion, or close to the time87%, of purchase of aMBS and mortgage asset.

At least monthly, the Bank reviews the estimated market risk profile of the entire portfolio of mortgageloans at December 31, 2021. Intermediate and long-term fixed rate 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 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 thewhose interest rate and mortgage prepaymentmarket risks associated withhave been partially offset through 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 riskuse of fixed rate mortgage assets generally may be callable debt, fixed rate non-callable debt, and non-callable pay-fixedcertain interest rate swaps. Derivatives may also be used to offset the interest rate cap risk embedded in adjustable rate MBS.swaps, were $1.5 billion, or 13%, of MBS and mortgage loans, at June 30, 2022, and $1.8 billion, or 13%, of MBS and mortgage loans at December 31, 2021.

As discussed above in “Total Bank Market Risk – Market Value of Capital Sensitivity”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 policieslimits 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 SeptemberJune 30, 2017,2022, and December 31, 2016.

2021.
79
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 
Interest Rate Scenario(1)
20222021
+200 basis-point change–1.9%–2.2%+200 basis-point change–0.8%–0.5%
+100 basis-point change–0.9 –1.0 +100 basis-point change–0.3–0.1
–100 basis-point change(2)
+1.5 +1.3 
–100 basis-point change(2)
+0.2–0.2
–200 basis-point change(2)
+4.0 +3.8 
–200 basis-point change(2)
+0.1+2.6

(1)Instantaneous change from actual rates at dates indicated.
(2)
Interest rates for each maturity are limited to non-negative interest rates.

(1)Instantaneous change from actual rates at dates indicated.
For(2)Interest rates for each maturity are limited to non-negative rates.
The explanations for the mortgage-related business, thechanges in Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates as of September 30, 2017, are comparableattributable to the estimates as ofmortgage-related business from December 31, 2016. LIBOR interest rates2021, to June 30, 2022, are the same as of September 30, 2017, were 38 basis points higherthe explanations for the 1-year term, 3 basis points higher forsensitivity of the 5-year term,market value of capital attributable to all of the Bank’s assets, liabilities, and 5 basis points lower forassociated interest rate exchange agreements.

For more information on quantitative and qualitative disclosures about the 10-year term. Because interest ratesBank’s market risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Market Risk” in the declining rate scenarios are limited to non-negative interest rates and the current interest rate environment is so low, the interest rates in the declining rate scenarios cannot decrease to the same extent that the interest rates in the rising rate scenarios can increase.Bank’s 2021 Form 10-K.


ITEM 4.CONTROLS AND PROCEDURES

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 seniorexecutive 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 seniorexecutive 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 SeptemberJune 30, 2017,2022, 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.

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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

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.

After consultation with legal counsel, the Bank is not aware of any 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.
ITEM 1A.    RISK FACTORS

For a discussion of other risk factors, see “Part I. Item 1A. Risk Factors” in the Bank’s 20162021 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 20162021 Form 10-K.


ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.    OTHER INFORMATION
On July 29, 2022, the board of directors (Board) of the Federal Home Loan Bank of San Francisco (Bank) approved proposed amendments to the Bank’s capital plan (Plan), which amendments are subject to review and approval by the Federal Housing Finance Agency (Finance Agency).
The proposed amendments include the following substantive changes:
•The formula for calculating the “Membership Stock Requirement” will use a percentage of a member’s total assets (as determined by the Bank), rather than a percentage of a member’s individual “Membership Asset Value,” as provided in the Bank’s current Plan. The proposed amendments provide that the Membership Stock Requirement will be 0.36% of a member’s total assets, with each member’s Membership Stock Requirement subject to a cap equal to $15 million (which remains unchanged), as provided in the current Plan, and may be adjusted by the Board to an amount within a range of 0.05% to 1.00% of total assets.
•Permits (but does not require) the Board to authorize the issuance of two subclasses of its Class B Stock: Class B-1 Stock and Class B-2 Stock. The Bank does not currently plan to authorize the conversion of Class B Stock into Class B-1 Stock and Class B-2 Stock but may do so at a future date. If the Board authorizes the conversion, the Class B-2 Stock would be eligible to meet the Activity-Based Stock Requirement. All other shares of capital stock held by a member, including shares held to meet the Membership Stock Requirement, would be classified as Class B-1 Stock. The proposed amendments provide that the dividend rate for Class B-2 Stock must always be equal to or greater than the rate for Class B-1 Stock.
In connection with the Finance Agency’s review, the proposed amendments are subject to change and there can be no assurance that any amendments will be adopted. If the amendments are approved by the Finance Agency as proposed, a revised plan will become effective at a future date to be determined by the Bank.
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Table of Contents

ITEM 6.    EXHIBITS

Exhibit No.Description

Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

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

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
101101.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 forfile because its XBRL tags are embedded within the Three and Nine Months Ended September 30, 2017 and 2016; (iii) Statements of Comprehensive Income forinline XBRL document.
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover 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 forInteractive 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.August 5, 2022.
 
Federal Home Loan Bank of San Francisco
/S/ J. GREGORY SEIBLYTERESA B. BAZEMORE
J. Gregory Seibly Teresa B. Bazemore
President and Chief Executive Officer
(Principal executive officer)
/S/ KENNETH C. MILLERJOSEPH E. AMATO
Kenneth C. Miller SeniorJoseph E. Amato
Executive Vice President and Chief Financial Officer

(Principal Financial Officer)financial officer)
/S/ KITTY PAYNE
Kitty Payne
Senior Vice President and Controller
(Principal accounting officer)


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