Federal Home Loan Bank Of San Francisco 10-Q 2022 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

  ____________________________________

FORM 10-Q

  ______________________________________________________

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

For the quarterly period ended September 30, 2022

OR

☐ 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 States		94-6000630
(State or other jurisdiction of incorporation or organization)		(I.R.S. employer identification number)
333 Bush Street, Suite 2700
San Francisco,	CA	94104
(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 class	Trading Symbol(s)	Name of each exchange on which registered
—	—	—

  ___________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.    ☒  Yes    ☐  No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    ☒  Yes    ☐  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	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      ☐

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

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

	Shares Outstanding as of October 31, 2022
Class B Stock, par value $100 per share	35,398,700

Federal Home Loan Bank of San Francisco

Form 10-Q

Index

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Statements of Condition (Unaudited)	1
	Statements of Income (Unaudited)	2
	Statements of Comprehensive Income (Unaudited)	3
	Statements of Capital Accounts (Unaudited)	4
	Statements of Cash Flows (Unaudited)	5
	Notes to Financial Statements (Unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	42
	Quarterly Overview	44
	Financial Highlights	46
	Results of Operations	47
	Financial Condition	59
	Liquidity and Capital Resources	68
	Risk Management	70
	Critical Accounting Policies and Estimates	79
	Recently Issued Accounting Guidance and Interpretations	79
	Recent Developments	80
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	80
Item 4.	Controls and Procedures	83
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	85
Item 1A.	Risk Factors	85
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 3.	Defaults Upon Senior Securities	85
Item 4.	Mine Safety Disclosures	85
Item 5.	Other Information	85
Item 6.	Exhibits	86
Signatures		87

PART I. FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

Federal Home Loan Bank of San Francisco

Statements of Condition

(Unaudited)

(In millions-except par value)	September 30, 2022		December 31, 2021
Assets:
Cash and due from banks	$	6	$	55
Interest-bearing deposits	2,405		1,125
Securities purchased under agreements to resell	12,000		15,500
Federal funds sold	12,646		5,348
Trading securities	1		252
Available-for-sale (AFS) securities, net of allowance for credit losses of $25 and $17, respectively (amortized cost of $12,178 and $10,009, respectively)(a)	12,177		10,332
Held-to-maturity (HTM) securities (fair values of $2,396 and $3,235, respectively)	2,432		3,211
Advances (includes $2,039 and $1,772 at fair value under the fair value option, respectively)	65,658		17,027
Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $1, respectively	834		980
Accrued interest receivable	77		45
Derivative assets, net	62		8
Other assets	209		238
Total Assets	$	108,507	$	54,121
Liabilities:
Deposits	$	814	$	769
Consolidated obligations:
Bonds (includes $2,210 and $627 at fair value under the fair value option, respectively)	35,446		22,716
Discount notes	62,046		23,987
Total consolidated obligations	97,492		46,703
Mandatorily redeemable capital stock	4		3
Borrowings from other Federal Home Loan Banks (FHLBanks)	2,320		—
Accrued interest payable	93		33
Affordable Housing Program (AHP) payable	109		115
Derivative liabilities, net	2		5
Other liabilities	409		269
Total Liabilities	101,243		47,897
Commitments and Contingencies (Note 13)
Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
33 shares and 21 shares, respectively	3,322		2,061
Unrestricted retained earnings	3,222		3,124
Restricted retained earnings	708		708
Total Retained Earnings	3,930		3,832
Accumulated other comprehensive income/(loss) (AOCI)	12		331
Total Capital	7,264		6,224
Total Liabilities and Capital	$	108,507	$	54,121

(a)At September 30, 2022, and December 31, 2021, $335 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.

1

Federal Home Loan Bank of San Francisco

Statements of Income

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2022		2021		2022		2021
Interest Income:
Advances	$	347	$	47	$	505	$	152
Prepayment fees on advances, net	(2)		—		(4)		15
Interest-bearing deposits	14		—		17		1
Securities purchased under agreements to resell	51		1		65		1
Federal funds sold	72		2		96		4
Trading securities	—		13		—		54
AFS securities	109		57		247		168
HTM securities	17		10		34		34
Mortgage loans held for portfolio	8		7		38		34
Total Interest Income	616		137		998		463
Interest Expense:
Consolidated obligations:
Bonds	143		13		205		49
Discount notes	310		3		399		10
Deposits	5		1		7		1
Borrowings from other FHLBanks	1		—		1		—
Total Interest Expense	459		17		612		60
Net Interest Income	157		120		386		403
Provision for/(reversal of) credit losses	9		—		9		(8)
Net Interest Income After Provision for/(Reversal of) Credit Losses	148		120		377		411
Other Income/(Loss):
Net gain/(loss) on trading securities	—		(13)		—		(50)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(20)		(9)		(53)		(40)
Net gain/(loss) on derivatives	(1)		15		(13)		25
Private-label residential mortgage-backed securities (PLRMBS) trust settlement	—		—		28		—
Standby letters of credit fees	4		4		11		12
Other, net	(1)		—		(4)		3
Total Other Income/(Loss)	(18)		(3)		(31)		(50)
Other Expense:
Compensation and benefits	24		22		70		70
Other operating expense	15		13		40		37
Federal Housing Finance Agency	2		2		5		6
Office of Finance	1		1		4		4
Other, net	(1)		—		(2)		(1)
Total Other Expense	41		38		117		116
Income/(Loss) Before Assessment	89		79		229		245
AHP Assessment	9		8		23		25
Net Income/(Loss)	$	80	$	71	$	206	$	220

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

2

Federal Home Loan Bank of San Francisco

Statements of Comprehensive Income/(Loss)

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(In millions)	2022		2021		2022		2021
Net Income/(Loss)	$	80	$	71	$	206	$	220
Other Comprehensive Income/(Loss):
Net unrealized gain/(loss) on AFS securities	(88)		(72)		(317)		92
Net change in pension and postretirement benefits	—		(3)		(2)		(3)
Total other comprehensive income/(loss)	(88)		(75)		(319)		89
Total Comprehensive Income/(Loss)	$	(8)	$	(4)	$	(113)	$	309

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

3

Federal Home Loan Bank of San Francisco

Statements of Capital Accounts

(Unaudited)

	Capital Stock Class B—Putable			Retained Earnings								Total Capital
(In millions)	Shares	Par Value		Restricted		Unrestricted		Total		AOCI
Balance, June 30, 2021	23	$	2,269	$	761	$	3,004	$	3,765	$	394	$	6,428
Comprehensive income/(loss)				—		71		71		(75)		(4)
Issuance of capital stock	4	357										357
Repurchase of capital stock	(4)	(360)										(360)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	—	(13)										(13)
Transfers from restricted retained earnings				(18)		18		—				—
Cash dividends paid on capital stock (6.00%)						(34)		(34)				(34)
Balance, September 30, 2021	23	$	2,253	$	743	$	3,059	$	3,802	$	319	$	6,374
Balance, June 30, 2022	28	$	2,754	$	692	$	3,198	$	3,890	$	100	$	6,744
Comprehensive income/(loss)				16		64		80		(88)		(8)
Issuance of capital stock	23	2,296										2,296
Repurchase of capital stock	(18)	(1,724)										(1,724)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	—	(4)										(4)
Cash dividends paid on capital stock (6.00%)						(40)		(40)				(40)
Balance, September 30, 2022	33	$	3,322	$	708	$	3,222	$	3,930	$	12	$	7,264

	Capital Stock Class B—Putable			Retained Earnings								Total Capital
(In millions)	Shares	Par Value		Restricted		Unrestricted		Total		AOCI
Balance, December 31, 2020	23	$	2,284	$	761	$	2,919	$	3,680	$	230	$	6,194
Comprehensive income/(loss)				—		220		220		89		309
Issuance of capital stock	7	685										685
Repurchase of capital stock	(7)	(700)										(700)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	—	(16)										(16)
Transfers from restricted retained earnings				(18)		18		—				—
Cash dividends paid on capital stock (5.65%)						(98)		(98)				(98)
Balance, September 30, 2021	23	$	2,253	$	743	$	3,059	$	3,802	$	319	$	6,374
Balance, December 31, 2021	21	$	2,061	$	708	$	3,124	$	3,832	$	331	$	6,224
Comprehensive income/(loss)				16		190		206		(319)		(113)
Issuance of capital stock	54	5,385										5,385
Repurchase of capital stock	(41)	(4,088)										(4,088)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	(1)	(36)										(36)
Transfers from restricted retained earnings				(16)		16		—				—
Cash dividends paid on capital stock (6.00%)						(108)		(108)				(108)
Balance, September 30, 2022	33	$	3,322	$	708	$	3,222	$	3,930	$	12	$	7,264

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

4

Federal Home Loan Bank of San Francisco

Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(In millions)	2022		2021
Cash Flows from Operating Activities:
Net Income/(Loss)	$	206	$	220
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization/(accretion)	255		60
Provision for/(reversal of) credit losses	9		(8)
Change in net fair value of trading securities	—		50
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option	53		40
Change in net derivatives and hedging activities	1,334		417
PLRMBS trust settlement	(28)		—
Other adjustments, net	5		5
Net change in:
Accrued interest receivable	(34)		22
Other assets	22		8
Accrued interest payable	61		1
Other liabilities	(33)		(13)
PLRMBS contingent liability	(41)		—
Total adjustments	1,603		582
Net cash provided by/(used in) operating activities	1,809		802
Cash Flows from Investing Activities:
Net change in:
Interest-bearing deposits	(1,901)		(10)
Securities purchased under agreements to resell	3,500		750
Federal funds sold	(7,298)		(4,253)
Trading securities:
Proceeds from maturities and paydowns	251		1,950
AFS securities:
Proceeds from sales	28		—
Proceeds from maturities and paydowns	1,157		8,334
Purchases	(4,332)		(4,275)
HTM securities:
Proceeds from maturities and paydowns	763		1,560
Advances:
Repaid	1,096,765		111,264
Originated	(1,146,306)		(103,233)
Mortgage loans held for portfolio:
Principal collected	159		805
Purchases	—		(7)
Other investing activities, net	(2)		—
Net cash provided by/(used in) investing activities	(57,216)		12,885

5

Federal Home Loan Bank of San Francisco

Statements of Cash Flows (continued)

(Unaudited)

	Nine Months Ended September 30,
(In millions)	2022		2021
Cash Flows from Financing Activities:
Net change in deposits and other financing activities	243		65
Net change in borrowings from other FHLBanks	2,320		—
Net (payments)/proceeds on derivative contracts with financing elements	(11)		(32)
Net proceeds from issuance of consolidated obligations:
Bonds	25,062		15,174
Discount notes	174,394		61,597
Payments for matured and retired consolidated obligations:
Bonds	(11,283)		(37,491)
Discount notes	(136,521)		(52,992)
Proceeds from issuance of capital stock	5,385		685
Payments for repurchase/redemption of mandatorily redeemable capital stock	(35)		(14)
Payments for repurchase of capital stock	(4,088)		(700)
Cash dividends paid	(108)		(98)
Net cash provided by/(used in) financing activities	55,358		(13,806)
Net increase/(decrease) in cash and due from banks	(49)		(119)
Cash and due from banks at beginning of the period	55		174
Cash and due from banks at end of the period	$	6	$	55
Supplemental Disclosures:
Interest paid	$	373	$	78
AHP payments	29		23
Supplemental Disclosures of Noncash Investing and Financing Activities:
Transfers of HTM securities to AFS securities	17		—
Transfers of capital stock to mandatorily redeemable capital stock	36		16

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

6

Federal Home Loan Bank of San Francisco

Notes to Financial Statements

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 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, 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, 2021 (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:

•accounting for derivatives;

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

•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 before 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.

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 2021 Form 10-K. Other changes to these policies as of September 30, 2022, are discussed in Note 2 – Recently Issued Accounting Guidance.

Private-label Residential Mortgage-backed Securities (PLRMBS) Trust Settlement. A PLRMBS trust settlement is recorded in other income/(loss) as “Private-label residential mortgage-backed securities trust settlement” in the Statements of Income. A trust settlement is considered realized and recorded when the Bank receives cash or assets that are readily convertible to known amounts of cash 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 received can be reasonably estimated. Prior to being realized or realizable, the Bank considers potential settlements to be gain contingencies, and therefore they are not recorded in the Statements of Income.

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.

7

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Note 2 — Recently Issued Accounting Guidance

The following table provides a summary of recently issued accounting standards that may have an effect on the Bank’s financial statements.

Accounting Standards Update (ASU)	Description	Effective Date	Effect 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.

Note 3 — Investments

The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to 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 Bank 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 BBB or greater by a nationally recognized statistical rating organization (NRSRO). At September 30, 2022, and December 31, 2021, none of these investments were with counterparties rated below BBB nor with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable.

8

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 September 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. No allowance for credit losses was recorded for these assets at September 30, 2022, and December 31, 2021. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of $5 million and $1 million, respectively, as of September 30, 2022, and de minimis amounts as of December 31, 2021.

Based upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell at September 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 September 30, 2022, and December 31, 2021, respectively.

Debt Securities

The Bank invests in debt securities, which are classified as either trading, AFS, or HTM. Within these investments, the Bank is primarily subject to credit risk related to PLRMBS that are supported by underlying mortgage loans. The Bank is prohibited 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 purchase.

Trading Securities. The estimated fair value of trading securities as of September 30, 2022, and December 31, 2021, was as follows:

(In millions)	September 30, 2022		December 31, 2021
U.S. obligations – Treasury notes	$	—	$	250
MBS – Other U.S. obligations	1		2
Total	$	1	$	252

The unrealized net gain/(loss) on trading securities held at September 30, 2022, was de minimis amounts for the three and nine months ended September 30, 2022. The unrealized net gain/(loss) on trading securities held at September 30, 2021, was $(12) million and $(34) million for the three and nine months ended September 30, 2021, respectively.

Available-for-Sale Securities. AFS securities by major security type as of September 30, 2022, and December 31, 2021, were as follows:

September 30, 2022
(In millions)	Amortized Cost(1)		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. obligations – Treasury notes	$	3,801	$	—	$	1	$	(3)	$	3,799
MBS:
Government Sponsored Enterprises (GSEs) – multifamily	7,165		—		6		(31)		7,140
PLRMBS	1,212		(25)		72		(21)		1,238
Total MBS	8,377		(25)		78		(52)		8,378
Total	$	12,178	$	(25)	$	79	$	(55)	$	12,177

9

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

December 31, 2021
(In millions)	Amortized Cost(1)		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. obligations – Treasury notes	$	503	$	—	$	1	$	—	$	504
MBS:
GSEs – multifamily	8,056		—		164		—		8,220
PLRMBS	1,450		(17)		179		(4)		1,608
Total MBS	9,506		(17)		343		(4)		9,828
Total	$	10,009	$	(17)	$	344	$	(4)	$	10,332

(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 $38 million and $29 million at September 30, 2022, and December 31, 2021, respectively.

At September 30, 2022, the amortized cost of the Bank’s MBS classified as AFS included premiums of $53 million, discounts of $46 million, and previous credit losses related to the prior methodology of evaluating credit losses of $364 million for PLRMBS. At December 31, 2021, the amortized cost of the Bank’s MBS classified as AFS included premiums of $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 tables summarize the AFS securities with unrealized losses as of September 30, 2022, and December 31, 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.

September 30, 2022
	Less Than 12 Months				12 Months or More				Total
(In millions)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses
U.S. obligations – Treasury notes	$	2,777	$	3	$	—	$	—	$	2,777	$	3
MBS – GSEs – multifamily	4,956		31		—		—		4,956		31
PLRMBS	319		16		56		5		375		21
Total	$	8,052	$	50	$	56	$	5	$	8,108	$	55

December 31, 2021
	Less Than 12 Months				12 Months or More				Total
(In millions)	Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross Unrealized Losses		Estimated Fair Value		Gross 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 September 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 right to call or prepay the underlying obligations with or without call or prepayment fees.

10

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

September 30, 2022
(In millions)
Year of Contractual Maturity	Amortized Cost		Estimated Fair Value
U.S. obligations – Treasury notes – Due after 1 year through 5 years	$	3,801	$	3,799
MBS	8,377		8,378
Total	$	12,178	$	12,177

December 31, 2021
(In millions)
Year of Contractual Maturity	Amortized Cost		Estimated Fair Value
U.S. obligations – Treasury notes – Due in 1 year or less	$	503	$	504
MBS	9,506		9,828
Total	$	10,009	$	10,332

Prepayment 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 Statements of Income for the three and nine months ended September 30, 2022 and 2021, as follows:

	Three Months Ended				Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Prepayment fees received/(paid)	$	2	$	5	$	21	$	5
Fair value adjustments	1		(3)		(1)		(3)
Net	$	3	$	2	$	20	$	2
MBS principal prepaid	$	71	$	37	$	318	$	37

Held-to-Maturity Securities. The Bank classifies the following securities as HTM because the Bank has the positive intent and ability to hold these securities to maturity:

September 30, 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	$	79	$	—	$	(2)	$	77
MBS – GSEs:
MBS – GSEs – single-family	787		3		(17)		773
MBS – GSEs – multifamily	1,404		—		(10)		1,394
Subtotal MBS – GSEs	2,191		3		(27)		2,167
PLRMBS	162		—		(10)		152
Total	$	2,432	$	3	$	(39)	$	2,396

11

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-family	1,011		16		(1)		1,026
MBS – GSEs – multifamily	1,870		5		(1)		1,874
Subtotal MBS – GSEs	2,881		21		(2)		2,900
PLRMBS	217		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 $4 million and $2 million at September 30, 2022, and December 31, 2021, respectively.

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

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 September 30, 2022, the amortized cost of the Bank’s MBS classified as HTM included premiums of $3 million, discounts of $4 million, and no previous credit losses related to the prior methodology of evaluating credit losses for PLRMBS. At December 31, 2021, the amortized cost of the Bank’s MBS classified as HTM included premiums of $3 million, discounts of $4 million, and previous credit losses related to the prior methodology of evaluating credit losses of $6 million for PLRMBS.

Allowance for Credit Losses on AFS and HTM Securities. The following table presents a rollforward of the allowance for credit losses on investment securities associated with PLRMBS classified as AFS for the three and nine months ended September 30, 2022 and 2021. The Bank recorded no allowance for credit losses associated with HTM securities during the three and nine months ended September 30, 2022 and 2021.

	Three Months Ended				Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Balance, beginning of the period	$	17	$	14	$	17	$	21
(Charge-offs)/recoveries	(1)		—		(1)		(1)
Provision for/(reversal of) credit losses	9		1		9		(5)
Balance, end of the period	$	25	$	15	$	25	$	15

To evaluate investment securities for credit loss at September 30, 2022, and December 31, 2021, the Bank employed the following methodologies, based on the type of security.

AFS and HTM Securities (Excluding PLRMBS) – The Bank’s AFS and HTM securities are principally U.S. obligations and MBS issued by Ginnie 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 September 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 lowest long-term credit rating for each security. These may differ from any internal ratings of the securities by the Bank, if applicable.

At September 30, 2022, and December 31, 2021, certain of the Bank’s AFS securities were in an unrealized loss position. These losses are considered temporary as the Bank 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 be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis. Further, the Bank has not experienced any payment defaults on the instruments and substantially all of these

12

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

securities are highly rated. In the case of U.S. obligations, they carry an explicit government guarantee. As a result, no allowance for credit losses was recorded on these AFS securities at September 30, 2022, and December 31, 2021.

As of September 30, 2022, and December 31, 2021, the Bank had not established an allowance for credit losses on any of its HTM securities because the securities: (i) were all highly rated or had short remaining terms to maturity and (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, and (iii) in the case of U.S. Treasury, GSE, or other agency obligations, carry an implicit or explicit government guarantee such that the FHLBanks consider the risk of nonpayment to be zero.

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 have subsequently experienced significant credit deterioration. As of September 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 by the Bank are used to assess these securities for credit loss measurement.

At each quarter end, the Bank compares the present value of the cash flows expected to be collected on its PLRMBS, using the effective interest rate, to the amortized cost basis of the securities to determine whether a credit loss exists. The expected credit losses are measured using:

•expected housing price changes;

•expected interest rate assumptions;

•the remaining payment terms for the security;

•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 are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in these assumptions and expectations. The cash flows determined reflect management’s expectations and include a base case housing price forecast for 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 PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), measurement of the fair value of PLRMBS classified as Level 3 as of September 30, 2022, uses significant inputs that include, based on unpaid principal balance, the weighted average percentage of prepayment rates of 11.0%; default rates of 7.3%; and loss severities of 51.9%. The weighted average percentage of the related current credit enhancement for these securities, based on unpaid principal balance, was 8.6% as of September 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 total net accretion recognized in interest income associated with PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses totaled $14 million and $19 million for the three months ended September 30, 2022 and 2021, respectively, and $43 million and $52 million for the nine months ended September 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 $9 million and $13 million for the three months ended September 30, 2022 and 2021, respectively, and $27 million and $39 million for the nine months ended September 30, 2022 and 2021, respectively.

13

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

In general, the Bank elects to transfer any PLRMBS that incurred a credit loss during the applicable period from the Bank’s HTM portfolio to its AFS portfolio at their fair values. The Bank previously recognized a credit loss on these HTM PLRMBS, which the Bank believes is evidence of a significant decline in the credit quality of the underlying collateral. The decline in the credit quality of the underlying collateral is the basis for the transfers to the AFS portfolio. These transfers allow the Bank the option to sell these securities before 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 transferred PLRMBS from its HTM portfolio to its AFS portfolio with an amortized cost and fair value of $1 million during the three months ended September 30, 2022. The Bank transferred PLRMBS from its HTM portfolio to its AFS portfolio with an amortized cost of $17 million and fair value of $20 million during the nine months ended September 30, 2022. The Bank did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three and nine months ended September 30, 2021.

For the Bank’s PLRMBS, the Bank recorded a provision for credit losses of $9 million during the three and nine months ended September 30, 2022, largely because of declines in the fair values and the present value of expected cash flows of certain PLRMBS. The Bank recorded a provision for credit losses of $1 million during the three months ended September 30, 2021, primarily resulting from a decline in fair value prices for certain PLRMBS. Further declines in PLRMBS fair values may adversely affect the Bank’s financial condition and results of operations. The Bank recorded a reversal of credit losses of $5 million during the nine months ended September 30, 2021, 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 monetary and fiscal stimulus measures taken by the U.S. government.

Note 4 — 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 a specified index.

Redemption Terms. The Bank had advances outstanding at interest rates ranging from 0.19% to 8.57% at September 30, 2022, and 0.13% to 8.57% at December 31, 2021, as summarized below.

(Dollars in millions)	September 30, 2022				December 31, 2021
Redemption Term	Amount Outstanding(1)		Weighted Average Interest Rate		Amount Outstanding(1)		Weighted Average Interest Rate
Within 1 year(2)	$	51,688	3.05	%	$	4,129	0.85	%
After 1 year through 2 years	3,513		2.24		2,744		1.52
After 2 years through 3 years	4,327		1.79		3,092		1.59
After 3 years through 4 years	3,679		1.94		2,618		1.31
After 4 years through 5 years	1,923		2.84		3,063		1.90
After 5 years	1,268		3.20		1,212		2.12
Total par value	66,398		2.86	%	16,858		1.45	%
Valuation adjustments for hedging activities	(692)				103
Valuation adjustments under fair value option	(48)				66
Total	$	65,658			$	17,027

(1)Carrying amounts exclude accrued interest receivable of $23 million and $5 million at September 30, 2022, and December 31, 2021, respectively.

(2)Advances outstanding with redemption terms within three months totaled $40.1 billion and $2.6 billion at September 30, 2022, and December 31, 2021, respectively.

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

14

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

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 prepayment symmetry. The Bank had advances with full prepayment symmetry outstanding totaling $14.8 billion at September 30, 2022, and $9.0 billion at December 31, 2021. The Bank had advances with partial prepayment symmetry outstanding totaling $1.0 billion at September 30, 2022, and $1.4 billion at December 31, 2021. Some advances may be repaid on pertinent call dates without prepayment fees (callable advances). The Bank had callable advances outstanding totaling $1.4 billion at September 30, 2022, and $70 million at December 31, 2021.

The Bank had putable advances totaling $710 million at September 30, 2022, and $220 million at December 31, 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 September 30, 2022, and December 31, 2021, by the earlier of the year of redemption term or next call date for callable advances and by the earlier of the year of redemption term or next put date for putable advances.

	Earlier of Redemption Term or Next Call Date				Earlier of Redemption Term or Next Put Date
(In millions)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Within 1 year	$	52,008	$	4,199	$	52,398	$	4,349
After 1 year through 2 years	3,513		2,744		3,513		2,744
After 2 years through 3 years	4,337		3,042		4,127		3,092
After 3 years through 4 years	3,679		2,618		3,679		2,618
After 4 years through 5 years	1,933		3,063		1,423		3,063
After 5 years	928		1,192		1,258		992
Total par value	$	66,398	$	16,858	$	66,398	$	16,858

Concentration Risk. The following tables present the concentration in advances to the top five borrowers and their affiliates at September 30, 2022 and 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 nine months ended September 30, 2022 and 2021.

(Dollars in millions)	September 30, 2022				Three Months Ended September 30, 2022				Nine Months Ended September 30, 2022
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
Silicon Valley Bank	$	13,500	20	%	$	18	5	%	$	20	4	%
First Republic Bank	11,000		17		65		20		94		18
MUFG Union Bank, National Association	7,950		12		46		14		81		15
Western Alliance Bank	4,000		6		19		6		25		5
First Technology Federal Credit Union(2)	3,737		6		22		7		41		8
Subtotal	40,187		61		170		52		261		50
Others	26,211		39		163		48		274		50
Total par value	$	66,398	100	%	$	333	100	%	$	535	100	%

15

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

(Dollars in millions)	September 30, 2021				Three Months Ended September 30, 2021				Nine Months Ended September 30, 2021
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
First Republic Bank	$	7,700	35	%	$	28	29	%	$	103	32	%
MUFG Union Bank, National Association	4,075		18		24		25		83		25
First Technology Federal Credit Union(2)	1,776		8		7		7		21		6
Luther Burbank Savings(2)	752		3		3		3		11		3
Banc of California, National Association	411		2		3		3		8		3
Subtotal	14,714		66		65		67		226		69
Others	7,593		34		32		33		103		31
Total par value	$	22,307	100	%	$	97	100	%	$	329	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)    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.

Credit Risk Exposure and Security Terms. The Bank manages its credit exposure related to advances 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 September 30, 2022, and December 31, 2021, none of the Bank’s credit products were past due or on nonaccrual status. There were no troubled debt restructurings related to credit products during the three and nine months ended September 30, 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 September 30, 2022, the Bank expects to collect all amounts due according to the contractual terms. Therefore, no allowance for credit losses on advances was deemed necessary by the Bank as of September 30, 2022, and December 31, 2021.

16

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

For more information on the credit 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.

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

(In millions)	September 30, 2022		December 31, 2021
Par value of advances:
Fixed rate:
Due within 1 year	$	34,209	$	2,768
Due after 1 year	14,695		12,729
Total fixed rate	48,904		15,497
Adjustable rate:
Due within 1 year	17,479		1,361
Due after 1 year	15		—
Total adjustable rate	17,494		1,361
Total par value	$	66,398	$	16,858

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, 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 before 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 in the Statements of Income for the three and nine months ended September 30, 2022 and 2021, as follows:

	Three Months Ended				Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Prepayment fees received/(paid)	$	(8)	$	2	$	(12)	$	28
Fair value adjustments	6		(2)		8		(13)
Net	$	(2)	$	—	$	(4)	$	15
Advance principal prepaid	$	377	$	1,397	$	2,603	$	5,073

17

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Note 5 — Mortgage Loans Held for Portfolio

The following table presents information as of September 30, 2022, and December 31, 2021, on mortgage loans held for portfolio, all of which are secured by one- to four-unit residential properties and single-unit homes.

(In millions)	September 30, 2022		December 31, 2021
Fixed rate medium-term mortgage loans	$	14	$	18
Fixed rate long-term mortgage loans	780		936
Subtotal	794		954
Unamortized premiums	43		28
Unamortized discounts	(2)		(1)
Mortgage loans held for portfolio(1)	835		981
Less: Allowance for credit losses	(1)		(1)
Total mortgage loans held for portfolio, net	$	834	$	980

(1)Excludes accrued interest receivable of $5 million and $6 million at September 30, 2022, and December 31, 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.

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 September 30, 2022, and December 31, 2021.

September 30, 2022
(Dollars in millions)	Origination Year
Payment Status	2018 to 2022		Prior to 2018		Amortized Cost(1)
30 – 59 days delinquent	$	3	$	5	$	8
60 – 89 days delinquent	1		—		1
90 days or more delinquent	12		8		20
Total past due	16		13		29
Total current loans	461		345		806
Total mortgage loans held for portfolio	$	477	$	358	$	835
In process of foreclosure, included above(2)					$	3
Nonaccrual loans(3)					$	20
Serious delinquencies as a percentage of total mortgage loans outstanding(4)					2.29		%

18

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

December 31, 2021
(Dollars in millions)	Origination Year
Payment Status	2017 to 2021		Prior to 2017		Amortized Cost(1)
30 – 59 days delinquent	$	7	$	2	$	9
60 – 89 days delinquent	1		2		3
90 days or more delinquent	26		10		36
Total past due	34		14		48
Total current loans	729		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 September 30, 2022, and December 31, 2021, $9 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 September 30, 2022, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 3.1% over a one-year forecast horizon before reverting to long-term housing price appreciation rates of 4.0% after five additional years in the 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 following table presents a rollforward of the allowance for credit losses on the mortgage loan portfolio for the three and nine months ended September 30, 2022 and 2021. The amount of charge-offs and recoveries of allowance for credit losses on the mortgage loan portfolio were de minimis for the three and nine months ended September 30, 2022 and 2021.

19

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	Three Months Ended				Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Balance, beginning of the period	$	1	$	2	$	1	$	4
Provision for/(reversal of) credit losses	—		(1)		—		(3)
Balance, end of the period	$	1	$	1	$	1	$	1

For more information related to the Bank’s accounting policies for mortgage loans held for portfolio, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K.

Note 6 — 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 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.

Deposits and interest rate payment terms for deposits as of September 30, 2022, and December 31, 2021, were as follows:

	September 30, 2022				December 31, 2021
(Dollars in millions)	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate
Interest-bearing deposits:
Adjustable rate	$	798	2.90	%	$	722	0.01	%
Fixed rate	9		2.90		18		0.01
Total interest-bearing deposits	807				740
Non-interest-bearing deposits	7				29
Total	$	814			$	769

Note 7 — Consolidated Obligations

Consolidated obligations, consisting of bonds and discount notes, are jointly issued by the Federal Home Loan Banks (FHLBanks) through the Office of Finance, which serves as the FHLBanks’ agent. As provided by the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act) or by regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. For a discussion of the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 16 – Commitments and Contingencies” in the Bank’s 2021 Form 10-K. In connection with each issuance of consolidated obligations, each FHLBank specifies the type, term, and amount of debt it requests to have issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of the consolidated obligations issued and is the primary obligor for that portion of the consolidated obligations issued. The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance.

Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds at September 30, 2022, and December 31, 2021.

20

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

(Dollars in millions)	September 30, 2022				December 31, 2021
Contractual Maturity	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate
Within 1 year	$	19,721	2.64	%	$	7,349	0.18	%
After 1 year through 2 years	4,022		1.66		1,757		0.67
After 2 years through 3 years	4,510		1.04		4,230		0.63
After 3 years through 4 years	5,283		0.97		1,855		0.72
After 4 years through 5 years	1,730		1.25		5,368		0.89
After 5 years	1,378		1.69		2,303		1.42
Total par value	36,644		2.00	%	22,862		0.64	%
Unamortized premiums	1				3
Unamortized discounts	(4)				(4)
Valuation adjustments for hedging activities	(1,127)				(139)
Fair value option valuation adjustments	(68)				(6)
Total	$	35,446			$	22,716

The Bank’s participation in consolidated obligation bonds outstanding includes callable bonds of $20.9 billion at September 30, 2022, and $14.6 billion at December 31, 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 (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 option in a swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of $19.3 billion at September 30, 2022, and $12.8 billion at December 31, 2021. The combined callable swaps and callable bonds enable the Bank to meet its funding needs at lower costs relative 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 September 30, 2022, and December 31, 2021, was as follows:

(In millions)	September 30, 2022		December 31, 2021
Par value of consolidated obligation bonds:
Non-callable	$	15,761	$	8,242
Callable	20,883		14,620
Total par value	$	36,644	$	22,862

The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding at September 30, 2022, and December 31, 2021, by the earlier of the year of contractual maturity or next call date.

(In millions)
Earlier of Contractual Maturity or Next Call Date	September 30, 2022		December 31, 2021
Within 1 year	$	34,469	$	21,770
After 1 year through 2 years	1,619		969
After 2 years through 3 years	210		72
After 3 years through 4 years	228		—
After 4 years through 5 years	70		3
After 5 years	48		48
Total par value	$	36,644	$	22,862

21

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

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:

	September 30, 2022				December 31, 2021
(Dollars in millions)	Amount Outstanding		Weighted Average Interest Rate (1)		Amount Outstanding		Weighted Average Interest Rate (1)
Par value	$	62,242	2.61	%	$	23,989	0.04	%
Unamortized discounts	(196)				(2)
Total	$	62,046			$	23,987

(1)Represents yield to maturity excluding concession fees.

Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at September 30, 2022, and December 31, 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 8 – Consolidated Obligations” in the Bank’s 2021 Form 10-K.

(In millions)	September 30, 2022		December 31, 2021
Par value of consolidated obligations:
Bonds:
Fixed rate	$	21,814	$	16,654
Adjustable rate	12,552		5,575
Step-up	2,278		633
Total bonds, par value	36,644		22,862
Discount notes, par value	62,242		23,989
Total consolidated obligations, par value	$	98,886	$	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 September 30, 2022, or December 31, 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 11 – Derivatives and Hedging Activities and Note 12 – Fair Value.

Note 8 — Accumulated Other Comprehensive Income/(Loss)

The following table summarizes the changes in Accumulated Other Comprehensive Income (AOCI) for the three months ended September 30, 2022 and 2021:

22

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	Net Unrealized Gain/(Loss) on AFS Securities		Pension and Postretirement Benefits		Total AOCI
Balance, June 30, 2021	$	408	$	(14)	$	394
Other comprehensive income/(loss):
Net change in pension and postretirement benefits			(3)		(3)
Net change in fair value	(72)				(72)
Net current period other comprehensive income/(loss)	(72)		(3)		(75)
Balance, September 30, 2021	$	336	$	(17)	$	319
Balance, June 30, 2022	$	111	$	(11)	$	100
Other comprehensive income/(loss):
Net change in pension and postretirement benefits			—		—
Net change in fair value	(88)				(88)
Net current period other comprehensive income/(loss)	(88)		—		(88)
Balance, September 30, 2022	$	23	$	(11)	$	12

The following table summarizes the changes in AOCI for the nine months ended September 30, 2022 and 2021:

(In millions)	Net Unrealized Gain/(Loss) on AFS Securities		Pension and Postretirement Benefits		Total AOCI
Balance, December 31, 2020	$	244	$	(14)	$	230
Other comprehensive income/(loss):
Net change in pension and postretirement benefits			(3)		(3)
Net change in fair value	92				92
Net current period other comprehensive income/(loss)	92		(3)		89
Balance, September 30, 2021	$	336	$	(17)	$	319
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	(317)				(317)
Net current period other comprehensive income/(loss)	(317)		(2)		(319)
Balance, September 30, 2022	$	23	$	(11)	$	12

Note 9 — Capital

Capital Requirements. 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 September 30, 2022, and December 31, 2021, the Bank complied with these capital rules and requirements as shown in the following table.

23

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	September 30, 2022						December 31, 2021
(Dollars in millions)	Required			Actual			Required			Actual
Risk-based capital	$	855		$	7,256		$	1,054		$	5,896
Total regulatory capital	$	4,340		$	7,256		$	2,165		$	5,896
Total regulatory capital ratio	4.00		%	6.69		%	4.00		%	10.89		%
Leverage capital	$	5,425		$	10,884		$	2,706		$	8,844
Leverage ratio	5.00		%	10.03		%	5.00		%	16.34		%

The Bank’s capital plan requires each member to own capital stock in an amount equal to the greater of its membership capital stock requirement or its activity-based capital stock requirement. The Bank may adjust these requirements from time to time within limits established in the capital plan. Any changes to the capital plan must be approved by the Bank’s board of directors and the Finance Agency. For information on the Bank’s membership capital stock requirement and activity-based capital stock requirement, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital – Capital Requirements” in the Bank’s 2021 Form 10-K.

Mandatorily Redeemable Capital Stock. The Bank had mandatorily redeemable capital stock totaling $4 million outstanding to four institutions at September 30, 2022, and $3 million outstanding to three institutions at December 31, 2021. The change in mandatorily redeemable capital stock for the three and nine months ended September 30, 2022 and 2021 was as follows:

	Three Months Ended				Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Balance at the beginning of the period	$	5	$	3	$	3	$	2
Reclassified from/(to) capital during the period	4		13		36		16
Repurchase/redemption of mandatorily redeemable capital stock	(5)		(12)		(35)		(14)
Balance at the end of the period	$	4	$	4	$	4	$	4

Cash dividends on mandatorily redeemable capital stock were recorded as interest expense of de minimis amounts for both of the three and nine months ended September 30, 2022 and 2021.

The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at September 30, 2022, and December 31, 2021.

Contractual Redemption Period	September 30, 2022		December 31, 2021
After 3 years through 4 years	$	1	$	—
After 4 years through 5 years	2		2
Past contractual redemption date because of remaining activity(1)	1		1
Total	$	4	$	3

(1)    Represents mandatorily redeemable capital stock that is past the end of the 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 11 – Capital” in the Bank’s 2021 Form 10-K.

Excess Stock Repurchase, Retained Earnings, and Dividend Framework. 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, and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the Framework.

24

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the Joint Capital Enhancement (JCE) Agreement) and unrestricted retained earnings. The JCE Agreement is intended to enhance the capital position of each FHLBank. In accordance with the JCE Agreement, each FHLBank is required to allocate 20% of its net income each quarter to a separate restricted retained earnings account until the balance of the account, calculated as of the last day of each calendar quarter, equals at least 1% of that FHLBank's average balance of outstanding consolidated obligations for the calendar quarter. Under the JCE Agreement, these restricted retained earnings will not be available to pay dividends. The JCE Agreement also 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. During the nine months ended September 30, 2022, the Bank reclassified $16 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. The Bank made no reclassifications from restricted retained earnings to unrestricted retained earnings during the three months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Bank reclassified $18 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. As a result of increased consolidated obligations during the third quarter of 2022, an allocation of net income was made into restricted retained earnings for the period in accordance with the JCE Agreement. The Bank’s restricted retained earnings totaled $708 million at September 30, 2022, and December 31, 2021. The Bank’s unrestricted retained earnings totaled $3.2 billion and $3.1 billion at September 30, 2022, and December 31, 2021, respectively.

For information on restricted retained earnings and the Bank’s Framework, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 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. For information on dividend payments, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K.

In addition, Finance Agency rules do not permit the Bank to pay dividends in the form of capital stock if its excess stock exceeds 1% of its total assets. Excess 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. Excess stock totaled $186 million, or 0.17% of total assets as of September 30, 2022. Excess stock totaled $120 million, or 0.22% of total assets as of December 31, 2021.

In the third quarter of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $40 million, including $40 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the third quarter of 2021, the Bank paid dividends at an annualized rate of 6.00%, totaling $34 million, including $34 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock.

In the first nine months of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $108 million, including $108 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the first nine months of 2021, the Bank paid dividends at an annualized rate of 5.65%, totaling $98 million, including $98 million in dividends on capital stock and a 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 27, 2022, the Bank’s board of directors declared a quarterly cash dividend on the capital stock outstanding during the third quarter of 2022 at an annualized rate of 7.00%, totaling $54 million. The Bank recorded the dividend on October 27, 2022, and expects to pay the dividend on November 10, 2022.

25

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Excess Stock – The Bank’s capital plan provides that the Bank may repurchase some or all of a shareholder’s excess stock, including any excess mandatorily redeemable capital stock, at the Bank’s discretion, subject to certain statutory and regulatory requirements. The Bank may also repurchase all of a member’s excess stock at a member’s request, at the Bank’s discretion, subject to certain statutory and regulatory requirements. For information on excess stock, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K. The Bank repurchased $1.7 billion and $373 million in excess stock during the third quarter of 2022 and 2021, respectively, and $4.1 billion and $714 million in excess stock during the nine months ended September 30, 2022 and 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 third quarter of 2022 and 2021, the Bank redeemed a de minimis amount in mandatorily redeemable capital stock, for which the five-year redemption period had expired, at its $100 par 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.

Concentration. Silicon Valley Bank held $365 million, or 11%, and First Republic Bank held $342 million, or 10%, of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of September 30, 2022. No other institution held 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of September 30, 2022. No institution held 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of December 31, 2021.

Note 10 — 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 includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on 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.” Affordable Housing Program (AHP) assessments are not included in the segment reporting analysis but are 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 13 – Segment Information” in the Bank’s 2021 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 nine months ended September 30, 2022 and 2021.

26

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

(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 Losses		Other Income/(Loss)		Other Expense		Income/(Loss) Before AHP Assessment
Three months ended:
September 30, 2022	$	86	$	48	$	134	$	10	$	(24)	$	148	$	(18)	$	41	$	89
September 30, 2021	42		62		104		—		(16)		120		(3)		38		79
Nine months ended:
September 30, 2022	$	172	$	184	$	356	$	(4)	$	(17)	$	377	$	(31)	$	117	$	229
September 30, 2021	143		200		343		(7)		(61)		411		(50)		116		245

(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 $14 million and $19 million for the three months ended September 30, 2022 and 2021; and totaled $43 million and $52 million for the nine months ended September 30, 2022 and 2021, respectively. The mortgage-related business includes a provision for/(reversal of) credit losses of $9 million and a de minimis amount for the three months ended September 30, 2022 and 2021, and $9 million and $(8) million for the nine months ended September 30, 2022 and 2021, respectively.

(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 two operating segments. For financial reporting purposes, the Bank excludes these amounts from 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 September 30, 2022, and December 31, 2021.

(In millions)	Advances- Related Business		Mortgage- Related Business		Total Assets
September 30, 2022	$	96,827	$	11,680	$	108,507
December 31, 2021	40,064		14,057		54,121

Note 11 — 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 obligations to create variable rate structures. The interest rate exchange agreements are generally executed at the same time the advances and consolidated obligations are transacted and generally have the same maturity dates as the related hedged instrument. The Bank transacts most of its derivatives with large banks and major broker-dealers.

For more information related to the Bank’s interest rate exchange agreement instruments and hedging activities, see “Item 8. Financial Statements and Supplementary Data – Note 14 – Derivatives and Hedging Activities” in the Bank’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 Significant Accounting Policies” in the Bank’s 2021 Form 10-K.

27

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

The following table summarizes the notional amount and fair value of derivative instruments, including the effect of netting adjustments and cash collateral as of September 30, 2022, and December 31, 2021. For purposes of this disclosure, the derivative values include the fair value of derivatives and related accrued interest.

	September 30, 2022						December 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	$	49,444	$	882	$	1,073	$	31,526	$	223	$	148
Derivatives not designated as hedging instruments:
Interest rate swaps	78,681		26		145		31,540		2		21
Interest rate caps and floors	—		—		—		550		—		—
Total	78,681		26		145		32,090		2		21
Total derivatives before netting and collateral adjustments	$	128,125	908		1,218		$	63,616	225		169
Netting adjustments and cash collateral(1)			(846)		(1,216)				(217)		(164)
Total derivative assets and total derivative liabilities			$	62	$	2			$	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 $699 million and $77 million at September 30, 2022, and December 31, 2021, respectively. Cash collateral received, including accrued interest, was $329 million and $130 million at September 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 nine months ended September 30, 2022 and 2021.

	Three Months Ended September 30, 2022
	Interest Income/(Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	347	$	109	$	(143)
Gain/(loss) on fair value hedging relationships
Derivatives(1)	$	314	$	507	$	(391)
Hedged items	(293)		(489)		354
Net gain/(loss) on fair value hedging relationships	21		18		(37)
Net amortization of gain on discontinued fair value hedging relationships	(8)		(26)		—
Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	13	$	(8)	$	(37)

28

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	Three Months Ended September 30, 2021
	Interest Income/(Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	47	$	57	$	(13)
Gain/(loss) on fair value hedging relationships
Derivatives(1)	$	(2)	$	42	$	(1)
Hedged items	(41)		(56)		20
Net gain/(loss) on fair value hedging relationships	(43)		(14)		19
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	$	(50)	$	(41)	$	19

	Nine Months Ended September 30, 2022
	Interest Income/(Expense)
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	505	$	247	$	(205)
Gain/(loss) on fair value hedging relationships
Derivatives(1)	$	771	$	1,216	$	(989)
Hedged items	(780)		(1,210)		987
Net gain/(loss) on fair value hedging relationships	(9)		6		(2)
Net amortization of gain on discontinued fair value hedging relationships	(22)		(80)		—
Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(31)	$	(74)	$	(2)

	Nine Months Ended September 30, 2021
	Interest Income/(Expense)
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	152	$	168	$	(49)
Gain/(loss) on fair value hedging relationships
Derivatives(1)	$	97	$	299	$	(17)
Hedged items	(260)		(349)		60
Net gain/(loss) on fair value hedging relationships	(163)		(50)		43
Net amortization of gain on discontinued fair value hedging relationships	(15)		(81)		—
Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(178)	$	(131)	$	43

(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 September 30, 2022, and December 31, 2021.

29

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	September 30, 2022						December 31, 2021
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Advances		AFS Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/(liability)(1)	$	19,197	$	10,966	$	(18,060)	$	13,613	$	8,559	$	(13,557)
Fair value hedging basis adjustments:
Active hedging relationships included in amortized cost	$	(772)	$	(1,494)	$	1,127	$	(15)	$	(329)	$	139
Discontinued hedging relationships included in amortized cost	80		777		—		118		901		—
Total amount of fair value hedging basis adjustments	$	(692)	$	(717)	$	1,127	$	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 nine months ended September 30, 2022 and 2021.

(In millions)	Three Months Ended				Nine Months Ended
	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Derivatives not designated as hedging instruments	Gain/(Loss)		Gain/(Loss)		Gain/(Loss)		Gain/(Loss)
Economic hedges:
Interest rate swaps	$	23	$	31	$	4	$	86
Net interest settlements	(24)		(16)		(17)		(61)
Net gain/(loss) on derivatives	$	(1)	$	15	$	(13)	$	25

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

For cleared derivatives, the clearinghouse is the Bank’s counterparty. The requirement that the Bank post initial and variation margin through a clearing agent to the clearinghouse exposes the Bank to institutional credit risk if the clearing agent fails to meet its obligations. The use of a clearinghouse, or central counterparty, lowers overall credit risk exposure because it 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 or collected for changes in the value of the portfolio, and initial margin is posted for changes in risk profile of the portfolio. The Bank 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

30

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

outstanding derivative transactions with the Bank; the Bank’s agreements with its clearing agents for cleared derivative transactions have similar provisions with respect to the debt rating of FHLBank System consolidated bonds. If this occurs, the Bank may choose to enter into replacement hedges, either by transferring the existing transactions to another counterparty or entering into new replacement transactions, based on prevailing market rates. The aggregate fair value of all uncleared derivative instruments with credit risk-related contingent features that were in a net derivative liability position (before cash collateral and related accrued interest) at September 30, 2022, was $676 million, for which the Bank posted cash collateral of $678 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 tables 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 September 30, 2022, and December 31, 2021.

	September 30, 2022
	Derivative Instruments Meeting Netting Requirements
(In millions)	Amount Recognized		Gross Amount of Netting Adjustments and Cash Collateral		Total Derivative Assets and Total Derivative Liabilities		Noncash Collateral Not Offset That  Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared	$	874	$	(857)	$	17	$	—	$	17
Cleared	34		11		45		(335)		380
Total					$	62			$	397
Derivative Liabilities
Uncleared	$	1,209	$	(1,207)	$	2	$	—	$	2
Cleared	9		(9)		—		—		—
Total					$	2			$	2

	December 31, 2021
	Derivative Instruments Meeting Netting Requirements
(In millions)	Amount Recognized		Gross Amount of Netting Adjustments and Cash Collateral		Total Derivative Assets and Total Derivative Liabilities		Noncash Collateral Not Offset That  Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared	$	224	$	(224)	$	—	$	—	$	—
Cleared	1		7		8		(252)		260
Total					$	8			$	260
Derivative Liabilities
Uncleared	$	161	$	(156)	$	5	$	—	$	5
Cleared	8		(8)		—		—		—
Total					$	5			$	5

Note 12 — Fair Value

The following fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank at September 30, 2022, and December 31, 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

31

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

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 September 30, 2022, and December 31, 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.

	September 30, 2022
(In millions)	Carrying Value(1)		Estimated Fair Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks	$	6	$	6	$	6	$	—	$	—	$	—
Interest-bearing deposits	2,405		2,405		2,405		—		—		—
Securities purchased under agreements to resell	12,000		12,000		—		12,000		—		—
Federal funds sold	12,646		12,646		—		12,646		—		—
Trading securities	1		1		—		1		—		—
AFS securities	12,177		12,177		—		10,939		1,238		—
HTM securities	2,432		2,396		—		2,244		152		—
Advances	65,658		65,410		—		65,410		—		—
Mortgage loans held for portfolio	834		710		—		710		—		—
Accrued interest receivable	77		77		—		77		—		—
Derivative assets, net(2)	62		62		—		908		—		(846)
Other assets(3)	20		20		20		—		—		—
Liabilities
Deposits	814		814		—		814		—		—
Consolidated obligations:
Bonds	35,446		35,043		—		35,043		—		—
Discount notes	62,046		62,010		—		62,010		—		—
Total consolidated obligations	97,492		97,053		—		97,053		—		—
Mandatorily redeemable capital stock	4		4		4		—		—		—
Borrowings from other FHLBanks	2,320		2,320		—		2,320		—		—
Accrued interest payable	93		93		—		93		—		—
Derivative liabilities, net(2)	2		2		—		1,218		—		(1,216)

32

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	December 31, 2021
(In millions)	Carrying Value(1)		Estimated Fair Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks	$	55	$	55	$	55	$	—	$	—	$	—
Interest-bearing deposits	1,125		1,125		1,125		—		—		—
Securities purchased under agreements to resell	15,500		15,500		—		15,500		—		—
Federal funds sold	5,348		5,348		—		5,348		—		—
Trading securities	252		252		—		252		—		—
AFS securities	10,332		10,332		—		8,724		1,608		—
HTM securities	3,211		3,235		—		3,015		220		—
Advances	17,027		17,072		—		17,072		—		—
Mortgage loans held for portfolio	980		981		—		981		—		—
Accrued interest receivable	45		45		—		45		—		—
Derivative assets, net(2)	8		8		—		225		—		(217)
Other assets(3)	25		25		25		—		—		—
Liabilities
Deposits	769		769		—		769		—		—
Consolidated obligations:
Bonds	22,716		22,635		—		22,635		—		—
Discount notes	23,987		23,986		—		23,986		—		—
Total consolidated obligations	46,703		46,621		—		46,621		—		—
Mandatorily redeemable capital stock	3		3		3		—		—		—
Accrued interest payable	33		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.

(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.

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

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: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar

33

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

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 September 30, 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. For the periods presented, the Bank did not have any reclassifications for transfers in or out of level 3 of the fair value hierarchy.

Summary of Valuation Methodologies and Primary Inputs. For information related to the valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value 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 Bank’s 2021 Form 10-K. There have been no significant changes in these valuation methodologies and primary inputs during the nine months ended September 30, 2022.

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 present the fair value of assets and liabilities, which are recorded on a recurring or nonrecurring basis at September 30, 2022, and December 31, 2021, by level within the fair value hierarchy.

September 30, 2022
	Fair Value Measurement Using:						Netting Adjustments  and Cash Collateral(1)
(In millions)	Level 1		Level 2		Level 3				Total
Recurring fair value measurements – Assets:
Trading securities:
MBS – Other U.S. obligations	$	—	$	1	$	—	$	—	$	1
AFS securities:
U.S. obligations – Treasury notes	—		3,799		—		—		3,799
MBS:
GSEs – multifamily	—		7,140		—		—		7,140
PLRMBS	—		—		1,238		—		1,238
Subtotal AFS MBS	—		7,140		1,238		—		8,378
Total AFS securities	—		10,939		1,238		—		12,177
Advances(2)	—		2,039		—		—		2,039
Derivative assets, net: interest rate-related	—		908		—		(846)		62
Other assets	20		—		—		—		20
Total recurring fair value measurements – Assets	$	20	$	13,887	$	1,238	$	(846)	$	14,299
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)	$	—	$	2,210	$	—	$	—	$	2,210
Derivative liabilities, net: interest rate-related	—		1,218		—		(1,216)		2
Total recurring fair value measurements – Liabilities	$	—	$	3,428	$	—	$	(1,216)	$	2,212
Nonrecurring fair value measurements – Assets:(4)
Impaired mortgage loans held for portfolio	$	—	$	—	$	18	$	—	$	18
Total nonrecurring fair value measurements – Assets	$	—	$	—	$	18	$	—	$	18

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 1		Level 2		Level 3				Total
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 assets	25		—		—		—		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.

(2)Represents advances recorded under the fair value option at September 30, 2022, and December 31, 2021.

(3)Represents consolidated obligation bonds recorded under the fair value option at September 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 nine months ended September 30, 2022, and the year ended December 31, 2021.

The following tables present a reconciliation of the Bank’s AFS PLRMBS that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022 and 2021.

36

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	Three Months Ended
	September 30, 2022		September 30, 2021
Balance, beginning of the period	$	1,327	$	1,827
Total gain/(loss) realized and unrealized included in:
Interest income	14		18
(Provision for)/reversal of credit losses	(9)		(1)
Unrealized gain/(loss) included in AOCI	(39)		(6)
Settlements	(56)		(134)
Transfers of HTM securities to AFS securities	1		—
Balance, end of the period	$	1,238	$	1,704
Total amount of unrealized gain/(loss) for the period included in AOCI relating to instruments held at the end of the period	$	(39)	$	(5)
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	$	5	$	16

	Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021
Balance, beginning of the period	$	1,608	$	2,035
Total gain/(loss) realized and unrealized included in:
Interest income	43		52
(Provision for)/reversal of credit losses	(9)		5
Other income/(loss)	28		—
Unrealized gain/(loss) included in AOCI	(124)		23
Settlements	(325)		(411)
Transfers of HTM securities to AFS securities	17		—
Balance, end of the period	$	1,238	$	1,704
Total amount of unrealized gain/(loss) for the period included in AOCI relating to assets held at the end of the period	$	(124)	$	24
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	$	34	$	55

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 other income/(loss) or other expense.

For more information on the Bank’s election of the fair value option, see “Item 8. Financial Statements and Supplementary Data – Note 15 – Fair Value” in the Bank’s 2021 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 recording fair value changes of only 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 nine months ended September 30, 2022 and 2021:

	Three Months Ended
	September 30, 2022				September 30, 2021
	Advances		Consolidated Obligation Bonds		Advances		Consolidated Obligation Bonds
Balance, beginning of the period	$	1,652	$	2,209	$	1,984	$	235
New transactions elected for fair value option	700		25		—		318
Maturities and terminations	(272)		—		(21)		(30)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings	(42)		(22)		(11)		(2)
Change in accrued interest	1		(2)		—		—
Balance, end of the period	$	2,039	$	2,210	$	1,952	$	521

	Nine Months Ended
	September 30, 2022				September 30, 2021
(In millions)	Advances		Consolidated Obligation Bonds		Advances		Consolidated Obligation Bonds
Balance, beginning of the period	$	1,772	$	627	$	2,147	$	111
New transactions elected for fair value option	1,020		1,660		670		538
Maturities and terminations	(637)		(15)		(821)		(125)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings	(117)		(64)		(43)		(3)
Change in accrued interest	1		2		(1)		—
Balance, end of the period	$	2,039	$	2,210	$	1,952	$	521

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. For advances and consolidated obligations recorded under the fair value option, the Bank determined that none of the remaining changes in fair value were related to instrument-specific credit risk for the three and nine months ended September 30, 2022 and 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 September 30, 2022, and December 31, 2021:

38

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

	September 30, 2022						December 31, 2021
(In millions)	Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance
Advances(1)	$	2,087	$	2,039	$	(48)	$	1,706	$	1,772	$	66
Consolidated obligation bonds	2,278		2,210		(68)		633		627		(6)

(1)    At September 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 13 — Commitments and Contingencies

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The regulations provide a general framework for addressing the possibility that an FHLBank may be unable to repay the consolidated obligations for which it is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of September 30, 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 $1.0 trillion at September 30, 2022, and $652.9 billion at December 31, 2021. The par value of the Bank’s participation in consolidated obligations was $98.9 billion at September 30, 2022, and $46.9 billion at December 31, 2021. For more information on the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 16 – Commitments and Contingencies” in the Bank’s 2021 Form 10-K.

Off-balance sheet commitments as of September 30, 2022, and December 31, 2021, were as follows:

	September 30, 2022						December 31, 2021
(In millions)	Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit outstanding	$	14,013	$	5,720	$	19,733	$	11,842	$	4,848	$	16,690
Commitments to issue consolidated obligation discount notes, par	822		—		822		—		—		—
Commitments to issue consolidated obligation bonds, par	2,396		—		2,396		—		—		—

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. At September 30, 2022, the original terms of these standby letters of credit range from 3 days to 15 years, including a final expiration in 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 $34 million at both September 30, 2022, and December 31, 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 September 30, 2022, and December 31, 2021.

The Bank has pledged securities as collateral related to its cleared and uncleared derivatives. See Note 11 – Derivatives and Hedging Activities for additional information about the Bank’s pledged collateral and other credit risk-related contingent features. As of September 30, 2022, the Bank had pledged total collateral of $1.0 billion, including securities with a carrying value of $335 million, all of which may be repledged, and cash collateral, including accrued interest, of $699 million to counterparties and the clearinghouse that had market risk exposure to

39

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

the Bank related to derivatives. As of December 31, 2021, the Bank had pledged total collateral of $329 million, 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.

Note 14 — Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks

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

(In millions)	September 30, 2022		December 31, 2021
Assets:
Advances	$	6,148	$	3,107
Mortgage loans held for portfolio	81		—
Accrued interest receivable	3		2
Liabilities:
Deposits	$	13	$	34
Capital:
Capital Stock	$	195	$	117

	Three Months Ended				Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021		September 30, 2022		September 30, 2021
Interest Income:
Advances	$	32	$	12	$	63	$	38
Mortgage loans held for portfolio	1		—		1		—

All transactions with members, nonmembers, and their affiliates are entered into in the ordinary course of business. As of September 30, 2022, and December 31, 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 17 – Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks” in the Bank’s 2021 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 de minimis amounts at September 30, 2022, and December 31, 2021, and were recorded as “Interest-bearing deposits” in the Statements of 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 interest income and interest expense in the Statements of Income. Balances outstanding at period end with other FHLBanks, if any, are identified in the Bank’s financial statements. During the nine months ended September 30, 2022, the Bank extended overnight loans to other FHLBanks for $2.4 billion. During the nine months ended September 30, 2021, the Bank extended no overnight loans to other FHLBanks. During the nine months ended September 30, 2022 and 2021, the Bank borrowed $10.1 billion and $120 million, respectively, from

40

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

other FHLBanks. The impact to net interest income related to these transactions was de minimis for all periods in this report.

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

Statements contained in this quarterly report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of San Francisco (Bank) or the Federal Home Loan Bank System (FHLBank System), are “forward-looking statements.” These statements may use forward-looking terms, such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “probable,” “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 stock, future credit 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 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 withdrawal of one or more large 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) 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;

42

•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 (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, 2021 (2021 Form 10-K).

43

Quarterly Overview

Net income for the third quarter of 2022 was $80 million, compared with net income of $71 million for the third quarter of 2021. The $9 million increase in net income relative to the prior-year period was primarily attributable to an increase in net interest income of $37 million, partially offset by a $15 million decrease in other income/(loss) and an increase of $9 million in the provision for credit losses.

The $37 million increase in net interest income for the third quarter of 2022 reflected an increase in interest income of $479 million, which was driven by higher yields on interest-earning assets, primarily resulting from higher interest rates on advances balances. The increase was partially offset by a decrease in net gains on designated fair value hedges. The increase in interest income was offset by an increase of $442 million in interest expense based on higher funding levels and interest costs.

The $15 million change in other income/(loss) primarily resulted from an increase of $27 million in net fair value losses associated with non-hedge qualifying derivatives and financial instruments carried at fair value. This increase in fair value losses was mainly driven by valuation changes created by market volatility and growth in the Bank's short-term advances funded by economically hedged consolidated obligations, which was offset by a decrease in net fair value losses of $13 million on trading securities that matured since the third quarter of 2021.

The increase of $9 million in the provision for credit losses for the quarter was largely attributable to declines in the fair values and the present value of expected cash flows of certain private-label residential mortgage-backed securities (PLRMBS).

At September 30, 2022, total assets were $108.5 billion, an increase of $54.4 billion from $54.1 billion at December 31, 2021. Advances increased to $65.7 billion at September 30, 2022, up from $17.0 billion at December 31, 2021, an increase of $48.7 billion, as member demand for primarily short-term advances increased. The increase in total assets also included an increase in total investments of $5.9 billion, to $41.7 billion at September 30, 2022, up from $35.8 billion at December 31, 2021. The increase in investments primarily reflected higher liquidity-related instruments, including increases in Federal funds sold of $7.3 billion, U.S. Treasury securities of $3.0 billion, and interest-bearing deposits of $1.3 billion. This increase in investments was partially offset by a decline of $3.5 billion in securities purchased under agreements to resell and mortgage-backed securities of $2.2 billion.

Accumulated other comprehensive income (AOCI) decreased by $319 million during the first nine months of 2022, to $12 million at September 30, 2022, from $331 million at December 31, 2021, primarily reflecting lower fair values of investment securities classified as available-for-sale (AFS), which primarily reflects the increase in market interest rates during the first nine months of 2022.

As of September 30, 2022, the Bank complied with all regulatory capital requirements. The Bank exceeded the risk-based capital requirement of $855 million with $7.3 billion in permanent capital and exceeded the 4.0% regulatory requirement with a regulatory capital ratio of 6.7% at September 30, 2022. The decline in regulatory capital ratio to 6.7% from 10.9% at December 31, 2021, was mainly attributable to an increase in total assets. Total retained earnings increased to $3.9 billion as of September 30, 2022, from $3.8 billion at yearend 2021.

On October 27, 2022, the Bank’s board of directors declared a quarterly cash dividend on the average capital stock outstanding during the third quarter of 2022 at an annualized rate of 7.00% that will total $54 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 recorded the dividend on October 27, 2022, and the Bank expects to pay the dividend on November 10, 2022.

The Bank will continue to monitor its financial condition, its financial performance, its capital position, overall financial market conditions, and other relevant information as the basis for determining the payment of dividends in future quarters.

During the third quarter of 2022, the U.S. economy continued to experience inflation and rising interest rates. Prolonged inflation may adversely affect overall economic conditions, and in turn result in adverse consequences in

44

the Bank or the Bank members’ businesses and impact the Bank’s financial condition, results of operation, or ability to pay dividends. Additionally, the level and volatility of interest rates affect, among other things, member demand for advances. For other risks and uncertainties that the Bank faces, see “Item 1A. Risk Factors in the Bank’s 2021 Form 10-K.”

On July 20, 2022, Federal Housing Finance Agency (Finance Agency) Director Sandra Thompson testified to the House Financial Services Committee that the Finance Agency would conduct a review of the FHLBank System. On September 29, 2022, the Finance Agency began this review with a three-day listening session featuring oral comments from interested persons on the following six key areas: the FHLBanks’ general mission and purpose in a changing marketplace; FHLBank organization, operational efficiency, and effectiveness; FHLBanks’ role in promoting affordable, sustainable, equitable, and resilient housing and community investment; addressing the unique needs of rural and financially vulnerable communities; member products, services, and collateral requirements; and membership eligibility requirements. These sessions were followed by a request for written comments through October 31, 2022. At this time, it is not possible to determine when any future events or requests for comment will occur, whether any actions will result from these events or comments, and the extent to which those actions may impact the Bank or the FHLBank System as a whole.

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Financial Highlights

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

Financial Highlights

(Unaudited)

(Dollars in millions)	September 30, 2022			June 30, 2022			March 31, 2022			December 31, 2021			September 30, 2021
Selected Balance Sheet Items at Quarter End
Total Assets	$	108,507		$	87,602		$	56,129		$	54,121		$	54,459
Advances	65,658			43,221			20,246			17,027			22,613
Mortgage Loans Held for Portfolio, Net	834			863			914			980			1,134
Investments(1)	41,661			43,153			34,629			35,768			30,364
Consolidated Obligations:(2)
Bonds	35,446			26,076			28,702			22,716			22,025
Discount Notes	62,046			53,132			19,744			23,987			24,814
Capital Stock —Class B —Putable	3,322			2,754			2,097			2,061			2,253
Unrestricted Retained Earnings	3,222			3,198			3,183			3,124			3,059
Restricted Retained Earnings	708			692			692			708			743
Accumulated Other Comprehensive Income/(Loss) (AOCI)	12			100			182			331			319
Total Capital	7,264			6,744			6,154			6,224			6,374
Selected Operating Results for the Quarter
Net Interest Income	$	157		$	126		$	103		$	119		$	120
Provision for/(Reversal of) Credit Losses	9			3			(3)			2			—
Other Income/(Loss)	(18)			(31)			18			—			(3)
Other Expense	41			38			38			43			38
Affordable Housing Program Assessment	9			6			8			7			8
Net Income/(Loss)	$	80		$	48		$	78		$	67		$	71
Selected Other Data for the Quarter
Net Interest Margin(3)	0.63		%	0.67		%	0.78		%	0.87		%	0.85		%
Return on Average Assets	0.32			0.25			0.59			0.48			0.49
Return on Average Equity	4.52			2.85			4.91			4.08			4.34
Annualized Dividend Rate	6.00			6.00			6.00			6.00			6.00
Dividend Payout Ratio(4)	49.98			69.80			44.63			53.84			48.99
Average Equity to Average Assets Ratio	7.16			8.81			11.91			11.70			11.32
Selected Other Data at Quarter End
Regulatory Capital Ratio(5)	6.69			7.59			10.65			10.89			11.12
Duration Gap (in months)	1.0			0.9			1.1			0.4			0.3

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

(2)As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all of the FHLBanks have joint and several liability for FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the 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, 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:

	Par Value (In millions)
September 30, 2022	$	1,031,910
June 30, 2022	882,481
March 31, 2022	699,530
December 31, 2021	652,862
September 30, 2021	641,438

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

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(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 nine months ended September 30, 2022 and 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.

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Third Quarter of 2022 Compared to Third Quarter of 2021

Average Balance Sheets
	Three Months Ended
	September 30, 2022							September 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	$	2,299		$	14	2.28	%	$	1,148		$	—	0.14	%
Securities purchased under agreements to resell	8,937			51		2.28		1,260			1		0.08
Federal funds sold	12,901			72		2.22		7,446			2		0.09
Trading securities:
Mortgage-backed securities (MBS)	1			—		2.10		2			—		2.04
Other investments	—			—		—		2,522			13		2.06
Available-for-sale (AFS) securities:(1)
MBS(2)(3)(4)	8,372			88		4.17		9,819			56		2.30
Other investments(3)	3,730			21		2.29		904			1		0.27
Held-to-maturity (HTM) securities:
MBS	2,526			17		2.56		3,750			10		1.08
Mortgage loans held for portfolio(5)	850			8		4.10		1,221			7		2.34
Advances(3)(6)	58,513			345		2.34		28,486			47		0.66
Loans to other FHLBanks	16			—		2.36		—			—		—
Total interest-earning assets	98,145			616		2.49		56,558			137		0.96
Other assets(7)	387			—				897			—
Total Assets	$	98,532		$	616			$	57,455		$	137
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)	$	28,402		$	143	2.01	%	$	24,512		$	13	0.22	%
Discount notes	61,417			310		2.00		24,996			3		0.05
Deposits and other borrowings	921			5		2.15		970			1		0.08
Mandatorily redeemable capital stock	5			—		5.79		6			—		4.31
Borrowings from other FHLBanks	65			1		2.74		—			—		—
Total interest-bearing liabilities	90,810			459		2.01		50,484			17		0.13
Other liabilities(7)	668			—				465			—
Total Liabilities	91,478			459				50,949			17
Total Capital	7,054			—				6,506			—
Total Liabilities and Capital	$	98,532		$	459			$	57,455		$	17
Net Interest Income				$	157						$	120
Net Interest Spread(8)						0.48	%						0.83	%
Net Interest Margin(9)						0.63	%						0.85	%
Interest-earning Assets/Interest-bearing Liabilities	108.08		%					112.03		%

(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 $9 million and $13 million for the three months ended September 30, 2022 and 2021, respectively.

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

	Three Months Ended
	September 30, 2022
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total
(Amortization)/accretion of hedging activities	$	(8)	$	(26)	$	—	$	(34)
Net gain/(loss) on derivatives and hedged items	(6)		(4)		—		(10)
Net interest settlements on derivatives	27		22		(37)		12
Total net interest income/(expense)	$	13	$	(8)	$	(37)	$	(32)

	Three Months Ended
	September 30, 2021
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total
(Amortization)/accretion of hedging activities	$	(7)	$	(27)	$	—	$	(34)
Net gain/(loss) on derivatives and hedged items	1		2		—		3
Net interest settlements on derivatives	(44)		(16)		19		(41)
Total net interest income/(expense)	$	(50)	$	(41)	$	19	$	(72)

(4)Interest income includes net prepayment fees on AFS MBS of $3 million and $2 million for the three months ended September 30, 2022 and 2021, respectively.

(5)Nonperforming mortgage loans are included in average balances used to determine average rate. Interest income from retrospective adjustment of the effective yields was $3 million and a de minimis amount for the three months ended September 30, 2022 and 2021, respectively. Interest income includes amortization of upfront loan costs and delivery commitments of $(2) million and $(4) million for the three months ended September 30, 2022 and 2021, respectively.

(6)Interest income includes net prepayment fees on advances of $(2) million and a de minimis amount for the three months ended September 30, 2022 and 2021, respectively.

(7)Includes forward settling transactions and valuation adjustments for certain cash items received/(paid).

(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 third quarter of 2022 was $157 million, a 31% increase from $120 million in the third quarter of 2021. The following table details the changes in interest income and interest expense for the third quarter of 2022 compared to the third quarter of 2021. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.

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Change in Net Interest Income: Rate/Volume Analysis Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021
	Increase/ (Decrease)		Attributable to Changes in(1)
(In millions)			Average Volume		Average Rate
Interest-earning assets:
Interest-bearing deposits	$	14	$	1	$	13
Securities purchased under agreements to resell	50		9		41
Federal funds sold	70		2		68
Trading securities: Other investments	(13)		(13)		—
AFS securities:
MBS(2)	32		(9)		41
Other investments(2)	20		6		14
HTM securities: MBS	7		(4)		11
Mortgage loans held for portfolio	1		(3)		4
Advances(2)	298		87		211
Total interest-earning assets	479		76		403
Interest-bearing liabilities:
Consolidated obligations:
Bonds(2)	130		2		128
Discount notes	307		12		295
Deposits and other borrowings	4		—		4
Borrowings from other FHLBanks	1		1		—
Total interest-bearing liabilities	442		15		427
Net interest income	$	37	$	61	$	(24)

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

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

The net interest margin was 63 basis points for the third quarter of 2022, 22 basis points lower than the net interest margin for the third quarter of 2021, which was 85 basis points. The net interest spread was 48 basis points for the third quarter of 2022, 35 basis points lower than the net interest spread for the third quarter of 2021, which was 83 basis points. These decreases were primarily a result of an increase in costs of interest-bearing liabilities from higher funding levels and costs, partially offset by higher yields on interest-earning assets, primarily resulting from higher interest rates on growing advance balances.

For PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional credit loss on the security, the yield of the security is adjusted on a prospective basis and accreted into interest income based on the expected cash flows. As a result of improvements in the estimated cash flows of these securities, the net accretion of income may 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.

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Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the three months ended September 30, 2022 and 2021.

Other Income/(Loss)
	Three Months Ended
(In millions)	September 30, 2022		September 30, 2021
Other Income/(Loss):
Net gain/(loss) on trading securities(1)	$	—	$	(13)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(20)		(9)
Net gain/(loss) on derivatives	(1)		15
Standby letters of credit fees	4		4
Other, net	(1)		—
Total Other Income/(Loss)	$	(18)	$	(3)

(1)The net gain/(loss) on trading securities that were economically hedged totaled a de minimis amount and $(13) million for the three months ended September 30, 2022 and 2021, respectively.

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 September 30, 2022 and 2021.

Net Gain/(Loss) on Advances and Consolidated Obligations Bonds Held Under Fair Value Option
	Three Months Ended
(In millions)	September 30, 2022		September 30, 2021
Advances	$	(42)	$	(11)
Consolidated obligation bonds	22		2
Total	$	(20)	$	(9)

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

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

Additional information about advances and consolidated obligation bonds held under the fair value option is provided in “Item 1. Financial Statements – Note 12 – Fair Value.”

Net Gain/(Loss) on Derivatives – Under the accounting guidance for derivative instruments and 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 that were recorded in “Net gain/(loss) on derivatives” in the third quarter of 2022 and 2021.

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Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021
	Three Months Ended
(In millions)	September 30, 2022						September 30, 2021
Hedged Item	Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total		Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total
Advances:
Elected for fair value option	$	35	$	(3)	$	32	$	21	$	(10)	$	11
Not elected for fair value option	22		1		23		3		3		6
Consolidated obligation bonds:
Elected for fair value option	(19)		(6)		(25)		(1)		—		(1)
Not elected for fair value option	(20)		(3)		(23)		(1)		—		(1)
Consolidated obligation discount notes:
Not elected for fair value option	2		(13)		(11)		1		(1)		—
MBS:
Not elected for fair value option	3		—		3		—		—		—
Non-MBS investments:
Not elected for fair value option	—		—		—		8		(8)		—
Total	$	23	$	(24)	$	(1)	$	31	$	(16)	$	15

During the third quarter of 2022, net losses on derivatives totaled $1 million compared to net gains of $15 million in the third quarter of 2021. These amounts included expense of $24 million and expense of $16 million resulting from net settlements on derivative instruments used in economic hedges in the third quarter of 2022 and 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 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 – Note 11 – Derivatives and Hedging Activities.”

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Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021

Average Balance Sheets
	Nine Months Ended
	September 30, 2022							September 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	$	1,748		$	17	1.29	%	$	1,195		$	1	0.14	%
Securities purchased under agreements to resell	5,747			65		1.51		1,417			1		0.07
Federal funds sold	10,883			96		1.18		5,843			4		0.08
Trading securities:
MBS	1			—		1.92		2			—		2.29
Other investments	16			—		2.04		3,461			54		2.07
AFS securities:(1)
MBS(2)(3)(4)	8,715			220		3.38		9,957			165		2.22
Other investments(3)	2,064			27		1.74		2,174			3		0.21
HTM securities:
MBS	2,751			34		1.64		4,161			34		1.11
Mortgage loans held for portfolio(5)	892			38		5.74		1,464			34		3.08
Advances(3)(6)	43,101			501		1.55		28,832			167		0.77
Loans to other FHLBanks	12			—		1.48		—			—		—
Total interest-earning assets	75,930			998		1.76		58,506			463		1.06
Other assets(7)	518			—				986			—
Total Assets	$	76,448		$	998			$	59,492		$	463
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)	$	26,549		$	205	1.03	%	$	31,258		$	49	0.21	%
Discount notes	41,428			399		1.29		20,172			10		0.06
Deposits and other borrowings	1,107			7		0.90		1,123			1		0.08
Mandatorily redeemable capital stock	5			—		6.18		4			—		4.02
Borrowings from other FHLBanks	57			1		1.67		—			—		—
Total interest-bearing liabilities	69,146			612		1.18		52,557			60		0.15
Other liabilities(7)	564			—				520			—
Total Liabilities	69,710			612				53,077			60
Total Capital	6,738			—				6,415			—
Total Liabilities and Capital	$	76,448		$	612			$	59,492		$	60
Net Interest Income				$	386						$	403
Net Interest Spread(8)						0.57	%						0.91	%
Net Interest Margin(9)						0.68	%						0.92	%
Interest-earning Assets/Interest-bearing Liabilities	109.81		%					111.32		%

(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 $27 million and $39 million for the nine months ended September 30, 2022 and 2021, respectively.

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

	Nine Months Ended
	September 30, 2022
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total
(Amortization)/accretion of hedging activities	$	(22)	$	(80)	$	—	$	(102)
Net gain/(loss) on derivatives and hedged items	(5)		4		—		(1)
Net interest settlements on derivatives	(4)		2		(2)		(4)
Total net interest income/(expense)	$	(31)	$	(74)	$	(2)	$	(107)

	Nine Months Ended
	September 30, 2021
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total
(Amortization)/accretion of hedging activities	$	(15)	$	(81)	$	—	$	(96)
Net gain/(loss) on derivatives and hedged items	2		11		—		13
Net interest settlements on derivatives	(165)		(61)		43		(183)
Total net interest income/(expense)	$	(178)	$	(131)	$	43	$	(266)

(4)Interest income includes net prepayment fees received on AFS MBS of $20 million and $2 million for the nine months ended September 30, 2022 and 2021, respectively.

(5)Nonperforming mortgage loans are included in average balances used to determine average rate. Interest income from retrospective adjustment of the effective yields was $21 million and $13 million for the nine months ended September 30, 2022 and 2021, respectively. Interest income includes amortization of upfront loan costs and delivery commitments of $(7) million and $(19) million for the nine months ended September 30, 2022 and 2021, respectively.

(6)Interest income includes net prepayment fees on advances of $(4) million and $15 million for the nine months ended September 30, 2022 and 2021, respectively.

(7)Includes forward settling transactions and valuation adjustments for certain cash items received/(paid).

(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 first nine months of 2022 was $386 million, a 4% decrease from $403 million in the first nine months of 2021. The following table details the changes in interest income and interest expense for the first nine months of 2022 compared to the first nine months of 2021. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.

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Change in Net Interest Income: Rate/Volume Analysis Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
	Increase/ (Decrease)		Attributable to Changes in(1)
(In millions)			Average Volume		Average Rate
Interest-earning assets:
Interest-bearing deposits	$	16	$	1	$	15
Securities purchased under agreements to resell	64		9		55
Federal funds sold	92		6		86
Trading securities: Other investments	(54)		(53)		(1)
AFS securities:
MBS(2)	55		(23)		78
Other investments(2)	24		—		24
HTM securities: MBS	—		(14)		14
Mortgage loans held for portfolio	4		(17)		21
Advances(2)	334		110		224
Total interest-earning assets	535		19		516
Interest-bearing liabilities:
Consolidated obligations:
Bonds(2)	156		(9)		165
Discount notes	389		20		369
Deposits and other borrowings	6		—		6
Borrowings from other FHLBanks	1		1		—
Total interest-bearing liabilities	552		12		540
Net interest income	$	(17)	$	7	$	(24)

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

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

The net interest margin was 68 basis points for the first nine months of 2022, 24 basis points lower than the net interest margin for the first nine months of 2021, which was 92 basis points. The net interest spread was 57 basis points for the first nine months of 2022, 34 basis point lower than the net interest spread for the first nine months of 2021, which was 91 basis points. These decreases were primarily a result of an increase in costs of interest-bearing liabilities from higher funding levels and costs, offset by higher yields on interest-earning assets, primarily resulting from higher interest rates on growing advance balances.

For PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional credit loss on the security, the yield of the security is adjusted on a prospective basis and accreted into interest income based on the expected cash flows. As a result of improvements in the estimated cash flows of these securities, the net accretion of income 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 nine months ended September 30, 2022 and 2021.

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Other Income/(Loss)
	Nine Months Ended
(In millions)	September 30, 2022		September 30, 2021
Other Income/(Loss):
Net gain/(loss) on trading securities(1)	$	—	$	(50)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(53)		(40)
Net gain/(loss) on derivatives	(13)		25
Private-label residential mortgage-backed securities trust settlement	28		—
Standby letters of credit fees	11		12
Other, net	(4)		3
Total Other Income/(Loss)	$	(31)	$	(50)

(1)The net gain/(loss) on trading securities that were economically hedged totaled a de minimis amount and $(50) million for the nine months ended September 30, 2022 and 2021, respectively.

Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) on advances and consolidated obligation bonds held under the fair value option for the nine months ended September 30, 2022 and 2021.

Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option
	Nine Months Ended
(In millions)	2022		2021
Advances	$	(117)	$	(43)
Consolidated obligation bonds	64		3
Total	$	(53)	$	(40)

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

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

Additional information about advances and consolidated obligation bonds held under the fair value option is provided in “Item 1. Financial Statements – Note 12 – Fair Value.”

Net Gain/(Loss) on Derivatives – 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 that were recorded in “Net gain/(loss) on derivatives” for the nine months ended September 30, 2022 and 2021.

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Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
	Nine Months Ended
(In millions)	September 30, 2022						September 30, 2021
Hedged Item	Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total		Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total
Advances:
Elected for fair value option	$	102	$	(18)	$	84	$	67	$	(29)	$	38
Not elected for fair value option	43		10		53		(13)		4		(9)
Consolidated obligation bonds:
Elected for fair value option	(58)		(4)		(62)		(2)		1		(1)
Not elected for fair value option	(62)		(2)		(64)		(4)		1		(3)
Consolidated obligation discount notes:
Not elected for fair value option	(25)		(3)		(28)		3		(2)		1
MBS:
Not elected for fair value option	4		—		4		—		—		—
Non-MBS investments:
Not elected for fair value option	—		—		—		35		(36)		(1)
Total	$	4	$	(17)	$	(13)	$	86	$	(61)	$	25

During the first nine months of 2022, net losses on derivatives totaled $13 million compared to net gains of $25 million in the first nine months of 2021. These amounts included expense of $17 million and expense of $61 million resulting from net settlements on derivative instruments used in economic hedges in the first nine months of 2022 and 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 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 – Note 11 – 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 nine months of 2022. The Bank recorded no settlement proceeds in the first nine months of 2021.

Other Expense. During the third quarter of 2022, other expenses totaled $41 million, compared to $38 million in the third quarter of 2021 mostly attributable to an increase in compensation and benefits. During the first nine months of 2022, other expenses totaled $117 million, compared to $116 million in the first nine months of 2021.

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Return on Average Equity. Return on average equity (ROE) was 4.52% (annualized) for the third quarter of 2022, compared to 4.34% (annualized) for the third quarter of 2021. The increase reflected higher net income for the third quarter of 2022, which increased 13%, from $71 million in the third quarter of 2021 to $80 million in the third quarter of 2022, partially offset by an increase in average equity from $6.5 billion in the third quarter of 2021 to $7.1 billion in the third quarter of 2022.

ROE was 4.09% (annualized) for the first nine months of 2022, compared to 4.59% (annualized) for the first nine months of 2021. The decrease reflected lower net income for the first nine months of 2022, which decreased 6%, from $220 million in the first nine months of 2021 to $206 million in the first nine months of 2022, and an increase in average equity from $6.4 billion in the first nine months of 2021 to $6.7 billion in the first nine months of 2022.

Dividends and Retained Earnings. In the third quarter of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $40 million, including $40 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the third quarter of 2021, the Bank paid dividends at an annualized rate of 6.00%, totaling $34 million, including $34 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock.

In the first nine months of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $108 million, including $108 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the first nine months of 2021, the Bank paid dividends at an annualized rate of 5.65%, totaling $98 million, including $98 million in dividends on capital stock and a 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.

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, and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the Framework. The methodology may be revised from time to time, and the required level of required retained earnings under the methodology may change due to updating data and assumptions used in the methodology. The required level of retained earnings was $2.6 billion and $1.5 billion at September 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 Joint Capital Enhancement (JCE) Agreement) and unrestricted retained earnings. The JCE Agreement is intended to enhance the capital position of each FHLBank. In accordance with the JCE Agreement, each FHLBank is required to allocate 20% of its net income each quarter to a separate restricted retained earnings account until the balance of the account, calculated as of the last day of each calendar quarter, equals at least 1% of that FHLBank's average balance of outstanding consolidated obligations for the calendar quarter. Under the JCE Agreement, these restricted retained earnings will not be available to pay dividends. The JCE Agreement also 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. During the nine months ended September 30, 2022, the Bank reclassified $16 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. The Bank made no reclassifications from restricted retained earnings to unrestricted retained earnings during the three months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Bank reclassified $18 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. As a result of increased consolidated obligations during the third quarter of 2022, an allocation of net income was made into restricted retained earnings for the period in accordance with the JCE Agreement. The Bank’s restricted retained earnings totaled $708 million at September 30, 2022 and December 31,

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2021. The Bank’s unrestricted retained earnings totaled $3.2 billion and $3.1 billion at September 30, 2022, and December 31, 2021, respectively.

For more information, see “Item 1. Financial Statements – Note 9 – Capital” in this report and see “Item 1. Business – Dividends and Retained 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 11 – Capital – Excess Stock Repurchase, Retained Earnings, and Dividend Framework” in the Bank’s 2021 Form 10-K.

Financial Condition

Total assets were $108.5 billion at September 30, 2022, compared to $54.1 billion at December 31, 2021. Advances increased by $48.7 billion, or 286%, to $65.7 billion at September 30, 2022, from $17.0 billion at December 31, 2021. Average total assets were $98.5 billion for the third quarter of 2022, a 71% increase from $57.5 billion for the third quarter of 2021. Average total assets were $76.4 billion for the first nine months of 2022, a 29% increase from $59.5 billion for the first nine months of 2021. Average advances were $58.5 billion for the third quarter of 2022, a 105% increase from $28.5 billion for the third quarter of 2021. Average advances were $43.1 billion for the first nine months of 2022, a 50% increase from $28.8 billion for the first nine months of 2021. Average MBS investments were $10.9 billion for the third quarter of 2022, a 20% decrease from $13.6 billion for the third quarter of 2021. Average MBS investments were $11.5 billion for the first nine months of 2022, a 19% decrease from $14.1 billion for the first nine months of 2021.

Advances outstanding at September 30, 2022, included net unrealized losses of $740 million, of which $692 million represented unrealized losses on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $48 million represented unrealized losses on economically hedged advances that are carried at fair value in accordance with the fair value option. Advances outstanding at December 31, 2021, included net unrealized gains of $169 million, of which $103 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $66 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option. The change in the net unrealized losses on the hedged advances and advances carried at fair value from December 31, 2021, to September 30, 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 $101.2 billion at September 30, 2022, an increase of $53.3 billion from $47.9 billion at December 31, 2021, primarily reflecting a $50.8 billion increase in consolidated obligations outstanding to $97.5 billion at September 30, 2022, from $46.7 billion at December 31, 2021. Average total liabilities were $91.5 billion for the third quarter of 2022, an 80% increase compared to $50.9 billion for the third quarter of 2021. Average total liabilities were $69.7 billion for the first nine months of 2022, a 31% increase compared to $53.1 billion for the first nine months of 2021. Average consolidated obligations were $89.8 billion for the third quarter of 2022 and $49.5 billion for the third quarter of 2021. Average consolidated obligations were $68.0 billion for the first nine months of 2022 and $51.4 billion for the first nine months of 2021.

Consolidated obligations outstanding at September 30, 2022, included net unrealized gains of $1.1 billion on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized gains of $68 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, 2021, included net unrealized gains of $139 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized gains of $6 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. The change in the net unrealized gains on the hedged consolidated obligation bonds and on the consolidated obligation bonds carried at fair value from December 31, 2021, to September 30, 2022, were primarily attributable to the

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effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the Bank’s 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 September 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 the FHLBanks was $1.0 trillion at September 30, 2022, and $652.9 billion at December 31, 2021.

Certain 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 Bank’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 LIBOR 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 the Bank members’ transition from LIBOR to an alternative index.

On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that required each FHLBank to adhere to the Fallbacks Protocol (Protocol) by December 31, 2020, and, to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol 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 January 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 Bank’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 no 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 non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency 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 Protocol and Supplement, and as a result, the fallbacks spread adjustment for each 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

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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 September 30, 2022, and December 31, 2021.

LIBOR-Indexed Financial Instruments
September 30, 2022
(In millions)	Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates thereafter		Total
Assets indexed to LIBOR:
Par value of advances by redemption term	$	75	$	—	$	—	$	75
Unpaid principal balance of MBS by contractual maturity(1)	—		7		3,215		3,222
Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared	45		304		222		571
Uncleared	20		20		—		40
Total	$	140	$	331	$	3,437	$	3,908
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared	$	—	$	52	$	—	$	52
Uncleared	35		—		—		35
Total	$	35	$	52	$	—	$	87

December 31, 2021
(In millions)	Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates thereafter		Total
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
Cleared	517		309		562		1,388
Uncleared	112		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
Uncleared	35		—		—		35
Total	$	245	$	52	$	40	$	337

(1)Certain MBS with multiple indices where LIBOR is the majority index are included in this amount.

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As of September 30, 2022, there were no interest rate caps and floors indexed to LIBOR. At December 31, 2021, interest rate caps and floors indexed to LIBOR totaled $550 million.

All adjustable rate consolidated obligation bonds are indexed to SOFR, totaling $12.6 billion at September 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.”

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 includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivatives” in other income/(loss), excludes interest income and expense associated with changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges that are recorded in net interest income, and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” Affordable Housing Program (AHP) assessments are not included in the segment reporting analysis but are 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 10 – Segment Information.”

Advances-Related Business. The advances-related business consists of advances and other credit products, related financing and hedging instruments, liquidity and other non-MBS investments associated with the Bank’s role as a liquidity provider, and capital. Assets associated with this segment increased $56.7 billion to $96.8 billion (89% of total assets) at September 30, 2022, from $40.1 billion (74% of total assets) at December 31, 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 attributed to the Bank’s capital stock and retained earnings.

Adjusted net interest income for this segment was $86 million in the third quarter of 2022, an increase of $44 million, or 105%, compared to $42 million in the third quarter of 2021. This quarterly increase was primarily a result of an improvement in spreads on advances-related assets and higher balances of advances and other credit products. Adjusted net interest income for this segment was $172 million in the first nine months of 2022, an increase of $29 million, or 20%, compared to $143 million in the first nine months of 2021. This increase was primarily a result of an improvement in spreads on advances-related assets and higher balances of advances and other credit products, partially offset by a decrease of $19 million in net advance prepayment fee income.

Adjusted net interest income for this segment represented 64% and 40% of total adjusted net interest income for the third quarters of 2022 and 2021, respectively, and 48% and 42% of total adjusted net interest income for the first nine months of 2022 and 2021, respectively.

Advances – The par value of advances outstanding increased by $49.5 billion, or 294%, to $66.4 billion at September 30, 2022, from $16.9 billion at December 31, 2021. Average advances outstanding were $58.5 billion for the third quarter of 2022, a 105% increase from $28.5 billion for the third quarter of 2021. Average advances outstanding were $43.1 billion for the first nine months of 2022, a 50% increase from $28.8 billion for the first nine months of 2021. Outstanding balances of advances may significantly increase and decrease from period to period

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because of a member’s liquidity and financial strategies; therefore, period end balances may vary significantly from average balances for the period.

Advances outstanding to the Bank’s top five borrowers and their affiliates increased by $31.3 billion to $40.2 billion at September 30, 2022, from $8.9 billion at December 31, 2021. (See “Item 1. Financial Statements – Note 4 – Advances – Concentration Risk” for further information.) Silicon Valley Bank is the Bank’s largest borrower and held $13.5 billion of the Bank’s advances at September 30, 2022. Silicon Valley Bank had no advances outstanding at December 31, 2021.

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 $8.0 billion and $2.1 billion of the Bank’s advances at September 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 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 $18.2 billion. The $49.5 billion increase in advances outstanding reflected a $33.4 billion increase in fixed rate advances, a $12.9 billion increase in variable rate advances, and a $3.2 billion increase in adjustable 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.

The components of the advances portfolio at September 30, 2022, and December 31, 2021, are presented in the following table.

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Advances Portfolio by Product Type
	September 30, 2022				December 31, 2021
(Dollars in millions)	Par Value		Percentage of Total Par Value		Par Value		Percentage of Total Par Value
Adjustable – LIBOR	$	75	—	%	$	250	1	%
Adjustable – SOFR	2,315		3		—		—
Adjustable – SOFR, callable at borrower’s option	1,075		2		—		—
Subtotal adjustable rate advances	3,465		5		250		1
Fixed	33,023		50		4,765		28
Fixed – amortizing	44		—		69		—
Fixed – with PPS(1)	1,037		2		1,406		9
Fixed – with FPS(1)	13,750		21		8,957		54
Fixed – with caps and PPS(1)	—		—		10		—
Fixed – callable at borrower’s option with FPS(1)	340		—		70		—
Fixed – putable at Bank’s option	—		—		200		1
Fixed – putable at Bank’s option with FPS(1)	700		1		—		—
Fixed – putable at Bank’s option with PPS(1)	10		—		20		—
Subtotal fixed rate advances	48,904		74		15,497		92
Daily variable rate	14,029		21		1,111		7
Total par value	$	66,398	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 September 30, 2022, and December 31, 2021.

LIBOR-Indexed Advances by Redemption Term
(In millions)	Par Value
Redemption Term	September 30, 2022		December 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.”

(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 $30.9 billion and $22.7 billion as of September 30, 2022, and December 31, 2021, respectively.

Interest rate payment terms for non-MBS investments classified as trading and AFS at September 30, 2022, and December 31, 2021, are detailed in the following table:

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Non-MBS Investments: Interest Rate Payment Terms
(In millions)	September 30, 2022		December 31, 2021
Fair value of fixed rate trading securities	$	—	$	250
Amortized cost of AFS securities	3,801		503

Borrowings – Total liabilities (primarily consolidated obligations) funding the advances-related business increased to $89.6 billion at September 30, 2022, from $33.8 billion at December 31, 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 13 – 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, the Bank typically enters into interest rate exchange agreements with features that offset the complex features of the bonds to convert the bonds to adjustable rate instruments. For example, the Bank may issue fixed rate callable bonds and simultaneously execute an interest rate exchange agreement with call features to offset the call options embedded in the callable bonds.

At September 30, 2022, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $112.1 billion, of which $34.7 billion were hedging advances, $71.9 billion were hedging consolidated obligations, $4.1 billion were hedging non-MBS investments, and $1.4 billion were offsetting derivatives. At December 31, 2021, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $48.0 billion, of which $15.8 billion were hedging advances, $24.3 billion were hedging consolidated obligations, $0.8 billion were hedging non-MBS investments, and $7.1 billion were offsetting derivatives. The hedges associated with advances and consolidated obligations were primarily used to convert the fixed rate cash flows of the advances and consolidated obligations to adjustable rate 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.

On March 15, 2020, the Federal Open Market Committee (FOMC) lowered the Federal funds rate, to a target range of 0.00% to 0.25%. The current range is 3.00% to 3.25%, and the FOMC anticipates that ongoing increases in the target range will be appropriate. Interest rate changes have and are expected to continue to adversely impact and increase the volatility of reported earnings. In addition, the FOMC is expected to continue reducing its holdings of Treasury securities and agency debt and agency MBS to reduce the size of the Federal Reserve’s balance sheet. The following table presents a comparison of selected market interest rates as of the selected dates.

Selected Market Interest Rates
Market Instrument	September 30, 2022		December 31, 2021		September 30, 2021		December 31, 2020
Federal Reserve target range for overnight Federal funds	3.00-3.25	%	0.00-0.25	%	0.00-0.25	%	0.00-0.25	%
Secured Overnight Financing Rate	2.98		0.05		0.05		0.07
3-month Treasury bill	3.27		0.04		0.03		0.06
2-year Treasury note	4.28		0.73		0.28		0.12
5-year Treasury note	4.09		1.26		0.97		0.36

Mortgage-Related Business. The mortgage-related business consists of MBS investments, mortgage loans acquired through the Mortgage Partnership Finance® (MPF®) Program, and the related financing and hedging

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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. Assets associated with this segment were $11.7 billion (11% of total assets) at September 30, 2022, and $14.1 billion at December 31, 2021 (26% of total assets).

Adjusted net interest income for this segment was $48 million in the third quarter of 2022, a decrease of $14 million, or 23%, from $62 million in the third quarter of 2021. This quarterly decrease was primarily a result of lower earnings from lower balances of mortgage-related products and current expected credit losses. Adjusted net interest income for this segment was $184 million in the first nine months of 2022, a decrease of $16 million, or 8%, from $200 million in the first nine months of 2021. This decrease was primarily a result of lower earnings from lower balances of mortgage-related products and current expected credit losses, partially offset by an increase in net prepayment fee income on AFS MBS and an improvement in retrospective adjustment of the effective yields on mortgage loans.

Adjusted net interest income for this segment represented 36% and 60% of total adjusted net interest income for the third quarters of each 2022 and 2021, and 52% and 58% of total adjusted net interest income for first nine months of 2022 and 2021, respectively.

MBS Investments – The Bank’s MBS portfolio was $10.8 billion at September 30, 2022, compared with $13.0 billion at December 31, 2021. During the first nine months of 2022, the Bank’s MBS portfolio decreased as a result of $1.4 billion in principal repayments, a $1.0 billion decrease in basis adjustments, and $314 million of fair value losses, partially offset by $412 million in purchases. Average MBS investments were $10.9 billion in the third quarter of 2022, a decrease of $2.7 billion from $13.6 billion in the third quarter of 2021. Average MBS investments were $11.5 billion in the first nine months of 2022, a decrease of $2.7 billion from $14.1 billion in the first nine months of 2021. For a discussion of the composition of the Bank’s MBS portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments.”

Interest rate payment terms for MBS classified as trading, AFS, and held-to-maturity (HTM) at September 30, 2022, and December 31, 2021, are shown in the following table:

MBS: Interest Rate Payment Terms
(In millions)	September 30, 2022		December 31, 2021
Fair value of trading securities:
Adjustable rate	$	1	$	2
Total trading securities	$	1	$	2
Amortized cost of AFS securities:
Fixed rate	$	7,490	$	8,423
Adjustable rate	887		1,083
Total AFS securities	$	8,377	$	9,506
Amortized cost of HTM securities:
Fixed rate	$	284	$	403
Adjustable rate	2,148		2,808
Total HTM securities	$	2,432	$	3,211

Mortgage Loans – Mortgage loan balances decreased to $834 million at September 30, 2022, from $980 million at December 31, 2021, a decrease of $146 million. Average mortgage loans were $850 million in the third quarter of 2022, a decrease of $371 million from $1.2 billion in the third quarter of 2021. Average mortgage loans were $892 million in the first nine months of 2022, a decrease of $572 million from $1.5 billion in the first nine months of 2021.

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At September 30, 2022, and December 31, 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” in the Bank’s 2021 Form 10-K. Mortgage loan balances at September 30, 2022, and December 31, 2021, were as follows:

Mortgage Loan Balances by MPF Product Type
(In millions)	September 30, 2022		December 31, 2021
MPF Plus	$	88	$	106
MPF Original	706		848
Subtotal	794		954
Unamortized premiums	43		28
Unamortized discounts	(2)		(1)
Mortgage loans held for portfolio	835		981
Less: Allowance for credit losses	(1)		(1)
Mortgage loans held for portfolio, net	$	834	$	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 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K.

Borrowings – Total consolidated obligations funding the mortgage-related business decreased $2.4 billion to $11.7 billion at September 30, 2022, from $14.1 billion at December 31, 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 13 – Commitments and Contingencies.”

The notional amount of derivative instruments associated with the mortgage-related business totaled $16.0 billion at September 30, 2022, of which $7.7 billion were associated with MBS and $8.3 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio. The notional amount of derivative instruments associated with the mortgage-related business totaled $15.6 billion at December 31, 2021, of which $8.0 billion were associated with MBS and $7.6 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio.

For information on the Bank’s management of interest rate risk and 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.”

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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 may enter into interest rate swaps (including callable, putable, and basis swaps) and cap and floor agreements (collectively, interest rate exchange agreements) to manage its exposure to market risks inherent in its ordinary course of business, including its lending, investment, and funding activities. For more information on 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, and 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 – Interest Rate Exchange Agreements” in the Bank’s 2021 Form 10-K.

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.”

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 September 30, 2022, and December 31, 2021.

Concentration of Derivative Counterparties
(Dollars in millions)	September 30, 2022					December 31, 2021
Derivative Counterparty	Credit   Rating(1)	Notional Amount		Percentage of Total Notional Amount		Credit   Rating(1)	Notional Amount		Percentage of Total Notional Amount
Uncleared
Others	At least BBB	$	26,456	21	%	At least BBB	$	18,381	29	%
Subtotal uncleared		26,456		21			18,381		29
Cleared
LCH Ltd(2)
Morgan Stanley & Co. LLC	A	36,200		28		A	33,268		52
Goldman Sachs & Co. LLC	A	65,469		51		A	11,967		19
Subtotal cleared		101,669		79			45,235		71
Total		$	128,125	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 and was rated AA- with a Stable CreditWatch by S&P at September 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 seeks 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 to maintain ready access to available funds to meet normal

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transaction requirements, take advantage of appropriate investment opportunities, and manage unforeseen liquidity demands.

The Bank generally manages operational, contingent, and refinancing risks using a portfolio of cash and short-term investments and access to the debt capital markets. In addition, the Bank maintains alternate sources of funds, detailed in its contingent liquidity 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 Finance Agency has established base case liquidity guidelines that each FHLBank maintain sufficient liquidity at least equal to its anticipated cash outflows, assuming no new consolidated obligation issuance, renewal of all maturing advances, a specified percentage drawdown on letters of credit balances, and certain Treasury investments as a 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.

In addition to 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).

As of September 30, 2022, and December 31, 2021, the Bank held total sources of funds in an amount that would have allowed the Bank to meet its liquidity needs without issuing new consolidated obligations for over 10 days, in accordance with the Finance Agency guidance. In addition, the Bank’s funding gap positions as of September 30, 2022, and December 31, 2021, were within the tolerance levels provided by the Finance Agency guidance. The Bank had committed to the issuance of $3.2 billion in consolidated obligations at September 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 2021 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 September 30, 2022, the Bank had no advance commitments and $19.7 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 Bank’s capital requirements are discussed in “Item 1, Financial Statements – Note 9 – Capital” in this report and “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 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 board of directors has adopted a Risk Governance Policy that outlines the key roles and responsibilities of the board of directors and management and sets forth how the Bank is organized to achieve its risk management objectives, including the implementation of the Bank’s strategic objectives, risk management strategies, and corporate governance. The policy also 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 2021 Form 10-K.

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. 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, which the Bank can change from time to time. The borrowing capacity percentage varies according to several factors, including the charter type of the institution, the collateral type, the value assigned to the collateral, the results of the Bank’s collateral field review of the borrower’s collateral, the pledging method used for loan collateral (specific identification or blanket lien), the amount of loan data provided (detailed or summary reporting), the data reporting frequency (monthly or quarterly), the borrower’s financial strength and condition, and any institution-specific 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.

For more information on the Bank’s management of credit risk on its advances, see “Item 7. Management’s Discussion and Analysis of Financial Condition and 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 September 30, 2022, and December 31, 2021.

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Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Credit Quality Rating
(Dollars in millions)
September 30, 2022
	All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
					Collateral Borrowing Capacity(2)
Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding(1)		Total		Used
1-3	261	147	$	73,223	$	274,539	27	%
4-6	61	32	12,924		28,879		45
7-10	4	2	15		44		34
Subtotal	326	181	86,162		303,462		28
Community development financial institutions (CDFIs)	7	6	78		139		56
Housing associates	2	1	31		103		30
Total	335	188	$	86,271	$	303,704	28	%

December 31, 2021
	All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
					Collateral Borrowing Capacity(2)
Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding(1)		Total		Used
1-3	260	127	$	26,398	$	213,172	12	%
4-6	64	32	7,158		33,733		21
7-10	3	2	20		37		54
Subtotal	327	161	33,576		246,942		14
CDFIs	7	7	112		135		83
Housing associates	2	—	—		—		—
Total	336	168	$	33,688	$	247,077	14	%

(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, 2022
Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding(1)		Collateral Borrowing Capacity(2)
0% – 10%	10	$	2,185	$	2,288
11% – 25%	9	18,297		22,558
26% – 50%	19	15,421		29,185
More than 50%	150	50,368		249,673
Total	188	$	86,271	$	303,704

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December 31, 2021
Unused Borrowing Capacity	Number 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
Total	168	$	33,688	$	247,077

(1)Includes advances, letters of credit, the market value of swaps, estimated prepayment fees for certain borrowers, and the credit enhancement obligation on MPF loans.

(2)Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.

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

Securities pledged as collateral are assigned borrowing capacities that reflect the securities’ market valuations and market liquidation risks. The following table presents the securities collateral pledged by all members and by nonmembers with credit outstanding at September 30, 2022, and December 31, 2021.

Composition of Securities Collateral Pledged by Members and by Nonmembers with Credit Outstanding
(In millions)	September 30, 2022				December 31, 2021
Securities Type with Current Credit Ratings	Current Par		Borrowing Capacity		Current Par		Borrowing Capacity
U.S. Treasury (bills, notes, bonds)	$	2,544	$	2,299	$	659	$	631
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools)	4,510		3,972		4,192		3,978
Agency pools and collateralized mortgage obligations	40,235		32,938		17,571		16,553
Private-label commercial MBS – publicly registered investment-grade-rated senior tranches	84		53		4		3
PLRMBS – private label investment-grade-rated senior tranches	352		185		311		194
Municipal Bonds – investment-grade-rated	10		7		—		—
Term deposits with the Bank	6		6		18		18
Total	$	47,741	$	39,460	$	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 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.

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.

As of September 30, 2022, of the loan collateral pledged to the Bank, 15% was pledged by 21 institutions by specific identification, 55% was pledged by 113 institutions under a blanket lien with detailed reporting, and 30% was pledged by 131 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.

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As of September 30, 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: 85% for first lien residential mortgage loans, 81% for multifamily mortgage loans, 81% for commercial mortgage loans, and 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 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 presents the mortgage loan collateral pledged by all members and by nonmembers with credit outstanding at September 30, 2022, and December 31, 2021.

Composition of Loan Collateral Pledged by Members and by Nonmembers with Credit Outstanding
(In millions)	September 30, 2022				December 31, 2021
Loan Type	Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity
First lien residential mortgage loans	$	245,730	$	174,909	$	175,319	$	140,994
Second lien residential mortgage loans and home equity lines of credit	14,044		6,841		13,659		6,653
Multifamily mortgage loans	50,612		32,126		41,239		28,517
Commercial mortgage loans	82,251		49,604		73,750		48,394
Loan participations(1)	764		263		1,064		383
Small business, small farm, and small agribusiness loans	2,118		501		3,157		759
Other	3		—		—		—
Total	$	395,522	$	264,244	$	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.

The Bank holds a security interest in subprime residential mortgage loans pledged as collateral. Subprime loans are defined as loans with a borrower FICO score of 660 or less at origination, or if the original FICO score is not available, as loans with a current borrower FICO score of 660 or less. At September 30, 2022, and December 31, 2021, the unpaid principal balance of these loans totaled $4.9 billion and $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.

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.

For more information on the Bank’s management of credit risk on its investments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments” in the Bank’s 2021 Form 10-K.

The following table presents the Bank’s investment credit exposure at September 30, 2022, based on the lowest of the long-term credit ratings provided by Moody’s, S&P, or Fitch Ratings (Fitch) ratings.

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Investment Credit Exposure
(In millions)
September 30, 2022
	Carrying Value
	Credit Rating(1)
Investment Type	AAA		AA		A		BBB		Below Investment Grade		Unrated		Total
U.S. obligations – Treasury securities	$	—	$	3,799	$	—	$	—	$	—	$	—	$	3,799
MBS:
Other U.S. obligations – single-family	—		80		—		—		—		—		80
MBS – GSEs:
GSEs – single-family(2)	5		778		2		—		2		—		787
GSEs – multifamily	—		8,544		—		—		—		—		8,544
Total MBS – GSEs	5		9,322		2		—		2		—		9,331
PLRMBS	—		23		41		48		791		497		1,400
Total MBS	5		9,425		43		48		793		497		10,811
Total securities	5		13,224		43		48		793		497		14,610
Interest-bearing deposits	—		—		2,405		—		—		—		2,405
Securities purchased under agreements to resell	—		12,000		—		—		—		—		12,000
Federal funds sold	—		2,850		8,884		912		—		—		12,646
Total investments	$	5	$	28,074	$	11,332	$	960	$	793	$	497	$	41,661

(1)Credit ratings of BB and lower are below investment grade.

(2)The Bank has one security guaranteed by Fannie Mae but rated BB at September 30, 2022, by S&P because of extraordinary expenses incurred during bankruptcy of 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 with member and nonmember counterparties, all of which are highly rated.

The following table presents the unsecured credit exposure with counterparties by investment type at September 30, 2022, and December 31, 2021.

Unsecured Investment Credit Exposure by Investment Type
	Carrying Value(1)
(In millions)	September 30, 2022		December 31, 2021
Interest-bearing deposits	$	2,405	$	1,125
Federal funds sold	12,646		5,348
Total	$	15,051	$	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, 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 Fitch ratings. This table does not reflect the foreign sovereign government’s credit rating. At September 30, 2022, 63% of the

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Bank’s total unsecured investments were to U.S. branches and agency offices of foreign commercial banks. At September 30, 2022, all of the unsecured investments held by the Bank had overnight maturities.

Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty
(In millions)
September 30, 2022
	Carrying Value(1)
	Credit Rating(2)
Domicile of Counterparty	AA		A		BBB		Total
Domestic	$	—	$	4,313	$	912	$	5,225
U.S. subsidiaries of foreign commercial banks	—		350		—		350
Total domestic and U.S. subsidiaries of foreign commercial banks	—		4,663		912		5,575
U.S. branches and agency offices of foreign commercial banks:
Australia	—		1,646		—		1,646
Canada	2,100		1,646		—		3,746
Finland	750		—		—		750
Germany	—		1,020		—		1,020
Netherlands	—		1,514		—		1,514
United Kingdom	—		800		—		800
Total U.S. branches and agency offices of foreign commercial banks	2,850		6,626		—		9,476
Total unsecured credit exposure	$	2,850	$	11,289	$	912	$	15,051

(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, 2022.

(2)Does not reflect changes in ratings, outlook, or watch status occurring after September 30, 2022. These ratings represent the lowest rating available for each unsecured investment owned by the Bank, based on the ratings provided by Fitch, Moody’s, or S&P. The Bank’s internal rating may differ from 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 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 September 30, 2022, the Bank’s MBS portfolio was 157% of Bank regulatory capital (as determined in accordance with regulations governing the operations of the FHLBanks). The Bank has not purchased any PLRMBS since the first quarter of 2008.

The Bank executes all MBS investments without preference to the status of the counterparty or the issuer of the investment as a nonmember, member, or affiliate of a member. When the Bank executes non-MBS investments with members, the Bank may give consideration to their secured credit availability and the Bank’s advances price levels.

As of September 30, 2022, the Bank’s investment in MBS had gross unrealized losses totaling $91 million, $31 million of which were related to PLRMBS. These gross unrealized losses were primarily due to illiquidity in the MBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

For its agency MBS, the Bank expects to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses. As a result, the Bank determined that, as of September 30, 2022, all of the gross unrealized losses on its agency MBS are temporary.

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 additional credit losses on PLRMBS in future

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periods. Additional credit 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 an allowance for credit losses on its PLRMBS in the future.

The Bank has exposure 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 September 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 Index	September 30, 2022		December 31, 2021
LIBOR(1)	$	3,222	$	4,110
Constant maturity Treasury	54		64
Total adjustable rate investment securities(2)	$	3,276	$	4,174

LIBOR-Indexed MBS by Redemption Term
(In millions)
Redemption Term	September 30, 2022		December 31, 2021
Due through June 30, 2023	$	7	$	12
Due thereafter(2)	3,215		4,098
Total LIBOR-Indexed investment securities	$	3,222	$	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. Interest rate exchange agreements may be either uncleared or cleared at a clearinghouse.

Uncleared Derivatives – The Bank selects only highly rated derivative dealers and major banks (derivative dealer counterparties) that meet the Bank’s eligibility criteria to act as counterparties for its uncleared derivative activities. In addition, for all uncleared derivative transactions, the Bank has entered into master netting agreements and bilateral credit support agreements with all its derivative dealer counterparties that provide for delivery of margin 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 set at zero (subject to a minimum transfer amount).

The Bank is subject to the risk of potential nonperformance by its counterparty in a derivative transaction. A counterparty generally must deliver or return margin to the Bank if the total unsecured exposure to that counterparty exceeds the 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 September 30, 2022.

Cleared Derivatives – In a cleared derivatives transaction, the Bank is subject to nonperformance by the clearinghouse and its futures commission merchant or clearing agent. The requirement that the Bank post initial and variation margin through a clearing agent to the clearinghouse exposes the Bank to institutional credit risk if the clearing agent fails to meet its obligations. The use of a clearinghouse, or central counterparty, lowers overall credit risk exposure because it 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 or collected for changes in the value of the portfolio, and initial margin is posted for changes in risk profile of the

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portfolio. Because of an increase in market values of cleared derivatives during the first nine months of 2022 and the first nine 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 September 30, 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)
September 30, 2022
Counterparty Credit Rating(1)	Notional Amount		Net Fair Value of Derivatives Before Collateral		Cash Collateral Pledged to/ (from) Counterparty		Noncash Collateral Pledged to/ (from) Counterparty		Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
AA	$	432	$	15	$	(15)	$	—	$	—
A	8,226		326		(314)		—		12
BBB	38		—		—		—		—
Cleared derivatives(2)	101,669		24		21		335		380
Liability positions with credit exposure:
Uncleared derivatives
A	9,642		(286)		290		—		4
BBB	930		(59)		60		—		1
Total derivative positions with credit exposure to nonmember counterparties	120,937		$	20	$	42	$	335	$	397
Member institutions(3)	—		—		—		—		—
Total	120,937		$	20	$	42	$	335	$	397
Derivative positions without credit exposure	7,188
Total notional	$	128,125

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December 31, 2021
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	$	1,500	$	9	$	(9)	$	—	$	—
Liability positions with credit exposure:
Uncleared derivatives
A	42		(1)		1		—		—
Cleared derivatives(2)	45,235		(7)		15		252		260
Total derivative positions with credit exposure to nonmember counterparties	46,777		$	1	$	7	$	252	$	260
Derivative positions without credit exposure	16,839
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 September 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 September 30, 2022, and December 31, 2021.

LIBOR-Indexed Interest Rate Swaps by Interest Rate Index
(In millions)	September 30, 2022				December 31, 2021
Interest Rate Index	Pay Leg		Receive Leg		Pay Leg		Receive Leg
Fixed	$	44,953	$	83,172	$	25,846	$	37,220
LIBOR	87		611		337		1,533
SOFR	82,704		43,399		35,887		22,526
Overnight Index Swap – Effective Federal Funds Rate	381		943		996		1,787
Total notional amount	$	128,125	$	128,125	$	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 September 30, 2022, and December 31, 2021. As of September 30, 2022, there were no interest rate caps and floors indexed to LIBOR. At December 31, 2021, interest rate caps and floors indexed to LIBOR totaled $550 million. 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)
September 30, 2022
	Pay Leg				Receive Leg
Termination Date	Cleared		Uncleared		Cleared		Uncleared
Terminates in 2022	$	—	$	35	$	45	$	20
Terminates through June 30, 2023	52		—		304		20
Terminates thereafter(1)	—		—		222		—
Total Notional Amount	$	52	$	35	$	571	$	40

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December 31, 2021
	Pay Leg				Receive Leg
Termination Date	Cleared		Uncleared		Cleared		Uncleared
Terminates in 2022	$	210	$	35	$	517	$	112
Terminates through June 30, 2023	52		—		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 2021 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: 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; 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 before 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 nine months of 2022 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 Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K and in “Item 1. Financial Statements – Note 12 – Fair Value.”

Recently Issued Accounting Guidance and Interpretations

See “Item 1. Financial Statements – Note 2 – Recently Issued Accounting Guidance” for a discussion of recently issued accounting standards and interpretations.

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Recent Developments

Annual Designation of Member Director and Independent Director Positions. On June 1, 2022, the Finance Agency designated one member director position for Arizona, six for California, and one for Nevada, effective January 1, 2023, the same allocation of positions as for 2022. In addition, the Finance Agency designated seven independent director positions for the Bank for 2023, the same number of positions as for 2022. The Arizona member director position, one of the California member director positions, and one of the independent director positions, all with current terms ending on December 31, 2022, will be filled through an election of the members located in Arizona (for the Arizona member director position), California (for the one California member director position), and an election of all members of the Bank (for the one independent director position). The elections will be held in the fourth quarter of 2022. The Arizona member director position, the one California member director position and the one independent director position will each have a four-year term that begins on January 1, 2023.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is defined as the risk to the Bank’s market value of capital and future earnings (excluding the impact of any cumulative net gains or losses on derivatives and associated hedged items and on financial instruments carried at fair value) as a result of movements in market interest rates, interest rate spreads, interest rate volatility, and other market factors (market rate factors). This profile reflects the Bank’s objective of maintaining a conservative asset-liability mix and its commitment to providing value to its members through products and dividends without subjecting their investments in Bank capital stock to significant market risk.

The Bank’s Risk Appetite 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 Appetite Framework approved by the Bank’s board of directors establishes market risk 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 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 limits and guidelines is reviewed by the Bank’s board of directors on a regular basis, along with a corrective action plan if applicable.

Total Bank Market Risk

Market Value of Capital Sensitivity – The Bank uses market value of capital sensitivity (the interest rate sensitivity of the net fair value of all assets, liabilities, and interest rate exchange agreements) as an important measure of the Bank’s exposure to changes in interest rates.

The Bank’s market value of capital sensitivity risk 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) is no worse than a 3.0% change in the estimated market value of capital. In addition, the risk 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 is no worse than 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 limits as of September 30, 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

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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.

The following table presents the sensitivity of the market value of capital (the market value of all of the Bank’s assets, liabilities, and associated interest rate exchange agreements, with mortgage assets valued using market spreads implied by current market prices) to changes in interest rates. The table presents the estimated percentage change in the Bank’s market value of capital that would be expected to result from changes in interest rates under different interest rate scenarios, using market spread assumptions.

Market Value of Capital Sensitivity Estimated Percentage Change in Market Value of Bank Capital for Various Changes in Interest Rates
Interest Rate Scenario(1)	September 30, 2022		December 31, 2021
+200 basis-point change above current rates	–2.7	%	–2.3	%
+100 basis-point change above current rates	–1.3		–0.9
–100 basis-point change below current rates(2)	+1.2		+0.5
–200 basis-point change below current rates(2)	+2.2		+4.9

(1)Instantaneous change from actual rates at dates indicated.

(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 September 30, 2022, are comparable with the estimates as of December 31, 2021, with the exception of the declining rate scenarios. The increase in interest rates from yearend resulted in a larger absolute downward rate shocks for all term points. Compared to yearend, interest rates as of September 30, 2022, have increased ranging from 299 basis points for the one-month Treasury bill, 269 basis points for the five-year Treasury note, and 225 basis points for the 10-year Treasury note.

The Bank’s Risk Management Policy provides guidelines for the payment of dividends and the repurchase of excess stock based on the ratio of the Bank’s estimated market value of total capital to par value of capital stock. If this ratio at the end of any quarter is: (i) less than 100% but greater than or equal to 90%, any dividend would be limited to an annualized rate no greater than the daily average of the Federal funds effective rate for the applicable quarter (subject to certain conditions), and any excess 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 stock repurchases would be subject to the same limitations and conditions as in (i) above, except that any excess stock repurchases would not exceed 4% of the Bank’s outstanding capital stock as of the repurchase date; and (iii) less than 70%, the Bank would not pay a dividend, not repurchase excess stock (but continue to redeem excess stock as provided in the Bank’s capital plan), limit the acquisition of certain assets, and review the Bank’s risk policies. A decision by the board of directors to declare or not declare any dividend or repurchase any excess stock is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks. The ratio of the Bank’s estimated market value of total capital to par value of capital stock was 220% as of September 30, 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

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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.

The Bank’s Risk Appetite Framework incorporates a limit on the sensitivity of projected financial performance to projected adverse changes in the adjusted return on capital. The Bank’s adjusted return on capital sensitivity limit 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-case projected adjusted return on capital. With the indicated interest rate shifts, the adjusted return on capital for the projected 12-month horizon is projected to remain within the 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 risk limit.

Total Bank Duration Gap Analysis
	September 30, 2022			December 31, 2021
(Dollars in millions)	Amount (In millions)		Duration Gap(1) (In months)	Amount (In millions)		Duration Gap(1) (In months)
Assets	$	108,507	1.8	$	54,121	3.4
Liabilities	101,243		0.8	47,897		3.0
Net	$	7,264	1.0	$	6,224	0.4

(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 to 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 Treasury securities, generally with terms up to four years. These fixed rate investments are swapped to variable rate investments.

Mortgage-Related Business – The Bank’s mortgage assets include MBS, most of which are classified as HTM or 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 effect of mortgage prepayments and the existence of interest rate caps on certain adjustable rate MBS.

The Bank manages the interest rate risk and market risk of the mortgage-related segment through its investment in low-risk assets and selected funding and hedging strategies. The total carrying value of MBS and mortgage loans at September 30, 2022, was $11.6 billion, including $10.8 billion in MBS and $835 million 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 $981 million in mortgage loans. Floating rate securities, and fixed rate multifamily securities that have been converted to floating rate through the use of interest rate swaps, were $10.2 billion, or 88%, of MBS and

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mortgage loans at September 30, 2022, and $12.2 billion, or 87%, of MBS and mortgage loans at December 31, 2021. Intermediate and long-term fixed rate assets, whose interest rate and market risks have been partially offset through the use of fixed rate callable debt, fixed rate non-callable debt, and certain interest rate swaps, were $1.4 billion, or 12%, of MBS and mortgage loans, at September 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,” 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 limits and guidelines for the mortgage-related business address the market value of capital sensitivity of the assets, liabilities, and derivatives of the mortgage-related business.

The following table presents results of the estimated market value of capital sensitivity analysis attributable to the mortgage-related business as of September 30, 2022, and December 31, 2021.

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)	2022		2021
+200 basis-point change	–0.8	%	–0.5	%
+100 basis-point change	–0.4		–0.1
–100 basis-point change(2)	+0.3		–0.2
–200 basis-point change(2)	+0.4		+2.6

(1)Instantaneous change from actual rates at dates indicated.

(2)Interest rates for each maturity are limited to non-negative rates.

The explanations for the changes in Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates attributable to the mortgage-related business from December 31, 2021, to September 30, 2022, are the same as the explanations for the sensitivity of the market value of capital attributable to all of the Bank’s assets, liabilities, and associated interest rate exchange agreements.

For more information on quantitative and qualitative disclosures about the Bank’s market risk, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Market Risk” in the Bank’s 2021 Form 10-K.

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 executive vice president and chief financial officer as of the end of the period covered by this report. Based on that evaluation, the Bank’s president and chief executive officer and executive vice president and chief financial officer have concluded that the Bank’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.

Internal Control Over Financial Reporting

During the three months ended September 30, 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.

Consolidated Obligations

The Bank’s disclosure controls and procedures include controls and procedures for accumulating and communicating information in compliance with the Bank’s disclosure and financial reporting requirements relating to the joint and several liability for the consolidated obligations of the Federal Home Loan Banks (FHLBanks). Because the FHLBanks are independently managed and operated, the Bank’s management relies on information that is provided or disseminated by the Federal Housing Finance Agency (Finance Agency), the Office of Finance, and the other FHLBanks, as well as on published FHLBank credit ratings, in determining whether the joint and several liability regulation is reasonably likely to result in a direct obligation for the Bank or whether it is reasonably possible that the Bank will accrue a direct liability.

The Bank’s management also relies on the operation of the joint and several liability regulation. The joint and several liability regulation requires that each FHLBank file with the Finance Agency a quarterly certification that it will remain capable of making full and timely payment of all of its current obligations, including direct obligations, coming due during the next quarter. In addition, if an FHLBank cannot make such a certification or if it projects that it may be unable to meet its current obligations during the next quarter on a timely basis, it must file a notice with the Finance Agency. Under the joint and several liability regulation, the Finance Agency may order any FHLBank to make principal and interest payments on any consolidated obligations of any other FHLBank, or allocate the outstanding liability of an FHLBank among all remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis.

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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

The Federal Home Loan Bank of San Francisco (Bank) may be subject to various legal proceedings arising in the normal course of business.

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.    RISK FACTORS

The Bank is subject to a number of risks as set forth in “Part I. Item 1A. Risk Factors” in the Bank’s 2021 Form 10-K. In addition, reference is made to “Quarterly Overview”, as well as other sections, of Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q regarding other potential risks and uncertainties facing the Bank.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

None.

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ITEM 6.    EXHIBITS

Exhibit No.	Description
31.1	Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the 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 4, 2022.

Federal Home Loan Bank of San Francisco

/S/ TERESA B. BAZEMORE

Teresa B. Bazemore
President and Chief Executive Officer
(Principal executive officer)

/S/ JOSEPH E. AMATO

Joseph E. Amato
Executive Vice President and Chief Financial Officer
(Principal financial officer)

/S/ KITTY PAYNE

Kitty Payne
Senior Vice President and Controller
(Principal accounting officer)

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