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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, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-51398
FEDERAL HOME LOAN BANK OF SAN FRANCISCO
(Exact name of registrant as specified in its charter)
  ___________________________________________
Federally chartered corporation of the United States
94-6000630
(State or other jurisdiction of incorporation or organization)
(I.R.S. employer identification number)
333 Bush Street, Suite 2700
San Francisco,
CA
94104
(Address of principal executive offices)
(Zip code)
(415) 616-1000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:
Title of each 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, 2022
Class B Stock, par value $100 per share35,398,700 

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 2.
Item 3.
Item 4.
Item 5.
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,
2022		December 31,
2021
Assets:
Cash and due from banks$6 $55 
Interest-bearing deposits2,405 1,125 
Securities purchased under agreements to resell12,000 15,500 
Federal funds sold12,646 5,348 
Trading securities1 252 
Available-for-sale (AFS) securities, net of allowance for credit losses of $25 and $17, respectively (amortized cost of $12,178 and $10,009, respectively)(a)
12,177 10,332 
Held-to-maturity (HTM) securities (fair values of $2,396 and $3,235, respectively)
2,432 3,211 
Advances (includes $2,039 and $1,772 at fair value under the fair value option, respectively)
65,658 17,027 
Mortgage loans held for portfolio, net of allowance for credit losses of $1 and $1, respectively
834 980 
Accrued interest receivable77 45 
Derivative assets, net62 8 
Other assets 209 238 
Total Assets$108,507 $54,121 
Liabilities:
Deposits$814 $769 
Consolidated obligations:
Bonds (includes $2,210 and $627 at fair value under the fair value option, respectively)
35,446 22,716 
Discount notes62,046 23,987 
Total consolidated obligations97,492 46,703 
Mandatorily redeemable capital stock4 3 
Borrowings from other Federal Home Loan Banks (FHLBanks)2,320 — 
Accrued interest payable93 33 
Affordable Housing Program (AHP) payable109 115 
Derivative liabilities, net2 5 
Other liabilities409 269 
Total Liabilities101,243 47,897 
Commitments and Contingencies (Note 13)
Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
33 shares and 21 shares, respectively
3,322 2,061 
Unrestricted retained earnings3,222 3,124 
Restricted retained earnings708 708 
Total Retained Earnings3,930 3,832 
Accumulated other comprehensive income/(loss) (AOCI)12 331 
Total Capital7,264 6,224 
Total Liabilities and Capital$108,507 $54,121 
(a)At September 30, 2022, and December 31, 2021, $335 million and $252 million, respectively, of these securities were pledged as collateral that may be repledged.
The accompanying notes are an integral part of these financial statements.
1
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)2022202120222021
Interest Income:
Advances$347 $47 $505 $152 
Prepayment fees on advances, net(2)— (4)15 
Interest-bearing deposits14 — 17 1 
Securities purchased under agreements to resell51 1 65 1 
Federal funds sold72 2 96 4 
Trading securities— 13 — 54 
AFS securities109 57 247 168 
HTM securities17 10 34 34 
Mortgage loans held for portfolio8 7 38 34 
Total Interest Income616 137 998 463 
Interest Expense:
Consolidated obligations:
Bonds143 13 205 49 
Discount notes310 3 399 10 
Deposits5 1 7 1 
Borrowings from other FHLBanks1 — 1 — 
Total Interest Expense459 17 612 60 
Net Interest Income157 120 386 403 
Provision for/(reversal of) credit losses9 — 9 (8)
Net Interest Income After Provision for/(Reversal of) Credit Losses148 120 377 411 
Other Income/(Loss):
Net gain/(loss) on trading securities— (13)— (50)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(20)(9)(53)(40)
Net gain/(loss) on derivatives(1)15 (13)25 
Private-label residential mortgage-backed securities (PLRMBS) trust settlement
— — 28 — 
Standby letters of credit fees4 4 11 12 
Other, net(1)— (4)3 
Total Other Income/(Loss)(18)(3)(31)(50)
Other Expense:
Compensation and benefits24 22 70 70 
Other operating expense15 13 40 37 
Federal Housing Finance Agency2 2 5 6 
Office of Finance1 1 4 4 
Other, net(1)— (2)(1)
Total Other Expense41 38 117 116 
Income/(Loss) Before Assessment89 79 229 245 
AHP Assessment9 8 23 25 
Net Income/(Loss)$80 $71 $206 $220 
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/(Loss)
(Unaudited)

Three Months Ended September 30,Nine Months Ended September 30,
(In millions)2022202120222021
Net Income/(Loss)$80 $71 $206 $220 
Other Comprehensive Income/(Loss):
Net unrealized gain/(loss) on AFS securities(88)(72)(317)92 
Net change in pension and postretirement benefits— (3)(2)(3)
Total other comprehensive income/(loss)(88)(75)(319)89 
Total Comprehensive Income/(Loss)$(8)$(4)$(113)$309 
The accompanying notes are an integral part of these financial statements.

3
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, 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 
Balance, June 30, 202228 $2,754 $692 $3,198 $3,890 $100 $6,744 
Comprehensive income/(loss)16 64 80 (88)(8)
Issuance of capital stock23 2,296 2,296 
Repurchase of capital stock(18)(1,724)(1,724)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net— (4)(4)
Cash dividends paid on capital stock (6.00%)
(40)(40)(40)
Balance, September 30, 202233 $3,322 $708 $3,222 $3,930 $12 $7,264 

Capital Stock
Class B—Putable		Retained EarningsTotal
Capital
(In millions)SharesPar ValueRestrictedUnrestrictedTotalAOCI
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 
Balance, December 31, 202121 $2,061 $708 $3,124 $3,832 $331 $6,224 
Comprehensive income/(loss)16 190 206 (319)(113)
Issuance of capital stock54 5,385 5,385 
Repurchase of capital stock(41)(4,088)(4,088)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net(1)(36)(36)
Transfers from restricted retained earnings(16)16 — — 
Cash dividends paid on capital stock (6.00%)
(108)(108)(108)
Balance, September 30, 202233 $3,322 $708 $3,222 $3,930 $12 $7,264 
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)20222021
Cash Flows from Operating Activities:
Net Income/(Loss)$206 $220 
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization/(accretion)255 60 
Provision for/(reversal of) credit losses9 (8)
Change in net fair value of trading securities — 50 
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option53 40 
Change in net derivatives and hedging activities1,334 417 
PLRMBS trust settlement(28)— 
Other adjustments, net5 5 
Net change in:
Accrued interest receivable(34)22 
Other assets22 8 
Accrued interest payable61 1 
Other liabilities(33)(13)
PLRMBS contingent liability(41)— 
Total adjustments1,603 582 
Net cash provided by/(used in) operating activities1,809 802 
Cash Flows from Investing Activities:
Net change in:
Interest-bearing deposits(1,901)(10)
Securities purchased under agreements to resell3,500 750 
Federal funds sold(7,298)(4,253)
Trading securities:
Proceeds from maturities and paydowns251 1,950 
AFS securities:
Proceeds from sales28 — 
Proceeds from maturities and paydowns1,157 8,334 
Purchases(4,332)(4,275)
HTM securities:
Proceeds from maturities and paydowns763 1,560 
Advances:
Repaid1,096,765 111,264 
Originated(1,146,306)(103,233)
Mortgage loans held for portfolio:
Principal collected159 805 
Purchases— (7)
Other investing activities, net(2)— 
Net cash provided by/(used in) investing activities(57,216)12,885 
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)20222021
Cash Flows from Financing Activities:
Net change in deposits and other financing activities243 65 
Net change in borrowings from other FHLBanks2,320 — 
Net (payments)/proceeds on derivative contracts with financing elements(11)(32)
Net proceeds from issuance of consolidated obligations:
Bonds25,062 15,174 
Discount notes174,394 61,597 
Payments for matured and retired consolidated obligations:
Bonds(11,283)(37,491)
Discount notes(136,521)(52,992)
Proceeds from issuance of capital stock5,385 685 
Payments for repurchase/redemption of mandatorily redeemable capital stock(35)(14)
Payments for repurchase of capital stock(4,088)(700)
Cash dividends paid(108)(98)
Net cash provided by/(used in) financing activities55,358 (13,806)
Net increase/(decrease) in cash and due from banks(49)(119)
Cash and due from banks at beginning of the period55 174 
Cash and due from banks at end of the period$6 $55 
Supplemental Disclosures:
Interest paid$373 $78 
AHP payments29 23 
Supplemental Disclosures of Noncash Investing and Financing Activities:
Transfers of HTM securities to AFS securities17 — 
Transfers of capital stock to mandatorily redeemable capital stock36 16 
The accompanying notes are an integral part of these financial statements.
6
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements

Note 1 — Basis of Presentation and Significant Accounting Policies
The information about the Federal Home Loan Bank of San Francisco (Bank) included in these unaudited financial statements reflects all adjustments that, in the opinion of the Bank, are necessary for a fair statement of results for the periods presented. These adjustments are of a recurring nature, unless otherwise disclosed. The results of operations in these interim statements are not necessarily indicative of the results to be expected for any subsequent period or for the entire year ending December 31, 2022. These unaudited financial statements should be read in conjunction with the Bank’s Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).
There have been no changes to the basis of presentation of the Bank’s financial instruments meeting netting requirements or of the Bank’s investments in variable interest entities disclosed in “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K.
Use of Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income, expenses, gains, and losses during the reporting period. The most significant of these estimates include:
•accounting for derivatives;
•estimating fair values of investments classified as trading and available-for-sale (AFS), derivatives and associated hedged items carried at fair value in accordance with the accounting for derivative instruments and associated hedging activities, and financial instruments carried at fair value under the fair value option; and
•estimating the prepayment speeds on mortgage-backed securities (MBS) and mortgage loans for the accounting of amortization of premiums and accretion of discounts and credit losses previously recorded before the adoption of accounting guidance related to the measurement of credit losses on MBS and mortgage loans.
Actual results could differ significantly from these estimates.
Descriptions of the Bank’s significant accounting policies are included in “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K. Other changes to these policies as of September 30, 2022, are discussed in Note 2 – Recently Issued Accounting Guidance.
Private-label Residential Mortgage-backed Securities (PLRMBS) Trust Settlement. A PLRMBS trust settlement is recorded in other income/(loss) as “Private-label residential mortgage-backed securities trust settlement” in the Statements of Income. A trust settlement is considered realized and recorded when the Bank receives cash or assets that are readily convertible to known amounts of cash or claims to cash, when the Bank enters into a signed agreement that is not subject to appeal, where the counterparty has the ability to pay, and the amount to be received can be reasonably estimated. Prior to being realized or realizable, the Bank considers potential settlements to be gain contingencies, and therefore they are not recorded in the Statements of Income.
One of the Bank’s PLRMBS is held within a trust that has been the subject of litigation by the trustee since 2012. Upon final resolution of the litigation, to which the Bank was not a party, the trustee was required to transmit settlement proceeds to the trust. As a result of the distribution of the settlement proceeds in the first quarter of 2022 to the beneficial owners of the securities in the trust, including the Bank, the Bank recorded settlement proceeds of $28 million as income.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Note 2 — Recently Issued Accounting Guidance
The following table provides a summary of recently issued accounting standards that may have an effect on the Bank’s financial statements.
Accounting Standards Update (ASU)DescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended (ASU 2020-04)This guidance provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include:
• contract modifications,
• hedging relationships, and
• sale or transfer of debt securities classified as held-to-maturity (HTM).		This guidance is effective immediately for the Bank and the Bank may elect to apply the amendments prospectively through December 31, 2022.The Bank has assessed the guidance and has elected some of the optional expedients and exceptions provided related to the discounting transition for uncleared derivative transactions on a prospective basis during 2021, which did not have a material effect.
Troubled Debt Restructurings and Vintage Disclosures
(ASU 2022-02)
This guidance eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit losses methodology while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors made to borrowers experiencing financial difficulty. Additionally, this guidance requires disclosure of current-period gross write-offs by year of origination for financing receivables and net investment in leases.
The guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2023. Early adoption is permitted.
The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, cash flows, and financial statement disclosures has not yet been determined.

Note 3 — Investments
The Bank makes short-term investments in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold, and may make other investments in debt securities, which are classified as trading, AFS, or HTM.
Interest-Bearing Deposits, Securities Purchased under Agreements to Resell, and Federal Funds Sold. The Bank invests in interest-bearing deposits, securities purchased under agreements to resell, and Federal funds sold to provide short-term liquidity. These investments are generally transacted with counterparties that have received an investment grade credit rating of BBB or greater by a nationally recognized statistical rating organization (NRSRO). At September 30, 2022, and December 31, 2021, none of these investments were with counterparties rated below BBB nor with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Federal funds sold are unsecured loans that are generally transacted on an overnight term. Finance Agency regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At September 30, 2022, and December 31, 2021, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the relevant contractual terms. No allowance for credit losses was recorded for these assets at September 30, 2022, and December 31, 2021. Carrying values of interest-bearing deposits and Federal funds sold exclude accrued interest receivable of $5 million and $1 million, respectively, as of September 30, 2022, and de minimis amounts as of December 31, 2021.
Based upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that no allowance for credit losses was needed for its securities purchased under agreements to resell at September 30, 2022, and December 31, 2021. The carrying value of securities purchased under agreements to resell excludes $1 million and a de minimis amount of accrued interest receivable as of September 30, 2022, and December 31, 2021, respectively.
Debt Securities
The Bank invests in debt securities, which are classified as either trading, AFS, or HTM. Within these investments, the Bank is primarily subject to credit risk related to PLRMBS that are supported by underlying mortgage loans. The Bank is prohibited by Finance Agency regulations from purchasing certain higher risk securities, such as equity securities and debt instruments that are not investment quality at time of purchase.
Trading Securities. The estimated fair value of trading securities as of September 30, 2022, and December 31, 2021, was as follows:
(In millions)September 30, 2022December 31, 2021
U.S. obligations – Treasury notes$— $250 
MBS – Other U.S. obligations1 2 
Total$1 $252 
The unrealized net gain/(loss) on trading securities held at September 30, 2022, was de minimis amounts for the three and nine months ended September 30, 2022. The unrealized net gain/(loss) on trading securities held at September 30, 2021, was $(12) million and $(34) million for the three and nine months ended September 30, 2021, respectively.
Available-for-Sale Securities. AFS securities by major security type as of September 30, 2022, and December 31, 2021, were as follows:
September 30, 2022
(In millions)
Amortized
Cost(1)
Allowance for Credit LossesGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated Fair Value
U.S. obligations – Treasury notes$3,801 $— $1 $(3)$3,799 
MBS:
Government Sponsored Enterprises (GSEs) – multifamily7,165 — 6 (31)7,140 
PLRMBS1,212 (25)72 (21)1,238 
Total MBS8,377 (25)78 (52)8,378 
Total$12,178 $(25)$79 $(55)$12,177 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


December 31, 2021
(In millions)
Amortized
Cost(1)
Allowance for Credit LossesGross
Unrealized
Gains		Gross
Unrealized
Losses		Estimated Fair Value
U.S. obligations – Treasury notes$503 $— $1 $— $504 
MBS:
GSEs – multifamily8,056 — 164 — 8,220 
PLRMBS1,450 (17)179 (4)1,608 
Total MBS9,506 (17)343 (4)9,828 
Total$10,009 $(17)$344 $(4)$10,332 
(1)    Amortized cost includes unpaid principal balance, unamortized premiums and discounts, net charge-offs, and valuation adjustments for hedging activities, and excludes accrued interest receivable of $38 million and $29 million at September 30, 2022, and December 31, 2021, respectively.
At September 30, 2022, the amortized cost of the Bank’s MBS classified as AFS included premiums of $53 million, discounts of $46 million, and previous credit losses related to the prior methodology of evaluating credit losses of $364 million for PLRMBS. At December 31, 2021, the amortized cost of the Bank’s MBS classified as AFS included premiums of $59 million, discounts of $41 million, and previous credit losses related to the prior methodology of evaluating credit losses of $405 million for PLRMBS.
The following tables summarize the AFS securities with unrealized losses as of September 30, 2022, and December 31, 2021. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position.
September 30, 2022
 Less Than 12 Months12 Months or MoreTotal
(In millions)Estimated
Fair Value		Gross Unrealized
Losses		Estimated
Fair Value		Gross Unrealized
Losses		Estimated
Fair Value		Gross Unrealized
Losses
U.S. obligations – Treasury notes$2,777 $3 $— $— $2,777 $3 
MBS – GSEs – multifamily4,956 31 — — 4,956 31 
PLRMBS319 16 56 5 375 21 
Total$8,052 $50 $56 $5 $8,108 $55 
December 31, 2021
Less Than 12 Months12 Months or MoreTotal
(In millions)Estimated
Fair Value		Gross
Unrealized
Losses		Estimated
Fair Value		Gross Unrealized
Losses		Estimated
Fair Value		Gross Unrealized
Losses
PLRMBS$19 $— $152 $4 $171 $4 
Total$19 $— $152 $4 $171 $4 
Redemption Terms – The amortized cost and estimated fair value of U.S. Treasury securities classified as AFS by contractual maturity (based on contractual final principal payment) and of MBS classified as AFS as of September 30, 2022, and December 31, 2021, are shown below. Expected maturities of MBS classified as AFS will differ from contractual maturities because borrowers may have the right to call or prepay the underlying obligations with or without call or prepayment fees.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


September 30, 2022
(In millions)
Year of Contractual MaturityAmortized
Cost		Estimated
Fair Value
U.S. obligations – Treasury notes – Due after 1 year through 5 years$3,801 $3,799 
MBS8,377 8,378 
Total$12,178 $12,177 
December 31, 2021
(In millions)
Year of Contractual MaturityAmortized
Cost		Estimated
Fair Value
U.S. obligations – Treasury notes – Due in 1 year or less$503 $504 
MBS9,506 9,828 
Total$10,009 $10,332 
Prepayment Fees, Net – The Bank records prepayment fees net of any associated fair value adjustments related to prepaid MBS that were hedged. The net amount of prepayment fees is reflected as AFS interest income in the Statements of Income for the three and nine months ended September 30, 2022 and 2021, as follows:
Three Months EndedNine Months Ended
(In millions)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Prepayment fees received/(paid)$2 $5 $21 $5 
Fair value adjustments1 (3)(1)(3)
Net$3 $2 $20 $2 
MBS principal prepaid$71 $37 $318 $37 
Held-to-Maturity Securities. The Bank classifies the following securities as HTM because the Bank has the positive intent and ability to hold these securities to maturity:
September 30, 2022
(In millions)
Amortized
Cost(1)
Gross
Unrecognized
Holding
Gains(2)
Gross
Unrecognized
Holding
Losses(2)
Estimated
Fair Value
MBS – Other U.S. obligations – single-family$79 $— $(2)$77 
MBS – GSEs:
MBS – GSEs – single-family787 3 (17)773 
MBS – GSEs – multifamily1,404 — (10)1,394 
Subtotal MBS – GSEs2,191 3 (27)2,167 
PLRMBS162 — (10)152 
Total$2,432 $3 $(39)$2,396 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


December 31, 2021
(In millions)
Amortized
Cost(1)
Gross
Unrecognized
Holding
Gains(2)
Gross
Unrecognized
Holding
Losses(2)
Estimated
Fair Value
MBS – Other U.S. obligations – single-family$113 $2 $— $115 
MBS – GSEs:
MBS – GSEs – single-family1,011 16 (1)1,026 
MBS – GSEs – multifamily1,870 5 (1)1,874 
Subtotal MBS – GSEs2,881 21 (2)2,900 
PLRMBS217 5 (2)220 
Total$3,211 $28 $(4)$3,235 
(1)    Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and net charge offs, and excludes accrued interest receivable of $4 million and $2 million at September 30, 2022, and December 31, 2021, respectively.
(2)    Gross unrecognized holding gains/(losses) represent the difference between estimated fair value and net carrying value.
Expected maturities of MBS classified as HTM will differ from contractual maturities because borrowers may have the right to call or prepay the underlying obligations with or without call or prepayment fees.
At September 30, 2022, the amortized cost of the Bank’s MBS classified as HTM included premiums of $3 million, discounts of $4 million, and no previous credit losses related to the prior methodology of evaluating credit losses for PLRMBS. At December 31, 2021, the amortized cost of the Bank’s MBS classified as HTM included premiums of $3 million, discounts of $4 million, and previous credit losses related to the prior methodology of evaluating credit losses of $6 million for PLRMBS.
Allowance for Credit Losses on AFS and HTM Securities. The following table presents a rollforward of the allowance for credit losses on investment securities associated with PLRMBS classified as AFS for the three and nine months ended September 30, 2022 and 2021. The Bank recorded no allowance for credit losses associated with HTM securities during the three and nine months ended September 30, 2022 and 2021.
Three Months EndedNine Months Ended
(In millions)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Balance, beginning of the period$17 $14 $17 $21 
(Charge-offs)/recoveries(1)— (1)(1)
Provision for/(reversal of) credit losses9 1 9 (5)
Balance, end of the period$25 $15 $25 $15 
To evaluate investment securities for credit loss at September 30, 2022, and December 31, 2021, the Bank employed the following methodologies, based on the type of security.
AFS and HTM Securities (Excluding PLRMBS) – The Bank’s AFS and HTM securities are principally U.S. obligations and MBS issued by Ginnie Mae, Freddie Mac, and Fannie Mae that are backed by single-family or multifamily mortgage loans. The Bank only purchases securities considered investment quality. Excluding PLRMBS investments, at September 30, 2022, and December 31, 2021, substantially all of AFS securities and HTM securities, based on amortized cost, were rated A, or above, by an NRSRO, based on the lowest long-term credit rating for each security. These may differ from any internal ratings of the securities by the Bank, if applicable.
At September 30, 2022, and December 31, 2021, certain of the Bank’s AFS securities were in an unrealized loss position. These losses are considered temporary as the Bank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis. Further, the Bank has not experienced any payment defaults on the instruments and substantially all of these
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


securities are highly rated. In the case of U.S. obligations, they carry an explicit government guarantee. As a result, no allowance for credit losses was recorded on these AFS securities at September 30, 2022, and December 31, 2021.
As of September 30, 2022, and December 31, 2021, the Bank had not established an allowance for credit losses on any of its HTM securities because the securities: (i) were all highly rated or had short remaining terms to maturity and (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, and (iii) in the case of U.S. Treasury, GSE, or other agency obligations, carry an implicit or explicit government guarantee such that the FHLBanks consider the risk of nonpayment to be zero.

Private-Label Residential Mortgage-Backed Securities – The Bank also holds investments in PLRMBS. The Bank has not purchased any PLRMBS since the first quarter of 2008. However, many of these securities have subsequently experienced significant credit deterioration. As of September 30, 2022, and December 31, 2021, approximately 5% of PLRMBS (AFS and HTM combined, based on amortized cost) were rated A, or above, by an NRSRO; and the remaining securities were either rated less than A, or were unrated. To determine whether an allowance for credit loss is necessary on these securities, the Bank uses cash flow analyses. For certain PLRMBS where underlying collateral data is not available, alternative procedures as determined by the Bank are used to assess these securities for credit loss measurement.
At each quarter end, the Bank compares the present value of the cash flows expected to be collected on its PLRMBS, using the effective interest rate, to the amortized cost basis of the securities to determine whether a credit loss exists. The expected credit losses are measured using:
•expected housing price changes;
•expected interest rate assumptions;
•the remaining payment terms for the security;
•expected default rates based on underlying loan-level borrower and loan characteristics;
•loss severities on the collateral supporting each unique PLRMBS based on underlying loan-level borrower and loan characteristics; and
•prepayment speeds based on underlying loan-level borrower and loan characteristics.
The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in these assumptions and expectations. The cash flows determined reflect management’s expectations and include a base case housing price forecast for near- and long-term horizons.
For all the PLRMBS in its AFS and HTM portfolios, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.
For PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), measurement of the fair value of PLRMBS classified as Level 3 as of September 30, 2022, uses significant inputs that include, based on unpaid principal balance, the weighted average percentage of prepayment rates of 11.0%; default rates of 7.3%; and loss severities of 51.9%. The weighted average percentage of the related current credit enhancement for these securities, based on unpaid principal balance, was 8.6% as of September 30, 2022. Credit enhancement is defined as the percentage of subordinated tranches, excess spread, and over-collateralization, if any, in a security structure that will generally absorb losses before the Bank will experience a loss on the security.
The total net accretion recognized in interest income associated with PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses totaled $14 million and $19 million for the three months ended September 30, 2022 and 2021, respectively, and $43 million and $52 million for the nine months ended September 30, 2022 and 2021, respectively. Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the securities totaled $9 million and $13 million for the three months ended September 30, 2022 and 2021, respectively, and $27 million and $39 million for the nine months ended September 30, 2022 and 2021, respectively.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


In general, the Bank elects to transfer any PLRMBS that incurred a credit loss during the applicable period from the Bank’s HTM portfolio to its AFS portfolio at their fair values. The Bank previously recognized a credit loss on these HTM PLRMBS, which the Bank believes is evidence of a significant decline in the credit quality of the underlying collateral. The decline in the credit quality of the underlying collateral is the basis for the transfers to the AFS portfolio. These transfers allow the Bank the option to sell these securities before maturity in view of changes in interest rates, changes in prepayment risk, or other factors, while recognizing the Bank’s intent to hold these securities for an indefinite period of time. The Bank transferred PLRMBS from its HTM portfolio to its AFS portfolio with an amortized cost and fair value of $1 million during the three months ended September 30, 2022. The Bank transferred PLRMBS from its HTM portfolio to its AFS portfolio with an amortized cost of $17 million and fair value of $20 million during the nine months ended September 30, 2022. The Bank did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three and nine months ended September 30, 2021.
For the Bank’s PLRMBS, the Bank recorded a provision for credit losses of $9 million during the three and nine months ended September 30, 2022, largely because of declines in the fair values and the present value of expected cash flows of certain PLRMBS. The Bank recorded a provision for credit losses of $1 million during the three months ended September 30, 2021, primarily resulting from a decline in fair value prices for certain PLRMBS. Further declines in PLRMBS fair values may adversely affect the Bank’s financial condition and results of operations. The Bank recorded a reversal of credit losses of $5 million during the nine months ended September 30, 2021, primarily resulting from lower default rates as well as improved projected credit performance in part related to a more optimistic economic outlook because of the monetary and fiscal stimulus measures taken by the U.S. government.

Note 4 — Advances
The Bank offers a wide range of fixed and adjustable rate advance products with different maturities, interest rates, payment characteristics, and option features. Fixed rate advances generally have maturities ranging from one day to 30 years. Adjustable rate advances generally have maturities ranging from less than 30 days to 10 years, with the interest rates resetting periodically at a fixed spread to a specified index.
Redemption Terms. The Bank had advances outstanding at interest rates ranging from 0.19% to 8.57% at September 30, 2022, and 0.13% to 8.57% at December 31, 2021, as summarized below.
(Dollars in millions)September 30, 2022December 31, 2021
Redemption Term
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Within 1 year(2)
$51,688 3.05 %$4,129 0.85 %
After 1 year through 2 years3,513 2.24 2,744 1.52 
After 2 years through 3 years4,327 1.79 3,092 1.59 
After 3 years through 4 years3,679 1.94 2,618 1.31 
After 4 years through 5 years1,923 2.84 3,063 1.90 
After 5 years1,268 3.20 1,212 2.12 
Total par value66,398 2.86 %16,858 1.45 %
Valuation adjustments for hedging activities(692)103 
Valuation adjustments under fair value option(48)66 
Total$65,658 $17,027 
(1)Carrying amounts exclude accrued interest receivable of $23 million and $5 million at September 30, 2022, and December 31, 2021, respectively.
(2)Advances outstanding with redemption terms within three months totaled $40.1 billion and $2.6 billion at September 30, 2022, and December 31, 2021, respectively.
Many of the Bank’s advances are prepayable at the borrower’s option. However, when advances are prepaid, the borrower is generally charged a prepayment fee intended to make the Bank financially indifferent to the
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


prepayment. In addition, for certain advances with full or partial prepayment symmetry, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. The Bank no longer offers advances with partial prepayment symmetry. The Bank had advances with full prepayment symmetry outstanding totaling $14.8 billion at September 30, 2022, and $9.0 billion at December 31, 2021. The Bank had advances with partial prepayment symmetry outstanding totaling $1.0 billion at September 30, 2022, and $1.4 billion at December 31, 2021. Some advances may be repaid on pertinent call dates without prepayment fees (callable advances). The Bank had callable advances outstanding totaling $1.4 billion at September 30, 2022, and $70 million at December 31, 2021.
The Bank had putable advances totaling $710 million at September 30, 2022, and $220 million at December 31, 2021. At the Bank’s discretion, the Bank may terminate these advances on predetermined exercise dates and offer replacement funding at prevailing market rates, subject to certain conditions. The Bank would typically exercise such termination rights when interest rates increase relative to contractual rates.
The following table summarizes advances at September 30, 2022, and December 31, 2021, by the earlier of the year of redemption term or next call date for callable advances and by the earlier of the year of redemption term or next put date for putable advances.
Earlier of Redemption
Term or Next Call Date		Earlier of Redemption
Term or Next Put Date
(In millions)September 30, 2022December 31, 2021September 30, 2022December 31, 2021
Within 1 year$52,008 $4,199 $52,398 $4,349 
After 1 year through 2 years3,513 2,744 3,513 2,744 
After 2 years through 3 years4,337 3,042 4,127 3,092 
After 3 years through 4 years3,679 2,618 3,679 2,618 
After 4 years through 5 years1,933 3,063 1,423 3,063 
After 5 years928 1,192 1,258 992 
Total par value$66,398 $16,858 $66,398 $16,858 
Concentration Risk. The following tables present the concentration in advances to the top five borrowers and their affiliates at September 30, 2022 and 2021. The tables also present the interest income from these advances before the impact of interest rate exchange agreements associated with these advances for the three and nine months ended September 30, 2022 and 2021.
(Dollars in millions)September 30, 2022Three Months Ended
September 30, 2022		Nine Months Ended
September 30, 2022
Name of BorrowerAdvances
Outstanding		Percentage of
Total
Advances
Outstanding
Interest
Income from
Advances(1)
Percentage of
Total Interest
Income from
Advances
Interest
Income from
Advances(1)
Percentage of
Total Interest
Income from
Advances
Silicon Valley Bank$13,500 20 %$18 5 %$20 4 %
First Republic Bank11,000 17 65 20 94 18 
MUFG Union Bank, National Association7,950 12 46 14 81 15 
Western Alliance Bank4,000 6 19 6 25 5 
First Technology Federal Credit Union(2)
3,737 6 22 7 41 8 
Subtotal40,187 61 170 52 261 50 
Others26,211 39 163 48 274 50 
Total par value$66,398 100 %$333 100 %$535 100 %
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


(Dollars in millions)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 Union(2)
1,776 8 7 7 21 6 
Luther Burbank Savings(2)
752 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 %
(1)    Interest income amounts exclude the interest effect of interest rate exchange agreements with derivative counterparties; as a result, the total interest income amounts will not agree to the Statements of Income. The amount of interest income from advances can vary depending on the amount outstanding, terms to maturity, interest rates, and repricing characteristics.
(2)    An officer or director of the member is a Bank director.
The Bank held a security interest in collateral from each of the top five advances borrowers and their affiliates sufficient to support their respective advances outstanding, and the Bank does not expect to incur any credit losses on these advances.
Credit Risk Exposure and Security Terms. The Bank manages its credit exposure related to advances through an integrated approach that generally provides for a credit limit to be established for each borrower, includes an ongoing review of each borrower’s financial condition, and is coupled with conservative collateral and lending policies to limit the risk of loss while taking into account borrowers’ needs for a reliable funding source.
In addition, the Bank lends to member financial institutions that have their principal place of business in Arizona, California, or Nevada, in accordance with federal law and Finance Agency regulations. Specifically, the Bank is required to obtain sufficient collateral to fully secure credit products up to the member’s total credit limit. Borrowers may pledge the following eligible assets to secure advances:
•one-to-four-family first lien residential mortgage loans;
•securities issued, insured, or guaranteed by the U.S. government or any of its agencies, including without limitation MBS backed by Fannie Mae, Freddie Mac, or Ginnie Mae;
•cash or deposits in the Bank;
•certain other real estate-related collateral, such as certain privately issued MBS, multifamily loans, commercial real estate loans, and second lien residential mortgage loans or home equity loans; and
•small business, small farm, and small agribusiness loans that are fully secured by collateral (such as real estate, equipment and vehicles, accounts receivable, and inventory) from members that are community financial institutions.
At September 30, 2022, and December 31, 2021, none of the Bank’s credit products were past due or on nonaccrual status. There were no troubled debt restructurings related to credit products during the three and nine months ended September 30, 2022 and 2021.
Based on the collateral pledged as security for advances, the Bank’s credit analyses of borrowers’ financial condition, repayment history on advances, and the Bank’s credit extension and collateral policies as of September 30, 2022, the Bank expects to collect all amounts due according to the contractual terms. Therefore, no allowance for credit losses on advances was deemed necessary by the Bank as of September 30, 2022, and December 31, 2021.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


For more information on the credit risk exposure and security terms of advances, see “Item 8. Financial Statements and Supplementary Data – Note 5 - Advances” in the Bank’s 2021 Form 10-K.
Interest Rate Payment Terms. Interest rate payment terms for advances at September 30, 2022, and December 31, 2021, are detailed below:
(In millions)September 30, 2022December 31, 2021
Par value of advances:
Fixed rate:
Due within 1 year$34,209 $2,768 
Due after 1 year14,695 12,729 
Total fixed rate48,904 15,497 
Adjustable rate:
Due within 1 year
17,479 1,361 
Due after 1 year15 — 
Total adjustable rate17,494 1,361 
Total par value$66,398 $16,858 
The Bank did not have any advances with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative at September 30, 2022, or December 31, 2021. The Bank has generally elected to account for certain advances with embedded features under the fair value option, and these advances are carried at fair value on the Statements of Condition. For more information, see Note 11 – Derivatives and Hedging Activities and Note 12 – Fair Value.
Prepayment Fees, Net. The Bank charges borrowers prepayment fees or pays borrowers prepayment credits when the principal on certain advances is paid before original maturity. The Bank records prepayment fees net of any associated fair value adjustments related to prepaid advances that were hedged. The net amount of prepayment fees is reflected in the Statements of Income for the three and nine months ended September 30, 2022 and 2021, as follows:
Three Months EndedNine Months Ended
(In millions)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Prepayment fees received/(paid)$(8)$2 $(12)$28 
Fair value adjustments6 (2)8 (13)
Net$(2)$— $(4)$15 
Advance principal prepaid$377 $1,397 $2,603 $5,073 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Note 5 — Mortgage Loans Held for Portfolio
The following table presents information as of September 30, 2022, and December 31, 2021, on mortgage loans held for portfolio, all of which are secured by one- to four-unit residential properties and single-unit homes.
(In millions)September 30, 2022December 31, 2021
Fixed rate medium-term mortgage loans$14 $18 
Fixed rate long-term mortgage loans780 936 
Subtotal794 954 
Unamortized premiums43 28 
Unamortized discounts(2)(1)
Mortgage loans held for portfolio(1)
835 981 
Less: Allowance for credit losses(1)(1)
Total mortgage loans held for portfolio, net$834 $980 
(1)Excludes accrued interest receivable of $5 million and $6 million at September 30, 2022, and December 31, 2021, respectively.
Medium-term loans have original contractual terms of 15 years or less, and long-term loans have contractual terms of more than 15 years.
Payment Status of Mortgage Loans. Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. A past due loan is one where the borrower has failed to make a scheduled full payment of principal and interest within 30 days of its due date. Other delinquency statistics include nonaccrual loans and loans in process of foreclosure. The following tables present the payment status for mortgage loans and other delinquency statistics for the Bank’s mortgage loans at September 30, 2022, and December 31, 2021.
September 30, 2022
(Dollars in millions)Origination Year
Payment Status2018 to 2022Prior to 2018
Amortized Cost(1)
30 – 59 days delinquent$3 $5 $8 
60 – 89 days delinquent1 — 1 
90 days or more delinquent12 8 20 
Total past due16 13 29 
Total current loans461 345 806 
Total mortgage loans held for portfolio$477 $358 $835 
In process of foreclosure, included above(2)
$3 
Nonaccrual loans(3)
$20 
Serious delinquencies as a percentage of total mortgage loans outstanding(4)
2.29 %
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


December 31, 2021
(Dollars in millions)Origination Year
Payment Status2017 to 2021Prior to 2017
Amortized Cost(1)
30 – 59 days delinquent$7 $2 $9 
60 – 89 days delinquent1 2 3 
90 days or more delinquent26 10 36 
Total past due34 14 48 
Total current loans729 204 933 
Total mortgage loans held for portfolio$763 $218 $981 
In process of foreclosure, included above(2)
$1 
Nonaccrual loans(3)
$36 
Serious delinquencies as a percentage of total mortgage loans outstanding(4)
3.64 %
(1)    The amortized cost in a loan is the unpaid principal balance of the loan, adjusted for net deferred loan fees or costs, unamortized premiums or discounts, and direct write-downs.
(2)    Includes loans for which the servicer has reported a decision to foreclose or to pursue a similar alternative, such as deed-in-lieu. Loans in process of foreclosure are included in past due or current loans depending on their delinquency status.
(3)    At September 30, 2022, and December 31, 2021, $9 million and $21 million, respectively, of mortgage loans on nonaccrual status did not have an associated allowance for credit losses because these loans were either previously charged off to the expected recoverable value or the fair value of the underlying collateral, including any credit enhancements, is greater than the amortized cost of the loans.
(4)    Represents loans that are 90 days or more past due or in the process of foreclosure as a percentage of the recorded investment of total mortgage loans outstanding.
Allowance for Credit Losses on Mortgage Loans Held for Portfolio. Mortgage loans held for portfolio are evaluated on a loan-level basis for expected credit losses, factoring in the credit enhancement structure at the master commitment level. The Bank determines its allowance for credit losses on mortgage loans held for portfolio through analyses that include consideration of various loan portfolio and collateral related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. The Bank uses models that employ a variety of methods, such as projected cash flows, to estimate expected credit losses over the life of the loans. These models rely on a number of inputs, such as current and forecasted property values and interest rates as well as historical borrower behavior experience. At September 30, 2022, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 3.1% over a one-year forecast horizon before reverting to long-term housing price appreciation rates of 4.0% after five additional years in the forecast based on historical averages. At December 31, 2021, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 8.4% over a one-year forecast horizon before reverting to long-term housing price appreciation rates of 3.3% after five additional years in the forecast based on historical averages. The Bank also incorporates associated credit enhancements, if any, to determine its estimate of expected credit losses.
Certain mortgage loans held for portfolio may be evaluated for credit losses by the Bank using the practical expedient for collateral-dependent assets. A mortgage loan is considered collateral-dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. The Bank may estimate the fair value of this collateral by applying an appropriate loss severity rate or using third-party estimates or property valuation models. The expected credit loss of a collateral-dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The Bank will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit loss.
The following table presents a rollforward of the allowance for credit losses on the mortgage loan portfolio for the three and nine months ended September 30, 2022 and 2021. The amount of charge-offs and recoveries of allowance for credit losses on the mortgage loan portfolio were de minimis for the three and nine months ended September 30, 2022 and 2021.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Three Months EndedNine Months Ended
(In millions)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Balance, beginning of the period$1 $2 $1 $4 
Provision for/(reversal of) credit losses— (1)— (3)
Balance, end of the period$1 $1 $1 $1 
For more information related to the Bank’s accounting policies for mortgage loans held for portfolio, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K.

Note 6 — Deposits
The Bank maintains demand deposit accounts that are directly related to the extension of credit to members and offers short-term deposit programs to members and qualifying nonmembers. In addition, a member that services mortgage loans held for portfolio may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of these funds to the owners of the mortgage loans. The Bank classifies these types of deposits as non-interest-bearing deposits. Deposits classified as demand, overnight, and other pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit.
Deposits and interest rate payment terms for deposits as of September 30, 2022, and December 31, 2021, were as follows:
September 30, 2022December 31, 2021
(Dollars in millions)Amount
Outstanding		Weighted
Average
Interest Rate		Amount
Outstanding		Weighted
Average
Interest Rate
Interest-bearing deposits:
Adjustable rate$798 2.90 %$722 0.01 %
Fixed rate9 2.90 18 0.01 
Total interest-bearing deposits807 740 
Non-interest-bearing deposits7 29 
Total$814 $769 

Note 7 — Consolidated Obligations
Consolidated obligations, consisting of bonds and discount notes, are jointly issued by the Federal Home Loan Banks (FHLBanks) through the Office of Finance, which serves as the FHLBanks’ agent. As provided by the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act) or by regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. For a discussion of the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 16 – Commitments and Contingencies” in the Bank’s 2021 Form 10-K. In connection with each issuance of consolidated obligations, each FHLBank specifies the type, term, and amount of debt it requests to have issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of the consolidated obligations issued and is the primary obligor for that portion of the consolidated obligations issued. The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance.
Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds at September 30, 2022, and December 31, 2021.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


(Dollars in millions)September 30, 2022December 31, 2021
Contractual MaturityAmount
Outstanding		Weighted
Average
Interest Rate		Amount
Outstanding		Weighted
Average
Interest Rate
Within 1 year$19,721 2.64 %$7,349 0.18 %
After 1 year through 2 years4,022 1.66 1,757 0.67 
After 2 years through 3 years4,510 1.04 4,230 0.63 
After 3 years through 4 years5,283 0.97 1,855 0.72 
After 4 years through 5 years1,730 1.25 5,368 0.89 
After 5 years1,378 1.69 2,303 1.42 
Total par value36,644 2.00 %22,862 0.64 %
Unamortized premiums1 3 
Unamortized discounts(4)(4)
Valuation adjustments for hedging activities(1,127)(139)
Fair value option valuation adjustments(68)(6)
Total$35,446 $22,716 
The Bank’s participation in consolidated obligation bonds outstanding includes callable bonds of $20.9 billion at September 30, 2022, and $14.6 billion at December 31, 2021. When a callable bond for which the Bank is the primary obligor is issued, the Bank may simultaneously enter into an interest rate swap (wherein the Bank pays a variable rate and receives a fixed rate) with a call feature that mirrors the call option embedded in the bond (a sold callable option in a swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of $19.3 billion at September 30, 2022, and $12.8 billion at December 31, 2021. The combined callable swaps and callable bonds enable the Bank to meet its funding needs at lower costs relative to similar tenor non-callable debt, while effectively converting the Bank’s net payment to an adjustable rate.
The Bank’s participation in consolidated obligation bonds at September 30, 2022, and December 31, 2021, was as follows:
(In millions)September 30, 2022December 31, 2021
Par value of consolidated obligation bonds:
Non-callable$15,761 $8,242 
Callable20,883 14,620 
Total par value$36,644 $22,862 
The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding at September 30, 2022, and December 31, 2021, by the earlier of the year of contractual maturity or next call date.
(In millions)
Earlier of Contractual
Maturity or Next Call Date		September 30, 2022December 31, 2021
Within 1 year$34,469 $21,770 
After 1 year through 2 years1,619 969 
After 2 years through 3 years210 72 
After 3 years through 4 years228 — 
After 4 years through 5 years70 3 
After 5 years48 48 
Total par value$36,644 $22,862 
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Consolidated obligation discount notes are consolidated obligations issued to raise short-term funds. These notes are issued at less than their face value and redeemed at par value when they mature. The Bank’s participation in consolidated obligation discount notes, all of which are due within one year, was as follows:
 September 30, 2022December 31, 2021
(Dollars in millions)Amount
Outstanding
Weighted Average
Interest Rate (1)
Amount
Outstanding
Weighted Average
Interest Rate (1)
Par value$62,242 2.61 %$23,989 0.04 %
Unamortized discounts(196)(2)
Total$62,046 $23,987 
(1)Represents yield to maturity excluding concession fees.
Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at September 30, 2022, and December 31, 2021, are detailed in the following table. For information on the general terms and types of consolidated obligations outstanding, see “Item 8. Financial Statements and Supplementary Data – Note 8 – Consolidated Obligations” in the Bank’s 2021 Form 10-K.
(In millions)September 30, 2022December 31, 2021
Par value of consolidated obligations:
Bonds:
Fixed rate$21,814 $16,654 
Adjustable rate12,552 5,575 
Step-up2,278 633 
Total bonds, par value36,644 22,862 
Discount notes, par value62,242 23,989 
Total consolidated obligations, par value$98,886 $46,851 
The Bank did not have any bonds with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative at September 30, 2022, or December 31, 2021. The Bank has generally elected to account for certain bonds with embedded features under the fair value option, and these bonds are carried at fair value on the Statements of Condition. For more information, see Note 11 – Derivatives and Hedging Activities and Note 12 – Fair Value.
Note 8 — Accumulated Other Comprehensive Income/(Loss)
The following table summarizes the changes in Accumulated Other Comprehensive Income (AOCI) for the three months ended September 30, 2022 and 2021:
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Net Unrealized Gain/(Loss) on AFS SecuritiesPension and Postretirement BenefitsTotal
AOCI
Balance, June 30, 2021
$408 $(14)$394 
Other comprehensive income/(loss):
Net change in pension and postretirement benefits(3)(3)
Net change in fair value(72)(72)
Net current period other comprehensive income/(loss)(72)(3)(75)
Balance, September 30, 2021
$336 $(17)$319 
Balance, June 30, 2022
$111 $(11)$100 
Other comprehensive income/(loss):
Net change in pension and postretirement benefits— — 
Net change in fair value(88)(88)
Net current period other comprehensive income/(loss)(88)— (88)
Balance, September 30, 2022
$23 $(11)$12 
The following table summarizes the changes in AOCI for the nine months ended September 30, 2022 and 2021:
(In millions)Net Unrealized Gain/(Loss) on AFS SecuritiesPension and Postretirement BenefitsTotal
AOCI
Balance, December 31, 2020
$244 $(14)$230 
Other comprehensive income/(loss):
Net change in pension and postretirement benefits(3)(3)
Net change in fair value92 92 
Net current period other comprehensive income/(loss)92 (3)89 
Balance, September 30, 2021
$336 $(17)$319 
Balance, December 31, 2021
$340 $(9)$331 
Other comprehensive income/(loss):
Net change in pension and postretirement benefits(2)(2)
Net change in fair value(317)(317)
Net current period other comprehensive income/(loss)(317)(2)(319)
Balance, September 30, 2022
$23 $(11)$12 

Note 9 — Capital
Capital Requirements. The FHLBank Act and regulations governing the operations of the FHLBanks require that the Bank’s minimum capital stock requirement for shareholders must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. For further information related to the Bank’s capital requirements, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K.
As of September 30, 2022, and December 31, 2021, the Bank complied with these capital rules and requirements as shown in the following table.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


September 30, 2022December 31, 2021
(Dollars in millions)RequiredActualRequiredActual
Risk-based capital$855 $7,256 $1,054 $5,896 
Total regulatory capital$4,340 $7,256 $2,165 $5,896 
Total regulatory capital ratio4.00 %6.69 %4.00 %10.89 %
Leverage capital$5,425 $10,884 $2,706 $8,844 
Leverage ratio5.00 %10.03 %5.00 %16.34 %
The Bank’s capital plan requires each member to own capital stock in an amount equal to the greater of its membership capital stock requirement or its activity-based capital stock requirement. The Bank may adjust these requirements from time to time within limits established in the capital plan. Any changes to the capital plan must be approved by the Bank’s board of directors and the Finance Agency. For information on the Bank’s membership capital stock requirement and activity-based capital stock requirement, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital – Capital Requirements” in the Bank’s 2021 Form 10-K.
Mandatorily Redeemable Capital Stock. The Bank had mandatorily redeemable capital stock totaling $4 million outstanding to four institutions at September 30, 2022, and $3 million outstanding to three institutions at December 31, 2021. The change in mandatorily redeemable capital stock for the three and nine months ended September 30, 2022 and 2021 was as follows:
Three Months EndedNine Months Ended
(In millions)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Balance at the beginning of the period$5 $3 $3 $2 
Reclassified from/(to) capital during the period4 13 36 16 
Repurchase/redemption of mandatorily redeemable capital stock(5)(12)(35)(14)
Balance at the end of the period$4 $4 $4 $4 
Cash dividends on mandatorily redeemable capital stock were recorded as interest expense of de minimis amounts for both of the three and nine months ended September 30, 2022 and 2021.
The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at September 30, 2022, and December 31, 2021.
Contractual Redemption PeriodSeptember 30, 2022December 31, 2021
After 3 years through 4 years$1 $— 
After 4 years through 5 years2 2 
Past contractual redemption date because of remaining activity(1)
1 1 
Total$4 $3 
(1)    Represents mandatorily redeemable capital stock that is past the end of the contractual redemption period because of outstanding activity.
The Bank’s mandatorily redeemable capital stock is discussed more fully in “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K.
Excess Stock Repurchase, Retained Earnings, and Dividend Framework. The Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings, which are not made available in the current dividend period, and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the Framework.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the Joint Capital Enhancement (JCE) Agreement) and unrestricted retained earnings. The JCE Agreement is intended to enhance the capital position of each FHLBank. In accordance with the JCE Agreement, each FHLBank is required to allocate 20% of its net income each quarter to a separate restricted retained earnings account until the balance of the account, calculated as of the last day of each calendar quarter, equals at least 1% of that FHLBank's average balance of outstanding consolidated obligations for the calendar quarter. Under the JCE Agreement, these restricted retained earnings will not be available to pay dividends. The JCE Agreement also provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. During the nine months ended September 30, 2022, the Bank reclassified $16 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. The Bank made no reclassifications from restricted retained earnings to unrestricted retained earnings during the three months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Bank reclassified $18 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. As a result of increased consolidated obligations during the third quarter of 2022, an allocation of net income was made into restricted retained earnings for the period in accordance with the JCE Agreement. The Bank’s restricted retained earnings totaled $708 million at September 30, 2022, and December 31, 2021. The Bank’s unrestricted retained earnings totaled $3.2 billion and $3.1 billion at September 30, 2022, and December 31, 2021, respectively.
For information on restricted retained earnings and the Bank’s Framework, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K.
Dividend Payments – Finance Agency rules state that FHLBanks may declare and pay dividends only from previously retained earnings or current net earnings and may not declare or pay dividends based on projected or anticipated earnings. For information on dividend payments, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K.

In addition, Finance Agency rules do not permit the Bank to pay dividends in the form of capital stock if its excess stock exceeds 1% of its total assets. Excess stock is defined as the aggregate of the capital stock held by each shareholder in excess of its minimum capital stock requirement, as established by the Bank’s capital plan. Excess stock totaled $186 million, or 0.17% of total assets as of September 30, 2022. Excess stock totaled $120 million, or 0.22% of total assets as of December 31, 2021.
In the third quarter of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $40 million, including $40 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the third quarter of 2021, the Bank paid dividends at an annualized rate of 6.00%, totaling $34 million, including $34 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock.
In the first nine months of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $108 million, including $108 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the first nine months of 2021, the Bank paid dividends at an annualized rate of 5.65%, totaling $98 million, including $98 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock.
For the periods referenced above, the Bank paid dividends in cash. Dividends on capital stock are recognized as dividends on the Statements of Capital Accounts, and dividends on mandatorily redeemable capital stock are recognized as interest expense on the Statements of Income.
On October 27, 2022, the Bank’s board of directors declared a quarterly cash dividend on the capital stock outstanding during the third quarter of 2022 at an annualized rate of 7.00%, totaling $54 million. The Bank recorded the dividend on October 27, 2022, and expects to pay the dividend on November 10, 2022.
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Excess Stock – The Bank’s capital plan provides that the Bank may repurchase some or all of a shareholder’s excess stock, including any excess mandatorily redeemable capital stock, at the Bank’s discretion, subject to certain statutory and regulatory requirements. The Bank may also repurchase all of a member’s excess stock at a member’s request, at the Bank’s discretion, subject to certain statutory and regulatory requirements. For information on excess stock, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K. The Bank repurchased $1.7 billion and $373 million in excess stock during the third quarter of 2022 and 2021, respectively, and $4.1 billion and $714 million in excess stock during the nine months ended September 30, 2022 and 2021, respectively.
The Bank is required to redeem any mandatorily redeemable capital stock that is in excess of a former member’s minimum stock requirement on or after the expiration of the five-year redemption date. During the third quarter of 2022 and 2021, the Bank redeemed a de minimis amount in mandatorily redeemable capital stock, for which the five-year redemption period had expired, at its $100 par value per share. The stock was redeemed on the scheduled redemption dates or, for stock that was not excess stock on its scheduled redemption date because of outstanding activity with the Bank, on the first available repurchase date after the stock was no longer required to support outstanding activity with the Bank.
Concentration. Silicon Valley Bank held $365 million, or 11%, and First Republic Bank held $342 million, or 10%, of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of September 30, 2022. No other institution held 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of September 30, 2022. No institution held 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of December 31, 2021.
Note 10 — Segment Information
The Bank uses an analysis of financial results based on the financial components and adjusted net interest income of two operating segments, the advances-related business and the mortgage-related business, as well as other financial information, to review and assess financial performance and determine financial management strategies related to the operations of these two business segments. For purposes of segment reporting, adjusted net interest income includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivatives” in other income/(loss), excludes interest income and expense associated with changes in fair value from fair value hedges that are recorded in the same line as the earnings effect of the hedged item, and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” Affordable Housing Program (AHP) assessments are not included in the segment reporting analysis but are incorporated into the Bank’s overall assessment of financial performance.
For more information on these operating segments, see “Item 8. Financial Statements and Supplementary Data – Note 13 – Segment Information” in the Bank’s 2021 Form 10-K.
The following table presents the Bank’s adjusted net interest income by operating segment and reconciles total adjusted net interest income to income before the AHP assessment for the three and nine months ended September 30, 2022 and 2021.
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(In millions)Advances-Related Business
Mortgage-Related Business(1)
Adjusted Net Interest Income
Amortization of Basis Adjustments and (Gain)/Loss on Fair Value Hedges(2)
Income/(Expense) on Economic Hedges(3)
Net Interest Income After Provision for/(Reversal of) Credit LossesOther Income/(Loss)Other ExpenseIncome/(Loss) Before AHP Assessment
Three months ended:
September 30, 2022$86 $48 $134 $10 $(24)$148 $(18)$41 $89 
September 30, 202142 62 104 — (16)120 (3)38 79 
Nine months ended:
September 30, 2022$172 $184 $356 $(4)$(17)$377 $(31)$117 $229 
September 30, 2021143 200 343 (7)(61)411 (50)116 245 
(1)    The mortgage-related business includes total accretion or amortization associated with PLRMBS that had previous credit losses related to the prior methodology of evaluating credit losses, which are recognized in interest income, totaled $14 million and $19 million for the three months ended September 30, 2022 and 2021; and totaled $43 million and $52 million for the nine months ended September 30, 2022 and 2021, respectively. The mortgage-related business includes a provision for/(reversal of) credit losses of $9 million and a de minimis amount for the three months ended September 30, 2022 and 2021, and $9 million and $(8) million for the nine months ended September 30, 2022 and 2021, respectively.
(2)    Represents amortization of amounts deferred for adjusted net interest income purposes only and changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges recorded in net interest income.
(3)    The Bank includes income and expense associated with net settlements from economic hedges in adjusted net interest income in its analysis of financial performance for its two operating segments. For financial reporting purposes, the Bank excludes these amounts from net interest income in the Statements of Income, but instead records them in other income/(loss) in “Net gain/(loss) on derivatives.”
The following table presents total assets by operating segment at September 30, 2022, and December 31, 2021.
(In millions)Advances-
Related Business		Mortgage-
Related Business		Total
Assets
September 30, 2022$96,827 $11,680 $108,507 
December 31, 202140,064 14,057 54,121 

Note 11 — Derivatives and Hedging Activities
General. The Bank may enter into interest rate swaps (including callable, putable, and basis swaps) and cap and floor agreements (collectively, interest rate exchange agreements or derivatives). Most of the Bank’s interest rate exchange agreements are executed in conjunction with the origination of advances or the issuance of consolidated obligations to create variable rate structures. The interest rate exchange agreements are generally executed at the same time the advances and consolidated obligations are transacted and generally have the same maturity dates as the related hedged instrument. The Bank transacts most of its derivatives with large banks and major broker-dealers.
For more information related to the Bank’s interest rate exchange agreement instruments and hedging activities, see “Item 8. Financial Statements and Supplementary Data – Note 14 – Derivatives and Hedging Activities” in the Bank’s 2021 Form 10-K. For more information related to the Bank’s accounting policies for derivatives, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K.
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The following table summarizes the notional amount and fair value of derivative instruments, including the effect of netting adjustments and cash collateral as of September 30, 2022, and December 31, 2021. For purposes of this disclosure, the derivative values include the fair value of derivatives and related accrued interest.
 September 30, 2022December 31, 2021
(In millions)Notional
Amount of
Derivatives		Derivative
Assets		Derivative
Liabilities		Notional
Amount of
Derivatives		Derivative
Assets		Derivative
Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps$49,444 $882 $1,073 $31,526 $223 $148 
Derivatives not designated as hedging instruments:
Interest rate swaps78,681 26 145 31,540 2 21 
Interest rate caps and floors— — — 550 — — 
Total78,681 26 145 32,090 2 21 
Total derivatives before netting and collateral adjustments$128,125 908 1,218 $63,616 225 169 
Netting adjustments and cash collateral(1)
(846)(1,216)(217)(164)
Total derivative assets and total derivative liabilities$62 $2 $8 $5 
(1)    Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral, including accrued interest, held or placed with the same clearing agents or counterparty. Cash collateral posted, including accrued interest, was $699 million and $77 million at September 30, 2022, and December 31, 2021, respectively. Cash collateral received, including accrued interest, was $329 million and $130 million at September 30, 2022, and December 31, 2021, respectively.
The following tables present, by type of hedged item, the gains and losses on fair value hedging relationships and the impact of those derivatives on the Bank’s Statements of Income for the three and nine months ended September 30, 2022 and 2021.
Three Months Ended September 30, 2022
Interest Income/(Expense)
AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$347 $109 $(143)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$314 $507 $(391)
Hedged items(293)(489)354 
Net gain/(loss) on fair value hedging relationships21 18 (37)
Net amortization of gain on discontinued fair value hedging relationships(8)(26)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$13 $(8)$(37)
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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 
Nine Months Ended September 30, 2022
Interest Income/(Expense)
(In millions)AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$505 $247 $(205)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$771 $1,216 $(989)
Hedged items(780)(1,210)987 
Net gain/(loss) on fair value hedging relationships(9)6 (2)
Net amortization of gain on discontinued fair value hedging relationships(22)(80)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(31)$(74)$(2)
Nine Months Ended September 30, 2021
Interest Income/(Expense)
(In millions)AdvancesAFS SecuritiesConsolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income$152 $168 $(49)
Gain/(loss) on fair value hedging relationships
Derivatives(1)
$97 $299 $(17)
Hedged items(260)(349)60 
Net gain/(loss) on fair value hedging relationships(163)(50)43 
Net amortization of gain on discontinued fair value hedging relationships(15)(81)— 
Net gain/(loss) on derivatives and hedging activities recorded in net interest income$(178)$(131)$43 
(1)Includes net interest settlements.
The following table presents the cumulative basis adjustments on hedged items designated as fair value hedges and the related amortized cost of the hedged items as of September 30, 2022, and December 31, 2021.
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September 30, 2022December 31, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsAdvancesAFS SecuritiesConsolidated Obligation Bonds
Amortized cost of hedged asset/(liability)(1)
$19,197 $10,966 $(18,060)$13,613 $8,559 $(13,557)
Fair value hedging basis adjustments:
Active hedging relationships included in amortized cost$(772)$(1,494)$1,127 $(15)$(329)$139 
Discontinued hedging relationships included in amortized cost80 777 — 118 901 — 
Total amount of fair value hedging basis adjustments$(692)$(717)$1,127 $103 $572 $139 
(1)Includes only the portion of amortized cost representing the hedged items in fair value hedging relationships.

The following table presents the components of net gain/(loss) on derivatives as presented in the Statements of Income for the three and nine months ended September 30, 2022 and 2021.
(In millions)Three Months EndedNine Months Ended
 September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Derivatives not designated as hedging instrumentsGain/(Loss)Gain/(Loss)Gain/(Loss)Gain/(Loss)
Economic hedges:
Interest rate swaps$23 $31 $4 $86 
Net interest settlements(24)(16)(17)(61)
Net gain/(loss) on derivatives$(1)$15 $(13)$25 
Credit Risk. The Bank is subject to credit risk from potential nonperformance by counterparties to the interest rate exchange agreements. All of the Bank’s agreements governing uncleared derivative transactions contain master netting provisions to help mitigate the credit risk exposure to each counterparty. The Bank manages counterparty credit risk through credit analyses and collateral requirements and by following the requirements of the Bank’s risk management policies, credit guidelines, and Finance Agency and other regulations. The Bank also requires credit support agreements on all uncleared derivatives.
For cleared derivatives, the clearinghouse is the Bank’s counterparty. The requirement that the Bank post initial and variation margin through a clearing agent to the clearinghouse exposes the Bank to institutional credit risk if the clearing agent fails to meet its obligations. The use of a clearinghouse, or central counterparty, lowers overall credit risk exposure because it employs standard valuation and initial and variation margin processes and is specifically designed to withstand remote but plausible counterparty default credit events. Variation margin is posted or collected for changes in the value of the portfolio, and initial margin is posted for changes in risk profile of the portfolio. The Bank analyzed the enforceability of offsetting rights applicable to its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable bankruptcy law and Commodity Futures Trading Commission rules in the event of a clearinghouse or clearing agent insolvency and under applicable clearinghouse rules upon a non-insolvency-based event of default of the clearinghouse or clearing agent. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular clearinghouse.
Based on the Bank’s credit analyses and the collateral requirements, the Bank does not expect to incur any credit losses on its derivative transactions.
The Bank’s agreements for uncleared derivative transactions contain provisions that link the Bank’s credit rating from Moody’s Investors Service and S&P Global Ratings to various rights and obligations. Certain of these derivative agreements provide that, if the Bank’s long-term debt rating falls below a specified rating (ranging from A3/A- to Baa3/BBB-), the Bank’s counterparty would have the right, but not the obligation, to terminate all of its
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outstanding derivative transactions with the Bank; the Bank’s agreements with its clearing agents for cleared derivative transactions have similar provisions with respect to the debt rating of FHLBank System consolidated bonds. If this occurs, the Bank may choose to enter into replacement hedges, either by transferring the existing transactions to another counterparty or entering into new replacement transactions, based on prevailing market rates. The aggregate fair value of all uncleared derivative instruments with credit risk-related contingent features that were in a net derivative liability position (before cash collateral and related accrued interest) at September 30, 2022, was $676 million, for which the Bank posted cash collateral of $678 million in the ordinary course of business.
The Bank may present derivative instruments, related cash collateral received or pledged, and associated accrued interest by clearing agent or by counterparty when the netting requirements have been met.
The following tables present separately the fair value of derivative assets and derivative liabilities that have met the netting requirements, including the related collateral received from or pledged to counterparties as of September 30, 2022, and December 31, 2021.
September 30, 2022
Derivative Instruments Meeting Netting Requirements
(In millions)Amount 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$874 $(857)$17 $— $17 
Cleared
34 11 45 (335)380 
Total$62 $397 
Derivative Liabilities
Uncleared$1,209 $(1,207)$2 $— $2 
Cleared9 (9)— — — 
Total$2 $2 
December 31, 2021
Derivative Instruments Meeting Netting Requirements
(In millions)Amount RecognizedGross Amount of Netting Adjustments and Cash CollateralTotal Derivative Assets and Total Derivative LiabilitiesNoncash Collateral Not Offset That
 Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared$224 $(224)$— $— $— 
Cleared
1 7 8 (252)260 
Total$8 $260 
Derivative Liabilities
Uncleared$161 $(156)$5 $— $5 
Cleared8 (8)— — — 
Total$5 $5 

Note 12 — Fair Value
The following fair value amounts have been determined by the Bank using available market information and the Bank’s best judgment of appropriate valuation methods. These estimates are based on pertinent information available to the Bank at September 30, 2022, and December 31, 2021. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s
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financial instruments, in certain cases fair values cannot be precisely quantified or verified and may change as economic and market factors and evaluation of those factors change. The Bank continues to refine its valuation methodologies as markets and products develop and the pricing for certain products becomes more or less transparent. While the Bank believes that its valuation methodologies are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a materially different estimate of fair value as of the reporting date. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Therefore, the fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment as to how a market participant would estimate the fair values. The fair value summary table does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of total assets and liabilities.
The following tables present the net carrying value or carrying value, as applicable, the estimated fair value, and the fair value hierarchy level of the Bank’s financial instruments at September 30, 2022, and December 31, 2021. The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, certain advances, certain consolidated obligations, and certain other assets at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. The Bank records all other financial assets and liabilities at amortized cost. Refer to the following tables for further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis.
September 30, 2022
(In millions)
Carrying
Value(1)
Estimated Fair ValueLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks$6 $6 $6 $— $— $— 
Interest-bearing deposits2,405 2,405 2,405 — — — 
Securities purchased under agreements to resell12,000 12,000 — 12,000 — — 
Federal funds sold12,646 12,646 — 12,646 — — 
Trading securities1 1 — 1 — — 
AFS securities12,177 12,177 — 10,939 1,238 — 
HTM securities2,432 2,396 — 2,244 152 — 
Advances65,658 65,410 — 65,410 — — 
Mortgage loans held for portfolio834 710 — 710 — — 
Accrued interest receivable77 77 — 77 — — 
Derivative assets, net(2)
62 62 — 908 — (846)
Other assets(3)
20 20 20 — — — 
Liabilities
Deposits814 814 — 814 — — 
Consolidated obligations:
Bonds35,446 35,043 — 35,043 — — 
Discount notes62,046 62,010 — 62,010 — — 
Total consolidated obligations97,492 97,053 — 97,053 — — 
Mandatorily redeemable capital stock4 4 4 — — — 
Borrowings from other FHLBanks2,320 2,320 — 2,320 — — 
Accrued interest payable93 93 — 93 — — 
Derivative liabilities, net(2)
2 2 — 1,218 — (1,216)
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December 31, 2021
(In millions)
Carrying
Value(1)
Estimated Fair ValueLevel 1Level 2Level 3
Netting Adjustments and Cash Collateral(2)
Assets
Cash and due from banks$55 $55 $55 $— $— $— 
Interest-bearing deposits1,125 1,125 1,125 — — — 
Securities purchased under agreements to resell15,500 15,500 — 15,500 — — 
Federal funds sold5,348 5,348 — 5,348 — — 
Trading securities252 252 — 252 — — 
AFS securities10,332 10,332 — 8,724 1,608 — 
HTM securities3,211 3,235 — 3,015 220 — 
Advances17,027 17,072 — 17,072 — — 
Mortgage loans held for portfolio980 981 — 981 — — 
Accrued interest receivable45 45 — 45 — — 
Derivative assets, net(2)
8 8 — 225 — (217)
Other assets(3)
25 25 25 — — — 
Liabilities
Deposits769 769 — 769 — — 
Consolidated obligations:
Bonds22,716 22,635 — 22,635 — — 
Discount notes23,987 23,986 — 23,986 — — 
Total consolidated obligations46,703 46,621 — 46,621 — — 
Mandatorily redeemable capital stock3 3 3 — — — 
Accrued interest payable33 33 — 33 — — 
Derivative liabilities, net(2)
5 5 — 169 — (164)
(1)    For certain financial instruments, the amounts represent net carrying value, which includes an allowance for credit losses.
(2)    Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed with the same clearing agents or counterparty.
(3)    Represents publicly traded mutual funds held in a grantor trust.
Fair Value Hierarchy. The fair value hierarchy is used to prioritize the fair value methodologies and valuation techniques as well as the inputs to the valuation techniques used to measure fair value for assets and liabilities carried at fair value on the Statements of Condition. The inputs are evaluated and an overall level for the fair value measurement is determined. This overall level is an indication of market observability of the fair value measurement for the asset or liability. The fair value hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). An entity must disclose the level within the fair value hierarchy in which the measurements are classified for all financial assets and liabilities measured on a recurring or non-recurring basis.
The application of the fair value hierarchy to the Bank’s financial assets and financial liabilities that are carried at fair value either on a recurring or non-recurring basis is as follows:
•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
•Level 2 – Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar
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assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.
•Level 3 – Unobservable inputs for the asset or liability. Valuations are derived from techniques that use significant assumptions not observable in the market, which include pricing models, discounted cash flow models, or similar techniques.
A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following assets and liabilities, including those for which the Bank has elected the fair value option, are carried at fair value on the Statements of Condition as of September 30, 2022:
•Trading securities
•AFS securities
•Certain advances
•Derivative assets and liabilities
•Certain consolidated obligation bonds
•Certain other assets
For instruments carried at fair value, the Bank reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. For the periods presented, the Bank did not have any reclassifications for transfers in or out of level 3 of the fair value hierarchy.
Summary of Valuation Methodologies and Primary Inputs. For information related to the valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the Statements of Condition, see “Item 8. Financial Statements and Supplementary Data – Note 15 – Fair Value” in the Bank’s 2021 Form 10-K. There have been no significant changes in these valuation methodologies and primary inputs during the nine months ended September 30, 2022.
Subjectivity of Estimates Related to Fair Values of Financial Instruments. Estimates of the fair value of financial assets and liabilities using the methodologies described above are subjective and require judgments regarding significant matters, such as the amount and timing of future cash flows, prepayment speed assumptions, expected interest rate volatility, methods to determine possible distributions of future interest rates used to value options, and the selection of discount rates that appropriately reflect market and credit risks. Changes in these judgments often have a material effect on the fair value estimates.
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Fair Value Measurements. The following tables present the fair value of assets and liabilities, which are recorded on a recurring or nonrecurring basis at September 30, 2022, and December 31, 2021, by level within the fair value hierarchy.
September 30, 2022
Fair Value Measurement Using:
Netting Adjustments
 and Cash Collateral(1)
(In millions)Level 1Level 2Level 3Total
Recurring fair value measurements – Assets:
Trading securities:
MBS – Other U.S. obligations$— $1 $— $— $1 
AFS securities:
U.S. obligations – Treasury notes— 3,799 — — 3,799 
MBS:
GSEs – multifamily— 7,140 — — 7,140 
PLRMBS— — 1,238 — 1,238 
Subtotal AFS MBS— 7,140 1,238 — 8,378 
Total AFS securities— 10,939 1,238 — 12,177 
Advances(2)
— 2,039 — — 2,039 
Derivative assets, net: interest rate-related— 908 — (846)62 
Other assets20 — — — 20 
Total recurring fair value measurements – Assets$20 $13,887 $1,238 $(846)$14,299 
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)
$— $2,210 $— $— $2,210 
Derivative liabilities, net: interest rate-related— 1,218 — (1,216)2 
Total recurring fair value measurements – Liabilities$— $3,428 $— $(1,216)$2,212 
Nonrecurring fair value measurements – Assets:(4)
Impaired mortgage loans held for portfolio$— $— $18 $— $18 
Total nonrecurring fair value measurements – Assets$— $— $18 $— $18 
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December 31, 2021
Fair Value Measurement Using:
Netting Adjustments
 and Cash Collateral(1)
(In millions)
Level 1
Level 2Level 3Total
Recurring fair value measurements – Assets:
Trading securities:
U.S. obligations – Treasury notes$— $250 $— $— $250 
MBS – Other U.S. obligations— 2 — — 2 
Total trading securities— 252 — — 252 
AFS securities:
U.S. obligations – Treasury notes— 504 — — 504 
MBS:
GSEs – multifamily— 8,220 — — 8,220 
PLRMBS— — 1,608 — 1,608 
Subtotal AFS MBS— 8,220 1,608 — 9,828 
Total AFS securities— 8,724 1,608 — 10,332 
Advances(2)
— 1,772 — — 1,772 
Derivative assets, net: interest rate-related— 225 — (217)8 
Other assets25 — — — 25 
Total recurring fair value measurements – Assets$25 $10,973 $1,608 $(217)$12,389 
Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)
$— $627 $— $— $627 
Derivative liabilities, net: interest rate-related— 169 — (164)5 
Total recurring fair value measurements – Liabilities$— $796 $— $(164)$632 
Nonrecurring fair value measurements – Assets:(4)
Impaired mortgage loans held for portfolio$— $— $23 $— $23 
Total nonrecurring fair value measurements – Assets$— $— $23 $— $23 
(1)Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral and related accrued interest held or placed by the Bank, with the same clearing agents or counterparty.
(2)Represents advances recorded under the fair value option at September 30, 2022, and December 31, 2021.
(3)Represents consolidated obligation bonds recorded under the fair value option at September 30, 2022, and December 31, 2021.
(4)The fair value information presented is as of the date the fair value adjustment was recorded during the nine months ended September 30, 2022, and the year ended December 31, 2021.
The following tables present a reconciliation of the Bank’s AFS PLRMBS that are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and nine months ended September 30, 2022 and 2021.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


Three Months Ended
September 30, 2022September 30, 2021
Balance, beginning of the period$1,327 $1,827 
Total gain/(loss) realized and unrealized included in:
Interest income14 18 
(Provision for)/reversal of credit losses(9)(1)
Unrealized gain/(loss) included in AOCI(39)(6)
Settlements(56)(134)
Transfers of HTM securities to AFS securities1 — 
Balance, end of the period$1,238 $1,704 
Total amount of unrealized gain/(loss) for the period included in AOCI relating to instruments held at the end of the period$(39)$(5)
Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets and liabilities still held at the end of the period$5 $16 
Nine Months Ended
(In millions)September 30, 2022September 30, 2021
Balance, beginning of the period$1,608 $2,035 
Total gain/(loss) realized and unrealized included in:
Interest income43 52 
(Provision for)/reversal of credit losses(9)5 
Other income/(loss)28 — 
Unrealized gain/(loss) included in AOCI(124)23 
Settlements(325)(411)
Transfers of HTM securities to AFS securities17 — 
Balance, end of the period$1,238 $1,704 
Total amount of unrealized gain/(loss) for the period included in AOCI relating to assets held at the end of the period$(124)$24 
Total amount of gain/(loss) for the period included in earnings attributable to the change in unrealized gains/losses relating to assets held at the end of the period$34 $55 
Fair Value Option. The fair value option provides an entity with an irrevocable option to elect fair value as an alternative measurement for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments not previously carried at fair value. It requires an entity to display the fair value of those assets and liabilities for which the entity has chosen to use fair value on the face of the Statements of Condition. Fair value is used for both the initial and subsequent measurement of the designated assets, liabilities, and commitments, with the changes in fair value recognized in net income. Interest income and interest expense on advances and consolidated bonds carried at fair value are recognized solely on the contractual amount of interest due or unpaid. Any transaction fees or costs are immediately recognized in other income/(loss) or other expense.
For more information on the Bank’s election of the fair value option, see “Item 8. Financial Statements and Supplementary Data – Note 15 – Fair Value” in the Bank’s 2021 Form 10-K.
The Bank has elected the fair value option for certain financial instruments to assist in mitigating potential earnings volatility that can arise from economic hedging relationships in which the carrying value of the hedged item is not adjusted for changes in fair value. The potential earnings volatility associated with recording fair value changes of only the hedging derivative is the Bank’s primary reason for electing the fair value option for financial assets and liabilities that do not qualify for hedge accounting or that have not previously met or may be at risk for not meeting the hedge effectiveness requirements.
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


The following tables summarize the activity related to financial assets and liabilities for which the Bank elected the fair value option during the three and nine months ended September 30, 2022 and 2021:
Three Months Ended
September 30, 2022September 30, 2021
AdvancesConsolidated
Obligation Bonds		AdvancesConsolidated
Obligation Bonds
Balance, beginning of the period$1,652 $2,209 $1,984 $235 
New transactions elected for fair value option700 25 — 318 
Maturities and terminations(272)— (21)(30)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings(42)(22)(11)(2)
Change in accrued interest1 (2)— — 
Balance, end of the period$2,039 $2,210 $1,952 $521 
Nine Months Ended
September 30, 2022September 30, 2021
(In millions)AdvancesConsolidated
Obligation Bonds		AdvancesConsolidated
Obligation Bonds
Balance, beginning of the period$1,772 $627 $2,147 $111 
New transactions elected for fair value option1,020 1,660 670 538 
Maturities and terminations(637)(15)(821)(125)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings(117)(64)(43)(3)
Change in accrued interest1 2 (1)— 
Balance, end of the period$2,039 $2,210 $1,952 $521 
For instruments for which the fair value option has been elected, the related contractual interest income and contractual interest expense are recorded as part of net interest income on the Statements of Income. The remaining changes in fair value for instruments for which the fair value option has been elected are recorded as net gains/ (losses) on financial instruments held under the fair value option in the Statements of Income. For advances and consolidated obligations recorded under the fair value option, the Bank determined that none of the remaining changes in fair value were related to instrument-specific credit risk for the three and nine months ended September 30, 2022 and 2021. In determining that there has been no change in instrument-specific credit risk period to period, the Bank primarily considered the following factors:
•The Bank is a federally chartered GSE, and as a result of this status, the consolidated obligations have historically received the same credit ratings as the government bond credit rating of the United States, even though they are not obligations of the United States and are not guaranteed by the United States.
•The Bank is jointly and severally liable with the other FHLBanks for the payment of principal and interest on all consolidated obligations of each of the FHLBanks.

The following table presents the difference between the aggregate remaining contractual principal balance outstanding and aggregate fair value of advances and consolidated obligation bonds for which the Bank elected the fair value option at September 30, 2022, and December 31, 2021:
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


September 30, 2022December 31, 2021
(In millions)
Principal Balance
Fair ValueFair Value
Over/(Under)
Principal Balance		Principal BalanceFair ValueFair Value
Over/(Under)
Principal Balance
Advances(1)
$2,087 $2,039 $(48)$1,706 $1,772 $66 
Consolidated obligation bonds2,278 2,210 (68)633 627 (6)
(1)    At September 30, 2022, and December 31, 2021, none of these advances were 90 days or more past due or had been placed on nonaccrual status.
Note 13 — Commitments and Contingencies
As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The regulations provide a general framework for addressing the possibility that an FHLBank may be unable to repay the consolidated obligations for which it is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of September 30, 2022, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of the FHLBanks was $1.0 trillion at September 30, 2022, and $652.9 billion at December 31, 2021. The par value of the Bank’s participation in consolidated obligations was $98.9 billion at September 30, 2022, and $46.9 billion at December 31, 2021. For more information on the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 16 – Commitments and Contingencies” in the Bank’s 2021 Form 10-K.
Off-balance sheet commitments as of September 30, 2022, and December 31, 2021, were as follows:
September 30, 2022December 31, 2021
(In millions)Expire Within
One Year		Expire After
One Year		TotalExpire Within
One Year		Expire After
One Year		Total
Standby letters of credit outstanding$14,013 $5,720 $19,733 $11,842 $4,848 $16,690 
Commitments to issue consolidated obligation discount notes, par822 — 822 — — — 
Commitments to issue consolidated obligation bonds, par2,396 — 2,396 — — — 
Standby letters of credit are generally issued for a fee on behalf of members to support their obligations to third parties. If the Bank is required to make a payment for a beneficiary’s drawing under a letter of credit, the amount is immediately due and payable by the member to the Bank and is charged to the member’s demand deposit account with the Bank. At September 30, 2022, the original terms of these standby letters of credit range from 3 days to 15 years, including a final expiration in 2037. The Bank monitors the creditworthiness of members that have standby letters of credit. The value of the Bank’s obligations related to standby letters of credit is recorded in other liabilities and amounted to $34 million at both September 30, 2022, and December 31, 2021. Standby letters of credit are fully collateralized at the time of issuance. Based on the Bank’s credit analyses of members’ financial condition and collateral requirements, the Bank deemed it unnecessary to record any additional liability for credit losses on the letters of credit outstanding or other off-balance sheet commitments as of September 30, 2022, and December 31, 2021.
The Bank has pledged securities as collateral related to its cleared and uncleared derivatives. See Note 11 – Derivatives and Hedging Activities for additional information about the Bank’s pledged collateral and other credit risk-related contingent features. As of September 30, 2022, the Bank had pledged total collateral of $1.0 billion, including securities with a carrying value of $335 million, all of which may be repledged, and cash collateral, including accrued interest, of $699 million to counterparties and the clearinghouse that had market risk exposure to
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


the Bank related to derivatives. As of December 31, 2021, the Bank had pledged total collateral of $329 million, including securities with a carrying value of $252 million, all of which may be repledged, and cash collateral, including accrued interest, of $77 million to counterparties and the clearinghouse that had market risk exposure to the Bank related to derivatives.
The Bank may be subject to various pending legal proceedings that may arise in the ordinary course of business. After consultation with legal counsel, the Bank does not anticipate that the ultimate liability, if any, arising out of these matters will have a material effect on its financial condition or results of operations.
Note 14 — Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks
Transactions with Members and Nonmembers. The following tables set forth information at the dates and for the periods indicated with respect to transactions with members that have an officer or director serving on the Bank’s board of directors.
(In millions)September 30, 2022December 31, 2021
Assets:
Advances$6,148 $3,107 
Mortgage loans held for portfolio81 — 
Accrued interest receivable3 2 
Liabilities:
Deposits$13 $34 
Capital:
Capital Stock$195 $117 
Three Months EndedNine Months Ended
(In millions)September 30, 2022September 30, 2021September 30, 2022September 30, 2021
Interest Income:
Advances$32 $12 $63 $38 
Mortgage loans held for portfolio1 — 1 — 
All transactions with members, nonmembers, and their affiliates are entered into in the ordinary course of business. As of September 30, 2022, and December 31, 2021, no shareholder owned more than 10% of the total voting interests in the Bank because of the statutory limit on members' voting rights. For more information on transactions with members and nonmembers, see “Item 8. Financial Statements and Supplementary Data – Note 17 – Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks” in the Bank’s 2021 Form 10-K.
Transactions with Other FHLBanks. The Bank may occasionally enter into transactions with other FHLBanks. These transactions are summarized below.
Deposits with other FHLBanks. The Bank may, from time to time, maintain deposits with other FHLBanks. Deposits with other FHLBanks totaled de minimis amounts at September 30, 2022, and December 31, 2021, and were recorded as “Interest-bearing deposits” in the Statements of Condition.
Overnight Funds. The Bank may borrow or lend unsecured overnight funds from or to other FHLBanks. All such transactions are at current market rates. Interest income and interest expense related to these transactions with other FHLBanks are included in interest income and interest expense in the Statements of Income. Balances outstanding at period end with other FHLBanks, if any, are identified in the Bank’s financial statements. During the nine months ended September 30, 2022, the Bank extended overnight loans to other FHLBanks for $2.4 billion. During the nine months ended September 30, 2021, the Bank extended no overnight loans to other FHLBanks. During the nine months ended September 30, 2022 and 2021, the Bank borrowed $10.1 billion and $120 million, respectively, from
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Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)


other FHLBanks. The impact to net interest income related to these transactions was de minimis for all periods in this report.
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ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements contained in this quarterly report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of San Francisco (Bank) or the Federal Home Loan Bank System (FHLBank System), are “forward-looking statements.” These statements may use forward-looking terms, such as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “probable,” “plan,” “project,” “should,” “will,” “would,” “possible,” or their negatives or other variations on these terms, and include statements related to, among others, gains and losses on derivatives, plans to pay dividends and redeem or repurchase excess stock, future credit losses, future classification of securities, and reform legislation. The Bank cautions that by their nature, forward-looking statements involve risk or uncertainty that could cause actual results to differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These risks and uncertainties include, among others, the following:
•changes in economic and market conditions, including conditions in the mortgage, housing, and capital markets;
•the volatility of market prices, rates, and indices;
•the timing and volume of market activity;
•natural disasters, pandemics or other widespread health emergencies, terrorist attacks, civil unrest, geopolitical instability or conflicts, trade disruptions, economic or other sanctions, or other unanticipated or catastrophic events;
•changes to, and replacement of, the London Interbank Offered Rate (LIBOR) benchmark interest rate, and the use and acceptance of the Secured Overnight Financing Rate (SOFR) and any alternative reference rate;
•political events, including legislative, regulatory, judicial, or other developments that affect the Bank, its members, counterparties, or investors in the consolidated obligations of the Federal Home Loan Banks (FHLBanks), such as the impact of any government-sponsored enterprises (GSE) legislative reforms, changes in the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), changes in applicable sections of the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, or changes in other statutes or regulations applicable to the FHLBanks;
•changes in the Bank’s capital structure and composition;
•the ability of the Bank to pay dividends or redeem or repurchase capital stock;
•membership changes, including changes resulting from mergers or changes in the principal place of business of Bank members;
•the withdrawal of one or more large members;
•the soundness of other financial institutions, including Bank members, nonmember borrowers, other counterparties, and the other FHLBanks;
•changes in Bank members’ demand for Bank advances;
•changes in the value or liquidity of collateral underlying advances to Bank members or nonmember borrowers or collateral pledged by the Bank’s derivative counterparties;
•changes in the fair value and economic value of, impairments of, and risks associated with the Bank’s investments in mortgage loans and mortgage-backed securities (MBS) or other assets and the related credit enhancement protections;
•changes in the Bank’s ability or intent to hold MBS and mortgage loans to maturity;
•competitive forces, including the availability of other sources of funding for Bank members;
•the willingness of the Bank’s members to do business with the Bank;
•changes in investor demand for consolidated obligations (including the terms of consolidated obligations) or the terms of interest rate exchange or similar agreements;
•the impact of any changes and developments in FHLBank System-wide debt issuance and governance practices;
•the ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the Bank has joint and several liability;
•changes in key Bank personnel;
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•technology changes and enhancements, and the Bank’s ability to develop and support technology and information systems sufficient to manage the risks of the Bank’s business effectively (including cyber-security risks); and
•changes in the FHLBanks’ long-term credit ratings.
Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under “Item 1A. Risk Factors” in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2021 (2021 Form 10-K).
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Quarterly Overview
Net income for the third quarter of 2022 was $80 million, compared with net income of $71 million for the third quarter of 2021. The $9 million increase in net income relative to the prior-year period was primarily attributable to an increase in net interest income of $37 million, partially offset by a $15 million decrease in other income/(loss) and an increase of $9 million in the provision for credit losses.
The $37 million increase in net interest income for the third quarter of 2022 reflected an increase in interest income of $479 million, which was driven by higher yields on interest-earning assets, primarily resulting from higher interest rates on advances balances. The increase was partially offset by a decrease in net gains on designated fair value hedges. The increase in interest income was offset by an increase of $442 million in interest expense based on higher funding levels and interest costs.
The $15 million change in other income/(loss) primarily resulted from an increase of $27 million in net fair value losses associated with non-hedge qualifying derivatives and financial instruments carried at fair value. This increase in fair value losses was mainly driven by valuation changes created by market volatility and growth in the Bank's short-term advances funded by economically hedged consolidated obligations, which was offset by a decrease in net fair value losses of $13 million on trading securities that matured since the third quarter of 2021.
The increase of $9 million in the provision for credit losses for the quarter was largely attributable to declines in the fair values and the present value of expected cash flows of certain private-label residential mortgage-backed securities (PLRMBS).
At September 30, 2022, total assets were $108.5 billion, an increase of $54.4 billion from $54.1 billion at December 31, 2021. Advances increased to $65.7 billion at September 30, 2022, up from $17.0 billion at December 31, 2021, an increase of $48.7 billion, as member demand for primarily short-term advances increased. The increase in total assets also included an increase in total investments of $5.9 billion, to $41.7 billion at September 30, 2022, up from $35.8 billion at December 31, 2021. The increase in investments primarily reflected higher liquidity-related instruments, including increases in Federal funds sold of $7.3 billion, U.S. Treasury securities of $3.0 billion, and interest-bearing deposits of $1.3 billion. This increase in investments was partially offset by a decline of $3.5 billion in securities purchased under agreements to resell and mortgage-backed securities of $2.2 billion.
Accumulated other comprehensive income (AOCI) decreased by $319 million during the first nine months of 2022, to $12 million at September 30, 2022, from $331 million at December 31, 2021, primarily reflecting lower fair values of investment securities classified as available-for-sale (AFS), which primarily reflects the increase in market interest rates during the first nine months of 2022.
As of September 30, 2022, the Bank complied with all regulatory capital requirements. The Bank exceeded the risk-based capital requirement of $855 million with $7.3 billion in permanent capital and exceeded the 4.0% regulatory requirement with a regulatory capital ratio of 6.7% at September 30, 2022. The decline in regulatory capital ratio to 6.7% from 10.9% at December 31, 2021, was mainly attributable to an increase in total assets. Total retained earnings increased to $3.9 billion as of September 30, 2022, from $3.8 billion at yearend 2021.
On October 27, 2022, the Bank’s board of directors declared a quarterly cash dividend on the average capital stock outstanding during the third quarter of 2022 at an annualized rate of 7.00% that will total $54 million. The quarterly dividend rate is consistent with the Bank's dividend philosophy of endeavoring to pay a quarterly dividend at a rate between 5% and 7% annualized. The Bank recorded the dividend on October 27, 2022, and the Bank expects to pay the dividend on November 10, 2022.
The Bank will continue to monitor its financial condition, its financial performance, its capital position, overall financial market conditions, and other relevant information as the basis for determining the payment of dividends in future quarters.
During the third quarter of 2022, the U.S. economy continued to experience inflation and rising interest rates. Prolonged inflation may adversely affect overall economic conditions, and in turn result in adverse consequences in
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the Bank or the Bank members’ businesses and impact the Bank’s financial condition, results of operation, or ability to pay dividends. Additionally, the level and volatility of interest rates affect, among other things, member demand for advances. For other risks and uncertainties that the Bank faces, see “Item 1A. Risk Factors in the Bank’s 2021 Form 10-K.”
On July 20, 2022, Federal Housing Finance Agency (Finance Agency) Director Sandra Thompson testified to the House Financial Services Committee that the Finance Agency would conduct a review of the FHLBank System. On September 29, 2022, the Finance Agency began this review with a three-day listening session featuring oral comments from interested persons on the following six key areas: the FHLBanks’ general mission and purpose in a changing marketplace; FHLBank organization, operational efficiency, and effectiveness; FHLBanks’ role in promoting affordable, sustainable, equitable, and resilient housing and community investment; addressing the unique needs of rural and financially vulnerable communities; member products, services, and collateral requirements; and membership eligibility requirements. These sessions were followed by a request for written comments through October 31, 2022. At this time, it is not possible to determine when any future events or requests for comment will occur, whether any actions will result from these events or comments, and the extent to which those actions may impact the Bank or the FHLBank System as a whole.
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Financial Highlights
The following table presents a summary of certain financial information for the Bank for the periods indicated.
Financial Highlights
(Unaudited)
(Dollars in millions)September 30,
2022		June 30,
2022		March 31,
2022		December 31,
2021		September 30,
2021
Selected Balance Sheet Items at Quarter End
Total Assets$108,507 $87,602 $56,129 $54,121 $54,459 
Advances65,658 43,221 20,246 17,027 22,613 
Mortgage Loans Held for Portfolio, Net834 863 914 980 1,134 
Investments(1)
41,661 43,153 34,629 35,768 30,364 
Consolidated Obligations:(2)
Bonds35,446 26,076 28,702 22,716 22,025 
Discount Notes62,046 53,132 19,744 23,987 24,814 
Capital Stock —Class B —Putable3,322 2,754 2,097 2,061 2,253 
Unrestricted Retained Earnings3,222 3,198 3,183 3,124 3,059 
Restricted Retained Earnings708 692 692 708 743 
Accumulated Other Comprehensive Income/(Loss) (AOCI)12 100 182 331 319 
Total Capital7,264 6,744 6,154 6,224 6,374 
Selected Operating Results for the Quarter
Net Interest Income$157 $126 $103 $119 $120 
Provision for/(Reversal of) Credit Losses9 3 (3)2 — 
Other Income/(Loss)(18)(31)18 — (3)
Other Expense41 38 38 43 38 
Affordable Housing Program Assessment9 6 8 7 8 
Net Income/(Loss)$80 $48 $78 $67 $71 
Selected Other Data for the Quarter
Net Interest Margin(3)
0.63 %0.67 %0.78 %0.87 %0.85 %
Return on Average Assets0.32 0.25 0.59 0.48 0.49 
Return on Average Equity4.52 2.85 4.91 4.08 4.34 
Annualized Dividend Rate6.00 6.00 6.00 6.00 6.00 
Dividend Payout Ratio(4)
49.98 69.80 44.63 53.84 48.99 
Average Equity to Average Assets Ratio7.16 8.81 11.91 11.70 11.32 
Selected Other Data at Quarter End
Regulatory Capital Ratio(5)
6.69 7.59 10.65 10.89 11.12 
Duration Gap (in months)1.0 0.9 1.1 0.4 0.3 
(1)Investments consist of interest-bearing deposits, securities purchased under agreements to resell, Federal funds sold, trading securities, available-for-sale securities, and held-to-maturity securities.
(2)As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all of the FHLBanks have joint and several liability for FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of September 30, 2022, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of all FHLBanks at the dates indicated was as follows:
Par Value
(In millions)
September 30, 2022$1,031,910 
June 30, 2022882,481 
March 31, 2022699,530 
December 31, 2021652,862 
September 30, 2021641,438 
(3)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
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(4)This ratio is calculated as dividends per share declared, recorded, and paid during the period divided by net income per share.
(5)This ratio is calculated as regulatory capital divided by total assets. Regulatory capital includes retained earnings, Class B capital stock, and mandatorily redeemable capital stock (which is classified as a liability) but excludes AOCI.

Results of Operations
Net Interest Income. The primary source of the Bank’s earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments, including net accretion of related income from improvement in expected cash flows on certain PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses, less interest paid on consolidated obligations, deposits, mandatorily redeemable capital stock, and other borrowings. The Average Balance Sheets tables that follow present the average balances of interest-earning asset categories and the sources that funded those interest-earning assets (liabilities and capital) for the three and nine months ended September 30, 2022 and 2021, together with the related interest income and expense. They also present the average rates on total interest-earning assets and the average costs of total funding sources.
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Third Quarter of 2022 Compared to Third Quarter of 2021
Average Balance Sheets
Three Months Ended
 September 30, 2022September 30, 2021
(Dollars in millions)Average
Balance		Interest
Income/
Expense		Average
Rate		Average
Balance		Interest
Income/
Expense		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits$2,299 $14 2.28 %$1,148 $— 0.14 %
Securities purchased under agreements to resell8,937 51 2.28 1,260 1 0.08 
Federal funds sold12,901 72 2.22 7,446 2 0.09 
Trading securities:
Mortgage-backed securities (MBS)1 — 2.10 2 — 2.04 
Other investments— — — 2,522 13 2.06 
Available-for-sale (AFS) securities:(1)
MBS(2)(3)(4)
8,372 88 4.17 9,819 56 2.30 
Other investments(3)
3,730 21 2.29 904 1 0.27 
Held-to-maturity (HTM) securities:
MBS2,526 17 2.56 3,750 10 1.08 
Mortgage loans held for portfolio(5)
850 8 4.10 1,221 7 2.34 
Advances(3)(6)
58,513 345 2.34 28,486 47 0.66 
Loans to other FHLBanks16 — 2.36 — — — 
Total interest-earning assets98,145 616 2.49 56,558 137 0.96 
Other assets(7)
387 — 897 — 
Total Assets$98,532 $616 $57,455 $137 
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)
$28,402 $143 2.01 %$24,512 $13 0.22 %
Discount notes61,417 310 2.00 24,996 3 0.05 
Deposits and other borrowings921 5 2.15 970 1 0.08 
Mandatorily redeemable capital stock5 — 5.79 6 — 4.31 
Borrowings from other FHLBanks65 1 2.74 — — — 
Total interest-bearing liabilities90,810 459 2.01 50,484 17 0.13 
Other liabilities(7)
668 — 465 — 
Total Liabilities91,478 459 50,949 17 
Total Capital7,054 — 6,506 — 
Total Liabilities and Capital$98,532 $459 $57,455 $17 
Net Interest Income$157 $120 
Net Interest Spread(8)
0.48 %0.83 %
Net Interest Margin(9)
0.63 %0.85 %
Interest-earning Assets/Interest-bearing Liabilities108.08 %112.03 %
(1)The average balances of AFS securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value.
(2)Interest income on AFS securities includes accretion of yield adjustments on certain PLRMBS (resulting from improvement in expected cash flows) with previous credit losses related to the prior methodology of evaluating credit losses, totaling $9 million and $13 million for the three months ended September 30, 2022 and 2021, respectively.
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(3)Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:
Three Months Ended
September 30, 2022
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(8)$(26)$— $(34)
Net gain/(loss) on derivatives and hedged items(6)(4)— (10)
Net interest settlements on derivatives27 22 (37)12 
Total net interest income/(expense)$13 $(8)$(37)$(32)
Three Months Ended
September 30, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(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)
(4)Interest income includes net prepayment fees on AFS MBS of $3 million and $2 million for the three months ended September 30, 2022 and 2021, respectively.
(5)Nonperforming mortgage loans are included in average balances used to determine average rate. Interest income from retrospective adjustment of the effective yields was $3 million and a de minimis amount for the three months ended September 30, 2022 and 2021, respectively. Interest income includes amortization of upfront loan costs and delivery commitments of $(2) million and $(4) million for the three months ended September 30, 2022 and 2021, respectively.
(6)Interest income includes net prepayment fees on advances of $(2) million and a de minimis amount for the three months ended September 30, 2022 and 2021, respectively.
(7)Includes forward settling transactions and valuation adjustments for certain cash items received/(paid).
(8)Net interest spread is calculated as the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
(9)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
Net interest income in the third quarter of 2022 was $157 million, a 31% increase from $120 million in the third quarter of 2021. The following table details the changes in interest income and interest expense for the third quarter of 2022 compared to the third quarter of 2021. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.
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Change in Net Interest Income: Rate/Volume Analysis
Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021
 Increase/
(Decrease)
Attributable to Changes in(1)
(In millions)Average VolumeAverage Rate
Interest-earning assets:
Interest-bearing deposits$14 $1 $13 
Securities purchased under agreements to resell50 9 41 
Federal funds sold70 2 68 
Trading securities: Other investments(13)(13)— 
AFS securities:
MBS(2)
32 (9)41 
Other investments(2)
20 6 14 
HTM securities: MBS7 (4)11 
Mortgage loans held for portfolio1 (3)4 
Advances(2)
298 87 211 
Total interest-earning assets479 76 403 
Interest-bearing liabilities:
Consolidated obligations:
Bonds(2)
130 2 128 
Discount notes307 12 295 
Deposits and other borrowings4 — 4 
Borrowings from other FHLBanks1 1 — 
Total interest-bearing liabilities442 15 427 
Net interest income$37 $61 $(24)
(1)Combined rate/volume variances, a third element of the calculation, are allocated to the rate and volume variances based on their relative sizes.
(2)Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.
The net interest margin was 63 basis points for the third quarter of 2022, 22 basis points lower than the net interest margin for the third quarter of 2021, which was 85 basis points. The net interest spread was 48 basis points for the third quarter of 2022, 35 basis points lower than the net interest spread for the third quarter of 2021, which was 83 basis points. These decreases were primarily a result of an increase in costs of interest-bearing liabilities from higher funding levels and costs, partially offset by higher yields on interest-earning assets, primarily resulting from higher interest rates on growing advance balances.
For PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional credit loss on the security, the yield of the security is adjusted on a prospective basis and accreted into interest income based on the expected cash flows. As a result of improvements in the estimated cash flows of these securities, the net accretion of income may continue to be a positive source of net interest income in future periods.
Member demand for wholesale funding from the Bank can vary greatly depending on a number of factors, including economic and market conditions, competition from other wholesale funding sources, member deposit inflows and outflows, the activity level of the primary and secondary mortgage markets, and strategic decisions made by individual member institutions. As a result, Bank asset levels and operating results may vary significantly from period to period.
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Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the three months ended September 30, 2022 and 2021.
Other Income/(Loss)
Three Months Ended
(In millions)September 30, 2022September 30, 2021
Other Income/(Loss):
Net gain/(loss) on trading securities(1)
$— $(13)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(20)(9)
Net gain/(loss) on derivatives(1)15 
Standby letters of credit fees4 4 
Other, net(1)— 
Total Other Income/(Loss)$(18)$(3)
(1)The net gain/(loss) on trading securities that were economically hedged totaled a de minimis amount and $(13) million for the three months ended September 30, 2022 and 2021, respectively.
Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) recognized in earnings on advances and consolidated obligation bonds held under the fair value option for the three months ended September 30, 2022 and 2021.
Net Gain/(Loss) on Advances and Consolidated Obligations Bonds Held Under Fair Value Option
Three Months Ended
(In millions)September 30, 2022September 30, 2021
Advances$(42)$(11)
Consolidated obligation bonds22 2 
Total$(20)$(9)
Under the fair value option, the Bank elected to carry certain assets and liabilities at fair value. In general, transactions elected for the fair value option are in economic hedge relationships. Gains or losses on these transactions are generally offset by losses or gains on the derivatives that economically hedge these instruments.
The net gains/(losses) on advances and consolidated obligation bonds held under the fair value option were primarily driven by the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the advances and consolidated obligation bonds during the period.
Additional information about advances and consolidated obligation bonds held under the fair value option is provided in “Item 1. Financial Statements – Note 12 – Fair Value.”
Net Gain/(Loss) on Derivatives – Under the accounting guidance for derivative instruments and hedging activities, the Bank is required to carry all of its derivative instruments on the Statements of Condition at fair value. Certain derivatives are associated with assets or liabilities but do not qualify as fair value hedges under the accounting guidance for derivative instruments and hedging activities. These economic hedges are recorded on the Statements of Condition at fair value with the unrealized gain or loss recorded in earnings without any offsetting unrealized gain or loss from the associated asset or liability.
The following table shows the accounting classification of economic hedges and the categories of hedged items that contributed to the gains and losses on derivatives that were recorded in “Net gain/(loss) on derivatives” in the third quarter of 2022 and 2021.
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Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Three Months Ended September 30, 2022, Compared to Three Months Ended September 30, 2021
Three Months Ended
(In millions)September 30, 2022September 30, 2021
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$35 $(3)$32 $21 $(10)$11 
Not elected for fair value option22 1 23 3 3 6 
Consolidated obligation bonds:
Elected for fair value option(19)(6)(25)(1)— (1)
Not elected for fair value option(20)(3)(23)(1)— (1)
Consolidated obligation discount notes:
Not elected for fair value option2 (13)(11)1 (1)— 
MBS:
Not elected for fair value option3 — 3 — — — 
Non-MBS investments:
Not elected for fair value option— — — 8 (8)— 
Total$23 $(24)$(1)$31 $(16)$15 
During the third quarter of 2022, net losses on derivatives totaled $1 million compared to net gains of $15 million in the third quarter of 2021. These amounts included expense of $24 million and expense of $16 million resulting from net settlements on derivative instruments used in economic hedges in the third quarter of 2022 and 2021, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.
The ongoing impact of these valuation adjustments on the Bank cannot be predicted and the effects of these valuation adjustments may lead to significant volatility in future earnings, including earnings available for dividends.
Additional information about derivatives and hedging activities is provided in “Item 1. Financial Statements – Note 11 – Derivatives and Hedging Activities.”
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Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
Average Balance Sheets
Nine Months Ended
 September 30, 2022September 30, 2021
(Dollars in millions)Average
Balance		Interest
Income/
Expense		Average
Rate		Average
Balance		Interest
Income/
Expense		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits$1,748 $17 1.29 %$1,195 $1 0.14 %
Securities purchased under agreements to resell5,747 65 1.51 1,417 1 0.07 
Federal funds sold10,883 96 1.18 5,843 4 0.08 
Trading securities:
MBS1 — 1.92 2 — 2.29 
Other investments16 — 2.04 3,461 54 2.07 
AFS securities:(1)
MBS(2)(3)(4)
8,715 220 3.38 9,957 165 2.22 
Other investments(3)
2,064 27 1.74 2,174 3 0.21 
HTM securities:
MBS2,751 34 1.64 4,161 34 1.11 
Mortgage loans held for portfolio(5)
892 38 5.74 1,464 34 3.08 
Advances(3)(6)
43,101 501 1.55 28,832 167 0.77 
Loans to other FHLBanks12 — 1.48 — — — 
Total interest-earning assets75,930 998 1.76 58,506 463 1.06 
Other assets(7)
518 — 986 — 
Total Assets$76,448 $998 $59,492 $463 
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)
$26,549 $205 1.03 %$31,258 $49 0.21 %
Discount notes41,428 399 1.29 20,172 10 0.06 
Deposits and other borrowings1,107 7 0.90 1,123 1 0.08 
Mandatorily redeemable capital stock5 — 6.18 4 — 4.02 
Borrowings from other FHLBanks57 1 1.67 — — — 
Total interest-bearing liabilities69,146 612 1.18 52,557 60 0.15 
Other liabilities(7)
564 — 520 — 
Total Liabilities69,710 612 53,077 60 
Total Capital6,738 — 6,415 — 
Total Liabilities and Capital$76,448 $612 $59,492 $60 
Net Interest Income$386 $403 
Net Interest Spread(8)
0.57 %0.91 %
Net Interest Margin(9)
0.68 %0.92 %
Interest-earning Assets/Interest-bearing Liabilities109.81 %111.32 %
(1)The average balances of AFS securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value.
(2)Interest income on AFS securities includes accretion of yield adjustments on certain PLRMBS (resulting from improvement in expected cash flows) with previous credit losses related to the prior methodology of evaluating credit losses, totaling $27 million and $39 million for the nine months ended September 30, 2022 and 2021, respectively.

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(3)Interest income/expense and average rates include the effect of associated interest rate exchange agreements, as follows:
Nine Months Ended
September 30, 2022
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(22)$(80)$— $(102)
Net gain/(loss) on derivatives and hedged items(5)4 — (1)
Net interest settlements on derivatives(4)2 (2)(4)
Total net interest income/(expense)$(31)$(74)$(2)$(107)
Nine Months Ended
September 30, 2021
(In millions)AdvancesAFS SecuritiesConsolidated Obligation BondsTotal
(Amortization)/accretion of hedging activities$(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)
(4)Interest income includes net prepayment fees received on AFS MBS of $20 million and $2 million for the nine months ended September 30, 2022 and 2021, respectively.
(5)Nonperforming mortgage loans are included in average balances used to determine average rate. Interest income from retrospective adjustment of the effective yields was $21 million and $13 million for the nine months ended September 30, 2022 and 2021, respectively. Interest income includes amortization of upfront loan costs and delivery commitments of $(7) million and $(19) million for the nine months ended September 30, 2022 and 2021, respectively.
(6)Interest income includes net prepayment fees on advances of $(4) million and $15 million for the nine months ended September 30, 2022 and 2021, respectively.
(7)Includes forward settling transactions and valuation adjustments for certain cash items received/(paid).
(8)Net interest spread is calculated as the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
(9)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
Net interest income in the first nine months of 2022 was $386 million, a 4% decrease from $403 million in the first nine months of 2021. The following table details the changes in interest income and interest expense for the first nine months of 2022 compared to the first nine months of 2021. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.
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Change in Net Interest Income: Rate/Volume Analysis
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
 Increase/
(Decrease)
Attributable to Changes in(1)
(In millions)Average VolumeAverage Rate
Interest-earning assets:
Interest-bearing deposits$16 $1 $15 
Securities purchased under agreements to resell64 9 55 
Federal funds sold92 6 86 
Trading securities: Other investments(54)(53)(1)
AFS securities:
MBS(2)
55 (23)78 
Other investments(2)
24 — 24 
HTM securities: MBS— (14)14 
Mortgage loans held for portfolio4 (17)21 
Advances(2)
334 110 224 
Total interest-earning assets535 19 516 
Interest-bearing liabilities:
Consolidated obligations:
Bonds(2)
156 (9)165 
Discount notes389 20 369 
Deposits and other borrowings6 — 6 
Borrowings from other FHLBanks1 1 — 
Total interest-bearing liabilities552 12 540 
Net interest income$(17)$7 $(24)
(1)Combined rate/volume variances, a third element of the calculation, are allocated to the rate and volume variances based on their relative sizes.
(2)Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.
The net interest margin was 68 basis points for the first nine months of 2022, 24 basis points lower than the net interest margin for the first nine months of 2021, which was 92 basis points. The net interest spread was 57 basis points for the first nine months of 2022, 34 basis point lower than the net interest spread for the first nine months of 2021, which was 91 basis points. These decreases were primarily a result of an increase in costs of interest-bearing liabilities from higher funding levels and costs, offset by higher yields on interest-earning assets, primarily resulting from higher interest rates on growing advance balances.
For PLRMBS with previous credit losses related to the prior methodology of evaluating credit losses, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional credit loss on the security, the yield of the security is adjusted on a prospective basis and accreted into interest income based on the expected cash flows. As a result of improvements in the estimated cash flows of these securities, the net accretion of income is likely to continue to be a positive source of net interest income in future periods.
Member demand for wholesale funding from the Bank can vary greatly depending on a number of factors, including economic and market conditions, competition from other wholesale funding sources, member deposit inflows and outflows, the activity level of the primary and secondary mortgage markets, and strategic decisions made by individual member institutions. As a result, Bank asset levels and operating results may vary significantly from period to period.
Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the nine months ended September 30, 2022 and 2021.
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Other Income/(Loss)
Nine Months Ended
(In millions)September 30, 2022September 30, 2021
Other Income/(Loss):
Net gain/(loss) on trading securities(1)
$— $(50)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option(53)(40)
Net gain/(loss) on derivatives(13)25 
Private-label residential mortgage-backed securities trust settlement
28 — 
Standby letters of credit fees11 12 
Other, net(4)3 
Total Other Income/(Loss)$(31)$(50)
(1)The net gain/(loss) on trading securities that were economically hedged totaled a de minimis amount and $(50) million for the nine months ended September 30, 2022 and 2021, respectively.
Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) on advances and consolidated obligation bonds held under the fair value option for the nine months ended September 30, 2022 and 2021.
Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option
Nine Months Ended
(In millions)20222021
Advances$(117)$(43)
Consolidated obligation bonds64 3 
Total$(53)$(40)
Under the fair value option, the Bank elected to carry certain assets and liabilities at fair value. In general, transactions elected for the fair value option are in economic hedge relationships. Gains or losses on these transactions are generally offset by losses or gains on the derivatives that economically hedge these instruments.
The net gains/(losses) on advances and consolidated obligation bonds held under the fair value option were primarily driven by the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the advances and consolidated obligation bonds during the period.
Additional information about advances and consolidated obligation bonds held under the fair value option is provided in “Item 1. Financial Statements – Note 12 – Fair Value.”
Net Gain/(Loss) on Derivatives – The following table shows the accounting classification of economic hedges and the categories of hedged items that contributed to the gains and losses on derivatives that were recorded in “Net gain/(loss) on derivatives” for the nine months ended September 30, 2022 and 2021.
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Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Nine Months Ended September 30, 2022, Compared to Nine Months Ended September 30, 2021
Nine Months Ended
(In millions)September 30, 2022September 30, 2021
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$102 $(18)$84 $67 $(29)$38 
Not elected for fair value option43 10 53 (13)4 (9)
Consolidated obligation bonds:
Elected for fair value option(58)(4)(62)(2)1 (1)
Not elected for fair value option(62)(2)(64)(4)1 (3)
Consolidated obligation discount notes:
Not elected for fair value option(25)(3)(28)3 (2)1 
MBS:
Not elected for fair value option4 — 4 — — — 
Non-MBS investments:
Not elected for fair value option— — — 35 (36)(1)
Total$4 $(17)$(13)$86 $(61)$25 
During the first nine months of 2022, net losses on derivatives totaled $13 million compared to net gains of $25 million in the first nine months of 2021. These amounts included expense of $17 million and expense of $61 million resulting from net settlements on derivative instruments used in economic hedges in the first nine months of 2022 and 2021, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.
The ongoing impact of these valuation adjustments on the Bank cannot be predicted and the effects of these valuation adjustments may lead to significant volatility in future earnings, including earnings available for dividends.
Additional information about derivatives and hedging activities is provided in “Item 1. Financial Statements – Note 11 – Derivatives and Hedging Activities.”
PLRMBS Trust Settlement – One of the Bank’s PLRMBS investments is held within a trust that has been the subject of litigation by the trustee since 2012. Upon final resolution of the litigation, to which the Bank was not a party, the trustee was required to transmit settlement proceeds to the trust. As a result of the distribution of the settlement proceeds in the first quarter of 2022 to the beneficial owners of the securities in the trust, including the Bank, the Bank recorded settlement proceeds of $28 million as income in the first nine months of 2022. The Bank recorded no settlement proceeds in the first nine months of 2021.
Other Expense. During the third quarter of 2022, other expenses totaled $41 million, compared to $38 million in the third quarter of 2021 mostly attributable to an increase in compensation and benefits. During the first nine months of 2022, other expenses totaled $117 million, compared to $116 million in the first nine months of 2021.
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Return on Average Equity. Return on average equity (ROE) was 4.52% (annualized) for the third quarter of 2022, compared to 4.34% (annualized) for the third quarter of 2021. The increase reflected higher net income for the third quarter of 2022, which increased 13%, from $71 million in the third quarter of 2021 to $80 million in the third quarter of 2022, partially offset by an increase in average equity from $6.5 billion in the third quarter of 2021 to $7.1 billion in the third quarter of 2022.
ROE was 4.09% (annualized) for the first nine months of 2022, compared to 4.59% (annualized) for the first nine months of 2021. The decrease reflected lower net income for the first nine months of 2022, which decreased 6%, from $220 million in the first nine months of 2021 to $206 million in the first nine months of 2022, and an increase in average equity from $6.4 billion in the first nine months of 2021 to $6.7 billion in the first nine months of 2022.
Dividends and Retained Earnings. In the third quarter of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $40 million, including $40 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the third quarter of 2021, the Bank paid dividends at an annualized rate of 6.00%, totaling $34 million, including $34 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock.
In the first nine months of 2022, the Bank paid dividends at an annualized rate of 6.00%, totaling $108 million, including $108 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the first nine months of 2021, the Bank paid dividends at an annualized rate of 5.65%, totaling $98 million, including $98 million in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock.
The Bank paid these dividends in cash. Dividends on capital stock are recognized as dividends on the Statements of Capital Accounts, and dividends on mandatorily redeemable capital stock are recognized as interest expense on the Statements of Income.
The Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings, which are not made available in the current dividend period, and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the Framework. The methodology may be revised from time to time, and the required level of required retained earnings under the methodology may change due to updating data and assumptions used in the methodology. The required level of retained earnings was $2.6 billion and $1.5 billion at September 30, 2022, and December 31, 2021, respectively. In July 2022, the required level of retained earnings was increased from $1.7 billion to $2.6 billion.
The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the Joint Capital Enhancement (JCE) Agreement) and unrestricted retained earnings. The JCE Agreement is intended to enhance the capital position of each FHLBank. In accordance with the JCE Agreement, each FHLBank is required to allocate 20% of its net income each quarter to a separate restricted retained earnings account until the balance of the account, calculated as of the last day of each calendar quarter, equals at least 1% of that FHLBank's average balance of outstanding consolidated obligations for the calendar quarter. Under the JCE Agreement, these restricted retained earnings will not be available to pay dividends. The JCE Agreement also provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. During the nine months ended September 30, 2022, the Bank reclassified $16 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. The Bank made no reclassifications from restricted retained earnings to unrestricted retained earnings during the three months ended September 30, 2022. During the three and nine months ended September 30, 2021, the Bank reclassified $18 million from restricted retained earnings to unrestricted retained earnings as a result of the Bank exceeding this threshold. As a result of increased consolidated obligations during the third quarter of 2022, an allocation of net income was made into restricted retained earnings for the period in accordance with the JCE Agreement. The Bank’s restricted retained earnings totaled $708 million at September 30, 2022 and December 31,
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2021. The Bank’s unrestricted retained earnings totaled $3.2 billion and $3.1 billion at September 30, 2022, and December 31, 2021, respectively.
For more information, see “Item 1. Financial Statements – Note 9 – Capital” in this report and see “Item 1. Business – Dividends and Retained Earnings,” “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk,” and “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital – Excess Stock Repurchase, Retained Earnings, and Dividend Framework” in the Bank’s 2021 Form 10-K.

Financial Condition
Total assets were $108.5 billion at September 30, 2022, compared to $54.1 billion at December 31, 2021. Advances increased by $48.7 billion, or 286%, to $65.7 billion at September 30, 2022, from $17.0 billion at December 31, 2021. Average total assets were $98.5 billion for the third quarter of 2022, a 71% increase from $57.5 billion for the third quarter of 2021. Average total assets were $76.4 billion for the first nine months of 2022, a 29% increase from $59.5 billion for the first nine months of 2021. Average advances were $58.5 billion for the third quarter of 2022, a 105% increase from $28.5 billion for the third quarter of 2021. Average advances were $43.1 billion for the first nine months of 2022, a 50% increase from $28.8 billion for the first nine months of 2021. Average MBS investments were $10.9 billion for the third quarter of 2022, a 20% decrease from $13.6 billion for the third quarter of 2021. Average MBS investments were $11.5 billion for the first nine months of 2022, a 19% decrease from $14.1 billion for the first nine months of 2021.
Advances outstanding at September 30, 2022, included net unrealized losses of $740 million, of which $692 million represented unrealized losses on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $48 million represented unrealized losses on economically hedged advances that are carried at fair value in accordance with the fair value option. Advances outstanding at December 31, 2021, included net unrealized gains of $169 million, of which $103 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $66 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option. The change in the net unrealized losses on the hedged advances and advances carried at fair value from December 31, 2021, to September 30, 2022, was primarily attributable to the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the terms on the Bank’s advances during the period.
Total liabilities were $101.2 billion at September 30, 2022, an increase of $53.3 billion from $47.9 billion at December 31, 2021, primarily reflecting a $50.8 billion increase in consolidated obligations outstanding to $97.5 billion at September 30, 2022, from $46.7 billion at December 31, 2021. Average total liabilities were $91.5 billion for the third quarter of 2022, an 80% increase compared to $50.9 billion for the third quarter of 2021. Average total liabilities were $69.7 billion for the first nine months of 2022, a 31% increase compared to $53.1 billion for the first nine months of 2021. Average consolidated obligations were $89.8 billion for the third quarter of 2022 and $49.5 billion for the third quarter of 2021. Average consolidated obligations were $68.0 billion for the first nine months of 2022 and $51.4 billion for the first nine months of 2021.
Consolidated obligations outstanding at September 30, 2022, included net unrealized gains of $1.1 billion on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized gains of $68 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. Consolidated obligations outstanding at December 31, 2021, included net unrealized gains of $139 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized gains of $6 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. The change in the net unrealized gains on the hedged consolidated obligation bonds and on the consolidated obligation bonds carried at fair value from December 31, 2021, to September 30, 2022, were primarily attributable to the
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effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the Bank’s consolidated obligation bonds during the period.
As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of September 30, 2022, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of the FHLBanks was $1.0 trillion at September 30, 2022, and $652.9 billion at December 31, 2021.
Certain Bank assets and derivatives are indexed to LIBOR. The Bank recognizes that the impending discontinuation of LIBOR presents risks and challenges that could have an impact on the Bank’s business. For information about the risks to the Bank from discontinuation of LIBOR, see “Item 1A. Risk Factors” in the Bank’s 2021 Form 10-K. Accordingly, the Bank has established the LIBOR Transition Working Group, led by the Chief Financial Officer, and developed a LIBOR Phase Out Transition Plan (Transition Plan). Among other things, the Transition Plan identifies key strategies to manage and mitigate the risks associated with the discontinuation of LIBOR and promotes the use of robust benchmarks, like SOFR, in the Bank’s financial activities. In addition, the Transition Plan prohibits new LIBOR transactions, consistent with the limits set by the Finance Agency’s Supervisory Letter issued on September 27, 2019. The Transition Plan states that the Bank’s Asset and Liability Management Committee has primary responsibility for driving the transition from LIBOR to SOFR and that the Bank’s Business Development Committee is responsible for advance product development to facilitate the Bank members’ transition from LIBOR to an alternative index.
On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that required each FHLBank to adhere to the Fallbacks Protocol (Protocol) by December 31, 2020, and, to the extent necessary, to amend any bilateral agreements regarding the adoption of the Protocol by December 15, 2020. On October 23, 2020, International Swaps and Derivatives Association, Inc. (ISDA) launched the Supplement to the 2006 ISDA Definitions (Supplement) and the ISDA 2020 Interbank Offered Rate (IBOR) Protocol. Both the Supplement and the Protocol took effect on January 25, 2021. As part of its LIBOR transition efforts, the Bank and all of its uncleared derivatives counterparties have adhered to the Protocol. On January 25, 2021, all of the Bank’s outstanding legacy bilateral derivative transactions that referenced a covered IBOR, including U.S. dollar LIBOR, were amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation.
On March 5, 2021, the United Kingdom’s Financial Conduct Authority (FCA) further announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings.
Although the FCA does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any particular date. The FCA’s announcements constitutes an index cessation event under the Protocol and Supplement, and as a result, the fallbacks spread adjustment for each tenor was fixed as of the date of the announcement.
On March 15, 2022, the Adjustable Interest Rate (LIBOR) Act was signed into law. The legislation provides a statutory fallback mechanism on a nationwide basis to replace LIBOR with a benchmark rate, selected by the Federal Reserve Board based on SOFR including any applicable tenor spread adjustment, for certain contracts that reference LIBOR and contain no fallback provisions or insufficient fallback provisions. On July 20, 2022, the Federal Reserve Board requested comments on a proposed rule that implements the Adjustable Interest Rate (LIBOR) Act by identifying specific benchmark replacements as LIBOR fallbacks by covered contract category. The proposed rule would provide default rules for certain contracts (covered contracts) that: reference LIBOR, are governed by U.S. law, do not mature on or before the LIBOR replacement date, and lack adequate provisions to
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identify a replacement rate for LIBOR. The proposed rule identifies separate Board-selected replacement rates for derivatives transactions, covered GSE contracts, and all other covered contracts. The proposed rule defines covered GSE contracts to include FHLBank advances.
The following tables present LIBOR-indexed variable rate financial instruments for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by due date or termination date at September 30, 2022, and December 31, 2021.
LIBOR-Indexed Financial Instruments
September 30, 2022
(In millions)Due/Terminates in 2022Due/Terminates through June 30, 2023Due/Terminates thereafterTotal
Assets indexed to LIBOR:
Par value of advances by redemption term$75 $— $— $75 
Unpaid principal balance of MBS by contractual maturity(1)
— 7 3,215 3,222 
Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared45 304 222 571 
Uncleared20 20 — 40 
Total $140 $331 $3,437 $3,908 
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared$— $52 $— $52 
Uncleared35 — — 35 
Total $35 $52 $— $87 
December 31, 2021
(In millions)Due/Terminates in 2022Due/Terminates through June 30, 2023Due/Terminates thereafterTotal
Assets indexed to LIBOR:
Par value of advances by redemption term$250 $— $10 $260 
Unpaid principal balance of MBS by contractual maturity(1)
— 12 4,098 4,110 
Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared517 309 562 1,388 
Uncleared112 23 10 145 
Total $879 $344 $4,680 $5,903 
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared$210 $52 $40 $302 
Uncleared35 — — 35 
Total $245 $52 $40 $337 
(1)Certain MBS with multiple indices where LIBOR is the majority index are included in this amount.
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As of September 30, 2022, there were no interest rate caps and floors indexed to LIBOR. At December 31, 2021, interest rate caps and floors indexed to LIBOR totaled $550 million.
All adjustable rate consolidated obligation bonds are indexed to SOFR, totaling $12.6 billion at September 30, 2022, and $5.6 billion at December 31, 2021.
For more information on LIBOR-indexed advances, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Segment Information – Advances-Related Business.” For more information on LIBOR-indexed investments and derivatives, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management.”

Segment Information
The Bank uses an analysis of financial results based on the financial components and adjusted net interest income of two operating segments, the advances-related business and the mortgage-related business, as well as other financial information, to review and assess financial performance and determine financial management strategies related to the operations of these two business segments. For purposes of segment reporting, adjusted net interest income includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivatives” in other income/(loss), excludes interest income and expense associated with changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges that are recorded in net interest income, and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” Affordable Housing Program (AHP) assessments are not included in the segment reporting analysis but are incorporated into the Bank’s overall assessment of financial performance. For a reconciliation of the Bank’s operating segment adjusted net interest income to the Bank’s total net interest income, see “Item 1. Financial Statements – Note 10 – Segment Information.”
Advances-Related Business. The advances-related business consists of advances and other credit products, related financing and hedging instruments, liquidity and other non-MBS investments associated with the Bank’s role as a liquidity provider, and capital. Assets associated with this segment increased $56.7 billion to $96.8 billion (89% of total assets) at September 30, 2022, from $40.1 billion (74% of total assets) at December 31, 2021.
Adjusted net interest income for this segment is derived primarily from the difference, or spread, between the yield on advances and non-MBS investments and the cost of the consolidated obligations funding these assets, including the net settlements from associated interest rate exchange agreements, and from earnings attributed to the Bank’s capital stock and retained earnings.
Adjusted net interest income for this segment was $86 million in the third quarter of 2022, an increase of $44 million, or 105%, compared to $42 million in the third quarter of 2021. This quarterly increase was primarily a result of an improvement in spreads on advances-related assets and higher balances of advances and other credit products. Adjusted net interest income for this segment was $172 million in the first nine months of 2022, an increase of $29 million, or 20%, compared to $143 million in the first nine months of 2021. This increase was primarily a result of an improvement in spreads on advances-related assets and higher balances of advances and other credit products, partially offset by a decrease of $19 million in net advance prepayment fee income.
Adjusted net interest income for this segment represented 64% and 40% of total adjusted net interest income for the third quarters of 2022 and 2021, respectively, and 48% and 42% of total adjusted net interest income for the first nine months of 2022 and 2021, respectively.
Advances – The par value of advances outstanding increased by $49.5 billion, or 294%, to $66.4 billion at September 30, 2022, from $16.9 billion at December 31, 2021. Average advances outstanding were $58.5 billion for the third quarter of 2022, a 105% increase from $28.5 billion for the third quarter of 2021. Average advances outstanding were $43.1 billion for the first nine months of 2022, a 50% increase from $28.8 billion for the first nine months of 2021. Outstanding balances of advances may significantly increase and decrease from period to period
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because of a member’s liquidity and financial strategies; therefore, period end balances may vary significantly from average balances for the period.
Advances outstanding to the Bank’s top five borrowers and their affiliates increased by $31.3 billion to $40.2 billion at September 30, 2022, from $8.9 billion at December 31, 2021. (See “Item 1. Financial Statements – Note 4 – Advances – Concentration Risk” for further information.) Silicon Valley Bank is the Bank’s largest borrower and held $13.5 billion of the Bank’s advances at September 30, 2022. Silicon Valley Bank had no advances outstanding at December 31, 2021.
Several acquisitions have been announced or completed involving large regional financial institutions in the Bank’s district, which potentially reduce the opportunity to grow advances from these large regional financial institutions. On September 21, 2021, U.S. Bancorp entered into an agreement to acquire MUFG Union Bank, National Association (Union Bank). Union Bank held $8.0 billion and $2.1 billion of the Bank’s advances at September 30, 2022, and December 31, 2021, respectively. U.S. Bancorp is not a member of the Bank. If Union Bank is no longer a member of the Bank or any successor to Union Bank does not become a member of the Bank, and if no other advances are made to replace Union Bank’s outstanding advances, the Bank’s total advances may be significantly reduced due to the loss of a significant member.
Advances outstanding to the Bank’s other borrowers increased by $18.2 billion. The $49.5 billion increase in advances outstanding reflected a $33.4 billion increase in fixed rate advances, a $12.9 billion increase in variable rate advances, and a $3.2 billion increase in adjustable rate advances.
The Bank has a significant long-term funding arrangement with a borrower that had, in prior periods, significantly contributed to the level of outstanding advances and may significantly contribute to the level of outstanding advances in the future.
The components of the advances portfolio at September 30, 2022, and December 31, 2021, are presented in the following table.
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Advances Portfolio by Product Type
September 30, 2022December 31, 2021
(Dollars in millions)Par ValuePercentage of Total Par ValuePar ValuePercentage of Total Par Value
Adjustable – LIBOR$75 — %$250 1 %
Adjustable – SOFR2,315 3 — — 
Adjustable – SOFR, callable at borrower’s option1,075 2 — — 
Subtotal adjustable rate advances3,465 5 250 1 
Fixed33,023 50 4,765 28 
Fixed – amortizing44 — 69 — 
Fixed – with PPS(1)
1,037 2 1,406 9 
Fixed – with FPS(1)
13,750 21 8,957 54 
Fixed – with caps and PPS(1)
— — 10 — 
Fixed – callable at borrower’s option with FPS(1)
340 — 70 — 
Fixed – putable at Bank’s option— — 200 1 
Fixed – putable at Bank’s option with FPS(1)
700 1 — — 
Fixed – putable at Bank’s option with PPS(1)
10 — 20 — 
Subtotal fixed rate advances48,904 74 15,497 92 
Daily variable rate14,029 21 1,111 7 
Total par value$66,398 100 %$16,858 100 %
(1)Partial prepayment symmetry (PPS) and full prepayment symmetry (FPS) are product features under which the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. Advances with PPS are no longer offered, and any prepayment credit on an advance with PPS would be limited to the lesser of 10% of the par value of the advance or the gain recognized on the termination of the associated interest rate swap, which may also include a similar contractual gain limitation.
The following table presents the par value of LIBOR-indexed advances for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by redemption term at September 30, 2022, and December 31, 2021.
LIBOR-Indexed Advances by Redemption Term
(In millions)Par Value
Redemption TermSeptember 30, 2022December 31, 2021
Due in 2022$75 $250 
Due after June 30, 2023(1)
— 10 
Total LIBOR-Indexed Advances(2)
$75 $260 
(1)For more information on the Bank’s Transition Plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”
(2)Total LIBOR-indexed advances include fixed rate advances with caps and PPS.
For a discussion of advances credit risk, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Advances.”
Non-MBS Investments – The Bank’s non-MBS investment portfolio consists of financial instruments that are used primarily to facilitate the Bank’s role as a cost-effective provider of credit and liquidity to members and to support the operations of the Bank. The Bank’s total non-MBS investment portfolio was $30.9 billion and $22.7 billion as of September 30, 2022, and December 31, 2021, respectively.
Interest rate payment terms for non-MBS investments classified as trading and AFS at September 30, 2022, and December 31, 2021, are detailed in the following table:
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Non-MBS Investments: Interest Rate Payment Terms
(In millions)September 30, 2022December 31, 2021
Fair value of fixed rate trading securities$— $250 
Amortized cost of AFS securities3,801 503 
Borrowings – Total liabilities (primarily consolidated obligations) funding the advances-related business increased to $89.6 billion at September 30, 2022, from $33.8 billion at December 31, 2021. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” and “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”
To meet the specific needs of certain investors, fixed and adjustable rate consolidated obligation bonds may contain embedded call options or other features that result in complex coupon payment terms. When these types of consolidated obligation bonds are issued on behalf of the Bank, the Bank typically enters into interest rate exchange agreements with features that offset the complex features of the bonds to convert the bonds to adjustable rate instruments. For example, the Bank may issue fixed rate callable bonds and simultaneously execute an interest rate exchange agreement with call features to offset the call options embedded in the callable bonds.
At September 30, 2022, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $112.1 billion, of which $34.7 billion were hedging advances, $71.9 billion were hedging consolidated obligations, $4.1 billion were hedging non-MBS investments, and $1.4 billion were offsetting derivatives. At December 31, 2021, the notional amount of interest rate exchange agreements associated with the advances-related business totaled $48.0 billion, of which $15.8 billion were hedging advances, $24.3 billion were hedging consolidated obligations, $0.8 billion were hedging non-MBS investments, and $7.1 billion were offsetting derivatives. The hedges associated with advances and consolidated obligations were primarily used to convert the fixed rate cash flows of the advances and consolidated obligations to adjustable rate cash flows or to manage the interest rate sensitivity and net repricing gaps of assets, liabilities, and interest rate exchange agreements.
FHLBank System consolidated obligation bonds and discount notes, along with similar debt securities issued by other GSEs such as Fannie Mae and Freddie Mac, are generally referred to as agency debt. The costs of debt issued by the FHLBanks and the other GSEs generally rise and fall with increases and decreases in general market interest rates.
On March 15, 2020, the Federal Open Market Committee (FOMC) lowered the Federal funds rate, to a target range of 0.00% to 0.25%. The current range is 3.00% to 3.25%, and the FOMC anticipates that ongoing increases in the target range will be appropriate. Interest rate changes have and are expected to continue to adversely impact and increase the volatility of reported earnings. In addition, the FOMC is expected to continue reducing its holdings of Treasury securities and agency debt and agency MBS to reduce the size of the Federal Reserve’s balance sheet. The following table presents a comparison of selected market interest rates as of the selected dates.
Selected Market Interest Rates
Market InstrumentSeptember 30, 2022December 31, 2021September 30, 2021December 31, 2020
Federal Reserve target range for overnight Federal funds3.00-3.25%0.00-0.25%0.00-0.25%0.00-0.25%
Secured Overnight Financing Rate2.98 0.05 0.05 0.07 
3-month Treasury bill3.27 0.04 0.03 0.06 
2-year Treasury note4.28 0.73 0.28 0.12 
5-year Treasury note4.09 1.26 0.97 0.36 

Mortgage-Related Business. The mortgage-related business consists of MBS investments, mortgage loans acquired through the Mortgage Partnership Finance® (MPF®) Program, and the related financing and hedging
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instruments. (“Mortgage Partnership Finance” and “MPF” are registered trademarks of the FHLBank of Chicago.) Adjusted net interest income for this segment is derived primarily from the difference, or spread, between the yield on the MBS investments and mortgage loans and the cost of the consolidated obligations funding those assets, including the net settlements from associated interest rate exchange agreements. Assets associated with this segment were $11.7 billion (11% of total assets) at September 30, 2022, and $14.1 billion at December 31, 2021 (26% of total assets).
Adjusted net interest income for this segment was $48 million in the third quarter of 2022, a decrease of $14 million, or 23%, from $62 million in the third quarter of 2021. This quarterly decrease was primarily a result of lower earnings from lower balances of mortgage-related products and current expected credit losses. Adjusted net interest income for this segment was $184 million in the first nine months of 2022, a decrease of $16 million, or 8%, from $200 million in the first nine months of 2021. This decrease was primarily a result of lower earnings from lower balances of mortgage-related products and current expected credit losses, partially offset by an increase in net prepayment fee income on AFS MBS and an improvement in retrospective adjustment of the effective yields on mortgage loans.
Adjusted net interest income for this segment represented 36% and 60% of total adjusted net interest income for the third quarters of each 2022 and 2021, and 52% and 58% of total adjusted net interest income for first nine months of 2022 and 2021, respectively.
MBS Investments – The Bank’s MBS portfolio was $10.8 billion at September 30, 2022, compared with $13.0 billion at December 31, 2021. During the first nine months of 2022, the Bank’s MBS portfolio decreased as a result of $1.4 billion in principal repayments, a $1.0 billion decrease in basis adjustments, and $314 million of fair value losses, partially offset by $412 million in purchases. Average MBS investments were $10.9 billion in the third quarter of 2022, a decrease of $2.7 billion from $13.6 billion in the third quarter of 2021. Average MBS investments were $11.5 billion in the first nine months of 2022, a decrease of $2.7 billion from $14.1 billion in the first nine months of 2021. For a discussion of the composition of the Bank’s MBS portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments.”
Interest rate payment terms for MBS classified as trading, AFS, and held-to-maturity (HTM) at September 30, 2022, and December 31, 2021, are shown in the following table:
MBS: Interest Rate Payment Terms
(In millions)September 30, 2022December 31, 2021
Fair value of trading securities:
Adjustable rate$1 $2 
Total trading securities$1 $2 
Amortized cost of AFS securities:
Fixed rate$7,490 $8,423 
Adjustable rate887 1,083 
Total AFS securities$8,377 $9,506 
Amortized cost of HTM securities:
Fixed rate$284 $403 
Adjustable rate2,148 2,808 
Total HTM securities$2,432 $3,211 
Mortgage Loans – Mortgage loan balances decreased to $834 million at September 30, 2022, from $980 million at December 31, 2021, a decrease of $146 million. Average mortgage loans were $850 million in the third quarter of 2022, a decrease of $371 million from $1.2 billion in the third quarter of 2021. Average mortgage loans were $892 million in the first nine months of 2022, a decrease of $572 million from $1.5 billion in the first nine months of 2021.
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At September 30, 2022, and December 31, 2021, the Bank held conventional conforming fixed rate mortgage loans purchased under one of two MPF products, MPF Plus or MPF Original, which are described in greater detail in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF Program” in the Bank’s 2021 Form 10-K. Mortgage loan balances at September 30, 2022, and December 31, 2021, were as follows:
Mortgage Loan Balances by MPF Product Type
(In millions)September 30, 2022December 31, 2021
MPF Plus$88 $106 
MPF Original706 848 
Subtotal794 954 
Unamortized premiums43 28 
Unamortized discounts(2)(1)
Mortgage loans held for portfolio835 981 
Less: Allowance for credit losses(1)(1)
Mortgage loans held for portfolio, net$834 $980 
The Bank performs periodic reviews of its mortgage loan portfolio to identify probable credit losses in the portfolio and to determine the likelihood of collection on the loans in the portfolio. For more information on the Bank’s mortgage loan portfolio, see “Item 1. Financial Statements – Note 5 – Mortgage Loans Held for Portfolio” in this report as well as “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF Program” and “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K.
Borrowings – Total consolidated obligations funding the mortgage-related business decreased $2.4 billion to $11.7 billion at September 30, 2022, from $14.1 billion at December 31, 2021. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” and “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”
The notional amount of derivative instruments associated with the mortgage-related business totaled $16.0 billion at September 30, 2022, of which $7.7 billion were associated with MBS and $8.3 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio. The notional amount of derivative instruments associated with the mortgage-related business totaled $15.6 billion at December 31, 2021, of which $8.0 billion were associated with MBS and $7.6 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio.
For information on the Bank’s management of interest rate risk and market risk related to the mortgage-related business segment, see “Item 3. Quantitative and Qualitative Disclosures About Market Risk – Segment Market Risk – Mortgage-Related Business.”

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Interest Rate Exchange Agreements
A derivative transaction or interest rate exchange agreement is a financial contract whose fair value is generally derived from changes in the value of an underlying asset or liability. The Bank may enter into interest rate swaps (including callable, putable, and basis swaps) and cap and floor agreements (collectively, interest rate exchange agreements) to manage its exposure to market risks inherent in its ordinary course of business, including its lending, investment, and funding activities. For more information on the Bank’s interest rate exchange agreements by type of hedged item, hedging instrument, associated hedging strategy, accounting designation as specified under the accounting for derivative instruments and hedging activities, and notional amount, and the primary strategies that the Bank employs for using interest rate exchange agreements and the associated market risks, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Interest Rate Exchange Agreements” in the Bank’s 2021 Form 10-K.
Credit Risk. For a discussion of derivatives credit exposure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Derivative Counterparties.”
Derivative Counterparties. The following table presents the concentration in derivatives with derivative counterparties whose outstanding notional balances represented 10% or more of the Bank’s total notional amount of derivatives outstanding as of September 30, 2022, and December 31, 2021.
Concentration of Derivative Counterparties
(Dollars in millions)September 30, 2022December 31, 2021
Derivative Counterparty
Credit  
Rating(1)  
Notional
Amount		Percentage of
Total
Notional Amount
Credit  
Rating(1)  
Notional
Amount		Percentage of
Total
Notional Amount
Uncleared
OthersAt least BBB$26,456 21 %At least BBB$18,381 29 %
Subtotal uncleared26,456 21 18,381 29 
Cleared
LCH Ltd(2)
Morgan Stanley & Co. LLCA36,200 28 A33,268 52 
Goldman Sachs & Co. LLCA65,469 51 A11,967 19 
Subtotal cleared101,669 79 45,235 71 
Total$128,125 100 %$63,616 100 %
(1)The credit ratings used by the Bank are based on the lower of Moody’s Investors Service (Moody’s) or S&P Global Ratings (S&P) ratings. 
(2)London Clearing House (LCH) Ltd is the Bank’s counterparty for all of its cleared swaps and was rated AA- with a Stable CreditWatch by S&P at September 30, 2022, and December 31, 2021. For purposes of clearing swaps with LCH Ltd, Morgan Stanley & Co. LLC and Goldman Sachs & Co. LLC are the Bank’s clearing agents.

Liquidity and Capital Resources
The Bank’s financial strategies are designed to enable the Bank to expand and contract its assets, liabilities, and capital as membership composition and member credit needs change. The Bank’s liquidity and capital resources are designed to support its financial strategies. The Bank’s primary source of liquidity is its access to the debt capital markets through consolidated obligation issuance. The maintenance of the Bank’s capital resources is governed by its capital plan.
Liquidity
The Bank seeks to maintain the liquidity necessary to repay maturing consolidated obligations for which it is the primary obligor, meet other obligations and commitments, and meet expected and unexpected member credit demands. The Bank monitors its financial position to maintain ready access to available funds to meet normal
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transaction requirements, take advantage of appropriate investment opportunities, and manage unforeseen liquidity demands.
The Bank generally manages operational, contingent, and refinancing risks using a portfolio of cash and short-term investments and access to the debt capital markets. In addition, the Bank maintains alternate sources of funds, detailed in its contingent liquidity plan, which also includes an explanation of how sources of funds may be allocated under stressed market conditions, such as short-term operational disruptions at the Bank or the Office of Finance or short-term disruptions in the debt capital markets.
The Finance Agency has established base case liquidity guidelines that each FHLBank maintain sufficient liquidity at least equal to its anticipated cash outflows, assuming no new consolidated obligation issuance, renewal of all maturing advances, a specified percentage drawdown on letters of credit balances, and certain Treasury investments as a source of funds. The Finance Agency’s guidance provides that base case liquidity should generally be maintained for 10 to 30 days. The Bank actively monitors and manages refinancing risk. Finance Agency guidance specifies tolerance levels related to the size of each FHLBank’s funding gaps to measure refinancing risk as the difference between assets and liabilities that are scheduled to mature during a specified period, expressed as a percentage of total assets. The guidance limits three-month and one-year funding gaps generally between the range of –10% to –20% and –25% to –35%, respectively. Funding gaps are measured at monthend, using the average ratio for the three most recent monthends. The Bank is also required to perform an annual liquidity stress test and report the results to the Finance Agency.
In addition to the Finance Agency’s guidelines on contingent liquidity, the Bank models its cash commitments and expected cash flows on a daily basis to determine its projected liquidity position. If a market or operational disruption occurred that prevented the issuance of new consolidated obligations, the Bank could meet its obligations by: (i) allowing short-term liquid investments to mature, (ii) using eligible securities as collateral for repurchase agreement borrowings, and (iii) if necessary, allowing advances to mature without renewal. In addition, the Bank may be able to borrow on a short-term unsecured basis from other financial institutions (Federal funds purchased) or other FHLBanks (inter-FHLBank borrowings).
As of September 30, 2022, and December 31, 2021, the Bank held total sources of funds in an amount that would have allowed the Bank to meet its liquidity needs without issuing new consolidated obligations for over 10 days, in accordance with the Finance Agency guidance. In addition, the Bank’s funding gap positions as of September 30, 2022, and December 31, 2021, were within the tolerance levels provided by the Finance Agency guidance. The Bank had committed to the issuance of $3.2 billion in consolidated obligations at September 30, 2022. The Bank had no commitments to issue consolidated obligations at December 31, 2021.
For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Liquidity” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk” in the Bank’s 2021 Form 10-K.
In addition, in the ordinary course of business, the Bank engages in financial transactions that, in accordance with U.S. GAAP, are not recorded on the Bank’s Statements of Condition or may be recorded on the Bank’s Statements of Condition in amounts that are different from the full contract or notional amount of the transactions. For example, the Bank routinely enters into commitments to extend advances and issues standby letters of credit. These commitments and standby letters of credit may represent future cash requirements of the Bank, although the standby letters of credit usually expire without being drawn upon. Standby letters of credit are subject to the same underwriting and collateral requirements as advances made by the Bank. At September 30, 2022, the Bank had no advance commitments and $19.7 billion in standby letters of credit outstanding. At December 31, 2021, the Bank had no advance commitments and $16.7 billion in standby letters of credit outstanding.
For additional information, see “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”
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Regulatory Capital Requirements
The Bank’s capital requirements are discussed in “Item 1, Financial Statements – Note 9 – Capital” in this report and “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2021 Form 10-K.
Risk Management
The Bank has an integrated corporate governance and internal control framework designed to support effective management of the Bank’s business activities and the risks inherent in these activities. As part of this framework, the Bank’s board of directors has adopted a Risk Governance Policy that outlines the key roles and responsibilities of the board of directors and management and sets forth how the Bank is organized to achieve its risk management objectives, including the implementation of the Bank’s strategic objectives, risk management strategies, and corporate governance. The policy also establishes an independent risk oversight function to identify, assess, measure, monitor, and report on the enterprise risk profile and risk management capabilities of the Bank. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the Bank’s 2021 Form 10-K.
Advances. The Bank manages the credit risk of advances and other credit products by setting the credit and collateral terms available to individual members and housing associates based on their creditworthiness and on the quality and value of the assets they pledge as collateral. Pursuant to the Bank’s lending agreements with its borrowers, the Bank limits extensions of credit to individual borrowers to a percentage of the market value or unpaid principal balance of the borrower’s pledged collateral, known as the borrowing capacity, which the Bank can change from time to time. The borrowing capacity percentage varies according to several factors, including the charter type of the institution, the collateral type, the value assigned to the collateral, the results of the Bank’s collateral field review of the borrower’s collateral, the pledging method used for loan collateral (specific identification or blanket lien), the amount of loan data provided (detailed or summary reporting), the data reporting frequency (monthly or quarterly), the borrower’s financial strength and condition, and any institution-specific collateral risks. Under the terms of the Bank’s lending agreements, the aggregate borrowing capacity of a borrower’s pledged eligible collateral must meet or exceed the total amount of the borrower’s outstanding advances, other extensions of credit, and certain other borrower obligations and liabilities.
For more information on the Bank’s management of credit risk on its advances, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Advances” in the Bank’s 2021 Form 10-K.
The following tables present a summary of the status of the credit outstanding and overall collateral borrowing capacity of the Bank’s member and nonmember borrowers as of September 30, 2022, and December 31, 2021.
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Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Credit Quality Rating
(Dollars in millions)
September 30, 2022

All Members and
Nonmembers		Members and Nonmembers with Credit Outstanding
   
Collateral Borrowing Capacity(2)
Member or Nonmember
Credit Quality Rating		NumberNumber
Credit
Outstanding(1)
TotalUsed
1-3261 147 $73,223 $274,539 27 %
4-661 32 12,924 28,879 45 
7-104 2 15 44 34 
Subtotal326 181 86,162 303,462 28 
Community development financial institutions (CDFIs)7 6 78 139 56 
Housing associates2 1 31 103 30 
Total335 188 $86,271 $303,704 28 %
December 31, 2021
 All Members and
Nonmembers		Members and Nonmembers with Credit Outstanding
   
Collateral Borrowing Capacity(2)
Member or Nonmember
Credit Quality Rating		NumberNumber
Credit
Outstanding(1)
TotalUsed
1-3260 127 $26,398 $213,172 12 %
4-664 32 7,158 33,733 21 
7-103 2 20 37 54 
Subtotal327 161 33,576 246,942 14 
CDFIs7 7 112 135 83 
Housing associates2 — — — — 
Total336 168 $33,688 $247,077 14 %
(1)Includes advances, letters of credit, the market value of swaps, estimated prepayment fees for certain borrowers, and the credit enhancement obligation on MPF loans.
(2)Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.
Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity
by Unused Borrowing Capacity
(Dollars in millions)
September 30, 2022
Unused Borrowing CapacityNumber of Members and Nonmembers with
Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% – 10%10 $2,185 $2,288 
11% – 25%9 18,297 22,558 
26% – 50%19 15,421 29,185 
More than 50%150 50,368 249,673 
Total188 $86,271 $303,704 
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December 31, 2021
Unused Borrowing CapacityNumber of Members and Nonmembers with
Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% – 10%5 $467 $512 
11% – 25%8 895 1,079 
26% – 50%15 1,837 3,032 
More than 50%140 30,489 242,454 
Total168 $33,688 $247,077 
(1)Includes advances, letters of credit, the market value of swaps, estimated prepayment fees for certain borrowers, and the credit enhancement obligation on MPF loans.
(2)Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.
Based on the collateral pledged as security for advances, the Bank’s credit analyses of borrowers’ financial condition, and the Bank’s credit extension and collateral policies, the Bank expects to collect all amounts due according to the contractual terms of the advances. Therefore, no allowance for credit losses on advances is deemed necessary by the Bank. The Bank has never experienced any credit losses on advances.
Securities pledged as collateral are assigned borrowing capacities that reflect the securities’ market valuations and market liquidation risks. The following table presents the securities collateral pledged by all members and by nonmembers with credit outstanding at September 30, 2022, and December 31, 2021.
Composition of Securities Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
(In millions)September 30, 2022December 31, 2021
Securities Type with Current Credit RatingsCurrent ParBorrowing
Capacity		Current ParBorrowing
Capacity
U.S. Treasury (bills, notes, bonds)$2,544 $2,299 $659 $631 
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools)4,510 3,972 4,192 3,978 
Agency pools and collateralized mortgage obligations40,235 32,938 17,571 16,553 
Private-label commercial MBS – publicly registered investment-grade-rated senior tranches84 53 4 3 
PLRMBS – private label investment-grade-rated senior tranches352 185 311 194 
Municipal Bonds – investment-grade-rated10 7 — — 
Term deposits with the Bank6 6 18 18 
Total$47,741 $39,460 $22,755 $21,377 
With respect to loan collateral, most borrowers may choose to pledge loan collateral by specific identification or under a blanket lien. Insurance companies, CDFIs, and housing associates are required to pledge loan collateral by specific identification with monthly reporting. All other borrowers pledging by specific identification must provide a detailed listing of all the loans pledged to the Bank on a monthly basis.
The Bank may require certain borrowers to deliver pledged loan collateral to the Bank for one or more reasons, including the following: the borrower is a de novo institution (chartered within the last three years), an insurance company, a CDFI, or a housing associate; the Bank is concerned about the borrower’s creditworthiness; or the Bank is concerned about the maintenance of its collateral or the priority of its security interest.
As of September 30, 2022, of the loan collateral pledged to the Bank, 15% was pledged by 21 institutions by specific identification, 55% was pledged by 113 institutions under a blanket lien with detailed reporting, and 30% was pledged by 131 institutions under a blanket lien with summary reporting. For each borrower that pledges loan collateral, the Bank conducts loan collateral field reviews once every six months or every one, two, or three years, depending on the risk profile of the borrower and the types of collateral pledged by the borrower.
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As of September 30, 2022, the Bank’s maximum borrowing capacities as a percentage of the assigned market value of mortgage loan collateral pledged under a blanket lien with detailed reporting were as follows: 85% for first lien residential mortgage loans, 81% for multifamily mortgage loans, 81% for commercial mortgage loans, and 70% for second lien residential mortgage loans. The maximum borrowing capacity for small business, small agribusiness, and small farm loans was 50% of the unpaid principal balance, although most of these loans are pledged under blanket lien with summary reporting, with a maximum borrowing capacity of 25%. The highest borrowing capacities are available to borrowers that pledge under a blanket lien with detailed reporting because the detailed loan information allows the Bank to assess the value of the collateral more precisely and because additional collateral is pledged under the blanket lien that may not receive borrowing capacity but may be liquidated to repay advances in the event of default. The Bank may review and change the maximum borrowing capacity for any type of loan collateral at any time.
The following table presents the mortgage loan collateral pledged by all members and by nonmembers with credit outstanding at September 30, 2022, and December 31, 2021.
Composition of Loan Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
(In millions)September 30, 2022December 31, 2021
Loan TypeUnpaid Principal
Balance		Borrowing
Capacity		Unpaid Principal
Balance		Borrowing
Capacity
First lien residential mortgage loans$245,730 $174,909 $175,319 $140,994 
Second lien residential mortgage loans and home equity lines of credit14,044 6,841 13,659 6,653 
Multifamily mortgage loans50,612 32,126 41,239 28,517 
Commercial mortgage loans82,251 49,604 73,750 48,394 
Loan participations(1)
764 263 1,064 383 
Small business, small farm, and small agribusiness loans2,118 501 3,157 759 
Other3 — — — 
Total$395,522 $264,244 $308,188 $225,700 
(1)The unpaid principal balance for loan participations is 100% of the outstanding loan amount. The borrowing capacity for loan participations is based on the participated amount pledged to the Bank.
The Bank holds a security interest in subprime residential mortgage loans pledged as collateral. Subprime loans are defined as loans with a borrower FICO score of 660 or less at origination, or if the original FICO score is not available, as loans with a current borrower FICO score of 660 or less. At September 30, 2022, and December 31, 2021, the unpaid principal balance of these loans totaled $4.9 billion and $5.4 billion, respectively. The Bank reviews and assigns borrowing capacities to subprime mortgage loans as it does for all other types of loan collateral, taking into account the known credit attributes in the pricing of the loans. All advances, including those made to borrowers pledging subprime mortgage loans, are required to be fully collateralized. The Bank limits the amount of borrowing capacity that may be supported by subprime collateral.

Investments. The Bank has adopted credit policies and exposure limits for investments that promote risk limitation, diversification, and liquidity. These policies determine eligible counterparties and restrict the amounts and terms of the Bank’s investments with any given counterparty according to the Bank’s own capital position as well as the capital and creditworthiness of the counterparty.
For more information on the Bank’s management of credit risk on its investments, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – Investments” in the Bank’s 2021 Form 10-K.
The following table presents the Bank’s investment credit exposure at September 30, 2022, based on the lowest of the long-term credit ratings provided by Moody’s, S&P, or Fitch Ratings (Fitch) ratings.
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Investment Credit Exposure
(In millions)
September 30, 2022
Carrying Value
 
Credit Rating(1)
Investment TypeAAAAAABBBBelow Investment GradeUnratedTotal
U.S. obligations – Treasury securities$— $3,799 $— $— $— $— $3,799 
MBS:
Other U.S. obligations – single-family— 80 — — — — 80 
MBS – GSEs:
GSEs – single-family(2)
5 778 2 — 2 — 787 
GSEs – multifamily— 8,544 — — — — 8,544 
Total MBS – GSEs5 9,322 2 — 2 — 9,331 
PLRMBS— 23 41 48 791 497 1,400 
Total MBS5 9,425 43 48 793 497 10,811 
Total securities5 13,224 43 48 793 497 14,610 
Interest-bearing deposits— — 2,405 — — — 2,405 
Securities purchased under agreements to resell— 12,000 — — — — 12,000 
Federal funds sold— 2,850 8,884 912 — — 12,646 
Total investments$5 $28,074 $11,332 $960 $793 $497 $41,661 
(1)Credit ratings of BB and lower are below investment grade.
(2)The Bank has one security guaranteed by Fannie Mae but rated BB at September 30, 2022, by S&P because of extraordinary expenses incurred during bankruptcy of the security's sponsor.
For all securities in its AFS and HTM portfolios, for Federal funds sold, and for securities purchased under agreements to resell, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.
The Bank invests in short-term unsecured interest-bearing deposits, short-term unsecured Federal funds sold, and securities purchased under agreements to resell with member and nonmember counterparties, all of which are highly rated.
The following table presents the unsecured credit exposure with counterparties by investment type at September 30, 2022, and December 31, 2021.
Unsecured Investment Credit Exposure by Investment Type
 
Carrying Value(1)
(In millions)September 30, 2022December 31, 2021
Interest-bearing deposits$2,405 $1,125 
Federal funds sold12,646 5,348 
Total$15,051 $6,473 
(1)Excludes unsecured investment credit exposure to U.S. government agencies and instrumentalities, government-sponsored enterprises, and supranational entities and does not include related accrued interest as of September 30, 2022, and December 31, 2021.
The following table presents the credit ratings of the unsecured investment credit exposures presented by the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks, based on the lowest of the credit ratings provided by Moody’s, S&P, or Fitch ratings. This table does not reflect the foreign sovereign government’s credit rating. At September 30, 2022, 63% of the
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Bank’s total unsecured investments were to U.S. branches and agency offices of foreign commercial banks. At September 30, 2022, all of the unsecured investments held by the Bank had overnight maturities.
Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty
(In millions)
September 30, 2022
Carrying Value(1)
 
Credit Rating(2)
Domicile of CounterpartyAAABBBTotal
Domestic$— $4,313 $912 $5,225 
U.S. subsidiaries of foreign commercial banks— 350 —   350 
Total domestic and U.S. subsidiaries of foreign commercial banks— 4,663 912 5,575 
U.S. branches and agency offices of foreign commercial banks:
Australia— 1,646 — 1,646 
Canada2,100 1,646 — 3,746 
Finland750 — — 750 
Germany— 1,020 — 1,020 
Netherlands— 1,514 — 1,514 
United Kingdom— 800 — 800 
Total U.S. branches and agency offices of foreign commercial banks2,850 6,626 — 9,476 
Total unsecured credit exposure$2,850 $11,289 $912 $15,051 
(1)Excludes unsecured investment credit exposure to U.S. government agencies and instrumentalities, government-sponsored enterprises, and supranational entities and does not include related accrued interest as of September 30, 2022.
(2)Does not reflect changes in ratings, outlook, or watch status occurring after September 30, 2022. These ratings represent the lowest rating available for each unsecured investment owned by the Bank, based on the ratings provided by Fitch, Moody’s, or S&P. The Bank’s internal rating may differ from this rating.
The Bank’s MBS investments include PLRMBS, all of which were AAA-rated at the time of purchase, and agency residential MBS, which are backed by Fannie Mae, Freddie Mac, or Ginnie Mae. Some of the PLRMBS were issued by or purchased from members, former members, or their affiliates. The Bank has investment credit limits and terms for these investments that do not differ for members and nonmembers. Regulatory policy limits total MBS investments, including unpaid principal balance, unamortized premiums and discounts, and net charge-offs, to three times the Bank’s regulatory capital at the time of purchase. At September 30, 2022, the Bank’s MBS portfolio was 157% of Bank regulatory capital (as determined in accordance with regulations governing the operations of the FHLBanks). The Bank has not purchased any PLRMBS since the first quarter of 2008.
The Bank executes all MBS investments without preference to the status of the counterparty or the issuer of the investment as a nonmember, member, or affiliate of a member. When the Bank executes non-MBS investments with members, the Bank may give consideration to their secured credit availability and the Bank’s advances price levels.
As of September 30, 2022, the Bank’s investment in MBS had gross unrealized losses totaling $91 million, $31 million of which were related to PLRMBS. These gross unrealized losses were primarily due to illiquidity in the MBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.
For its agency MBS, the Bank expects to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses. As a result, the Bank determined that, as of September 30, 2022, all of the gross unrealized losses on its agency MBS are temporary.
If conditions in the housing and mortgage markets and general business and economic conditions deteriorate, the fair value of MBS may decline further, and the Bank may experience additional credit losses on PLRMBS in future
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periods. Additional credit losses could adversely affect the Bank’s earnings and retained earnings and its ability to pay dividends and repurchase capital stock. The Bank cannot predict whether it will be required to record an allowance for credit losses on its PLRMBS in the future.
The Bank has exposure to MBS with interest rates indexed to LIBOR. The following tables present the unpaid principal balance of adjustable rate MBS by interest rate index and the unpaid principal balance of LIBOR-indexed MBS for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by redemption term at September 30, 2022, and December 31, 2021. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.
Adjustable Rate MBS by Interest Rate Index
(In millions)
Interest Rate IndexSeptember 30, 2022December 31, 2021
LIBOR(1)
$3,222 $4,110 
Constant maturity Treasury54 64 
Total adjustable rate investment securities(2)
$3,276 $4,174 
LIBOR-Indexed MBS by Redemption Term
(In millions)
Redemption TermSeptember 30, 2022December 31, 2021
Due through June 30, 2023$7 $12 
Due thereafter(2)
3,215 4,098 
Total LIBOR-Indexed investment securities$3,222 $4,110 
(1)Certain MBS with multiple indices where LIBOR is the majority index are included in this amount.
(2)For more information on the Bank’s Transition Plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

Derivative Counterparties. The Bank has adopted credit policies and exposure limits for uncleared derivatives counterparty credit exposure. Interest rate exchange agreements may be either uncleared or cleared at a clearinghouse.
Uncleared Derivatives – The Bank selects only highly rated derivative dealers and major banks (derivative dealer counterparties) that meet the Bank’s eligibility criteria to act as counterparties for its uncleared derivative activities. In addition, for all uncleared derivative transactions, the Bank has entered into master netting agreements and bilateral credit support agreements with all its derivative dealer counterparties that provide for delivery of margin to limit the Bank’s net unsecured credit exposure to these counterparties. Under these policies and agreements, the amount of unsecured credit exposure to an individual derivative dealer counterparty is set at zero (subject to a minimum transfer amount).
The Bank is subject to the risk of potential nonperformance by its counterparty in a derivative transaction. A counterparty generally must deliver or return margin to the Bank if the total unsecured exposure to that counterparty exceeds the minimum transfer amount. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its uncleared derivative transactions with counterparties as of September 30, 2022.
Cleared Derivatives – In a cleared derivatives transaction, the Bank is subject to nonperformance by the clearinghouse and its futures commission merchant or clearing agent. The requirement that the Bank post initial and variation margin through a clearing agent to the clearinghouse exposes the Bank to institutional credit risk if the clearing agent fails to meet its obligations. The use of a clearinghouse, or central counterparty, lowers overall credit risk exposure because it employs standard valuation and initial and variation margin processes and is specifically designed to withstand remote but plausible counterparty default credit events. Variation margin is posted or collected for changes in the value of the portfolio, and initial margin is posted for changes in risk profile of the
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portfolio. Because of an increase in market values of cleared derivatives during the first nine months of 2022 and the first nine months of 2021, there was an increase in variation margin collected on cleared derivatives that resulted in an increase in net cash provided by operating activities reported on the Statements of Cash Flows. The Bank does not anticipate any credit losses on its cleared derivatives as of September 30, 2022.
The increase or decrease in the credit exposure net of cash collateral, from one period to the next, may be affected by changes in several variables, such as the size and composition of the portfolio, market values of derivatives, and accrued interest. Based on the master netting arrangements, its credit analyses, and the collateral requirements in place with each counterparty, the Bank does not expect to incur any credit losses on its derivative agreements.
The following tables present the Bank’s credit exposure to its derivative dealer counterparties at the dates indicated.
Credit Exposure to Derivative Dealer Counterparties
(In millions)
September 30, 2022
Counterparty Credit Rating(1)
Notional 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
AA$432 $15 $(15)$— $— 
A8,226 326 (314)— 12 
BBB38 — — — — 
Cleared derivatives(2)
101,669 24 21 335 380 
Liability positions with credit exposure:
Uncleared derivatives
A9,642 (286)290 — 4 
BBB930 (59)60 — 1 
Total derivative positions with credit exposure to nonmember counterparties120,937 $20 $42 $335 $397 
Member institutions(3)
— — — — — 
Total120,937 $20 $42 $335 $397 
Derivative positions without credit exposure7,188 
Total notional$128,125 
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December 31, 2021
Counterparty Credit Rating(1)
Notional AmountNet Fair Value of Derivatives Before CollateralCash Collateral Pledged
to/ (from) Counterparty		Non-cash Collateral Pledged
to/ (from) Counterparty		Net Credit
Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
A$1,500 $9 $(9)$— $— 
Liability positions with credit exposure:
Uncleared derivatives
A42 (1)1 — — 
Cleared derivatives(2)
45,235 (7)15 252 260 
Total derivative positions with credit exposure to nonmember counterparties46,777 $1 $7 $252 $260 
Derivative positions without credit exposure16,839 
Total notional$63,616 
(1)The credit ratings used by the Bank are based on the lower of Moody's or S&P ratings.
(2)Represents derivative transactions cleared with LCH Ltd, the Bank’s clearinghouse, which was rated AA- with a Stable CreditWatch by S&P at September 30, 2022, and December 31, 2021.
The Bank primarily executes overnight index swap derivatives based on SOFR to manage interest rate risk. The following table presents the notional amount of interest rate swaps by interest rate index broken out by the pay or receive leg at September 30, 2022, and December 31, 2021.
LIBOR-Indexed Interest Rate Swaps by Interest Rate Index
(In millions)September 30, 2022December 31, 2021
Interest Rate IndexPay LegReceive LegPay LegReceive Leg
Fixed$44,953 $83,172 $25,846 $37,220 
LIBOR87 611 337 1,533 
SOFR82,704 43,399 35,887 22,526 
Overnight Index Swap – Effective Federal Funds Rate381 943 996 1,787 
Total notional amount$128,125 $128,125 $63,066 $63,066 
The following tables present the notional amount of interest rate swaps with LIBOR exposure for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by termination date broken out by the pay or receive leg and further bifurcated by cleared and uncleared derivative transactions at September 30, 2022, and December 31, 2021. As of September 30, 2022, there were no interest rate caps and floors indexed to LIBOR. At December 31, 2021, interest rate caps and floors indexed to LIBOR totaled $550 million. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.
LIBOR-Indexed Interest Rate Swaps by Termination Date
(In millions)
September 30, 2022
Pay LegReceive Leg
Termination DateClearedUnclearedClearedUncleared
Terminates in 2022 $— $35 $45 $20 
Terminates through June 30, 202352 — 304 20 
Terminates thereafter(1)
— — 222 — 
Total Notional Amount$52 $35 $571 $40 
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December 31, 2021
Pay LegReceive Leg
Termination DateClearedUnclearedClearedUncleared
Terminates in 2022$210 $35 $517 $112 
Terminates through June 30, 202352 — 309 23 
Terminates thereafter(1)
40 — 562 10 
Total Notional Amount$302 $35 $1,388 $145 
(1)For more information on the Bank’s Transition Plan, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition.”

Critical Accounting Policies and Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, if applicable, and the reported amounts of income, expenses, gains, and losses during the reporting period. Changes in these judgments, estimates, and assumptions could potentially affect the Bank’s financial position and results of operations significantly. Although the Bank believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.
In the Bank’s 2021 Form 10-K, the following accounting policies and estimates were identified as critical because they require the Bank to make subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates are: accounting for derivatives; estimating fair values of investments classified as trading and AFS, derivatives and associated hedged items carried at fair value in accordance with the accounting for derivative instruments and associated hedging activities, and financial instruments carried at fair value under the fair value option; and estimating the prepayment speeds on MBS and mortgage loans for the accounting of amortization of premiums and accretion of discounts and credit losses previously recorded before the adoption of accounting guidance related to the measurement of credit losses on MBS and mortgage loans.
There have been no significant changes in the judgments and assumptions made during the first nine months of 2022 in applying the Bank’s critical accounting policies. These policies and the judgments, estimates, and assumptions are also described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2021 Form 10-K and in “Item 1. Financial Statements – Note 12 – Fair Value.”

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

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Recent Developments
Annual Designation of Member Director and Independent Director Positions. On June 1, 2022, the Finance Agency designated one member director position for Arizona, six for California, and one for Nevada, effective January 1, 2023, the same allocation of positions as for 2022. In addition, the Finance Agency designated seven independent director positions for the Bank for 2023, the same number of positions as for 2022. The Arizona member director position, one of the California member director positions, and one of the independent director positions, all with current terms ending on December 31, 2022, will be filled through an election of the members located in Arizona (for the Arizona member director position), California (for the one California member director position), and an election of all members of the Bank (for the one independent director position). The elections will be held in the fourth quarter of 2022. The Arizona member director position, the one California member director position and the one independent director position will each have a four-year term that begins on January 1, 2023.
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is defined as the risk to the Bank’s market value of capital and future earnings (excluding the impact of any cumulative net gains or losses on derivatives and associated hedged items and on financial instruments carried at fair value) as a result of movements in market interest rates, interest rate spreads, interest rate volatility, and other market factors (market rate factors). This profile reflects the Bank’s objective of maintaining a conservative asset-liability mix and its commitment to providing value to its members through products and dividends without subjecting their investments in Bank capital stock to significant market risk.
The Bank’s Risk Appetite Framework includes a market risk management objective aimed at maintaining a relatively low adverse exposure of the market value of capital and future earnings (excluding the impact of any cumulative net gains or losses on derivatives and associated hedged items and on financial instruments carried at fair value) to changes in market rate factors. See “Total Bank Market Risk” below.
Market risk identification and measurement are primarily accomplished through market value of capital sensitivity analyses and projected earnings and adjusted return on capital sensitivity analyses. The Risk Appetite Framework approved by the Bank’s board of directors establishes market risk limits and market risk measurement standards at the total Bank level as well as at the business segment level. Additional guidelines approved by the Bank’s Enterprise Risk Committee apply to the Bank’s two business segments, the advances-related business and the mortgage-related business. These guidelines provide limits that are monitored at the segment level and are consistent with the Bank’s Risk Appetite Framework. Market risk is managed for each business segment on a daily basis, as discussed below in “Segment Market Risk.” Compliance with Bank limits and guidelines is reviewed by the Bank’s board of directors on a regular basis, along with a corrective action plan if applicable.
Total Bank Market Risk
Market Value of Capital Sensitivity – The Bank uses market value of capital sensitivity (the interest rate sensitivity of the net fair value of all assets, liabilities, and interest rate exchange agreements) as an important measure of the Bank’s exposure to changes in interest rates.
The Bank’s market value of capital sensitivity risk limits for the potential adverse impact of an instantaneous parallel shift of a plus or minus 100-basis-point change in interest rates from current rates (base case) is no worse than a 3.0% change in the estimated market value of capital. In addition, the risk limits for the potential adverse impact of an instantaneous plus or minus 100-basis-point change in interest rates measured from interest rates that are 200 basis points above or below the base case is no worse than 4.0% of the estimated market value of capital. In the case where a market risk sensitivity compliance metric cannot be estimated with a parallel shift in interest rates because of prevailing low interest rates, the sensitivity metric is not reported. The Bank’s measured market value of capital sensitivity was within the limits as of September 30, 2022.
To determine the Bank’s estimated risk sensitivities to interest rates for the market value of capital sensitivity, the Bank uses a third-party proprietary asset and liability system to calculate estimated market values under alternative
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interest rate scenarios. The system analyzes all of the Bank’s financial instruments, including derivatives, on a transaction-level basis using sophisticated valuation models with consistent and appropriate behavioral assumptions and current position data. The system also includes a third-party mortgage prepayment model.
At least annually, the Bank reexamines the major assumptions and methodologies used in the model, including interest rate curves, spreads for discounting, and mortgage prepayment assumptions. The Bank also compares the mortgage prepayment assumptions in the third-party model to other sources, including actual mortgage prepayment history.
The following table presents the sensitivity of the market value of capital (the market value of all of the Bank’s assets, liabilities, and associated interest rate exchange agreements, with mortgage assets valued using market spreads implied by current market prices) to changes in interest rates. The table presents the estimated percentage change in the Bank’s market value of capital that would be expected to result from changes in interest rates under different interest rate scenarios, using market spread assumptions.
Market Value of Capital Sensitivity
Estimated Percentage Change in Market Value of Bank Capital
for Various Changes in Interest Rates
Interest Rate Scenario(1)
September 30, 2022December 31, 2021
+200 basis-point change above current rates–2.7%–2.3%
+100 basis-point change above current rates–1.3–0.9
–100 basis-point change below current rates(2)
+1.2+0.5
–200 basis-point change below current rates(2)
+2.2+4.9
(1)Instantaneous change from actual rates at dates indicated.
(2)Interest rates for each maturity are limited to non-negative rates.
The Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates as of September 30, 2022, are comparable with the estimates as of December 31, 2021, with the exception of the declining rate scenarios. The increase in interest rates from yearend resulted in a larger absolute downward rate shocks for all term points. Compared to yearend, interest rates as of September 30, 2022, have increased ranging from 299 basis points for the one-month Treasury bill, 269 basis points for the five-year Treasury note, and 225 basis points for the 10-year Treasury note.
The Bank’s Risk Management Policy provides guidelines for the payment of dividends and the repurchase of excess stock based on the ratio of the Bank’s estimated market value of total capital to par value of capital stock. If this ratio at the end of any quarter is: (i) less than 100% but greater than or equal to 90%, any dividend would be limited to an annualized rate no greater than the daily average of the Federal funds effective rate for the applicable quarter (subject to certain conditions), and any excess stock repurchases would not exceed $500 million (subject to certain conditions); (ii) less than 90% but greater than or equal to 70%, any dividend and any excess stock repurchases would be subject to the same limitations and conditions as in (i) above, except that any excess stock repurchases would not exceed 4% of the Bank’s outstanding capital stock as of the repurchase date; and (iii) less than 70%, the Bank would not pay a dividend, not repurchase excess stock (but continue to redeem excess stock as provided in the Bank’s capital plan), limit the acquisition of certain assets, and review the Bank’s risk policies. A decision by the board of directors to declare or not declare any dividend or repurchase any excess stock is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks. The ratio of the Bank’s estimated market value of total capital to par value of capital stock was 220% as of September 30, 2022.
Adjusted Return on Capital – The adjusted return on capital is a non-GAAP measure used by the Bank to assess financial performance. The adjusted return on capital is based on current period economic earnings that exclude the effects of unrealized net gains or losses resulting from the Bank’s derivatives and associated hedged items and from financial instruments carried at fair value, which will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms to maturity or by the call or put
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date of the assets and liabilities held under the fair value option, hedged assets and liabilities, and derivatives. Economic earnings also exclude the interest expense on mandatorily redeemable capital stock.
The Bank’s Risk Appetite Framework incorporates a limit on the sensitivity of projected financial performance to projected adverse changes in the adjusted return on capital. The Bank’s adjusted return on capital sensitivity limit to the potential adverse impact of an instantaneous parallel shift of a plus or minus 200-basis-point change in interest rates from current rates (base case) to no worse than a –120 basis points change from the base-case projected adjusted return on capital. With the indicated interest rate shifts, the adjusted return on capital for the projected 12-month horizon is projected to remain within the limit of –120 basis points.
Duration Gap – Duration gap is the difference between the estimated durations (market value sensitivity) of assets and liabilities (including the impact of interest rate exchange agreements) and reflects the extent to which estimated maturity and repricing cash flows for assets and liabilities are matched. The Bank monitors duration gap analysis at the total Bank level and does not have a risk limit.
Total Bank Duration Gap Analysis
 September 30, 2022December 31, 2021
(Dollars in millions)Amount
(In millions)
Duration Gap(1)
(In months)
Amount
(In millions)
Duration Gap(1)
(In months)
Assets$108,507 1.8 $54,121 3.4 
Liabilities101,243 0.8 47,897 3.0 
Net$7,264 1.0 $6,224 0.4 
(1)Duration gap values include the impact of interest rate exchange agreements.
Segment Market Risk. The financial performance and interest rate risks of each business segment are managed within prescribed guidelines and policy limits.
Advances-Related Business – Interest rate risk arises from the advances-related business primarily through the use of shareholder-contributed capital and retained earnings to fund fixed rate investments of targeted amounts and maturities. In general, advances result in very little net interest rate risk for the Bank because most fixed rate advances with original maturities greater than three months and all advances with embedded options are simultaneously hedged with an interest rate swap or option with terms to offset the advance. The interest rate swap or option generally is maintained as a hedge for the life of the advance. These hedged advances effectively create a pool of variable rate assets, which, in combination with the strategy of raising debt swapped to variable rate liabilities, creates an advances portfolio with low net interest rate risk.
Money market investments used for liquidity management generally have maturities of one month or less. In addition, to increase the Bank’s liquidity position, the Bank invests in Treasury securities, generally with terms up to four years. These fixed rate investments are swapped to variable rate investments.
Mortgage-Related Business – The Bank’s mortgage assets include MBS, most of which are classified as HTM or AFS, with a small amount classified as trading, and mortgage loans held for portfolio purchased under the MPF Program. The Bank is exposed to interest rate risk from the mortgage-related business because the principal cash flows of the mortgage assets and the liabilities that fund them are not exactly matched through time and across all possible interest rate scenarios, given the effect of mortgage prepayments and the existence of interest rate caps on certain adjustable rate MBS.
The Bank manages the interest rate risk and market risk of the mortgage-related segment through its investment in low-risk assets and selected funding and hedging strategies. The total carrying value of MBS and mortgage loans at September 30, 2022, was $11.6 billion, including $10.8 billion in MBS and $835 million in mortgage loans. The total carrying value of MBS and mortgage loans at December 31, 2021, was $14.0 billion, including $13.0 billion in MBS and $981 million in mortgage loans. Floating rate securities, and fixed rate multifamily securities that have been converted to floating rate through the use of interest rate swaps, were $10.2 billion, or 88%, of MBS and
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mortgage loans at September 30, 2022, and $12.2 billion, or 87%, of MBS and mortgage loans at December 31, 2021. Intermediate and long-term fixed rate assets, whose interest rate and market risks have been partially offset through the use of fixed rate callable debt, fixed rate non-callable debt, and certain interest rate swaps, were $1.4 billion, or 12%, of MBS and mortgage loans, at September 30, 2022, and $1.8 billion, or 13%, of MBS and mortgage loans at December 31, 2021.
As discussed above in “Total Bank Market Risk – Market Value of Capital Sensitivity,” the Bank uses market value of capital sensitivity as a primary market value metric for measuring the Bank’s exposure to interest rates. The Bank’s interest rate risk limits and guidelines for the mortgage-related business address the market value of capital sensitivity of the assets, liabilities, and derivatives of the mortgage-related business.
The following table presents results of the estimated market value of capital sensitivity analysis attributable to the mortgage-related business as of September 30, 2022, and December 31, 2021.
Market Value of Capital Sensitivity
Estimated Percentage Change in Market Value of Bank Capital
Attributable to the Mortgage-Related Business for Various Changes in Interest Rates
Interest Rate Scenario(1)
20222021
+200 basis-point change–0.8%–0.5%
+100 basis-point change–0.4–0.1
–100 basis-point change(2)
+0.3–0.2
–200 basis-point change(2)
+0.4+2.6
(1)Instantaneous change from actual rates at dates indicated.
(2)Interest rates for each maturity are limited to non-negative rates.
The explanations for the changes in Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates attributable to the mortgage-related business from December 31, 2021, to September 30, 2022, are the same as the explanations for the sensitivity of the market value of capital attributable to all of the Bank’s assets, liabilities, and associated interest rate exchange agreements.

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

ITEM 4.    CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The senior management of the Federal Home Loan Bank of San Francisco (Bank) is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Securities Exchange Act of 1934 (1934 Act) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Bank’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Bank’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the Bank’s disclosure controls and procedures, the Bank’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Bank’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of controls and procedures.
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Management of the Bank has evaluated the effectiveness of the design and operation of its disclosure controls and procedures with the participation of the president and chief executive officer and executive vice president and chief financial officer as of the end of the period covered by this report. Based on that evaluation, the Bank’s president and chief executive officer and executive vice president and chief financial officer have concluded that the Bank’s disclosure controls and procedures were effective at a reasonable assurance level as of the end of the period covered by this report.
Internal Control Over Financial Reporting
During the three months ended September 30, 2022, there were no changes in the Bank’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.
Consolidated Obligations
The Bank’s disclosure controls and procedures include controls and procedures for accumulating and communicating information in compliance with the Bank’s disclosure and financial reporting requirements relating to the joint and several liability for the consolidated obligations of the Federal Home Loan Banks (FHLBanks). Because the FHLBanks are independently managed and operated, the Bank’s management relies on information that is provided or disseminated by the Federal Housing Finance Agency (Finance Agency), the Office of Finance, and the other FHLBanks, as well as on published FHLBank credit ratings, in determining whether the joint and several liability regulation is reasonably likely to result in a direct obligation for the Bank or whether it is reasonably possible that the Bank will accrue a direct liability.
The Bank’s management also relies on the operation of the joint and several liability regulation. The joint and several liability regulation requires that each FHLBank file with the Finance Agency a quarterly certification that it will remain capable of making full and timely payment of all of its current obligations, including direct obligations, coming due during the next quarter. In addition, if an FHLBank cannot make such a certification or if it projects that it may be unable to meet its current obligations during the next quarter on a timely basis, it must file a notice with the Finance Agency. Under the joint and several liability regulation, the Finance Agency may order any FHLBank to make principal and interest payments on any consolidated obligations of any other FHLBank, or allocate the outstanding liability of an FHLBank among all remaining FHLBanks on a pro rata basis in proportion to each FHLBank’s participation in all consolidated obligations outstanding or on any other basis.
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PART II. OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS
The Federal Home Loan Bank of San Francisco (Bank) may be subject to various legal proceedings arising in the normal course of business.
After consultation with legal counsel, the Bank is not aware of any legal proceedings that are expected to have a material effect on its financial condition or results of operations or that are otherwise material to the Bank.

ITEM 1A.    RISK FACTORS
The Bank is subject to a number of risks as set forth in “Part I. Item 1A. Risk Factors” in the Bank’s 2021 Form 10-K. In addition, reference is made to “Quarterly Overview”, as well as other sections, of Item 2. Management Discussion and Analysis of Financial Condition and Results of Operations of this Form 10-Q regarding other potential risks and uncertainties facing the Bank.
ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3.    DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.    MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.    OTHER INFORMATION
None.
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ITEM 6.    EXHIBITS
Exhibit No.Description
  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 4, 2022.
 
Federal Home Loan Bank of San Francisco
/S/ TERESA B. BAZEMORE
Teresa B. Bazemore
President and Chief Executive Officer
(Principal executive officer)
/S/ JOSEPH E. AMATO
Joseph E. Amato
Executive Vice President and Chief Financial Officer
(Principal financial officer)
/S/ KITTY PAYNE
Kitty Payne
Senior Vice President and Controller
(Principal accounting officer)
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