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Table of Contents

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, 2021
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 classTrading Symbol(s)Name of each exchange on which registered
———
  ___________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.    ☒  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, 2021
Class B Stock, par value $100 per share21,330,563 

Table of Contents

Federal Home Loan Bank of San Francisco
Form 10-Q
Index
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
Item 2.
Item 3.
Item 4.
PART II.
Item 1.
Item 1A.
Item 6.

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
Federal Home Loan Bank of San Francisco
Statements of Condition
(Unaudited)
(In millions-except par value)September 30,
2021		December 31,
2020
Assets:
Cash and due from banks$55 $174 
Interest-bearing deposits1,125 1,078 
Securities purchased under agreements to resell6,500 7,250 
Federal funds sold6,133 1,880 
Trading securities(a)
2,260 4,260 
Available-for-sale (AFS) securities, net of allowance for credit losses of $15 and $21, respectively (amortized cost of $10,504 and $15,456, respectively)(b)
10,825 15,679 
Held-to-maturity (HTM) securities (fair values were $3,551 and $5,115, respectively)(a)
3,521 5,081 
Advances (includes $1,952 and $2,147 at fair value under the fair value option, respectively)
22,613 30,976 
Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $4, respectively
1,134 1,935 
Accrued interest receivable61 82 
Derivative assets, net11 3 
Other assets 221 236 
Total Assets$54,459 $68,634 
Liabilities:
Deposits$826 $887 
Consolidated obligations:
Bonds (includes $521 and $111 at fair value under the fair value option, respectively)
22,025 44,408 
Discount notes24,814 16,213 
Total consolidated obligations46,839 60,621 
Mandatorily redeemable capital stock4 2 
Accrued interest payable25 24 
Affordable Housing Program (AHP) payable122 120 
Derivative liabilities, net9 12 
Other liabilities260 774 
Total Liabilities48,085 62,440 
Commitments and Contingencies (Note 13)
Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
23 shares and 23 shares, respectively
2,253 2,284 
Unrestricted retained earnings3,059 2,919 
Restricted retained earnings743 761 
Total Retained Earnings3,802 3,680 
Accumulated other comprehensive income/(loss) (AOCI)319 230 
Total Capital6,374 6,194 
Total Liabilities and Capital$54,459 $68,634 
(a)At September 30, 2021, and December 31, 2020, none of these securities were pledged as collateral that may be repledged.
(b)At September 30, 2021, and December 31, 2020, $284 and $379, respectively, of these securities were pledged as collateral that may be repledged.
The accompanying notes are an integral part of these financial statements.
1
Table of Contents

Federal Home Loan Bank of San Francisco
Statements of Income
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(In millions)2021202020212020
Interest Income:
Advances$47 $88 $167 $509 
Interest-bearing deposits— 1 1 14 
Securities purchased under agreements to resell1 1 1 20 
Federal funds sold2 1 4 16 
Trading securities13 23 54 61 
AFS securities57 67 168 179 
HTM securities10 19 34 92 
Mortgage loans held for portfolio7 7 34 22 
Total Interest Income137 207 463 913 
Interest Expense:
Consolidated obligations:
Bonds13 47 49 405 
Discount notes3 12 10 163 
Deposits1 — 1 2 
Mandatorily redeemable capital stock— 1 — 5 
Total Interest Expense17 60 60 575 
Net Interest Income120 147 403 338 
Provision for/(reversal of) credit losses— (2)(8)30 
Net Interest Income After Provision for/(Reversal of) Credit Losses120 149 411 308 
Other Income/(Loss):
Net gain/(loss) on trading securities(13)(19)(50)36 
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(9)(7)(40)96 
Net gain/(loss) on derivatives15 5 25 (156)
Gain on disgorgement settlement— 85 — 85 
Other, net4 6 15 18 
Total Other Income/(Loss)(3)70 (50)79 
Other Expense:
Compensation and benefits22 23 70 65 
Other operating expense13 14 37 41 
Federal Housing Finance Agency2 2 6 6 
Office of Finance1 1 4 4 
Other, net— — (1)3 
Total Other Expense38 40 116 119 
Income/(Loss) Before Assessment79 179 245 268 
AHP Assessment8 18 25 27 
Net Income/(Loss)$71 $161 $220 $241 
The accompanying notes are an integral part of these financial statements.

2
Table of Contents

Federal Home Loan Bank of San Francisco
Statements of Comprehensive Income
(Unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
(In millions)2021202020212020
Net Income/(Loss)$71 $161 $220 $241 
Other Comprehensive Income/(Loss):
Net unrealized gain/(loss) on AFS securities(72)172 92 (138)
Net change in pension and postretirement benefits(3)(1)(3)(1)
Net non-credit-related gain/(loss) on HTM securities— — — 1 
Total other comprehensive income/(loss)(75)171 89 (138)
Total Comprehensive Income/(Loss)$(4)$332 $309 $103 

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

3
Table of Contents

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

Capital Stock
Class B—Putable		Retained EarningsTotal
Capital
(In millions)SharesPar ValueRestrictedUnrestrictedTotalAOCI
Balance, June 30, 202027 $2,668 $729 $2,765 $3,494 $(35)$6,127 
Comprehensive income/(loss)32 129 161 171 332 
Issuance of capital stock— 30 30 
Repurchase of capital stock(2)(233)(233)
Cash dividends paid on capital stock (5.00%)
(36)(36)(36)
Balance, September 30, 202025 $2,465 $761 $2,858 $3,619 $136 $6,220 
Balance, June 30, 202123 $2,269 $761 $3,004 $3,765 $394 $6,428 
Comprehensive income/(loss)— 71 71 (75)(4)
Issuance of capital stock4 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, 202123 $2,253 $743 $3,059 $3,802 $319 $6,374 


Capital Stock
Class B—Putable		Retained EarningsTotal
Capital
(In millions)SharesPar ValueRestrictedUnrestrictedTotalAOCI
Balance, December 31, 201930 $3,000 $713 $2,754 $3,467 $274 $6,741 
Adjustment for cumulative effect of accounting change(3)(3)(3)
Comprehensive income/(loss)48 193 241 (138)103 
Issuance of capital stock8 781 781 
Repurchase of capital stock(13)(1,313)(1,313)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net— (3)(3)
Partial recovery of prior capital distribution to Financing Corporation40 40 40 
Cash dividends paid on capital stock (5.68%)
(126)(126)(126)
Balance, September 30, 202025 $2,465 $761 $2,858 $3,619 $136 $6,220 
Balance, December 31, 202023 $2,284 $761 $2,919 $3,680 $230 $6,194 
Comprehensive income/(loss)— 220 220 89 309 
Issuance of capital stock7 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, 202123 $2,253 $743 $3,059 $3,802 $319 $6,374 

The accompanying notes are an integral part of these financial statements.
4
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Federal Home Loan Bank of San Francisco
Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
(In millions)20212020
Cash Flows from Operating Activities:
Net Income/(Loss)$220 $241 
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization/(accretion)60 15 
Provision for/(reversal of) credit losses(8)30 
Change in net fair value of trading securities 50 (36)
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option40 (96)
Change in net derivatives and hedging activities417 (1,180)
Other adjustments, net5 7 
Net change in:
Accrued interest receivable22 41 
Other assets8 (2)
Accrued interest payable1 (133)
Other liabilities(13)(41)
Total adjustments582 (1,395)
Net cash provided by/(used in) operating activities802 (1,154)
Cash Flows from Investing Activities:
Net change in:
Interest-bearing deposits(10)834 
Securities purchased under agreements to resell750 250 
Federal funds sold(4,253)1,239 
Trading securities:
Proceeds1,950 1 
Purchases— (2,480)
AFS securities:
Proceeds8,334 1,929 
Purchases(4,275)(525)
HTM securities:
Proceeds1,560 1,830 
Advances:
Repaid111,264 453,774 
Originated(103,233)(425,576)
Mortgage loans held for portfolio:
Principal collected805 1,295 
Purchases(7)(446)
Other investing activities, net— (2)
Net cash provided by/(used in) investing activities12,885 32,123 
5

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Federal Home Loan Bank of San Francisco
Statements of Cash Flows (continued)
(Unaudited)
Nine Months Ended September 30,
(In millions)20212020
Cash Flows from Financing Activities:
Net change in deposits and other financing activities65 472 
Net (payments)/proceeds on derivative contracts with financing elements(32)(133)
Net proceeds from issuance of consolidated obligations:
Bonds15,174 41,669 
Discount notes61,597 98,750 
Payments for matured and retired consolidated obligations:
Bonds(37,491)(58,137)
Discount notes(52,992)(112,776)
Proceeds from issuance of capital stock685 781 
Payments for repurchase/redemption of mandatorily redeemable capital stock(14)(139)
Payments for repurchase of capital stock(700)(1,313)
Cash dividends paid(98)(126)
Partial recovery of prior capital distribution to Financing Corporation— 40 
Net cash provided by/(used in) financing activities(13,806)(30,912)
Net increase/(decrease) in cash and due from banks(119)57 
Cash and due from banks at beginning of the period174 118 
Cash and due from banks at end of the period$55 $175 
Supplemental Disclosures:
Interest paid$78 $706 
AHP payments23 50 
 
The accompanying notes are an integral part of these financial statements.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements
(Unaudited)



(Dollars in millions except per share amounts)

Note 1 — Basis of Presentation
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, 2021. 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, 2020 (2020 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 2020 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 prior to the adoption of accounting guidance related to the measurement of credit losses on MBS and mortgage loans.
Actual results could differ significantly from these estimates.
Out-of-Period Adjustments in the Statements of Condition and Statements of Income. In the third quarter of 2021, the Bank identified five hedge strategy elections that originated starting in the fourth quarter of 2020 where the transactions were incorrectly designated as fair value hedges when they should have been recorded as non-hedge qualifying economic hedges. The incorrect designations resulted in misstatements to previously issued financial statements as presented in the following tables.
December 31, 2020March 31, 2021June 30, 2021
As ReportedOverstatement/(Understatement)As ReportedOverstatement/(Understatement)As ReportedOverstatement/(Understatement)
Advances$30,976 $1 $28,140 $(17)$24,194 $(13)
Total Assets68,634 1 57,908 (17)54,244 (13)
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


As ReportedOverstatement/(Understatement)
 Year ended December 31, 2020:
Net gain/(loss) on derivatives$(152)$1 
Income/(loss) before assessments373 1 
Three months ended March 31, 2021:
Net gain/(loss) on derivatives$18 $(18)
Income/(loss) before assessments104 (18)
Three months ended June 30, 2021:
Net gain/(loss) on derivatives$(8)$4 
Income/(loss) before assessments62 4 
Six months ended June 30, 2021:
Net gain/(loss) on derivatives$10 $(14)
Income/(loss) before assessments166 (14)
The Bank made out-of-period adjustments to reverse the net impact on the Bank’s financial statements resulting from the incorrect designations in the third quarter of 2021. These adjustments resulted in an increase in advances and net gain/(loss) on derivatives by $13 for the three months ended September 30, 2021, and an understatement of net gain/(loss) on derivatives of $1 for the nine months ended September 30, 2021. The Bank has evaluated the impact of these adjustments, on a quantitative and qualitative basis, and has concluded that these adjustments were not material to the current and any previously issued financial statements.
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 2020 Form 10-K. Other changes to these policies as of September 30, 2021, are discussed in Note 2 – Recently Issued Accounting Guidance.
Note 2 — Recently Issued Accounting Guidance
The following table provides a summary of recently issued accounting standards that may have an effect on the financial statements.
Accounting Standards Update (ASU)DescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended (ASU 2020-04)This guidance provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include:
• contract modifications,
• hedging relationships, and
• sale or transfer of debt securities classified as held-to-maturity (HTM).		This guidance is effective immediately for the Bank, and the Bank may elect to apply the amendments prospectively through December 31, 2022.The Bank has assessed the guidance and has elected some of the optional expedients and exceptions provided. In particular, during the fourth quarter of 2020, the Bank elected optional expedients specific to the discounting transition for cleared derivative transactions on a retrospective basis, which did not have a material effect. Additionally, the Bank elected optional expedients related to the discounting transition for uncleared derivative transactions on a prospective basis during the third quarter of 2021, which did not have a material effect.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


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, 2021, and December 31, 2020, 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.
Federal funds sold are unsecured loans that are generally transacted on an overnight term. Federal Housing Finance Agency (Finance Agency) regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At September 30, 2021, and December 31, 2020, 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, 2021, and December 31, 2020. Carrying values of interest-bearing deposits and Federal funds sold exclude de minimis amounts of accrued interest receivable as of September 30, 2021, and December 31, 2020.
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, 2021, and December 31, 2020. The carrying value of securities purchased under agreements excludes de minimis amounts of accrued interest receivable as of September 30, 2021, and December 31, 2020.
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 private-label residential mortgage-backed securities (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, 2021, and December 31, 2020, was as follows:
September 30, 2021December 31, 2020
U.S. obligations – Treasury notes$2,258 $4,257 
MBS – Other U.S. obligations – Ginnie Mae2 3 
Total$2,260 $4,260 
The net gain/(loss) on trading securities was $(13) and $(19) for the three months ended September 30, 2021 and 2020, respectively, of which $(12) and $(19) related to unrealized gain/(loss) on trading securities held at September 30, 2021 and 2020, respectively. The net gain/(loss) on trading securities was $(50) and $36 for the nine months ended September 30, 2021 and 2020, respectively, of which $(34) and $36 related to unrealized gain/(loss) on trading securities held at September 30, 2021 and 2020, respectively. These amounts represent the changes in the fair value of the securities during the reported periods.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Available-for-Sale Securities. AFS securities by major security type as of September 30, 2021, and December 31, 2020, were as follows:
September 30, 2021

Amortized
Cost(1)
Allowance for Credit LossesGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated Fair Value
U.S. obligations – Treasury notes$856 $— $— $— $856 
MBS:
Government Sponsored Enterprises (GSEs) – multifamily:
Freddie Mac792 — 26 — 818 
Fannie Mae7,318 — 129 — 7,447 
Subtotal MBS – GSEs – multifamily8,110 — 155 — 8,265 
PLRMBS:
Prime142 — 13 — 155 
Alt-A1,396 (15)173 (5)1,549 
Subtotal PLRMBS1,538 (15)186 (5)1,704 
Total MBS9,648 (15)341 (5)9,969 
Total$10,504 $(15)$341 $(5)$10,825 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


December 31, 2020
Amortized
Cost(1)
Allowance for Credit LossesGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated Fair Value
U.S. obligations – Treasury securities:
U.S. Treasury notes$2,980 $— $3 $— $2,983 
U.S. Treasury bills2,000 — — — 2,000 
Total U.S. obligations – Treasury securities4,980 — 3 — 4,983 
MBS:
GSEs – multifamily:
Freddie Mac833 — 18 — 851 
Fannie Mae7,744 — 72 (6)7,810 
Subtotal MBS – GSEs – multifamily8,577 — 90 (6)8,661 
PLRMBS:
Prime174 (1)9 — 182 
Alt-A1,725 (20)168 (20)1,853 
Subtotal PLRMBS1,899 (21)177 (20)2,035 
Total MBS10,476 (21)267 (26)10,696 
Total$15,456 $(21)$270 $(26)$15,679 
(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 $30 and $46 at September 30, 2021, and December 31, 2020, respectively.
At September 30, 2021, the amortized cost of the Bank’s MBS classified as AFS included premiums of $60, discounts of $42, and credit-related other-than-temporary impairment (OTTI) of $424 for AFS securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020. At December 31, 2020, the amortized cost of the Bank’s MBS classified as AFS included premiums of $65, discounts of $47, and credit-related OTTI of $486 for AFS securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020.
The following tables summarize the AFS securities with unrealized losses as of September 30, 2021, and December 31, 2020. 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, 2021
 Less Than 12 Months12 Months or MoreTotal
 Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
U.S. obligations – Treasury notes$350 $— $— $— $350 $— 
MBS – GSEs – multifamily – Fannie Mae77 — — — 77 — 
PLRMBS:
Prime— — 6 — 6 — 
Alt-A— — 172 5 172 5 
Subtotal PLRMBS— — 178 5 178 5 
Total$427 $— $178 $5 $605 $5 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


December 31, 2020
Less Than 12 Months12 Months or MoreTotal
Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses		Estimated
Fair Value		Unrealized
Losses
U.S. obligations – Treasury notes$501 $— $— $— $501 $— 
MBS – GSEs – multifamily – Fannie Mae731 6 222 — 953 6 
PLRMBS:
Prime4 — 7 — 11 — 
Alt-A151 7 168 13 319 20 
Subtotal PLRMBS155 7 175 13 330 20 
Total$1,387 $13 $397 $13 $1,784 $26 
Redemption Terms. The amortized cost and estimated fair value of non-MBS investments by contractual maturity (based on contractual final principal payment) and of MBS as of September 30, 2021, and December 31, 2020, are shown below. Expected maturities of MBS will differ from contractual maturities because borrowers may have the right to call or prepay the underlying obligations with or without call or prepayment fees.
September 30, 2021
Year of Contractual MaturityAmortized
Cost		Estimated
Fair Value
AFS securities other than MBS – Due in 1 year or less$856 $856 
MBS9,648 9,969 
Total$10,504 $10,825 
December 31, 2020
Year of Contractual MaturityAmortized
Cost		Estimated
Fair Value
AFS securities other than MBS:
Due in 1 year or less$4,469 $4,470 
Due after 1 year through 5 years511 513 
Subtotal4,980 4,983 
MBS10,476 10,696 
Total$15,456 $15,679 
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:
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


September 30, 2021

Amortized
Cost(1)
Gross
Unrecognized
Holding
Gains(2)
Gross
Unrecognized
Holding
Losses(2)
Estimated
Fair Value
MBS – Other U.S. obligations – single-family:
Ginnie Mae$135 $3 $— $138 
MBS – GSEs – single-family:
Freddie Mac250 7 — 257 
Fannie Mae885 15 (1)899 
Subtotal MBS – GSEs – single-family1,135 22 (1)1,156 
MBS – GSEs – multifamily:
Freddie Mac1,308 5 — 1,313 
Fannie Mae709 — (3)706 
Subtotal MBS – GSEs – multifamily2,017 5 (3)2,019 
Subtotal MBS – GSEs3,152 27 (4)3,175 
PLRMBS:
Prime149 1 (1)149 
Alt-A85 4 — 89 
Subtotal PLRMBS234 5 (1)238 
Total$3,521 $35 $(5)$3,551 
December 31, 2020

Amortized
Cost(1)
Gross
Unrecognized
Holding
Gains(2)
Gross
Unrecognized
Holding
Losses(2)
Estimated
Fair Value
MBS – Other U.S. obligations – single-family:
Ginnie Mae$261 $7 $— $268 
MBS – GSEs – single-family:
Freddie Mac511 11 — 522 
Fannie Mae1,229 21 (1)1,249 
Subtotal MBS – GSEs – single-family1,740 32 (1)1,771 
MBS – GSEs – multifamily:
Freddie Mac1,844 2 (2)1,844 
Fannie Mae945 — (1)944 
Subtotal MBS – GSEs – multifamily2,789 2 (3)2,788 
Subtotal MBS – GSEs4,529 34 (4)4,559 
PLRMBS:
Prime185 — (4)181 
Alt-A106 3 (2)107 
Subtotal PLRMBS291 3 (6)288 
Total$5,081 $44 $(10)$5,115 
(1)    Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and net charge offs, and excludes accrued interest receivable of $3 and $5 at September 30, 2021, and December 31, 2020, respectively.
(2)    Gross unrecognized 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.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


At September 30, 2021, the amortized cost of the Bank’s MBS classified as HTM included premiums of $4, discounts of $4, and credit-related OTTI of $6 for HTM securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020. At December 31, 2020, the amortized cost of the Bank’s MBS classified as HTM included premiums of $5, discounts of $6, and credit-related OTTI of $6 for HTM securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020.
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, 2021 and 2020. The Bank recorded no allowance for credit losses associated with HTM securities during the three and nine months ended September 30, 2021 and 2020.
Three Months EndedNine Months Ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Balance, beginning of the period$14 $29 $21 $— 
(Charge-offs)/recoveries— (1)(1)(2)
Provision for/(reversal of) credit losses1 (4)(5)26 
Balance, end of the period$15 $24 $15 $24 

To evaluate investment securities for credit loss at September 30, 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, 2021, and December 31, 2020, 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, 2021, and December 31, 2020, 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. In addition, substantially all of these securities carry an implicit or explicit government guarantee. As a result, no allowance for credit losses was recorded on these AFS securities at September 30, 2021, and December 31, 2020.
As of September 30, 2021, and December 31, 2020, the Bank had not established an allowance for credit loss on any of its HTM securities because the securities: (i) were all highly rated or had short remaining terms to maturity, (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, and (iii) in the case of GSE or other U.S. obligations, carry an implicit or explicit government guarantee such that the Bank considers the risk of nonpayment to be zero.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


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, 2021, and December 31, 2020, approximately 5% and 6%, respectively, 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 reflects management’s expectations and includes 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 securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020, as of September 30, 2021 (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), the following table presents a summary of the significant inputs used in measuring the fair value of PLRMBS classified as Level 3 as of September 30, 2021, and the related current credit enhancement for the Bank.
September 30, 2021Current
Prepayment RatesDefault RatesLoss SeveritiesCredit Enhancement
Collateral Type at Origination
Weighted Average % (1)
Weighted Average % (1)
Weighted Average % (1)
Weighted Average % (1)
Prime15.8 4.0 86.5 13.1 
Alt-A10.9 8.1 49.5 7.5 
Total11.3 7.8 52.9 8.1 
(1)Weighted average percentage is based on unpaid principal balance.
Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before the Bank will experience a loss on the security. The calculated averages represent the dollar-weighted averages of all the PLRMBS investments in each category shown. The classification is based on the model used to run the estimated cash flows for the CUSIP, which may not necessarily be the same as the classification at the time of origination.
The total net accretion recognized in interest income associated with PLRMBS that were other-than-temporarily impaired prior to January 1, 2020, totaled $19 and $17 for the three months ended September 30, 2021 and 2020, respectively, and $52 and $54 for the nine months ended September 30, 2021 and 2020, respectively. Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


the securities totaled $13 and $14 for the three months ended September 30, 2021 and 2020, respectively, and $39 and $45 for the nine months ended September 30, 2021 and 2020, respectively.
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 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 prior to maturity in view of changes in interest rates, changes in prepayment risk, or other factors, while recognizing the Bank’s intent to hold these securities for an indefinite period of time. The Bank did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three and nine months ended September 30, 2021, nor during the three months ended September 30, 2020. The Bank transferred PLRMBS from its HTM portfolio to its AFS portfolio with an amortized cost and fair value of $1 during the nine months ended September 30, 2020.
For the Bank’s PLRMBS, the Bank recorded a provision for credit losses of $1 during the three months ended September 30, 2021, primarily resulting from a decline in fair value prices for certain PLRMBS. The Bank recorded a reversal of credit losses of $5 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. The Bank experienced declines in fair value in March 2020 as a result of disruptions in the financial markets combined with illiquidity in the PLRMBS market and decreased expectations of the performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost. The Bank recorded a provision for credit losses on its PLRMBS portfolio of $26 during the nine months ended September 30, 2020. As a result of improvement in the Bank’s PLRMBS fair values during the three months ended September 30, 2020, the Bank recorded a reversal of credit losses on its PLRMBS portfolio of $4.

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, excluding overdrawn demand deposit accounts, at interest rates ranging from 0.13% to 8.57% at September 30, 2021, and 0.00% to 8.57% at December 31, 2020, as summarized below.
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 September 30, 2021December 31, 2020
Redemption Term
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Within 1 year$8,632 1.61 %$11,862 1.65 %
After 1 year through 2 years2,514 1.53 6,399 1.61 
After 2 years through 3 years2,468 1.65 4,321 2.10 
After 3 years through 4 years4,082 1.34 2,704 1.79 
After 4 years through 5 years3,365 1.83 3,278 1.26 
After 5 years1,246 2.08 1,774 1.79 
Total par value22,307 1.62 %30,338 1.68 %
Valuation adjustments for hedging activities220 509 
Valuation adjustments under fair value option86 130 
Unamortized discounts— (1)
Total$22,613 $30,976 
(1)Carrying amounts exclude accrued interest receivable of $5 and $6 at September 30, 2021, and December 31, 2020, 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 prepayment. In addition, for certain advances with full or partial prepayment symmetry, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. The Bank had advances with full prepayment symmetry outstanding totaling $14,363 at September 30, 2021, and $19,919 at December 31, 2020. The Bank had advances with partial prepayment symmetry outstanding totaling $1,596 at September 30, 2021, and $1,817 at December 31, 2020. Some advances may be repaid on pertinent call dates without prepayment fees (callable advances). The Bank had callable advances outstanding totaling $70 at September 30, 2021, and $1,100 at December 31, 2020.
The Bank had putable advances totaling $220 at September 30, 2021, and $220 December 31, 2020. 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, 2021, and December 31, 2020, 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
September 30, 2021December 31, 2020September 30, 2021December 31, 2020
Within 1 year$8,702 $12,962 $8,852 $12,082 
After 1 year through 2 years2,514 5,299 2,514 6,399 
After 2 years through 3 years2,418 4,321 2,468 4,321 
After 3 years through 4 years4,082 2,704 4,082 2,704 
After 4 years through 5 years3,365 3,278 3,365 3,278 
After 5 years1,226 1,774 1,026 1,554 
Total par value$22,307 $30,338 $22,307 $30,338 
Concentration Risk. The following tables present the concentration in advances to the top five borrowers and their affiliates at September 30, 2021 and 2020. 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, 2021 and 2020.
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September 30, 2021Three Months Ended
September 30, 2021		Nine Months Ended
September 30, 2021
Name of BorrowerAdvances
Outstanding		Percentage of
Total
Advances
Outstanding
Interest
Income from
Advances(1)
Percentage of
Total Interest
Income from
Advances
Interest
Income from
Advances(1)
Percentage of
Total Interest
Income from
Advances
First Republic Bank$7,700 35 %$28 29 %$103 32 %
MUFG Union Bank, National Association4,075 18 24 25 83 25 
First Technology Federal Credit Union1,776 8 7 7 21 6 
Luther Burbank Savings752 3 3 3 11 3 
Banc of California, National Association411 2 3 3 8 3 
Subtotal14,714 66 65 67 226 69 
Others7,593 34 32 33 103 31 
Total par value$22,307 100 %$97 100 %$329 100 %
September 30, 2020Three Months Ended
September 30, 2020		Nine Months Ended
September 30, 2020
Name of BorrowerAdvances
Outstanding		Percentage of
Total
Advances
Outstanding
Interest
Income from
Advances(1)
Percentage of
Total Interest
Income from
Advances
Interest
Income from
Advances(1)
Percentage of
Total Interest
Income from
Advances
First Republic Bank$13,510 37 %$62 35 %$201 28 %
MUFG Union Bank, National Association4,925 13 36 21 141 19 
CIT Bank, National Association2,550 7 4 2 20 3 
First Technology Federal Credit Union1,975 5 11 6 34 5 
Luther Burbank Savings962 3 5 3 16 2 
     Subtotal23,922 65 118 67 412 57 
Others12,968 35 57 33 310 43 
Total par value$36,890 100 %$175 100 %$722 100 %
(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.
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 a 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;
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•certain other real estate-related collateral, such as certain privately issued mortgage-backed securities, 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, 2021, and December 31, 2020, 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 nine months ended September 30, 2021, or during 2020.
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, 2021, the Bank expects to collect all amounts due according to the contractual terms. Therefore, no allowance for losses on advances was deemed necessary by the Bank as of September 30, 2021, and December 31, 2020.
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 2020 Form 10-K.
Interest Rate Payment Terms. Interest rate payment terms for advances at September 30, 2021, and December 31, 2020, are detailed below:
September 30, 2021December 31, 2020
Par value of advances:
Fixed rate:
Due within 1 year$7,907 $11,044 
Due after 1 year13,600 17,126 
Total fixed rate21,507 28,170 
Adjustable rate:
Due within 1 year725 818 
Due after 1 year75 1,350 
Total adjustable rate800 2,168 
Total par value$22,307 $30,338 
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, 2021, or December 31, 2020. The Bank has generally elected to account for certain advances with embedded features under the fair value option, and these advances are carried at fair value on the Statements of Condition. For more information, see Note 11 – Derivatives and Hedging Activities and Note 12 – Fair Value.
Prepayment Fees, Net. The Bank charges borrowers prepayment fees or pays borrowers prepayment credits when the principal on certain advances is paid prior to original maturity. The Bank records prepayment fees net of any associated fair value adjustments related to prepaid advances that were hedged. The net amount of prepayment fees is reflected as advances interest income in the Statements of Income for the three and nine months ended September 30, 2021 and 2020, as follows:
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Notes to Financial Statements (continued)


Three Months EndedNine Months Ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Prepayment fees received/(paid)$2 $38 $28 $77 
Fair value adjustments(2)(35)(13)(62)
Net$— $3 $15 $15 
Advance principal prepaid$1,397 $5,018 $5,073 $21,804 
Note 5 — Mortgage Loans Held for Portfolio
The following table presents information as of September 30, 2021, and December 31, 2020, on mortgage loans, all of which are secured by one- to four-unit residential properties and single-unit second homes.

September 30, 2021December 31, 2020
Fixed rate medium-term mortgage loans$20 $27 
Fixed rate long-term mortgage loans1,087 1,879 
Subtotal1,107 1,906 
Unamortized premiums29 35 
Unamortized discounts(1)(2)
Mortgage loans held for portfolio(1)
1,135 1,939 
Less: Allowance for credit losses(1)(4)
Total mortgage loans held for portfolio, net$1,134 $1,935 
(1)Excludes accrued interest receivable of $7 and $10 at September 30, 2021, and December 31, 2020, 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. Past due loans are those where the borrower has failed to make timely payments of principal and interest in accordance with the terms of the loan. 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, 2021, and December 31, 2020.
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Notes to Financial Statements (continued)


September 30, 2021
Origination Year
Payment Status2017 to 2021Prior to 2017
Amortized Cost(1)
30 – 59 days delinquent$7 $2 $9 
60 – 89 days delinquent5 2 7 
90 days or more delinquent31 11 42 
Total past due43 15 58 
Total current loans852 225 1,077 
Total MPF$895 $240 $1,135 
In process of foreclosure, included above(2)
$2 
Nonaccrual loans(3)
$42 
Serious delinquencies as a percentage of total mortgage loans outstanding(4)
3.74 %
December 31, 2020
Origination Year
Payment Status2016 to 2020Prior to 2016
Amortized Cost(1)
30 – 59 days delinquent$20 $2 $22 
60 – 89 days delinquent5 2 7 
90 days or more delinquent95 9 104 
Total past due120 13 133 
Total current loans1,628 178 1,806 
Total MPF(5)
$1,748 $191 $1,939 
In process of foreclosure, included above(2)
$1 
Nonaccrual loans(3)
$104 
Serious delinquencies as a percentage of total mortgage loans outstanding(4)
5.34 %
(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, 2021, and December 31, 2020, $42 and $103, respectively, of these mortgage loans on nonaccrual status did not have an associated allowance for credit losses.
(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.
(5)    The amortized costs of the mortgage loans by origination year in the 2016 to 2020 column and prior to 2016 column that were previously disclosed in the “Mortgage Loans Held for Portfolio” note were incorrectly presented as of December 31, 2020, in the Bank’s 2020 Form 10-K. The amortized costs of the mortgage loans by origination year as of December 31, 2020, have been corrected. The total amortized costs presented for each period were properly disclosed. These revisions had no effect on the Bank’s total assets, net interest income, or net income for all affected periods.
Allowance for Credit Losses on Mortgage Partnership Finance® (MPF®) Loans. MPF loans are evaluated collectively for expected credit losses when similar risk characteristics exist. MPF loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis, factoring in the credit enhancement structure at the master commitment level. The Bank determines its allowances for credit losses on MPF loans 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. (“Mortgage Partnership Finance” and “MPF” are registered trademarks of the FHLBank of Chicago.) 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, 2021, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 7.8% 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. At December 31, 2020, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 2.3% over a one-year forecast
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Notes to Financial Statements (continued)


horizon before reverting to long-term housing price appreciation rates of 3.8% over a three-year forecast horizon based on historical averages. The Bank also incorporates associated credit enhancements, if any, to determine its estimate of expected credit losses.
Certain MPF loans 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, 2021 and 2020. 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, 2021 and 2020.
Three Months EndedNine Months Ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Balance, beginning of the period$2 $5 $4 $— 
Adjustment for cumulative effect of accounting change— — — 3 
Provision for/(reversal of) credit losses(1)2 (3)4 
Balance, end of the period$1 $7 $1 $7 
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 2020 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 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.
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Notes to Financial Statements (continued)


Deposits and interest rate payment terms for deposits as of September 30, 2021, and December 31, 2020, were as follows:
September 30, 2021December 31, 2020
Amount
Outstanding		Weighted
Average
Interest Rate		Amount
Outstanding		Weighted
Average
Interest Rate
Interest-bearing deposits:
Adjustable rate$705 0.01 %$732 0.01 %
Fixed rate66 0.01 16 0.01 
Total interest-bearing deposits771 748 
Non-interest-bearing deposits55 139 
Total$826 $887 

Note 7 — Consolidated Obligations
Consolidated obligations, consisting of consolidated obligation 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 2020 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, 2021, and December 31, 2020.
 September 30, 2021December 31, 2020
Contractual MaturityAmount
Outstanding		Weighted
Average
Interest Rate		Amount
Outstanding		Weighted
Average
Interest Rate
Within 1 year$6,565 0.36 %$34,542 0.23 %
After 1 year through 2 years3,628 0.30 6,923 0.21 
After 2 years through 3 years1,750 0.44 751 1.00 
After 3 years through 4 years2,500 0.60 677 0.67 
After 4 years through 5 years5,023 0.87 185 0.82 
After 5 years2,608 1.36 1,311 2.24 
Total par value22,074 0.62 %44,389 0.31 %
Unamortized premiums4 10 
Unamortized discounts(4)(5)
Valuation adjustments for hedging activities(47)13 
Fair value option valuation adjustments(2)1 
Total$22,025 $44,408 
The Bank’s participation in consolidated obligation bonds outstanding includes callable bonds of $12,133 at September 30, 2021, and $3,140 at December 31, 2020. When a callable bond for which the Bank is the primary
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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 swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of $10,543 at September 30, 2021, and $930 at December 31, 2020. 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, 2021, and December 31, 2020, was as follows:
September 30, 2021December 31, 2020
Par value of consolidated obligation bonds:
Non-callable$9,941 $41,249 
Callable12,133 3,140 
Total par value$22,074 $44,389 
The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding at September 30, 2021, and December 31, 2020, by the earlier of the year of contractual maturity or next call date.
Earlier of Contractual
Maturity or Next Call Date		September 30, 2021December 31, 2020
Within 1 year$18,323 $36,667 
After 1 year through 2 years3,623 7,228 
After 2 years through 3 years77 396 
After 3 years through 4 years— 47 
After 4 years through 5 years3 — 
After 5 years48 51 
Total par value$22,074 $44,389 
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, 2021December 31, 2020
 Amount
Outstanding
Weighted Average
Interest Rate (1)
Amount
Outstanding
Weighted Average
Interest Rate (1)
Par value$24,817 0.04 %$16,217 0.12 %
Unamortized discounts(3)(4)
Total$24,814 $16,213 
(1)Represents yield to maturity excluding concession fees.
Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at September 30, 2021, and December 31, 2020, 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 2020 Form 10-K.
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September 30, 2021December 31, 2020
Par value of consolidated obligations:
Bonds:
Fixed rate$14,736 $6,632 
Adjustable rate6,815 37,712 
Step-up523 45 
Total bonds, par value22,074 44,389 
Discount notes, par value24,817 16,217 
Total consolidated obligations, par value$46,891 $60,606 
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, 2021, or December 31, 2020. 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, 2021 and 2020:
Net Unrealized Gain/(Loss) on AFS SecuritiesPension and Postretirement BenefitsTotal
AOCI
Balance, June 30, 2020$(21)$(14)$(35)
Other comprehensive income/(loss) before reclassifications:
Net change in pension and postretirement benefits(1)(1)
Net change in fair value172 172 
Net current period other comprehensive income/(loss)172 (1)171 
Balance, September 30, 2020$151 $(15)$136 
Balance, June 30, 2021$408 $(14)$394 
Other comprehensive income/(loss) before reclassifications:
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 
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The following table summarizes the changes in AOCI for the nine months ended September 30, 2021 and 2020:
Net Unrealized Gain/(Loss) on AFS SecuritiesNet Non-Credit-Related OTTI Loss on AFS SecuritiesNet Non-Credit-Related OTTI Loss on HTM SecuritiesPension and Postretirement BenefitsTotal
AOCI
Balance, December 31, 2019$21 $268 $(1)$(14)$274 
Other comprehensive income/(loss) before reclassifications:
Net change in pension and postretirement benefits(1)(1)
Net change in fair value(138)— (138)
Accretion of non-credit loss1 1 
Net current period other comprehensive income/(loss)(138)— 1 (1)(138)
Adoption of ASU 2016-13, as amended(1)
268 (268)— 
Balance, September 30, 2020$151 $— $— $(15)$136 
Balance, December 31, 2020$244 $— $— $(14)$230 
Other comprehensive income/(loss) before reclassifications:
Net change in pension and postretirement benefits(3)(3)
Net change in fair value92 — 92 
Net current period other comprehensive income/(loss)92 — — (3)89 
Balance, September 30, 2021$336 $— $— $(17)$319 
(1)    With the adoption of changes to accounting standards on measurement of credit losses for financial instruments on January 1, 2020, OTTI assessment was replaced with an evaluation for an allowance for credit loss (see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” and “Item 8. Financial Statements and Supplementary Data – Note 2 – Recently Issued and Adopted Accounting Guidance” in the Bank’s 2020 Form 10-K for further information).

Note 9 — Capital
Capital Requirements. Under the Housing and Economic Recovery Act of 2008, the Director of the Finance Agency is responsible for setting the risk-based capital standards for the FHLBanks. The FHLBank Act and regulations governing the operations of the FHLBanks require that the Bank’s minimum capital stock requirement for shareholders must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. The Bank must maintain: (i) total regulatory capital in an amount equal to at least 4% of its total assets, (ii) leverage capital in an amount equal to at least 5% of its total assets, and (iii) permanent capital in an amount that is greater than or equal to its risk-based capital requirement.
The Finance Agency requires each FHLBank to maintain a ratio of at least 2% of capital stock to total assets in order to help preserve the cooperative structure incentives that encourage members to remain fully engaged in the oversight of their investment in the FHLBank. The Finance Agency will consider the proportion of capital stock to assets, measured on a daily average basis at monthend, when assessing each FHLBank’s capital management practices. As of September 30, 2021, and December 31, 2020, the Bank complied with this capital guidance.
Because the Bank issues only Class B stock, regulatory capital and permanent capital for the Bank are both composed of retained earnings and Class B stock, including mandatorily redeemable capital stock (which is classified as a liability for financial reporting purposes). Regulatory capital and permanent capital do not include AOCI. Leverage capital is defined as the sum of permanent capital, weighted by a 1.5 multiplier, plus non-permanent capital.
The risk-based capital requirement is equal to the sum of the Bank’s credit risk, market risk, and operations risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency.
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The Finance Agency may require an FHLBank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined.
As of September 30, 2021, and December 31, 2020, the Bank complied with these capital rules and requirements as shown in the following table.
September 30, 2021December 31, 2020
 RequiredActualRequiredActual
Risk-based capital$1,109 $6,059 $1,404 $5,966 
Total regulatory capital$2,178 $6,059 $2,745 $5,966 
Total regulatory capital ratio4.00 %11.12 %4.00 %8.69 %
Leverage capital$2,723 $9,088 $3,432 $8,949 
Leverage ratio5.00 %16.69 %5.00 %13.04 %
Mandatorily Redeemable Capital Stock. The Bank had mandatorily redeemable capital stock totaling $4 outstanding to three institutions at September 30, 2021, and $2 outstanding to three institutions at December 31, 2020. The change in mandatorily redeemable capital stock for the three and nine months ended September 30, 2021 and 2020 was as follows:
Three Months EndedNine Months Ended
 September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Balance at the beginning of the period$3 $83 $2 $138 
Reclassified from/(to) capital during the period13 — 16 3 
Repurchase/redemption of mandatorily redeemable capital stock(12)(81)(14)(139)
Balance at the end of the period$4 $2 $4 $2 
Cash dividends on mandatorily redeemable capital stock were recorded as interest expense of a de minimis amount and $1 for the three months ended September 30, 2021 and 2020, respectively, and of a de minimis amount and $5 for the nine months ended September 30, 2021 and 2020, respectively.
The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at September 30, 2021, and December 31, 2020.
Contractual Redemption PeriodSeptember 30, 2021December 31, 2020
After 4 years through 5 years$3 $— 
Past contractual redemption date because of remaining activity(1)
1 2 
Total$4 $2 
(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 2020 Form 10-K.
Excess Stock Repurchase, Retained Earnings, and Dividend Framework. By Finance Agency regulation, dividends may be paid only out of current net earnings or previously retained earnings. As required by the Finance Agency, the Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) summarizes the Bank’s capital management principles and objectives, as well as its policies and practices, with respect to retained earnings, dividend payments, and the repurchase of excess capital stock. The Bank may be restricted from paying dividends if the Bank is not in compliance with any of its minimum capital requirements or if payment would cause the Bank to fail to meet any of its minimum capital requirements. In addition, the Bank may
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


not pay dividends if any principal or interest due on any consolidated obligations has not been paid in full or is not expected to be paid in full, or, under certain circumstances, if the Bank fails to satisfy certain liquidity requirements under applicable Finance Agency regulations.
The Bank’s board of directors reviews the Framework at least annually and may amend the Framework from time to time. The Framework includes a dividend philosophy to endeavor to pay a quarterly dividend at an annualized rate between 5% and 7%. The decision to declare any dividend and the dividend rate are at the discretion of the Bank’s board of directors, which may choose to follow the dividend philosophy as guidance in the dividend declaration. The Board may also revise or eliminate the dividend policy in the future. The Bank’s historical dividend rates and the dividend philosophy are not indicative of future dividend declarations.
The Bank’s Risk Management Policy limits the payment of dividends if the ratio of the Bank’s estimated market value of total capital to par value of capital stock falls below certain levels. If this ratio at the end of any quarter is less than 100% but greater than or equal to 70%, any dividend would be limited to an annualized rate no greater than the daily average of the Federal funds effective rate for the applicable quarter (subject to certain conditions), and if this ratio is less than 70%, the Bank would be restricted from paying a dividend. The ratio of the Bank’s estimated market value of total capital to par value of capital stock was 292% as of September 30, 2021.
In addition, the Bank monitors the condition of its balance sheet, 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.
Retained Earnings – The Bank’s Framework assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings, which are not made available in the current dividend period, and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the Framework. As determined using the Bank’s methodology, the required level of total retained earnings had ranged from $2,400 to $2,500 during 2019 and continuing through September 2020. In September 2020, the methodology was revised and resulted in a required level of retained earnings of $2,900. In January 2021, the methodology was further revised and resulted in a required level of retained earnings of $1,900. In July 2021, the methodology was further revised and resulted in a required level of retained earnings of $1,500. 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 Bank’s retained earnings requirement may be changed at any time. The board of directors periodically reviews the retained earnings methodology and analysis to determine whether any adjustments are appropriate.
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. With the decline in consolidated obligations outstanding in 2020, the Bank ceased contributions to restricted retained earnings in the fourth quarter of 2020, in accordance with the JCE Agreement, and no further allocations of net income into restricted retained earnings are required until such time as the allocation requirement exceeds the balance of restricted retained earnings. Additionally, the JCE Agreement provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. As a result of the Bank exceeding this threshold, the Bank reclassified $18 from restricted retained earnings to unrestricted retained earnings during the third quarter of 2021. The Bank’s restricted retained earnings totaled $743 and $761 at September 30, 2021, and December 31, 2020, respectively. The Bank’s unrestricted retained earnings totaled $3,059 and $2,919 at September 30, 2021, and December 31, 2020, respectively.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


For more 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 2020 Form 10-K.
Dividend Payments – Finance Agency rules state that FHLBanks may declare and pay dividends only from previously retained earnings or current net earnings and may not declare or pay dividends based on projected or anticipated earnings. There is no requirement that the board of directors declare and pay any dividend. A decision by the board of directors to declare or not declare a dividend is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks.
In addition, Finance Agency rules do not permit the Bank to pay dividends in the form of capital stock if its excess capital stock exceeds 1% of its total assets. Excess capital stock is defined as the aggregate of the capital stock held by each shareholder in excess of its minimum capital stock requirement, as established by the Bank’s capital plan. Excess capital stock totaled $139, or 0.26% of total assets as of September 30, 2021. Excess capital stock totaled $161, or 0.23% of total assets as of December 31, 2020.
In the third quarter of 2021, the Bank paid dividends at an annualized rate of 6.00%, totaling $34, including $34 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the third quarter of 2020, the Bank paid dividends at an annualized rate of 5.00%, totaling $37, including $36 in dividends on capital stock and $1 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, including $98 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the first nine months of 2020, the Bank paid dividends at an annualized rate of 5.68%, totaling $131, including $126 in dividends on capital stock and $5 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 28, 2021, the Bank’s board of directors declared a quarterly cash dividend on the capital stock outstanding during the third quarter of 2021 at an annualized rate of 6.00%, totaling $36. The Bank recorded the dividend on October 28, 2021. The Bank expects to pay the dividend on November 10, 2021.
Excess Capital Stock – The Bank’s capital plan provides that the Bank may repurchase some or all of a shareholder’s excess capital stock, including any excess mandatorily redeemable capital stock, at the Bank’s discretion, subject to certain statutory and regulatory requirements. The Bank may also repurchase all of a member’s excess capital stock at a member’s request, at the Bank’s discretion, subject to certain statutory and regulatory requirements. A shareholder’s excess capital stock is defined as any capital stock holdings in excess of the shareholder’s minimum capital stock requirement, as established by the Bank’s capital plan. The Bank’s practice is to repurchase the surplus capital stock of all members and the excess capital stock of all former members on a daily schedule. Surplus capital stock is defined as any stock holdings in excess of 115% of a member’s minimum stock requirement. The Bank calculates the amount of stock to be repurchased each business day based on the shareholder’s capital stock outstanding after all stock transactions are completed for the day, ensuring that each member and former member would continue to meet its minimum capital stock requirement after the repurchase. The Bank may change this practice at any time. The Bank repurchased $373 and $314 in excess capital stock during the third quarter of 2021 and 2020, respectively, and $714 and $1,452 in excess capital stock during the first nine months of 2021 and 2020, 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 2021 and 2020, the Bank redeemed a de minimis amount in mandatorily redeemable capital stock, for which the
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


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. The following table presents the concentration in capital stock held by institutions whose capital stock ownership represented 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of September 30, 2021, or December 31, 2020.
 September 30, 2021December 31, 2020
Name of InstitutionCapital Stock
Outstanding		Percentage
of Total
Capital Stock
Outstanding		Capital Stock
Outstanding		Percentage
of Total
Capital Stock
Outstanding
First Republic Bank$239 11 %$354 16 %
Others2,018 89 1,932 84 
Total$2,257 100 %$2,286 100 %
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, 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 2020 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, 2021 and 2020.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


 
Advances-
Related
Business(1)
Mortgage-
Related
Business(2)
Adjusted
Net
Interest
Income(1)
Amortization of Basis
Adjustments and (Gain)/Loss on Fair Value Hedges(1)(3)

Income/(Expense)
on Economic
Hedges(4)
Interest
Expense on
Mandatorily
Redeemable
Capital
Stock(5)
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, 2021$42 $62 $104 $— $(16)$— $120 $(3)$38 $79 
September 30, 202063 53 116 — (34)1 149 70 40 179 
Nine months ended:
September 30, 2021$143 $200 $343 $(7)$(61)$— $411 $(50)$116 $245 
September 30, 2020198 140 338 77 (52)5 308 79 119 268 
(1)    Amounts have been corrected to properly disclose the classification of amortization of basis adjustments and certain fees on prepaid advances within adjusted net interest income of the advances-related business segment and within amortization of basis adjustments. The Bank previously disclosed in “Note 10 - Segment Information” in the Bank’s third quarter 2020 Form 10-Q adjusted net interest income totaling $103 and $322 for the three and nine months ended September 30, 2020, respectively. These amounts should have been disclosed as $116 and $338, respectively. These revisions had no effect on total assets, net interest income, or net income of the Bank reported for all affected periods.
(2)    The mortgage-related business includes total accretion or amortization associated with other-than-temporarily impaired PLRMBS, which are recognized in interest income, totaled $19 and $17 for the three months ended September 30, 2021 and 2020; and totaled $52 and $54 for the nine months ended September 30, 2021 and 2020, respectively. The mortgage-related business includes a provision for/(reversal of) credit losses of a de minimis amount and $(2) for the three months ended September 30, 2021 and 2020, respectively, and $(8) and $30 for the nine months ended September 30, 2021 and 2020, respectively.
(3)    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.
(4)    The Bank includes income and expense associated with net settlements from economic hedges in adjusted net interest income in its analysis of financial performance for its two operating segments. For financial reporting purposes, the Bank does not include these amounts in net interest income in the Statements of Income, but instead records them in other income in “Net gain/(loss) on derivatives.”
(5)    The Bank excludes interest expense on mandatorily redeemable capital stock from adjusted net interest income in its analysis of financial performance for its two operating segments.
The following table presents total assets by operating segment at September 30, 2021, and December 31, 2020.

Advances-
Related Business		Mortgage-
Related Business		Total
Assets
September 30, 2021$39,798 $14,661 $54,459 
December 31, 202050,876 17,758 68,634 

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 2020 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 2020 Form 10-K.
The following table summarizes the notional amount and fair value of derivative instruments, including the effect of netting adjustments and cash collateral as of September 30, 2021, and December 31, 2020. For purposes of this disclosure, the derivative values include the fair value of derivatives and related accrued interest.
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Notes to Financial Statements (continued)


 September 30, 2021December 31, 2020
 Notional
Amount of
Derivatives		Derivative
Assets		Derivative
Liabilities		Notional
Amount of
Derivatives		Derivative
Assets		Derivative
Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps$36,138 $222 $83 $35,060 $88 $128 
Total36,138 222 83 35,060 88 128 
Derivatives not designated as hedging instruments:
Interest rate swaps38,877 1 16 42,804 4 16 
Interest rate caps and floors550 — — 780 — — 
Mortgage delivery commitments— — — 1 — — 
Total39,427 1 16 43,585 4 16 
Total derivatives before netting and collateral adjustments$75,565 223 99 $78,645 92 144 
Netting adjustments and cash collateral(1)
(212)(90)(89)(132)
Total derivative assets and total derivative liabilities$11 $9 $3 $12 
(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 $36 and $72 at September 30, 2021, and December 31, 2020, respectively. Cash collateral received, including accrued interest, was $158 and $30 at September 30, 2021, and December 31, 2020, 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, 2021 and 2020.
Three Months Ended September 30, 2021
Interest Income/(Expense)
AdvancesAFS SecuritiesConsolidated 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 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Three Months Ended September 30, 2020
Interest Income/(Expense)
AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$88 $67 $(47)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$22 $54 $(1)
Hedged items(111)(89)8 
Net gain/(loss) on fair value hedging relationships(89)(35)7 
Net amortization of gain on discontinued fair value hedging relationships(1)(23)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(90)$(58)$7 
Nine Months Ended September 30, 2021
Interest Income/(Expense)
AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$167 $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 
Nine Months Ended September 30, 2020
Interest Income/(Expense)
AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$509 $179 $(405)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$(715)$(995)$27 
Hedged items488 828 (9)
Net gain/(loss) on fair value hedging relationships(227)(167)18 
Net amortization of gain on discontinued fair value hedging relationships(2)(25)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(229)$(192)$18 
(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, 2021, and December 31, 2020.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


September 30, 2021December 31, 2020
AdvancesAFS SecuritiesConsolidated Obligation BondsAdvancesAFS SecuritiesConsolidated Obligation Bonds
Amortized cost of hedged asset/(liability)(1)
$19,850 $8,966 $(11,797)$23,605 $11,557 $(3,645)
Fair value hedging basis adjustments:
Active hedging relationships included in amortized cost$95 $(304)$47 $477 $43 $(13)
Discontinued hedging relationships included in amortized cost125 928 — 32 1,016 — 
Total amount of fair value hedging basis adjustments$220 $624 $47 $509 $1,059 $(13)
(1)Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.
The following table presents the components of net gain/(loss) on derivatives as presented in the Statements of Income for the three and nine months ended September 30, 2021 and 2020.
Three Months EndedNine Months Ended
 September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Derivatives not designated as hedging instrumentsGain/(Loss)Gain/(Loss)Gain/(Loss)Gain/(Loss)
Economic hedges:
Interest rate swaps$31 $39 $86 $(107)
Net settlements(16)(34)(61)(52)
Mortgage delivery commitments— — — 3 
Net gain/(loss) on derivatives(1)
$15 $5 $25 $(156)
(1)The Bank made out-of-period adjustments in the third quarter of 2021 that resulted in an overstatement of net gain/(loss) on derivatives of $13 and an understatement of net gain/(loss) on derivatives of $1 for the three and nine months ended September 30, 2021, respectively. For more information on the adjustments, see Note 1 - Basis of Presentation.
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 has analyzed the enforceability of offsetting rights applicable to its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable bankruptcy law and Commodity Futures Trading Commission rules in the event of a clearinghouse or clearing agent insolvency and under applicable clearinghouse rules upon a non-insolvency-based event of default of the clearinghouse or clearing agent. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular clearinghouse.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Based on the Bank’s credit analyses and the collateral requirements, the Bank does not expect to incur any credit losses on its derivative transactions.
The Bank’s agreements for uncleared derivative transactions contain provisions that link the Bank’s credit rating from Moody’s Investors Service and S&P Global Ratings to various rights and obligations. Certain of these derivative agreements provide that, if the Bank’s long-term debt rating falls below a specified rating (ranging from A3/A- to Baa3/BBB-), the Bank’s counterparty would have the right, but not the obligation, to terminate all of its outstanding derivative transactions with the Bank; the Bank’s agreements with its clearing agents for cleared derivative transactions have similar provisions with respect to the debt rating of FHLBank System consolidated bonds. If this occurs, the Bank may choose to enter into replacement hedges, either by transferring the existing transactions to another counterparty or entering into new replacement transactions, based on prevailing market rates. The aggregate fair value of all uncleared derivative instruments with credit risk-related contingent features that were in a net derivative liability position (before cash collateral and related accrued interest) at September 30, 2021, was $17, for which the Bank had posted cash collateral of $16 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, 2021, and December 31, 2020.
September 30, 2021
Derivative Instruments Meeting Netting Requirements
Amount RecognizedGross Amount of Netting Adjustments and Cash CollateralTotal Derivative Assets and Total Derivative LiabilitiesNoncash Collateral Not Offset That
 Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared$222 $(222)$— $— $— 
Cleared
1 10 11 (284)295 
Total$11 $295 
Derivative Liabilities
Uncleared$89 $(80)$9 $— $9 
Cleared10 (10)— — — 
Total$9 $9 
December 31, 2020
Derivative Instruments Meeting Netting Requirements
Amount RecognizedGross Amount of Netting Adjustments and Cash CollateralTotal Derivative Assets and Total Derivative LiabilitiesNoncash Collateral Not Offset That
 Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared$85 $(85)$— $— $— 
Cleared
7 (4)3 (379)382 
Total$3 $382 
Derivative Liabilities
Uncleared$124 $(114)$10 $— $10 
Cleared20 (18)2 — 2 
Total$12 $12 

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Notes to Financial Statements (continued)


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, 2021, and December 31, 2020. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases fair values cannot be precisely quantified or verified and may change as economic and market factors and evaluation of those factors change. The Bank continues to refine its valuation methodologies as markets and products develop and the pricing for certain products becomes more or less transparent. While the Bank believes that its valuation methodologies are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a materially different estimate of fair value as of the reporting date. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Therefore, the fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment as to how a market participant would estimate the fair values. The fair value summary table does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of total assets and liabilities.
The following tables present the net carrying value or carrying value, as applicable, the estimated fair value, and the fair value hierarchy level of the Bank’s financial instruments at September 30, 2021, and December 31, 2020. The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, certain advances, certain consolidated obligations, and certain other assets at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. The Bank records all other financial assets and liabilities at amortized cost. Refer to the following tables for further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


 September 30, 2021

Carrying
Value(1)
Estimated Fair ValueLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks$55 $55 $55 $— $— $— 
Interest-bearing deposits1,125 1,125 1,125 — — — 
Securities purchased under agreements to resell6,500 6,500 — 6,500 — — 
Federal funds sold6,133 6,133 — 6,133 — — 
Trading securities2,260 2,260 — 2,260 — — 
AFS securities10,825 10,825 — 9,121 1,704 — 
HTM securities3,521 3,551 — 3,313 238 — 
Advances22,613 22,721 — 22,721 — — 
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans1,134 1,134 — 1,134 — — 
Accrued interest receivable61 61 — 61 — — 
Derivative assets, net(2)
11 11 — 223 — (212)
Other assets(3)
24 24 24 — — — 
Liabilities
Deposits826 826 — 826 — — 
Consolidated obligations:
Bonds22,025 21,986 — 21,986 — — 
Discount notes24,814 24,815 — 24,815 — — 
Total consolidated obligations46,839 46,801 — 46,801 — — 
Mandatorily redeemable capital stock4 4 4 — — — 
Accrued interest payable25 25 — 25 — — 
Derivative liabilities, net(2)
9 9 — 99 — (90)
Other
Standby letters of credit31 31 — 31 — — 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


December 31, 2020
Carrying
Value(1)
Estimated Fair ValueLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks$174 $174 $174 $— $— $— 
Interest-bearing deposits1,078 1,078 1,078 — — — 
Securities purchased under agreements to resell7,250 7,250 — 7,250 — — 
Federal funds sold1,880 1,880 — 1,880 — — 
Trading securities4,260 4,260 — 4,260 — — 
AFS securities15,679 15,679 — 13,644 2,035 — 
HTM securities5,081 5,115 — 4,827 288 — 
Advances30,976 31,166 — 31,166 — — 
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans1,935 1,941 — 1,941 — — 
Accrued interest receivable82 82 — 82 — — 
Derivative assets, net(2)
3 3 — 92 — (89)
Other assets(3)
22 22 22 — — — 
Liabilities
Deposits887 887 — 887 — — 
Consolidated obligations:
Bonds44,408 44,457 — 44,457 — — 
Discount notes16,213 16,214 — 16,214 — — 
Total consolidated obligations60,621 60,671 — 60,671 — — 
Mandatorily redeemable capital stock2 2 2 — — — 
Accrued interest payable24 24 — 24 — — 
Derivative liabilities, net(2)
12 12 — 144 — (132)
Other
Standby letters of credit36 36 — 36 — — 
(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.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


•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 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, 2021:
•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 2020 Form 10-K. There have been no significant changes in these valuation methodologies and primary inputs during the nine months ended September 30, 2021.
Subjectivity of Estimates Related to Fair Values of Financial Instruments. Estimates of the fair value of financial assets and liabilities using the methodologies described above are subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, methods to determine possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Fair Value Measurements. The following tables present the fair value of assets and liabilities, which are recorded on a recurring or nonrecurring basis at September 30, 2021, and December 31, 2020, by level within the fair value hierarchy.
September 30, 2021
Fair Value Measurement Using:
Netting Adjustments
 and Cash Collateral(1)
Level 1Level 2Level 3Total
Recurring fair value measurements – Assets:
Trading securities:
U.S. obligations – Treasury notes$— $2,258 $— $— $2,258 
MBS – Other U.S. obligations – Ginnie Mae— 2 — — 2 
Total trading securities— 2,260 — — 2,260 
AFS securities:
U.S. obligations – Treasury securities— 856 — — 856 
MBS:
GSEs – multifamily— 8,265 — — 8,265 
PLRMBS— — 1,704 — 1,704 
Subtotal MBS— 8,265 1,704 — 9,969 
Total AFS securities— 9,121 1,704 — 10,825 
Advances(2)
— 1,952 — — 1,952 
Derivative assets, net: interest rate-related— 223 — (212)11 
Other assets24 — — — 24 
Total recurring fair value measurements – Assets$24 $13,556 $1,704 $(212)$15,072 
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)
$— $521 $— $— $521 
Derivative liabilities, net: interest rate-related— 99 — (90)9 
Total recurring fair value measurements – Liabilities$— $620 $— $(90)$530 
Nonrecurring fair value measurements – Assets:(4)
Impaired mortgage loans held for portfolio$— $— $23 $— $23 
Total nonrecurring fair value measurements – Assets$— $— $23 $— $23 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


December 31, 2020
Fair Value Measurement Using:
Netting Adjustments
 and Cash Collateral(1)
Level 1
Level 2Level 3Total
Recurring fair value measurements – Assets:
Trading securities:
U.S. obligations – Treasury notes$— $4,257 $— $— $4,257 
MBS – Other U.S. obligations – Ginnie Mae— 3 — — 3 
Total trading securities— 4,260 — — 4,260 
AFS securities:
U.S. obligations – Treasury securities— 4,983 — — 4,983 
MBS:
GSEs – multifamily— 8,661 — — 8,661 
PLRMBS— — 2,035 — 2,035 
Subtotal MBS— 8,661 2,035 — 10,696 
Total AFS securities— 13,644 2,035 — 15,679 
Advances(2)
— 2,147 — — 2,147 
Derivative assets, net: interest rate-related— 92 — (89)3 
Other assets22 — — — 22 
Total recurring fair value measurements – Assets$22 $20,143 $2,035 $(89)$22,111 
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)
$— $111 $— $— $111 
Derivative liabilities, net: interest rate-related— 144 — (132)12 
Total recurring fair value measurements – Liabilities$— $255 $— $(132)$123 
Nonrecurring fair value measurements – Assets:(4)
Impaired mortgage loans held for portfolio$— $— $18 $— $18 
Total nonrecurring fair value measurements – Assets$— $— $18 $— $18 
(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, 2021, and December 31, 2020.
(3)Represents consolidated obligation bonds recorded under the fair value option at September 30, 2021, and December 31, 2020.
(4)The fair value information presented is as of the date the fair value adjustment was recorded during the nine months ended September 30, 2021, and the year ended December 31, 2020.
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, 2021 and 2020.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Three Months Ended
September 30, 2021September 30, 2020
Balance, beginning of the period$1,827 $2,225 
Total gain/(loss) realized and unrealized included in:
Interest income18 17 
(Provision for)/reversal of credit losses(1)4 
Unrealized gain/(loss) included in AOCI(6)29 
Settlements(134)(139)
Balance, end of the period$1,704 $2,136 
Total amount of unrealized gain/(loss) for the period included in AOCI relating to assets held at the end of the period$(5)$29 
Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets held at the end of the period$16 $20 
Nine Months Ended
September 30, 2021September 30, 2020
Balance, beginning of the period$2,035 $2,597 
Total gain/(loss) realized and unrealized included in:
Interest income52 53 
(Provision for)/reversal of credit losses5 (26)
Unrealized gain/(loss) included in AOCI23 (111)
Settlements(411)(378)
Transfers of HTM securities to AFS securities— 1 
Balance, end of the period$1,704 $2,136 
Total amount of unrealized gain/(loss) for the period included in AOCI relating to assets held at the end of the period$24 $(111)
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$55 $27 
Fair Value Option. The fair value option provides an entity with an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires an entity to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in net income. Interest income and interest expense on advances and consolidated bonds carried at fair value are recognized solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized in non-interest income or non-interest expense.
For more information on the Bank’s election of the fair value option, see “Item 8. Financial Statements and Supplementary Data – Note 15 – Fair Values” in the Bank’s 2020 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.
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, 2021 and 2020:
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Three Months Ended
September 30, 2021September 30, 2020
AdvancesConsolidated
Obligation Bonds		AdvancesConsolidated
Obligation Bonds
Balance, beginning of the period$1,984 $235 $3,478 $128 
New transactions elected for fair value option— 318 — — 
Maturities and terminations(21)(30)(367)(15)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings(11)(2)(8)(1)
Balance, end of the period$1,952 $521 $3,103 $112 
Nine Months Ended
September 30, 2021September 30, 2020
AdvancesConsolidated
Obligation Bonds		AdvancesConsolidated
Obligation Bonds
Balance, beginning of the period$2,147 $111 $4,370 $337 
New transactions elected for fair value option670 538 7,070 — 
Maturities and terminations(821)(125)(8,432)(225)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings(43)(3)97 1 
Change in accrued interest(1)— (2)(1)
Balance, end of the period$1,952 $521 $3,103 $112 
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, 2021 and 2020. 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, 2021, and December 31, 2020:
September 30, 2021December 31, 2020
Principal Balance
Fair ValueFair Value
Over/(Under)
Principal Balance		Principal BalanceFair ValueFair Value
Over/(Under)
Principal Balance
Advances(1)
$1,866 $1,952 $86 $2,017 $2,147 $130 
Consolidated obligation bonds523 521 (2)110 111 1 
(1)    At September 30, 2021, and December 31, 2020, none of these advances were 90 days or more past due or had been placed on nonaccrual status.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


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, 2021, 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 $641,438 at September 30, 2021, and $746,722 at December 31, 2020. The par value of the Bank’s participation in consolidated obligations was $46,891 at September 30, 2021, and $60,606 at December 31, 2020. 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 2020 Form 10-K.
Off-balance sheet commitments as of September 30, 2021, and December 31, 2020, were as follows:
September 30, 2021December 31, 2020
Expire Within
One Year		Expire After
One Year		TotalExpire Within
One Year		Expire After
One Year		Total
Standby letters of credit outstanding$10,805 $4,718 $15,523 $14,838 $4,551 $19,389 
Commitments to issue consolidated obligation discount notes, par2,136 — 2,136 — — — 
Commitments to issue consolidated obligation bonds, par235 — 235 — — — 
Commitments to purchase mortgage loans— — — 1 — 1 
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, 2021, the original terms of these standby letters of credit range from 1 day to 15 years, including a final expiration in 2036. 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 $31 and $36 at September 30, 2021, and December 31, 2020, respectively. 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, 2021, and December 31, 2020.
There were no commitments to fund advances at September 30, 2021, and December 31, 2020. Advances funded under advance commitments are fully collateralized at the time of funding.
The Bank had previously entered into commitments that unconditionally obligated it to purchase mortgage loans from its members. Delivery commitments are recorded at fair value as derivative assets or derivative liabilities in the Statements of Condition.
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, 2021, the Bank had pledged total collateral of $320, including securities with a carrying value of $284, all of which may be repledged, and cash collateral, including accrued interest, of $36 to counterparties and the clearinghouse that had market risk exposure to the Bank related to
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


derivatives. As of December 31, 2020, the Bank had pledged total collateral of $451, including securities with a carrying value of $379, all of which may be repledged, and cash collateral, including accrued interest, of $72 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.

September 30, 2021December 31, 2020
Assets:
Advances$3,078 $2,650 
Accrued interest receivable2 3 
Liabilities:
Deposits$122 $27 
Capital:
Capital Stock$111 $103 
Three Months EndedNine Months Ended
September 30, 2021September 30, 2020September 30, 2021September 30, 2020
Interest Income:
Advances$12 $19 $38 $59 
All transactions with members, nonmembers, and their affiliates are entered into in the ordinary course of business. As of September 30, 2021, and December 31, 2020, 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 2020 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 a de minimis amount and $1 at September 30, 2021, and December 31, 2020, respectively, 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, 2021, the Bank extended no overnight loans to other FHLBanks. During the nine months ended September 30, 2020, the Bank extended overnight loans to other FHLBanks for $925. During the nine months ended September 30, 2021 and 2020, the Bank borrowed $120 and $885, respectively, from 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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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


MPF Mortgage Loans. The Bank pays a membership fee to the FHLBank of Chicago for its participation in the MPF Program and a transaction services fee that is assessed monthly based on the amount of mortgage loans in which the Bank invested and which remain outstanding on its Statements of Condition. For the three months ended September 30, 2021 and 2020, the Bank recorded a de minimis amount and $1, respectively, in MPF membership fee expense and transaction services fee expense to the FHLBank of Chicago, which were recorded in the Statements of Income as other expense. For the nine months ended September 30, 2021 and 2020, the Bank recorded $1 and $2, respectively, in MPF membership fee expense and transaction services fee expense to the FHLBank of Chicago, which were recorded in the Statements of Income as other expense.
Transactions with the Office of Finance. The Bank’s proportionate share of the cost of operating the Office of Finance is identified in the Statements of Income.

Note 15 — Subsequent Events
There were no material events identified, subsequent to September 30, 2021, until the time of the Form 10-Q filing with the Securities and Exchange Commission.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained in this quarterly report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of San Francisco (Bank) or the Federal Home Loan Bank System (FHLBank System), are “forward-looking statements.” These statements may use forward-looking terms, such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “probable,” “plan,” “project,” “should,” “will,” “would,” “possible,” or their negatives or other variations on these terms, and include statements related to, among others, gains and losses on derivatives, plans to pay dividends and redeem or repurchase excess capital stock, future 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, widespread health emergencies (such as the COVID-19 pandemic), terrorist attacks, civil unrest, 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 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;
•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;
•changes in the FHLBanks’ long-term credit ratings.
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Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under “Item 1A. Risk Factors” in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K).

Quarterly Overview
Net income for the third quarter of 2021 was $71 million, compared with net income of $161 million for the third quarter of 2020. The $90 million decrease in net income relative to the prior-year period reflected a decrease in other income/(loss) of $73 million and a decrease in net interest income of $27 million. These decreases to net income were partially offset by a $10 million reduction in the Affordable Housing Program (AHP) assessment, which reflected the decline in pre-assessment income.
The $73 million decrease in other income/(loss) was primarily a result of the Bank's receipt of disgorgement proceeds in connection with a Securities and Exchange Commission enforcement action, in the amount of $85 million, in the third quarter of 2020. This decrease in other income/(loss) was partially offset by an increase in net fair value gains associated with non-hedge qualifying derivatives and a decrease in net fair value losses associated with financial instruments carried at fair value. The $27 million decrease in net interest income primarily reflected a decrease in interest-earning assets and a decrease in net gains on designated fair value hedges of $11 million. These decreases to net interest income were partially offset by an improvement in interest spreads on interest-earning assets.
At September 30, 2021, total assets were $54.5 billion, a decrease of $14.1 billion from $68.6 billion at December 31, 2020. Advances decreased $8.4 billion, to $22.6 billion at September 30, 2021, from $31.0 billion at December 31, 2020, as many members maintained significant deposit balances and liquidity resulting from the ongoing economic and financial market impacts of the COVID-19 pandemic, including government intervention. In addition, total investments decreased $4.8 billion, to $30.4 billion at September 30, 2021, from $35.2 billion at December 31, 2020. The majority of the decrease in investments reflected a reduction in U.S. Treasury securities of $6.1 billion and securities purchased under agreements to resell of $0.8 billion, which was partially offset by an increase in Federal funds sold of $4.3 billion, as the Bank continued to manage its liquidity. MBS also contributed to the decline in investments by $2.3 billion. Furthermore, mortgage loans held for portfolio decreased $0.8 billion, to $1.1 billion at September 30, 2021, from $1.9 billion at December 31, 2020, as the Bank stopped purchasing new loans for its own portfolio on March 31, 2021.
Accumulated other comprehensive income/(loss) (AOCI) increased by $89 million during 2021, to $319 million at September 30, 2021, from $230 million at December 31, 2020. The increase in AOCI during 2021 primarily reflected higher fair values of MBS classified as available-for-sale (AFS).
On October 28, 2021, the Bank’s board of directors declared a quarterly cash dividend on the capital stock outstanding during the third quarter of 2021 at an annualized rate of 6.00% that will total $36 million. The Bank recorded the dividend on October 28, 2021, and expects to pay the dividend on November 10, 2021.
As of September 30, 2021, the Bank complied with all of its regulatory capital requirements. The Bank’s total regulatory capital ratio was 11.1%, exceeding the 4.0% requirement. The Bank had $6.1 billion in permanent capital, exceeding its risk-based capital requirement of $1.1 billion.
The Bank will continue to monitor the condition of its balance sheet, 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.
As previously disclosed, legislation has been introduced in the U.S. Senate and House of Representatives that, if enacted in its proposed form, would require that the FHLBanks set aside higher percentages of their earnings for their affordable housing and community investment programs than is currently required under the current law. As part of the Congressional budget reconciliation process, a legislative proposal is under consideration to set aside fifteen percent of an FHLBank’s net income for its affordable housing program. The FHLBanks have had
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discussions with members of Congress and their staffs about the potential impact of any proposal in this regard and continue to closely monitor any such proposals and developments.
COVID-19 Pandemic Impact. In 2020, the COVID-19 pandemic impacted the financial markets and created substantial uncertainty about future economic activity and the Bank’s operating environment. In response, the federal government and the Federal Reserve used their full range of tools to support the economy. The emergency measures taken by the federal government and the Federal Reserve helped facilitate liquidity and support stability in fixed income markets but contributed to the significant reduction in demand for advances from members. The Bank continued to meet its funding needs through the third quarter of 2021.
The Bank transitioned to remote work in mid-March 2020 and continued to operate effectively with employees working remotely through the third quarter of 2021. The Bank has assessed the remote work environment and has taken measures to mitigate cyber-security risks and operational challenges that could affect the Bank’s ability to conduct business or increase the risk of operational incidents and errors. Possible adverse impacts as a result of the Bank’s workforce working remotely may include, but are not limited to, increased risk of operational incidents, cyber-security threats, and operational challenges that could affect the Bank’s ability to conduct business or increase the risk of operational errors.
To reduce the risk of the operational impact of the pandemic, the Bank maintains a Board-approved Business Continuity Management Program, along with a Crisis Management Plan and Business Continuity Plans (BCPs), that are updated and tested annually. The Bank’s BCPs provide procedures to ensure personnel safety and welfare, to safeguard the Bank’s assets (including physical property and information), and to permit the continued operations of the Bank in the event of a short-term disruption or long-term catastrophic event. The Bank’s BCPs contain operating procedures for all critical processes and identify resources and staff necessary to continue operations based on business-defined recovery time objectives and communication requirements for internal and external stakeholders.
The full duration and impact of the pandemic and subsequent governmental and public actions remain uncertain. Demand for advances may continue to remain low or decrease because of the impact of government stimulus on member liquidity, Federal Reserve Board policies (including lower interest rates set by the Federal Open Market Committee (FOMC)), and reduced member asset activity. The Bank believes that lower demand from the Bank’s members for advances will likely continue into the foreseeable future.
Management will continue to monitor the COVID-19 pandemic’s impact on the Bank’s financial condition and operations, including the Bank’s liquidity, advance levels, funding spreads, and workforce effectiveness.
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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,
2021		June 30,
2021		March 31,
2021		December 31,
2020		September 30,
2020
Selected Balance Sheet Items at Quarter End
Total Assets$54,459 $54,244 $57,908 $68,634 $75,870 
Advances22,613 24,194 28,140 30,976 37,693 
Mortgage Loans Held for Portfolio, Net1,134 1,301 1,581 1,935 2,404 
Investments(1)
30,364 28,403 27,526 35,228 35,221 
Consolidated Obligations:(2)
Bonds22,025 28,839 33,011 44,408 54,921 
Discount Notes24,814 17,598 17,109 16,213 13,300 
Mandatorily Redeemable Capital Stock4 3 1 2 2 
Capital Stock —Class B —Putable2,253 2,269 2,238 2,284 2,465 
Unrestricted Retained Earnings3,059 3,004 2,983 2,919 2,858 
Restricted Retained Earnings743 761 761 761 761 
Accumulated Other Comprehensive Income/(Loss) (AOCI)319 394 367 230 136 
Total Capital6,374 6,428 6,349 6,194 6,220 
Selected Operating Results for the Quarter
Net Interest Income$120 $125 $158 $167 $147 
Provision for/(Reversal of) Credit Losses— (2)(6)(4)(2)
Other Income/(Loss)(3)(26)(21)(20)70 
Other Expense38 39 39 46 40 
Affordable Housing Program Assessment8 7 10 11 18 
Net Income/(Loss)$71 $55 $94 $94 $161 
Selected Other Data for the Quarter
Net Interest Margin(3)
0.85 %0.88 %1.04 %0.94 %0.69 %
Operating Expenses as a Percent of Average Assets0.25 0.25 0.23 0.23 0.17 
Return on Average Assets0.49 0.38 0.61 0.52 0.76 
Return on Average Equity4.34 3.45 6.04 6.04 10.59 
Annualized Dividend Rate6.00 6.00 5.00 5.00 5.00 
Dividend Payout Ratio(4)
48.99 60.67 32.44 34.61 22.81 
Average Equity to Average Assets Ratio11.32 11.07 10.01 8.65 7.16 
Selected Other Data at Quarter End
Regulatory Capital Ratio(5)
11.12 11.13 10.33 8.69 8.02 
Duration Gap (in months)— 1 1 1 2 
(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, 2021, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of all FHLBanks at the dates indicated was as follows:
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Par Value
(In millions)
September 30, 2021$641,438 
June 30, 2021666,747 
March 31, 2021696,385 
December 31, 2020746,722 
September 30, 2020819,863 
(3)Net interest margin is net interest income (annualized) divided by average interest-earning assets.
(4)This ratio is calculated as dividends per share divided by net income per share.
(5)This ratio is calculated as regulatory capital divided by total assets. Regulatory capital includes retained earnings, Class B capital stock, and mandatorily redeemable capital stock (which is classified as a liability) but excludes AOCI.

Results of Operations
Net Interest Income. The primary source of the Bank’s earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments, including net accretion of related income from improvement in expected cash flows on certain PLRMBS that were other-than-temporarily-impaired prior to January 1, 2020, 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, 2021 and 2020, 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 2021 Compared to Third Quarter of 2020
Average Balance Sheets
Three Months Ended
 September 30, 2021September 30, 2020
(Dollars in millions)Average
Balance		Interest
Income/
Expense		Average
Rate		Average
Balance		Interest
Income/
Expense		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits$1,148 $— 0.14 %$2,956 $1 0.16 %
Securities purchased under agreements to resell1,260 1 0.08 4,740 1 0.09 
Federal funds sold7,446 2 0.09 3,380 1 0.09 
Trading securities:
Mortgage-backed securities (MBS)2 — 2.04 3 — 2.99 
Other investments2,522 13 2.06 4,291 23 2.08 
Available-for-sale (AFS) securities:(1)
MBS(2)(3)
9,819 56 2.30 10,909 63 2.31 
Other investments(3)
904 1 0.27 4,966 4 0.31 
Held-to-maturity (HTM) securities:(1)
MBS3,750 10 1.08 5,915 19 1.28 
Mortgage loans held for portfolio1,221 7 2.34 2,670 7 0.98 
Advances(3)
28,486 47 0.66 44,932 88 0.78 
Total interest-earning assets56,558 137 0.96 84,762 207 0.97 
Other assets(4)(5)
897 — (29)— 
Total Assets$57,455 $137 $84,733 $207 
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)
$24,512 $13 0.22 %$61,660 $47 0.30 %
Discount notes24,996 3 0.05 15,458 12 0.29 
Deposits and other borrowings970 1 0.08 918 — 0.12 
Mandatorily redeemable capital stock6 — 4.31 31 1 13.17 
Total interest-bearing liabilities50,484 17 0.13 78,067 60 0.30 
Other liabilities(4)
465 — 599 — 
Total Liabilities50,949 17 78,666 60 
Total Capital6,506 — 6,067 — 
Total Liabilities and Capital$57,455 $17 $84,733 $60 
Net Interest Income$120 $147 
Net Interest Spread(6)
0.83 %0.67 %
Net Interest Margin(7)
0.85 %0.69 %
Interest-earning Assets/Interest-bearing Liabilities112.03 %108.58 %
(1)The average balances of AFS securities and HTM securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value or non-credit-related losses.
(2)Interest income on AFS securities includes accretion of yield adjustments on other-than-temporarily impaired PLRMBS (resulting from improvement in expected cash flows) recognized pursuant to the impairment guidance in effect prior to January 1, 2020, totaling $13 million and $14 million for the three months ended September 30, 2021 and 2020, respectively.
(3)Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:
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Three Months Ended
September 30, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(7)$(27)$— $(34)
Net gain/(loss) on derivatives and hedged items1 2 — 3 
Net interest settlements on derivatives(44)(16)19 (41)
Total net interest income/(expense)$(50)$(41)$19 $(72)
Three Months Ended
September 30, 2020
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(1)(23)$— $(24)
Net gain/(loss) on derivatives and hedged items2 12 — 14 
Net interest settlements on derivatives(91)(47)7 (131)
Total net interest income/(expense)$(90)$(58)$7 $(141)
(4)Includes forward settling transactions and valuation adjustments for certain cash items.
(5)Includes non-credit-related losses on HTM securities.
(6)Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
(7)Net interest margin is net interest income (annualized) divided by average interest-earning assets.
Net interest income in the third quarter of 2021 was $120 million, an 18% decrease from $147 million in the third quarter of 2020. The following table details the changes in interest income and interest expense for the third quarter of 2021 compared to the third quarter of 2020. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.
Change in Net Interest Income: Rate/Volume Analysis
Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020
 Increase/
(Decrease)
Attributable to Changes in(1)
(In millions)Average VolumeAverage Rate
Interest-earning assets:
Interest-bearing deposits$(1)$(1)$— 
Federal funds sold1 1 — 
Trading securities: Other investments(10)(10)— 
AFS securities:
MBS(2)
(7)(6)(1)
Other investments(2)
(3)(3)— 
HTM securities: MBS(9)(6)(3)
Mortgage loans held for portfolio— (5)5 
Advances(2)
(41)(29)(12)
Total interest-earning assets(70)(59)(11)
Interest-bearing liabilities:
Consolidated obligations:
Bonds(2)
(34)(23)(11)
Discount notes(9)4 (13)
Deposits and other borrowings1 1 — 
Mandatorily redeemable capital stock(1)(1)— 
Total interest-bearing liabilities(43)(19)(24)
Net interest income$(27)$(40)$13 
(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.
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The net interest margin was 85 basis points for the third quarter of 2021, 16 basis points higher than the net interest margin for the third quarter of 2020, which was 69 basis points. The net interest spread was 83 basis points for the third quarter of 2021, 16 basis points higher than the net interest spread for the third quarter of 2020, which was 67 basis points. These increases were primarily a result of lower funding costs, partially offset by a decrease in net gains on designated fair value hedges.
For securities previously identified as other-than-temporarily impaired pursuant to the impairment guidance in effect prior to January 1, 2020, 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 upward on a prospective basis and accreted into interest income when there is a significant increase in the expected cash flows. As a result of improvements in the estimated cash flows of securities previously identified as other-than-temporarily impaired, the net accretion of 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 three months ended September 30, 2021 and 2020.
Other Income/(Loss)
Three Months Ended
(In millions)September 30, 2021September 30, 2020
Other Income/(Loss):
Net gain/(loss) on trading securities(1)
$(13)$(19)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(9)(7)
Net gain/(loss) on derivatives15 5 
Gain on disgorgement settlement— 85 
Other, net4 6 
Total Other Income/(Loss)$(3)$70 
(1)The net gain/(loss) on trading securities that were economically hedged totaled $(13) million and $(19) million for the three months ended September 30, 2021 and 2020, respectively.
Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) recognized in earnings on advances and consolidated obligation bonds held under the fair value option for the three months ended September 30, 2021 and 2020.
Net Gain/(Loss) on Advances and Consolidated Obligations Bonds Held Under Fair Value Option
Three Months Ended
(In millions)September 30, 2021September 30, 2020
Advances$(11)$(8)
Consolidated obligation bonds2 1 
Total$(9)$(7)
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.
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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 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 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 2021 and 2020.
Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Three Months Ended September 30, 2021, Compared to Three Months Ended September 30, 2020
Three Months Ended
(In millions)September 30, 2021September 30, 2020
Hedged ItemGain/(Loss) on
Economic
Hedges		Income/
(Expense) on
Economic
Hedges		TotalGain/(Loss) on
Economic
Hedges		Income/
(Expense) on
Economic
Hedges		Total
Advances:
Elected for fair value option$21 $(10)$11 $25 $(14)$11 
Not elected for fair value option3 3 6 — (5)(5)
Consolidated obligation bonds:
Elected for fair value option(1)— (1)(1)1 — 
Not elected for fair value option(1)— (1)(5)2 (3)
Consolidated obligation discount notes:
Not elected for fair value option1 (1)— 2 (2)— 
Non-MBS investments:
Not elected for fair value option8 (8)— 18 (16)2 
Total$31 $(16)$15 $39 $(34)$5 
During the third quarter of 2021, net gains on derivatives totaled $15 million compared to net gains of $5 million in the third quarter of 2020. These amounts included expense of $16 million and expense of $34 million resulting from net settlements on derivative instruments used in economic hedges in the third quarter of 2021 and 2020, 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. In addition, the Bank made out-of-period adjustments in the third quarter of 2021 that resulted in an overstatement of net gain/(loss) on derivatives of $13 million for the three months ended September 30, 2021. For more information on the adjustment, see “Item 1. Financial Statements – Note 1 – Basis of Presentation.”
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.
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Additional information about derivatives and hedging activities is provided in “Item 1. Financial Statements – Note 11 – Derivatives and Hedging Activities.”
Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
Average Balance Sheets
Nine Months Ended
 September 30, 2021September 30, 2020
(Dollars in millions)Average
Balance		Interest
Income/
Expense		Average
Rate		Average
Balance		Interest
Income/
Expense		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits$1,195 $1 0.14 %$3,577 $14 0.54 %
Securities purchased under agreements to resell1,417 1 0.07 5,020 20 0.52 
Federal funds sold5,843 4 0.08 5,039 16 0.43 
Trading securities:
MBS2 — 2.29 3 — 3.26 
Other investments3,461 54 2.07 3,880 61 2.08 
AFS securities:(1)
MBS(2)(3)
9,957 165 2.22 10,712 152 1.90 
Other investments(3)
2,174 3 0.21 5,199 27 0.69 
HTM securities:(1)
MBS4,161 34 1.11 6,499 92 1.89 
Mortgage loans held for portfolio1,464 34 3.08 3,023 22 0.96 
Advances(4)
28,832 167 0.77 58,622 509 1.16 
Total interest-earning assets58,506 463 1.06 101,574 913 1.20 
Other assets(4)(5)
986 — 215 — 
Total Assets$59,492 $463 $101,789 $913 
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)
$31,258 $49 0.21 %$69,743 $405 0.78 %
Discount notes20,172 10 0.06 24,077 163 0.90 
Deposits and other borrowings1,123 1 0.08 799 2 0.37 
Mandatorily redeemable capital stock4 — 4.02 82 5 8.34 
Borrowings from other FHLBanks— — — 1 — 8.70 
Total interest-bearing liabilities52,557 60 0.15 94,702 575 0.81 
Other liabilities(4)
520 — 749 — 
Total Liabilities53,077 60 95,451 575 
Total Capital6,415 — 6,338 — 
Total Liabilities and Capital$59,492 $60 $101,789 $575 
Net Interest Income$403 $338 
Net Interest Spread(6)
0.91 %0.39 %
Net Interest Margin(7)
0.92 %0.44 %
Interest-earning Assets/Interest-bearing Liabilities111.32 %107.26 %
(1)The average balances of AFS securities and HTM securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value or non-credit-related losses.
(2)Interest income on AFS securities includes accretion of yield adjustments on other-than-temporarily impaired PLRMBS (resulting from improvement in expected cash flows) recognized pursuant to the impairment guidance in effect prior to January 1, 2020, totaling $39 million and $45 million for the nine months ended September 30, 2021 and 2020, respectively.
(3)Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:
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Nine Months Ended
September 30, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(15)$(81)$— $(96)
Net gain/(loss) on derivatives and hedged items2 11 — 13 
Net interest settlements on derivatives(165)(61)43 (183)
Total net interest income/(expense)$(178)$(131)$43 $(266)
Nine Months Ended
September 30, 2020
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(2)$(25)$— $(27)
Net gain/(loss) on derivatives and hedged items(4)(24)— (28)
Net interest settlements on derivatives(223)(143)18 (348)
Total net interest income/(expense)$(229)$(192)$18 $(403)
(4)Includes forward settling transactions and valuation adjustments for certain cash items.
(5)Includes non-credit-related OTTI losses on HTM securities.
(6)Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
(7)Net interest margin is net interest income (annualized) divided by average interest-earning assets.
Net interest income in the first nine months of 2021 was $403 million, a 19% increase from $338 million in the first nine months of 2020. The following table details the changes in interest income and interest expense for the first nine months of 2021 compared to the first nine months of 2020. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.
Change in Net Interest Income: Rate/Volume Analysis
Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
 Increase/
(Decrease)
Attributable to Changes in(1)
(In millions)Average VolumeAverage Rate
Interest-earning assets:
Interest-bearing deposits$(13)$(6)$(7)
Securities purchased under agreements to resell(19)(9)(10)
Federal funds sold(12)1 (13)
Trading securities: Other investments(7)(7)— 
AFS securities:
MBS(2)
13 (6)19 
Other investments(2)
(24)(11)(13)
HTM securities: MBS(58)(27)(31)
Mortgage loans held for portfolio12 (10)22 
Advances(2)
(342)(207)(135)
Total interest-earning assets(450)(282)(168)
Interest-bearing liabilities:
Consolidated obligations:
Bonds(2)
(356)(154)(202)
Discount notes(153)(23)(130)
Deposits and other borrowings(1)— (1)
Mandatorily redeemable capital stock(5)(3)(2)
Total interest-bearing liabilities(515)(180)(335)
Net interest income$65 $(102)$167 
(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.
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The net interest margin was 92 basis points for the first nine months of 2021, 48 basis points higher than the net interest margin for the first nine months of 2020, which was 44 basis points. The net interest spread was 91 basis points for the first nine months of 2021, 52 basis point higher than the net interest spread for the first nine months of 2020, which was 39 basis points. These increases were primarily a result of an increase in net gains on designated fair value hedges, an improvement in retrospective adjustment of the effective yields on mortgage loans and related delivery commitments, and lower funding costs.
Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the nine months ended September 30, 2021 and 2020.
Other Income/(Loss)
Nine Months Ended
(In millions)September 30, 2021September 30, 2020
Other Income/(Loss):
Net gain/(loss) on trading securities(1)
$(50)$36 
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(40)96 
Net gain/(loss) on derivatives25 (156)
Gain on disgorgement settlement— 85 
Other, net15 18 
Total Other Income/(Loss)$(50)$79 
(1)The net gain/(loss) on trading securities that were economically hedged totaled $(50) million and $36 million for the nine months ended September 30, 2021 and 2020, respectively.
Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) on advances and consolidated obligation bonds held under the fair value option for the nine months ended September 30, 2021 and 2020.
Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option
Nine Months Ended
(In millions)September 30, 2021September 30, 2020
Advances$(43)$97 
Consolidated obligation bonds3 (1)
Total$(40)$96 
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.”
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Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Nine Months Ended September 30, 2021, Compared to Nine Months Ended September 30, 2020
Nine Months Ended
(In millions)September 30, 2021September 30, 2020
Hedged ItemGain/(Loss) on Economic
Hedges		Income/
(Expense) on Economic
Hedges		TotalGain/(Loss) on Economic
Hedges		Income/
(Expense) on Economic
Hedges		Total
Advances:
Elected for fair value option$67 $(29)$38 $(89)$(24)$(113)
Not elected for fair value option(13)4 (9)30 (27)3 
Consolidated obligation bonds:
Elected for fair value option(2)1 (1)1 1 2 
Not elected for fair value option(4)1 (3)— 9 9 
Consolidated obligation discount notes:
Not elected for fair value option3 (2)1 (3)24 21 
Non-MBS investments:
Not elected for fair value option35 (36)(1)(46)(35)(81)
Mortgage delivery commitment:
Not elected for fair value option— — — 3 — 3 
Total$86 $(61)$25 $(104)$(52)$(156)
During the first nine months of 2021, net gains on derivatives and hedging activities totaled $25 million compared to net losses of $156 million in the first nine months of 2020. These amounts included expense of $61 million and expense of $52 million resulting from net settlements on derivative instruments used in economic hedges in the first nine months of 2021 and 2020, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on fair value and economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.
Additional information about derivatives and hedging activities is provided in “Item 1. Financial Statements – Note 11 – Derivatives and Hedging Activities.”
Return on Average Equity. Return on average equity (ROE) was 4.34% (annualized) for the third quarter of 2021, compared to 10.59% (annualized) for the third quarter of 2020. The decrease primarily reflected lower net income for the third quarter of 2021, which decreased 56%, from $161 million in the third quarter of 2020 to $71 million in the third quarter of 2021, and an increase in average equity from $6.1 billion in the third quarter of 2020 to $6.5 billion in the third quarter of 2021.
ROE was 4.59% (annualized) for the first nine months of 2021, compared to 5.08% (annualized) for the first nine months of 2020. The decrease primarily reflected lower net income for the first nine months of 2021, which decreased 9%, from $241 million in the first nine months of 2020 to $220 million in the first nine months of 2021, and an increase in average equity from $6.3 billion in the first nine months of 2020 to $6.4 billion in the first nine months of 2021.
Dividends and Retained Earnings. In the third quarter of 2021, the Bank paid dividends at an annualized rate of 6.00%, totaling $34 million, including $34 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the third quarter of 2020, the Bank paid dividends at an annualized rate of 5.00%, totaling $37 million, including $36 million in dividends on capital stock and $1 million 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 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable
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capital stock. In the first nine months of 2020, the Bank paid dividends at an annualized rate of 5.68%, totaling $131 million, including $126 million in dividends on capital stock and $5 million in dividends on mandatorily redeemable capital stock.
The Bank paid these dividends in cash. Dividends on capital stock are recognized as dividends on the Statements of Capital Accounts, and dividends on mandatorily redeemable capital stock are recognized as interest expense on the Statements of Income.
On October 28, 2021, the Bank’s board of directors declared a cash dividend on the capital stock outstanding during the third quarter of 2021 at an annualized rate of 6.00%, totaling $36 million. The Bank recorded the dividend on October 28, 2021. The Bank expects to pay the dividend on November 10, 2021.
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. As determined using the Bank’s methodology, the required level of total retained earnings had ranged from $2.4 billion to $2.5 billion during all of 2019 and continuing through September 2020. In September 2020, the methodology was further revised and resulted in a required level of retained earnings of $2.9 billion. In January 2021, the methodology was further revised and resulted in a required level of retained earnings of $1.9 billion. In July 2021, the methodology was further revised and resulted in a required level of retained earnings of $1.5 billion. The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the Joint Capital Enhancement Agreement) and unrestricted retained earnings. The Bank’s retained earnings requirement may be changed at any time. The board of directors periodically reviews the retained earnings methodology and analysis to determine whether any adjustments are appropriate. Total restricted retained earnings were $743 million and $761 million as of September 30, 2021, and December 31, 2020, 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 15 – Capital – Excess Stock Repurchase, Retained Earnings, and Dividend Framework” in the Bank’s 2020 Form 10-K.
Financial Condition
Total assets were $54.5 billion at September 30, 2021, compared to $68.6 billion at December 31, 2020. Advances decreased by $8.4 billion, or 27%, to $22.6 billion at September 30, 2021, from $31.0 billion at December 31, 2020. MBS investments decreased by $2.3 billion, or 15%, to $13.5 billion at September 30, 2021, from $15.8 billion at December 31, 2020. Average total assets were $57.5 billion for the third quarter of 2021, a 32% decrease from $84.7 billion for the third quarter of 2020. Average total assets were $59.5 billion for the first nine months of 2021, a 41% decrease from $101.8 billion for the first nine months of 2020. Average advances were $28.5 billion for the third quarter of 2021, a 37% decrease from $44.9 billion for the third quarter of 2020. Average advances were $28.8 billion for the first nine months of 2021, a 51% decrease from $58.6 billion for the first nine months of 2020. Average MBS investments were $13.6 billion for the third quarter of 2021, a 19% decrease from $16.8 billion for the third quarter of 2020. Average MBS investments were $14.1 billion for the first nine months of 2021, an 18% decrease from $17.2 billion for the first nine months of 2020.
Advances outstanding at September 30, 2021, included unrealized gains of $306 million, of which $220 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $86 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option. Advances outstanding at December 31, 2020, included unrealized gains of $639 million, of which $509 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $130 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value
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option. The change in the net unrealized gains on the hedged advances and advances carried at fair value from December 31, 2020, to September 30, 2021, 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 $48.1 billion at September 30, 2021, a decrease of $14.3 billion from $62.4 billion at December 31, 2020, primarily reflecting a $13.8 billion decrease in consolidated obligations outstanding to $46.8 billion at September 30, 2021, from $60.6 billion at December 31, 2020. Average total liabilities were $50.9 billion for the third quarter of 2021, a 35% decrease compared to $78.7 billion for the third quarter of 2020. Average total liabilities were $53.1 billion for the first nine months of 2021, a 45% decrease compared to $95.5 billion for the first nine months of 2020. Average consolidated obligations were $49.5 billion for the third quarter of 2021 and $77.1 billion for the third quarter of 2020. Average consolidated obligations were $51.4 billion for the first nine months of 2021 and $93.8 billion for the first nine months of 2020.
Consolidated obligations outstanding at September 30, 2021, included unrealized gains of $47 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and $2 million of unrealized gains 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, 2020, included unrealized losses of $13 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized losses of $1 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, 2020, to September 30, 2021, were primarily attributable to the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the Bank’s 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, 2021, 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 $641.4 billion at September 30, 2021, and $746.7 billion at December 31, 2020.
Changes in the long-term credit ratings of individual FHLBanks do not necessarily affect the credit rating of the consolidated obligations issued on behalf of the FHLBanks. Rating agencies may change or withdraw a rating from time to time because of various factors, including operating results or actions taken, business developments, or changes in their opinion regarding, among other factors, the general outlook for a particular industry or the economy.
Certain Bank assets, liabilities, 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 2020 Form 10-K. Accordingly, the Bank has established the LIBOR Transition Working Group, led by the Chief Financial Officer, and developed a LIBOR Phase Out Transition Plan (Transition Plan). Among other things, the Transition Plan addresses three key strategies to mitigate the risks to the Bank associated with the discontinuation of LIBOR: (i) execute hedging strategies that permit alternative reference rates, including SOFR, (ii) transact SOFR-indexed advances and bonds, and (iii) where practicable, implement improved fallback provisions for the discontinuation of LIBOR in new and legacy contracts. In addition, the Transition Plan limits new LIBOR transactions with maturities beyond the end of 2021 consistent with the limits set by the Finance Agency’s Supervisory Letter issued on September 27, 2019. The Transition Plan states that the Bank’s Asset and Liability Management Committee has primary responsibility for driving the transition from LIBOR to SOFR and that the
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Bank’s Business Development Committee is responsible for advance product development to facilitate our members’ transition from LIBOR to an alternative index.
On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks 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 further announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings.
Although the Financial Conduct Authority 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 Financial Conduct Authority’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.
At September 30, 2021, the Bank had no exposure to LIBOR settings that cease immediately after December 31, 2021.
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, 2021, and December 31, 2020.
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LIBOR-Indexed Financial Instruments
(In millions)
September 30, 2021
Due/Terminates in 2021Due/Terminates in 2022Due/Terminates through June 30, 2023Due/Terminates thereafterTotal
Assets indexed to LIBOR:
Par value of advances by redemption term$— $250 $— $10 $260 
Unpaid principal balance of investment securities by contractual maturity
MBS(1)
— — 19 4,385 4,404 
Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared453 517 309 641 1,920 
Uncleared21 112 23 287 443 
Total $474 $879 $351 $5,323 $7,027 
Liabilities indexed to LIBOR:
Par value of consolidated obligation bonds by contractual maturity$300 $— $— $— $300 
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared— 210 50 79 339 
Uncleared— 35 — — 35 
Total $300 $245 $50 $79 $674 
December 31, 2020
Due/Terminates in 2021Due/Terminates in 2022Due/Terminates through June 30, 2023Due/Terminates thereafterTotal
Assets indexed to LIBOR:
Par value of advances by redemption term$100 $250 $— $10 $360 
Unpaid principal balance of investment securities by contractual maturity
MBS(1)
— 1 98 5,645 5,744 
Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared6,852 887 369 798 8,906 
Uncleared213 112 22 394 741 
Total $7,165 $1,250 $489 $6,847 $15,751 
Liabilities indexed to LIBOR:
Par value of consolidated obligation bonds by contractual maturity$6,798 $— $— $— $6,798 
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared1,523 559 100 28 2,210 
Uncleared238 35 — 95 368 
Total $8,559 $594 $100 $123 $9,376 
(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, 2021, interest rate caps and floors indexed to LIBOR totaling $550 million were due to terminate after June 30, 2023. As of December 31, 2020, interest rate caps and floors indexed to LIBOR totaling $230 million were due to terminate in 2021 and totaling $550 million were due to terminate after June 30, 2023.
Market activity in SOFR-indexed financial instruments continues to increase. During 2021 and in total, the Bank has issued $1.1 billion and $102.3 billion, respectively, in SOFR-indexed consolidated obligation bonds. The table below presents the par value of variable rate consolidated obligation bonds by interest rate index at September 30, 2021, and December 31, 2020.
Variable Rate Consolidated Obligation Bonds by Interest Rate Index
(In millions)Amount Outstanding
Interest Rate IndexSeptember 30, 2021December 31, 2020
LIBOR$300 $6,798 
SOFR6,515 30,915 
Total par value$6,815 $37,713 
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, 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.” 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 decreased $11.1 billion to $39.8 billion (73% of total assets) at September 30, 2021, from $50.9 billion (74% of total assets) at December 31, 2020.
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 $42 million in the third quarter of 2021, a decrease of $21 million, or 33%, compared to $63 million in the third quarter of 2020, which was primarily due to a decline in spreads on advances-related assets. Adjusted net interest income for this segment was $143 million in the first nine months of 2021, a decrease of $55 million, or 28%, compared to $198 million in the first nine months of 2020, which was primarily due to lower balances of advances and other credit products.
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Adjusted net interest income for this segment represented 40% and 54% of total adjusted net interest income for the third quarter of 2021 and 2020, respectively, and 42% and 59% of total adjusted net interest income for the first nine months of 2021 and 2020, respectively.
Advances – The par value of advances outstanding decreased by $8.0 billion, or 26%, to $22.3 billion at September 30, 2021, from $30.3 billion at December 31, 2020. Average advances outstanding were $28.5 billion for the third quarter of 2021, a 37% decrease from $44.9 billion for the third quarter of 2020. Average advances outstanding were $28.8 billion for the first nine months of 2021, a 51% decrease from $58.6 billion for the first nine months of 2020. Outstanding balances of advances may significantly increase and decrease from period to period because of a member’s liquidity and financial strategies; therefore, quarter end balances may vary significantly from average balances for the quarter.
As of September 30, 2021, advances outstanding to the Bank’s top five borrowers and their affiliates decreased by $4.8 billion from the Bank’s top five borrowers and their affiliates as of December 31, 2020, and advances outstanding to the Bank’s other borrowers decreased by $3.2 billion. Advances to the top five borrowers decreased to $14.7 billion at September 30, 2021, from $19.5 billion at December 31, 2020, including First Republic Bank, whose advances and capital stock exceeded 10% of the Bank’s total advances and capital stock, respectively, as of September 30, 2021. If First Republic Bank continues to prepay advances or does not renew advances that come due, and if no other advances are made to replace these advances, the Bank’s total advances may be significantly reduced in following quarters. In addition, it was announced on September 21, 2021, that U.S. Bancorp entered into an agreement to acquire MUFG Union Bank, National Association (Union Bank), whose advances exceeded 10% of the Bank’s total advances as of September 30, 2021. U.S. Bancorp is not a member of the Bank. If Union Bank is no longer a member of the Bank or any successor 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. (See “Item 1. Financial Statements – Note 4 – Advances – Concentration Risk” and “Item 1. Financial Statements – Note 9 – Capital – Concentration” for further information.) The $8.0 billion decrease in advances outstanding reflected a $6.7 billion decrease in fixed rate advances, a $1.1 billion decrease in adjustable rate advances, and a $0.2 billion decrease in variable 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, 2021, and December 31, 2020, are presented in the following table.
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Advances Portfolio by Product Type
September 30, 2021December 31, 2020
(Dollar in millions)Par ValuePercentage of Total Par ValuePar ValuePercentage of Total Par Value
Adjustable – LIBOR$250 1 %$250 1 %
Adjustable – SOFR, callable at borrower’s option— — 1,100 4 
Subtotal adjustable rate advances250 1 1,350 5 
Fixed5,274 24 6,108 20 
Fixed – amortizing74 — 126 — 
Fixed – with PPS(1)
1,566 7 1,687 5 
Fixed – with FPS(1)
14,293 64 19,919 66 
Fixed – with caps and PPS(1)
10 — 110 — 
Fixed – callable at borrower’s option with FPS(1)
70 — — — 
Fixed – putable at Bank’s option200 1 200 1 
Fixed – putable at Bank’s option with PPS(1)
20 — 20 — 
Subtotal fixed rate advances21,507 96 28,170 92 
Daily variable rate550 3 818 3 
Total par value$22,307 100 %$30,338 100 %
(1)Partial prepayment symmetry (PPS) and full prepayment symmetry (FPS) are product features under which the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. Any prepayment credit on an advance with PPS would be limited to the lesser of 10% of the par value of the advance or the gain recognized on the termination of the associated interest rate swap, which may also include a similar contractual gain limitation.
The following table presents the par value of LIBOR-indexed advances for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by redemption term at September 30, 2021, and December 31, 2020.
LIBOR-Indexed Advances by Redemption Term
(In millions)Par Value
Redemption TermSeptember 30, 2021December 31, 2020
Due in 2021$— $100 
Due in 2022250 250 
Due after June 30, 2023(1)
10 10 
Total LIBOR-Indexed Advances(2)
$260 $360 
(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 $16.9 billion and $19.4 billion as of September 30, 2021, and December 31, 2020, respectively. The decrease in the total size of the non-MBS investment portfolio primarily reflected a decrease in securities purchased under agreements to resell and U.S. Treasury securities, that was partially offset by an increase in Federal funds sold, as the Bank continued to manage its liquidity.
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Interest rate payment terms for non-MBS investments classified as trading and AFS at September 30, 2021, and December 31, 2020, are detailed in the following table:
Non-MBS Investments: Interest Rate Payment Terms
(In millions)September 30, 2021December 31, 2020
Fair value of fixed rate trading securities$2,258 $4,257 
Amortized cost of AFS securities856 4,980 
Borrowings – Total liabilities (primarily consolidated obligations) funding the advances-related business decreased to $33.4 billion at September 30, 2021, from $44.7 billion at December 31, 2020. 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, 2021, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $58.6 billion, of which $22.2 billion were hedging advances, $27.3 billion were hedging consolidated obligations, $3.1 billion were economically hedging non-MBS investments, and $6.0 billion were offsetting derivatives. At December 31, 2020, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $67.4 billion, of which $28.5 billion were hedging advances, $20.7 billion were hedging consolidated obligations, $7.1 billion were economically hedging non-MBS investments, and $11.1 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.
In early March 2020, the FOMC stated that the COVID-19 outbreak presented evolving risks to economic activity. Consequently, the FOMC decided to lower the target range for the Federal funds rate by 50 basis points, to a target range of 1.00% to 1.25%, noting that it would closely monitor developments and their implications for the economic outlook and would act as appropriate to support the economy. On March 15, 2020, the FOMC again lowered the Federal funds rate, to a target range of 0.00% to 0.25%, noting that the COVID-19 outbreak had harmed communities and disrupted economic activity in many countries, including the United States, and had significantly affected global financial conditions. In the weeks before and after the early March 2020 Federal funds target rate cut, interest rates declined significantly. Since the end of the first quarter of 2020, financial conditions have improved, in part because of the monetary and fiscal stimulus measures taken, and the Bank continues to be able to meet its funding needs. The following table presents a comparison of selected market interest rates as of September 30, 2021, and December 31, 2020.
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Selected Market Interest Rates
Market InstrumentSeptember 30, 2021December 31, 2020September 30, 2020December 31, 2019
Federal Reserve target range for overnight Federal funds0.00-0.25%0.00-0.25%0.00-0.25%1.50-1.75%
Secured Overnight Financing Rate0.05 0.07 0.08 1.55 
3-month Treasury bill0.03 0.06 0.10 1.55 
2-year Treasury note0.28 0.12 0.13 1.57 
5-year Treasury note0.97 0.36 0.28 1.69 

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 instruments. (“Mortgage Partnership Finance,” “MPF,” and “MPF Xtra” are registered trademarks of the FHLBank of Chicago.) Adjusted net interest income for this segment is derived primarily from the difference, or spread, between the yield on the MBS investments and mortgage loans and the cost of the consolidated obligations funding those assets, including the net settlements from associated interest rate exchange agreements.
Assets associated with this segment were $14.7 billion (27% of total assets) at September 30, 2021, and $17.8 billion at December 31, 2020 (26% of total assets).
Adjusted net interest income for this segment was $62 million in the third quarter of 2021, an increase of $9 million, or 17%, from $53 million in the third quarter of 2020, which was primarily a result of higher spreads from lower funding costs. Adjusted net interest income for this segment was $200 million in the first nine months of 2021, an increase of $60 million, or 43%, from $140 million in the first nine months of 2020. This increase was primarily a result of higher spreads from lower funding costs, an improvement in retrospective adjustment of the effective yields on mortgage loans and related delivery commitments, and a reversal of prior period expected credit losses, partially offset by lower earnings from lower balances of mortgage-related products.
Adjusted net interest income for this segment represented 60% and 46% of total adjusted net interest income for the third quarter of 2021 and 2020, respectively, and 58% and 41% of total adjusted net interest income for the first nine months of 2021 and 2020, respectively.
MBS Investments – The Bank’s MBS portfolio was $13.5 billion at September 30, 2021, compared with $15.8 billion at December 31, 2020. During the first nine months of 2021, the Bank’s MBS portfolio decreased with $2.0 billion in principal repayments and a $0.3 billion decrease in basis adjustments, partially offset by $0.1 billion of fair value gains. Average MBS investments were $13.6 billion in the third quarter of 2021, a decrease of $3.2 billion from $16.8 billion in the third quarter of 2020. Average MBS investments were $14.1 billion in the first nine months of 2021, a decrease of $3.1 billion from $17.2 billion in the first nine months of 2020. 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 – Investments.”
Interest rate payment terms for MBS investments classified as trading, AFS, and held-to-maturity (HTM) at September 30, 2021, and December 31, 2020, are shown in the following table:
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MBS Investments: Interest Rate Payment Terms
(In millions)September 30, 2021December 31, 2020
Fair value of trading securities:
Adjustable rate$2 $3 
Total trading securities$2 $3 
Amortized cost of AFS securities:
Fixed rate$8,496 $9,050 
Adjustable rate1,152 1,426 
Total AFS securities$9,648 $10,476 
Amortized cost of HTM securities:
Fixed rate$491 $1,013 
Adjustable rate3,030 4,068 
Total HTM securities$3,521 $5,081 
MPF Program – Under the MPF Program, the Bank purchased from members, for its own portfolio, conventional conforming fixed rate mortgage loans under the MPF Original product. In addition, the Bank facilitated the purchase of conforming fixed rate mortgage loans from members for concurrent sale to Fannie Mae under the MPF Xtra® product. When members sold loans under the MPF Xtra product, the loans were sold to a third-party investor and were not recorded on the Bank’s Statements of Condition. On December 17, 2020, the Bank announced that it would no longer offer new commitments to directly purchase, or to facilitate the purchase of, mortgage loans from its members. On March 31, 2021, the Bank closed all remaining open commitments to purchase loans for its own portfolio under the MPF Original product, and by June 30, 2021, the Bank no longer facilitated the purchase of mortgage loans under the MPF Xtra product.
As of September 30, 2021, all mortgage loans purchased by the Bank under the MPF Program were qualifying conventional conforming fixed rate, first lien mortgage loans with fully amortizing loan terms of up to 30 years. A conventional loan is one that is not insured by the federal government or any of its agencies. Conforming loan size, which is established annually as required by Finance Agency regulations, may not exceed the loan limits set by the Finance Agency each year. All MPF loans are secured by owner-occupied, one- to four-unit residential properties or single-unit second homes.
Mortgage loan balances decreased to $1.1 billion at September 30, 2021, from $1.9 billion at December 31, 2020, a decrease of $0.8 billion. Average mortgage loans were $1.2 billion in the third quarter of 2021, a decrease of $1.5 billion from $2.7 billion in the third quarter of 2020. Average mortgage loans were $1.5 billion in the first nine months of 2021, a decrease of $1.5 billion from $3.0 billion in the first nine months of 2020.
At September 30, 2021, and December 31, 2020, 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 2020 Form 10-K. Mortgage loan balances at September 30, 2021, and December 31, 2020, were as follows:
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Mortgage Loan Balances by MPF Product Type
(In millions)September 30, 2021December 31, 2020
MPF Plus$113 $139 
MPF Original994 1,767 
Subtotal1,107 1,906 
Unamortized premiums29 35 
Unamortized discounts(1)(2)
Mortgage loans held for portfolio1,135 1,939 
Less: Allowance for credit losses(1)(4)
Mortgage loans held for portfolio, net$1,134 $1,935 
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 2020 Form 10-K.
Borrowings – Total consolidated obligations funding the mortgage-related business decreased $3.1 billion to $14.7 billion at September 30, 2021, from $17.8 billion at December 31, 2020. 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 $17.0 billion at September 30, 2021, of which $8.0 billion were associated with MBS and $9.0 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 $11.2 billion at December 31, 2020, of which $8.3 billion were associated with MBS, $2.5 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio, and $0.4 billion were offsetting derivatives.
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.”

Interest Rate Exchange Agreements
A derivative transaction or interest rate exchange agreement is a financial contract whose fair value is generally derived from changes in the value of an underlying asset or liability. The Bank uses interest rate swaps; interest rate cap and floor agreements; and callable and putable interest rate swaps (collectively, interest rate exchange agreements) to manage its exposure to 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 2020 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.”
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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, 2021, and December 31, 2020.
Concentration of Derivative Counterparties
(Dollars in millions)September 30, 2021December 31, 2020
Derivative Counterparty
Credit  
Rating(1)  
Notional
Amount		Percentage of
Total
Notional Amount
Credit  
Rating(1)  
Notional
Amount		Percentage of
Total
Notional Amount
Uncleared
OthersAt least BBB$16,185 21 %At least BBB$7,227 9 %
Subtotal uncleared16,185 21 7,227 9 
Cleared
LCH Ltd(2)
Credit Suisse Securities (USA) LLCA12,830 17 A28,977 37 
Morgan Stanley & Co. LLCA46,550 62 A42,440 54 
Subtotal cleared59,380 79 71,417 91 
Total(3)
$75,565 100 %$78,644 100 %

(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, 2021, and December 31, 2020. For purposes of clearing swaps with LCH Ltd, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC are the Bank’s clearing agents.
(3)Total notional amount at December 31, 2020, does not include $1 million of mortgage delivery commitments with members.

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 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
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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, 2021, and December 31, 2020, 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 ten days, in accordance with the Finance Agency guidance. In addition, the Bank’s funding gap positions as of September 30, 2021, and December 31, 2020, were within the tolerance levels provided by the Finance Agency guidance.
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 2020 Form  10-K.

Regulatory Capital Requirements
Under the Housing and Economic Recovery Act of 2008 (Housing Act), the Director of the Finance Agency is responsible for setting the risk-based capital standards for the FHLBanks. The FHLBank Act and regulations governing the operations of the FHLBanks require that the Bank’s minimum capital stock requirement for shareholders must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. The Bank must maintain: (i) total regulatory capital in an amount equal to at least 4% of its total assets, (ii) leverage capital in an amount equal to at least 5% of its total assets, and (iii) permanent capital in an amount that is greater than or equal to its risk-based capital requirement.
The Finance Agency requires each FHLBank to maintain a ratio of at least 2% of capital stock to total assets in order to help preserve the cooperative structure incentives that encourage members to remain fully engaged in the oversight of their investment in the FHLBank. The Finance Agency will consider the proportion of capital stock to assets, measured on a daily average basis at monthend, when assessing each FHLBank’s capital management practices. As of September 30, 2021, and December 31, 2020, the Bank complied with this capital guidance.
Because the Bank issues only Class B stock, regulatory capital and permanent capital for the Bank are both composed of retained earnings and Class B stock, including mandatorily redeemable capital stock (which is classified as a liability for financial reporting purposes). Regulatory capital and permanent capital do not include AOCI. Leverage capital is defined as the sum of permanent capital, weighted by a 1.5 multiplier, plus non-permanent capital.
The risk-based capital requirement is equal to the sum of the Bank’s credit risk, market risk, and operations risk capital requirements, all of which are calculated in accordance with the rules and regulations of the Finance Agency. The Finance Agency may require an FHLBank to maintain a greater amount of permanent capital than is required by the risk-based capital requirement as defined.
The following table shows the Bank’s compliance with the Finance Agency’s capital requirements at September 30, 2021, and December 31, 2020. The Bank’s risk-based capital requirement decreased to $1.1 billion at September 30, 2021, from $1.4 billion at December 31, 2020.
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Regulatory Capital Requirements
 September 30, 2021December 31, 2020
(Dollars in millions)RequiredActualRequiredActual
Risk-based capital$1,109 $6,059 $1,404 $5,966 
Total regulatory capital$2,178 $6,059 $2,745 $5,966 
Total regulatory capital ratio4.00 %11.12 %4.00 %8.69 %
Leverage capital$2,723 $9,088 $3,432 $8,949 
Leverage ratio5.00 %16.69 %5.00 %13.04 %
The Bank’s capital requirements are more fully discussed in “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2020 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, corporate governance, and standards of conduct. The policy also establishes the Bank’s risk governance organizational structure and identifies the general roles and responsibilities of the board of directors and management in establishing risk management policies, procedures, and guidelines; in overseeing the enterprise risk profile; and in implementing enterprise risk management processes and business strategies. The policy establishes an independent risk oversight function to identify, assess, measure, monitor, and report on the enterprise risk profile and risk management capabilities of the Bank. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the Bank’s 2020 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. The Bank also has procedures to assess the mortgage loan quality and documentation standards of institutions that pledge mortgage loan collateral. In addition, the Bank has collateral policies and restricted lending procedures in place to help manage its exposure to institutions that experience difficulty in meeting their capital requirements or other standards of creditworthiness. These credit and collateral policies balance the Bank’s dual goals of meeting the needs of members and housing associates as a reliable source of liquidity and mitigating credit risk by adjusting credit and collateral terms in view of deterioration in creditworthiness. The Bank has never experienced a credit loss on an advance.
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.
In addition, the total amount of advances made available to each member or housing associate may be limited by the financing availability assigned by the Bank, which is generally expressed as a percentage of the member’s or
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housing associate’s assets, which the Bank can change from time to time. The amount of financing availability is generally determined by the creditworthiness of the member or housing associate.
When a nonmember financial institution acquires some or all of the assets and liabilities of a member, including outstanding advances and Bank capital stock, the Bank may allow the advances to remain outstanding, at its discretion. The nonmember borrower is required to meet the Bank’s applicable credit, collateral, and capital stock requirements, including requirements regarding creditworthiness and collateral borrowing capacity.
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, 2021, and December 31, 2020.
Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Credit Quality Rating
(Dollars in millions)
September 30, 2021

All Members and
Nonmembers		Members and Nonmembers with Credit Outstanding
   
Collateral Borrowing Capacity(2)
Member or Nonmember
Credit Quality Rating		NumberNumber
Credit
Outstanding(1)
TotalUsed
1-3253 128 $28,693 $200,896 14 %
4-673 32 9,140 30,929 30 
7-103 2 20 39 51 
Subtotal329 162 37,853 231,864 16 
Community development financial institutions (CDFIs)7 7 117 130 90 
Housing associates2 — — — — 
Total338 169 $37,970 $231,994 16 %
December 31, 2020
 All Members and
Nonmembers		Members and Nonmembers with Credit Outstanding
   
Collateral Borrowing Capacity(2)
Member or Nonmember
Credit Quality Rating		NumberNumber
Credit
Outstanding(1)
TotalUsed
1-3236 164 $37,225 $188,637 20 %
4-695 59 12,508 50,199 25 
7-104 2 32 34 94 
Subtotal335 225 49,765 238,870 21 
CDFIs7 7 103 116 89 
Housing associates2 — — — — 
Total344 232 $49,868 $238,986 21 %
(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.

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Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Unused Borrowing Capacity
(Dollars in millions)
September 30, 2021
Unused Borrowing CapacityNumber of Members and Nonmembers with
Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% – 10%4 $456 $468 
11% – 25%7 659 828 
26% – 50%14 1,605 2,414 
More than 50%144 35,250 228,284 
Total169 $37,970 $231,994 
December 31, 2020
Unused Borrowing CapacityNumber of Members and Nonmembers with
Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% – 10%18 $1,417 $1,511 
11% – 25%3 116 137 
26% – 50%27 9,858 18,210 
More than 50%184 38,477 219,128 
Total232 $49,868 $238,986 
 
(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, 2021, and December 31, 2020.
Composition of Securities Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
(In millions)September 30, 2021December 31, 2020
Securities Type with Current Credit RatingsCurrent ParBorrowing
Capacity		Current ParBorrowing
Capacity
U.S. Treasury (bills, notes, bonds)$424 $402 $195 $190 
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools)3,774 3,628 4,236 4,120 
Agency pools and collateralized mortgage obligations17,420 16,460 16,399 15,758 
Private-label commercial MBS – publicly registered investment-grade-rated senior tranches4 3 3 3 
PLRMBS – private label investment-grade-rated senior tranches325 204 18 12 
Term deposits with the Bank66 66 16 16 
Total$22,013 $20,763 $20,867 $20,099 
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
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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, 2021, of the loan collateral pledged to the Bank, 15% was pledged by 22 institutions by specific identification, 56% was pledged by 117 institutions under a blanket lien with detailed reporting, and 29% was pledged by 129 institutions under a blanket lien with summary reporting. For each borrower that pledges loan collateral, the Bank conducts loan collateral field reviews once every six months or every one, two, or three years, depending on the risk profile of the borrower and the types of collateral pledged by the borrower.
As of September 30, 2021, 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, 2021, and December 31, 2020.
Composition of Loan Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
(In millions)September 30, 2021December 31, 2020
Loan TypeUnpaid Principal
Balance		Borrowing
Capacity		Unpaid Principal
Balance		Borrowing
Capacity
First lien residential mortgage loans$165,890 $130,066 $167,058 $131,671 
Second lien residential mortgage loans and home equity lines of credit13,828 6,479 15,349 6,441 
Multifamily mortgage loans39,989 27,515 43,324 28,376 
Commercial mortgage loans71,626 46,250 78,886 48,637 
Loan participations(1)
657 200 3,783 2,591 
Small business, small farm, and small agribusiness loans3,077 721 4,820 1,171 
Total$295,067 $211,231 $313,220 $218,887 
(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, 2021, and December 31, 2020, the unpaid principal balance of these loans totaled $5 billion and $5 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
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pledging subprime mortgage loans, are required to be fully collateralized. The Bank limits the amount of borrowing capacity that may be supported by subprime collateral.

Investments. The Bank has adopted credit policies and exposure limits for investments that promote risk limitation, diversification, and liquidity. These policies determine eligible counterparties and restrict the amounts and terms of the Bank’s investments with any given counterparty according to the Bank’s own capital position as well as the capital and creditworthiness of the counterparty.
The Bank monitors its investments for substantive changes in relevant market conditions and any declines in fair value. For securities in an unrealized loss position because of factors other than movements in interest rates, such as widening of mortgage asset spreads, the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing the expectations of the present value of the cash flows to be collected from the security with the amortized cost basis of the security. If the Bank’s expectations of the present value of the cash flows to be collected is less than the amortized cost basis, the difference is considered the credit loss.
When the fair value of an individual investment security falls below its amortized cost, the Bank evaluates whether an allowance for credit losses is necessary on the security. The Bank recognizes an allowance for credit losses when it determines that it will be unable to recover the entire amortized cost basis of the security and the fair value of the investment security is less than its amortized cost. The Bank considers its intent to hold the security and whether it is more likely than not that the Bank will be required to sell the security before its anticipated recovery of the remaining cost basis, and other factors. The Bank generally views changes in the fair value of the securities caused by movements in interest rates to be temporary.
The following tables present the Bank’s investment credit exposure at the dates indicated, based on the lowest of the long-term credit ratings provided by Moody’s, S&P, or Fitch Ratings (Fitch) ratings.
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Investment Credit Exposure
(In millions)
September 30, 2021
Carrying Value
 
Credit Rating(1)
Investment TypeAAAAAABBBBelow Investment GradeUnratedTotal
U.S. obligations – Treasury securities$— $3,114 $— $— $— $— $3,114 
MBS:
Other U.S. obligations – single-family:
Ginnie Mae— 137 — — — — 137 
GSEs – single-family:
Freddie Mac— 250 — — — — 250 
Fannie Mae(2)
6 873 4 — 2 — 885 
Subtotal6 1,123 4 — 2 — 1,135 
GSEs – multifamily:
Freddie Mac— 2,126 — — — — 2,126 
Fannie Mae— 8,156 — — — — 8,156 
Subtotal— 10,282 — — — — 10,282 
Total GSEs6 11,405 4 — 2 — 11,417 
PLRMBS:
Prime— 18 22 39 128 97 304 
Alt-A— 21 36 41 1,016 520 1,634 
Total PLRMBS— 39 58 80 1,144 617 1,938 
Total MBS6 11,581 62 80 1,146 617 13,492 
Total securities6 14,695 62 80 1,146 617 16,606 
Interest-bearing deposits— — 1,125 — — — 1,125 
Securities purchased under agreements to resell— 5,500 1,000 — — — 6,500 
Federal funds sold— 1,400 4,383 350 — — 6,133 
Total investments$6 $21,595 $6,570 $430 $1,146 $617 $30,364 
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(In millions)
December 31, 2020
Carrying Value
 
Credit Rating(1)
Investment TypeAAABBBBelow Investment GradeUnratedTotal
U.S. obligations – Treasury securities$9,240 $— $— $— $— $9,240 
MBS:
Other U.S. obligations – single-family:
Ginnie Mae264 — — — — 264 
GSEs – single-family:
Freddie Mac511 — — — — 511 
Fannie Mae(2)
1,222 4 — 3 — 1,229 
Subtotal1,733 4 — 3 — 1,740 
GSEs – multifamily:
Freddie Mac2,695 — — — — 2,695 
Fannie Mae8,755 — — — — 8,755 
Subtotal11,450 — — — — 11,450 
Total GSEs13,183 4 — 3 — 13,190 
PLRMBS:
Prime22 26 53 162 104 367 
Alt-A31 49 33 1,298 548 1,959 
Total PLRMBS53 75 86 1,460 652 2,326 
Total MBS13,500 79 86 1,463 652 15,780 
Total securities22,740 79 86 1,463 652 25,020 
Interest-bearing deposits1 1,077 — — — 1,078 
Securities purchased under agreements to resell6,000 1,250 — — — 7,250 
Federal funds sold— 1,880 — — — 1,880 
Total investments$28,741 $4,286 $86 $1,463 $652 $35,228 

(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, 2021, and December 31, 2020, 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 Bank actively monitors its credit exposures and the credit quality of its counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, likelihood of parental or sovereign support, and the current market perceptions of the counterparties. The Bank may also consider general macroeconomic and market conditions and political stability when establishing limits on unsecured investments with U.S. branches and agency offices of foreign commercial banks. As a result of deteriorating financial condition or concerns about adverse economic or market developments, the Bank may reduce limits or terms on unsecured investments or suspend a counterparty.
Finance Agency regulations limit the amount of unsecured credit that an individual FHLBank may extend to a single counterparty. In addition, the FHLBanks are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks.
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Under Finance Agency regulations, the total amount of unsecured credit that an FHLBank may extend to a group of affiliated counterparties for term extensions of unsecured credit and overnight Federal funds sales, combined, may not exceed 30% of the FHLBank’s total capital. These limits on affiliated counterparty groups are in addition to the limits on extensions of unsecured credit applicable to any single counterparty within the affiliated group.
The following table presents the unsecured credit exposure with counterparties by investment type at September 30, 2021, and December 31, 2020.
Unsecured Investment Credit Exposure by Investment Type
 
Carrying Value(1)
(In millions)September 30, 2021December 31, 2020
Interest-bearing deposits$1,125 $1,077 
Federal funds sold6,133 1,880 
Total$7,258 $2,957 

(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, 2021, and December 31, 2020.
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, 2021, 80% of the Bank’s total unsecured investments were to U.S. branches and agency offices of foreign commercial banks. At September 30, 2021, 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, 2021
Carrying Value(1)
 
Credit Rating(2)
Domicile of CounterpartyAAABBBTotal
Domestic$— $1,125 $350 $1,475 
U.S. branches and agency offices of foreign commercial banks:
Australia— 1,400 — 1,400 
Canada1,400 1,400 — 2,800 
Netherlands— 113 — 113 
Sweden— 920 — 920 
United Kingdom— 550 — 550 
Total U.S. branches and agency offices of foreign commercial banks1,400 4,383 — 5,783 
Total unsecured credit exposure$1,400 $5,508 $350 $7,258 
(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, 2021.
(2)Does not reflect changes in ratings, outlook, or watch status occurring after September 30, 2021. 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, 2021, the Bank’s MBS portfolio was
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207% of Bank regulatory capital (as determined in accordance with regulations governing the operations of the FHLBanks). The Bank has not purchased any PLRMBS since the first quarter of 2008.
The Bank executes all MBS investments without preference to the status of the counterparty or the issuer of the investment as a nonmember, member, or affiliate of a member. When the Bank executes non-MBS investments with members, the Bank may give consideration to their secured credit availability and the Bank’s advances price levels.
At September 30, 2021, PLRMBS representing 11% of the amortized cost of the Bank’s MBS portfolio were labeled Alt-A by the issuer. These PLRMBS are generally collateralized by mortgage loans that are considered less risky than subprime loans but more risky than prime loans. These loans are generally made to borrowers with credit scores that are high enough to qualify for a prime mortgage loan, but the loans may not meet standard underwriting guidelines for documentation requirements, property type, or loan-to-value ratios.
As of September 30, 2021, the Bank’s investment in MBS had gross unrealized losses totaling $10 million, $6 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, 2021, 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 credit losses on additional PLRMBS in future periods, as well as further impairment of PLRMBS that were identified as other-than-temporarily impaired prior to January 1, 2020. 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 investment securities with interest rates indexed to LIBOR. The following tables present the unpaid principal balance of adjustable rate investment securities by interest rate index and the unpaid principal balance of LIBOR-indexed investments for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by redemption term at September 30, 2021, and December 31, 2020. 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 Investment Securities by Interest Rate Index
(In millions)MBS
Interest Rate IndexSeptember 30, 2021December 31, 2020
LIBOR(1)
$4,404 $5,744 
Constant maturity Treasury78 101 
Other— 1 
Total adjustable rate investment securities(2)
$4,482 $5,846 
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LIBOR-Indexed Investment Securities by Redemption Term
(In millions)MBS
Redemption TermSeptember 30, 2021December 31, 2020
Due in 2022$— $1 
Due through June 30, 202319 98 
Due thereafter(2)
4,385 5,645 
Total LIBOR-Indexed investment securities$4,404 $5,744 
(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 credit exposure. Interest rate exchange agreements may be either entered into directly with a counterparty (uncleared derivatives) or executed either with an executing dealer or on a swap execution facility and then cleared through a futures commission merchant or clearing agent with a derivatives clearing organization (cleared derivatives).
Uncleared Derivatives – The Bank selects only highly rated derivative dealers and major banks (derivative dealer counterparties) that meet the Bank’s eligibility criteria to act as counterparties for its uncleared derivative activities. In addition, for all uncleared derivative transactions, the Bank has entered into master netting agreements and bilateral credit support agreements with all active derivative dealer counterparties that provide for delivery of margin at specified levels to limit the Bank’s net unsecured credit exposure to these counterparties. Under these policies and agreements, the amount of unsecured credit exposure to an individual derivative dealer counterparty is set at zero (subject to a minimum transfer amount).
The Bank is subject to the risk of potential nonperformance by the counterparties to derivative agreements. 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, 2021.
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 portfolio. Because of an increase in market values of cleared derivatives during 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. Because of a decline in market values of cleared derivatives during the first nine months of 2020, there was an increase in variation margin posted on cleared derivatives that resulted in an increase in net cash used in 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, 2021.
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.
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Credit Exposure to Derivative Dealer Counterparties
(In millions)
September 30, 2021
Counterparty Credit Rating(1)
Notional AmountNet Fair Value of Derivatives Before CollateralCash Collateral Pledged
to/ (from) Counterparty		Noncash Collateral Pledged
to/ (from) Counterparty		Net Credit
Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
A$46 $1 $(1)$— $— 
Liability positions with credit exposure:
Uncleared derivatives
A50 (1)1 — — 
Cleared derivatives(2)
59,380 (9)20 284 295 
Total derivative positions with credit exposure to nonmember counterparties59,476 $(9)$20 $284 $295 
Derivative positions without credit exposure16,089 
Total notional$75,565 
December 31, 2020
Counterparty Credit Rating(1)
Notional AmountNet Fair Value of Derivatives Before CollateralCash Collateral Pledged
to/ (from) Counterparty		Non-cash Collateral Pledged
to/ (from) Counterparty		Net Credit
Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
A$91 $3 $(3)$— $— 
Liability positions with credit exposure:
Uncleared derivatives
A101 (4)4 — — 
Cleared derivatives(2)
71,417 (12)13 379 380 
Total derivative positions with credit exposure to nonmember counterparties71,609 (13)14 379 380 
Member institutions(3)
1 — — — — 
Total71,610 $(13)$14 $379 $380 
Derivative positions without credit exposure7,035 
Total notional$78,645 
(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, 2021, and December 31, 2020.
(3)Member institutions include mortgage delivery commitments with members.
The Bank primarily executes overnight index swap (OIS) derivatives indexed to SOFR and the Effective Federal Funds Rate (EFFR) 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, 2021, and December 31, 2020.
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LIBOR-Indexed Interest Rate Swaps by Interest Rate Index
(In millions)September 30, 2021December 31, 2020
Interest Rate IndexPay LegReceive LegPay LegReceive Leg
Fixed$34,345 $40,371 $47,425 $24,640 
LIBOR374 2,363 2,578 9,647 
SOFR32,547 26,315 20,481 32,609 
OIS - EFFR7,749 5,966 7,380 10,968 
Total notional amount$75,015 $75,015 $77,864 $77,864 
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, 2021, and December 31, 2020. As of September 30, 2021, interest rate caps and floors indexed to LIBOR totaling $550 million were due to terminate after June 30, 2023. As of December 31, 2020, interest rate caps and floors indexed to LIBOR totaling $230 million were due to terminate in 2021 and totaling $550 million were due to terminate after June 30, 2023. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.
LIBOR-Indexed Interest Rate Swaps by Termination Date
(In millions)
September 30, 2021
Pay LegReceive Leg
Termination DateClearedUnclearedClearedUncleared
Terminates in 2021$— $— $453 $21 
Terminates in 2022 210 35 517 112 
Terminates through June 30, 202350 — 309 23 
Terminates thereafter(1)
79 — 641 287 
Total Notional Amount$339 $35 $1,920 $443 
December 31, 2020
Pay LegReceive Leg
Termination DateClearedUnclearedClearedUncleared
Terminates in 2021$1,523 $238 $6,852 $213 
Terminates in 2022559 35 887 112 
Terminates through June 30, 2023100 — 369 22 
Terminates thereafter(1)
28 95 798 394 
Total Notional Amount$2,210 $368 $8,906 $741 
(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
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operations significantly. Although the Bank believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.
In the Bank’s 2020 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 prior to the adoption of accounting guidance related to the measurement of credit losses on MBS and mortgage loans.
There have been no significant changes in the judgments and assumptions made during the first nine months of 2021 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 2020 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.

Recent Developments
FHLBank Membership. On September 9, 2021, the Finance Agency published a Supervisory Letter on FHLBank membership issues covering five issues, including: (i) requirements for de novo community development financial institutions, (ii) automatic transfer of membership, (iii) large non-member institutions merging with small members, (iv) applicant’s compliance with the “financial condition” requirement, and (v) the definition of insurance company. The supervisory letter is intended to provide uniform guidance to the FHLBanks in the event other FHLBanks encounter similar circumstances. The Bank continues to evaluate the supervisory letter and its effect on Bank membership.
Fair Housing and Fair Lending Enforcement. On July 9, 2021, the Finance Agency published a Policy Statement on Fair Lending to communicate the Finance Agency’s general position on monitoring and information gathering, supervisory examinations, and administrative enforcement related to the Equal Credit Opportunity Act, the Fair Housing Act, and the Federal Housing Enterprises Financial Safety and Soundness Act. The Policy Statement became effective on the date of publication.
On August 12, 2021, the Finance Agency and the U.S. Department of Housing and Urban Development announced they had entered into a memorandum of understanding regarding fair housing and fair lending enforcement. Under the memorandum of understanding, the two agencies will focus on enhancing their enforcement of the Fair Housing Act, and their oversight of Fannie Mae, Freddie Mac, and the FHLBanks.
The Bank continues to monitor these actions and guidance as they evolve and to evaluate their potential effect on the Bank.
Annual Designation of Member Director and Independent Director Positions. On June 2, 2021, the Finance Agency designated one member director position for Arizona, six for California, and one for Nevada, effective January 1, 2022, the same allocation of positions as for 2021. In addition, the Finance Agency designated seven independent director positions for the Bank for 2022, the same number of positions as for 2021. Two of the
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California member director positions, and two of the independent director positions, all with current terms ending on December 31, 2021, will be filled through an election of the members located in California (for the two California member director positions), and an election of all members of the Bank (for the two independent director positions). The elections will be held in the fourth quarter of 2021. The two California member director positions and the two independent director positions will each have a four-year term that begins on January 1, 2022.
Off-Balance Sheet Arrangements and Aggregate Contractual Commitments
Off-Balance Sheet Arrangements and Other Commitments
In accordance with regulations governing the operations of the FHLBanks, each FHLBank, including the Bank, is jointly and severally liable for the FHLBank System’s consolidated obligations issued under Section 11(a) of the FHLBank Act, and in accordance with the FHLBank Act, each FHLBank, including the Bank, is jointly and severally liable for consolidated obligations issued under Section 11(c) of the FHLBank Act. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor.
The par value of the outstanding consolidated obligations of the FHLBanks was $641.4 billion at September 30, 2021, and $746.7 billion at December 31, 2020. The par value of the Bank’s participation in consolidated obligations was $46.9 billion at September 30, 2021, and $60.6 billion at December 31, 2020. The Bank had committed to the issuance of $235 million in consolidated obligations at September 30, 2021. The Bank had no commitments to issue consolidated obligations at December 31, 2020.
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, 2021, the Bank had no advance commitments and $15.5 billion in standby letters of credit outstanding. At December 31, 2020, the Bank had no advance commitments and $19.4 billion in standby letters of credit outstanding.
For additional information, see “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”
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
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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, 2021.
To determine the Bank’s estimated risk sensitivities to interest rates for the market value of capital sensitivity, the Bank uses a third-party proprietary asset and liability system to calculate estimated market values under alternative interest rate scenarios. The system analyzes all of the Bank’s financial instruments, including derivatives, on a transaction-level basis using sophisticated valuation models with consistent and appropriate behavioral assumptions and current position data. The system also includes a third-party mortgage prepayment model.
At least annually, the Bank reexamines the major assumptions and methodologies used in the model, including interest rate curves, spreads for discounting, and mortgage prepayment assumptions. The Bank also compares the mortgage prepayment assumptions in the third-party model to other sources, including actual mortgage prepayment history.
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, 2021December 31, 2020
+200 basis-point change above current rates–2.1%–3.0%
+100 basis-point change above current rates–0.8–1.3
–100 basis-point change below current rates(2)
+1.4+4.9
–200 basis-point change below current rates(2)
+4.5+5.2
(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, 2021, are comparable with the estimates as of December 31, 2020, with the exception of the declining 100 basis-point rate scenario. The increase in intermediate and long-term interest rates in the first quarter of 2021 resulted in a larger absolute down 100 basis-point rate shock relative to yearend. Interest rates continue to remain at historically
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low levels, ranging from 4 basis points for the one-month Treasury bill to 153 basis points for the ten-year Treasury note.
The Bank’s Risk Management Policy provides guidelines for the payment of dividends and the repurchase of excess capital stock based on the ratio of the Bank’s 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 capital stock repurchases would not exceed $500 million (subject to certain conditions); (ii) less than 90% but greater than or equal to 70%, any dividend and any excess capital stock repurchases would be subject to the same limitations and conditions as in (i) above, except that any excess capital stock repurchases would not exceed 4% of the Bank’s outstanding capital stock as of the repurchase date; and (iii) less than 70%, the Bank would not pay a dividend, not repurchase excess capital stock (but continue to redeem excess capital stock as provided in the Bank’s capital plan), 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 capital stock is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks. The ratio of the Bank’s estimated market value of total capital to par value of capital stock was 292% as of September 30, 2021.
Adjusted Return on Capital – The adjusted return on capital is a measure used by the Bank to assess financial performance. The adjusted return on capital is based on current period economic earnings that exclude the effects of unrealized net gains or losses resulting from the Bank’s derivatives and associated hedged items and from financial instruments carried at fair value, which will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms to maturity or by the call or put date of the assets and liabilities held under the fair value option, hedged assets and liabilities, and derivatives. Economic earnings also exclude the interest expense on mandatorily redeemable capital stock and the 20% of net income allocated to the Bank’s restricted retained earnings account in accordance with the FHLBanks’ Joint Capital Enhancement (JCE) Agreement. Economic earnings exclude these amounts in order to more accurately reflect the amount of earnings that may be available to be paid as dividends to shareholders. With the decline in consolidated obligations outstanding in 2020, the Bank ceased contributions to restricted retained earnings in the fourth quarter of 2020, in accordance with the JCE Agreement; and no further allocations of net income into restricted retained earnings are required until such time as the allocation requirement exceeds the balance of restricted retained earnings. Additionally, the JCE Agreement provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. As a result of the Bank exceeding this threshold, the Bank reclassified $18 from restricted retained earnings to unrestricted retained earnings during the third quarter of 2021.
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 –120 basis points from the base case projected adjusted return on capital. Given the current low interest rate environment, in the downward shift interest rates were limited to non-negative rates. With the indicated interest rate shifts, the adjusted return on capital for the projected 12-month horizon would be expected to decrease by 20 basis points in the –200 basis-points scenario, well 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.
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Total Bank Duration Gap Analysis
 September 30, 2021December 31, 2020

Amount
(In millions)
Duration Gap(1)
(In months)
Amount
(In millions)
Duration Gap(1)
(In months)
Assets$54,459 3 $68,634 4 
Liabilities48,085 3 62,440 3 
Net$6,374 — $6,194 1 
(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 of less than three years. These fixed rate investments are swapped to variable rate investments.
The interest rate risk in the advances-related business is primarily associated with the Bank’s strategy for investing capital (capital stock, including mandatorily redeemable capital stock, and retained earnings). The Bank’s strategy is generally to invest 50% of capital in short-term investments (maturities of three months or less) and 50% in intermediate-term investments (a laddered portfolio of investments with maturities of up to four years). However, this strategy may be altered from time to time depending on market conditions. The strategy to invest 50% of capital in short-term assets is intended to mitigate the market value of capital risks associated with the potential repurchase or redemption of excess capital stock. Excess capital stock usually results from a decline in a borrower’s outstanding advances or by a membership termination. Under the Bank’s capital plan, capital stock, when repurchased or redeemed, is required to be repurchased or redeemed at its par value of $100 per share, subject to certain regulatory and statutory limits. The strategy to invest 50% of capital in a laddered portfolio of investments with short to intermediate maturities is intended to take advantage of the higher earnings available from a generally positively sloped yield curve, when intermediate-term investments generally have higher yields than short-term investments.
The Bank updates the repricing and maturity gaps for actual asset, liability, and derivative transactions that occur in the advances-related segment each day. The Bank regularly compares the targeted repricing and maturity gaps to the actual repricing and maturity gaps to identify rebalancing needs for the targeted gaps. On a weekly basis, the Bank evaluates the projected impact of expected maturities and scheduled repricing of assets, liabilities, and interest rate exchange agreements on the interest rate risk of the advances-related segment. These analyses are used to measure and manage potential reinvestment risk (when the remaining term of advances is shorter than the remaining term of the financing) and potential refinancing risk (when the remaining term of advances is longer than the remaining term of the financing).
Because of the short-term and variable rate nature of the assets, liabilities, and derivatives of the advances-related business, the Bank’s interest rate risk guidelines address the amounts of net assets that are expected to mature or reprice in a given period. The market value sensitivity analyses and net interest income simulations are also used to identify and measure risk and variances to the target interest rate risk exposure in the advances-related segment.
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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, 2021, was $14.6 billion, including $13.5 billion in MBS and $1.1 billion in mortgage loans. The total carrying value of MBS and mortgage loans at December 31, 2020, was $17.7 billion, including $15.8 billion in MBS and $1.9 billion in mortgage loans. Floating rate securities, and fixed rate multifamily securities that have been converted to floating rate through the use of interest rate swaps, were $12.6 billion, or 86%, of MBS and mortgage loans at September 30, 2021, and $14.2 billion, or 80%, of MBS and mortgage loans at December 31, 2020. 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 $2.0 billion, or 14%, of MBS and mortgage loans, at September 30, 2021, and $3.5 billion, or 20%, of MBS and mortgage loans at December 31, 2020.
The estimated market risk of the mortgage-related business is managed both at the time an asset is purchased and on an ongoing basis for the total portfolio. At the time of purchase (for all significant mortgage asset acquisitions), the Bank analyzes the estimated earnings sensitivity and estimated market value sensitivity, taking into consideration the estimated mortgage prepayment sensitivity of the mortgage assets and anticipated funding and hedging activities under various interest rate scenarios. The related funding and hedging transactions are executed at or close to the time of purchase of a mortgage asset.
At least monthly, the Bank reviews the estimated market risk profile of the entire portfolio of mortgage assets and related funding and hedging transactions. The Bank then considers rebalancing strategies to modify the estimated mortgage portfolio market risk profile. Periodically, the Bank performs more in-depth analyses, which include an analysis of the impacts of non-parallel shifts in the yield curve and assessments of the impacts of unanticipated mortgage prepayment behavior. Based on these analyses, the Bank may take actions to rebalance the mortgage portfolio’s market risk profile. These rebalancing strategies may include entering into new funding and hedging transactions, forgoing or modifying certain funding or hedging transactions normally executed with new mortgage purchases, or terminating certain funding and hedging transactions for the mortgage asset portfolio.
The Bank manages the estimated interest rate risk associated with mortgage assets, including mortgage prepayment risk, through a combination of debt issuance and derivatives. The Bank may obtain funding through callable and non-callable FHLBank System debt and may execute derivative transactions to achieve principal cash flow patterns and market value sensitivities for the liabilities and derivatives that provide a significant offset to the interest rate and mortgage prepayment risks associated with the mortgage assets. Debt issued to finance mortgage assets may be fixed rate debt, callable fixed rate debt, adjustable rate debt, or callable adjustable rate debt. Derivatives may be used as temporary hedges of anticipated debt issuance or long-term hedges of debt used to finance the mortgage assets. The derivatives used to hedge the interest rate risk of fixed rate mortgage assets generally may be callable and non-callable pay-fixed interest rate swaps. Derivatives may also be used to offset the interest rate cap risk embedded in adjustable rate MBS.
As discussed above in “Total Bank Market Risk – Market Value of Capital Sensitivity,” the Bank uses market value of capital sensitivity as a primary market value metric for measuring the Bank’s exposure to interest rates. The Bank’s interest rate risk 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, 2021, and December 31, 2020.
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Market Value of Capital Sensitivity
Estimated Percentage Change in Market Value of Bank Capital
Attributable to the Mortgage-Related Business for Various Changes in Interest Rates
Interest Rate Scenario(1)
September 30, 2021December 31, 2020
+200 basis-point change–0.6%–1.3%
+100 basis-point change–0.1–0.4
–100 basis-point change(2)
+0.1+2.8
–200 basis-point change(2)
+2.6+2.9
(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, 2020, to September 30, 2021, 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 a discussion of risk factors related to the COVID-19 pandemic, see “Part I. Item 1A. Risk Factors” in the Bank’s 2020 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.
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, 2021, there were no changes in the Bank’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
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Consolidated Obligations
The Bank’s disclosure controls and procedures include controls and procedures for accumulating and communicating information in compliance with the Bank’s disclosure and financial reporting requirements relating to the joint and several liability for the consolidated obligations of the Federal Home Loan Banks (FHLBanks). Because the FHLBanks are independently managed and operated, the Bank’s management relies on information that is provided or disseminated by the Federal Housing Finance Agency (Finance Agency), the Office of Finance, and the other FHLBanks, as well as on published FHLBank credit ratings, in determining whether the joint and several liability regulation is reasonably likely to result in a direct obligation for the Bank or whether it is reasonably possible that the Bank will accrue a direct liability.
The Bank’s management also relies on the operation of the joint and several liability regulation. The joint and several liability regulation requires that each FHLBank file with the Finance Agency a quarterly certification that it will remain capable of making full and timely payment of all of its current obligations, including direct obligations, coming due during the next quarter. In addition, if an FHLBank cannot make such a certification or if it projects that it may be unable to meet its current obligations during the next quarter on a timely basis, it must file a notice with the Finance Agency. Under the joint and several liability regulation, the Finance Agency may order any FHLBank to make principal and interest payments on any consolidated obligations of any other FHLBank, or allocate the outstanding liability of an FHLBank among all remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis.
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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS
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
For a discussion of other risk factors, see “Part I. Item 1A. Risk Factors” in the Bank’s 2020 Form 10-K. There have been no material changes from the risk factors disclosed in the “Part I. Item 1A. Risk Factors” section of the Bank’s 2020 Form 10-K.
ITEM 5.    OTHER INFORMATION
On November 3, 2021, the Bank appointed Kitty Payne as senior vice president and Controller. Effective November 8, 2021, Ms. Payne will also be appointed as the Bank’s principal accounting officer. Until the effective date of Ms. Payne’s appointment as Controller, Ludmila (Lucy) Sheftel served as the Bank’s Acting Controller whereupon Ms. Sheftel became the Bank’s Deputy Controller; and until the effective date of Ms. Payne’s appointment as the Bank’s principal accounting officer, Ms. Sheftel will continue to serve as the Bank’s principal accounting officer.
Ms. Payne, age 51, has served as Chief Financial Officer of Commercial Bank of California since 2019. From 2018 to 2019, Ms. Payne served as the Corporate Controller of Advanced Air, LLC. Before joining Advanced Air, LLC, Ms. Payne was the Chief Accounting Officer at Fidelity Bank (acquired by Ameris Bank in 2019) from 2014 to 2018, an executive vice president at Capital Bank from 2010 to 2013, and Chief Financial Officer at First National Bank of the South from 1999 to 2010. Ms. Payne is a certified public accountant and was employed with KPMG LLP, serving as a senior manager (tax) from 1996 to 1999, and prior to that, senior accountant (audit) from 1992 to 1996. Ms. Payne has no direct or indirect material interest in any transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K. There are no family relationships between Ms. Payne and any of the Bank’s directors or executive officers.
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ITEM 6.    EXHIBITS
Exhibit No.Description
Senior Officer Corporate Severance Policy, as amended and restated on July 30, 2021
  Certification of the President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
  Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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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 5, 2021.
 
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/ LUDMILA V. SHEFTEL
Ludmila V. Sheftel
Managing Director and Deputy Controller
(Principal accounting officer)
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