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 ~~March 31,~~June 30, 2021


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

Commission File Number: 000-51398

FEDERAL HOME LOAN BANK OF SAN FRANCISCO

(Exact name of registrant as specified in its charter)

___________________________________________

Federally chartered corporation

94-6000630

(State or other jurisdiction of incorporation or organization)

(I.R.S. employer identification number)

333 Bush Street, Suite 2700

San Francisco,

94104

(Address of principal executive offices)

(Zip code)

(415) 616-1000

(Registrant’s telephone number, including area code)

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

—

___________________________________________

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☐

Non-accelerated filer

☒

Smaller reporting company

☐

Emerging growth company

☐

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

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

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


			Shares Outstanding as of ~~April 30,~~July 31, 2021
Class B Stock, par value $100 per share			~~23,322,731~~22,853,781

Table of Contents

Federal Home Loan Bank of San Francisco

Form 10-Q

Index


PART I.	FINANCIAL INFORMATION

Item 1.	Financial Statements	1
	Statements of Condition (Unaudited)	1
	Statements of Income (Unaudited)	2
	Statements of Comprehensive Income (Unaudited)	3
	Statements of Capital Accounts (Unaudited)	4
	Statements of Cash Flows (Unaudited)	5
	Notes to Financial Statements (Unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4246
	Quarterly Overview	4347
	Financial Highlights	4549
	Results of Operations	4650
	Financial Condition	5259
	Liquidity and Capital Resources	6269
	Risk Management	6471
	Critical Accounting Policies and Estimates	7582
	Recently Issued Accounting Standards and Interpretations	7683
	Recent Developments	7683
	Off-Balance Sheet Arrangements and Other Commitments	7683

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	7784

Item 4.	Controls and Procedures	8289

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	8390

Item 1A.	Risk Factors	8390



Item 6.	Exhibits	8390

Signatures		8491

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)	(In millions-except par value)	March 31, 2021		December 31, 2020		(In millions-except par value)	June 30, 2021		December 31, 2020
Assets:	Assets:					Assets:
Cash and due from banks	Cash and due from banks	$	320	$	174	Cash and due from banks	$	53	$	174
Interest-bearing deposits	Interest-bearing deposits	1,121		1,078		Interest-bearing deposits	1,126		1,078
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,000		7,250		Securities purchased under agreements to resell	4,000		7,250
Federal funds sold	Federal funds sold	4,180		1,880		Federal funds sold	4,938		1,880
Trading securities(a)	Trading securities(a)	3,991		4,260		Trading securities(a)	2,922		4,260
Available-for-sale (AFS) securities, net of allowance for credit losses of $15 and $21, respectively (amortized cost of $12,480 and $15,456, respectively)(b)		12,846		15,679
Held-to-maturity (HTM) securities (fair values were $4,424 and $5,115, respectively)(a)		4,388		5,081
Advances (includes $2,587 and $2,147 at fair value under the fair value option, respectively)		28,140		30,976
Mortgage loans held for portfolio, net of allowance for credit losses of $3 and $4, respectively		1,581		1,935
Available-for-sale (AFS) securities, net of allowance for credit losses of $14 and $21, respectively (amortized cost of $11,050 and $15,456, respectively)(b)						Available-for-sale (AFS) securities, net of allowance for credit losses of $14 and $21, respectively (amortized cost of $11,050 and $15,456, respectively)(b)	11,443		15,679
Held-to-maturity (HTM) securities (fair values were $4,003 and $5,115, respectively)(a)						Held-to-maturity (HTM) securities (fair values were $4,003 and $5,115, respectively)(a)	3,974		5,081
Advances (includes $1,984 and $2,147 at fair value under the fair value option, respectively)						Advances (includes $1,984 and $2,147 at fair value under the fair value option, respectively)	24,194		30,976
Mortgage loans held for portfolio, net of allowance for credit losses of $2 and $4, respectively						Mortgage loans held for portfolio, net of allowance for credit losses of $2 and $4, respectively	1,301		1,935

Accrued interest receivable	Accrued interest receivable	84		82		Accrued interest receivable	62		82
Derivative assets, net	Derivative assets, net	27		3		Derivative assets, net	0		3
Other assets	Other assets	230		236		Other assets	231		236
Total Assets	Total Assets	$	57,908	$	68,634	Total Assets	$	54,244	$	68,634
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	1,029	$	887	Deposits	$	945	$	887
Consolidated obligations:	Consolidated obligations:					Consolidated obligations:
Bonds (includes $31 and $111 at fair value under the fair value option, respectively)		33,011		44,408
Bonds (includes $235 and $111 at fair value under the fair value option, respectively)						Bonds (includes $235 and $111 at fair value under the fair value option, respectively)	28,839		44,408
Discount notes	Discount notes	17,109		16,213		Discount notes	17,598		16,213
Total consolidated obligations	Total consolidated obligations	50,120		60,621		Total consolidated obligations	46,437		60,621
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	1		2		Mandatorily redeemable capital stock	3		2

Accrued interest payable	Accrued interest payable	19		24		Accrued interest payable	29		24
Affordable Housing Program (AHP) payable	Affordable Housing Program (AHP) payable	123		120		Affordable Housing Program (AHP) payable	122		120
Derivative liabilities, net	Derivative liabilities, net	7		12		Derivative liabilities, net	21		12
Other liabilities	Other liabilities	260		774		Other liabilities	259		774
Total Liabilities	Total Liabilities	51,559		62,440		Total Liabilities	47,816		62,440
Commitments and Contingencies (Note 13)	Commitments and Contingencies (Note 13)	0		0		Commitments and Contingencies (Note 13)	0		0
Capital:	Capital:					Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:	Capital stock—Class B—Putable ($100 par value) issued and outstanding:					Capital stock—Class B—Putable ($100 par value) issued and outstanding:
22 shares and 23 shares, respectively		2,238		2,284
23 shares and 23 shares, respectively						23 shares and 23 shares, respectively	2,269		2,284
Unrestricted retained earnings	Unrestricted retained earnings	2,983		2,919		Unrestricted retained earnings	3,004		2,919
Restricted retained earnings	Restricted retained earnings	761		761		Restricted retained earnings	761		761
Total Retained Earnings	Total Retained Earnings	3,744		3,680		Total Retained Earnings	3,765		3,680
Accumulated other comprehensive income/(loss) (AOCI)	Accumulated other comprehensive income/(loss) (AOCI)	367		230		Accumulated other comprehensive income/(loss) (AOCI)	394		230
Total Capital	Total Capital	6,349		6,194		Total Capital	6,428		6,194
Total Liabilities and Capital	Total Liabilities and Capital	$	57,908	$	68,634	Total Liabilities and Capital	$	54,244	$	68,634

(a)At ~~March 31,~~June 30, 2021, and December 31, 2020, ~~none~~NaN of these securities were pledged as collateral that may be repledged.

(b)At ~~March 31,~~June 30, 2021, and December 31, 2020, ~~$326~~$318 and $379, respectively, of these securities were pledged as collateral that may be repledged.

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

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Income

(Unaudited)


		Three Months Ended March 31,			Three Months Ended June 30,				Six Months Ended June 30,

(In millions)	(In millions)		2021			2020		(In millions)	2021		2020		2021		2020
Interest Income:	Interest Income:							Interest Income:
Advances	Advances		$	65		$	279	Advances	$	55	$	142	$	120	$	421
Interest-bearing deposits	Interest-bearing deposits		0			12		Interest-bearing deposits	1		1		1		13
Securities purchased under agreements to resell	Securities purchased under agreements to resell		0			18		Securities purchased under agreements to resell	0		1		0		19
Federal funds sold	Federal funds sold		1			14		Federal funds sold	1		1		2		15
Trading securities	Trading securities		21			16		Trading securities	20		22		41		38
AFS securities	AFS securities		61			51		AFS securities	50		61		111		112
HTM securities	HTM securities		13			44		HTM securities	11		29		24		73
Mortgage loans held for portfolio	Mortgage loans held for portfolio		23			(1)		Mortgage loans held for portfolio	4		16		27		15
Total Interest Income	Total Interest Income		184			433		Total Interest Income	142		273		326		706
Interest Expense:	Interest Expense:							Interest Expense:
Consolidated obligations:	Consolidated obligations:							Consolidated obligations:
Bonds	Bonds		22			276		Bonds	14		82		36		358
Discount notes	Discount notes		4			104		Discount notes	3		47		7		151
Deposits	Deposits		0			2		Deposits	0		0		0		2
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock		0			2		Mandatorily redeemable capital stock	0		2		0		4
Total Interest Expense	Total Interest Expense		26			384		Total Interest Expense	17		131		43		515
Net Interest Income	Net Interest Income		158			49		Net Interest Income	125		142		283		191
Provision for/(reversal of) credit losses	Provision for/(reversal of) credit losses		(6)			39		Provision for/(reversal of) credit losses	(2)		(7)		(8)		32
Net Interest Income After Provision for/(Reversal of) Credit Losses	Net Interest Income After Provision for/(Reversal of) Credit Losses		164			10		Net Interest Income After Provision for/(Reversal of) Credit Losses	127		149		291		159
Other Income/(Loss):	Other Income/(Loss):							Other Income/(Loss):
Net gain/(loss) on trading securities	Net gain/(loss) on trading securities		(18)			73		Net gain/(loss) on trading securities	(19)		(18)		(37)		55
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	Net gain/(loss) on advances and consolidated obligation bonds held under fair value option		(26)			89		Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(5)		14		(31)		103
Net gain/(loss) on derivatives	Net gain/(loss) on derivatives		18			(147)		Net gain/(loss) on derivatives	(8)		(14)		10		(161)

Other, net	Other, net		5			3		Other, net	6		9		11		12
Total Other Income/(Loss)	Total Other Income/(Loss)		(21)			18		Total Other Income/(Loss)	(26)		(9)		(47)		9
Other Expense:	Other Expense:							Other Expense:
Compensation and benefits	Compensation and benefits		24			21		Compensation and benefits	24		21		48		42
Other operating expense	Other operating expense		11			12		Other operating expense	13		15		24		27
Federal Housing Finance Agency	Federal Housing Finance Agency		2			2		Federal Housing Finance Agency	2		2		4		4
Office of Finance	Office of Finance		2			1		Office of Finance	1		2		3		3

Other, net								Other, net	(1)		3		(1)		3
Total Other Expense	Total Other Expense		39			36		Total Other Expense	39		43		78		79
Income/(Loss) Before Assessment	Income/(Loss) Before Assessment		104			(8)		Income/(Loss) Before Assessment	62		97		166		89
AHP Assessment	AHP Assessment		10			0		AHP Assessment	7		9		17		9
Net Income/(Loss)	Net Income/(Loss)		$	94		$	(8)	Net Income/(Loss)	$	55	$	88	$	149	$	80

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

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Comprehensive Income

(Unaudited)


		Three Months Ended March 31,			Three Months Ended June 30,				Six Months Ended June 30,

(In millions)	(In millions)		2021			2020		(In millions)	2021		2020		2021		2020
Net Income/(Loss)	Net Income/(Loss)		$	94		$	(8)	Net Income/(Loss)	$	55	$	88	$	149	$	80
Other Comprehensive Income/(Loss):	Other Comprehensive Income/(Loss):							Other Comprehensive Income/(Loss):
Net unrealized gain/(loss) on AFS securities	Net unrealized gain/(loss) on AFS securities		137			(502)		Net unrealized gain/(loss) on AFS securities	27		192		164		(310)

Net non-credit-related gain/(loss) on HTM securities								Net non-credit-related gain/(loss) on HTM securities	0		1		0		1
Total other comprehensive income/(loss)	Total other comprehensive income/(loss)		137			(502)		Total other comprehensive income/(loss)	27		193		164		(309)
Total Comprehensive Income/(Loss)	Total Comprehensive Income/(Loss)		$	231		$	(510)	Total Comprehensive Income/(Loss)	$	82	$	281	$	313	$	(229)

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

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Capital Accounts

(Unaudited)

Capital Stock
Class B—Putable Retained Earnings Total
Capital
(In millions) Shares Par Value Restricted Unrestricted Total AOCI
Balance, December 31, 2019 30 $ 3,000 $ 713 $ 2,754 $ 3,467 $ 274 $ 6,741
Adjustment for cumulative effect of accounting change (3) (3) (3)
Comprehensive income/(loss) 0 (8) (8) (502) (510)
Issuance of capital stock 6 607 607
Repurchase of capital stock (4) (373) (373)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net 0 (3) (3)
Cash dividends paid on capital stock (7.00%) (52) (52) (52)
Balance, March 31, 2020 32 $ 3,231 $ 713 $ 2,691 $ 3,404 $ (228) $ 6,407
Balance, December 31, 2020 23 $ 2,284 $ 761 $ 2,919 $ 3,680 $ 230 $ 6,194
Comprehensive income/(loss) 0 94 94 137 231
Issuance of capital stock 0 1 1
Repurchase of capital stock (1) (47) (47)
Cash dividends paid on capital stock (5.00%) (30) (30) (30)
Balance, March 31, 2021 22 $ 2,238 $ 761 $ 2,983 $ 3,744 $ 367 $ 6,349


	Capital Stock Class B—Putable			Retained Earnings								Total Capital
(In millions)	Shares	Par Value		Restricted		Unrestricted		Total		AOCI
Balance, March 31, 2020	32	$	3,231	$	713	$	2,691	$	3,404	$	(228)	$	6,407
Comprehensive income/(loss)				16		72		88		193		281
Issuance of capital stock	2	144										144
Repurchase of capital stock	(7)	(707)										(707)


Partial recovery of prior capital distribution to Financing Corporation						40		40				40
Cash dividends paid on capital stock (5.00%)						(38)		(38)				(38)
Balance, June 30, 2020	27	$	2,668	$	729	$	2,765	$	3,494	$	(35)	$	6,127

Balance, March 31, 2021	22	$	2,238	$	761	$	2,983	$	3,744	$	367	$	6,349
Comprehensive income/(loss)				0		55		55		27		82
Issuance of capital stock	3	327										327
Repurchase of capital stock	(2)	(293)										(293)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	0	(3)										(3)

Cash dividends paid on capital stock (6.00%)						(34)		(34)				(34)
Balance, June 30, 2021	23	$	2,269	$	761	$	3,004	$	3,765	$	394	$	6,428


	Capital Stock Class B—Putable			Retained Earnings								Total Capital
(In millions)	Shares	Par Value		Restricted		Unrestricted		Total		AOCI







Balance, December 31, 2019	30	$	3,000	$	713	$	2,754	$	3,467	$	274	$	6,741
Adjustment for cumulative effect of accounting change						(3)		(3)				(3)
Comprehensive income/(loss)				16		64		80		(309)		(229)
Issuance of capital stock	8	751										751
Repurchase of capital stock	(11)	(1,080)										(1,080)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	0	(3)										(3)

Partial recovery of prior capital distribution to Financing Corporation						40		40				40
Cash dividends paid on capital stock (5.99%)						(90)		(90)				(90)
Balance, June 30, 2020	27	$	2,668	$	729	$	2,765	$	3,494	$	(35)	$	6,127

Balance, December 31, 2020	23	$	2,284	$	761	$	2,919	$	3,680	$	230	$	6,194
Comprehensive income/(loss)				0		149		149		164		313
Issuance of capital stock	3	328										328
Repurchase of capital stock	(3)	(340)										(340)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net	0	(3)										(3)

Cash dividends paid on capital stock (5.47%)						(64)		(64)				(64)
Balance, June 30, 2021	23	$	2,269	$	761	$	3,004	$	3,765	$	394	$	6,428

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

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Cash Flows

(Unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
				Six Months Ended June 30, 2021
(In millions)	(In millions)	2021			2020			(In millions)	2021		2020
Cash Flows from Operating Activities:	Cash Flows from Operating Activities:							Cash Flows from Operating Activities:
Net Income/(Loss)	Net Income/(Loss)	$	94		$	(8)		Net Income/(Loss)	$	149	$	80
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:	Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:							Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation and amortization	Depreciation and amortization	7			22			Depreciation and amortization	32		(2)
Provision for/(reversal of) credit losses	Provision for/(reversal of) credit losses	(6)			39			Provision for/(reversal of) credit losses	(8)		32
Change in net fair value of trading securities	Change in net fair value of trading securities	18			(73)			Change in net fair value of trading securities	37		(55)
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option	Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option	26			(89)			Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option	31		(103)
Change in net derivatives and hedging activities	Change in net derivatives and hedging activities	376			(804)			Change in net derivatives and hedging activities	358		(987)
Other adjustments, net	Other adjustments, net	2			1			Other adjustments, net	4		6
Net change in:	Net change in:							Net change in:
Accrued interest receivable	Accrued interest receivable	(1)			0			Accrued interest receivable	21		29
Other assets	Other assets	4			10			Other assets	1		1
Accrued interest payable	Accrued interest payable	(5)			(43)			Accrued interest payable	5		(120)
Other liabilities	Other liabilities	(11)			(48)			Other liabilities	(12)		(51)
Total adjustments	Total adjustments	410			(985)			Total adjustments	469		(1,250)
Net cash provided by/(used in) operating activities	Net cash provided by/(used in) operating activities	504			(993)			Net cash provided by/(used in) operating activities	618		(1,170)
Cash Flows from Investing Activities:	Cash Flows from Investing Activities:							Cash Flows from Investing Activities:
Net change in:	Net change in:							Net change in:
Interest-bearing deposits	Interest-bearing deposits	(1)			(2,011)			Interest-bearing deposits	7		(827)
Securities purchased under agreements to resell	Securities purchased under agreements to resell	6,250			5,000			Securities purchased under agreements to resell	3,250		2,000
Federal funds sold	Federal funds sold	(2,300)			(6,519)			Federal funds sold	(3,058)		(1,036)

Trading securities:	Trading securities:							Trading securities:
Proceeds	Proceeds	251			0			Proceeds	1,301		1
Purchases	Purchases	0			(2,480)			Purchases	0		(2,481)
AFS securities:	AFS securities:							AFS securities:
Proceeds	Proceeds	6,244			120			Proceeds	7,860		246
Purchases	Purchases	(4,275)			(403)			Purchases	(4,275)		(525)
HTM securities:	HTM securities:							HTM securities:
Proceeds	Proceeds	693			681			Proceeds	1,106		1,314

Advances:	Advances:							Advances:
Repaid	Repaid	21,255			291,662			Repaid	64,052		404,666
Originated	Originated	(18,649)			(303,461)			Originated	(57,541)		(389,591)
Mortgage loans held for portfolio:	Mortgage loans held for portfolio:							Mortgage loans held for portfolio:
Principal collected	Principal collected	370			321			Principal collected	641		788
Purchases	Purchases	(7)			(278)			Purchases	(7)		(406)

Other investing activities, net								Other investing activities, net	0		(1)
Net cash provided by/(used in) investing activities	Net cash provided by/(used in) investing activities	9,831			(17,368)			Net cash provided by/(used in) investing activities	13,336		14,148

Table of Contents

Federal Home Loan Bank of San Francisco

Statements of Cash Flows (continued)

(Unaudited)


		Three Months Ended March 31,					Six Months Ended June 30,
				Six Months Ended June 30, 2021
(In millions)	(In millions)	2021			2020			(In millions)	2021		2020
Cash Flows from Financing Activities:	Cash Flows from Financing Activities:							Cash Flows from Financing Activities:
Net change in deposits and other financing activities	Net change in deposits and other financing activities	351			188			Net change in deposits and other financing activities	174		410

Net (payments)/proceeds on derivative contracts with financing elements	Net (payments)/proceeds on derivative contracts with financing elements	(21)			(4)			Net (payments)/proceeds on derivative contracts with financing elements	(36)		(25)
Net proceeds from issuance of consolidated obligations:	Net proceeds from issuance of consolidated obligations:							Net proceeds from issuance of consolidated obligations:
Bonds	Bonds	4,561			26,053			Bonds	11,062		29,729
Discount notes	Discount notes	16,572			62,055			Discount notes	36,865		72,264
Payments for matured and retired consolidated obligations:	Payments for matured and retired consolidated obligations:							Payments for matured and retired consolidated obligations:
Bonds	Bonds	(15,902)			(19,518)			Bonds	(26,588)		(34,676)
Discount notes	Discount notes	(15,673)			(50,327)			Discount notes	(35,474)		(80,188)
Proceeds from issuance of capital stock	Proceeds from issuance of capital stock	1			607			Proceeds from issuance of capital stock	328		751
Payments for repurchase/redemption of mandatorily redeemable capital stock	Payments for repurchase/redemption of mandatorily redeemable capital stock	(1)			(58)			Payments for repurchase/redemption of mandatorily redeemable capital stock	(2)		(58)
Payments for repurchase of capital stock	Payments for repurchase of capital stock	(47)			(373)			Payments for repurchase of capital stock	(340)		(1,080)
Cash dividends paid	Cash dividends paid	(30)			(52)			Cash dividends paid	(64)		(90)

Partial recovery of prior capital distribution to Financing Corporation								Partial recovery of prior capital distribution to Financing Corporation	0		40
Net cash provided by/(used in) financing activities	Net cash provided by/(used in) financing activities	(10,189)			18,571			Net cash provided by/(used in) financing activities	(14,075)		(12,923)
Net increase/(decrease) in cash and due from banks	Net increase/(decrease) in cash and due from banks	146			210			Net increase/(decrease) in cash and due from banks	(121)		55
Cash and due from banks at beginning of the period	Cash and due from banks at beginning of the period	174			118			Cash and due from banks at beginning of the period	174		118
Cash and due from banks at end of the period	Cash and due from banks at end of the period	$	320		$	328		Cash and due from banks at end of the period	$	53	$	173
Supplemental Disclosures:	Supplemental Disclosures:							Supplemental Disclosures:
Interest paid	Interest paid	$	39		$	422		Interest paid	$	60	$	632
AHP payments	AHP payments	7			19			AHP payments	15		35

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

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements

(Unaudited)

(Dollars in millions except per share amounts)

Note 1 — Basis of Presentation

The information about the Federal Home Loan Bank of San Francisco (Bank) included in these unaudited financial statements reflects all adjustments that, in the opinion of the Bank, are necessary for a fair statement of results for the periods presented. These adjustments are of a recurring nature, unless otherwise disclosed. The results of operations in these interim statements are not necessarily indicative of the results to be expected for any subsequent period or for the entire year ending December 31, 2021. These unaudited financial statements should be read in conjunction with the Bank’s Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K).

There have been no changes to the basis of presentation of the Bank’s financial instruments meeting netting requirements or of the Bank’s investments in variable interest entities disclosed in “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2020 Form 10-K.

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

•accounting for derivatives;

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

•estimating the prepayment speeds on mortgage-backed securities (MBS) and mortgage loans for the accounting of amortization of premiums and accretion of discounts and credit losses previously recorded prior to the adoption of accounting guidance related to the measurement of credit losses on MBS and mortgage loans.

Actual results could differ significantly from these estimates.

Descriptions of the Bank’s significant accounting policies are included in “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2020 Form 10-K. Other changes to these policies as of ~~March 31,~~June 30, 2021, are discussed in Note 2 – Recently Issued Accounting Guidance.

Table of Contents

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 financial statements.

Accounting Standards Update (ASU)

Description

Effective Date

Effect on the Financial Statements or Other Significant Matters

Facilitation of the Effects of Reference Rate Reform on Financial Reporting, as amended (ASU 2020-04)

This guidance provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. The new guidance provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include:
• contract modifications,
• hedging relationships, and
• sale or transfer of debt securities classified as ~~HTM.~~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 plans to elect some of the optional expedients and exceptions provided; however, the full effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined. In particular, during the fourth quarter of 2020, the Bank elected optional expedients specific to the discounting transition on a retrospective basis, which did not have a material effect.

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 ~~held-to-maturity (HTM).~~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 ~~March 31,~~June 30, 2021, and December 31, 2020, NaN of these investments were with counterparties rated below BBB nor with unrated counterparties. These may differ from any internal ratings of the investments by the Bank, if applicable.

Federal funds sold are unsecured loans that are generally transacted on an overnight term. Federal Housing Finance Agency (Finance Agency) regulations include a limit on the amount of unsecured credit the Bank may extend to a counterparty. At ~~March 31,~~June 30, 2021, and December 31, 2020, all investments in interest-bearing deposits and Federal funds sold were repaid or expected to be repaid according to the relevant contractual terms. NoNaN allowance for credit losses was recorded for these assets at ~~March 31,~~June 30, 2021, and December 31, 2020. Carrying values of interest-bearing deposits and Federal funds sold exclude de minimis amounts of accrued interest receivable as of ~~March 31,~~June 30, 2021, and December 31, 2020.

Based upon the collateral held as security and collateral maintenance provisions with its counterparties, the Bank determined that no0 allowance for credit losses was needed for its securities purchased under agreements to resell at ~~March 31,~~June 30, 2021, and December 31, 2020. The carrying value of securities purchased under agreements excludes de minimis amounts of accrued interest receivable as of ~~March 31,~~June 30, 2021, and December 31, 2020.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Debt Securities

The Bank invests in debt securities, which are classified as either trading, AFS, or HTM. Within these investments, the Bank is primarily subject to credit risk related to private-label residential mortgage-backed securities (PLRMBS) that are supported by underlying mortgage loans. The Bank is prohibited by Finance Agency regulations from purchasing certain higher risk securities, such as equity securities and debt instruments that are not investment quality at time of purchase.

Trading Securities. The estimated fair value of trading securities as of ~~March 31,~~June 30, 2021, and December 31, 2020, was as follows:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
U.S. obligations – Treasury notes	U.S. obligations – Treasury notes	$	3,989	$	4,257	U.S. obligations – Treasury notes	$	2,920	$	4,257
MBS – Other U.S. obligations – Ginnie Mae	MBS – Other U.S. obligations – Ginnie Mae	2		3		MBS – Other U.S. obligations – Ginnie Mae	2		3
Total	Total	$	3,991	$	4,260	Total	$	2,922	$	4,260

The net unrealized gain/(loss) on trading securities was ~~$(18)~~$(19) and ~~$73~~$(18) for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively. The net unrealized gain/(loss) on trading securities was $(37) and $55 for the six months ended June 30, 2021 and 2020, respectively. These amounts represent the changes in the fair value of the securities during the reported periods.

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


March 31, 2021
June 30, 2021												June 30, 2021
		Amortized Cost(1)		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value			Amortized Cost(1)		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. obligations – Treasury securities:
U.S. Treasury notes		$	2,018	$	0	$	2	$	0	$	2,020
U.S. Treasury bills		625		0		0		0		625
Total U.S. obligations – Treasury securities		2,643		0		2		0		2,645

U.S. obligations – Treasury notes												U.S. obligations – Treasury notes	$	1,160	$	0	$	1	$	0	$	1,161

MBS:	MBS:											MBS:
Government Sponsored Enterprises (GSEs) – multifamily:	Government Sponsored Enterprises (GSEs) – multifamily:											Government Sponsored Enterprises (GSEs) – multifamily:
Freddie Mac	Freddie Mac	782		0		28		0		810		Freddie Mac	800		0		32		0		832
Fannie Mae	Fannie Mae	7,280		0		187		(2)		7,465		Fannie Mae	7,436		0		190		(3)		7,623
Subtotal MBS – GSEs – multifamily	Subtotal MBS – GSEs – multifamily	8,062		0		215		(2)		8,275		Subtotal MBS – GSEs – multifamily	8,236		0		222		(3)		8,455
PLRMBS:	PLRMBS:											PLRMBS:
Prime	Prime	160		0		12		0		172		Prime	151		0		13		0		164
Alt-A	Alt-A	1,615		(15)		172		(18)		1,754		Alt-A	1,503		(14)		182		(8)		1,663
Subtotal PLRMBS	Subtotal PLRMBS	1,775		(15)		184		(18)		1,926		Subtotal PLRMBS	1,654		(14)		195		(8)		1,827
Total MBS	Total MBS	9,837		(15)		399		(20)		10,201		Total MBS	9,890		(14)		417		(11)		10,282
Total	Total	$	12,480	$	(15)	$	401	$	(20)	$	12,846	Total	$	11,050	$	(14)	$	418	$	(11)	$	11,443

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


December 31, 2020
	Amortized Cost(1)		Allowance for Credit Losses		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
U.S. obligations – Treasury securities:
U.S. Treasury notes	$	2,980	$	0	$	3	$	0	$	2,983
U.S. Treasury bills	2,000		0		0		0		2,000
Total U.S. obligations – Treasury securities	4,980		0		3		0		4,983
MBS:
GSEs – multifamily:
Freddie Mac	833		0		18		0		851
Fannie Mae	7,744		0		72		(6)		7,810
Subtotal MBS – GSEs – multifamily	8,577		0		90		(6)		8,661
PLRMBS:
Prime	174		(1)		9		0		182
Alt-A	1,725		(20)		168		(20)		1,853
Subtotal PLRMBS	1,899		(21)		177		(20)		2,035
Total MBS	10,476		(21)		267		(26)		10,696
Total	$	15,456	$	(21)	$	270	$	(26)	$	15,679

(1) Amortized cost includes unpaid principal balance, unamortized premiums and discounts, net charge-offs, and valuation adjustments for hedging activities, and excludes accrued interest receivable of ~~$41~~$34 and $46 at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively.

At ~~March 31,~~June 30, 2021, the amortized cost of the Bank’s MBS classified as AFS included premiums of ~~$64,~~$62, discounts of ~~$46,~~$45, and credit-related other-than-temporary impairment (OTTI) of ~~$466~~$448 for AFS securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020. At December 31, 2020, the amortized cost of the Bank’s MBS classified as AFS included premiums of $65, discounts of $47, and credit-related OTTI of $486 for AFS securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020.

The following tables summarize the AFS securities with unrealized losses as of ~~March 31,~~June 30, 2021, and December 31, 2020. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position.


March 31, 2021
June 30, 2021														June 30, 2021
		Less Than 12 Months				12 Months or More				Total					Less Than 12 Months				12 Months or More				Total
		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses			Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses

U.S. obligations – Treasury notes		$	100	$	0	$	0	$	0	$	100	$	0

MBS – GSEs – multifamily – Fannie Mae	MBS – GSEs – multifamily – Fannie Mae	0		0		71		2		71		2		MBS – GSEs – multifamily – Fannie Mae	$	0	$	0	$	72	$	3	$	72	$	3

PLRMBS:	PLRMBS:													PLRMBS:
Prime	Prime	0		0		9		0		9		0		Prime	0		0		6		0		6		0
Alt-A	Alt-A	15		0		269		18		284		18		Alt-A	10		0		245		8		255		8
Subtotal PLRMBS	Subtotal PLRMBS	15		0		278		18		293		18		Subtotal PLRMBS	10		0		251		8		261		8

Total	Total	$	115	$	0	$	349	$	20	$	464	$	20	Total	$	10	$	0	$	323	$	11	$	333	$	11

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


December 31, 2020
	Less Than 12 Months				12 Months or More				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
U.S. obligations – Treasury notes	$	501	$	0	$	0	$	0	$	501	$	0
MBS – GSEs – multifamily – Fannie Mae	731		6		222		0		953		6
PLRMBS:
Prime	4		0		7		0		11		0
Alt-A	151		7		168		13		319		20
Subtotal PLRMBS	155		7		175		13		330		20
Total	$	1,387	$	13	$	397	$	13	$	1,784	$	26

Redemption Terms. The amortized cost and estimated fair value of non-MBS investments by contractual maturity (based on contractual final principal payment) and of MBS as of ~~March 31,~~June 30, 2021, and December 31, 2020, are shown below. Expected maturities of MBS will differ from contractual maturities because borrowers may have the right to call or prepay the underlying obligations with or without call or prepayment fees.


March 31, 2021
June 30, 2021						June 30, 2021
Year of Contractual Maturity	Year of Contractual Maturity	Amortized Cost		Estimated Fair Value		Year of Contractual Maturity	Amortized Cost		Estimated Fair Value
AFS securities other than MBS:	AFS securities other than MBS:					AFS securities other than MBS:
Due in 1 year or less	Due in 1 year or less	$	2,236	$	2,237	Due in 1 year or less	$	754	$	754
Due after 1 year through 5 years	Due after 1 year through 5 years	407		408		Due after 1 year through 5 years	406		407

Subtotal	Subtotal	2,643		2,645		Subtotal	1,160		1,161
MBS	MBS	9,837		10,201		MBS	9,890		10,282
Total	Total	$	12,480	$	12,846	Total	$	11,050	$	11,443


December 31, 2020
Year of Contractual Maturity	Amortized Cost		Estimated Fair Value
AFS securities other than MBS:
Due in 1 year or less	$	4,469	$	4,470
Due after 1 year through 5 years	511		513


Subtotal	4,980		4,983
MBS	10,476		10,696
Total	$	15,456	$	15,679

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

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


March 31, 2021
June 30, 2021										June 30, 2021
		Amortized Cost(1)		Gross Unrecognized Holding Gains(2)		Gross Unrecognized Holding Losses(2)		Estimated Fair Value			Amortized Cost(1)		Gross Unrecognized Holding Gains(2)		Gross Unrecognized Holding Losses(2)		Estimated Fair Value

MBS – Other U.S. obligations – single-family:	MBS – Other U.S. obligations – single-family:									MBS – Other U.S. obligations – single-family:
Ginnie Mae	Ginnie Mae	$	216	$	6	$	0	$	222	Ginnie Mae	$	170	$	5	$	0	$	175
MBS – GSEs – single-family:	MBS – GSEs – single-family:									MBS – GSEs – single-family:
Freddie Mac	Freddie Mac	396		10		0		406		Freddie Mac	310		8		0		318
Fannie Mae	Fannie Mae	1,101		20		0		1,121		Fannie Mae	977		18		(1)		994
Subtotal MBS – GSEs – single-family	Subtotal MBS – GSEs – single-family	1,497		30		0		1,527		Subtotal MBS – GSEs – single-family	1,287		26		(1)		1,312
MBS – GSEs – multifamily:	MBS – GSEs – multifamily:									MBS – GSEs – multifamily:
Freddie Mac	Freddie Mac	1,665		2		(2)		1,665		Freddie Mac	1,553		1		(2)		1,552
Fannie Mae	Fannie Mae	737		0		(1)		736		Fannie Mae	710		0		(4)		706
Subtotal MBS – GSEs – multifamily	Subtotal MBS – GSEs – multifamily	2,402		2		(3)		2,401		Subtotal MBS – GSEs – multifamily	2,263		1		(6)		2,258
Subtotal MBS – GSEs	Subtotal MBS – GSEs	3,899		32		(3)		3,928		Subtotal MBS – GSEs	3,550		27		(7)		3,570
PLRMBS:	PLRMBS:									PLRMBS:
Prime	Prime	174		1		(3)		172		Prime	161		1		(1)		161
Alt-A	Alt-A	99		4		(1)		102		Alt-A	93		5		(1)		97
Subtotal PLRMBS	Subtotal PLRMBS	273		5		(4)		274		Subtotal PLRMBS	254		6		(2)		258

Total	Total	$	4,388	$	43	$	(7)	$	4,424	Total	$	3,974	$	38	$	(9)	$	4,003


December 31, 2020
	Amortized Cost(1)		Gross Unrecognized Holding Gains(2)		Gross Unrecognized Holding Losses(2)		Estimated Fair Value




MBS – Other U.S. obligations – single-family:
Ginnie Mae	$	261	$	7	$	0	$	268
MBS – GSEs – single-family:
Freddie Mac	511		11		0		522
Fannie Mae	1,229		21		(1)		1,249
Subtotal MBS – GSEs – single-family	1,740		32		(1)		1,771
MBS – GSEs – multifamily:
Freddie Mac	1,844		2		(2)		1,844
Fannie Mae	945		0		(1)		944
Subtotal MBS – GSEs – multifamily	2,789		2		(3)		2,788
Subtotal MBS – GSEs	4,529		34		(4)		4,559
PLRMBS:
Prime	185		0		(4)		181
Alt-A	106		3		(2)		107
Subtotal PLRMBS	291		3		(6)		288

Total	$	5,081	$	44	$	(10)	$	5,115

(1) Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and net charge offs, and excludes accrued interest receivable of $4$3 and $5 at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively.

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

Expected maturities of MBS classified as HTM will differ from contractual maturities because borrowers may have the right to call or prepay the underlying obligations with or without call or prepayment fees.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

At ~~March 31,~~June 30, 2021, the amortized cost of the Bank’s MBS classified as HTM included premiums of $4, discounts of ~~$6,~~$5, and credit-related OTTI of $6 for HTM securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020. At December 31, 2020, the amortized cost of the Bank’s MBS classified as HTM included premiums of $5, discounts of $6, and credit-related OTTI of $6 for HTM securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020.

Allowance for Credit Losses on AFS and HTM Securities. The following table presents a rollforward of the allowance for credit losses on investment securities associated with PLRMBS classified as AFS for the three and six months ended ~~March 31,~~June 30, 2021 and 2020. The Bank recorded no0 allowance for credit losses associated with HTM securities during the three and six months ended ~~March 31,~~June 30, 2021 and 2020.


		Three Months Ended			Three Months Ended				Six Months Ended
			March 31, 2021			March 31, 2020			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Balance, beginning of the period	Balance, beginning of the period		$	21		$	0	Balance, beginning of the period	$	15	$	39	$	21	$	0
(Charge-offs)/recoveries	(Charge-offs)/recoveries		(1)			0		(Charge-offs)/recoveries	0		(1)		(1)		(1)
Provision for/(reversal of) credit losses	Provision for/(reversal of) credit losses		(5)			39		Provision for/(reversal of) credit losses	(1)		(9)		(6)		30
Balance, end of the period	Balance, end of the period		$	15		$	39	Balance, end of the period	$	14	$	29	$	14	$	29

To evaluate investment securities for credit loss at ~~March 31,~~June 30, 2021, the Bank employed the following methodologies, based on the type of security.

AFS and HTM Securities (Excluding PLRMBS) – The Bank’s AFS and HTM securities are principally U.S. obligations and MBS issued by Ginnie Mae, Freddie Mac, and Fannie Mae that are backed by single-family or multifamily mortgage loans. The Bank only purchases securities considered investment quality. Excluding PLRMBS investments, at ~~March 31,~~June 30, 2021, and December 31, 2020, approximately 100% 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 ~~March 31,~~June 30, 2021, and December 31, 2020, certain of the Bank’s AFS securities were in an unrealized loss position. These losses are considered temporary as the Bank expects to recover the entire amortized cost basis on these AFS investment securities and neither intends to sell these securities nor considers it more likely than not that it will be required to sell these securities before its anticipated recovery of each security's remaining amortized cost basis. Further, the Bank has not experienced any payment defaults on the instruments. In addition, substantially all of these securities carry an implicit or explicit government guarantee. As a result, no0 allowance for credit losses was recorded on these AFS securities at ~~March 31,~~June 30, 2021, and December 31, 2020.

As of ~~March 31,~~June 30, 2021, and December 31, 2020, the Bank had not established an allowance for credit loss on any of its HTM securities because the securities: (i) were all highly rated or had short remaining terms to maturity, (ii) had not experienced, nor did the Bank expect, any payment default on the instruments, and (iii) in the case of GSE or other U.S. obligations, carry an implicit or explicit government guarantee such that the Bank considers the risk of nonpayment to be zero.

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Private-Label Residential Mortgage-Backed Securities – The Bank also holds investments in PLRMBS. The Bank has not purchased any PLRMBS since the first quarter of 2008. However, many of these securities have subsequently experienced significant credit deterioration. As of ~~March 31,~~June 30, 2021, and December 31, 2020, approximately 6% of PLRMBS (AFS and HTM combined, based on amortized cost) were rated A, or above, by an NRSRO; and the remaining securities were either rated less than A, or were unrated. To determine whether an allowance for credit loss is necessary on these securities, the Bank uses cash flow analyses. For certain PLRMBS where underlying collateral data is not available, alternative procedures as determined by the Bank are used to assess these securities for credit loss measurement.

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

•expected housing price changes;

•expected interest rate assumptions;

•the remaining payment terms for the security;

•expected default rates based on underlying loan-level borrower and loan characteristics;

•loss severities on the collateral supporting each unique PLRMBS based on underlying loan-level borrower and loan characteristics; and

•prepayment speeds based on underlying loan-level borrower and loan characteristics.

The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in these assumptions and expectations. The cash flows determined reflects management’s expectations and includes a base case housing price forecast for near- and long-term horizons.

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

For securities with an OTTI recognized pursuant to the impairment guidance in effect prior to January 1, 2020, as of ~~March 31,~~June 30, 2021 (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), the following table presents a summary of the significant inputs used in measuring the fair value of PLRMBS classified as Level 3 as of ~~March 31,~~June 30, 2021, and the related current credit enhancement for the Bank.


March 31, 2021					Current
June 30, 2021						June 30, 2021				Current
		Prepayment Rates	Default Rates	Loss Severities	Credit Enhancement		Prepayment Rates	Default Rates	Loss Severities	Credit Enhancement
Collateral Type at Origination	Collateral Type at Origination	Weighted Average % (1)	Weighted Average % (1)	Weighted Average % (1)	Weighted Average % (1)	Collateral Type at Origination	Weighted Average % (1)	Weighted Average % (1)	Weighted Average % (1)	Weighted Average % (1)
Prime	Prime	16.0	9.4	44.2	13.3	Prime	15.4	4.2	77.4	13.1
Alt-A	Alt-A	11.2	12.2	44.4	7.3	Alt-A	10.8	9.1	46.7	7.4
Total	Total	11.6	11.9	44.4	7.8	Total	11.2	8.6	49.6	7.9

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

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

The total net accretion recognized in interest income associated with PLRMBS that were other-than-temporarily impaired prior to January 1, 2020, totaled ~~$17~~$16 and ~~$20~~$17 for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $33 and $37 for the six months ended June 30, 2021 and 2020, respectively. Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

~~over the remaining life of the~~ securities ~~total~~totaled $13 and ~~$17~~$14 for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $26 and $31 for the six months ended June 30, 2021 and 2020, respectively.

In general, the Bank elects to transfer any PLRMBS that incurred a credit loss during the applicable period from the Bank’s HTM portfolio to its AFS portfolio at their fair values. The Bank recognized a credit loss on these HTM PLRMBS, which the Bank believes is evidence of a significant decline in the credit quality of the underlying collateral. The decline in the credit quality of the underlying collateral is the basis for the transfers to the AFS portfolio. These transfers allow the Bank the option to sell these securities prior to maturity in view of changes in interest rates, changes in prepayment risk, or other factors, while recognizing the Bank’s intent to hold these securities for an indefinite period of time. The Bank did ~~not~~0t transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three and six months ended ~~March 31, 2021.~~June 30, 2021, 0r during the three months ended June 30, 2020. The Bank transferred PLRMBS from its HTM portfolio to its AFS portfolio with an amortized cost and fair value of $1 during the ~~three~~six months ended ~~March 31,~~June 30, 2020.

For the Bank’s PLRMBS, the Bank recorded a reversal of credit losses of $5$1 and $6 during the three and six months ended ~~March 31,~~June 30, 2021, respectively, primarily resulting from lower default rates as well as improved projected credit performance in part related to a more optimistic economic outlook because of the monetary and fiscal stimulus measures taken by the U.S. government. ~~The Bank recorded a provision for credit losses on its PLRMBS portfolio of $39 during the three months ended March 31, 2020.~~ The Bank experienced declines in fair value in March 2020 as a result of disruptions in the financial markets combined with illiquidity in the PLRMBS market and decreased expectations of the performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost. The Bank recorded a provision for credit losses on its PLRMBS portfolio of $30 during the six months ended June 30, 2020. As a result of improvement in the Bank’s PLRMBS fair values during the three months ended June 30, 2020, the Bank recorded a reversal of credit losses on its PLRMBS portfolio of $9.

Note 4 — Advances

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

Redemption Terms. The Bank had advances outstanding, excluding overdrawn demand deposit accounts, at interest rates ranging from 0%0.00% to 8.57% at ~~March 31,~~June 30, 2021, and 0%0.00% to 8.57% at December 31, 2020, as summarized below.

March 31, 2021 December 31, 2020
Redemption Term
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Amount
Outstanding(1)
Weighted
Average
Interest Rate
Within 1 year $ 12,542 1.63 % $ 11,862 1.65 %
After 1 year through 2 years 3,668 1.78 6,399 1.61
After 2 years through 3 years 4,330 2.12 4,321 2.10
After 3 years through 4 years 4,389 1.37 2,704 1.79
After 4 years through 5 years 1,179 1.63 3,278 1.26
After 5 years 1,624 1.74 1,774 1.79
Total par value 27,732 1.69 % 30,338 1.68 %
Valuation adjustments for hedging activities 307 509
Valuation adjustments under fair value option 101 130
Unamortized discounts 0 (1)
Total $ 28,140 $ 30,976

~~(1)Carrying amounts exclude accrued interest receivable of $5 and $6 at March 31, 2021, and December 31, 2020, respectively.~~

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	June 30, 2021				December 31, 2020
Redemption Term	Amount Outstanding(1)		Weighted Average Interest Rate		Amount Outstanding(1)		Weighted Average Interest Rate

Within 1 year	$	9,964	1.56	%	$	11,862	1.65	%
After 1 year through 2 years	2,373		1.68		6,399		1.61
After 2 years through 3 years	2,816		1.61		4,321		2.10
After 3 years through 4 years	4,369		1.36		2,704		1.79
After 4 years through 5 years	1,923		1.81		3,278		1.26
After 5 years	2,382		2.09		1,774		1.79
Total par value	23,827		1.61	%	30,338		1.68	%
Valuation adjustments for hedging activities	271				509
Valuation adjustments under fair value option	96				130
Unamortized discounts	0				(1)
Total	$	24,194			$	30,976

(1)Carrying amounts exclude accrued interest receivable of $5 and $6 at June 30, 2021, and December 31, 2020, respectively.

Many of the Bank’s advances are prepayable at the borrower’s option. However, when advances are prepaid, the borrower is generally charged a prepayment fee intended to make the Bank financially indifferent to the prepayment. In addition, for certain advances with full or partial prepayment symmetry, the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. The Bank had advances with full prepayment symmetry outstanding totaling ~~$18,638~~$15,443 at ~~March 31,~~June 30, 2021, and $19,919 at December 31, 2020. The Bank had advances with partial prepayment symmetry outstanding totaling ~~$1,635~~$1,617 at ~~March 31,~~June 30, 2021, and $1,817 at December 31, 2020. Some advances may be repaid on pertinent call dates without prepayment fees (callable advances). The Bank had callable advances outstanding totaling ~~$650~~$70 at ~~March 31,~~June 30, 2021, and $1,100 at December 31, 2020.

The Bank had putable advances totaling $220 at ~~March 31,~~June 30, 2021, and December 31, 2020. At the Bank’s discretion, the Bank may terminate these advances on predetermined exercise dates and offer replacement funding at prevailing market rates, subject to certain conditions. The Bank would typically exercise such termination rights when interest rates increase relative to contractual rates.

The following table summarizes advances at ~~March 31,~~June 30, 2021, and December 31, 2020, by the earlier of the year of redemption term or next call date for callable advances and by the earlier of the year of redemption term or next put date for putable advances.


		Earlier of Redemption Term or Next Call Date				Earlier of Redemption Term or Next Put Date					Earlier of Redemption Term or Next Call Date				Earlier of Redemption Term or Next Put Date
		March 31, 2021		December 31, 2020		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020		June 30, 2021		December 31, 2020

Within 1 year	Within 1 year	$	13,192	$	12,962	$	12,762	$	12,082	Within 1 year	$	10,034	$	12,962	$	10,184	$	12,082
After 1 year through 2 years	After 1 year through 2 years	3,068		5,299		3,668		6,399		After 1 year through 2 years	2,373		5,299		2,373		6,399
After 2 years through 3 years	After 2 years through 3 years	4,280		4,321		4,330		4,321		After 2 years through 3 years	2,766		4,321		2,816		4,321
After 3 years through 4 years	After 3 years through 4 years	4,389		2,704		4,389		2,704		After 3 years through 4 years	4,369		2,704		4,369		2,704
After 4 years through 5 years	After 4 years through 5 years	1,179		3,278		1,179		3,278		After 4 years through 5 years	1,923		3,278		1,923		3,278
After 5 years	After 5 years	1,624		1,774		1,404		1,554		After 5 years	2,362		1,774		2,162		1,554
Total par value	Total par value	$	27,732	$	30,338	$	27,732	$	30,338	Total par value	$	23,827	$	30,338	$	23,827	$	30,338

Concentration Risk. The following tables present the concentration in advances to the top five borrowers and their affiliates at ~~March 31,~~June 30, 2021 and 2020. The tables also present the interest income from these advances before the impact of interest rate exchange agreements associated with these advances for the three and six months ended ~~March 31,~~June 30, 2021 and 2020.

March 31, 2021 Three Months Ended
March 31, 2021
Name of Borrower Advances
Outstanding Percentage of
Total
Advances
Outstanding
Interest
Income from
Advances(1)
Percentage of
Total Interest
Income from
Advances
First Republic Bank $ 10,505 38 % $ 41 33 %
MUFG Union Bank, National Association 4,575 16 31 25
First Technology Federal Credit Union 1,293 5 7 6
Luther Burbank Savings 841 3 4 3
East West Bank 655 2 2 2
Subtotal 17,869 64 85 69
Others 9,863 36 38 31
Total par value $ 27,732 100 % $ 123 100 %

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


		March 31, 2020				Three Months Ended March 31, 2020			June 30, 2021						Three Months Ended June 30, 2021				Six Months Ended June 30, 2021
Name of Borrower	Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding			Interest Income from Advances(1)			Percentage of Total Interest Income from Advances		Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding		Interest Income from Advances(1)		Percentage of Total Interest Income from Advances		Interest Income from Advances(1)		Percentage of Total Interest Income from Advances
First Republic Bank	First Republic Bank	$	16,250	21	%		$	70		22	%	First Republic Bank	$	9,000	38	%	$	35	32	%	$	76	33	%
MUFG Union Bank, National Association	MUFG Union Bank, National Association	10,900		14			62			19		MUFG Union Bank, National Association	4,075		17		28		25		59		25
Wells Fargo & Company
Wells Fargo Financial National Bank West		9,000		12			35			11
Wells Fargo Bank, National Association(2)		36		0			1			0
Subtotal Wells Fargo & Company		9,036		12			36			11
Bank of the West		8,206		11			21			7
JPMorgan Chase Bank, National Association(2)		3,053		4			25			8
First Technology Federal Credit Union												First Technology Federal Credit Union	1,371		6		6		6		13		6
Luther Burbank Savings												Luther Burbank Savings	1,005		4		4		4		8		3
Banc of California, National Association												Banc of California, National Association	496		2		3		3		5		2
Subtotal	Subtotal	47,445		62			214			67		Subtotal	15,947		67		76		70		161		69
Others	Others	29,443		38			105			33		Others	7,880		33		33		30		71		31
Total par value	Total par value	$	76,888	100	%		$	319		100	%	Total par value	$	23,827	100	%	$	109	100	%	$	232	100	%



	June 30, 2020				Three Months Ended June 30, 2020				Six Months Ended June 30, 2020
Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding		Interest Income from Advances(1)		Percentage of Total Interest Income from Advances		Interest Income from Advances(1)		Percentage of Total Interest Income from Advances
First Republic Bank	$	15,410	31	%	$	68	30	%	$	139	26	%
MUFG Union Bank, National Association	8,400		17		44		19		106		19
JPMorgan Chase Bank, National Association(2)	3,052		6		10		5		34		6
CIT Bank, National Association	2,850		5		6		3		16		3
First Technology Federal Credit Union	2,450		5		12		5		23		4
Subtotal	32,162		64		140		62		318		58
Others	17,851		36		88		38		229		42
Total par value	$	50,013	100	%	$	228	100	%	$	547	100	%

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

(2) Nonmember institution.

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

Credit Risk Exposure and Security Terms. The Bank manages its credit exposure related to advances through an integrated approach that generally provides for a credit limit to be established for each borrower, includes an ongoing review of each borrower’s financial condition, and is coupled with conservative collateral and lending policies to limit the risk of loss while taking into account borrowers’ needs for a reliable funding source.

In addition, the Bank lends to member financial institutions that have a principal place of business in Arizona, California, or Nevada, in accordance with federal law and Finance Agency regulations. Specifically, the Bank is required to obtain sufficient collateral to fully secure credit products up to the member’s total credit limit. Borrowers may pledge the following eligible assets to secure advances:

•one-to-four-family first lien residential mortgage loans;

•securities issued, insured, or guaranteed by the U.S. government or any of its agencies, including without limitation MBS backed by Fannie Mae, Freddie Mac, or Ginnie Mae;

•cash or deposits in the Bank;

•certain other real estate-related collateral, such as multifamily loans, commercial real estate loans, and second lien residential mortgage loans or home equity loans; and

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

•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 ~~March 31,~~June 30, 2021, and December 31, 2020, none of the Bank’s credit products were past due or on nonaccrual status. There were no troubled debt restructurings related to credit products during the ~~three~~six months ended ~~March 31,~~June 30, 2021, or during 2020.

Based on the collateral pledged as security for advances, the Bank’s credit analyses of borrowers’ financial condition, repayment history on advances, and the Bank’s credit extension and collateral policies as of ~~March 31,~~

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

June 30, 2021, the Bank expects to collect all amounts due according to the contractual terms. Therefore, no0 allowance for losses on advances was deemed necessary by the Bank as of ~~March 31,~~June 30, 2021, and December 31, 2020.

For more information on the credit risk exposure and security terms of advances, see “Item 8. Financial Statements and Supplementary Data – Note 5 – Advances” in the Bank’s 2020 Form 10-K.

Interest Rate Payment Terms. Interest rate payment terms for advances at ~~March 31,~~June 30, 2021, and December 31, 2020, are detailed below:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Par value of advances:	Par value of advances:					Par value of advances:
Fixed rate:	Fixed rate:					Fixed rate:
Due within 1 year	Due within 1 year	$	11,532	$	11,044	Due within 1 year	$	9,144	$	11,044
Due after 1 year	Due after 1 year	15,115		17,126		Due after 1 year	13,788		17,126
Total fixed rate	Total fixed rate	26,647		28,170		Total fixed rate	22,932		28,170
Adjustable rate:	Adjustable rate:					Adjustable rate:
Due within 1 year	Due within 1 year	1,010		818		Due within 1 year	820		818
Due after 1 year	Due after 1 year	75		1,350		Due after 1 year	75		1,350
Total adjustable rate	Total adjustable rate	1,085		2,168		Total adjustable rate	895		2,168
Total par value	Total par value	$	27,732	$	30,338	Total par value	$	23,827	$	30,338

The Bank did not have any advances with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative at ~~March 31,~~June 30, 2021, or December 31, 2020. The Bank has generally elected to account for certain advances with embedded features under the fair value option, and these advances are carried at fair value on the Statements of Condition. For more information, see Note 11 – Derivatives and Hedging Activities and Note 12 – Fair Value.

Prepayment Fees, Net. The Bank charges borrowers prepayment fees or pays borrowers prepayment credits when the principal on certain advances is paid prior to original maturity. The Bank records prepayment fees net of any associated fair value adjustments related to prepaid advances that were hedged. The net amount of prepayment fees is reflected as advances interest income in the Statements of Income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020, as follows:


		Three Months Ended					Three Months Ended				Six Months Ended
			March 31, 2021		March 31, 2020				June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Prepayment fees received/(paid)	Prepayment fees received/(paid)		$	9	$	4		Prepayment fees received/(paid)	$	17	$	35	$	26	$	39
Fair value adjustments	Fair value adjustments		(1)		(3)			Fair value adjustments	(10)		(24)		(11)		(27)
Net	Net		$	8	$	1		Net	$	7	$	11	$	15	$	12
Advance principal prepaid	Advance principal prepaid		$	1,474	$	2,213		Advance principal prepaid	$	2,202	$	14,573	$	3,676	$	16,786

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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 ~~March 31,~~June 30, 2021, and December 31, 2020, on mortgage loans, all of which are secured by one- to four-unit residential properties and single-unit second homes.


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Fixed rate medium-term mortgage loans	Fixed rate medium-term mortgage loans	$	24	$	27	Fixed rate medium-term mortgage loans	$	21	$	27
Fixed rate long-term mortgage loans	Fixed rate long-term mortgage loans	1,519		1,879		Fixed rate long-term mortgage loans	1,250		1,879
Subtotal	Subtotal	1,543		1,906		Subtotal	1,271		1,906
Unamortized premiums	Unamortized premiums	43		35		Unamortized premiums	33		35
Unamortized discounts	Unamortized discounts	(2)		(2)		Unamortized discounts	(1)		(2)
Mortgage loans held for portfolio(1)	Mortgage loans held for portfolio(1)	1,584		1,939		Mortgage loans held for portfolio(1)	1,303		1,939
Less: Allowance for credit losses	Less: Allowance for credit losses	(3)		(4)		Less: Allowance for credit losses	(2)		(4)
Total mortgage loans held for portfolio, net	Total mortgage loans held for portfolio, net	$	1,581	$	1,935	Total mortgage loans held for portfolio, net	$	1,301	$	1,935

(1)Excludes accrued interest receivable of $9$8 and $10 at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively.

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

Relief to Borrowers During the COVID-19 Pandemic. Starting in the second quarter of 2020, the Bank elected to apply the troubled debt restructuring (TDR) relief provisions provided by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). As such, all loan modifications granted to borrowers adversely affected by the COVID-19 pandemic (COVID-related modifications) meeting the provisions of the CARES Act are excluded from TDR classification and accounting, and the Bank considers these loans to have a current payment status as long as payments are being made in accordance with the new terms. At ~~March 31,~~June 30, 2021, the Bank had ~~$16~~$31 in these modifications outstanding, of which $1 were on nonaccrual status. At December 31, 2020, the Bank had a de minimis amount in these modifications outstanding. Alternatively, COVID-related modifications that do not meet the provisions of the CARES Act continue to be assessed for TDR classification.

Participating members may grant a forbearance period to borrowers who have requested forbearance based on COVID-19 related difficulties regardless of the status of the loan at the time of the request. The accrual status for loans under forbearance will be driven by the past due status of the loan. For more information related to the Bank’s accounting policies for the CARES Act, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2020 Form 10-K.

Payment Status of Mortgage Loans. Payment status is the key credit quality indicator for conventional mortgage loans and allows the Bank to monitor the migration of past due loans. Past due loans are those where the borrower has failed to make timely payments of principal ~~and/or~~and interest in accordance with the terms of the loan. Other delinquency statistics include nonaccrual loans and loans in process of foreclosure. The following tables present the payment status for mortgage loans and other delinquency statistics for Bank’s mortgage loans at ~~March 31,~~June 30, 2021, and December 31, 2020.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


March 31, 2021
June 30, 2021									June 30, 2021
		Origination Year								Origination Year
Payment Status	Payment Status	<2017		2017 to 2021		Amortized Cost(1)			Payment Status	2017 to 2021		Prior to 2017		Amortized Cost(1)
30 – 59 days delinquent	30 – 59 days delinquent	$	11	$	2	$	13		30 – 59 days delinquent	$	10	$	3	$	13
60 – 89 days delinquent	60 – 89 days delinquent	5		2		7			60 – 89 days delinquent	6		1		7
90 days or more delinquent	90 days or more delinquent	63		15		78			90 days or more delinquent	44		15		59
Total past due	Total past due	79		19		98			Total past due	60		19		79
Total current loans	Total current loans	1,207		279		1,486			Total current loans	981		243		1,224
Total MPF(2)	Total MPF(2)	$	1,286	$	298	$	1,584		Total MPF(2)	$	1,041	$	262	$	1,303
In process of foreclosure, included above(3)	In process of foreclosure, included above(3)					$	1		In process of foreclosure, included above(3)					$	1
Nonaccrual loans(2)(4)	Nonaccrual loans(2)(4)					$	78		Nonaccrual loans(2)(4)					$	59

Serious delinquencies as a percentage of total mortgage loans outstanding(2)(5)	Serious delinquencies as a percentage of total mortgage loans outstanding(2)(5)					4.91		%	Serious delinquencies as a percentage of total mortgage loans outstanding(2)(5)					4.51		%


December 31, 2020	December 31, 2020								December 31, 2020
		Origination Year								Origination Year
Payment Status	Payment Status	<2016		2016 to 2020		Amortized Cost(1)			Payment Status	2016 to 2020		Prior to 2016		Amortized Cost(1)
30 – 59 days delinquent	30 – 59 days delinquent	$	20	$	2	$	22		30 – 59 days delinquent	$	20	$	2	$	22
60 – 89 days delinquent	60 – 89 days delinquent	5		2		7			60 – 89 days delinquent	5		2		7
90 days or more delinquent	90 days or more delinquent	95		9		104			90 days or more delinquent	95		9		104
Total past due	Total past due	120		13		133			Total past due	120		13		133
Total current loans	Total current loans	1,628		178		1,806			Total current loans	1,628		178		1,806
Total MPF~~(2)~~(6)	Total MPF~~(2)~~(6)	$	1,748	$	191	$	1,939		Total MPF~~(2)~~(6)	$	1,748	$	191	$	1,939
In process of foreclosure, included above(3)	In process of foreclosure, included above(3)					$	1		In process of foreclosure, included above(3)					$	1
Nonaccrual loans(2)(4)	Nonaccrual loans(2)(4)					$	104		Nonaccrual loans(2)(4)					$	104

Serious delinquencies as a percentage of total mortgage loans outstanding(2)(5)	Serious delinquencies as a percentage of total mortgage loans outstanding(2)(5)					5.34		%	Serious delinquencies as a percentage of total mortgage loans outstanding(2)(5)					5.34		%

(1) The amortized cost in a loan is the unpaid principal balance of the loan, adjusted for net deferred loan fees or costs, unamortized premiums or discounts, and direct write-downs.

(2) At ~~March 31,~~June 30, 2021, unpaid principal balances of conventional mortgage loans held for portfolio that were in a forbearance plan as a result of the COVID-19 pandemic totaled ~~$66.~~$50. Of that total, $8$3 were current, $2$3 were 30 to 59 days past due, $3 were 60 to 89 days past due, and ~~$53~~$41 were greater than 89 days past due and in nonaccrual payment status. At December 31, 2020, unpaid principal balances of conventional mortgage loans held for portfolio that were in a forbearance plan as a result of the COVID-19 pandemic totaled $78. Of that total, $2 were current, $7 were 30 to 59 days past due, $1 were 60 to 89 days past due, and $68 were greater than 89 days past due and in nonaccrual payment status. The conventional mortgage loans in forbearance represent 4% of the Bank’s mortgage loans held for portfolio at ~~March 31,~~June 30, 2021, and December 31, 2020.

(3) 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.

(4) At ~~March 31,~~June 30, 2021, and December 31, 2020, ~~$77~~$52 and $103, respectively, of these mortgage loans on nonaccrual status did not have an associated allowance for credit losses.

(5) 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.

(6) The amortized costs of the mortgage loans by origination year in the 2016 to 2020 column and prior to 2016 column that were previously disclosed in the “Mortgage Loans Held for Portfolio” note were incorrectly presented as of December 31, 2020, in the Bank’s 2020 Form 10-K. The amortized costs of the mortgage loans by origination year as of December 31, 2020, have been corrected. The total amortized costs presented for each period were properly disclosed. These revisions had no effect on the Bank’s total assets, net interest income, or net income for all affected periods.

Allowance for Credit Losses on Mortgage Partnership Finance® (MPF®) Loans. MPF loans are evaluated collectively for expected credit losses when similar risk characteristics exist. MPF loans that do not share risk characteristics with other pools are evaluated for expected credit losses on an individual basis, factoring in the credit enhancement structure at the master commitment level. The Bank determines its allowances for credit losses on MPF loans through analyses that include consideration of various loan portfolio and collateral related characteristics, such as past performance, current conditions, and reasonable and supportable forecasts of expected economic conditions. (“Mortgage Partnership Finance” and “MPF” are registered trademarks of the FHLBank of Chicago.) The Bank uses models that employ a variety of methods, such as projected cash flows, to estimate

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

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 ~~March 31,~~June 30, 2021, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate ~~3.9%~~

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

6.1% over a one-year forecast horizon before reverting to long-term housing price appreciation rates of ~~3.6%~~3.0% after five additional years in the forecast based on historical averages. At December 31, 2020, the Bank’s reasonable and supportable forecast of housing prices expects, on average, for prices to appreciate 2.3% over a one-year forecast horizon before reverting to long-term housing price appreciation rates of 3.8% over a three-year forecast horizon based on historical averages. The Bank also incorporates associated credit enhancements, if any, to determine its estimate of expected credit losses.

Certain MPF loans may be evaluated for credit losses by the Bank using the practical expedient for collateral-dependent assets. A mortgage loan is considered collateral-dependent if repayment is expected to be provided by the sale of the underlying property, that is, if it is considered likely that the borrower will default. The Bank may estimate the fair value of this collateral by applying an appropriate loss severity rate or using third-party estimates or property valuation models. The expected credit loss of a collateral-dependent mortgage loan is equal to the difference between the amortized cost of the loan and the estimated fair value of the collateral, less estimated selling costs. The Bank will either reserve for these estimated losses or record a direct charge-off of the loan balance, if certain triggering criteria are met. Expected recoveries of prior charge-offs, if any, are included in the allowance for credit loss.

The following table presents a rollforward of the allowance for credit losses on the mortgage loan portfolio for the three and six months ended ~~March 31,~~June 30, 2021 and 2020. The amount of charge-offs and recoveries of allowance for credit losses on the mortgage loan portfolio were de minimis for the three and six months ended ~~March 31,~~June 30, 2021 and 2020.

Three Months Ended
March 31, 2021 March 31, 2020
Balance, beginning of the period $ 4 $ 0
Adjustment for cumulative effect of accounting change 0 3
Provision for/(reversal of) credit losses (1) 0
Balance, end of the period $ 3 $ 3


	Three Months Ended				Six Months Ended
	June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Balance, beginning of the period	$	3	$	3	$	4	$	0
Adjustment for cumulative effect of accounting change	0		0		0		3

Provision for/(reversal of) credit losses	(1)		2		(2)		2
Balance, end of the period	$	2	$	5	$	2	$	5

For more information related to the Bank’s accounting policies for mortgage loans held for portfolio, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2020 Form 10-K.

Note 6 — Deposits

The Bank maintains demand deposit accounts that are directly related to the extension of credit to members and offers short-term deposit programs to members and qualifying nonmembers. In addition, a member that services mortgage loans may deposit in the Bank funds collected in connection with the mortgage loans, pending disbursement of these funds to the owners of the mortgage loans. The Bank classifies these types of deposits as non-interest-bearing deposits. Deposits classified as demand, overnight, and other pay interest based on a daily interest rate. Term deposits pay interest based on a fixed rate determined at the issuance of the deposit.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Deposits and interest rate payment terms for deposits as of ~~March 31,~~June 30, 2021, and December 31, 2020, were as follows:


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate			Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate
Interest-bearing deposits:	Interest-bearing deposits:									Interest-bearing deposits:
Adjustable rate	Adjustable rate	$	912	0.01	%	$	732	0.01	%	Adjustable rate	$	894	0.01	%	$	732	0.01	%
Fixed rate	Fixed rate	14		0.01		16		0.01		Fixed rate	9		0.01		16		0.01
Total interest-bearing deposits	Total interest-bearing deposits	926				748				Total interest-bearing deposits	903				748
Non-interest-bearing deposits	Non-interest-bearing deposits	103				139				Non-interest-bearing deposits	42				139
Total	Total	$	1,029			$	887			Total	$	945			$	887

Note 7 — Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are jointly issued by the Federal Home Loan Banks (FHLBanks) through the Office of Finance, which serves as the FHLBanks’ agent. As provided by the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act) or by regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. For a discussion of the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 16 – Commitments and Contingencies” in the Bank’s 2020 Form 10-K. In connection with each issuance of consolidated obligations, each FHLBank specifies the type, term, and amount of debt it requests to have issued on its behalf. The Office of Finance tracks the amount of debt issued on behalf of each FHLBank. In addition, the Bank separately tracks and records as a liability its specific portion of the consolidated obligations issued and is the primary obligor for that portion of the consolidated obligations issued. The Finance Agency and the U.S. Secretary of the Treasury have oversight over the issuance of FHLBank debt through the Office of Finance.

Redemption Terms. The following is a summary of the Bank’s participation in consolidated obligation bonds at ~~March 31,~~June 30, 2021, and December 31, 2020.


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
Contractual Maturity	Contractual Maturity	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate		Contractual Maturity	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate
Within 1 year	Within 1 year	$	20,720	0.21	%	$	34,542	0.23	%	Within 1 year	$	15,581	0.26	%	$	34,542	0.23	%
After 1 year through 2 years	After 1 year through 2 years	6,325		0.16		6,923		0.21		After 1 year through 2 years	3,881		0.29		6,923		0.21
After 2 years through 3 years	After 2 years through 3 years	935		0.56		751		1.00		After 2 years through 3 years	1,155		0.41		751		1.00
After 3 years through 4 years	After 3 years through 4 years	322		0.53		677		0.67		After 3 years through 4 years	1,792		0.60		677		0.67
After 4 years through 5 years	After 4 years through 5 years	2,305		0.77		185		0.82		After 4 years through 5 years	3,667		0.84		185		0.82
After 5 years	After 5 years	2,441		1.48		1,311		2.24		After 5 years	2,789		1.45		1,311		2.24
Total par value	Total par value	33,048		0.35	%	44,389		0.31	%	Total par value	28,865		0.48	%	44,389		0.31	%
Unamortized premiums	Unamortized premiums	8				10				Unamortized premiums	6				10
Unamortized discounts	Unamortized discounts	(4)				(5)				Unamortized discounts	(5)				(5)
Valuation adjustments for hedging activities	Valuation adjustments for hedging activities	(41)				13				Valuation adjustments for hedging activities	(27)				13
Fair value option valuation adjustments	Fair value option valuation adjustments	0				1				Fair value option valuation adjustments	0				1
Total	Total	$	33,011			$	44,408			Total	$	28,839			$	44,408

The Bank’s participation in consolidated obligation bonds outstanding includes callable bonds of ~~$5,865~~$9,610 at ~~March 31,~~June 30, 2021, and $3,140 at December 31, 2020. 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

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

~~receives a~~ fixed rate) with a call feature that mirrors the call option embedded in the bond (a sold callable swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of ~~$4,405~~$7,775 at ~~March 31,~~June 30, 2021, and $930 at December 31, 2020. The combined ~~sold~~ callable swaps and callable bonds enable the Bank to meet its funding needs at lower costs ~~not otherwise directly attainable solely through the issuance of~~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 ~~March 31,~~June 30, 2021, and December 31, 2020, was as follows:


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Par value of consolidated obligation bonds:	Par value of consolidated obligation bonds:					Par value of consolidated obligation bonds:
Non-callable	Non-callable	$	27,183	$	41,249	Non-callable	$	19,255	$	41,249
Callable	Callable	5,865		3,140		Callable	9,610		3,140
Total par value	Total par value	$	33,048	$	44,389	Total par value	$	28,865	$	44,389

The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding at ~~March 31,~~June 30, 2021, and December 31, 2020, by the earlier of the year of contractual maturity or next call date.


Earlier of Contractual Maturity or Next Call Date	Earlier of Contractual Maturity or Next Call Date	March 31, 2021		December 31, 2020		Earlier of Contractual Maturity or Next Call Date	June 30, 2021		December 31, 2020
Within 1 year	Within 1 year	$	26,225	$	36,667	Within 1 year	$	24,871	$	36,667
After 1 year through 2 years	After 1 year through 2 years	6,595		7,228		After 1 year through 2 years	3,866		7,228
After 2 years through 3 years	After 2 years through 3 years	140		396		After 2 years through 3 years	40		396
After 3 years through 4 years	After 3 years through 4 years	37		47		After 3 years through 4 years	37		47

After 4 years through 5 years						After 4 years through 5 years	2		0
After 5 years	After 5 years	51		51		After 5 years	49		51
Total par value	Total par value	$	33,048	$	44,389	Total par value	$	28,865	$	44,389

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


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
		Amount Outstanding		Weighted Average Interest Rate (1)		Amount Outstanding		Weighted Average Interest Rate (1)			Amount Outstanding		Weighted Average Interest Rate (1)		Amount Outstanding		Weighted Average Interest Rate (1)
Par value	Par value	$	17,111	0.07	%	$	16,217	0.12	%	Par value	$	17,599	0.03	%	$	16,217	0.12	%
Unamortized discounts	Unamortized discounts	(2)				(4)				Unamortized discounts	(1)				(4)
Total	Total	$	17,109			$	16,213			Total	$	17,598			$	16,213

(1)Represents yield to maturity excluding concession fees.

Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at ~~March 31,~~June 30, 2021, and December 31, 2020, are detailed in the following table. For information on the general terms and types of consolidated obligations outstanding, see “Item 8. Financial Statements and Supplementary Data – Note 8 – Consolidated Obligations” in the Bank’s 2020 Form 10-K.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Par value of consolidated obligations:	Par value of consolidated obligations:					Par value of consolidated obligations:
Bonds:	Bonds:					Bonds:
Fixed rate	Fixed rate	$	9,424	$	6,632	Fixed rate	$	12,540	$	6,632
Adjustable rate	Adjustable rate	23,594		37,712		Adjustable rate	16,090		37,712
Step-up	Step-up	30		45		Step-up	235		45

Total bonds, par value	Total bonds, par value	33,048		44,389		Total bonds, par value	28,865		44,389
Discount notes, par value	Discount notes, par value	17,111		16,217		Discount notes, par value	17,599		16,217
Total consolidated obligations, par value	Total consolidated obligations, par value	$	50,159	$	60,606	Total consolidated obligations, par value	$	46,464	$	60,606

The Bank did not have any bonds with embedded features that met the requirements to separate the embedded feature from the host contract and designate the embedded feature as a stand-alone derivative at ~~March 31,~~June 30, 2021, or December 31, 2020. The Bank has generally elected to account for certain bonds with embedded features under the fair value option, and these bonds are carried at fair value on the Statements of Condition. For more information, see Note 11 – Derivatives and Hedging Activities and Note 12 – Fair Value.

Note 8 — Accumulated Other Comprehensive Income/(Loss)

The following table summarizes the changes in Accumulated Other Comprehensive Income (AOCI) for the three months ended ~~March 31,~~June 30, 2021 and 2020:


													Net Unrealized Gain/(Loss) on AFS Securities		Net Non-Credit-Related OTTI Loss on HTM Securities		Pension and Postretirement Benefits		Total AOCI
Balance, March 31, 2020												Balance, March 31, 2020	$	(213)	$	(1)	$	(14)	$	(228)
Other comprehensive income/(loss) before reclassifications:												Other comprehensive income/(loss) before reclassifications:

Net change in fair value												Net change in fair value	192						192
Accretion of non-credit loss												Accretion of non-credit loss			1				1

		Net Unrealized Gain/(Loss) on AFS Securities		Net Non-Credit-Related OTTI Loss on AFS Securities		Net Non-Credit-Related OTTI Loss on HTM Securities		Pension and Postretirement Benefits		Total AOCI

Net current period other comprehensive income/(loss)												Net current period other comprehensive income/(loss)	192		1		0		193
Balance, June 30, 2020												Balance, June 30, 2020	$	(21)	$	0	$	(14)	$	(35)

Balance, December 31, 2019		$	21	$	268	$	(1)	$	(14)	$	274
Balance, March 31, 2021												Balance, March 31, 2021	$	381	$	0	$	(14)	$	367
Other comprehensive income/(loss) before reclassifications:	Other comprehensive income/(loss) before reclassifications:											Other comprehensive income/(loss) before reclassifications:

Net change in fair value	Net change in fair value	(502)		0						(502)		Net change in fair value	27						27

Net current period other comprehensive income/(loss)		(502)		0		0		0		(502)
Adoption of ASU 2016-13, as amended(1)		268		(268)						0
Balance, March 31, 2020		$	(213)	$	0	$	(1)	$	(14)	$	(228)

Balance, December 31, 2020		$	244	$	0	$	0	$	(14)	$	230
Other comprehensive income/(loss) before reclassifications:

Net change in fair value		137		0						137

Net current period other comprehensive income/(loss)	Net current period other comprehensive income/(loss)	137		0		0		0		137		Net current period other comprehensive income/(loss)	27		0		0		27
Balance, March 31, 2021		$	381	$	0	$	0	$	(14)	$	367
Balance, June 30, 2021												Balance, June 30, 2021	$	408	$	0	$	(14)	$	394

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

The following table summarizes the changes in AOCI for the six months ended June 30, 2021 and 2020:


	Net Unrealized Gain/(Loss) on AFS Securities		Net Non-Credit-Related OTTI Loss on AFS Securities		Net Non-Credit-Related OTTI Loss on HTM Securities		Pension and Postretirement Benefits		Total AOCI









Balance, December 31, 2019	$	21	$	268	$	(1)	$	(14)	$	274
Other comprehensive income/(loss) before reclassifications:


Net change in fair value	(310)		0						(310)
Accretion of non-credit loss					1				1


Net current period other comprehensive income/(loss)	(310)		0		1		0		(309)
Adoption of ASU 2016-13, as amended(1)	268		(268)						0
Balance, June 30, 2020	$	(21)	$	0	$	0	$	(14)	$	(35)

Balance, December 31, 2020	$	244	$	0	$	0	$	(14)	$	230
Other comprehensive income/(loss) before reclassifications:

Net change in fair value	164		0						164



Net current period other comprehensive income/(loss)	164		0		0		0		164
Balance, June 30, 2021	$	408	$	0	$	0	$	(14)	$	394

(1) With the adoption of changes to accounting standards on measurement of credit losses for financial instruments on January 1, 2020, OTTI assessment was replaced with an evaluation for an allowance for credit loss (see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” and “Item 8. Financial Statements and Supplementary Data – Note 2 – Recently Issued and Adopted Accounting Guidance” in the Bank’s 2020 Form 10-K for further information).

Note 9 — Capital

Capital Requirements. Under the Housing and Economic Recovery Act of 2008, the Director of the Finance Agency is responsible for setting the risk-based capital standards for the FHLBanks. The FHLBank Act and regulations governing the operations of the FHLBanks require that the Bank’s minimum capital stock requirement for shareholders must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. The Bank must maintain: (i) total regulatory capital in an amount equal to at least 4%

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~~Notes to Financial Statements (continued)~~

of its total assets, (ii) leverage capital in an amount equal to at least 5% of its total assets, and (iii) permanent capital in an amount that is greater than or equal to its risk-based capital requirement.

The Finance Agency requires each FHLBank to maintain a ratio of at least ~~two percent~~2% of capital stock to total assets in order to help preserve the cooperative structure incentives that encourage members to remain fully engaged in the oversight of their investment in the FHLBank. The Finance Agency will consider the proportion of capital stock to assets, measured on a daily average basis at monthend, when assessing each FHLBank’s capital management practices. As of ~~March 31,~~June 30, 2021, and December 31, 2020, the Bank complied with this capital guidance.

Because the Bank issues only Class B stock, regulatory capital and permanent capital for the Bank are both composed of retained earnings and Class B stock, including mandatorily redeemable capital stock (which is classified as a liability for financial reporting purposes). Regulatory capital and permanent capital do not include AOCI. Leverage capital is defined as the sum of permanent capital, weighted by a 1.5 multiplier, plus non-permanent capital.

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

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Notes to Financial Statements (continued)

As of ~~March 31,~~June 30, 2021, and December 31, 2020, the Bank complied with these capital rules and requirements as shown in the following table.


		March 31, 2021						December 31, 2020							June 30, 2021						December 31, 2020
		Required			Actual			Required			Actual				Required			Actual			Required			Actual
Risk-based capital	Risk-based capital	$	1,173		$	5,983		$	1,404		$	5,966		Risk-based capital	$	1,098		$	6,037		$	1,404		$	5,966
Total regulatory capital	Total regulatory capital	$	2,316		$	5,983		$	2,745		$	5,966		Total regulatory capital	$	2,170		$	6,037		$	2,745		$	5,966
Total regulatory capital ratio	Total regulatory capital ratio	4.00		%	10.33		%	4.00		%	8.69		%	Total regulatory capital ratio	4.00		%	11.13		%	4.00		%	8.69		%
Leverage capital	Leverage capital	$	2,895		$	8,975		$	3,432		$	8,949		Leverage capital	$	2,712		$	9,056		$	3,432		$	8,949
Leverage ratio	Leverage ratio	5.00		%	15.50		%	5.00		%	13.04		%	Leverage ratio	5.00		%	16.70		%	5.00		%	13.04		%

Mandatorily Redeemable Capital Stock. The Bank had mandatorily redeemable capital stock totaling $1$3 outstanding to ~~1 institution~~2 institutions at ~~March 31,~~June 30, 2021, and $2 outstanding to 3 institutions at December 31, 2020. ~~All mandatorily redeemable capital stock at March 31, 2021, and December 31, 2020, was past the end of the contractual redemption period because of outstanding activity.~~ The change in mandatorily redeemable capital stock for the three and six months ended ~~March 31,~~June 30, 2021 and 2020 was as follows:


				Three Months Ended				Six Months Ended
		March 31, 2021			March 31, 2020			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Balance at the beginning of the period	Balance at the beginning of the period	$	2		$	138	Balance at the beginning of the period	$	1	$	83	$	2	$	138
Reclassified from/(to) capital during the period	Reclassified from/(to) capital during the period	0			3		Reclassified from/(to) capital during the period	3		0		3		3
Repurchase/redemption of mandatorily redeemable capital stock	Repurchase/redemption of mandatorily redeemable capital stock	(1)			(58)		Repurchase/redemption of mandatorily redeemable capital stock	(1)		0		(2)		(58)
Balance at the end of the period	Balance at the end of the period	$	1		$	83	Balance at the end of the period	$	3	$	83	$	3	$	83

Cash dividends on mandatorily redeemable capital stock were recorded as interest expense of a de minimis amount and $2 for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and of a de minimis amount and $4 for the six months ended June 30, 2021 and 2020, respectively.

The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at June 30, 2021, and December 31, 2020.


Contractual Redemption Period	June 30, 2021		December 31, 2020




After 4 years through 5 years	$	2	$	0
Past contractual redemption date because of remaining activity(1)	1		2
Total	$	3	$	2

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

The Bank’s mandatorily redeemable capital stock is discussed more fully in “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2020 Form 10-K.

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~~Notes to Financial Statements (continued)~~

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

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Notes to Financial Statements (continued)

The Bank’s board of directors reviews the Framework at least annually and may amend the Framework from time to time. The Framework includes a dividend philosophy to endeavor to pay a quarterly dividend at an annualized rate between 5% and 7%. The decision to declare any dividend and the dividend rate are at the discretion of the Bank’s board of directors, which may choose to follow the dividend philosophy as guidance in the dividend declaration. The Board may also revise or eliminate the dividend policy in the future. The Bank’s historical dividend rates and the dividend philosophy are not indicative of future dividend declarations.

The Bank’s Risk Management Policy limits the payment of dividends if the ratio of the Bank’s estimated market value of total capital to par value of capital stock falls below certain levels. If this ratio at the end of any quarter is less than 100% but greater than or equal to 70%, any dividend would be limited to an annualized rate no greater than the daily average of the Federal funds effective rate for the applicable quarter (subject to certain conditions), and if this ratio is less than 70%, the Bank would be restricted from paying a dividend. The ratio of the Bank’s estimated market value of total capital to par value of capital stock was ~~295%~~293% as of ~~March 31,~~June 30, 2021.

In addition, the Bank monitors the condition of its balance sheet, its financial performance, its capital position, overall financial market conditions, and other relevant information as the basis for determining the payment of dividends in future quarters.

Retained Earnings – The Bank’s Framework assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings, which are not made available in the current dividend period, and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the Framework. As determined using the Bank’s methodology, the required level of total retained earnings had ranged from $2,400 to $2,500 during 2019 and continuing through September 2020. In September 2020, the methodology was revised and resulted in a required level of retained earnings of $2,900. In January 2021, the methodology was further revised and resulted in a required level of retained earnings of $1,900. In July 2021, the methodology was further revised and resulted in a required level of retained earnings of $1,500. The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the Joint Capital Enhancement (JCE) Agreement) and unrestricted retained earnings. The Bank’s retained earnings requirement may be changed at any time. The board of directors periodically reviews the retained earnings methodology and analysis to determine whether any adjustments are appropriate.

The JCE Agreement is intended to enhance the capital position of each FHLBank. In accordance with the JCE Agreement, each FHLBank is required to allocate 20% of its net income each quarter to a separate restricted retained earnings account until the balance of the account, calculated as of the last day of each calendar quarter, equals at least 1% of that FHLBank's average balance of outstanding consolidated obligations for the calendar quarter. Under the JCE Agreement, these restricted retained earnings will not be available to pay dividends. With the decline in consolidated obligations outstanding in 2020, the Bank ceased contributions to restricted retained earnings in the fourth quarter of 2020, in accordance with the JCE Agreement, and no further allocations of net income into restricted retained earnings are required until such time as the allocation requirement exceeds the balance of restricted retained earnings. Additionally, the JCE Agreement provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. As of June 30, 2021, the amount in restricted retained earnings was 152% of the Bank’s restricted retained earnings minimum. The Bank’s restricted retained earnings totaled $761 at ~~March 31,~~June 30, 2021, and December 31, 2020. The Bank’s unrestricted retained earnings totaled ~~$2,983~~$3,004 and $2,919 at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively.

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

For more information on restricted retained earnings and the Bank’s Framework, see “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2020 Form 10-K.

Dividend Payments – Finance Agency rules state that FHLBanks may declare and pay dividends only from previously retained earnings or current net earnings and may not declare or pay dividends based on projected or

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anticipated earnings. There is no requirement that the board of directors declare and pay any dividend. A decision by the board of directors to declare or not declare a dividend is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks.

In addition, Finance Agency rules do not permit the Bank to pay dividends in the form of capital stock if its excess capital stock exceeds 1% of its total assets. Excess capital stock is defined as the aggregate of the capital stock held by each shareholder in excess of its minimum capital stock requirement, as established by the Bank’s capital plan. Excess capital stock totaled ~~$161,~~$149, or 0.28% of total assets as of ~~March 31,~~June 30, 2021. Excess capital stock totaled $161, or 0.23% of total assets as of December 31, 2020.

In the ~~first~~second quarter of 2021, the Bank paid dividends at an annualized rate of 6.00%, totaling $34, including $34 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the second quarter of 2020, the Bank paid dividends at an annualized rate of 5.00%, totaling ~~$30,~~$40, including ~~$30~~$38 in dividends on capital stock and $2 in dividends on mandatorily redeemable capital stock.

In the first six months of 2021, the Bank paid dividends at an annualized rate of 5.47%, totaling $64, including $64 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the first ~~quarter~~six months of 2020, the Bank paid dividends at an annualized rate of ~~7.00%~~5.99%, totaling ~~$54,~~$94, including ~~$52~~$90 in dividends on capital stock and $2$4 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 ~~April~~July 29, 2021, the Bank’s board of directors declared a quarterly cash dividend on the capital stock outstanding during the ~~first~~second quarter of 2021 at an annualized rate of 6.00%, totaling ~~$34.~~$35. The Bank recorded the dividend on ~~April~~July 29, 2021. The Bank expects to pay the dividend on ~~May 11,~~August 10, 2021.

Excess Capital Stock – The Bank’s capital plan provides that the Bank may repurchase some or all of a shareholder’s excess capital stock, including any excess mandatorily redeemable capital stock, at the Bank’s discretion, subject to certain statutory and regulatory requirements. The Bank may also repurchase all of a member’s excess capital stock at a member’s request, at the Bank’s discretion, subject to certain statutory and regulatory requirements. A shareholder’s excess capital stock is defined as any capital stock holdings in excess of the shareholder’s minimum capital stock requirement, as established by the Bank’s capital plan. The Bank’s practice is to repurchase the surplus capital stock of all members and the excess capital stock of all former members on a daily schedule. Surplus capital stock is defined as any stock holdings in excess of 115% of a member’s minimum stock requirement. The Bank calculates the amount of stock to be repurchased each business day based on the shareholder’s capital stock outstanding after all stock transactions are completed for the day, ensuring that each member and former member would continue to meet its minimum capital stock requirement after the repurchase. The Bank may change this practice at any time. The Bank repurchased ~~$47~~$294 and ~~$431~~$707 in excess capital stock during the second quarter of 2021 and 2020, respectively, and $341 and $1,138 in excess capital stock during the first ~~quarter~~six months of 2021 and 2020, respectively.

The Bank is required to redeem any mandatorily redeemable capital stock that is in excess of a former member’s minimum stock requirement on or after the expiration of the five-year redemption date. During the ~~first~~second quarter of 2021 and 2020, the Bank redeemed ~~$1 and~~ a de minimis amount ~~respectively,~~ in mandatorily redeemable capital stock, for which the five-year redemption period had expired, at its $100 par ~~value.~~value per share. The stock was redeemed on the scheduled redemption dates or, for stock that was not excess stock on its scheduled redemption date because of outstanding activity with the Bank, on the first available repurchase date after the stock was no longer required to support outstanding activity with the Bank.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Concentration. The following table presents the concentration in capital stock held by institutions whose capital stock ownership represented 10% or more of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock, as of ~~March 31,~~June 30, 2021, or December 31, 2020.


		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
Name of Institution	Name of Institution	Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding		Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding		Name of Institution	Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding		Capital Stock Outstanding		Percentage of Total Capital Stock Outstanding
First Republic Bank	First Republic Bank	$	326	15	%	$	354	16	%	First Republic Bank	$	280	12	%	$	354	16	%

Others	Others	1,913		85		1,932		84		Others	1,992		88		1,932		84
Total	Total	$	2,239	100	%	$	2,286	100	%	Total	$	2,272	100	%	$	2,286	100	%

Note 10 — Segment Information

The Bank uses an analysis of financial results based on the financial components and adjusted net interest income of two operating segments, the advances-related business and the mortgage-related business, as well as other financial information, to review and assess financial performance and determine financial management strategies related to the operations of these 2 business segments. For purposes of segment reporting, adjusted net interest income includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivatives” in other income, excludes interest income and expense associated with changes in fair value from fair value hedges that are recorded in the same line as the earnings effect of the hedged item, and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” Affordable Housing Program (AHP) assessments are not included in the segment reporting analysis but are incorporated into the Bank’s overall assessment of financial performance.

For more information on these operating segments, see “Item 8. Financial Statements and Supplementary Data – Note 13 – Segment Information” in the Bank’s 2020 Form 10-K.

The following table presents the Bank’s adjusted net interest income by operating segment and reconciles total adjusted net interest income to income before the AHP assessment for the three and six months ended ~~March 31,~~June 30, 2021 and 2020.

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

Income/(Expense)
on Economic
Hedges(3)
Interest
Expense on
Mandatorily
Redeemable
Capital
Stock(4)
Net
Interest
Income After Provision for/(Reversal of) Credit Losses Other
Income/
(Loss) Other
Expense Income/(Loss)
Before AHP
Assessment
Three months ended:
March 31, 2021 $ 51 $ 78 $ 129 $ (11) $ (24) $ 0 $ 164 $ (21) $ 39 $ 104
March 31, 2020 63 12 75 71 (8) 2 10 18 36 (8)

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	Advances- Related Business(1)		Mortgage- Related Business(2)		Adjusted Net Interest Income(1)		Amortization of Basis Adjustments and (Gain)/Loss on Fair Value Hedges(1)(3)		Income/(Expense) on Economic Hedges(4)		Interest Expense on Mandatorily Redeemable Capital Stock(5)		Net Interest Income After Provision for/(Reversal of) Credit Losses		Other Income/ (Loss)		Other Expense		Income/(Loss) Before AHP Assessment
Three months ended:
June 30, 2021	$	49	$	60	$	109	$	3	$	(21)	$	0	$	127	$	(26)	$	39	$	62
June 30, 2020	72		75		147		6		(10)		2		149		(9)		43		97
Six months ended:
June 30, 2021	$	101	$	138	$	239	$	(7)	$	(45)	$	0	$	291	$	(47)	$	78	$	166
June 30, 2020	135		87		222		77		(18)		4		159		9		79		89

(1) Amounts have been corrected to properly disclose the classification of amortization of basis adjustments and certain fees on prepaid advances within adjusted net interest income of the advances-related business segment and within amortization of basis adjustments. The Bank previously disclosed in “Note 10 - Segment Information” in the Bank’s second quarter 2020 Form 10-Q adjusted net interest income totaling $144 and $219 for the three and six months ended June 30, 2020, respectively. These amounts should have been disclosed as $147 and $222, respectively. These revisions had no effect on total assets, net interest income, or net income of the Bank reported for all affected periods.

(2) The mortgage-related business includes total accretion or amortization associated with other-than-temporarily impaired PLRMBS, which are recognized in interest income, totaled ~~$17~~$16 and ~~$20~~$17 for the three months ended ~~March 31,~~June 30, 2021 and 2020; and totaled $33 and $37 for the six months ended June 30, 2021 and 2020, respectively. The mortgage-related business includes a provision for/(reversal of) credit losses of ~~$(6)~~$(2) and ~~$39~~$(7) for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively, and $(8) and $32 for the six months ended June 30, 2021 and 2020, respectively.

~~(2)~~(3) Represents amortization of amounts deferred for adjusted net interest income purposes only and changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges recorded in net interest income.

~~(3)~~(4) The Bank includes income and expense associated with net settlements from economic hedges in adjusted net interest income in its analysis of financial performance for its 2 operating segments. For financial reporting purposes, the Bank does not include these amounts in net interest income in the Statements of Income, but instead records them in other income in “Net gain/(loss) on derivatives.”

~~(4)~~(5) The Bank excludes interest expense on mandatorily redeemable capital stock from adjusted net interest income in its analysis of financial performance for its 2 operating segments.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

The following table presents total assets by operating segment at ~~March 31,~~June 30, 2021, and December 31, 2020.


		Advances- Related Business		Mortgage- Related Business		Total Assets			Advances- Related Business		Mortgage- Related Business		Total Assets
March 31, 2021		$	41,696	$	16,212	$	57,908
June 30, 2021								June 30, 2021	$	38,647	$	15,597	$	54,244
December 31, 2020	December 31, 2020	50,876		17,758		68,634		December 31, 2020	50,876		17,758		68,634

Note 11 — Derivatives and Hedging Activities

General. The Bank may enter into interest rate swaps (including callable, putable, and basis swaps) and cap and floor agreements (collectively, interest rate exchange agreements or derivatives). Most of the Bank’s interest rate exchange agreements are executed in conjunction with the origination of advances or the issuance of consolidated obligations to create variable rate structures. The interest rate exchange agreements are generally executed at the same time the advances and consolidated obligations are transacted and generally have the same maturity dates as the related hedged instrument. The Bank transacts most of its derivatives with large banks and major broker-dealers.

For more information related to the Bank’s interest rate exchange agreement instruments and hedging activities, see “Item 8. Financial Statements and Supplementary Data – Note 14 – Derivatives and Hedging Activities” in the Bank’s 2020 Form 10-K. For more information related to the Bank’s accounting policies for derivatives, see “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2020 Form 10-K.

The following table summarizes the notional amount and fair value of derivative instruments, including the effect of netting adjustments and cash collateral as of ~~March 31,~~June 30, 2021, and December 31, 2020. For purposes of this disclosure, the derivative values include the fair value of derivatives and related accrued interest.

March 31, 2021 December 31, 2020
Notional
Amount of
Derivatives Derivative
Assets Derivative
Liabilities Notional
Amount of
Derivatives Derivative
Assets Derivative
Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps $ 36,735 $ 312 $ 74 $ 35,060 $ 88 $ 128
Total 36,735 312 74 35,060 88 128
Derivatives not designated as hedging instruments:
Interest rate swaps 33,528 4 12 42,804 4 16
Interest rate caps and floors 550 0 0 780 0 0
Mortgage delivery commitments 0 0 0 1 0 0
Total 34,078 4 12 43,585 4 16
Total derivatives before netting and collateral adjustments $ 70,813 316 86 $ 78,645 92 144
Netting adjustments and cash collateral(1)
(289) (79) (89) (132)
Total derivative assets and total derivative liabilities $ 27 $ 7 $ 3 $ 12

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	June 30, 2021						December 31, 2020
	Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities		Notional Amount of Derivatives		Derivative Assets		Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate swaps	$	36,617	$	202	$	81	$	35,060	$	88	$	128
Total	36,617		202		81		35,060		88		128
Derivatives not designated as hedging instruments:
Interest rate swaps	36,992		9		22		42,804		4		16
Interest rate caps and floors	550		0		0		780		0		0
Mortgage delivery commitments	0		0		0		1		0		0
Total	37,542		9		22		43,585		4		16
Total derivatives before netting and collateral adjustments	$	74,159	211		103		$	78,645	92		144
Netting adjustments and cash collateral(1)			(211)		(82)				(89)		(132)
Total derivative assets and total derivative liabilities			$	0	$	21			$	3	$	12

(1) Amounts represent the application of the netting requirements that allow the Bank to settle positive and negative positions, and also cash collateral, including accrued interest, held or placed with the same clearing agents ~~and/~~or counterparty. Cash collateral posted, including accrued interest, was ~~$31~~$18 and $72 at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively. Cash collateral received, including accrued interest, was ~~$240~~$147 and $30 at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively.

The following tables present, by type of hedged item, the gains and losses on fair value hedging relationships and the impact of those derivatives on the Bank’s Statements of Income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020.


	Three Months Ended June 30, 2021
	Interest Income/(Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	55	$	50	$	(14)
Gain/(loss) on fair value hedging relationships
Derivatives(1)	$	(35)	$	(219)	$	31
Hedged items	(22)		198		(14)
Net gain/(loss) on fair value hedging relationships	(57)		(21)		17
Net amortization of gain on discontinued fair value hedging relationships	(5)		(27)		0
Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(62)	$	(48)	$	17

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


		Three Months Ended March 31, 2021							Three Months Ended June 30, 2020
		Interest Income/(Expense)							Interest Income/(Expense)
		Advances		AFS Securities		Consolidated Obligation Bonds			Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	Total interest income/(expense) presented in the Statements of Income	$	65	$	61	$	(22)	Total interest income/(expense) presented in the Statements of Income	$	142	$	61	$	(82)
Gain/(loss) on fair value hedging relationships	Gain/(loss) on fair value hedging relationships							Gain/(loss) on fair value hedging relationships
Derivatives(1)	Derivatives(1)	$	134	$	476	$	(47)	Derivatives(1)	$	(86)	$	(81)	$	2
Hedged items	Hedged items	(197)		(491)		54		Hedged items	(11)		24		6
Net gain/(loss) on fair value hedging relationships	Net gain/(loss) on fair value hedging relationships	(63)		(15)		7		Net gain/(loss) on fair value hedging relationships	(97)		(57)		8
Net amortization of gain on discontinued fair value hedging relationships	Net amortization of gain on discontinued fair value hedging relationships	(3)		(27)		0		Net amortization of gain on discontinued fair value hedging relationships	(1)		(2)		0
Net gain/(loss) on derivatives and hedging activities recorded in net interest income	Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(66)	$	(42)	$	7	Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(98)	$	(59)	$	8


		Three Months Ended March 31, 2020							Six Months Ended June 30, 2021
		Interest Income/(Expense)							Interest Income/(Expense)
		Advances		AFS Securities		Consolidated Obligation Bonds			Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	Total interest income/(expense) presented in the Statements of Income	$	279	$	51	$	(276)	Total interest income/(expense) presented in the Statements of Income	$	120	$	111	$	(36)
Gain/(loss) on fair value hedging relationships	Gain/(loss) on fair value hedging relationships							Gain/(loss) on fair value hedging relationships
Derivatives(1)	Derivatives(1)	$	(651)	$	(968)	$	26	Derivatives(1)	$	99	$	257	$	(16)
Hedged items	Hedged items	610		893		(23)		Hedged items	(219)		(293)		40

Net gain/(loss) on fair value hedging relationships								Net gain/(loss) on fair value hedging relationships	(120)		(36)		24
Net amortization of gain on discontinued fair value hedging relationships								Net amortization of gain on discontinued fair value hedging relationships	(8)		(54)		0
Net gain/(loss) on derivatives and hedging activities recorded in net interest income	Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(41)	$	(75)	$	3	Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(128)	$	(90)	$	24



	Six Months Ended June 30, 2020
	Interest Income/(Expense)
	Advances		AFS Securities		Consolidated Obligation Bonds
Total interest income/(expense) presented in the Statements of Income	$	421	$	112	$	(358)
Gain/(loss) on fair value hedging relationships
Derivatives(1)	$	(737)	$	(1,049)	$	28
Hedged items	599		917		(17)
Net gain/(loss) on fair value hedging relationships	(138)		(132)		11
Net amortization of gain on discontinued fair value hedging relationships	(1)		(2)		0
Net gain/(loss) on derivatives and hedging activities recorded in net interest income	$	(139)	$	(134)	$	11

(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 ~~March 31,~~June 30, 2021, and December 31, 2020.

March 31, 2021 December 31, 2020
Advances AFS Securities Consolidated Obligation Bonds Advances AFS Securities Consolidated Obligation Bonds
Amortized cost of hedged asset/(liability)(1)
$ 21,947 $ 10,081 $ (7,053) $ 23,605 $ 11,557 $ (3,645)
Fair value hedging basis adjustments:
Active hedging relationships included in amortized cost $ 278 $ (448) $ 40 $ 477 $ 43 $ (13)
Discontinued hedging relationships included in amortized cost 29 988 0 32 1,016 0
Total amount of fair value hedging basis adjustments $ 307 $ 540 $ 40 $ 509 $ 1,059 $ (13)

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	June 30, 2021						December 31, 2020
	Advances		AFS Securities		Consolidated Obligation Bonds		Advances		AFS Securities		Consolidated Obligation Bonds
Amortized cost of hedged asset/(liability)(1)	$	21,623	$	9,396	$	(9,906)	$	23,605	$	11,557	$	(3,645)
Fair value hedging basis adjustments:
Active hedging relationships included in amortized cost	$	139	$	(250)	$	27	$	477	$	43	$	(13)
Discontinued hedging relationships included in amortized cost	132		962		0		32		1,016		0
Total amount of fair value hedging basis adjustments	$	271	$	712	$	27	$	509	$	1,059	$	(13)

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

The following table presents the components of net gain/(loss) on derivatives as presented in the Statements of Income for the three and six months ended ~~March 31,~~June 30, 2021 and 2020.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~


		Three Months Ended					Three Months Ended				Six Months Ended
			March 31, 2021		March 31, 2020				June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Derivatives not designated as hedging instruments	Derivatives not designated as hedging instruments		Gain/(Loss)		Gain/(Loss)			Derivatives not designated as hedging instruments	Gain/(Loss)		Gain/(Loss)		Gain/(Loss)		Gain/(Loss)

Economic hedges:	Economic hedges:							Economic hedges:
Interest rate swaps	Interest rate swaps		$	42	$	(143)		Interest rate swaps	$	13	$	(3)	$	55	$	(146)

Net settlements	Net settlements		(24)		(8)			Net settlements	(21)		(10)		(45)		(18)
Mortgage delivery commitments	Mortgage delivery commitments		0		4			Mortgage delivery commitments	0		(1)		0		3

Net gain/(loss) on derivatives	Net gain/(loss) on derivatives		$	18	$	(147)		Net gain/(loss) on derivatives	$	(8)	$	(14)	$	10	$	(161)

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

For cleared derivatives, the clearinghouse is the Bank’s counterparty. The requirement that the Bank post initial and variation margin through a clearing agent to the clearinghouse exposes the Bank to institutional credit risk if the clearing agent fails to meet its obligations. The use of a clearinghouse, or central counterparty, lowers overall credit risk exposure because it employs standard valuation and initial and variation margin processes and is specifically designed to withstand remote but plausible counterparty default credit events. Variation margin is posted or collected for changes in the value of the portfolio, and initial margin is posted for changes in risk profile of the portfolio. The Bank has analyzed the enforceability of offsetting rights applicable to its cleared derivative transactions and determined that the exercise of those offsetting rights by a non-defaulting party under these transactions should be upheld under applicable bankruptcy law and Commodity Futures Trading Commission rules in the event of a clearinghouse or clearing agent insolvency and under applicable clearinghouse rules upon a non-insolvency-based event of default of the clearinghouse or clearing agent. Based on this analysis, the Bank presents a net derivative receivable or payable for all of its transactions through a particular clearing agent with a particular clearinghouse.

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

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

derivative agreements provide that, if the Bank’s long-term debt rating falls below a specified rating (ranging from A3/A- to Baa3/BBB-), the Bank’s counterparty would have the right, but not the obligation, to terminate all of its outstanding derivative transactions with the Bank; the Bank’s agreements with its clearing agents for cleared derivative transactions have similar provisions with respect to the debt rating of FHLBank System consolidated bonds. If this occurs, the Bank may choose to enter into replacement hedges, either by transferring the existing transactions to another counterparty or entering into new replacement transactions, based on prevailing market rates. The aggregate fair value of all uncleared derivative instruments with credit risk-related contingent features that were in a net derivative liability position (before cash collateral and related accrued interest) at ~~March 31,~~June 30, 2021, was ~~$20,~~$13, for which the Bank had posted cash collateral of ~~$18~~$12 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 ~~March 31,~~June 30, 2021, and December 31, 2020.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~


		March 31, 2021								June 30, 2021
		Derivative Instruments Meeting Netting Requirements												Derivative Instruments Meeting Netting Requirements
		Amount Recognized		Gross Amount of Netting Adjustments and Cash Collateral		Total Derivative Assets and Total Derivative Liabilities		Noncash Collateral Not Offset That Can Be Sold or Repledged			Net Amount			Amount Recognized		Gross Amount of Netting Adjustments and Cash Collateral		Total Derivative Assets and Total Derivative Liabilities		Noncash Collateral Not Offset That Can Be Sold or Repledged		Net Amount
Derivative Assets	Derivative Assets												Derivative Assets
Uncleared	Uncleared	$	304	$	(300)	$	4	$	0		$	4	Uncleared	$	203	$	(203)	$	0	$	0	$	0
Cleared	Cleared	12		11		23		(326)			349		Cleared	8		(8)		0		(318)		318
Total	Total					$	27				$	353	Total					$	0			$	318
Derivative Liabilities	Derivative Liabilities												Derivative Liabilities
Uncleared	Uncleared	$	84	$	(77)	$	7	$	0		$	7	Uncleared	$	82	$	(68)	$	14	$	0	$	14
Cleared	Cleared	2		(2)		0		0			0		Cleared	21		(14)		7		0		7
Total	Total					$	7				$	7	Total					$	21			$	21


	December 31, 2020
	Derivative Instruments Meeting Netting Requirements
	Amount Recognized		Gross Amount of Netting Adjustments and Cash Collateral		Total Derivative Assets and Total Derivative Liabilities		Noncash Collateral Not Offset That Can Be Sold or Repledged		Net Amount
Derivative Assets
Uncleared	$	85	$	(85)	$	0	$	0	$	0
Cleared	7		(4)		3		(379)		382
Total					$	3			$	382
Derivative Liabilities
Uncleared	$	124	$	(114)	$	10	$	0	$	10
Cleared	20		(18)		2		0		2
Total					$	12			$	12

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

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

available to the Bank at ~~March 31,~~June 30, 2021, and December 31, 2020. Although the Bank uses its best judgment in estimating the fair value of these financial instruments, there are inherent limitations in any estimation technique or valuation methodology. For example, because an active secondary market does not exist for a portion of the Bank’s financial instruments, in certain cases fair values cannot be precisely quantified or verified and may change as economic and market factors and evaluation of those factors change. The Bank continues to refine its valuation methodologies as markets and products develop and the pricing for certain products becomes more or less transparent. While the Bank believes that its valuation methodologies are appropriate and consistent with those of other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a materially different estimate of fair value as of the reporting date. U.S. GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., an exit price). Therefore, the fair values are not necessarily indicative of the amounts that would be realized in current market transactions, although they do reflect the Bank’s judgment as to how a market participant would estimate the fair values. The fair value summary table does not represent an estimate of the overall market value of the Bank as a going concern, which would take into account future business opportunities and the net profitability of total assets and liabilities.

~~Table of Contents~~

~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

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 ~~March 31,~~June 30, 2021, and December 31, 2020. The Bank records trading securities, AFS securities, derivative assets, derivative liabilities, certain advances, certain consolidated obligations, and certain other assets at fair value on a recurring basis, and on occasion certain mortgage loans held for portfolio and certain other assets at fair value on a nonrecurring basis. The Bank records all other financial assets and liabilities at amortized cost. Refer to the following tables for further details about the financial assets and liabilities held at fair value on either a recurring or non-recurring basis.

March 31, 2021

Net Carrying
Value Estimated Fair Value Level 1 Level 2 Level 3
Netting Adjustments and Cash Collateral(1)
Assets
Cash and due from banks $ 320 $ 320 $ 320 $ 0 $ 0 $ —
Interest-bearing deposits 1,121 1,121 1,121 0 0 —
Securities purchased under agreements to resell 1,000 1,000 0 1,000 0 —
Federal funds sold 4,180 4,180 0 4,180 0 —
Trading securities 3,991 3,991 0 3,991 0 —
AFS securities 12,846 12,846 0 10,920 1,926 —
HTM securities 4,388 4,424 0 4,150 274 —
Advances 28,140 28,304 0 28,304 0 —
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans 1,581 1,581 0 1,581 0 —
Accrued interest receivable 84 84 0 84 0 —
Derivative assets, net(1)
27 27 0 316 0 (289)
Other assets(2)
23 23 23 0 0 —
Liabilities
Deposits 1,029 1,029 0 1,029 0 —
Consolidated obligations:
Bonds 33,011 32,984 0 32,984 0 —
Discount notes 17,109 17,110 0 17,110 0 —
Total consolidated obligations 50,120 50,094 0 50,094 0 —
Mandatorily redeemable capital stock 1 1 1 0 0 —
Accrued interest payable 19 19 0 19 0 —
Derivative liabilities, net(1)
7 7 0 86 0 (79)
Other
Standby letters of credit 34 34 0 34 0 —

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	June 30, 2021
	Net Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral(1)
Assets
Cash and due from banks	$	53	$	53	$	53	$	0	$	0	$	—
Interest-bearing deposits	1,126		1,126		1,126		0		0		—
Securities purchased under agreements to resell	4,000		4,000		0		4,000		0		—
Federal funds sold	4,938		4,938		0		4,938		0		—
Trading securities	2,922		2,922		0		2,922		0		—
AFS securities	11,443		11,443		0		9,616		1,827		—
HTM securities	3,974		4,003		0		3,745		258		—
Advances	24,194		24,330		0		24,330		0		—
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans	1,301		1,305		0		1,305		0		—

Accrued interest receivable	62		62		0		62		0		—
Derivative assets, net(1)	0		0		0		211		0		(211)
Other assets(2)	24		24		24		0		0		—
Liabilities
Deposits	945		945		0		945		0		—
Consolidated obligations:
Bonds	28,839		28,818		0		28,818		0		—
Discount notes	17,598		17,598		0		17,598		0		—
Total consolidated obligations	46,437		46,416		0		46,416		0		—
Mandatorily redeemable capital stock	3		3		3		0		0		—

Accrued interest payable	29		29		0		29		0		—
Derivative liabilities, net(1)	21		21		0		103		0		(82)
Other
Standby letters of credit	32		32		0		32		0		—

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	December 31, 2020
	Carrying Value		Estimated Fair Value		Level 1		Level 2		Level 3		Netting Adjustments and Cash Collateral(1)
Assets
Cash and due from banks	$	174	$	174	$	174	$	0	$	0	$	—
Interest-bearing deposits	1,078		1,078		1,078		0		0		—
Securities purchased under agreements to resell	7,250		7,250		0		7,250		0		—
Federal funds sold	1,880		1,880		0		1,880		0		—
Trading securities	4,260		4,260		0		4,260		0		—
AFS securities	15,679		15,679		0		13,644		2,035		—
HTM securities	5,081		5,115		0		4,827		288		—
Advances	30,976		31,166		0		31,166		0		—
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans	1,935		1,941		0		1,941		0		—
Accrued interest receivable	82		82		0		82		0		—
Derivative assets, net(1)	3		3		0		92		0		(89)
Other assets(2)	22		22		22		0		0		—
Liabilities
Deposits	887		887		0		887		0		—
Consolidated obligations:
Bonds	44,408		44,457		0		44,457		0		—
Discount notes	16,213		16,214		0		16,214		0		—
Total consolidated obligations	60,621		60,671		0		60,671		0		—
Mandatorily redeemable capital stock	2		2		2		0		0		—

Accrued interest payable	24		24		0		24		0		—
Derivative liabilities, net(1)	12		12		0		144		0		(132)
Other
Standby letters of credit	36		36		0		36		0		—

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

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

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

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

•Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in an active market that the reporting entity can access on the measurement date. An active market for the asset or liability is a market in which the transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

•Level 2 – Inputs other than quoted prices within Level 1 that are observable inputs for the asset or liability, either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability. Level 2 inputs include the following: (1) quoted prices for similar assets or liabilities in active markets; (2) quoted prices for identical or similar assets or liabilities in markets that are not active; (3) inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates and yield curves that are observable at commonly quoted intervals, and implied volatilities); and (4) inputs that are derived principally from or corroborated by observable market data by correlation or other means.

•Level 3 – Unobservable inputs for the asset or liability.

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 ~~March 31,~~June 30, 2021:

•Trading securities

•AFS securities

•Certain advances

•Derivative assets and liabilities

•Certain consolidated obligation bonds

•Certain other assets

For instruments carried at fair value, the Bank reviews the fair value hierarchy classifications on a quarterly basis. Changes in the observability of the valuation inputs may result in a reclassification of certain assets or liabilities. For the periods presented, the Bank did not have any reclassifications for transfers in or out of level 3 of the fair value hierarchy.

Summary of Valuation Methodologies and Primary Inputs. For information related to the valuation methodologies and primary inputs used to develop the measurement of fair value for assets and liabilities that are measured at fair value on a recurring or nonrecurring basis in the Statements of Condition, see “Item 8. Financial Statements and Supplementary Data – Note 15 – Fair Value” in the Bank’s 2020 Form 10-K. There have been no significant changes in these valuation methodologies and primary inputs during the ~~three~~six months ended ~~March 31,~~June 30, 2021.

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

3538

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Fair Value Measurements. The following tables present the fair value of assets and liabilities, which are recorded on a recurring or nonrecurring basis at ~~March 31,~~June 30, 2021, and December 31, 2020, by level within the fair value hierarchy.


March 31, 2021
June 30, 2021															June 30, 2021
		Fair Value Measurement Using:						Netting Adjustments and Cash Collateral(1)									Fair Value Measurement Using:												Netting Adjustments and Cash Collateral(1)
		Level 1		Level 2		Level 3				Total				Level 1					Level 2				Level 3								Total
Recurring fair value measurements – Assets:	Recurring fair value measurements – Assets:														Recurring fair value measurements – Assets:
Trading securities:	Trading securities:														Trading securities:
U.S. obligations – Treasury notes	U.S. obligations – Treasury notes	$	0	$	3,989	$	0			$	—				$	3,989		U.S. obligations – Treasury notes	$	0			$	2,920			$	0			$	—			$	2,920

MBS – Other U.S. obligations – Ginnie Mae	MBS – Other U.S. obligations – Ginnie Mae	0		2		0		—				2			MBS – Other U.S. obligations – Ginnie Mae		0				2				0				—				2
Total trading securities	Total trading securities	0		3,991		0		—				3,991			Total trading securities		0				2,922				0				—				2,922
AFS securities:	AFS securities:														AFS securities:
U.S. obligations – Treasury securities	U.S. obligations – Treasury securities	0		2,645		0		—				2,645			U.S. obligations – Treasury securities		0				1,161				0				—				1,161
MBS:	MBS:														MBS:
GSEs – multifamily	GSEs – multifamily	0		8,275		0		—				8,275			GSEs – multifamily		0				8,455				0				—				8,455
PLRMBS	PLRMBS	0		0		1,926		—				1,926			PLRMBS		0				0				1,827				—				1,827
Subtotal MBS	Subtotal MBS	0		8,275		1,926		—				10,201			Subtotal MBS		0				8,455				1,827				—				10,282
Total AFS securities	Total AFS securities	0		10,920		1,926		—				12,846			Total AFS securities		0				9,616				1,827				—				11,443
Advances(2)	Advances(2)	0		2,587		0		—				2,587			Advances(2)		0				1,984				0				—				1,984
Derivative assets, net: interest rate-related	Derivative assets, net: interest rate-related	0		316		0		(289)				27			Derivative assets, net: interest rate-related		0				211				0				(211)				0

Other assets	Other assets	23		0		0		—				23			Other assets		24				0				0				—				24
Total recurring fair value measurements – Assets	Total recurring fair value measurements – Assets	$	23	$	17,814	$	1,926	$	(289)			$	19,474		Total recurring fair value measurements – Assets		$	24			$	14,733			$	1,827			$	(211)			$	16,373
Recurring fair value measurements – Liabilities:	Recurring fair value measurements – Liabilities:														Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)	Consolidated obligation bonds(3)	$	0	$	31	$	0	$	—			$	31		Consolidated obligation bonds(3)		$	0			$	235			$	0			$	—			$	235
Derivative liabilities, net: interest rate-related	Derivative liabilities, net: interest rate-related	0		86		0		(79)				7			Derivative liabilities, net: interest rate-related		0				103				0				(82)				21
Total recurring fair value measurements – Liabilities	Total recurring fair value measurements – Liabilities	$	0	$	117	$	0	$	(79)			$	38		Total recurring fair value measurements – Liabilities		$	0			$	338			$	0			$	(82)			$	256
Nonrecurring fair value measurements – Assets:(4)	Nonrecurring fair value measurements – Assets:(4)														Nonrecurring fair value measurements – Assets:(4)

Impaired mortgage loans held for portfolio	Impaired mortgage loans held for portfolio	$	0	$	0	$	22	$	—			$	22		Impaired mortgage loans held for portfolio		$	0			$	0			$	22			$	—			$	22
Total nonrecurring fair value measurements – Assets	Total nonrecurring fair value measurements – Assets	$	0	$	0	$	22	$	—			$	22		Total nonrecurring fair value measurements – Assets		$	0			$	0			$	22			$	—			$	22

3639

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


December 31, 2020	December 31, 2020														December 31, 2020
		Fair Value Measurement Using:						Netting Adjustments and Cash Collateral(1)									Fair Value Measurement Using:												Netting Adjustments and Cash Collateral(1)
		Level 1		Level 2		Level 3				Total				Level 1					Level 2				Level 3								Total
Recurring fair value measurements – Assets:	Recurring fair value measurements – Assets:														Recurring fair value measurements – Assets:
Trading securities:	Trading securities:														Trading securities:
U.S. obligations – Treasury notes	U.S. obligations – Treasury notes	$	0	$	4,257	$	0			$	—				$	4,257		U.S. obligations – Treasury notes	$	0			$	4,257			$	0			$	—			$	4,257

MBS – Other U.S. obligations – Ginnie Mae	MBS – Other U.S. obligations – Ginnie Mae	0		3		0		—				3			MBS – Other U.S. obligations – Ginnie Mae		0				3				—				—				3
Total trading securities	Total trading securities	0		4,260		0		—				4,260			Total trading securities		0				4,260				0				—				4,260
AFS securities:	AFS securities:														AFS securities:
U.S. obligations – Treasury securities	U.S. obligations – Treasury securities	0		4,983		0		—				4,983			U.S. obligations – Treasury securities		0				4,983				0				—				4,983
MBS:	MBS:														MBS:
GSEs – multifamily	GSEs – multifamily	0		8,661		0		—				8,661			GSEs – multifamily		0				8,661				0				—				8,661
PLRMBS	PLRMBS	0		0		2,035		—				2,035			PLRMBS		0				0				2,035				—				2,035
Subtotal MBS	Subtotal MBS	0		8,661		2,035		—				10,696			Subtotal MBS		0				8,661				2,035				—				10,696
Total AFS securities	Total AFS securities	0		13,644		2,035		—				15,679			Total AFS securities		0				13,644				2,035				—				15,679
Advances(2)	Advances(2)	0		2,147		0		—				2,147			Advances(2)		0				2,147				0				—				2,147
Derivative assets, net: interest rate-related	Derivative assets, net: interest rate-related	0		92		0		(89)				3			Derivative assets, net: interest rate-related		0				92				0				(89)				3
Other assets	Other assets	22		0		0		—				22			Other assets		22				0				0				—				22
Total recurring fair value measurements – Assets	Total recurring fair value measurements – Assets	$	22	$	20,143	$	2,035	$	(89)			$	22,111		Total recurring fair value measurements – Assets		$	22			$	20,143			$	2,035			$	(89)			$	22,111
Recurring fair value measurements – Liabilities:	Recurring fair value measurements – Liabilities:														Recurring fair value measurements – Liabilities:
Consolidated obligation bonds(3)	Consolidated obligation bonds(3)	$	0	$	111	$	0	$	—			$	111		Consolidated obligation bonds(3)		$	0			$	111			$	0			$	—			$	111
Derivative liabilities, net: interest rate-related	Derivative liabilities, net: interest rate-related	0		144		0		(132)				12			Derivative liabilities, net: interest rate-related		0				144				0				(132)				12
Total recurring fair value measurements – Liabilities	Total recurring fair value measurements – Liabilities	$	0	$	255	$	0	$	(132)			$	123		Total recurring fair value measurements – Liabilities		$	0			$	255			$	0			$	(132)			$	123
Nonrecurring fair value measurements – Assets:(4)	Nonrecurring fair value measurements – Assets:(4)														Nonrecurring fair value measurements – Assets:(4)

Impaired mortgage loans held for portfolio	Impaired mortgage loans held for portfolio	$	0	$	0	$	18	$	—			$	18		Impaired mortgage loans held for portfolio		$	0			$	0			$	18			$	—			$	18
Total nonrecurring fair value measurements – Assets	Total nonrecurring fair value measurements – Assets	$	0	$	0	$	18	$	—			$	18		Total nonrecurring fair value measurements – Assets		$	0			$	0			$	18			$	—			$	18

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

(2)Represents advances recorded under the fair value option at ~~March 31,~~June 30, 2021, and December 31, 2020.

(3)Represents consolidated obligation bonds recorded under the fair value option at ~~March 31,~~June 30, 2021, and December 31, 2020.

(4)The fair value information presented is as of the date the fair value adjustment was recorded during the ~~three~~six months ended ~~March 31,~~June 30, 2021, and the year ended December 31, 2020.

The following ~~table presents~~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 six months ended ~~March 31,~~June 30, 2021 and 2020.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


		Three Months Ended					Three Months Ended
		March 31, 2021		March 31, 2020			June 30, 2021		June 30, 2020
Balance, beginning of the period	Balance, beginning of the period	$	2,035	$	2,597	Balance, beginning of the period	$	1,926	$	2,226
Total gain/(loss) realized and unrealized included in:	Total gain/(loss) realized and unrealized included in:					Total gain/(loss) realized and unrealized included in:
Interest income	Interest income	17		19		Interest income	17		17
(Provision for)/reversal of credit losses	(Provision for)/reversal of credit losses	5		(39)		(Provision for)/reversal of credit losses	1		10

Unrealized gain/(loss) included in AOCI	Unrealized gain/(loss) included in AOCI	9		(234)		Unrealized gain/(loss) included in AOCI	20		94
Settlements	Settlements	(140)		(118)		Settlements	(137)		(122)
Transfers of HTM securities to AFS securities		0		1

Balance, end of the period	Balance, end of the period	$	1,926	$	2,226	Balance, end of the period	$	1,827	$	2,225

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	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	$	21	$	(19)	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	$	18	$	26


	Six Months Ended
	June 30, 2021		June 30, 2020
Balance, beginning of the period	$	2,035	$	2,597
Total gain/(loss) realized and unrealized included in:
Interest income	34		36
(Provision for)/reversal of credit losses	6		(29)

Unrealized gain/(loss) included in AOCI	29		(140)
Settlements	(277)		(240)
Transfers of HTM securities to AFS securities	0		1
Balance, end of the period	$	1,827	$	2,225

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	$	39	$	7

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

For more information on the Bank’s election of the fair value option, see “Item 8. Financial Statements and Supplementary Data – Note 15 – Fair Values” in the Bank’s 2020 Form 10-K.

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

The following ~~table summarizes~~tables summarize the activity related to financial assets and liabilities for which the Bank elected the fair value option during the three and six months ended ~~March 31,~~June 30, 2021 and 2020:

March 31, 2021 March 31, 2020
Advances Consolidated
Obligation Bonds Advances Consolidated
Obligation Bonds
Balance, beginning of the period $ 2,147 $ 111 $ 4,370 $ 337
New transactions elected for fair value option 650 0 7,070 0
Maturities and terminations (183) (80) (7,197) (85)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings (26) 0 91 2
Change in accrued interest (1) 0 0 0
Balance, end of the period $ 2,587 $ 31 $ 4,334 $ 254

Table of Contents

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	Three Months Ended
	June 30, 2021				June 30, 2020
	Advances		Consolidated Obligation Bonds		Advances		Consolidated Obligation Bonds
Balance, beginning of the period	$	2,587	$	31	$	4,334	$	254
New transactions elected for fair value option	20		220		0		0
Maturities and terminations	(617)		(15)		(868)		(125)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings	(6)		(1)		14		0
Change in accrued interest	0		0		(2)		(1)
Balance, end of the period	$	1,984	$	235	$	3,478	$	128


	Six Months Ended
	June 30, 2021				June 30, 2020
	Advances		Consolidated Obligation Bonds		Advances		Consolidated Obligation Bonds
Balance, beginning of the period	$	2,147	$	111	$	4,370	$	337
New transactions elected for fair value option	670		220		7,070		0
Maturities and terminations	(800)		(95)		(8,065)		(210)
Net gain/(loss) on advances and net (gain)/loss on consolidated obligation bonds from changes in fair value recognized in earnings	(32)		(1)		105		2
Change in accrued interest	(1)		0		(2)		(1)
Balance, end of the period	$	1,984	$	235	$	3,478	$	128

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

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

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 six months ended ~~March 31,~~June 30, 2021 and 2020. In determining that there has been no change in instrument-specific credit risk period to period, the Bank primarily considered the following factors:

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

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

The following table presents the difference between the aggregate remaining contractual principal balance outstanding and aggregate fair value of advances and consolidated obligation bonds for which the Bank elected the fair value option at ~~March 31,~~June 30, 2021, and December 31, 2020:


		March 31, 2021						December 31, 2020							June 30, 2021						December 31, 2020
		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance			Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance		Principal Balance		Fair Value		Fair Value Over/(Under) Principal Balance
Advances(1)	Advances(1)	$	2,486	$	2,587	$	101	$	2,017	$	2,147	$	130	Advances(1)	$	1,888	$	1,984	$	96	$	2,017	$	2,147	$	130
Consolidated obligation bonds	Consolidated obligation bonds	31		31		0		110		111		1		Consolidated obligation bonds	235		235		0		110		111		1

(1) At ~~March 31,~~June 30, 2021, and December 31, 2020, none of these advances were 90 days or more past due or had been placed on nonaccrual status.

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Note 13 — Commitments and Contingencies

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The regulations provide a general framework for addressing the possibility that an FHLBank may be unable to repay the consolidated obligations for which it is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of ~~March 31,~~June 30, 2021, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of the FHLBanks was ~~$696,385~~$666,747 at ~~March 31,~~June 30, 2021, and $746,722 at December 31, 2020. The par value of the Bank’s participation in consolidated obligations was ~~$50,159~~$46,464 at ~~March 31,~~June 30, 2021, and $60,606 at December 31, 2020. For more information on the joint and several liability regulation, see “Item 8. Financial Statements and Supplementary Data – Note 16 – Commitments and Contingencies” in the Bank’s 2020 Form 10-K.

Off-balance sheet commitments as of ~~March 31,~~June 30, 2021, and December 31, 2020, were as follows:


		March 31, 2021						December 31, 2020							June 30, 2021						December 31, 2020
		Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total			Expire Within One Year		Expire After One Year		Total		Expire Within One Year		Expire After One Year		Total
Standby letters of credit outstanding	Standby letters of credit outstanding	$	12,615	$	4,469	$	17,084	$	14,838	$	4,551	$	19,389	Standby letters of credit outstanding	$	11,558	$	4,311	$	15,869	$	14,838	$	4,551	$	19,389

Commitments to issue consolidated obligation discount notes, par														Commitments to issue consolidated obligation discount notes, par	4,603		0		4,603		0		0		0
Commitments to issue consolidated obligation bonds, par	Commitments to issue consolidated obligation bonds, par	555		0		555		0		0		0		Commitments to issue consolidated obligation bonds, par	130		0		130		0		0		0
Commitments to purchase mortgage loans	Commitments to purchase mortgage loans	0		0		0		1		0		1		Commitments to purchase mortgage loans	0		0		0		1		0		1

Standby letters of credit are generally issued for a fee on behalf of members to support their obligations to third parties. If the Bank is required to make a payment for a beneficiary’s drawing under a letter of credit, the amount is immediately due and payable by the member to the Bank and is charged to the member’s demand deposit account

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

with the Bank. At ~~March 31,~~June 30, 2021, the original terms of these standby letters of credit range from 1 ~~day~~days to 15 years, including a final expiration in ~~2035.~~2036. The Bank monitors the creditworthiness of members that have standby letters of credit. The value of the Bank’s obligations related to standby letters of credit is recorded in other liabilities and amounted to ~~$34~~$32 and $36 at ~~March 31,~~June 30, 2021, and December 31, 2020, respectively. Standby letters of credit are fully collateralized at the time of issuance. Based on the Bank’s credit analyses of members’ financial condition and collateral requirements, the Bank deemed it unnecessary to record any additional liability for credit losses on the letters of credit outstanding or other off-balance sheet commitments as of ~~March 31,~~June 30, 2021, and December 31, 2020.

There were no0 commitments to fund advances at ~~March 31,~~June 30, 2021, and December 31, 2020. Advances funded under advance commitments are fully collateralized at the time of funding.

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

The Bank has pledged securities as collateral related to 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 ~~March 31,~~June 30, 2021, the Bank had pledged total collateral of ~~$357,~~$336, including securities with a carrying value of ~~$326,~~$318, all of which may be repledged, and cash collateral and related accrued interest of ~~$31~~$18 to counterparties and the clearinghouse that had market risk exposure to the Bank related to derivatives. As of December 31, 2020, the Bank had pledged total collateral of $451, including securities with a carrying value

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

of $379, all of which may be repledged, and cash collateral and related accrued interest of $72 to counterparties and the clearinghouse that had market risk exposure to the Bank related to derivatives.

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

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

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


		March 31, 2021		December 31, 2020			June 30, 2021		December 31, 2020
Assets:	Assets:					Assets:
Advances	Advances	$	2,670	$	2,650	Advances	$	2,885	$	2,650

Accrued interest receivable	Accrued interest receivable	2		3		Accrued interest receivable	2		3
Liabilities:	Liabilities:					Liabilities:
Deposits	Deposits	$	18	$	27	Deposits	$	44	$	27
Capital:	Capital:					Capital:
Capital Stock	Capital Stock	$	103	$	103	Capital Stock	$	103	$	103


		Three Months Ended			Three Months Ended				Six Months Ended

			March 31, 2021			March 31, 2020			June 30, 2021		June 30, 2020		June 30, 2021		June 30, 2020
Interest Income:	Interest Income:							Interest Income:

Advances	Advances		$	13		$	20	Advances	$	13	$	20	$	26	$	40

All transactions with members, nonmembers, and their affiliates are entered into in the ordinary course of business. As of ~~March 31,~~June 30, 2021, and December 31, 2020, no shareholder owned more than 10% of the total voting interests in

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~~Federal Home Loan Bank of San Francisco~~

~~Notes to Financial Statements (continued)~~

the Bank because of the statutory limit on members' voting rights. For more information on transactions with members and nonmembers, see “Item 8. Financial Statements and Supplementary Data – Note 17 – Transactions with Certain Members, Certain Nonmembers, and Other FHLBanks” in the Bank’s 2020 Form 10-K.

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

Deposits with other FHLBanks. The Bank may, from time to time, maintain deposits with other FHLBanks. Deposits with other FHLBanks totaled $1 at ~~March 31,~~June 30, 2021, and December 31, 2020, 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 ~~three~~six months ended ~~March 31,~~June 30, 2021, the Bank extended no0 overnight loans to other FHLBanks. During the ~~three~~six months ended ~~March 31,~~June 30, 2020, the Bank extended overnight loans to other FHLBanks for $900. During the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, the Bank borrowed ~~$10~~$110 and ~~$850,~~$860, respectively, from other FHLBanks. The impact to net interest income related to these transactions was de minimis for all periods in this report.

MPF Mortgage Loans. The Bank pays a membership fee to the FHLBank of Chicago for its participation in the MPF Program and a transaction services fee that is assessed monthly based on the amount of mortgage loans in

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Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

which the Bank invested and which remain outstanding on its Statements of Condition. For the ~~three~~six months ended ~~March 31,~~June 30, 2021 and 2020, the Bank recorded ~~a de minimis amount and~~ $1 ~~respectively,~~ in MPF membership fee expense and transaction services fee expense to the FHLBank of Chicago, which were recorded in the Statements of Income as other expense.

In addition, the Bank receives a counterparty fee from the FHLBank of Chicago for facilitating the sale of loans under the MPF Program. For the three and six months ended ~~March 31,~~June 30, 2021 and 2020, the Bank recorded de minimis amounts in MPF counterparty fee income from the FHLBank of Chicago, which were recorded in the Statements of Income as other income.

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

Note 15 — Subsequent Events

There were no material events identified, subsequent to ~~March 31,~~June 30, 2021, until the time of the Form 10-Q filing with the Securities and Exchange Commission.

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

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

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

•the volatility of market prices, rates, and indices;

•the timing and volume of market activity;

•natural disasters, widespread health emergencies (such as the COVID-19 pandemic), terrorist attacks, civil unrest, or other unanticipated or catastrophic events;

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

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

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

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

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

•changes in Bank members’ demand for Bank advances;

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

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

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

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

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

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

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

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

•changes in key Bank personnel;

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

•changes in the FHLBanks’ long-term credit ratings; and

•the impending discontinuance of the London Interbank Offered Rate (LIBOR) or any other interest rate benchmark and the adverse consequences it could have for market participants, including the Bank.

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Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under “Item 1A. Risk Factors” in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Form 10-K).

Quarterly Overview

Net income for the ~~first~~second quarter of 2021 was ~~$94~~$55 million, compared with a net ~~loss~~income of $8$88 million for the ~~first~~second quarter of 2020. The ~~$102~~$33 million ~~increase~~decrease in net income relative to the prior-year period ~~primarily~~ reflected ~~an increase~~a decrease in net interest income of ~~$109~~$17 million, a decrease in other income/(loss) of $17 million, and ~~an improvement~~a decline in ~~provision for/(reversal of)~~recovery of credit losses ~~of $45~~by $5 million. ~~This was~~These decreases to net income were partially offset by a decrease in other expense of $4 million and a $2 million reduction in the Affordable Housing Program assessment, which reflected the decline in pre-assessment income.

The $17 million decrease in net interest income primarily reflected a decrease in interest-earning assets, an increase in net losses on designated fair value hedges of ~~$39~~$11 million, and a decrease in prepayment fees of $4 million received on advances. These decreases to net interest income were partially offset by an improvement in interest rate spreads on interest-earning assets. The $17 million decrease in other income/(loss) was primarily attributable to an increase in net fair value losses associated with financial instruments carried at fair value, ~~that was~~ partially offset by ~~an increase~~a decrease in net fair value ~~gains~~losses associated with non-hedge qualifying derivatives.

The $109 million increase in net interest income primarily reflected an increase of $64 million in net fair value gains on designated fair value hedges, an improvement in retrospective adjustment of the effective yields on mortgage loans and related delivery commitments of $38 million, and an increase in prepayment fees received on advances of $7 million. Additionally, the Bank recorded a reversal of credit losses of $6 million for the first quarter of 2021, primarily associated with certain private-label residential mortgage-backed securities (PLRMBS) classified as available-for-sale (AFS) and largely resulting from improved credit performance and an improved economic outlook. This reversal compares with a provision for credit losses of $39 million recorded for the first quarter of 2020 associated with certain PLRMBS classified as AFS, which primarily resulted from a significant decline in fair values in the first quarter of 2020.

At ~~March 31,~~June 30, 2021, total assets were ~~$57.9~~$54.2 billion, a decrease of ~~$10.7~~$14.4 billion from $68.6 billion at December 31, 2020. ~~Total~~Advances decreased $6.8 billion, to $24.2 billion at June 30, 2021, from $31.0 billion at December 31, 2020, as many members maintained significant deposit balances and liquidity resulting from the ongoing economic and financial market impacts of the COVID-19 pandemic, including government intervention. In addition, total investments decreased ~~$7.7~~$6.8 billion, to ~~$27.5~~$28.4 billion at ~~March 31,~~June 30, 2021, from $35.2 billion at December 31, 2020. The majority of the decrease in investments ~~primarily~~ reflected a ~~decrease~~reduction in U.S. Treasury securities and securities purchased under agreements to resell, ~~U.S. Treasury securities, and MBS, that~~which was partially offset by an increase in Federal funds sold, as the Bank continued to manage its liquidity. ~~In addition, advances decreased $2.9 billion,~~MBS also contributed to ~~$28.1 billion at March 31, 2021, from $31.0 billion at December 31, 2020, as many members maintained significant deposit balances and excess liquidity resulting from~~ the ~~economic impacts of the COVID-19 pandemic.~~decline in investments by $1.5 billion.

Accumulated other comprehensive income/(loss) (AOCI) increased by $~~137~~164 million during the ~~first~~second quarter of 2021, to ~~$367~~$394 million at ~~March 31,~~June 30, 2021, from $230 million at December 31, 2020. The increase in AOCI during the ~~first~~second quarter of 2021 primarily reflected higher fair values of MBS classified as ~~AFS.~~available-for-sale.

On ~~April~~July 29, 2021, the Bank’s board of directors declared a quarterly cash dividend on the capital stock outstanding during the ~~first~~second quarter of 2021 at an annualized rate of 6.00%. The dividend will total ~~$34~~$35 million. The Bank recorded the dividend on ~~April~~July 29, 2021, and expects to pay the dividend on ~~May 11,~~August 10, 2021.

As of ~~March 31,~~June 30, 2021, the Bank complied with all of its regulatory capital requirements. The Bank’s total regulatory capital ratio was ~~10.3%~~11.1%, exceeding the 4.0% requirement. The Bank had $6.0 billion in permanent capital, exceeding its risk-based capital requirement of ~~$1.2~~$1.1 billion.

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

Legislation has been introduced in the U.S. Senate and House of Representatives that, if enacted in its proposed form, would require that the FHLBanks set aside higher percentages of their earnings for their affordable housing and community investment programs than is currently required under the current law. The Bank is actively monitoring these proposals.

COVID-19 Pandemic Impact. In 2020, the COVID-19 pandemic impacted the financial markets and created substantial uncertainty about future economic activity and the Bank’s operating environment. In response, the federal government and the Federal Reserve used their full range of tools to support the economy, including fiscal stimulus and quantitative easing. At the end of ~~the year,~~2020, the Federal Reserve maintained a Federal funds target range of

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0.00% to 0.25%. The emergency measures taken by the federal government and the Federal Reserve helped facilitate liquidity and support stability in fixed income markets but contributed to the significant reduction in demand for advances ~~demand~~ from members. The Bank continued to meet its funding needs through the ~~first~~second quarter of 2021.

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The Bank transitioned to remote work in mid-March 2020 and ~~operated~~continued to operate effectively with employees working remotely through the ~~first~~second quarter of 2021. The Bank has assessed the remote work environment and has taken measures to mitigate cyber-security risks and operational challenges that could affect the Bank’s ability to conduct business or increase the risk of operational incidents and errors. The ultimate impact of the disruption caused by the pandemic continues to be uncertain. Possible adverse impacts as a result of the Bank’s workforce working remotely may include, but are not limited to, increased risk of operational incidents, cyber-security threats, and operational challenges that could affect the Bank’s ability to conduct business or increase the risk of operational errors.

~~The~~Because the Bank relies on vendors and other third parties to perform certain critical ~~services. If~~services, should one of our critical vendors or third parties ~~experiences~~experience a failure or any interruption to their business ~~due~~related to the COVID-19 pandemic, including as a result of stay-at-home requirements and using a hybrid onsite and remote workforce, the Bank may be unable to conduct and effectively manage certain parts of its business.

To reduce the risk of the operational impact of the pandemic, the Bank maintains a Board-approved Business Continuity Management Program, along with a Crisis Management Plan and Business Continuity Plans (BCPs), that are updated and tested annually. The Bank’s BCPs provide procedures to ensure personnel safety and welfare, to safeguard the Bank’s assets (including physical property and information), and to permit the continued operations of the Bank in the event of a short-term disruption or long-term catastrophic event. The Bank’s BCPs contain operating procedures for all critical processes and identify resources and staff necessary to continue operations based on business-defined recovery time objectives and communication requirements for internal and external stakeholders.

The ~~impact of the COVID-19 pandemic, and related government and public actions taken in response, on the U.S. economy and the Bank are continuing to evolve, and the~~ full duration and impact of the pandemic and subsequent governmental and public actions ~~are~~remain uncertain.

~~As the COVID-19 pandemic persists, the demand~~ Demand for advances may continue to remain low or decrease because of ~~further~~the impact of government ~~intervention,~~stimulus on member liquidity, Federal Reserve Board policies (including lower interest rates set by the Federal Open Market Committee (FOMC)), and reduced member asset activity. The ~~risk of credit losses is likely to increase. The~~ Bank believes that lower demand from the Bank’s members for advances will likely continue into the foreseeable future. The risk of credit losses is likely to increase. In addition, other possible effects on the Bank from the COVID-19 pandemic ~~on the Bank~~ may include, but are not limited to, further disruption to the Bank’s members, uncertainties in the credit markets, and a decline in the fair value of assets or an increase in the write-down of investments.

The Bank has implemented certain relief measures to help members serve customers affected by the COVID-19 pandemic, such as accommodating forbearance and modifications to pledged loan collateral and allowing electronic signatures on loan documentation in specific circumstances. The board of directors also approved subsidized credit and grant programs to assist our members in responding to the challenges brought about by the COVID-19 pandemic.

Management will continue to monitor the COVID-19 pandemic’s impact on the Bank’s financial condition and operations, including the Bank’s liquidity, advance levels, funding spreads, and workforce effectiveness.

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Financial Highlights

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

Financial Highlights

(Unaudited)


(Dollars in millions)	(Dollars in millions)	March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020			March 31, 2020			(Dollars in millions)	June 30, 2021			March 31, 2021			December 31, 2020			September 30, 2020			June 30, 2020
Selected Balance Sheet Items at Quarter End	Selected Balance Sheet Items at Quarter End																Selected Balance Sheet Items at Quarter End
Total Assets	Total Assets	$	57,908		$	68,634		$	75,870		$	93,440		$	124,870		Total Assets	$	54,244		$	57,908		$	68,634		$	75,870		$	93,440
Advances	Advances	28,140			30,976			37,693			50,970			77,872			Advances	24,194			28,140			30,976			37,693			50,970
Mortgage Loans Held for Portfolio, Net	Mortgage Loans Held for Portfolio, Net	1,581			1,935			2,404			2,888			3,239			Mortgage Loans Held for Portfolio, Net	1,301			1,581			1,935			2,404			2,888
Investments(1)	Investments(1)	27,526			35,228			35,221			39,029			43,016			Investments(1)	28,403			27,526			35,228			35,221			39,029
Consolidated Obligations:(2)	Consolidated Obligations:(2)																Consolidated Obligations:(2)
Bonds	Bonds	33,011			44,408			54,921			66,449			77,937			Bonds	28,839			33,011			44,408			54,921			66,449
Discount Notes	Discount Notes	17,109			16,213			13,300			19,416			39,102			Discount Notes	17,598			17,109			16,213			13,300			19,416
Mandatorily Redeemable Capital Stock	Mandatorily Redeemable Capital Stock	1			2			2			83			83			Mandatorily Redeemable Capital Stock	3			1			2			2			83
Capital Stock —Class B —Putable	Capital Stock —Class B —Putable	2,238			2,284			2,465			2,668			3,231			Capital Stock —Class B —Putable	2,269			2,238			2,284			2,465			2,668
Unrestricted Retained Earnings	Unrestricted Retained Earnings	2,983			2,919			2,858			2,765			2,691			Unrestricted Retained Earnings	3,004			2,983			2,919			2,858			2,765
Restricted Retained Earnings	Restricted Retained Earnings	761			761			761			729			713			Restricted Retained Earnings	761			761			761			761			729
Accumulated Other Comprehensive Income/(Loss) (AOCI)	Accumulated Other Comprehensive Income/(Loss) (AOCI)	367			230			136			(35)			(228)			Accumulated Other Comprehensive Income/(Loss) (AOCI)	394			367			230			136			(35)
Total Capital	Total Capital	6,349			6,194			6,220			6,127			6,407			Total Capital	6,428			6,349			6,194			6,220			6,127
Selected Operating Results for the Quarter	Selected Operating Results for the Quarter																Selected Operating Results for the Quarter
Net Interest Income	Net Interest Income	$	158		$	167		$	147		$	142		$	49		Net Interest Income	$	125		$	158		$	167		$	147		$	142
Provision for/(Reversal of) Credit Losses	Provision for/(Reversal of) Credit Losses	(6)			(4)			(2)			(7)			39			Provision for/(Reversal of) Credit Losses	(2)			(6)			(4)			(2)			(7)
Other Income/(Loss)	Other Income/(Loss)	(21)			(20)			70			(9)			18			Other Income/(Loss)	(26)			(21)			(20)			70			(9)
Other Expense	Other Expense	39			46			40			43			36			Other Expense	39			39			46			40			43
Affordable Housing Program Assessment	Affordable Housing Program Assessment	10			11			18			9			—			Affordable Housing Program Assessment	7			10			11			18			9
Net Income/(Loss)	Net Income/(Loss)	$	94		$	94		$	161		$	88		$	(8)		Net Income/(Loss)	$	55		$	94		$	94		$	161		$	88
Selected Other Data for the Quarter	Selected Other Data for the Quarter																Selected Other Data for the Quarter
Net Interest Margin(3)	Net Interest Margin(3)	1.04		%	0.94		%	0.69		%	0.51		%	0.18		%	Net Interest Margin(3)	0.88		%	1.04		%	0.94		%	0.69		%	0.51		%
Operating Expenses as a Percent of Average Assets	Operating Expenses as a Percent of Average Assets	0.23			0.23			0.17			0.13			0.12			Operating Expenses as a Percent of Average Assets	0.25			0.23			0.23			0.17			0.13
Return on Average Assets	Return on Average Assets	0.61			0.52			0.76			0.32			(0.03)			Return on Average Assets	0.38			0.61			0.52			0.76			0.32
Return on Average Equity	Return on Average Equity	6.04			6.04			10.59			5.66			(0.46)			Return on Average Equity	3.45			6.04			6.04			10.59			5.66
Annualized Dividend Rate	Annualized Dividend Rate	5.00			5.00			5.00			5.00			7.00			Annualized Dividend Rate	6.00			5.00			5.00			5.00			5.00
Dividend Payout Ratio(4)	Dividend Payout Ratio(4)	32.44			34.61			22.81			42.93			—			Dividend Payout Ratio(4)	60.67			32.44			34.61			22.81			42.93
Average Equity to Average Assets Ratio	Average Equity to Average Assets Ratio	10.01			8.65			7.16			5.64			6.09			Average Equity to Average Assets Ratio	11.07			10.01			8.65			7.16			5.64
Selected Other Data at Quarter End	Selected Other Data at Quarter End																Selected Other Data at Quarter End
Regulatory Capital Ratio(5)	Regulatory Capital Ratio(5)	10.33			8.69			8.02			6.68			5.38			Regulatory Capital Ratio(5)	11.13			10.33			8.69			8.02			6.68
Duration Gap (in months)	Duration Gap (in months)	1			1			2			1			—			Duration Gap (in months)	1			1			1			2			1

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

(2)As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all of the FHLBanks have joint and several liability for FHLBank consolidated obligations, which are backed only by the financial resources of the FHLBanks. The joint and several liability regulation authorizes the 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 ~~March 31,~~June 30, 2021, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of all FHLBanks at the dates indicated was as follows:

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	Par Value (In millions)
~~March 31,~~June 30, 2021	$	666,747
March 31, 2021	696,385
December 31, 2020	746,722
September 30, 2020	819,863
June 30, 2020	915,753
~~March 31, 2020~~	~~1,174,670~~

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

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

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

Results of Operations

Net Interest Income. The primary source of the Bank’s earnings is net interest income, which is the interest earned on advances, mortgage loans, and investments, including net accretion of related income from improvement in expected cash flows on certain PLRMBS that were other-than-temporarily-impaired prior to January 1, 2020, less interest paid on consolidated obligations, deposits, mandatorily redeemable capital stock, and other borrowings. The Average Balance Sheets ~~table~~tables that ~~follows presents~~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 six months ended ~~March 31,~~June 30, 2021 and 2020, together with the related interest income and expense. ItThey also ~~presents~~present the average rates on total interest-earning assets and the average costs of total funding sources.

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Table of Contents

~~First~~Second Quarter of 2021 Compared to ~~First~~Second Quarter of 2020


Average Balance Sheets	Average Balance Sheets															Average Balance Sheets

		Three Months Ended															Three Months Ended
		March 31, 2021							March 31, 2020								June 30, 2021							June 30, 2020
(Dollars in millions)	(Dollars in millions)	Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate		(Dollars in millions)	Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate
Assets	Assets															Assets
Interest-earning assets:	Interest-earning assets:															Interest-earning assets:
Interest-bearing deposits	Interest-bearing deposits	$	1,253		$	—	0.14	%	$	3,430		$	12	1.37	%	Interest-bearing deposits	$	1,185		$	1	0.15	%	$	4,351		$	1	0.15	%
Securities purchased under agreements to resell	Securities purchased under agreements to resell	1,732			—		0.08		4,912			18		1.44		Securities purchased under agreements to resell	1,265			—		0.06		5,410			1		0.06
Federal funds sold	Federal funds sold	4,265			1		0.08		5,242			14		1.12		Federal funds sold	5,783			1		0.07		6,513			1		0.06
Trading securities:	Trading securities:															Trading securities:
Mortgage-backed securities (MBS)	Mortgage-backed securities (MBS)	2			—		2.52		3			—		3.50		Mortgage-backed securities (MBS)	2			—		2.27		3			—		3.24
Other investments	Other investments	4,087			21		2.09		3,035			16		2.10		Other investments	3,792			20		2.06		4,310			22		2.08
Available-for-sale (AFS) securities:(1)	Available-for-sale (AFS) securities:(1)															Available-for-sale (AFS) securities:(1)
MBS(2)(3)	MBS(2)(3)	10,222			59		2.33		10,204			32		1.26		MBS(2)(3)	9,832			49		2.02		11,021			57		2.08
Other investments(3)	Other investments(3)	4,064			2		0.19		5,295			19		1.48		Other investments(3)	1,587			1		0.24		5,339			4		0.27
Held-to-maturity (HTM) securities:(1)	Held-to-maturity (HTM) securities:(1)															Held-to-maturity (HTM) securities:(1)
MBS	MBS	4,621			13		1.14		7,129			44		2.46		MBS	4,121			11		1.11		6,459			29		1.82

Mortgage loans held for portfolio	Mortgage loans held for portfolio	1,746			23		5.39		3,311			(1)		(0.06)		Mortgage loans held for portfolio	1,433			4		0.94		3,091			16		2.04
Advances(3)	Advances(3)	29,831			65		0.88		66,954			279		1.67		Advances(3)	28,195			55		0.79		64,129			142		0.89

Total interest-earning assets	Total interest-earning assets	61,823			184		1.21		109,515			433		1.59		Total interest-earning assets	57,195			142		0.99		110,626			273		0.99
Other assets(4)(5)	Other assets(4)(5)	1,024			—				1,216			—				Other assets(4)(5)	1,041			—				(537)			—
Total Assets	Total Assets	$	62,847		$	184			$	110,731		$	433			Total Assets	$	58,236		$	142			$	110,089		$	273
Liabilities and Capital	Liabilities and Capital															Liabilities and Capital
Interest-bearing liabilities:	Interest-bearing liabilities:															Interest-bearing liabilities:
Consolidated obligations:	Consolidated obligations:															Consolidated obligations:
Bonds(3)	Bonds(3)	$	38,381		$	22	0.23	%	$	73,730		$	276	1.50	%	Bonds(3)	$	31,035		$	14	0.18	%	$	73,927		$	82	0.45	%
Discount notes	Discount notes	16,454			4		0.10		28,550			104		1.47		Discount notes	18,971			3		0.05		28,317			47		0.67
Deposits and other borrowings	Deposits and other borrowings	1,108			—		0.09		560			2		1.11		Deposits and other borrowings	1,292			—		0.07		919			—		0.16
Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	2			—		6.66		130			2		7.51		Mandatorily redeemable capital stock	4			—		2.52		83			2		7.81
Borrowings from other FHLBanks	Borrowings from other FHLBanks	—			—		—		3			—		9.90		Borrowings from other FHLBanks	1			—		0.06		—			—		—
Total interest-bearing liabilities	Total interest-bearing liabilities	55,945			26		0.19		102,973			384		1.50		Total interest-bearing liabilities	51,303			17		0.13		103,246			131		0.51
Other liabilities(4)	Other liabilities(4)	609			—				1,012			—				Other liabilities(4)	488			—				638			—
Total Liabilities	Total Liabilities	56,554			26				103,985			384				Total Liabilities	51,791			17				103,884			131
Total Capital	Total Capital	6,293			—				6,746			—				Total Capital	6,445			—				6,205			—
Total Liabilities and Capital	Total Liabilities and Capital	$	62,847		$	26			$	110,731		$	384			Total Liabilities and Capital	$	58,236		$	17			$	110,089		$	131
Net Interest Income	Net Interest Income				$	158						$	49			Net Interest Income				$	125						$	142
Net Interest Spread(6)	Net Interest Spread(6)						1.02	%						0.09	%	Net Interest Spread(6)						0.86	%						0.48	%
Net Interest Margin(7)	Net Interest Margin(7)						1.04	%						0.18	%	Net Interest Margin(7)						0.88	%						0.51	%
Interest-earning Assets/Interest-bearing Liabilities	Interest-earning Assets/Interest-bearing Liabilities	110.51		%					106.35		%					Interest-earning Assets/Interest-bearing Liabilities	111.48		%					107.15		%

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

(2)Interest income on AFS securities includes accretion of yield adjustments on other-than-temporarily impaired PLRMBS (resulting from improvement in expected cash flows) recognized pursuant to the impairment guidance in effect prior to January 1, 2020, totaling $13 million and ~~$17~~$14 million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively.

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

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		Three Months Ended									Three Months Ended
		March 31, 2021									June 30, 2021
(In millions)	(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total		(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total
(Amortization)/accretion of hedging activities	(Amortization)/accretion of hedging activities	$	(3)	$	(27)	$	—	$	(30)	(Amortization)/accretion of hedging activities	$	(5)	$	(27)	$	—	$	(32)
Net gain/(loss) on derivatives and hedged items	Net gain/(loss) on derivatives and hedged items	2		9		—		11		Net gain/(loss) on derivatives and hedged items	(1)		—		—		(1)
Net interest settlements on derivatives	Net interest settlements on derivatives	(65)		(24)		7		(82)		Net interest settlements on derivatives	(56)		(21)		17		(60)
Total net interest income/(expense)	Total net interest income/(expense)	$	(66)	$	(42)	$	7	$	(101)	Total net interest income/(expense)	$	(62)	$	(48)	$	17	$	(93)


		Three Months Ended									Three Months Ended
		March 31, 2020									June 30, 2020
(In millions)	(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total		(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total

(Amortization)/accretion of hedging activities										(Amortization)/accretion of hedging activities	$	(1)	(2)		$	—	$	(3)
Net gain/(loss) on derivatives and hedged items	Net gain/(loss) on derivatives and hedged items	$	(8)	$	(45)	$	—	$	(53)	Net gain/(loss) on derivatives and hedged items	2		9		—		11
Net interest settlements on derivatives	Net interest settlements on derivatives	(33)		(30)		3		(60)		Net interest settlements on derivatives	(99)		(66)		8		(157)
Total net interest income/(expense)	Total net interest income/(expense)	$	(41)	$	(75)	$	3	$	(113)	Total net interest income/(expense)	$	(98)	$	(59)	$	8	$	(149)

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

(5)Includes non-credit-related losses on HTM ~~securities for the first quarter of 2021 and 2020.~~securities.

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

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

Net interest income in the ~~first~~second quarter of 2021 was ~~$158~~$125 million, a ~~222% increase~~12% decrease from ~~$49~~$142 million in the ~~first~~second quarter of 2020. The following table details the changes in interest income and interest expense for the ~~first~~second quarter of 2021 compared to the ~~first~~second quarter of 2020. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.

~~Table of Contents~~


Change in Net Interest Income: Rate/Volume Analysis Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020
Change in Net Interest Income: Rate/Volume Analysis Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020								Change in Net Interest Income: Rate/Volume Analysis Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

		Increase/ (Decrease)		Attributable to Changes in(1)					Increase/ (Decrease)		Attributable to Changes in(1)
(In millions)	(In millions)			Average Volume		Average Rate		(In millions)			Average Volume		Average Rate
Interest-earning assets:	Interest-earning assets:							Interest-earning assets:
Interest-bearing deposits		$	(12)	$	(5)	$	(7)

Securities purchased under agreements to resell	Securities purchased under agreements to resell	(18)		(7)		(11)		Securities purchased under agreements to resell	$	(1)	$	(1)	$	—
Federal funds sold		(13)		(2)		(11)

Trading securities: Other investments	Trading securities: Other investments	5		5		—		Trading securities: Other investments	(2)		(2)		—

AFS securities:	AFS securities:							AFS securities:
MBS(2)	MBS(2)	27		—		27		MBS(2)	(8)		(6)		(2)
Other investments(2)	Other investments(2)	(17)		(4)		(13)		Other investments(2)	(3)		(2)		(1)

HTM securities: MBS	HTM securities: MBS	(31)		(12)		(19)		HTM securities: MBS	(18)		(9)		(9)

Mortgage loans held for portfolio	Mortgage loans held for portfolio	24		—		24		Mortgage loans held for portfolio	(12)		(6)		(6)
Advances(2)	Advances(2)	(214)		(115)		(99)		Advances(2)	(87)		(72)		(15)
Total interest-earning assets	Total interest-earning assets	(249)		(140)		(109)		Total interest-earning assets	(131)		(98)		(33)
Interest-bearing liabilities:	Interest-bearing liabilities:							Interest-bearing liabilities:
Consolidated obligations:	Consolidated obligations:							Consolidated obligations:
Bonds(2)	Bonds(2)	(254)		(92)		(162)		Bonds(2)	(68)		(34)		(34)
Discount notes	Discount notes	(100)		(31)		(69)		Discount notes	(44)		(11)		(33)
Deposits and other borrowings		(2)		—		(2)

Mandatorily redeemable capital stock	Mandatorily redeemable capital stock	(2)		(2)		—		Mandatorily redeemable capital stock	(2)		(1)		(1)
Total interest-bearing liabilities	Total interest-bearing liabilities	(358)		(125)		(233)		Total interest-bearing liabilities	(114)		(46)		(68)
Net interest income	Net interest income	$	109	$	(15)	$	124	Net interest income	$	(17)	$	(52)	$	35

(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 ~~104~~88 basis points for the ~~first~~second quarter of 2021, 8637 basis points higher than the net interest margin for the ~~first~~second quarter of 2020, which was 1851 basis points. The net interest spread was ~~102~~86 basis points for the ~~first~~second quarter of 2021, 9338 basis points higher than the net interest spread for the ~~first~~second quarter of

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2020, which was 948 basis points. These increases were primarily a result of ~~the effects of changes~~lower funding costs, partially offset by an increase in ~~market interest rates, interest rate volatility, and other market factors during the period.~~net losses on designated fair value hedges.

For securities previously identified as other-than-temporarily impaired pursuant to the impairment guidance in effect prior to January 1, 2020, the Bank updates its estimate of future estimated cash flows on a regular basis. If there is no additional credit loss on the security, the yield of the security is adjusted upward on a prospective basis and accreted into interest income when there is a significant increase in the expected cash flows. As a result of improvements in the estimated cash flows of securities previously identified as other-than-temporarily impaired, the net accretion of income is likely to continue to be a positive source of net interest income in future periods.

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

~~Table of Contents~~

Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the three months ended ~~March 31,~~June 30, 2021 and 2020.


Other Income/(Loss)	Other Income/(Loss)					Other Income/(Loss)

		Three Months Ended					Three Months Ended
(In millions)	(In millions)	March 31, 2021		March 31, 2020		(In millions)	June 30, 2021		June 30, 2020
Other Income/(Loss):	Other Income/(Loss):					Other Income/(Loss):
Net gain/(loss) on trading securities(1)	Net gain/(loss) on trading securities(1)	$	(18)	$	73	Net gain/(loss) on trading securities(1)	$	(19)	$	(18)
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(26)		89		Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(5)		14
Net gain/(loss) on derivatives	Net gain/(loss) on derivatives	18		(147)		Net gain/(loss) on derivatives	(8)		(14)

Other, net	Other, net	5		3		Other, net	6		9
Total Other Income/(Loss)	Total Other Income/(Loss)	$	(21)	$	18	Total Other Income/(Loss)	$	(26)	$	(9)

(1)The net gain/(loss) on trading securities that were economically hedged totaled ~~$(18)~~$(19) million and ~~$73~~$(18) million for the three months ended ~~March 31,~~June 30, 2021 and 2020, respectively.

Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) recognized in earnings on advances and consolidated obligation bonds held under the fair value option for the three months ended ~~March 31,~~June 30, 2021 and 2020.


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

		Three Months Ended					Three Months Ended
(In millions)	(In millions)	March 31, 2021		March 31, 2020		(In millions)	June 30, 2021		June 30, 2020
Advances	Advances	$	(26)	$	91	Advances	$	(6)	$	14
Consolidated obligation bonds	Consolidated obligation bonds	—		(2)		Consolidated obligation bonds	1		—
Total	Total	$	(26)	$	89	Total	$	(5)	$	14

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.

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

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

The following table shows the accounting classification of economic hedges and the categories of hedged items that contributed to the gains and losses on derivatives that were recorded in “Net gain/(loss) on derivatives” in the ~~first~~second quarter of 2021 and 2020.

~~Table of Contents~~


Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives Three Months Ended March 31, 2021, Compared to Three Months Ended March 31, 2020
Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020														Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives Three Months Ended June 30, 2021, Compared to Three Months Ended June 30, 2020

		Three Months Ended													Three Months Ended
(In millions)	(In millions)	March 31, 2021						March 31, 2020						(In millions)	June 30, 2021						June 30, 2020
Hedged Item	Hedged Item	Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total		Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total		Hedged Item	Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total		Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total
Advances:	Advances:													Advances:
Elected for fair value option	Elected for fair value option	$	42	$	(10)	$	32	$	(109)	$	(2)	$	(111)	Elected for fair value option	$	4	$	(9)	$	(5)	$	(5)	$	(8)	$	(13)
Not elected for fair value option	Not elected for fair value option	(11)		—		(11)		9		(11)		(2)		Not elected for fair value option	(5)		1		(4)		21		(11)		10
Consolidated obligation bonds:	Consolidated obligation bonds:													Consolidated obligation bonds:
Elected for fair value option	Elected for fair value option	—		—		—		2		—		2		Elected for fair value option	(1)		1		—		—		—		—
Not elected for fair value option	Not elected for fair value option	(4)		—		(4)		18		—		18		Not elected for fair value option	1		1		2		(13)		7		(6)
Consolidated obligation discount notes:	Consolidated obligation discount notes:													Consolidated obligation discount notes:
Not elected for fair value option	Not elected for fair value option	2		—		2		13		9		22		Not elected for fair value option	—		(1)		(1)		(18)		17		(1)

Non-MBS investments:	Non-MBS investments:													Non-MBS investments:
Not elected for fair value option	Not elected for fair value option	13		(14)		(1)		(76)		(4)		(80)		Not elected for fair value option	14		(14)		—		12		(15)		(3)
Mortgage delivery commitment:	Mortgage delivery commitment:													Mortgage delivery commitment:
Not elected for fair value option	Not elected for fair value option	—		—		—		4		—		4		Not elected for fair value option	—		—		—		(1)		—		(1)

Total	Total	$	42	$	(24)	$	18	$	(139)	$	(8)	$	(147)	Total	$	13	$	(21)	$	(8)	$	(4)	$	(10)	$	(14)

During the ~~first~~second quarter of 2021, net ~~gains~~losses on derivatives totaled ~~$18~~$8 million compared to net losses of ~~$147~~$14 million in the ~~first~~second quarter of 2020. These amounts included expense of ~~$24~~$21 million and expense of $8$10 million resulting from net settlements on derivative instruments used in economic hedges in the ~~first~~second quarter of 2021 and 2020, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.

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.”

~~Other Expense.~~ Table of Contents

Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020


Average Balance Sheets

	Six Months Ended
	June 30, 2021							June 30, 2020
(Dollars in millions)	Average Balance			Interest Income/ Expense		Average Rate		Average Balance			Interest Income/ Expense		Average Rate
Assets
Interest-earning assets:
Interest-bearing deposits	$	1,219		$	1	0.14	%	$	3,890		$	13	0.69	%
Securities purchased under agreements to resell	1,497			—		0.07		5,161			19		0.72
Federal funds sold	5,028			2		0.07		5,877			15		0.53
Trading securities:
MBS	2			—		2.40		3			—		3.37
Other investments	3,939			41		2.08		3,672			38		2.09
AFS securities:(1)
MBS(2)(3)	10,026			108		2.18		10,613			89		1.69
Other investments(3)	2,819			3		0.20		5,317			23		0.87
HTM securities:(1)
MBS	4,369			24		1.13		6,794			73		2.16

Mortgage loans held for portfolio	1,588			27		3.38		3,201			15		0.95
Advances(4)	29,009			120		0.83		65,542			421		1.29

Total interest-earning assets	59,496			326		1.10		110,070			706		1.29
Other assets(4)(5)	1,032			—				340			—
Total Assets	$	60,528		$	326			$	110,410		$	706
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds(3)	$	34,688		$	36	0.21	%	$	73,829		$	358	0.98	%
Discount notes	17,719			7		0.07		28,433			151		1.07
Deposits and other borrowings	1,201			—		0.08		739			2		0.52
Mandatorily redeemable capital stock	3			—		3.75		107			4		7.63
Borrowings from other FHLBanks	1			—		0.06		1			—		9.52
Total interest-bearing liabilities	53,612			43		0.16		103,109			515		1.01
Other liabilities(4)	548			—				826			—
Total Liabilities	54,160			43				103,935			515
Total Capital	6,369			—				6,475			—
Total Liabilities and Capital	$	60,529		$	43			$	110,410		$	515
Net Interest Income				$	283						$	191
Net Interest Spread(6)						0.94	%						0.28	%
Net Interest Margin(7)						0.96	%						0.35	%
Interest-earning Assets/Interest-bearing Liabilities	110.98		%					106.75		%

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

(2)Interest income on AFS securities includes accretion of yield adjustments on other-than-temporarily impaired PLRMBS (resulting from improvement in expected cash flows) recognized pursuant to the impairment guidance in effect prior to January 1, 2020, totaling $26 million and $31 million for the six months ended June 30, 2021 and 2020, respectively.

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

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	Six Months Ended
	June 30, 2021
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total
(Amortization)/accretion of hedging activities	$	(8)	$	(54)	$	—	$	(62)
Net gain/(loss) on derivatives and hedged items	1		9		—		10
Net interest settlements on derivatives	(121)		(45)		24		(142)
Total net interest income/(expense)	$	(128)	$	(90)	$	24	$	(194)


	Six Months Ended
	June 30, 2020
(In millions)	Advances		AFS Securities		Consolidated Obligation Bonds		Total
(Amortization)/accretion of hedging activities	$	(1)	$	(2)	$	—	$	(3)
Net gain/(loss) on derivatives and hedged items	(6)		(36)		—		(42)
Net interest settlements on derivatives	(132)		(96)		11		(217)
Total net interest income/(expense)	$	(139)	$	(134)	$	11	$	(262)

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

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

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

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

Net interest income in the first ~~quarter~~six months of 2021 ~~other expenses totaled $39~~was $283 million, ~~compared to $36~~an 48% increase from $191 million in the first ~~quarter~~six months of 2020. The following table details the changes in interest income and interest expense for the first six months of 2021 compared to the first six months of 2020. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.


Change in Net Interest Income: Rate/Volume Analysis Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

	Increase/ (Decrease)		Attributable to Changes in(1)
(In millions)			Average Volume		Average Rate
Interest-earning assets:
Interest-bearing deposits	$	(12)	$	(6)	$	(6)
Securities purchased under agreements to resell	(19)		(8)		(11)
Federal funds sold	(13)		(2)		(11)
Trading securities: Other investments	3		3		—

AFS securities:
MBS(2)	19		(5)		24
Other investments(2)	(20)		(8)		(12)

HTM securities: MBS	(49)		(21)		(28)

Mortgage loans held for portfolio	12		(10)		22
Advances(2)	(301)		(184)		(117)
Total interest-earning assets	(380)		(241)		(139)
Interest-bearing liabilities:
Consolidated obligations:
Bonds(2)	(322)		(130)		(192)
Discount notes	(144)		(41)		(103)
Deposits and other borrowings	(2)		—		(2)
Mandatorily redeemable capital stock	(4)		(3)		(1)
Total interest-bearing liabilities	(472)		(174)		(298)
Net interest income	$	92	$	(67)	$	159

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

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

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The net interest margin was 96 basis points for the first six months of 2021, 61 basis points higher than the net interest margin for the first six months of 2020, which was 35 basis points. The net interest spread was 94 basis points for the first six months of 2021, 66 basis point higher than the net interest spread for the first six months of 2020, which was 28 basis points. These increases were primarily a result of an increase in net gains on designated fair value hedges, an improvement in retrospective adjustment of the effective yields on mortgage loans and related delivery commitments, and lower funding costs.

Other Income/(Loss). The following table presents the components of “Other Income/(Loss)” for the six months ended June 30, 2021 and 2020.


Other Income/(Loss)

	Six Months Ended
(In millions)	June 30, 2021		June 30, 2020
Other Income/(Loss):
Net gain/(loss) on trading securities(1)	$	(37)	$	55
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option	(31)		103
Net gain/(loss) on derivatives	10		(161)

Other, net	11		12
Total Other Income/(Loss)	$	(47)	$	9

(1)The net gain/(loss) on trading securities that were economically hedged totaled $(37) million and $55 million for the six months ended June 30, 2021 and 2020, respectively.

Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option – The following table presents the net gain/(loss) on advances and consolidated obligation bonds held under the fair value option for the six months ended June 30, 2021 and 2020.


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

	Six Months Ended
(In millions)	June 30, 2021		June 30, 2020
Advances	$	(32)	$	105
Consolidated obligation bonds	1		(2)
Total	$	(31)	$	103

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

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Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives Six Months Ended June 30, 2021, Compared to Six Months Ended June 30, 2020

	Six Months Ended
(In millions)	June 30, 2021						June 30, 2020
Hedged Item	Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total		Gain/(Loss) on Economic Hedges		Income/ (Expense) on Economic Hedges		Total
Advances:
Elected for fair value option	$	46	$	(19)	$	27	$	(114)	$	(10)	$	(124)
Not elected for fair value option	(16)		1		(15)		30		(22)		8
Consolidated obligation bonds:
Elected for fair value option	(1)		1		—		2		—		2
Not elected for fair value option	(3)		1		(2)		5		7		12
Consolidated obligation discount notes:
Not elected for fair value option	2		(1)		1		(5)		26		21


Non-MBS investments:
Not elected for fair value option	27		(28)		(1)		(64)		(19)		(83)
Mortgage delivery commitment:
Not elected for fair value option	—		—		—		3		—		3

Total	$	55	$	(45)	$	10	$	(143)	$	(18)	$	(161)

During the first six months of 2021, net gains on derivatives and hedging activities totaled $10 million compared to net losses of $161 million in the first six months of 2020. These amounts included expense of $45 million and expense of $18 million resulting from net settlements on derivative instruments used in economic hedges in the first six months of 2021 and 2020, respectively. Excluding the impact of income or expense from net settlements on derivative instruments used in economic hedges, the net gains or losses on fair value and economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.

Additional information about derivatives and hedging activities is provided in “Item 1. Financial Statements – Note 11 – Derivatives and Hedging Activities.”

Return on Average Equity. Return on average equity (ROE) was ~~6.04%~~3.45% (annualized) for the ~~first~~second quarter of 2021, compared to ~~(0.46)%~~5.66% (annualized) for the second quarter of 2020. The decrease primarily reflected lower net income for the second quarter of 2021, which decreased 38%, from $88 million in the second quarter of 2020 to $55 million in the second quarter of 2021, and an increase in average equity from $6.2 billion in the second quarter of 2020 to $6.4 billion in the second quarter of 2021.

ROE was 4.72% (annualized) for the first ~~quarter~~six months of 2021, compared to 2.47% (annualized) for the first six months of 2020. The increase primarily reflected higher net income for the first ~~quarter~~six months of 2021, which increased 86%, from ~~a net loss of $8~~$80 million in the first ~~quarter~~six months of 2020 to ~~net income of $94~~$149 million in the first ~~quarter~~six months of 2021, and a decrease in average equity from ~~$6.7~~$6.5 billion in the first ~~quarter~~six months of 2020 to ~~$6.3~~$6.4 billion in the first ~~quarter~~six months of 2021.

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Dividends and Retained Earnings. In the ~~first~~second quarter of 2021, the Bank paid dividends at an annualized rate of ~~5.00%~~6.00%, totaling ~~$30~~$34 million, including ~~$30 million~~$34 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable capital stock. In the ~~first~~second quarter of 2020, the Bank paid dividends at an annualized rate of ~~7.00%~~5.00%, totaling ~~$54~~$40 million, including ~~$52~~$38 million in dividends on capital stock and $2 million in dividends on mandatorily redeemable capital stock.

In the first six months of 2021, the Bank paid dividends at an annualized rate of 5.47%, totaling $64 million, including $64 in dividends on capital stock and a de minimis amount in dividends on mandatorily redeemable

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capital stock. In the first six months of 2020, the Bank paid dividends at an annualized rate of 5.99%, totaling $94 million, including $90 million in dividends on capital stock and $4 million in dividends on mandatorily redeemable capital stock.

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

On ~~April~~July 29, 2021, the Bank’s board of directors declared a cash dividend on the capital stock outstanding during the ~~first~~second quarter of 2021 at an annualized rate of 6.00%, totaling ~~$34~~$35 million. The Bank recorded the dividend on ~~April~~July 29, 2021. The Bank expects to pay the dividend on ~~May 11,~~August 10, 2021.

The Bank’s Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) assesses the level and adequacy of retained earnings and establishes amounts to be retained in restricted retained earnings, which are not made available in the current dividend period, and maintains an amount of total retained earnings at least equal to its required retained earnings as described in the Framework. As determined using the Bank’s methodology, the required level of total retained earnings had ranged from $2.4 billion to $2.5 billion during all of 2019 and continuing through September 2020. In September 2020, the methodology was further revised and resulted in a required level of retained earnings of $2.9 billion. In January 2021, the methodology was further revised and resulted in a required level of retained earnings of $1.9 billion. In July 2021, the methodology was further revised and resulted in a required level of retained earnings of $1.5 billion. The Bank satisfies its retained earnings requirement with both restricted retained earnings (i.e., amounts related to the Joint Capital Enhancement Agreement) and unrestricted retained earnings. The Bank’s retained earnings requirement may be changed at any time. The board of directors periodically reviews the retained earnings methodology and analysis to determine whether any adjustments are appropriate. Total restricted retained earnings were $761 million as of ~~March 31,~~June 30, 2021, and December 31, 2020.

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 1115 – Capital – Excess Stock Repurchase, Retained Earnings, and Dividend Framework” in the Bank’s 2020 Form 10-K.

Financial Condition

Total assets were ~~$57.9~~$54.2 billion at ~~March 31,~~June 30, 2021, compared to $68.6 billion at December 31, 2020. Advances decreased by ~~$2.9~~$6.8 billion, or 9%22%, to ~~$28.1~~$24.2 billion at ~~March 31,~~June 30, 2021, from $31.0 billion at December 31, 2020. MBS investments decreased by ~~$1.2~~$1.5 billion, or 8%10%, to ~~$14.6~~$14.3 billion at ~~March 31,~~June 30, 2021, from $15.8 billion at December 31, 2020. Average total assets were ~~$62.8~~$58.2 billion for the second quarter of 2021, a 47% decrease from $110.1 billion for the second quarter of 2020. Average total assets were $60.5 billion for the first ~~quarter~~six months of 2021, ~~and were $110.7~~a 45% decrease from $110.4 billion for the first six months of 2020. Average advances were $28.2 billion for the second quarter of 2021, a 56% decrease from $64.1 billion for the second quarter of 2020. Average advances were ~~$29.8~~$29.0 billion for the first six months of 2021, a 56% decrease from $65.5 billion for the first six months of 2020. Average MBS investments were $14.0 billion for the second quarter of 2021, a ~~55%~~20% decrease from ~~$67.0~~$17.5 billion for the ~~first~~second quarter of 2020. Average MBS investments were ~~$14.8~~$14.4 billion for the first ~~quarter~~six months of 2021, a ~~14%~~17% decrease from ~~$17.3~~$17.4 billion for the first ~~quarter~~six months of 2020.

Advances outstanding at ~~March 31,~~June 30, 2021, included unrealized gains of ~~$408~~$367 million, of which ~~$307~~$271 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and ~~$101~~$96 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value option. Advances outstanding at December 31, 2020, included unrealized gains of $639 million, of which $509 million represented unrealized gains on advances hedged in accordance with the accounting for derivative instruments and hedging activities and $130 million represented unrealized gains on economically hedged advances that are carried at fair value in accordance with the fair value

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option. The change in the net unrealized gains on the hedged advances and advances carried at fair value from December 31, 2020, to ~~March 31,~~June 30, 2021, was primarily attributable to the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the terms on the Bank’s advances during the period.

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Total liabilities were ~~$51.6~~$47.8 billion at ~~March 31,~~June 30, 2021, a decrease of ~~$10.8~~$14.6 billion from $62.4 billion at December 31, 2020, primarily reflecting a ~~$10.5~~$14.2 billion decrease in consolidated obligations outstanding to ~~$50.1~~$46.4 billion at ~~March 31,~~June 30, 2021, from $60.6 billion at December 31, 2020. Average total liabilities were ~~$56.6~~$51.8 billion for the second quarter of 2021, a 50% decrease compared to $103.9 billion for the second quarter of 2020. Average total liabilities were $54.2 billion for the first ~~quarter~~six months of 2021, a ~~46%~~48% decrease compared to ~~$104.0~~$103.9 billion for the first six months of 2020. Average consolidated obligations were $50.0 billion for the second quarter of 2021 and $102.2 billion for the second quarter of 2020. Average consolidated obligations were ~~$54.8~~$52.4 billion for the first ~~quarter~~six months of 2021 and $102.3 billion for the first ~~quarter~~six months of 2020.

Consolidated obligations outstanding at ~~March 31,~~June 30, 2021, included unrealized gains of ~~$41~~$27 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and a de minimis amount of unrealized ~~losses~~gains on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. Consolidated obligations outstanding at December 31, 2020, included unrealized losses of $13 million on consolidated obligation bonds hedged in accordance with the accounting for derivative instruments and hedging activities and unrealized losses of $1 million on economically hedged consolidated obligation bonds that are carried at fair value in accordance with the fair value option. The change in the net unrealized gains on the hedged consolidated obligation bonds and on the consolidated obligation bonds carried at fair value from December 31, 2020, to ~~March 31,~~June 30, 2021, were primarily attributable to the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors relative to the actual terms on the Bank’s consolidated obligation bonds during the period.

As provided by the FHLBank Act or regulations governing the operations of the FHLBanks, all FHLBanks have joint and several liability for all FHLBank consolidated obligations. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor. The Bank has never been asked or required to repay the principal or interest on any consolidated obligation on behalf of another FHLBank, and as of ~~March 31,~~June 30, 2021, and through the filing date of this report, does not believe that it is probable that it will be asked to do so. The par value of the outstanding consolidated obligations of the FHLBanks was ~~$696.4~~$666.7 billion at ~~March 31,~~June 30, 2021, and $746.7 billion at December 31, 2020.

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

Certain Bank assets, liabilities, and derivatives are indexed to LIBOR. The Bank recognizes that the impending discontinuation of LIBOR presents risks and challenges that could have an impact on the Bank’s business. For information about the risks to the Bank from discontinuation of LIBOR, see “Item 1A. Risk Factors” in the Bank’s 2020 Form 10-K. Accordingly, the Bank has established the LIBOR Transition Working Group, led by the Chief Financial Officer, and developed a LIBOR Phase Out Transition Plan (Transition Plan). Among other things, the Transition Plan addresses three key strategies to mitigate the risks to the Bank associated with the discontinuation of LIBOR: (i) execute hedging strategies that permit alternative reference rates, including the Secured Overnight Financing Rate (SOFR), (ii) transact SOFR-indexed advances and bonds, and (iii) where practicable, implement improved fallback provisions for the discontinuation of LIBOR in new and legacy contracts. In addition, the Transition Plan limits new LIBOR transactions with maturities beyond the end of 2021 consistent with the limits set by the Finance Agency’s Supervisory Letter issued on September 27, 2019. The Transition Plan states that the Bank’s Asset and Liability Management Committee has primary responsibility for driving the transition from

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LIBOR to SOFR and that the Bank’s Business Development Committee is responsible for advance product development to facilitate our members’ transition from LIBOR to an alternative index.

On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks 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) ~~Fallbacks Protocol (Protocol).~~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 ~~that date,~~January 25, 2021, all of the Bank’s outstanding legacy bilateral derivative transactions ~~subject to Protocol-covered agreements (including ISDA agreements)~~ that ~~incorporate certain covered ISDA definitional booklets and reference~~referenced a covered IBOR, including U.S. dollar LIBOR, were

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amended to apply the new ISDA-recommended IBOR fallbacks in the event of the relevant IBOR’s cessation. Both the Bank and its relevant counterparty must have adhered to the Protocol to effectively amend legacy derivative contracts, or the parties must bilaterally agree to include amended legacy contracts to address LIBOR fallbacks. The Protocol will remain open for adherence after this effective date. As of January 25, 2021, new and future derivative contracts are subject to the relevant IBOR fallbacks set forth in the Supplement. On October 21, 2020, the Finance Agency issued a Supervisory Letter to the FHLBanks that required each FHLBank to adhere to the 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. As part of its LIBOR Transition efforts, the Bank and all of its uncleared derivatives counterparties have adhered to the Protocol.

In July 2017, the United Kingdom’s Financial Conduct Authority, which regulates LIBOR, announced that after 2021 it will no longer persuade or compel banks to submit rates for the calculation of LIBOR. On March 5, 2021, the United Kingdom’s Financial Conduct Authority further announced that LIBOR will either cease to be provided by any administrator or no longer be representative immediately after December 31, 2021, in the case of 1-week and 2-month U.S. dollar LIBOR, and immediately after June 30, 2023, in the case of the remaining U.S. dollar LIBOR settings.

Although the Financial Conduct Authority does not expect LIBOR to become unrepresentative before the applicable cessation date and intends to consult on requiring the administrator of LIBOR to continue publishing LIBOR of certain currencies and tenors on a non-representative, synthetic basis for a period after the applicable cessation date, there is no assurance that LIBOR, of any particular currency or tenor, will continue to be published or be representative through any particular date. The Financial Conduct Authority’s announcements constitutes an index cessation event under the Protocol and Supplement, and as a result, the fallbacks spread adjustment for each tenor iswas fixed as of the date of the announcement.

At ~~March 31,~~June 30, 2021, the Bank had no exposure to LIBOR settings that cease immediately after December 31, 2021.

The following tables present LIBOR-indexed variable rate financial instruments for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by due date or termination date at ~~March 31,~~June 30, 2021, and December 31, 2020.

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LIBOR-Indexed Financial Instruments	LIBOR-Indexed Financial Instruments									LIBOR-Indexed Financial Instruments
(In millions)	(In millions)												(In millions)
March 31, 2021
June 30, 2021													June 30, 2021
		Due/Terminates in 2021		Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates thereafter			Total			Due/Terminates in 2021		Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates thereafter		Total
Assets indexed to LIBOR:	Assets indexed to LIBOR:												Assets indexed to LIBOR:
Par value of advances by redemption term	Par value of advances by redemption term	$	—	$	250	$	—	$	10		$	260	Par value of advances by redemption term	$	—	$	250	$	—	$	10	$	260
Unpaid principal balance of investment securities by contractual maturity	Unpaid principal balance of investment securities by contractual maturity												Unpaid principal balance of investment securities by contractual maturity

MBS(1)	MBS(1)	—		—		93		5,067			5,160		MBS(1)	—		—		93		4,733		4,826

Notional amount of receive leg LIBOR interest rate swaps by termination date	Notional amount of receive leg LIBOR interest rate swaps by termination date												Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared	Cleared	3,294		525		318		770			4,907		Cleared	1,488		518		318		745		3,069
Uncleared	Uncleared	48		112		22		386			568		Uncleared	38		112		22		337		509
Total	Total	$	3,342	$	887	$	433	$	6,233		$	10,895	Total	$	1,526	$	880	$	433	$	5,825	$	8,664

Liabilities indexed to LIBOR:	Liabilities indexed to LIBOR:												Liabilities indexed to LIBOR:
Par value of consolidated obligation bonds by contractual maturity	Par value of consolidated obligation bonds by contractual maturity	$	3,028	$	—	$	—	$	—		$	3,028	Par value of consolidated obligation bonds by contractual maturity	$	1,300	$	—	$	—	$	—	$	1,300
Notional amount of pay leg LIBOR interest rate swaps by termination date	Notional amount of pay leg LIBOR interest rate swaps by termination date												Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared	Cleared	648		218		50		5			921		Cleared	70		210		60		30		370
Uncleared	Uncleared	75		35		—		30			140		Uncleared	—		35		—		30		65
Total	Total	$	3,751	$	253	$	50	$	35		$	4,089	Total	$	1,370	$	245	$	60	$	60	$	1,735


December 31, 2020
	Due/Terminates in 2021		Due/Terminates in 2022		Due/Terminates through June 30, 2023		Due/Terminates thereafter		Total
Assets indexed to LIBOR:
Par value of advances by redemption term	$	100	$	250	$	—	$	10	$	360
Unpaid principal balance of investment securities by contractual maturity

MBS(1)	—		1		98		5,645		5,744

Notional amount of receive leg LIBOR interest rate swaps by termination date
Cleared	6,852		887		369		798		8,906
Uncleared	213		112		22		394		741
Total	$	7,165	$	1,250	$	489	$	6,847	$	15,751

Liabilities indexed to LIBOR:
Par value of consolidated obligation bonds by contractual maturity	$	6,798	$	—	$	—	$	—	$	6,798
Notional amount of pay leg LIBOR interest rate swaps by termination date
Cleared	1,523		559		100		28		2,210
Uncleared	238		35		—		95		368
Total	$	8,559	$	594	$	100	$	123	$	9,376

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

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As of ~~March 31,~~June 30, 2021, interest rate caps and floors indexed to LIBOR totaling $550 million were due to terminate after June 30, 2023. As of December 31, 2020, interest rate caps and floors indexed to LIBOR totaling $230 million were due to terminate in 2021 and totaling $550 million were due to terminate after June 30, 2023.

Market activity in SOFR-indexed financial instruments continues to increase. InDuring 2021 and in total, the Bank has issued ~~$101.8~~$1.1 billion and $102.3 billion, respectively, in SOFR-indexed consolidated obligation bonds. The table below presents the par value of variable rate consolidated obligation bonds by interest rate index at ~~March 31,~~June 30, 2021, and December 31, 2020.


Variable Rate Consolidated Obligation Bonds by Interest Rate Index	Variable Rate Consolidated Obligation Bonds by Interest Rate Index					Variable Rate Consolidated Obligation Bonds by Interest Rate Index
(In millions)	(In millions)	Amount Outstanding				(In millions)	Amount Outstanding
Interest Rate Index	Interest Rate Index	March 31, 2021		December 31, 2020		Interest Rate Index	June 30, 2021		December 31, 2020
LIBOR	LIBOR	$	3,028	$	6,798	LIBOR	$	1,300	$	6,798
SOFR	SOFR	20,566		30,915		SOFR	14,790		30,915

Total par value	Total par value	$	23,594	$	37,713	Total par value	$	16,090	$	37,713

For more information on LIBOR-indexed advances, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition – Segment Information – Advances-Related Business.” For more information on LIBOR-indexed investments and derivatives, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management.”

Segment Information

The Bank uses an analysis of financial results based on the financial components and adjusted net interest income of two operating segments, the advances-related business and the mortgage-related business, as well as other financial information, to review and assess financial performance and determine financial management strategies related to the operations of these two business segments. For purposes of segment reporting, adjusted net interest income includes income and expense associated with net settlements from economic hedges that are recorded in “Net gain/(loss) on derivatives” in other income, excludes interest income and expense associated with changes in fair value of the derivative hedging instrument and the hedged item attributable to the hedged risk for designated fair value hedges that are recorded in net interest income, and excludes interest expense that is recorded in “Mandatorily redeemable capital stock.” AHP assessments are not included in the segment reporting analysis but are incorporated into the Bank’s overall assessment of financial performance. For a reconciliation of the Bank’s operating segment adjusted net interest income to the Bank’s total net interest income, see “Item 1. Financial Statements – Note 10 – Segment Information.”

Advances-Related Business. The advances-related business consists of advances and other credit products, related financing and hedging instruments, liquidity and other non-MBS investments associated with the Bank’s role as a liquidity provider, and capital. Assets associated with this segment decreased ~~$9.2~~$12.3 billion to ~~$41.7~~$38.6 billion ~~(72%~~(71% of total assets) at ~~March 31,~~June 30, 2021, from $50.9 billion (74% of total assets) at December 31, 2020.

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

Adjusted net interest income for this segment was ~~$51~~$49 million in the ~~first~~second quarter of 2021, a decrease of ~~$12~~$23 million, or ~~19%~~32%, compared to ~~$63~~$72 million in the second quarter of 2020. Adjusted net interest income for this segment was $101 million in the first ~~quarter~~six months of 2021, a decrease of $34 million, or 25%, compared to $135 million in the first six months of 2020. ~~This decrease was~~These decreases were primarily due to lower balances of advances and other credit products combined with a decline in spreads on advances-related assets due to lower interest ~~rates and lower balances~~rates.

Table of ~~advances and other credit products, partially offset by an increase in prepayment fees received on advances.~~ Contents

Adjusted net interest income for this segment represented ~~40%~~45% and ~~84%~~49% of total adjusted net interest income for the second quarter of 2021 and 2020, respectively, and 42% and 61% of total adjusted net interest income for the first ~~quarter~~six months of 2021 and 2020, respectively.

Advances – The par value of advances outstanding decreased by ~~$2.6~~$6.5 billion, or 9%21%, to ~~$27.7~~$23.8 billion at ~~March 31,~~June 30, 2021, from $30.3 billion at December 31, 2020. Average advances outstanding were ~~$29.8~~$28.2 billion for the second quarter of 2021, a 56% decrease from $64.1 billion for the second quarter of 2020. Average advances outstanding were $29.0 billion for the first ~~quarter~~six months of 2021, a ~~55%~~56% decrease from ~~$67.0~~$65.5 billion for the first ~~quarter~~six months of 2020. Outstanding balances of advances

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

As of ~~March 31,~~June 30, 2021, advances outstanding to the Bank’s top five borrowers and their affiliates decreased by ~~$1.6~~$3.6 billion from the Bank’s top five borrowers and their affiliates as of December 31, 2020, and advances outstanding to the Bank’s other borrowers decreased by ~~$1.0~~$2.9 billion. Advances to the top five borrowers decreased to ~~$17.9~~$15.9 billion at ~~March 31,~~June 30, 2021, from $19.5 billion at December 31, 2020, including First Republic Bank, whose advances and capital stock exceeded 10% of the Bank’s total advances and capital stock, respectively, as of ~~March 31,~~June 30, 2021, as presented in “Item 1. Financial Statements – Note 4 – Advances – Concentration Risk” and “Item 1. Financial Statements – Note 9 – Capital – Concentration.” The ~~$2.6~~$6.5 billion decrease in advances outstanding reflected a ~~$1.5~~$5.2 billion decrease in fixed rate advances, ~~and~~ a $1.1 billion decrease in adjustable rate advances, and a $0.2 billion decrease in variable rate advances.

The Bank has a significant long-term funding arrangement with a borrower that had, in prior periods, significantly contributed to the level of outstanding advances and may significantly contribute to the level of outstanding advances in the foreseeable future.

The components of the advances portfolio at ~~March 31,~~June 30, 2021, and December 31, 2020, are presented in the following table.


Advances Portfolio by Product Type	Advances Portfolio by Product Type									Advances Portfolio by Product Type

		March 31, 2021				December 31, 2020					June 30, 2021				December 31, 2020
(Dollar in millions)	(Dollar in millions)	Par Value		Percentage of Total Par Value		Par Value		Percentage of Total Par Value		(Dollar in millions)	Par Value		Percentage of Total Par Value		Par Value		Percentage of Total Par Value
Adjustable – LIBOR	Adjustable – LIBOR	$	250	1	%	$	250	1	%	Adjustable – LIBOR	$	250	1	%	$	250	1	%

Adjustable – SOFR, callable at borrower’s option	Adjustable – SOFR, callable at borrower’s option	—		—		1,100		4		Adjustable – SOFR, callable at borrower’s option	—		—		1,100		4

Subtotal adjustable rate advances	Subtotal adjustable rate advances	250		1		1,350		5		Subtotal adjustable rate advances	250		1		1,350		5
Fixed	Fixed	6,081		22		6,108		20		Fixed	5,586		23		6,108		20
Fixed – amortizing	Fixed – amortizing	93		—		126		—		Fixed – amortizing	86		—		126		—
Fixed – with PPS(1)	Fixed – with PPS(1)	1,605		6		1,687		5		Fixed – with PPS(1)	1,587		7		1,687		5
Fixed – with FPS(1)	Fixed – with FPS(1)	17,988		65		19,919		66		Fixed – with FPS(1)	15,373		65		19,919		66
Fixed – with caps and PPS(1)	Fixed – with caps and PPS(1)	10		—		110		—		Fixed – with caps and PPS(1)	10		—		110		—

Fixed – callable at borrower’s option with FPS(1)	Fixed – callable at borrower’s option with FPS(1)	650		2		—		—		Fixed – callable at borrower’s option with FPS(1)	70		—		—		—

Fixed – putable at Bank’s option	Fixed – putable at Bank’s option	200		1		200		1		Fixed – putable at Bank’s option	200		1		200		1
Fixed – putable at Bank’s option with PPS(1)	Fixed – putable at Bank’s option with PPS(1)	20		—		20		—		Fixed – putable at Bank’s option with PPS(1)	20		—		20		—
Subtotal fixed rate advances	Subtotal fixed rate advances	26,647		96		28,170		92		Subtotal fixed rate advances	22,932		96		28,170		92
Daily variable rate	Daily variable rate	835		3		818		3		Daily variable rate	645		3		818		3
Total par value	Total par value	$	27,732	100	%	$	30,338	100	%	Total par value	$	23,827	100	%	$	30,338	100	%

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

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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 ~~March 31,~~June 30, 2021, and December 31, 2020.


LIBOR-Indexed Advances by Redemption Term	LIBOR-Indexed Advances by Redemption Term					LIBOR-Indexed Advances by Redemption Term
(In millions)	(In millions)	Par Value				(In millions)	Par Value
Redemption Term	Redemption Term	March 31, 2021		December 31, 2020		Redemption Term	June 30, 2021		December 31, 2020

Due in 2021	Due in 2021	$	—	$	100	Due in 2021	$	—	$	100
Due in 2022	Due in 2022	250		250		Due in 2022	250		250

Due after June 30, 2023(1)	Due after June 30, 2023(1)	10		10		Due after June 30, 2023(1)	10		10
Total LIBOR-Indexed Advances(2)	Total LIBOR-Indexed Advances(2)	$	260	$	360	Total LIBOR-Indexed Advances(2)	$	260	$	360

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

(2)Total LIBOR-indexed advances include fixed rate advances with caps and PPS.

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

Non-MBS Investments – The Bank’s non-MBS investment portfolio consists of financial instruments that are used primarily to facilitate the Bank’s role as a cost-effective provider of credit and liquidity to members and to support the operations of the Bank. The Bank’s total non-MBS investment portfolio was ~~$12.9~~$14.1 billion and $19.4 billion as of ~~March 31,~~June 30, 2021, and December 31, 2020, respectively. The decrease in the total size of the non-MBS investment portfolio primarily reflected a decrease in securities purchased under agreements to resell and U.S. Treasury securities, that was partially offset by an increase in Federal funds sold, as the Bank continued to manage its liquidity.

Interest rate payment terms for non-MBS investments classified as trading and AFS at ~~March 31,~~June 30, 2021, and December 31, 2020, are detailed in the following table:


Non-MBS Investments: Interest Rate Payment Terms	Non-MBS Investments: Interest Rate Payment Terms					Non-MBS Investments: Interest Rate Payment Terms

(In millions)	(In millions)	March 31, 2021		December 31, 2020		(In millions)	June 30, 2021		December 31, 2020

Fair value of fixed rate trading securities	Fair value of fixed rate trading securities	$	3,989	$	4,257	Fair value of fixed rate trading securities	$	2,920	$	4,257

Amortized cost of AFS securities	Amortized cost of AFS securities	2,643		4,980		Amortized cost of AFS securities	1,160		4,980

Borrowings – Total liabilities (primarily consolidated obligations) funding the advances-related business decreased to ~~$35.3~~$32.2 billion at ~~March 31,~~June 30, 2021, from $44.7 billion at December 31, 2020. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” and “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”

To meet the specific needs of certain investors, fixed and adjustable rate consolidated obligation bonds may contain embedded call options or other features that result in complex coupon payment terms. When these types of consolidated obligation bonds are issued on behalf of the Bank, ~~typically~~ the Bank ~~simultaneously~~typically enters into interest rate exchange agreements with features that offset the complex features of the bonds ~~and, in effect,~~to convert the bonds to adjustable rate instruments. 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 ~~March 31,~~June 30, 2021, the notional amount of interest rate exchange agreements associated with the advances-related business totaled ~~$55.5~~$58.2 billion, of which ~~$26.0~~$23.3 billion were hedging advances, ~~$16.5~~$22.1 billion were hedging consolidated obligations, ~~$6.0~~$4.1 billion were economically hedging non-MBS investments, and ~~$7.0~~$8.7 billion were offsetting derivatives. At December 31, 2020, the notional amount of interest rate exchange agreements associated

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with the advances-related business totaled $67.4 billion, of which $28.5 billion were hedging advances, $20.7 billion were hedging consolidated obligations, $7.1 billion were economically hedging non-MBS investments, and $11.1 billion were offsetting derivatives. The hedges associated with advances and consolidated obligations were primarily used to convert the fixed rate cash flows of the advances and consolidated obligations to adjustable rate cash flows or to manage the interest rate sensitivity and net repricing gaps of assets, liabilities, and interest rate exchange agreements.

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

In early March 2020, the FOMC stated that the COVID-19 outbreak presented evolving risks to economic activity. Consequently, the FOMC decided to lower the target range for the Federal funds rate by 50 basis points, to a target range of 1.00% to 1.25%, noting that it would closely monitor developments and their implications for the economic outlook and would act as appropriate to support the economy. On March 15, 2020, the FOMC again lowered the Federal funds rate, to a target range of 0.00% to 0.25%, noting that the COVID-19 outbreak had harmed communities and disrupted economic activity in many countries, including the United States, and had significantly affected global financial conditions. In the weeks before and after the early March 2020 Federal funds target rate cut, interest rates declined significantly. Since the end of the first quarter of 2020, financial conditions have improved, in part because of the monetary and fiscal stimulus measures taken, and the Bank continues to be able to meet its funding needs. The following table presents a comparison of selected market interest rates as of ~~March 31,~~June 30, 2021, and December 31, 2020.


Selected Market Interest Rates	Selected Market Interest Rates									Selected Market Interest Rates

Market Instrument	Market Instrument	March 31, 2021		December 31, 2020		March 31, 2020		December 31, 2019		Market Instrument	June 30, 2021		December 31, 2020		June 30, 2020		December 31, 2019
Federal Reserve target range for overnight Federal funds	Federal Reserve target range for overnight Federal funds	0.00-0.25	%	0.00-0.25	%	0.00-0.25	%	1.50-1.75	%	Federal Reserve target range for overnight Federal funds	0.00-0.25	%	0.00-0.25	%	0.00-0.25	%	1.50-1.75	%
Secured Overnight Financing Rate	Secured Overnight Financing Rate	0.01		0.07		0.01		1.55		Secured Overnight Financing Rate	0.05		0.07		0.10		1.55
3-month Treasury bill	3-month Treasury bill	0.18		0.06		0.09		1.55		3-month Treasury bill	0.04		0.06		0.14		1.55

2-year Treasury note	2-year Treasury note	0.16		0.12		0.25		1.57		2-year Treasury note	0.25		0.12		0.15		1.57
5-year Treasury note	5-year Treasury note	0.95		0.36		0.38		1.69		5-year Treasury note	0.89		0.36		0.29		1.69

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

Assets associated with this segment were ~~$16.2~~$15.6 billion ~~(28%~~(29% of total assets) at ~~March 31,~~June 30, 2021, and $17.8 billion at December 31, 2020 (26% of total assets).

Adjusted net interest income for this segment was ~~$78~~$60 million in the second quarter of 2021, a decrease of $15 million, or 20%, from $75 million in the second quarter of 2020. The quarterly decrease was primarily a result of lower earnings from lower balances of mortgage-related products and a smaller reversal of prior period expected credit losses, partially offset by higher spreads from lower funding costs. Adjusted net interest income for this segment was $138 million in the first ~~quarter~~six months of 2021, an increase of ~~$66~~$51 million, or ~~550%~~59%, from ~~$12~~$87 million in the first ~~quarter~~six months of 2020. This increase was primarily ~~due to~~ a ~~reversal~~result of ~~prior period expected credit losses,~~higher spreads from lower funding costs, an improvement in retrospective adjustment of the effective yields on mortgage loans and related delivery commitments, and ~~higher spreads from lower funding costs,~~a reversal of prior period expected credit losses, partially offset by lower earnings ~~due to~~from lower balances of mortgage-related products.

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Adjusted net interest income for this segment represented ~~60%~~55% and ~~16%~~51% of total adjusted net interest income for the second quarter of 2021 and 2020, respectively, and 58% and 39% of total adjusted net interest income for the first ~~quarter~~six months of 2021 and 2020, respectively.

MBS Investments – The Bank’s MBS portfolio was ~~$14.6~~$14.3 billion at ~~March 31,~~June 30, 2021, compared with $15.8 billion at December 31, 2020. During the first ~~quarter~~six months of 2021, the Bank’s MBS portfolio decreased with ~~$0.8~~$1.4 billion in

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principal repayments and a ~~$0.5~~$0.3 billion decrease in basis adjustments, partially offset by ~~$0.1~~$0.2 billion of fair value gains. Average MBS investments were ~~$14.8~~$14.0 billion in the ~~first~~second quarter of 2021, a decrease of ~~$2.5~~$3.5 billion from ~~$17.3~~$17.5 billion in the second quarter of 2020. Average MBS investments were $14.4 billion in the first ~~quarter~~six months of 2021, a decrease of $3.0 billion from $17.4 billion in the first six months of 2020. For a discussion of the composition of the Bank’s MBS portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Investments.”

Interest rate payment terms for MBS investments classified as trading, AFS, and held-to-maturity (HTM) at ~~March 31,~~June 30, 2021, and December 31, 2020, are shown in the following table:


MBS Investments: Interest Rate Payment Terms	MBS Investments: Interest Rate Payment Terms					MBS Investments: Interest Rate Payment Terms

(In millions)	(In millions)	March 31, 2021		December 31, 2020		(In millions)	June 30, 2021		December 31, 2020
Fair value of trading securities:	Fair value of trading securities:					Fair value of trading securities:

Adjustable rate	Adjustable rate	$	2	$	3	Adjustable rate	$	2	$	3
Total trading securities	Total trading securities	$	2	$	3	Total trading securities	$	2	$	3
Amortized cost of AFS securities:	Amortized cost of AFS securities:					Amortized cost of AFS securities:
Fixed rate	Fixed rate	$	8,505	$	9,050	Fixed rate	$	8,655	$	9,050
Adjustable rate	Adjustable rate	1,332		1,426		Adjustable rate	1,235		1,426
Total AFS securities	Total AFS securities	$	9,837	$	10,476	Total AFS securities	$	9,890	$	10,476
Amortized cost of HTM securities:	Amortized cost of HTM securities:					Amortized cost of HTM securities:
Fixed rate	Fixed rate	$	796	$	1,013	Fixed rate	$	613	$	1,013
Adjustable rate	Adjustable rate	3,592		4,068		Adjustable rate	3,361		4,068
Total HTM securities	Total HTM securities	$	4,388	$	5,081	Total HTM securities	$	3,974	$	5,081

MPF Program – Under the MPF Program, the Bank had purchased from members, for its own portfolio, conventional conforming fixed rate mortgage loans under the MPF Original product. In addition, the Bank ~~may facilitate~~facilitated the purchase of conforming fixed rate mortgage loans from members for concurrent sale to Fannie Mae under the MPF Xtra® product. When members ~~sell~~sold loans under the MPF Xtra product, the loans ~~are~~were sold to a third-party investor and ~~are~~were not recorded on the Bank’s Statements of Condition. On December 17, 2020, the Bank announced that it would no longer offer new commitments to directly purchase, or to facilitate the purchase of, mortgage loans from its members. By March 31, 2021, the Bank had closed all remaining open commitments to purchase loans for its own portfolio under the MPF Original product. ~~After~~By June 30, 2021, the Bank ~~will~~ no longer ~~facilitate~~facilitated the purchase of mortgage loans under the MPF Xtra product.

As of ~~March 31,~~June 30, 2021, all mortgage loans purchased by the Bank under the MPF Program were qualifying conventional conforming fixed rate, first lien mortgage loans with fully amortizing loan terms of up to 30 years. A conventional loan is one that is not insured by the federal government or any of its agencies. Conforming loan size, which is established annually as required by Finance Agency regulations, may not exceed the loan limits set by the Finance Agency each year. All MPF loans are secured by owner-occupied, one- to four-unit residential properties or single-unit second homes. ~~The Bank purchased $7 million in eligible loans under the MPF Original product during the first three months of 2021.~~

Mortgage loan balances decreased to ~~$1.6~~$1.3 billion at ~~March 31,~~June 30, 2021, from $1.9 billion at December 31, 2020, a decrease of ~~$0.3~~$0.6 billion. Average mortgage loans were $1.4 billion in the second quarter of 2021, a decrease of $1.7 billion from $3.1 billion in the second quarter of 2020. Average mortgage loans were $1.6 billion in the first ~~quarter~~six months of 2021, a decrease of $1.6 billion from ~~$3.3~~$3.2 billion in the first ~~quarter~~six months of 2020.

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At ~~March 31,~~June 30, 2021, and December 31, 2020, the Bank held conventional conforming fixed rate mortgage loans purchased under one of two MPF products, MPF Plus or MPF Original, which are described in greater detail in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF Program” in the Bank’s 2020 Form 10-K. Mortgage loan balances at ~~March 31,~~June 30, 2021, and December 31, 2020, were as follows:

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Mortgage Loan Balances by MPF Product Type	Mortgage Loan Balances by MPF Product Type					Mortgage Loan Balances by MPF Product Type

(In millions)	(In millions)	March 31, 2021		December 31, 2020		(In millions)	June 30, 2021		December 31, 2020
MPF Plus	MPF Plus	$	130	$	139	MPF Plus	$	121	$	139
MPF Original	MPF Original	1,413		1,767		MPF Original	1,150		1,767
Subtotal	Subtotal	1,543		1,906		Subtotal	1,271		1,906
Unamortized premiums	Unamortized premiums	43		35		Unamortized premiums	33		35
Unamortized discounts	Unamortized discounts	(2)		(2)		Unamortized discounts	(1)		(2)
Mortgage loans held for portfolio	Mortgage loans held for portfolio	1,584		1,939		Mortgage loans held for portfolio	1,303		1,939
Less: Allowance for credit losses	Less: Allowance for credit losses	(3)		(4)		Less: Allowance for credit losses	(2)		(4)
Mortgage loans held for portfolio, net	Mortgage loans held for portfolio, net	$	1,581	$	1,935	Mortgage loans held for portfolio, net	$	1,301	$	1,935

The Bank performs periodic reviews of its mortgage loan portfolio to identify probable credit losses in the portfolio and to determine the likelihood of collection on the loans in the portfolio. For more information on the Bank’s mortgage loan portfolio, see “Item 1. Financial Statements – Note 5 – Mortgage Loans Held for Portfolio” in this report as well as “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Credit Risk – MPF Program” and “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2020 Form 10-K.

Borrowings – Total consolidated obligations funding the mortgage-related business decreased ~~$1.6~~$2.2 billion to ~~$16.2~~$15.6 billion at ~~March 31,~~June 30, 2021, from $17.8 billion at December 31, 2020. For further information and discussion of the Bank’s joint and several liability for FHLBank consolidated obligations, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” and “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”

The notional amount of derivative instruments associated with the mortgage-related business totaled ~~$15.3~~$16.0 billion at ~~March 31,~~June 30, 2021, of which ~~$8.0~~$8.1 billion were associated with MBS, ~~$7.0~~$7.8 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio, and ~~$0.3~~$0.1 billion were offsetting derivatives. The notional amount of derivative instruments associated with the mortgage-related business totaled $11.2 billion at December 31, 2020, of which $8.3 billion were associated with MBS, $2.5 billion were hedging or were associated with consolidated obligations funding the mortgage portfolio, and $0.4 billion were offsetting derivatives.

For information on the Bank’s management of interest rate risk and market risk related to the mortgage-related business segment, see “Item 3. Quantitative ~~And~~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 uses interest rate swaps; interest rate cap and floor agreements; and callable and putable interest rate swaps (collectively, interest rate exchange agreements) to manage its exposure to market risks inherent in its ordinary course of business, including its lending, investment, and funding activities. For more information on the Bank’s interest rate exchange agreements by type of hedged item, hedging instrument, associated hedging strategy, accounting designation as specified under the accounting for derivative instruments and hedging activities, and notional amount, and the primary strategies that the Bank employs for using interest rate exchange agreements and the associated market risks, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Interest Rate Exchange Agreements” in the Bank’s 2020 Form 10-K.

Credit Risk. For a discussion of derivatives credit exposure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Derivative Counterparties.”

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Derivative Counterparties. The following table presents the concentration in derivatives with derivative counterparties whose outstanding notional balances represented 10% or more of the Bank’s total notional amount of derivatives outstanding as of ~~March 31,~~June 30, 2021, and December 31, 2020.


Concentration of Derivative Counterparties	Concentration of Derivative Counterparties											Concentration of Derivative Counterparties

(Dollars in millions)	(Dollars in millions)	March 31, 2021					December 31, 2020					(Dollars in millions)	June 30, 2021					December 31, 2020
Derivative Counterparty	Derivative Counterparty	Credit Rating(1)	Notional Amount		Percentage of Total Notional Amount		Credit Rating(1)	Notional Amount		Percentage of Total Notional Amount		Derivative Counterparty	Credit Rating(1)	Notional Amount		Percentage of Total Notional Amount		Credit Rating(1)	Notional Amount		Percentage of Total Notional Amount
Uncleared	Uncleared											Uncleared

Others	Others	At least BBB	$	10,849	15	%	At least BBB	$	7,227	9	%	Others	At least BBB	$	13,503	18	%	At least BBB	$	7,227	9	%
Subtotal uncleared	Subtotal uncleared		10,849		15			7,227		9		Subtotal uncleared		13,503		18			7,227		9
Cleared	Cleared											Cleared
LCH Ltd(2)	LCH Ltd(2)											LCH Ltd(2)
Credit Suisse Securities (USA) LLC	Credit Suisse Securities (USA) LLC	A	22,772		32		A	28,977		37		Credit Suisse Securities (USA) LLC	A	17,615		24		A	28,977		37
Morgan Stanley & Co. LLC	Morgan Stanley & Co. LLC	A	37,192		53		A	42,440		54		Morgan Stanley & Co. LLC	A	43,041		58		A	42,440		54
Subtotal cleared	Subtotal cleared		59,964		85			71,417		91		Subtotal cleared		60,656		82			71,417		91
Total(3)	Total(3)		$	70,813	100	%		$	78,644	100	%	Total(3)		$	74,159	100	%		$	78,644	100	%

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

(2)London Clearing House (LCH) Ltd is the Bank’s counterparty for all of its cleared swaps and was rated AA- ~~by S&P at March 31, 2021, and December 31, 2020,~~ with a Stable CreditWatch by S&P at ~~March 31,~~June 30, 2021, and December 31, 2020. For purposes of clearing swaps with LCH Ltd, Credit Suisse Securities (USA) LLC and Morgan Stanley & Co. LLC are the Bank’s clearing agents.

(3)Total notional amount at December 31, 2020, does not include $1 million of mortgage delivery commitments with members.

Liquidity and Capital Resources

The Bank’s financial strategies are designed to enable the Bank to expand and contract its assets, liabilities, and capital as membership composition and member credit needs change. The Bank’s liquidity and capital resources are designed to support its financial strategies. The Bank’s primary source of liquidity is its access to the debt capital markets through consolidated obligation issuance. The maintenance of the Bank’s capital resources is governed by its capital plan.

Liquidity

The Bank seeks to maintain the liquidity necessary to repay maturing consolidated obligations for which it is the primary obligor, meet other obligations and commitments, and meet expected and unexpected member credit

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demands. The Bank monitors its financial position to maintain ready access to available funds to meet normal transaction requirements, take advantage of appropriate investment opportunities, and manage unforeseen liquidity demands.

The Bank generally manages operational, contingent, and refinancing risks using a portfolio of cash and short-term investments and access to the debt capital markets. In addition, the Bank maintains alternate sources of funds, detailed in its contingent liquidity plan, which also includes an explanation of how sources of funds may be allocated under stressed market conditions, such as short-term operational disruptions at the Bank or the Office of Finance or short-term disruptions in the debt capital markets.

The Finance Agency has established base case liquidity guidelines that each FHLBank maintain sufficient liquidity at least equal to its anticipated cash outflows, assuming no new consolidated obligation issuance, renewal of all maturing advances, a specified percentage drawdown on letters of credit balances, and certain Treasury investments as a source of funds. The Finance Agency’s guidance provides that base case liquidity should generally be maintained for 10 to 30 days. The Bank actively monitors and manages refinancing risk. Finance Agency guidance specifies tolerance levels related to the size of each FHLBank’s funding gaps to measure refinancing risk as the

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difference between assets and liabilities that are scheduled to mature during a specified period, expressed as a percentage of total assets. The guidance limits three-month and one-year funding gaps generally between the range of –10% to –20% and –25% to –35%, respectively. Funding gaps are measured at monthend, using the average ratio for the three most recent monthends.

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 ~~March 31,~~June 30, 2021, and December 31, 2020, the Bank held total sources of funds in an amount that would have allowed the Bank to meet its liquidity needs without issuing new consolidated obligations for over ten days, in accordance with the Finance Agency guidance. In addition, the Bank’s funding gap positions as of ~~March 31,~~June 30, 2021, and December 31, 2020, were within the tolerance levels provided by the Finance Agency guidance.

For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources – Liquidity” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management – Liquidity Risk” in the Bank’s 2020 Form 10-K.

Regulatory Capital Requirements

Under the Housing and Economic Recovery Act of 2008 (Housing Act), the Director of the Finance Agency is responsible for setting the risk-based capital standards for the FHLBanks. The FHLBank Act and regulations governing the operations of the FHLBanks require that the Bank’s minimum capital stock requirement for shareholders must be sufficient to enable the Bank to meet its regulatory requirements for total capital, leverage capital, and risk-based capital. The Bank must maintain: (i) total regulatory capital in an amount equal to at least 4% of its total assets, (ii) leverage capital in an amount equal to at least 5% of its total assets, and (iii) permanent capital in an amount that is greater than or equal to its risk-based capital requirement.

~~Beginning in February 2020, the~~The Finance Agency ~~issued guidance that augmented existing statutory and regulatory capital requirements to require~~requires each FHLBank to maintain a ratio of at least ~~two percent~~2% of capital stock to total assets in order to help preserve the cooperative structure incentives that encourage members to remain fully engaged in the oversight of their investment in the FHLBank. The Finance Agency will consider the proportion of capital stock to assets, measured on a daily average basis at monthend, when assessing each FHLBank’s capital management practices. As of ~~March~~June 30, 2021, and December 31, ~~2021,~~2020, the Bank complied with this capital guidance.

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The following table shows the Bank’s compliance with the Finance Agency’s capital requirements at ~~March 31,~~June 30, 2021, and December 31, 2020. The Bank’s risk-based capital requirement decreased to ~~$1.2~~$1.1 billion at ~~March 31,~~June 30, 2021, from $1.4 billion at December 31, 2020.

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Regulatory Capital Requirements	Regulatory Capital Requirements													Regulatory Capital Requirements

		March 31, 2021						December 31, 2020							June 30, 2021						December 31, 2020
(Dollars in millions)	(Dollars in millions)	Required			Actual			Required			Actual			(Dollars in millions)	Required			Actual			Required			Actual
Risk-based capital	Risk-based capital	$	1,173		$	5,983		$	1,404		$	5,966		Risk-based capital	$	1,098		$	6,037		$	1,404		$	5,966
Total regulatory capital	Total regulatory capital	$	2,316		$	5,983		$	2,745		$	5,966		Total regulatory capital	$	2,170		$	6,037		$	2,745		$	5,966
Total regulatory capital ratio	Total regulatory capital ratio	4.00		%	10.33		%	4.00		%	8.69		%	Total regulatory capital ratio	4.00		%	11.13		%	4.00		%	8.69		%
Leverage capital	Leverage capital	$	2,895		$	8,975		$	3,432		$	8,949		Leverage capital	$	2,712		$	9,056		$	3,432		$	8,949
Leverage ratio	Leverage ratio	5.00		%	15.50		%	5.00		%	13.04		%	Leverage ratio	5.00		%	16.70		%	5.00		%	13.04		%

The Bank’s capital requirements are more fully discussed in “Item 8. Financial Statements and Supplementary Data – Note 11 – Capital” in the Bank’s 2020 Form 10-K.

Risk Management

The Bank has an integrated corporate governance and internal control framework designed to support effective management of the Bank’s business activities and the risks inherent in these activities. As part of this framework, the Bank’s board of directors has adopted a Risk Governance Policy that outlines the key roles and responsibilities of the board of directors and management and sets forth how the Bank is organized to achieve its risk management objectives, including the implementation of the Bank’s strategic objectives, risk management strategies, corporate governance, and standards of conduct. The policy also establishes the Bank’s risk governance organizational structure and identifies the general roles and responsibilities of the board of directors and management in establishing risk management policies, procedures, and guidelines; in overseeing the enterprise risk profile; and in implementing enterprise risk management processes and business strategies. The policy establishes an independent risk oversight function to identify, assess, measure, monitor, and report on the enterprise risk profile and risk management capabilities of the Bank. For more information, see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Risk Management” in the Bank’s 2020 Form 10-K.

Advances. The Bank manages the credit risk of advances and other credit products by setting the credit and collateral terms available to individual members and housing associates based on their creditworthiness and on the quality and value of the assets they pledge as collateral. The Bank also has procedures to assess the mortgage loan quality and documentation standards of institutions that pledge mortgage loan collateral. In addition, the Bank has collateral policies and restricted lending procedures in place to help manage its exposure to institutions that experience difficulty in meeting their capital requirements or other standards of creditworthiness. These credit and collateral policies balance the Bank’s dual goals of meeting the needs of members and housing associates as a reliable source of liquidity and mitigating credit risk by adjusting credit and collateral terms in view of deterioration in creditworthiness. The Bank has never experienced a credit loss on an advance.

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Pursuant to the Bank’s lending agreements with its borrowers, the Bank limits extensions of credit to individual borrowers to a percentage of the market value or unpaid principal balance of the borrower’s pledged collateral, known as the borrowing capacity, which the Bank can change from time to time. The borrowing capacity percentage varies according to several factors, including the charter type of the institution, the collateral type, the value assigned to the collateral, the results of the Bank’s collateral field review of the borrower’s collateral, the pledging method used for loan collateral (specific identification or blanket lien), the amount of loan data provided (detailed or summary reporting), the data reporting frequency (monthly or quarterly), the borrower’s financial strength and condition, and any institution-specific collateral risks. Under the terms of the Bank’s lending agreements, the aggregate borrowing capacity of a borrower’s pledged eligible collateral must meet or exceed the total amount of the borrower’s outstanding advances, other extensions of credit, and certain other borrower obligations and liabilities.

In addition, the total amount of advances made available to each member or housing associate may be limited by the financing availability assigned by the Bank, which is generally expressed as a percentage of the member’s or

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housing associate’s assets, which the Bank can change from time to time. The amount of financing availability is generally determined by the creditworthiness of the member or housing associate.

When a nonmember financial institution acquires some or all of the assets and liabilities of a member, including outstanding advances and Bank capital stock, the Bank may allow the advances to remain outstanding, at its discretion. The nonmember borrower is required to meet the Bank’s applicable credit, collateral, and capital stock requirements, including requirements regarding creditworthiness and collateral borrowing capacity.

The following tables present a summary of the status of the credit outstanding and overall collateral borrowing capacity of the Bank’s member and nonmember borrowers as of ~~March 31,~~June 30, 2021, and December 31, 2020.


Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Credit Quality Rating	Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Credit Quality Rating									Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Credit Quality Rating

(Dollars in millions)	(Dollars in millions)									(Dollars in millions)
March 31, 2021
June 30, 2021										June 30, 2021
		All Members and Nonmembers	Members and Nonmembers with Credit Outstanding								All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
						Collateral Borrowing Capacity(2)									Collateral Borrowing Capacity(2)
Member or Nonmember Credit Quality Rating	Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding(1)		Total		Used		Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding(1)		Total		Used
1-3	1-3	237	161	$	33,194	$	191,022	17	%	1-3	232	124	$	30,000	$	193,979	15	%
4-6	4-6	92	56	11,623		45,418		26		4-6	96	42	9,696		36,852		26
7-10	7-10	5	2	36		46		78		7-10	4	2	26		43		60
Subtotal	Subtotal	334	219	44,853		236,486		19		Subtotal	332	168	39,722		230,874		17
Community development financial institutions (CDFIs)	Community development financial institutions (CDFIs)	7	7	102		118		86		Community development financial institutions (CDFIs)	7	7	114		126		90
Housing associates	Housing associates	2	—	—		—		—		Housing associates	2	—	—		—		—
Total	Total	343	226	$	44,955	$	236,604	19	%	Total	341	175	$	39,836	$	231,000	17	%

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December 31, 2020
	All Members and Nonmembers	Members and Nonmembers with Credit Outstanding
					Collateral Borrowing Capacity(2)
Member or Nonmember Credit Quality Rating	Number	Number	Credit Outstanding(1)		Total		Used
1-3	236	164	$	37,225	$	188,637	20	%
4-6	95	59	12,508		50,199		25
7-10	4	2	32		34		94
Subtotal	335	225	49,765		238,870		21
CDFIs	7	7	103		116		89
Housing associates	2	—	—		—		—
Total	344	232	$	49,868	$	238,986	21	%

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

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

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Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Unused Borrowing Capacity	Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Unused Borrowing Capacity						Member and Nonmember Credit Outstanding and Collateral Borrowing Capacity by Unused Borrowing Capacity

(Dollars in millions)	(Dollars in millions)						(Dollars in millions)
March 31, 2021
June 30, 2021							June 30, 2021
Unused Borrowing Capacity	Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding(1)		Collateral Borrowing Capacity(2)		Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding(1)		Collateral Borrowing Capacity(2)
0% – 10%	0% – 10%	9	$	1,080	$	1,119	0% – 10%	5	$	523	$	530
11% – 25%	11% – 25%	14	781		981		11% – 25%	10	486		620
26% – 50%	26% – 50%	28	3,932		6,715		26% – 50%	19	3,821		6,765
More than 50%	More than 50%	175	39,162		227,789		More than 50%	141	35,006		223,085
Total	Total	226	$	44,955	$	236,604	Total	175	$	39,836	$	231,000


December 31, 2020
Unused Borrowing Capacity	Number of Members and Nonmembers with Credit Outstanding	Credit Outstanding(1)		Collateral Borrowing Capacity(2)
0% – 10%	18	$	1,417	$	1,511
11% – 25%	3	116		137
26% – 50%	27	9,858		18,210
More than 50%	184	38,477		219,128
Total	232	$	49,868	$	238,986

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

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

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

Securities pledged as collateral are assigned borrowing capacities that reflect the securities’ market valuations and market liquidation risks. The following table presents the securities collateral pledged by all members and by nonmembers with credit outstanding at ~~March 31,~~June 30, 2021, and December 31, 2020.

Composition of Securities Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
(In millions) March 31, 2021 December 31, 2020
Securities Type with Current Credit Ratings Current Par Borrowing
Capacity Current Par Borrowing
Capacity
U.S. Treasury (bills, notes, bonds) $ 642 $ 582 $ 195 $ 190
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools) 4,673 4,470 4,236 4,120
Agency pools and collateralized mortgage obligations 15,396 14,652 16,399 15,758
Private-label commercial MBS – publicly registered investment-grade-rated senior tranches 4 3 3 3
PLRMBS – private label investment-grade-rated senior tranches 13 9 18 12
Term deposits with the Bank 14 14 16 16
Total $ 20,742 $ 19,730 $ 20,867 $ 20,099

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Composition of Securities Collateral Pledged by Members and by Nonmembers with Credit Outstanding

(In millions)	June 30, 2021				December 31, 2020
Securities Type with Current Credit Ratings	Current Par		Borrowing Capacity		Current Par		Borrowing Capacity
U.S. Treasury (bills, notes, bonds)	$	313	$	294	$	195	$	190
Agency (notes, subordinated debt, structured notes, indexed amortization notes, and Small Business Administration pools)	4,021		3,874		4,236		4,120
Agency pools and collateralized mortgage obligations	17,441		16,524		16,399		15,758

Private-label commercial MBS – publicly registered investment-grade-rated senior tranches	4		3		3		3

PLRMBS – private label investment-grade-rated senior tranches	336		211		18		12

Term deposits with the Bank	9		9		16		16

Total	$	22,124	$	20,915	$	20,867	$	20,099

With respect to loan collateral, most borrowers may choose to pledge loan collateral by specific identification or under a blanket lien. Insurance companies, CDFIs, and housing associates are required to pledge loan collateral by

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specific identification with monthly reporting. All other borrowers pledging by specific identification must provide a detailed listing of all the loans pledged to the Bank on a monthly basis.

The Bank may require certain borrowers to deliver pledged loan collateral to the Bank for one or more reasons, including the following: the borrower is a de novo institution (chartered within the last three years), an insurance company, a CDFI, or a housing associate; the Bank is concerned about the borrower’s creditworthiness; or the Bank is concerned about the maintenance of its collateral or the priority of its security interest.

As of ~~March 31,~~June 30, 2021, of the loan collateral pledged to the Bank, 16% was pledged by 2423 institutions by specific identification, ~~54%~~55% was pledged by 117 institutions under a blanket lien with detailed reporting, and ~~30%~~29% was pledged by 130 institutions under a blanket lien with summary reporting. For each borrower that pledges loan collateral, the Bank conducts loan collateral field reviews once every six months or every one, two, or three years, depending on the risk profile of the borrower and the types of collateral pledged by the borrower.

As of ~~March 31,~~June 30, 2021, the Bank’s maximum borrowing capacities as a percentage of the assigned market value of mortgage loan collateral pledged under a blanket lien with detailed reporting were as follows: 85% for first lien residential mortgage loans, 81% for multifamily mortgage loans, 81% for commercial mortgage loans, and 70% for second lien residential mortgage loans. The maximum borrowing capacity for small business, small agribusiness, and small farm loans was 50% of the unpaid principal balance, although most of these loans are pledged under blanket lien with summary reporting, with a maximum borrowing capacity of 25%. The highest borrowing capacities are available to borrowers that pledge under a blanket lien with detailed reporting because the detailed loan information allows the Bank to assess the value of the collateral more precisely and because additional collateral is pledged under the blanket lien that may not receive borrowing capacity but may be liquidated to repay advances in the event of default. The Bank may review and change the maximum borrowing capacity for any type of loan collateral at any time.

The following table presents the mortgage loan collateral pledged by all members and by nonmembers with credit outstanding at ~~March 31,~~June 30, 2021, and December 31, 2020.

Composition of Loan Collateral Pledged
by Members and by Nonmembers with Credit Outstanding
(In millions) March 31, 2021 December 31, 2020
Loan Type Unpaid Principal
Balance Borrowing
Capacity Unpaid Principal
Balance Borrowing
Capacity
First lien residential mortgage loans $ 165,336 $ 129,269 $ 167,058 $ 131,671
Second lien residential mortgage loans and home equity lines of credit 14,971 6,304 15,349 6,441
Multifamily mortgage loans 44,057 29,089 43,324 28,376
Commercial mortgage loans 78,014 48,877 78,886 48,637
Loan participations(1)
3,352 2,295 3,783 2,591
Small business, small farm, and small agribusiness loans 4,229 1,040 4,820 1,171
Total $ 309,959 $ 216,874 $ 313,220 $ 218,887

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Composition of Loan Collateral Pledged by Members and by Nonmembers with Credit Outstanding

(In millions)	June 30, 2021				December 31, 2020
Loan Type	Unpaid Principal Balance		Borrowing Capacity		Unpaid Principal Balance		Borrowing Capacity
First lien residential mortgage loans	$	162,164	$	126,889	$	167,058	$	131,671
Second lien residential mortgage loans and home equity lines of credit	14,331		6,434		15,349		6,441
Multifamily mortgage loans	40,760		27,851		43,324		28,376
Commercial mortgage loans	72,873		46,169		78,886		48,637
Loan participations(1)	2,791		1,931		3,783		2,591
Small business, small farm, and small agribusiness loans	3,306		811		4,820		1,171

Total	$	296,225	$	210,085	$	313,220	$	218,887

(1)The unpaid principal balance for loan participations is 100% of the outstanding loan amount. The borrowing capacity for loan participations is based on the participated amount pledged to the Bank.

The Bank holds a security interest in subprime residential mortgage loans pledged as collateral. Subprime loans are defined as loans with a borrower FICO score of 660 or less at origination, or if the original FICO score is not available, as loans with a current borrower FICO score of 660 or less. At ~~March 31,~~June 30, 2021, and December 31, 2020, the unpaid principal balance of these loans totaled $5$6 billion and $5 billion, respectively. The Bank reviews and assigns borrowing capacities to subprime mortgage loans as it does for all other types of loan collateral, taking into account the known credit attributes in the pricing of the loans. All advances, including those made to borrowers

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pledging subprime mortgage loans, are required to be fully collateralized. The Bank limits the amount of borrowing capacity that may be supported by subprime collateral.

Investments. The Bank has adopted credit policies and exposure limits for investments that promote risk limitation, diversification, and liquidity. These policies determine eligible counterparties and restrict the amounts and terms of the Bank’s investments with any given counterparty according to the Bank’s own capital position as well as the capital and creditworthiness of the counterparty.

The Bank monitors its investments for substantive changes in relevant market conditions and any declines in fair value. For securities in an unrealized loss position because of factors other than movements in interest rates, such as widening of mortgage asset spreads, the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing the expectations of the present value of the cash flows to be collected from the security with the amortized cost basis of the security. If the Bank’s expectations of the present value of the cash flows to be collected is less than the amortized cost basis, the difference is considered the credit loss.

When the fair value of an individual investment security falls below its amortized cost, the Bank evaluates whether an allowance for credit losses is necessary on the security. The Bank recognizes an allowance for credit losses when it determines that it will be unable to recover the entire amortized cost basis of the security and the fair value of the investment security is less than its amortized cost. The Bank considers its intent to hold the security and whether it is more likely than not that the Bank will be required to sell the security before its anticipated recovery of the remaining cost basis, and other factors. The Bank generally views changes in the fair value of the securities caused by movements in interest rates to be temporary.

The following tables present the Bank’s investment credit exposure at the dates indicated, based on the lowest of the long-term credit ratings provided by Moody’s, S&P, or Fitch Ratings (Fitch) ratings.

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Investment Credit Exposure	Investment Credit Exposure											Investment Credit Exposure

(In millions)	(In millions)														(In millions)
March 31, 2021
June 30, 2021															June 30, 2021
		Carrying Value														Carrying Value
		Credit Rating(1)														Credit Rating(1)
Investment Type	Investment Type	AA		A		BBB		Below Investment Grade		Unrated			Total		Investment Type	AA		A		BBB		Below Investment Grade		Unrated		Total

U.S. obligations – Treasury securities	U.S. obligations – Treasury securities	$	6,634	$	—	$	—	$	—	$	—		$	6,634	U.S. obligations – Treasury securities	$	4,081	$	—	$	—	$	—	$	—	$	4,081

MBS:	MBS:														MBS:
Other U.S. obligations – single-family:	Other U.S. obligations – single-family:														Other U.S. obligations – single-family:
Ginnie Mae	Ginnie Mae	218		—		—		—		—			218		Ginnie Mae	172		—		—		—		—		172
GSEs – single-family:	GSEs – single-family:														GSEs – single-family:
Freddie Mac	Freddie Mac	396		—		—		—		—			396		Freddie Mac	310		—		—		—		—		310
Fannie Mae(2)	Fannie Mae(2)	1,094		4		—		3		—			1,101		Fannie Mae(2)	971		4		—		2		—		977
Subtotal	Subtotal	1,490		4		—		3		—			1,497		Subtotal	1,281		4		—		2		—		1,287
GSEs – multifamily:	GSEs – multifamily:														GSEs – multifamily:
Freddie Mac	Freddie Mac	2,475		—		—		—		—			2,475		Freddie Mac	2,385		—		—		—		—		2,385
Fannie Mae	Fannie Mae	8,202		—		—		—		—			8,202		Fannie Mae	8,333		—		—		—		—		8,333
Subtotal	Subtotal	10,677		—		—		—		—			10,677		Subtotal	10,718		—		—		—		—		10,718
Total GSEs	Total GSEs	12,167		4		—		3		—			12,174		Total GSEs	11,999		4		—		2		—		12,005
PLRMBS:	PLRMBS:														PLRMBS:
Prime	Prime	22		32		54		136		102			346		Prime	21		24		46		136		98		325
Alt-A	Alt-A	28		47		43		1,166		569			1,853		Alt-A	26		39		44		1,100		547		1,756
Total PLRMBS	Total PLRMBS	50		79		97		1,302		671			2,199		Total PLRMBS	47		63		90		1,236		645		2,081
Total MBS	Total MBS	12,435		83		97		1,305		671			14,591		Total MBS	12,218		67		90		1,238		645		14,258
Total securities	Total securities	19,069		83		97		1,305		671			21,225		Total securities	16,299		67		90		1,238		645		18,339
Interest-bearing deposits	Interest-bearing deposits	1		1,120		—		—		—			1,121		Interest-bearing deposits	1		1,125		—		—		—		1,126
Securities purchased under agreements to resell	Securities purchased under agreements to resell	—		1,000		—		—		—			1,000		Securities purchased under agreements to resell	3,000		1,000		—		—		—		4,000
Federal funds sold	Federal funds sold	1,750		2,430		—		—		—			4,180		Federal funds sold	1,000		3,938		—		—		—		4,938
Total investments	Total investments	$	20,820	$	4,633	$	97	$	1,305	$	671		$	27,526	Total investments	$	20,300	$	6,130	$	90	$	1,238	$	645	$	28,403

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(In millions)
December 31, 2020
	Carrying Value
	Credit Rating(1)
Investment Type	AA		A		BBB		Below Investment Grade		Unrated		Total

U.S. obligations – Treasury securities	$	9,240	$	—	$	—	$	—	$	—	$	9,240

MBS:
Other U.S. obligations – single-family:
Ginnie Mae	264		—		—		—		—		264
GSEs – single-family:
Freddie Mac	511		—		—		—		—		511
Fannie Mae(2)	1,222		4		—		3		—		1,229
Subtotal	1,733		4		—		3		—		1,740
GSEs – multifamily:
Freddie Mac	2,695		—		—		—		—		2,695
Fannie Mae	8,755		—		—		—		—		8,755
Subtotal	11,450		—		—		—		—		11,450
Total GSEs	13,183		4		—		3		—		13,190
PLRMBS:
Prime	22		26		53		162		104		367
Alt-A	31		49		33		1,298		548		1,959
Total PLRMBS	53		75		86		1,460		652		2,326
Total MBS	13,500		79		86		1,463		652		15,780
Total securities	22,740		79		86		1,463		652		25,020
Interest-bearing deposits	1		1,077		—		—		—		1,078
Securities purchased under agreements to resell	6,000		1,250		—		—		—		7,250
Federal funds sold	—		1,880		—		—		—		1,880
Total investments	$	28,741	$	4,286	$	86	$	1,463	$	652	$	35,228

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

(2)The Bank has one security guaranteed by Fannie Mae but rated BB at ~~March 31,~~June 30, 2021, and December 31, 2020, by S&P because of extraordinary expenses incurred during bankruptcy of the security's sponsor.

For all securities in its AFS and HTM portfolios, for Federal funds sold, and for securities purchased under agreements to resell, the Bank does not intend to sell any security and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.

The Bank invests in short-term unsecured interest-bearing deposits, short-term unsecured Federal funds sold, and securities purchased under agreements to resell with member and nonmember counterparties, all of which are highly rated.

The Bank actively monitors its credit exposures and the credit quality of its counterparties, including an assessment of each counterparty’s financial performance, capital adequacy, likelihood of parental or sovereign support, and the current market perceptions of the counterparties. The Bank may also consider general macroeconomic and market conditions and political stability when establishing limits on unsecured investments with U.S. branches and agency offices of foreign commercial banks. As a result of deteriorating financial condition or concerns about adverse economic or market developments, the Bank may reduce limits or terms on unsecured investments or suspend a counterparty.

Finance Agency regulations limit the amount of unsecured credit that an individual FHLBank may extend to a single counterparty. In addition, the FHLBanks are prohibited by Finance Agency regulation from investing in financial instruments issued by non-U.S. entities other than those issued by U.S. branches and agency offices of foreign commercial banks.

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Under Finance Agency regulations, the total amount of unsecured credit that an FHLBank may extend to a group of affiliated counterparties for term extensions of unsecured credit and overnight Federal funds sales, combined, may not exceed 30% of the FHLBank’s total capital. These limits on affiliated counterparty groups are in addition to the limits on extensions of unsecured credit applicable to any single counterparty within the affiliated group.

The following table presents the unsecured credit exposure with counterparties by investment type at ~~March 31,~~June 30, 2021, and December 31, 2020.


Unsecured Investment Credit Exposure by Investment Type	Unsecured Investment Credit Exposure by Investment Type						Unsecured Investment Credit Exposure by Investment Type

		Carrying Value(1)				Carrying Value(1)
(In millions)	(In millions)	March 31, 2021		December 31, 2020			(In millions)	June 30, 2021		December 31, 2020
Interest-bearing deposits	Interest-bearing deposits	$	1,120	$	1,077		Interest-bearing deposits	$	1,125	$	1,077

Federal funds sold	Federal funds sold	4,180		1,880			Federal funds sold	4,938		1,880
Total	Total	$	5,300	$	2,957		Total	$	6,063	$	2,957

(1)Excludes unsecured investment credit exposure to U.S. government agencies and instrumentalities, government-sponsored enterprises, and supranational entities and does not include related accrued interest as of ~~March 31,~~June 30, 2021, and December 31, 2020.

The following table presents the credit ratings of the unsecured investment credit exposures presented by the domicile of the counterparty or the domicile of the counterparty’s parent for U.S. branches and agency offices of foreign commercial banks, based on the lowest of the credit ratings provided by Moody’s, S&P, or Fitch ratings. This table does not reflect the foreign sovereign government’s credit rating. At ~~March 31,~~June 30, 2021, ~~79%~~81% of the Bank’s total unsecured investments were to U.S. branches and agency offices of foreign commercial banks. At ~~March 31,~~June 30, 2021, all of the unsecured investments held by the Bank had overnight maturities.


Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty	Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty					Ratings of Unsecured Investment Credit Exposure by Domicile of Counterparty

(In millions)	(In millions)										(In millions)
March 31, 2021
June 30, 2021											June 30, 2021
		Carrying Value(1)					Carrying Value(1)
		Credit Rating(2)								Credit Rating(2)
Domicile of Counterparty	Domicile of Counterparty	AA		A				Total			Domicile of Counterparty	AA		A		Total
Domestic	Domestic	$	—	$	1,120			$	1,120		Domestic	$	—	$	1,125	$	1,125

U.S. branches and agency offices of foreign commercial banks:	U.S. branches and agency offices of foreign commercial banks:										U.S. branches and agency offices of foreign commercial banks:
Australia	Australia	—		1,000				1,000			Australia	—		1,400		1,400

Canada	Canada	750		—				750			Canada	1,000		1,400		2,400
Finland		1,000		—				1,000

Netherlands	Netherlands	—		1,430				1,430			Netherlands	—		888		888

United Kingdom											United Kingdom	—		250		250
Total U.S. branches and agency offices of foreign commercial banks	Total U.S. branches and agency offices of foreign commercial banks	1,750		2,430				4,180			Total U.S. branches and agency offices of foreign commercial banks	1,000		3,938		4,938
Total unsecured credit exposure	Total unsecured credit exposure	$	1,750	$	3,550			$	5,300		Total unsecured credit exposure	$	1,000	$	5,063	$	6,063

(2)Does not reflect changes in ratings, outlook, or watch status occurring after ~~March 31,~~June 30, 2021. These ratings represent the lowest rating available for each unsecured investment owned by the Bank, based on the ratings provided by Fitch, Moody’s, or S&P. The Bank’s internal rating may differ from this rating.

The Bank’s MBS investments include PLRMBS, all of which were AAA-rated at the time of purchase, and agency residential MBS, which are backed by Fannie Mae, Freddie Mac, or Ginnie Mae. Some of the PLRMBS were issued by ~~and/~~or purchased from members, former members, or their affiliates. The Bank has investment credit limits and terms for these investments that do not differ for members and nonmembers. Regulatory policy limits total MBS investments, including unpaid principal balance, unamortized premiums and discounts, and net charge-offs, to three times the Bank’s regulatory capital at the time of purchase. At ~~March 31,~~June 30, 2021, the Bank’s MBS portfolio was ~~229%~~ 218%

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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.

~~Table of Contents~~

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

At ~~March 31,~~June 30, 2021, PLRMBS representing 12% of the amortized cost of the Bank’s MBS portfolio were labeled Alt-A by the issuer. These PLRMBS are generally collateralized by mortgage loans that are considered less risky than subprime loans but more risky than prime loans. These loans are generally made to borrowers with credit scores that are high enough to qualify for a prime mortgage loan, but the loans may not meet standard underwriting guidelines for documentation requirements, property type, or loan-to-value ratios.

As of ~~March 31,~~June 30, 2021, the Bank’s investment in MBS had gross unrealized losses totaling ~~$27~~$20 million, ~~$22~~$10 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 ~~March 31,~~June 30, 2021, all of the gross unrealized losses on its agency MBS are temporary.

If conditions in the housing and mortgage markets and general business and economic conditions deteriorate, the fair value of MBS may decline further, and the Bank may experience credit losses on additional PLRMBS in future periods, as well as further impairment of PLRMBS that were identified as other-than-temporarily impaired prior to January 1, 2020. Additional credit losses could adversely affect the Bank’s earnings and retained earnings and its ability to pay dividends and repurchase capital stock. The Bank cannot predict whether it will be required to record an allowance for credit losses on its PLRMBS in the future.

The Bank has exposure to investment securities with interest rates indexed to LIBOR. The following tables present the unpaid principal balance of adjustable rate investment securities by interest rate index and the unpaid principal balance of LIBOR-indexed investments for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by redemption term at ~~March 31,~~June 30, 2021, and December 31, 2020. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.


Adjustable Rate Investment Securities by Interest Rate Index	Adjustable Rate Investment Securities by Interest Rate Index			Adjustable Rate Investment Securities by Interest Rate Index
(In millions)	(In millions)	MBS			(In millions)			MBS
Interest Rate Index	Interest Rate Index	March 31, 2021				December 31, 2020			Interest Rate Index	June 30, 2021		December 31, 2020
LIBOR(1)	LIBOR(1)	$	5,160			$	5,744		LIBOR(1)	$	4,826	$	5,744

Constant maturity Treasury	Constant maturity Treasury	96				101			Constant maturity Treasury	86		101
Other	Other	1				1			Other	1		1
Total adjustable rate investment securities(2)	Total adjustable rate investment securities(2)	$	5,257			$	5,846		Total adjustable rate investment securities(2)	$	4,913	$	5,846

LIBOR-Indexed Investment Securities by Redemption Term
(In millions) MBS
Redemption Term March 31, 2021 December 31, 2020
Due in 2022 $ — $ 1
Due through June 30, 2023 93 98
Due thereafter(2)
5,067 5,645
Total LIBOR-Indexed investment securities $ 5,160 $ 5,744

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LIBOR-Indexed Investment Securities by Redemption Term
(In millions)	MBS
Redemption Term	June 30, 2021		December 31, 2020


Due in 2022	$	—	$	1
Due through June 30, 2023	93		98
Due thereafter(2)	4,733		5,645
Total LIBOR-Indexed investment securities	$	4,826	$	5,744

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

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

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Derivative Counterparties. The Bank has adopted credit policies and exposure limits for uncleared derivatives credit exposure. Over-the-counter derivatives may be either entered into directly with a counterparty (uncleared derivatives) or executed either with an executing dealer or on a swap execution facility and then cleared through a futures commission merchant ~~(clearing agent)~~or clearing agent with a derivatives clearing organization (cleared derivatives).

Uncleared Derivatives – The Bank selects only highly rated derivative dealers and major banks (derivative dealer counterparties) that meet the Bank’s eligibility criteria to act as counterparties for its uncleared derivative activities. In addition, for all uncleared derivative transactions, the Bank has entered into master netting agreements and bilateral credit support agreements with all active derivative dealer counterparties that provide for delivery of collateral at specified levels to limit the Bank’s net unsecured credit exposure to these counterparties. Under these policies and agreements, the amount of unsecured credit exposure to an individual derivative dealer counterparty is set at zero (subject to a minimum transfer amount).

The Bank is subject to the risk of potential nonperformance by the counterparties to derivative agreements. A counterparty generally must deliver collateral to the Bank if the total market value of the Bank’s exposure to that counterparty rises above a specific trigger point. Currently, all of the Bank’s active uncleared derivative counterparties have a zero threshold. As a result of these risk mitigation initiatives, the Bank does not anticipate any credit losses on its uncleared derivative transactions with counterparties as of ~~March 31,~~June 30, 2021.

Cleared Derivatives – In a cleared derivatives transaction, the Bank is subject to nonperformance by the clearinghouse and its futures commission merchant or clearing agent. The requirement that the Bank post initial and variation margin through a clearing agent to the clearinghouse exposes the Bank to institutional credit risk if the clearing agent fails to meet its obligations. The use of a clearinghouse, or central counterparty, lowers overall credit risk exposure because it employs standard valuation and initial and variation margin processes and is specifically designed to withstand remote but plausible counterparty default credit events. Variation margin is posted or collected for changes in the value of the portfolio, and initial margin is posted for changes in risk profile of the portfolio. Because of an increase in market values of cleared derivatives during the first ~~quarter~~six months of 2021, there was an increase in variation margin collected on cleared derivatives that resulted in an increase in net cash provided by operating activities reported on the Statements of Cash Flows. Because of a decline in market values of cleared derivatives during the first ~~quarter~~six months of 2020, there was an increase in variation margin posted on cleared derivatives that resulted in an increase in net cash used in operating activities reported on the Statements of Cash Flows. The Bank does not anticipate any credit losses on its cleared derivatives as of ~~March 31,~~June 30, 2021. The increase or decrease in the credit exposure net of cash variation margin, from one period to the next, may be affected by changes in several variables, such as the size, composition, market value, and accrued interest of the portfolio.

The following tables present the Bank’s credit exposure to its derivative dealer counterparties at the dates indicated.

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Credit Exposure to Derivative Dealer Counterparties	Credit Exposure to Derivative Dealer Counterparties											Credit Exposure to Derivative Dealer Counterparties

(In millions)	(In millions)											(In millions)
March 31, 2021
June 30, 2021												June 30, 2021
Counterparty Credit Rating(1)	Counterparty Credit Rating(1)	Notional Amount		Net Fair Value of Derivatives Before Collateral		Cash Collateral Pledged to/ (from) Counterparty		Noncash Collateral Pledged to/ (from) Counterparty		Net Credit Exposure to Counterparties		Counterparty Credit Rating(1)	Notional Amount		Net Fair Value of Derivatives Before Collateral		Cash Collateral Pledged to/ (from) Counterparty		Noncash Collateral Pledged to/ (from) Counterparty		Net Credit Exposure to Counterparties
Asset positions with credit exposure:	Asset positions with credit exposure:											Asset positions with credit exposure:
Uncleared derivatives	Uncleared derivatives											Uncleared derivatives
AA		$	81	$	6	$	(6)	$	—	$	—
A		4,137		168		(164)		—		4

Cleared derivatives(2)		59,964		11		12		326		349

BBB												BBB	$	2,909	$	7	$	(7)	$	—	$	—

Liability positions with credit exposure:	Liability positions with credit exposure:											Liability positions with credit exposure:
Uncleared derivatives	Uncleared derivatives											Uncleared derivatives

A	A	76		(3)		3		—		—		A	50		(2)		2		—		—

Cleared derivatives(2)												Cleared derivatives(2)	60,655		(13)		6		318		311
Total derivative positions with credit exposure to nonmember counterparties	Total derivative positions with credit exposure to nonmember counterparties	64,258		182		(155)		326		353		Total derivative positions with credit exposure to nonmember counterparties	63,614		$	(8)	$	1	$	318	$	311

Derivative positions without credit exposure	Derivative positions without credit exposure	6,555										Derivative positions without credit exposure	10,545
Total notional	Total notional	$	70,813									Total notional	$	74,159


December 31, 2020
Counterparty Credit Rating(1)	Notional Amount		Net Fair Value of Derivatives Before Collateral		Cash Collateral Pledged to/ (from) Counterparty		Non-cash Collateral Pledged to/ (from) Counterparty		Net Credit Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives

A	$	91	$	3	$	(3)	$	—	$	—


Liability positions with credit exposure:
Uncleared derivatives

A	101		(4)		4		—		—

Cleared derivatives(2)	71,417		(12)		13		379		380
Total derivative positions with credit exposure to nonmember counterparties	71,609		(13)		14		379		380
Member institutions(3)	1		—		—		—		—
Total	71,610		$	(13)	$	14	$	379	$	380
Derivative positions without credit exposure	7,035
Total notional	$	78,645

(1)The credit ratings used by the Bank are based on the lower of Moody's or S&P ratings.

(2)Represents derivative transactions cleared with LCH Ltd, the Bank’s clearinghouse, which was rated AA- ~~by S&P at March 31, 2021, and December 31, 2020,~~ with a Stable CreditWatch by S&P at ~~March 31,~~June 30, 2021, and December 31, 2020.

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

The increase or decrease in the credit exposure net of cash collateral, from one period to the next, may be affected by changes in several variables, such as the size and composition of the portfolio, market values of derivatives, and accrued interest. Based on the master netting arrangements, its credit analyses, and the collateral requirements in place with each counterparty, the Bank does not expect to incur any credit losses on its derivative agreements.

The Bank primarily executes derivatives indexed to the Overnight Index Swap (OIS) rate and SOFR to manage interest rate risk and monitors ~~marketwide~~market-wide efforts to address fallback language related to LIBOR-indexed derivative transactions. The following table presents the notional amount of interest rate swaps by interest rate index broken out by the pay or receive leg at ~~March 31,~~June 30, 2021, and December 31, 2020.

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LIBOR-Indexed Interest Rate Swaps by Interest Rate Index	LIBOR-Indexed Interest Rate Swaps by Interest Rate Index									LIBOR-Indexed Interest Rate Swaps by Interest Rate Index

(In millions)	(In millions)	March 31, 2021				December 31, 2020				(In millions)	June 30, 2021				December 31, 2020
Interest Rate Index	Interest Rate Index	Pay Leg		Receive Leg		Pay Leg		Receive Leg		Interest Rate Index	Pay Leg		Receive Leg		Pay Leg		Receive Leg
Fixed	Fixed	$	41,472	$	25,763	$	47,425	$	24,640	Fixed	$	38,010	$	34,299	$	47,425	$	24,640
LIBOR	LIBOR	1,061		5,475		2,578		9,647		LIBOR	435		3,578		2,578		9,647
SOFR	SOFR	22,305		30,618		20,481		32,609		SOFR	22,880		28,968		20,481		32,609
OIS	OIS	5,425		8,407		7,380		10,968		OIS	12,284		6,764		7,380		10,968
Total notional amount	Total notional amount	$	70,263	$	70,263	$	77,864	$	77,864	Total notional amount	$	73,609	$	73,609	$	77,864	$	77,864

The following tables present the notional amount of interest rate swaps with LIBOR exposure for LIBOR tenors that cease or will no longer be representative immediately after June 30, 2023, by termination date broken out by the pay or receive leg and further bifurcated by cleared and uncleared derivative transactions at ~~March 31,~~June 30, 2021, and December 31, 2020. As of ~~March 31,~~June 30, 2021, interest rate caps and floors indexed to LIBOR totaling $550 million were due to terminate after June 30, 2023. As of December 31, 2020, interest rate caps and floors indexed to LIBOR totaling $230 million were due to terminate in 2021 and totaling $550 million were due to terminate after June 30, 2023. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial Condition” for more information on the LIBOR transition and on SOFR as an alternative market benchmark.


LIBOR-Indexed Interest Rate Swaps by Termination Date	LIBOR-Indexed Interest Rate Swaps by Termination Date									LIBOR-Indexed Interest Rate Swaps by Termination Date
(In millions)	(In millions)									(In millions)
March 31, 2021
June 30, 2021										June 30, 2021
		Pay Leg				Receive Leg					Pay Leg				Receive Leg
Termination Date	Termination Date	Cleared		Uncleared		Cleared		Uncleared		Termination Date	Cleared		Uncleared		Cleared		Uncleared

Terminates in 2021	Terminates in 2021	$	648	$	75	$	3,294	$	48	Terminates in 2021	$	70	$	—	$	1,488	$	38
Terminates in 2022	Terminates in 2022	218		35		525		112		Terminates in 2022	210		35		518		112
Terminates through June 30, 2023	Terminates through June 30, 2023	50		—		318		22		Terminates through June 30, 2023	60		—		318		22
Terminates thereafter(1)	Terminates thereafter(1)	5		30		770		386		Terminates thereafter(1)	30		30		745		337
Total Notional Amount	Total Notional Amount	$	921	$	140	$	4,907	$	568	Total Notional Amount	$	370	$	65	$	3,069	$	509



December 31, 2020
	Pay Leg				Receive Leg
Termination Date	Cleared		Uncleared		Cleared		Uncleared

Terminates in 2021	$	1,523	$	238	$	6,852	$	213
Terminates in 2022	559		35		887		112
Terminates through June 30, 2023	100		—		369		22
Terminates thereafter(1)	28		95		798		394
Total Notional Amount	$	2,210	$	368	$	8,906	$	741

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

Critical Accounting Policies and Estimates

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, if applicable, and the reported amounts of income, expenses, gains, and losses during the reporting period. Changes in these judgments, estimates, and assumptions could potentially affect the Bank’s financial position and results of

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operations significantly. Although the Bank believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.

In the Bank’s 2020 Form 10-K, the following accounting policies and estimates were identified as critical because they require the Bank to make subjective or complex judgments about matters that are inherently uncertain and because of the likelihood that materially different amounts would be reported under different conditions or using different assumptions. These policies and estimates are: accounting for derivatives; estimating fair values of investments classified as trading and AFS, derivatives and associated hedged items carried at fair value in accordance with the accounting for derivative instruments and associated hedging activities, and financial instruments carried at fair value under the fair value option; and estimating the prepayment speeds on MBS and mortgage loans for the accounting of amortization of premiums and accretion of discounts and credit losses previously recorded prior to the adoption of accounting guidance related to the measurement of credit losses on MBS and mortgage loans.

There have been no significant changes in the judgments and assumptions made during the first ~~three~~six months of 2021 in applying the Bank’s critical accounting policies. These policies and the judgments, estimates, and assumptions are also described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” and “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2020 Form 10-K and in “Item 1. Financial Statements – Note 12 – Fair Value.”

Recently Issued Accounting Guidance and Interpretations

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

Recent Developments

There are no recent developments for the ~~first~~second quarter of 2021 that are expected to have a material effect on the financial condition or results of operations or that are otherwise material to the Bank.

Off-Balance Sheet Arrangements and Aggregate Contractual Commitments

Off-Balance Sheet Arrangements and Other Commitments

In accordance with regulations governing the operations of the FHLBanks, each FHLBank, including the Bank, is jointly and severally liable for the FHLBank System’s consolidated obligations issued under Section 11(a) of the FHLBank Act, and in accordance with the FHLBank Act, each FHLBank, including the Bank, is jointly and severally liable for consolidated obligations issued under Section 11(c) of the FHLBank Act. The joint and several liability regulation authorizes the Finance Agency to require any FHLBank to repay all or a portion of the principal or interest on consolidated obligations for which another FHLBank is the primary obligor.

The par value of the outstanding consolidated obligations of the FHLBanks was ~~$696.4~~$666.7 billion at ~~March 31,~~June 30, 2021, and $746.7 billion at December 31, 2020. The par value of the Bank’s participation in consolidated obligations was ~~$50.2~~$46.5 billion at ~~March 31,~~June 30, 2021, and $60.6 billion at December 31, 2020. The Bank had committed to the issuance of ~~$555~~$130 million in consolidated obligations at ~~March 31,~~June 30, 2021. The Bank had no commitments to issue consolidated obligations at December 31, 2020.

In addition, in the ordinary course of business, the Bank engages in financial transactions that, in accordance with U.S. GAAP, are not recorded on the Bank’s Statements of Condition or may be recorded on the Bank’s Statements of Condition in amounts that are different from the full contract or notional amount of the transactions. For example, the Bank routinely enters into commitments to extend advances and issues standby letters of credit. These commitments and standby letters of credit may represent future cash requirements of the Bank, although the standby letters of credit usually expire without being drawn upon. Standby letters of credit are subject to the same

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underwriting and collateral requirements as advances made by the Bank. At ~~March 31,~~June 30, 2021, the Bank had no advance commitments and ~~$17.1~~$15.9 billion in standby letters of credit outstanding. At December 31, 2020, the Bank had no advance commitments and $19.4 billion in standby letters of credit outstanding.

For additional information, see “Item 1. Financial Statements – Note 13 – Commitments and Contingencies.”

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

The Bank’s Risk Management Policy includes a market risk management objective aimed at maintaining a relatively low adverse exposure of the market value of capital and future earnings (excluding the impact of any cumulative net gains or losses on derivatives and associated hedged items and on financial instruments carried at fair value) to changes in market rate factors. See “Total Bank Market Risk” below.

Market risk identification and measurement are primarily accomplished through market value of capital sensitivity analyses and projected earnings and adjusted return on capital sensitivity analyses. The Risk Management Policy approved by the Bank’s board of directors establishes market risk policy limits and market risk measurement standards at the total Bank level as well as at the business segment level. Additional guidelines approved by the Bank’s Enterprise Risk Committee apply to the Bank’s two business segments, the advances-related business and the mortgage-related business. These guidelines provide limits that are monitored at the segment level and are consistent with the Bank’s policy limits. Market risk is managed for each business segment on a daily basis, as discussed below in “Segment Market Risk.” Compliance with Bank policies and guidelines is reviewed by the Bank’s board of directors on a regular basis, along with a corrective action plan if applicable.

Total Bank Market Risk

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

The Bank’s market value of capital sensitivity policy limits the potential adverse impact of an instantaneous parallel shift of a plus or minus 100-basis-point change in interest rates from current rates (base case) to no worse than 3.0% of the estimated market value of capital. In addition, the policy limits the potential adverse impact of an instantaneous plus or minus 100-basis-point change in interest rates measured from interest rates that are 200 basis points above or below the base case to no worse than 4.0% of the estimated market value of capital. In the case where a market risk sensitivity compliance metric cannot be estimated with a parallel shift in interest rates because of prevailing low interest rates, the sensitivity metric is not reported. The Bank’s measured market value of capital sensitivity was within the policy limits as of ~~March 31,~~June 30, 2021.

To determine the Bank’s estimated risk sensitivities to interest rates for the market value of capital sensitivity, the Bank uses a third-party proprietary asset and liability system to calculate estimated market values under alternative interest rate scenarios. The system analyzes all of the Bank’s financial instruments, including derivatives, on a transaction-level basis using sophisticated valuation models with consistent and appropriate behavioral assumptions and current position data. The system also includes a third-party mortgage prepayment model.

At least annually, the Bank reexamines the major assumptions and methodologies used in the model, including interest rate curves, spreads for discounting, and mortgage prepayment assumptions. The Bank also compares the

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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)

March 31, 2021

December 31, 2020

Interest Rate Scenario(1)

June 30, 2021

December 31, 2020

+200 basis-point change above current rates

–3.0

+200 basis-point change above current rates

–2.4

–3.0

+100 basis-point change above current rates

–1.3

+100 basis-point change above current rates

–0.9

–1.3

–100 basis-point change below current rates(2)

+1.5

+4.9

–100 basis-point change below current rates(2)

+2.0

+4.9

–200 basis-point change below current rates(2)

+4.8

+5.2

–200 basis-point change below current rates(2)

+5.0

+5.2

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

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

The Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates as of ~~March 31,~~June 30, 2021, are comparable with the estimates as of December 31, 2020, with the exception of the declining 100 basis-point rate scenario. The increase in intermediate and long-term interest rates in the first quarter of 2021 resulted in a larger absolute down 100 basis-point rate shock relative to yearend. Interest rates continue to remain at historically low levels, ranging from ~~0.4~~4 basis points for the one-month Treasury bill to ~~174~~144 basis points for the ten-year Treasury note.

The Bank’s Risk Management Policy provides guidelines for the payment of dividends and the repurchase of excess capital stock based on the ratio of the Bank’s estimated market value of total capital to par value of capital stock. If this ratio at the end of any quarter is: (i) less than 100% but greater than or equal to 90%, any dividend would be limited to an annualized rate no greater than the daily average of the Federal funds effective rate for the applicable quarter (subject to certain conditions), and any excess capital stock repurchases would not exceed $500 million (subject to certain conditions); (ii) less than 90% but greater than or equal to 70%, any dividend and any excess capital stock repurchases would be subject to the same limitations and conditions as in (i) above, except that any excess capital stock repurchases would not exceed 4% of the Bank’s outstanding capital stock as of the repurchase date; and (iii) less than 70%, the Bank would not pay a dividend, not repurchase excess capital stock (but continue to redeem excess capital stock as provided in the Bank’s capital plan), limit the acquisition of certain assets, and review the Bank’s risk policies. A decision by the board of directors to declare or not declare any dividend or repurchase any excess capital stock is a discretionary matter and is subject to the requirements and restrictions of the FHLBank Act and applicable requirements under the regulations governing the operations of the FHLBanks. The ratio of the Bank’s estimated market value of total capital to par value of capital stock was ~~295%~~293% as of ~~March 31,~~June 30, 2021.

Adjusted Return on Capital – The adjusted return on capital is a measure used by the Bank to assess financial performance. The adjusted return on capital is based on current period economic earnings that exclude the effects of unrealized net gains or losses resulting from the Bank’s derivatives and associated hedged items and from financial instruments carried at fair value, which will generally reverse through changes in future valuations and settlements of contractual interest cash flows over the remaining contractual terms to maturity or by the call or put date of the assets and liabilities held under the fair value option, hedged assets and liabilities, and derivatives. Economic earnings also exclude the interest expense on mandatorily redeemable capital stock and the 20% of net income allocated to the Bank’s restricted retained earnings account in accordance with the FHLBanks’ Joint Capital Enhancement (JCE) Agreement. Economic earnings exclude these amounts in order to more accurately reflect the

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amount of earnings that may be available to be paid as dividends to shareholders. With the decline in consolidated obligations outstanding in 2020, the Bank ceased contributions to restricted retained earnings in the fourth quarter of 2020, in accordance with the JCE Agreement; and no further allocations of net income into restricted retained earnings are required until such time as the allocation requirement exceeds the balance of restricted retained earnings. Additionally, the JCE Agreement provides that amounts in restricted retained earnings in excess of 150% of the Bank’s restricted retained earnings minimum (i.e., 1% of the Bank’s total consolidated obligations calculated as of the last day of each calendar quarter) may be released from restricted retained earnings. As of June 30, 2021, the amount in restricted retained earnings was 152% of the Bank’s restricted retained earnings minimum.

The Bank limits the sensitivity of projected financial performance through a board of ~~directors~~directors’ policy limit on projected adverse changes in the adjusted return on capital. The Bank’s adjusted return on capital sensitivity policy limits the potential adverse impact of an instantaneous parallel shift of a plus or minus 200-basis-point change in interest rates from current rates (base case) to no worse than –120 basis points from the base case projected adjusted return on capital. Given the current low interest rate environment, in the downward shift interest rates were limited to non-negative rates. With the indicated interest rate shifts, the adjusted return on capital for the projected 12-month horizon would be expected to decrease by 520 basis points in the –200 basis-points scenario, well within the policy limit of –120 basis points.

Duration Gap – Duration gap is the difference between the estimated durations (market value sensitivity) of assets and liabilities (including the impact of interest rate exchange agreements) and reflects the extent to which estimated maturity and repricing cash flows for assets and liabilities are matched. The Bank monitors duration gap analysis at the total Bank level and does not have a policy limit.


Total Bank Duration Gap Analysis	Total Bank Duration Gap Analysis							Total Bank Duration Gap Analysis

		March 31, 2021			December 31, 2020				June 30, 2021			December 31, 2020
		Amount (In millions)		Duration Gap(1) (In months)	Amount (In millions)		Duration Gap(1) (In months)		Amount (In millions)		Duration Gap(1) (In months)	Amount (In millions)		Duration Gap(1) (In months)
Assets	Assets	$	57,908	4	$	68,634	4	Assets	$	54,244	4	$	68,634	4
Liabilities	Liabilities	51,559		3	62,440		3	Liabilities	47,816		3	62,440		3
Net	Net	$	6,349	1	$	6,194	1	Net	$	6,428	1	$	6,194	1

(1)Duration gap values include the impact of interest rate exchange agreements.

Segment Market Risk. The financial performance and interest rate risks of each business segment are managed within prescribed guidelines and policy limits.

Advances-Related Business – Interest rate risk arises from the advances-related business primarily through the use of shareholder-contributed capital and retained earnings to fund fixed rate investments of targeted amounts and maturities. In general, advances result in very little net interest rate risk for the Bank because most fixed rate advances with original maturities greater than three months and all advances with embedded options are simultaneously hedged with an interest rate swap or option with terms to offset the advance. The interest rate swap or option generally is maintained as a hedge for the life of the advance. These hedged advances effectively create a pool of variable rate assets, which, in combination with the strategy of raising debt swapped to variable rate liabilities, creates an advances portfolio with low net interest rate risk.

Money market investments used for liquidity management generally have maturities of one month or less. In addition, to increase the Bank’s liquidity position, the Bank invests in Treasury securities, generally with terms of less than three years. These fixed rate investments are swapped to variable rate investments.

The interest rate risk in the advances-related business is primarily associated with the Bank’s strategy for investing capital (capital stock, including mandatorily redeemable capital stock, and retained earnings). The Bank’s strategy is generally to invest 50% of capital in short-term investments (maturities of three months or less) and 50% in intermediate-term investments (a laddered portfolio of investments with maturities of up to four years). However,

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this strategy may be altered from time to time depending on market conditions. The strategy to invest 50% of capital in short-term assets is intended to mitigate the market value of capital risks associated with the potential repurchase or redemption of excess capital stock. Excess capital stock usually results from a decline in a borrower’s

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outstanding advances or by a membership termination. Under the Bank’s capital plan, capital stock, when repurchased or redeemed, is required to be repurchased or redeemed at its par value of $100 per share, subject to certain regulatory and statutory limits. The strategy to invest 50% of capital in a laddered portfolio of investments with short to intermediate maturities is intended to take advantage of the higher earnings available from a generally positively sloped yield curve, when intermediate-term investments generally have higher yields than short-term investments.

The Bank updates the repricing and maturity gaps for actual asset, liability, and derivative transactions that occur in the advances-related segment each day. The Bank regularly compares the targeted repricing and maturity gaps to the actual repricing and maturity gaps to identify rebalancing needs for the targeted gaps. On a weekly basis, the Bank evaluates the projected impact of expected maturities and scheduled repricings of assets, liabilities, and interest rate exchange agreements on the interest rate risk of the advances-related segment. These analyses are used to measure and manage potential reinvestment risk (when the remaining term of advances is shorter than the remaining term of the financing) and potential refinancing risk (when the remaining term of advances is longer than the remaining term of the financing).

Because of the short-term and variable rate nature of the assets, liabilities, and derivatives of the advances-related business, the Bank’s interest rate risk guidelines address the amounts of net assets that are expected to mature or reprice in a given period. The market value sensitivity analyses and net interest income simulations are also used to identify and measure risk and variances to the target interest rate risk exposure in the advances-related segment.

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 ~~March 31,~~June 30, 2021, was ~~$16.2~~$15.6 billion, including ~~$14.6~~$14.3 billion in MBS and ~~$1.6~~$1.3 billion in mortgage loans. The total carrying value of MBS and mortgage loans at December 31, 2020, was $17.7 billion, including $15.8 billion in MBS and $1.9 billion in mortgage loans. Floating rate securities, and fixed rate multifamily securities that have been converted to floating rate through the use of interest rate swaps, were ~~$13.3~~$13.2 billion, or ~~82%~~85%, of MBS and mortgage loans at ~~March 31,~~June 30, 2021, and $14.2 billion, or 80%, of MBS and mortgage loans at December 31, 2020. Intermediate and long-term fixed rate assets, whose interest rate and market risks have been partially offset through the use of fixed rate callable debt, fixed rate non-callable debt, and certain interest rate swaps, were ~~$2.9~~$2.4 billion, or ~~18%~~15%, of MBS and mortgage loans, at ~~March 31,~~June 30, 2021, and $3.5 billion, or 20%, of MBS and mortgage loans at December 31, 2020.

The estimated market risk of the mortgage-related business is managed both at the time an asset is purchased and on an ongoing basis for the total portfolio. At the time of purchase (for all significant mortgage asset acquisitions), the Bank analyzes the estimated earnings sensitivity and estimated market value sensitivity, taking into consideration the estimated mortgage prepayment sensitivity of the mortgage assets and anticipated funding and hedging activities under various interest rate scenarios. The related funding and hedging transactions are executed at or close to the time of purchase of a mortgage asset.

At least monthly, the Bank reviews the estimated market risk profile of the entire portfolio of mortgage assets and related funding and hedging transactions. The Bank then considers rebalancing strategies to modify the estimated mortgage portfolio market risk profile. Periodically, the Bank performs more in-depth analyses, which include an analysis of the impacts of non-parallel shifts in the yield curve and assessments of the impacts of unanticipated

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mortgage prepayment behavior. Based on these analyses, the Bank may take actions to rebalance the mortgage portfolio’s market risk profile. These rebalancing strategies may include entering into new funding and hedging

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transactions, forgoing or modifying certain funding or hedging transactions normally executed with new mortgage purchases, or terminating certain funding and hedging transactions for the mortgage asset portfolio.

The Bank manages the estimated interest rate risk associated with mortgage assets, including mortgage prepayment risk, through a combination of debt issuance and derivatives. The Bank may obtain funding through callable and non-callable FHLBank System debt and may execute derivative transactions to achieve principal cash flow patterns and market value sensitivities for the liabilities and derivatives that provide a significant offset to the interest rate and mortgage prepayment risks associated with the mortgage assets. Debt issued to finance mortgage assets may be fixed rate debt, callable fixed rate debt, adjustable rate debt, or callable adjustable rate debt. Derivatives may be used as temporary hedges of anticipated debt issuance or long-term hedges of debt used to finance the mortgage assets. The derivatives used to hedge the interest rate risk of fixed rate mortgage assets generally may be callable and non-callable pay-fixed interest rate swaps. Derivatives may also be used to offset the interest rate cap risk embedded in adjustable rate MBS.

As discussed above in “Total Bank Market Risk – Market Value of Capital Sensitivity,” the Bank uses market value of capital sensitivity as a primary market value metric for measuring the Bank’s exposure to interest rates. The Bank’s interest rate risk policies and guidelines for the mortgage-related business address the market value of capital sensitivity of the assets, liabilities, and derivatives of the mortgage-related business.

The following table presents results of the estimated market value of capital sensitivity analysis attributable to the mortgage-related business as of ~~March 31,~~June 30, 2021, and December 31, 2020.

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)

March 31, 2021

December 31, 2020

Interest Rate Scenario(1)

June 30, 2021

December 31, 2020

+200 basis-point change

–1.2

–1.3

+200 basis-point change

–0.7

–1.3

+100 basis-point change

–0.4

+100 basis-point change

–0.1

–0.4

–100 basis-point change(2)

+0.0

+2.8

–100 basis-point change(2)

+0.3

+2.8

–200 basis-point change(2)

+2.9

–200 basis-point change(2)

+2.8

+2.9

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

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

The explanations for the changes in Bank’s estimates of the sensitivity of the market value of capital to changes in interest rates attributable to the mortgage-related business from December 31, 2020, to ~~March 31,~~June 30, 2021, are the same as the explanations for the sensitivity of the market value of capital attributable to all of the Bank’s assets, liabilities, and associated interest rate exchange agreements.

For a discussion of risk factors related to the COVID-19 pandemic, see “Part I. Item 1A. Risk Factors” in the Bank’s 2020 Form 10-K.

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ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The senior management of the Federal Home Loan Bank of San Francisco (Bank) is responsible for establishing and maintaining a system of disclosure controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports filed or submitted under the Securities Exchange Act of 1934 (1934 Act) is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission. The Bank’s disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by the Bank in the reports that it files or submits under the 1934 Act is accumulated and communicated to the Bank’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating the Bank’s disclosure controls and procedures, the Bank’s management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and the Bank’s management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of controls and procedures.

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 ~~March 31,~~June 30, 2021, there were no changes in the Bank’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Bank’s internal control over financial reporting.

Consolidated Obligations

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

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

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

After consultation with legal counsel, the Bank is not aware of any legal proceedings that are expected to have a material effect on its financial condition or results of operations or that are otherwise material to the Bank.

ITEM 1A. RISK FACTORS

For a discussion of other risk factors, see “Part I. Item 1A. Risk Factors” in the Bank’s 2020 Form 10-K. There have been no material changes from the risk factors disclosed in the “Part I. Item 1A. Risk Factors” section of the Bank’s 2020 Form 10-K.

ITEM 6. EXHIBITS


Exhibit No.						Description

10.1						~~Form of Director Indemnification Agreement~~Executive Compensation Incentive Plan, as amended and restated March 29, 2019; Appendices I-III, as approved December 23, 2016; Appendix IV, as approved December 1, 2017; Appendix V, as approved December 7, 2018; Appendix VI, as approved January 31, 2020; and Appendix VII, as approved May 28, 2021.

10.2						~~Form of Senior Officer Indemnification~~Employment Agreement

~~10.3~~						~~Memorandum dated May 12, 2020 between~~ by and among the Federal Home Loan Bank of San Francisco and ~~Stephen Traynor for Special Award for Service~~Joseph E. Amato, dated October 7, 2020, as Acting President and Chief Executive Officer (that supersedes the Memorandum Agreement dated May 12, 2020 between the Federal Home Loan Bank of San Francisco and Stephen Traynor for Special Award for Service as Acting President and Chief Executive Officer filed asamended July 7, 2021, incorporated by reference to Exhibit 10.1 to the Bank’s ~~Quarterly~~Current Report on Form ~~10-Q~~8-K filed with the Securities and Exchange Commission on ~~August 7, 2020 (Commission File No. 000-51398)).~~July 9, 2021.

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

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

32.1						Certification of the President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2						Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS						Inline XBRL Instance Document - The instance document does not appear in the interactive data file because its XBRL tags are embedded within the inline XBRL document.

101.SCH						Inline XBRL Taxonomy Extension Schema Document

101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document

104						Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on ~~May 7,~~August 6, 2021.


			Federal Home Loan Bank of San Francisco

			/S/ TERESA B. BAZEMORE
			Teresa B. Bazemore President and Chief Executive Officer (Principal executive officer)

			/S/ JOSEPH E. AMATO
			Joseph E. Amato Executive Vice President and ~~Interim~~ Chief Financial Officer (Principal financial officer)

			/S/ LUDMILA V. SHEFTEL
			Ludmila V. Sheftel Managing Director and Acting Controller (Principal accounting officer)

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	March 31, 2021				Three Months Ended March 31, 2021
Name of Borrower	Advances Outstanding		Percentage of Total Advances Outstanding			Interest Income from Advances(1)		Percentage of Total Interest Income from Advances
First Republic Bank	$	10,505	38	%		$	41	33	%
MUFG Union Bank, National Association	4,575		16			31		25
First Technology Federal Credit Union	1,293		5			7		6
Luther Burbank Savings	841		3			4		3
East West Bank	655		2			2		2
Subtotal	17,869		64			85		69
Others	9,863		36			38		31
Total par value	$	27,732	100	%		$	123	100	%


	Advances- Related Business		Mortgage- Related Business(1)		Adjusted Net Interest Income		Amortization of Basis Adjustments and (Gain)/Loss on Fair Value Hedges(2)		Income/(Expense) on Economic Hedges(3)		Interest Expense on Mandatorily Redeemable Capital Stock(4)		Net Interest Income After Provision for/(Reversal of) Credit Losses		Other Income/ (Loss)		Other Expense		Income/(Loss) Before AHP Assessment
Three months ended:
March 31, 2021	$	51	$	78	$	129	$	(11)	$	(24)	$	0	$	164	$	(21)	$	39	$	104
March 31, 2020	63		12		75		71		(8)		2		10		18		36		(8)