Federal Home Loan Bank of San Francisco - FORM 10-Q

Federal Home Loan Bank of San Francisco - FORM 10-Q - August 11, 2010

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file	filename
EX-31.3 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 - Federal Home Loan Bank of San Francisco	dex313.htm
EX-31.1 - CERTIFICATION OF THE PRESIDENT AND CEO PURSUANT TO SECTION 302 - Federal Home Loan Bank of San Francisco	dex311.htm
EX-99.1 - COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES - Federal Home Loan Bank of San Francisco	dex991.htm
EX-32.4 - CERTIFICATION OF THE CONTROLLER AND OPERATIONS OFFICER PURSUANT TO SECTION 906 - Federal Home Loan Bank of San Francisco	dex324.htm
EX-31.4 - CERTIFICATION OF THE CONTROLLER AND OPERATIONS OFFICER PURSUANT TO SECTION 302 - Federal Home Loan Bank of San Francisco	dex314.htm
EX-32.3 - CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 - Federal Home Loan Bank of San Francisco	dex323.htm
EX-31.2 - CERTIFICATION OF THE CHIEF OPERATING OFFICER PURSUANT TO SECTION 302 - Federal Home Loan Bank of San Francisco	dex312.htm
EX-32.2 - CERTIFICATION OF THE CHIEF OPERATING OFFICER PURSUANT TO SECTION 906 - Federal Home Loan Bank of San Francisco	dex322.htm
EX-32.1 - CERTIFICATION OF THE PRESIDENT AND CEO PURSUANT TO SECTION 906 - Federal Home Loan Bank of San Francisco	dex321.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2010

¨	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)

600 California Street San Francisco, CA		94108
(Address of principal executive offices)		(Zip code)

(415) 616-1000

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 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 x No

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


		Shares outstanding as of July 30, 2010
Class B Stock, par value $100		129,740,703

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 Capital Accounts (Unaudited)	3
	Statements of Cash Flows (Unaudited)	4
	Notes to Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	54
	Quarterly Overview	55
	Financial Highlights	58
	Results of Operations	59
	Financial Condition	71
	Liquidity and Capital Resources	85
	Risk Management	88
	Critical Accounting Policies and Estimates	105
	Recently Issued Accounting Standards and Interpretations	106
	Recent Developments	106
	Off-Balance Sheet Arrangements, Guarantees, and Other Commitments	109

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	110

Item 4.	Controls and Procedures	117

PART II.	OTHER INFORMATION

Item 1.	Legal Proceedings	118

Item 1A.	Risk Factors	118

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	118

Item 3.	Defaults Upon Senior Securities	118

Item 4.	(Removed and Reserved)	119

Item 5.	Other Information	119

Item 6.	Exhibits	119

Signatures		120

PART I. FINANCIAL INFORMATION

ITEM 1.

FINANCIAL STATEMENTS

Federal Home Loan Bank of San Francisco

Statements of Condition

(Unaudited)


(In millions-except par value)	June 30, 2010			December 31, 2009

Assets
Cash and due from banks	$	7,631		$	8,280
Federal funds sold		14,470			8,164
Trading securities^(a)		1,159			31
Available-for-sale securities^(a)		1,932			1,931
Held-to-maturity securities (fair values were $33,503 and $35,682, respectively)^(b)		33,563			36,880
Advances (includes $12,819 and $21,616 at fair value under the fair value option, respectively)		95,747			133,559
Mortgage loans held for portfolio, net of allowance for credit losses on mortgage loans of $4 and $2, respectively		2,788			3,037
Loans to other Federal Home Loan Banks		15			—
Accrued interest receivable		251			355
Premises and equipment, net		22			21
Derivative assets		476			452
Other assets		144			152

Total Assets	$	158,198		$	192,862

Liabilities and Capital
Liabilities:
Deposits:
Interest-bearing:
Demand and overnight	$	144		$	192
Term		29			29
Other		2			1
Non-interest-bearing - other		3			2

Total deposits		178			224

Consolidated obligations, net:
Bonds (includes $21,148 and $37,022 at fair value under the fair value option, respectively)		129,524			162,053
Discount notes		15,788			18,246

Total consolidated obligations, net		145,312			180,299

Mandatorily redeemable capital stock		4,690			4,843
Accrued interest payable		616			754
Affordable Housing Program		174			186
Payable to REFCORP		9			25
Derivative liabilities		173			205
Other liabilities		748			96

Total Liabilities		151,900			186,632

Commitments and Contingencies (Note 13)
Capital:
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
83 shares and 86 shares, respectively		8,280			8,575
Restricted retained earnings		1,350			1,239
Accumulated other comprehensive loss		(3,332	)		(3,584	)

Total Capital		6,298			6,230

Total Liabilities and Capital	$	158,198		$	192,862

(a)	At June 30, 2010, and at December 31, 2009, none of these securities were pledged as collateral that may be repledged.

(b)	Includes $76 at June 30, 2010, and $40 at December 31, 2009, pledged as collateral that may be repledged.

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

Federal Home Loan Bank of San Francisco

Statements of Income

(Unaudited)


	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(In millions)	2010			2009			2010			2009

Interest Income:
Advances	$	285		$	754		$	606		$	1,817
Prepayment fees on advances, net		28			18			39			20
Federal funds sold		8			6			13			13
Trading securities		1			1			1			1
Available-for-sale securities		1			—			2			—
Held-to-maturity securities		282			369			570			804
Mortgage loans held for portfolio		39			36			75			79

Total Interest Income		644			1,184			1,306			2,734

Interest Expense:
Consolidated obligations:
Bonds		269			588			558			1,448
Discount notes		9			112			22			368
Mandatorily redeemable capital stock		3			—			6			—

Total Interest Expense		281			700			586			1,816

Net Interest Income		363			484			720			918

Provision for credit losses on mortgage loans		2			1			2			1

Net Interest Income After Mortgage Loan Loss Provision		361			483			718			917

Other Loss:
Services to members		—			1			—			1
Net (loss)/gain on trading securities		(1	)		—			(1	)		1
Total other-than-temporary impairment loss on held-to-maturity securities		(190	)		(1,283	)		(382	)		(2,439	)
Portion of impairment loss recognized in other comprehensive income		48			1,195			180			2,263

Net other-than-temporary impairment loss on held-to-maturity securities		(142	)		(88	)		(202	)		(176	)
Net loss on advances and consolidated obligation bonds held at fair value		(21	)		(178	)		(121	)		(361	)
Net (loss)/gain on derivatives and hedging activities		(123	)		224			(159	)		258
Other		2			2			3			2

Total Other Loss		(285	)		(39	)		(480	)		(275	)

Other Expense:
Compensation and benefits		16			15			33			30
Other operating expense		13			13			25			24
Federal Housing Finance Agency/Federal Housing Finance Board		3			2			6			5
Office of Finance		1			1			3			3
Other		2			—			4			—

Total Other Expense		35			31			71			62

Income Before Assessments		41			413			167			580

REFCORP		9			76			31			106
Affordable Housing Program		3			34			14			48

Total Assessments		12			110			45			154

Net Income	$	29		$	303		$	122		$	426

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

Federal Home Loan Bank of San Francisco

Statements of Capital Accounts

(Unaudited)


	Capital Stock Class B—Putable					Retained Earnings								Accumulated Other Comprehensive Income/(Loss)			Total Capital
(In millions)	Shares		Par Value			Restricted		Unrestricted			Total			Accumulated Other Comprehensive Income/(Loss)			Total Capital

Balance, December 31, 2008	96		$	9,616		$	176	$	—		$	176		$	(7	)	$	9,785
Adjustments to opening balance^(a)									570			570			(570	)		—
Issuance of capital stock	1			55														55
Capital stock reclassified from mandatorily redeemable capital stock, net	6			582														582
Comprehensive income/(loss):
Net income									426			426						426
Other comprehensive income/(loss):
Other-than-temporary impairment loss related to all other factors															(2,390	)		(2,390	)
Reclassified to income for previously impaired securities															127			127
Accretion of impairment loss															123			123

Total comprehensive income/(loss)																		(1,714	)

Transfers to restricted retained earnings							996		(996	)		—						—

Balance, June 30, 2009	103		$	10,253		$	1,172	$	—		$	1,172		$	(2,717	)	$	8,708

Balance, December 31, 2009	86		$	8,575		$	1,239	$	—		$	1,239		$	(3,584	)	$	6,230
Issuance of capital stock	—			42														42
Repurchase/redemption of capital stock	(3	)		(307	)													(307	)
Capital stock reclassified to mandatorily redeemable capital stock, net	—			(30	)													(30	)
Comprehensive income/(loss):
Net income									122			122						122
Other comprehensive income/(loss):
Net change in available-for-sale valuation															4			4
Other-than-temporary impairment loss related to all other factors															(379	)		(379	)
Reclassified to income for previously impaired securities															199			199
Accretion of impairment loss															428			428

Total comprehensive income/(loss)																		374

Transfers to restricted retained earnings							111		(111	)		—						—
Dividends on capital stock (0.27%)
Cash dividends paid				—			—		(11	)		(11	)					(11	)

Balance, June 30, 2010	83		$	8,280		$	1,350	$	—		$	1,350		$	(3,332	)	$	6,298

(a)	Adjustments to the opening balance consist of the effects of adopting guidance related to the recognition and presentation of other-than-temporary impairments. For more information, see Note 2 to the Financial Statements in the Bank’s 2009 Form 10-K.

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

Federal Home Loan Bank of San Francisco

Statements of Cash Flows

(Unaudited)


	For the Six Months Ended June 30,
(In millions)	2010			2009
Cash Flows from Operating Activities:
Net Income	$	122		$	426
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		(5	)		(238	)
Provision for credit losses on mortgage loans		2			1
Change in net fair value adjustment on trading securities		1			(1	)
Change in net fair value adjustment on advances and consolidated obligation bonds held at fair value		121			361
Change in net fair value adjustment on derivatives and hedging activities		68			(518	)
Net other-than-temporary impairment loss on held-to-maturity securities		202			176
Net change in:
Accrued interest receivable		141			416
Other assets		(5	)		11
Accrued interest payable		(142	)		(456	)
Other liabilities		224			116

Total adjustments		607			(132	)

Net cash provided by operating activities		729			294

Cash Flows from Investing Activities:
Net change in:
Federal funds sold		(6,306	)		(7,227	)
Loans to other Federal Home Loan Banks		(15	)		—
Premises and equipment		(4	)		(3	)
Trading securities:
Proceeds from maturities		3			3
Purchases		(1,132	)		—
Held-to-maturity securities:
Net (increase)/decrease in short-term		(940	)		2,799
Proceeds from maturities of long-term		5,109			3,827
Purchases of long-term		(412	)		—
Advances:
Principal collected		116,246			596,074
Made to members		(78,626	)		(535,969	)
Mortgage loans held for portfolio:
Principal collected		249			345

Net cash provided by investing activities		34,172			59,849

Federal Home Loan Bank of San Francisco

Statements of Cash Flows (continued)

(Unaudited)


	For the Six Months Ended June 30,
(In millions)	2010			2009
Cash Flows from Financing Activities:
Net change in:
Deposits		(107	)		(830	)
Net payments on derivative contracts with financing elements		33			32
Net proceeds from consolidated obligations:
Bonds issued		49,510			34,210
Discount notes issued		61,780			89,224
Payments for consolidated obligations:
Bonds matured or retired		(82,107	)		(69,861	)
Discount notes matured or retired		(64,200	)		(131,794	)
Proceeds from issuance of capital stock		42			55
Payments for repurchase/redemption of mandatorily redeemable capital stock		(183	)		—
Payments for repurchase of capital stock		(307	)		—
Cash dividends paid		(11	)		—

Net cash used in financing activities		(35,550	)		(78,964	)

Net decrease in cash and cash equivalents		(649	)		(18,821	)
Cash and cash equivalents at beginning of the period		8,280			19,632

Cash and cash equivalents at end of the period	$	7,631		$	811
Supplemental Disclosures:
Interest paid during the period	$	655		$	2,816
Affordable Housing Program payments during the period		26			25
REFCORP payments during the period		47			—
Transfers of mortgage loans to real estate owned		3			1

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

Federal Home Loan Bank of San Francisco

Notes to Financial Statements

(Unaudited)

(Dollars in millions)

Note 1 – Summary of Significant Accounting Policies

The information about the Federal Home Loan Bank of San Francisco (Bank) included in these unaudited financial statements reflects all adjustments that, in the opinion of management, are necessary for a fair statement of results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed. The results of operations in these interim statements are not necessarily indicative of the results to be expected for any subsequent period or for the entire year ending December 31, 2010. 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, 2009 (2009 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 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. The most significant of these estimates include the fair value of derivatives, investments classified as other-than-temporarily impaired, certain advances, certain investment securities, and certain consolidated obligations that are reported at fair value in the Statements of Condition. In addition, significant judgments, estimates, and assumptions were made in the determination of other-than-temporarily impaired securities. Changes in judgments, estimates, and assumptions could potentially affect the Bank’s financial position and results of operations significantly. Although management believes these judgments, estimates, and assumptions to be reasonable, actual results may differ.

Descriptions of the Bank’s significant accounting policies are included in Note 1 (Summary of Significant Accounting Policies) to the Financial Statements in the Bank’s 2009 Form 10-K. Other changes to these policies as of June 30, 2010, are discussed in Note 2 to the Financial Statements.

Note 2 – Recently Issued and Adopted Accounting Guidance

Disclosures About the Credit Quality of Financing Receivables and the Allowance for Credit Losses. On July 21, 2010, the Financial Accounting Standards Board (FASB) issued amended guidance to enhance disclosures about an entity’s allowance for credit losses and the credit quality of its financing receivables. The amended guidance requires all public and nonpublic entities with financing receivables, including loans, lease receivables, and other long-term receivables, to provide disclosure of the following: (i) the nature of the credit risk inherent in the financing receivables, (ii) how that risk is analyzed and assessed in arriving at the allowance for credit losses, and (iii) the changes in the allowance of credit losses and reasons for those changes. Both new and existing disclosures must be disaggregated by portfolio segment or class of financing receivable. A portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for credit losses. Short-term accounts receivable, receivables measured at fair value or at the lower of cost or fair value, and debt securities are exempt from this amended guidance. For public entities, the required disclosures as of the end of a reporting period are effective for interim and annual reporting periods ending on or after December 15, 2010 (December 31, 2010, for the Bank). The required disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 15, 2010 (January 1, 2011, for the Bank). The adoption of this amended guidance will likely result in increased financial statement disclosures, but will not affect the Bank’s financial condition, results of operations, or cash flows.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Scope Exception Related to Embedded Credit Derivative. On March 5, 2010, the FASB issued amended guidance to clarify that the only type of embedded credit derivative feature related to the transfer of credit risk that is exempt from derivative bifurcation requirements is one that is in the form of subordination of one financial instrument to another. As a result, entities that have contracts containing an embedded credit derivative feature in a form other than such subordination will need to assess those embedded credit derivatives to determine whether bifurcation and separate accounting as a derivative are required. Upon adoption, entities are permitted to irrevocably elect the fair value option for any investment in a beneficial interest in a securitized financial asset. Any impairment would be recognized prior to applying the fair value option election. This amended guidance became effective at the beginning of the first interim reporting period beginning after June 15, 2010 (July 1, 2010, for the Bank). The Bank adopted this amended guidance as of July 1, 2010, and the adoption has not had a material effect on the Bank’s financial condition, results of operations, or cash flows.

Fair Value Measurements and Disclosures – Improving Disclosures about Fair Value Measurements. On January 21, 2010, the FASB issued amended guidance for fair value measurements and disclosures. The update requires a reporting entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and describe the reasons for the transfers. Furthermore, this update requires a reporting entity to present separately information about purchases, sales, issuances, and settlements in the reconciliation of fair value measurements using significant unobservable inputs; clarifies existing fair value disclosures about the level of disaggregation and about inputs and valuation techniques used to measure fair value; and amends guidance on employers’ disclosures about postretirement benefit plan assets to require that disclosures be provided by classes of assets instead of by major categories of assets. The amended guidance became effective for interim and annual reporting periods beginning after December 15, 2009 (January 1, 2010, for the Bank), except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010 (January 1, 2011, for the Bank), and for interim periods within those fiscal years. In the period of initial adoption, entities will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Early adoption is permitted. The Bank adopted this amended guidance as of January 1, 2010, with the exception of the required changes noted above related to the reconciliation of Level 3 fair values. Its adoption resulted in increased financial statement disclosures but did not have any effect on the Bank’s financial condition, results of operations, or cash flows.

Accounting for Consolidation of Variable Interest Entities. On June 12, 2009, the FASB issued guidance for amending certain requirements of consolidation of variable interest entities (VIEs). This guidance was to improve financial reporting by enterprises involved with VIEs and to provide more relevant and reliable information to users of financial statements. This guidance amended the manner in which entities evaluate whether consolidation is required for VIEs. An entity must first perform a qualitative analysis in determining whether it must consolidate a VIE, and if the qualitative analysis is not determinative, the entity must perform a quantitative analysis. This guidance also required that an entity continually evaluate VIEs for consolidation, rather than making such an assessment based on the occurrence of triggering events. In addition, the guidance requires enhanced disclosures about how an entity’s involvement with a VIE affects its financial statements and its exposure to risks. The Bank evaluated its investments in VIEs, which are limited to the Bank’s private-label residential mortgage-backed securities (PLRMBS), and determined that as of January 1, 2010, and June 30, 2010, consolidation accounting is not required under the new accounting guidance because the Bank is not the primary beneficiary. The Bank does not have the power to significantly affect the economic performance of any of these investments because it does not act as a key decision maker nor does it have the unilateral ability to replace a key decision maker. In addition, the Bank does not design, sponsor, transfer, service, or provide credit or liquidity support in any of its investments in VIEs. The Bank’s maximum loss exposure for these investments is limited to the carrying value. The Bank adopted this guidance as of January 1, 2010, and the adoption did not have a material impact on the Bank’s financial condition, results of operations, or cash flows.

Accounting for Transfers of Financial Assets. On June 12, 2009, the FASB issued guidance intended to improve the relevance, representational faithfulness, and comparability of the information a reporting entity provides in its financial reports about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement in transferred financial assets. Key provisions of the guidance included (i) the removal of the concept of qualifying special purpose entities; (ii) the introduction of the concept of a participating interest, in circumstances in which a

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

portion of a financial asset has been transferred; and (iii) the requirement that to qualify for sale accounting, the transferor must evaluate whether it maintains effective control over transferred financial assets either directly or indirectly. The guidance also required enhanced disclosures about transfers of financial assets and a transferor’s continuing involvement. The Bank adopted this guidance as of January 1, 2010, and the adoption did not have a material impact on the Bank’s financial condition, results of operations, or cash flows.

Note 3 – Trading Securities

Trading securities as of June 30, 2010, and December 31, 2009, were as follows:


	June 30, 2010				December 31, 2009
	Estimated Fair Value		Weighted Average Interest Rate		Estimated Fair Value		Weighted Average Interest Rate
Government-sponsored enterprises (GSEs):
Federal Farm Credit Bank (FFCB) bonds	$	1,132	0.36	%	$	—	—	%
Mortgage-backed securities (MBS):
Other U.S. obligations:
Ginnie Mae		21	3.61			23	4.11
GSEs:
Fannie Mae		6	4.77			8	4.77

Total	$	1,159	0.44	%	$	31	4.28	%

Redemption Terms. The contractual maturity (based on contractual final principal payment) of the FFCB bonds is from one year through five years as of June 30, 2010. Expected maturities of MBS will differ from contractual maturities because borrowers generally have the right to prepay the underlying obligations without prepayment fees.

Interest Rate Payment Terms. Interest rate payment terms for trading securities at June 30, 2010, and December 31, 2009, are detailed in the following table:


	June 30, 2010		December 31, 2009
Estimated fair value of trading securities other than MBS:
Adjustable rate	$	1,132	$	—
Subtotal		1,132		—
Estimated fair value of trading MBS:
Passthrough securities:
Adjustable rate		21		23
Collateralized mortgage obligations:
Fixed rate		6		8
Subtotal		27		31
Total	$	1,159	$	31

The net unrealized loss on trading securities was $1 and $1 for the three and six months ended June 30, 2010, respectively. The net unrealized gain on trading securities was immaterial for the three months ended June 30, 2009, and $1 for the six months ended June 30, 2009, respectively. These amounts represent the changes in the fair value of the securities during the reported periods.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Note 4 – Available-for-Sale Securities

Available-for-sale securities as of June 30, 2010, and December 31, 2009, were as follows:

June 30, 2010


	Amortized Cost⁽¹⁾		Other-Than- Temporary Impairment (OTTI) Recognized in Accumulated Other Comprehensive Income/(Loss) (AOCI)		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Weighted Average Interest Rate
TLGP⁽²⁾	$	1,929	$	—	$	3	$	—		$	1,932	0.62	%

December 31, 2009
	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value		Weighted Average Interest Rate
TLGP⁽²⁾	$	1,932	$	—	$	—	$	(1	)	$	1,931	0.41	%

(1)	Amortized cost includes unpaid principal balance and unamortized premiums and discounts.

(2)	Temporary Liquidity Guarantee Program (TLGP) securities represent corporate debentures of the issuing party that are guaranteed by the Federal Deposit Insurance Corporation (FDIC) and backed by the full faith and credit of the U.S. government.

The following table summarizes the available-for-sale securities with unrealized losses as of December 31, 2009. 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.

December 31, 2009


	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
TLGP	$	1,281	$	1	$	—	$	—	$	1,281	$	1

Redemption Terms. The contractual maturity (based on contractual final principal payment) of the Bank’s TLGP securities is from one year through five years as of June 30, 2010, and December 31, 2009.

The amortized cost of the TLGP securities, which are classified as available-for-sale, included net premiums of $6 at June 30, 2010, and net premiums of $8 at December 31, 2009.

Interest Rate Payment Terms. Available-for-sale securities at June 30, 2010, and December 31, 2009, had adjustable rate interest payment terms.

Other-Than-Temporary Impairment. On a quarterly basis, the Bank evaluates its individual available-for-sale investment securities in an unrealized loss position for OTTI. As part of this evaluation, the Bank considers whether it intends to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery of the amortized cost basis. If either of these conditions is met, the Bank recognizes an OTTI charge to earnings equal to the entire difference between the

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

security’s amortized cost basis and its fair value at the balance sheet date. For securities in an unrealized loss position that meet neither of these conditions, the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing its best estimate of the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. If the Bank’s best estimate of the present value of the cash flows expected to be collected is less than the amortized cost basis, the difference is considered the credit loss.

For all the securities in its available-for-sale portfolio, 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.

As of June 30, 2010, the Bank’s available-for-sale portfolio had gross unrealized gains. As a result, the Bank expects to recover the entire amortized cost basis of these securities.

Note 5 – Held-to-Maturity Securities

The Bank classifies the following securities as held-to-maturity because the Bank has the positive intent and ability to hold these securities to maturity:

June 30, 2010


	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains⁽²⁾		Gross Unrecognized Holding Losses⁽²⁾			Estimated Fair Value
Interest-bearing deposits	$	6,594	$	—		$	6,594	$	1	$	—		$	6,595
Commercial paper		2,357		—			2,357		—		—			2,357
Housing finance agency bonds		758		—			758		—		(143	)		615
TLGP		303		—			303		—		—			303
Subtotal		10,012		—			10,012		1		(143	)		9,870
MBS:
Other U.S. obligations:
Ginnie Mae		14		—			14		—		—			14
GSEs:
Freddie Mac		2,268		—			2,268		117		—			2,385
Fannie Mae		6,614		—			6,614		291		(11	)		6,894
Subtotal GSEs		8,882		—			8,882		408		(11	)		9,279
PLRMBS:
Prime		5,167		(389	)		4,778		139		(315	)		4,602
Alt-A, option ARM		1,894		(799	)		1,095		39		(11	)		1,123
Alt-A, other		10,921		(2,139	)		8,782		585		(752	)		8,615
Subtotal PLRMBS		17,982		(3,327	)		14,655		763		(1,078	)		14,340
Total MBS		26,878		(3,327	)		23,551		1,171		(1,089	)		23,633
Total	$	36,890	$	(3,327	)	$	33,563	$	1,172	$	(1,232	)	$	33,503

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

December 31, 2009


	Amortized Cost⁽¹⁾		OTTI Recognized in AOCI⁽¹⁾			Carrying Value⁽¹⁾		Gross Unrecognized Holding Gains⁽²⁾		Gross Unrecognized Holding Losses⁽²⁾			Estimated Fair Value
Interest-bearing deposits	$	6,510	$	—		$	6,510	$	—	$	—		$	6,510
Commercial paper		1,100		—			1,100		—		—			1,100
Housing finance agency bonds		769		—			769		—		(138	)		631
TLGP		304		—			304		—		(1	)		303
Subtotal		8,683		—			8,683		—		(139	)		8,544
MBS:
Other U.S. obligations:
Ginnie Mae		16		—			16		—		—			16
GSEs:
Freddie Mac		3,423		—			3,423		150		(1	)		3,572
Fannie Mae		8,467		—			8,467		256		(13	)		8,710
Subtotal GSEs		11,890		—			11,890		406		(14	)		12,282
PLRMBS:
Prime		5,999		(407	)		5,592		72		(554	)		5,110
Alt-A, option ARM		2,086		(908	)		1,178		37		(104	)		1,111
Alt-A, other		11,781		(2,260	)		9,521		385		(1,287	)		8,619
Subtotal PLRMBS		19,866		(3,575	)		16,291		494		(1,945	)		14,840
Total MBS		31,772		(3,575	)		28,197		900		(1,959	)		27,138
Total	$	40,455	$	(3,575	)	$	36,880	$	900	$	(2,098	)	$	35,682

(1)

Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and previous other-than-temporary impairments recognized in earnings (less any cumulative-effect adjustments recognized). The carrying value of held-to-maturity securities represents amortized cost after adjustment for impairment related to all other factors recognized in AOCI.

(2)	Gross unrecognized holding gains/(losses) represent the difference between estimated fair value and carrying value, while gross unrealized gains/(losses) represent the difference between estimated fair value and amortized cost.

As of June 30, 2010, all of the interest-bearing deposits, commercial paper, and housing finance agency bonds had a credit rating of at least A. The TLGP securities are guaranteed by the FDIC and backed by the full faith and credit of the U.S. government. In addition, as of June 30, 2010, 36% of the PLRMBS, based on amortized cost, were rated above investment grade (13% had a credit rating of AAA), and the remaining 64% were rated below investment grade. Credit ratings of BB and lower are below investment grade. The credit ratings used by the Bank are based on the lowest of Moody’s Investors Service (Moody’s), Standard & Poor’s Rating Services (Standard & Poor’s), or comparable Fitch ratings.

At June 30, 2010, PLRMBS labeled Alt-A by the issuer represented 48% of the amortized cost of the Bank’s MBS portfolio. Alt-A 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 who have sufficient credit ratings to qualify for a conforming mortgage loan, but the loans may not meet all standard guidelines for documentation requirements, property type, or loan-to-value ratios.

The following tables summarize the held-to-maturity securities with unrealized losses as of June 30, 2010, and December 31, 2009. 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.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

June 30, 2010


	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Interest-bearing deposits	$	4,722	$	—	$	—	$	—	$	4,722	$	—
Commercial paper		1,258		—		—		—		1,258		—
Housing finance agency bonds		—		—		615		143		615		143
Subtotal		5,980		—		615		143		6,595		143
MBS:
Other U.S. obligations:
Ginnie Mae		—		—		5		—		5		—
GSEs:
Freddie Mac		2		—		33		—		35		—
Fannie Mae		220		5		108		6		328		11
Subtotal GSEs		222		5		141		6		363		11
PLRMBS⁽¹⁾ :
Prime		14		—		4,313		704		4,327		704
Alt-A, option ARM		—		—		1,115		810		1,115		810
Alt-A, other		—		—		8,615		2,891		8,615		2,891
Subtotal PLRMBS		14		—		14,043		4,405		14,057		4,405
Total MBS		236		5		14,189		4,411		14,425		4,416
Total	$	6,216	$	5	$	14,804	$	4,554	$	21,020	$	4,559

December 31, 2009

	Less than 12 months				12 months or more				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Interest-bearing deposits	$	6,510		—	$	—	$	—	$	6,510	$	—
Housing finance agency bonds		30		7		600		131		630		138
TLGP		303		1		—		—		303		1
Subtotal		6,843		8		600		131		7,443		139
MBS:
Other U.S. obligations:
Ginnie Mae	$	—	$	—	$	13	$	—	$	13	$	—
GSEs:
Freddie Mac		—		—		40		1		40		1
Fannie Mae		1,037		10		172		3		1,209		13
Subtotal GSEs		1,037		10		212		4		1,249		14
PLRMBS^(1):
Prime		—		—		5,110		961		5,110		961
Alt-A, option ARM		—		—		1,111		1,012		1,111		1,012
Alt-A, other		—		—		8,619		3,547		8,619		3,547
Subtotal PLRMBS		—		—		14,840		5,520		14,840		5,520
Total MBS		1,037		10		15,065		5,524		16,102		5,534
Total	$	7,880	$	18	$	15,665	$	5,655	$	23,545	$	5,673

(1)	Includes securities with gross unrecognized holding losses of $1,078 and $1,945 at June 30, 2010, and December 31, 2009, respectively, and securities with OTTI charges of $3,327 and $3,575 that have been recognized in AOCI at June 30, 2010, and December 31, 2009, respectively.

As indicated in the tables above, as of June 30, 2010, the Bank’s investments classified as held-to-maturity had gross unrealized losses totaling $4,559, primarily relating to PLRMBS. The gross unrealized losses associated with the PLRMBS were primarily due to illiquidity in the MBS market, uncertainty about the future condition of the housing and mortgage markets and the economy, and continued deterioration in the credit performance of loan collateral underlying these securities, which caused these assets to be valued at significant discounts to their acquisition cost.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Redemption Terms. The amortized cost, carrying value, and estimated fair value of non-MBS securities by contractual maturity (based on contractual final principal payment) and of MBS as of June 30, 2010, and December 31, 2009, are shown below. Expected maturities of MBS will differ from contractual maturities because borrowers generally have the right to prepay the underlying obligations without prepayment fees.

June 30, 2010


Year of Contractual Maturity	Amortized Cost⁽¹⁾		Carrying Value⁽¹⁾		Estimated Fair Value		Weighted Average Interest Rate
Held-to-maturity securities other than MBS:
Due in 1 year or less	$	9,254	$	9,254	$	9,255	0.33	%
Due after 1 year through 5 years		9		9		8	0.49
Due after 5 years through 10 years		27		27		23	0.46
Due after 10 years		722		722		584	0.56

Subtotal		10,012		10,012		9,870	0.34

MBS:
Other U.S. obligations:
Ginnie Mae		14		14		14	1.25
GSEs:
Freddie Mac		2,268		2,268		2,385	4.75
Fannie Mae		6,614		6,614		6,894	4.13

Subtotal GSEs		8,882		8,882		9,279	4.29

PLRMBS:
Prime		5,167		4,778		4,602	3.71
Alt-A, option ARM		1,894		1,095		1,123	0.61
Alt-A, other		10,921		8,782		8,615	4.03

Subtotal PLRMBS		17,982		14,655		14,340	3.55

Total MBS		26,878		23,551		23,633	3.78

Total	$	36,890	$	33,563	$	33,503	2.87	%

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

December 31, 2009


Year of Contractual Maturity	Amortized Cost⁽¹⁾		Carrying Value⁽¹⁾		Estimated Fair Value		Weighted Average Interest Rate
Held-to-maturity securities other than MBS:
Due in 1 year or less	$	7,610	$	7,610	$	7,610	0.15	%
Due after 1 year through 5 years		316		316		314	1.75
Due after 5 years through 10 years		27		27		23	0.40
Due after 10 years		730		730		597	0.53

Subtotal		8,683		8,683		8,544	0.24

MBS:
Other U.S. obligations:
Ginnie Mae		16		16		16	1.26
GSEs:
Freddie Mac		3,423		3,423		3,572	4.83
Fannie Mae		8,467		8,467		8,710	4.15

Subtotal GSEs		11,890		11,890		12,282	4.35

PLRMBS:
Prime		5,999		5,592		5,110	3.91
Alt-A, option ARM		2,086		1,178		1,111	0.49
Alt-A, other		11,781		9,521		8,619	4.25

Subtotal PLRMBS		19,866		16,291		14,840	3.73

Total MBS		31,772		28,197		27,138	3.95

Total	$	40,455	$	36,880	$	35,682	3.17	%

(1)

At June 30, 2010, the carrying value of the Bank’s MBS classified as held-to-maturity included net discounts of $9, OTTI related to credit loss of $861 (including interest accretion adjustments of $31), and OTTI related to all other factors of $3,327. At December 31, 2009, the carrying value of the Bank’s MBS classified as held-to-maturity included net discounts of $16, OTTI related to credit loss of $652 (including interest accretion adjustments of $24), and OTTI related to all other factors of $3,575.

Interest Rate Payment Terms. Interest rate payment terms for held-to-maturity securities at June 30, 2010, and December 31, 2009, are detailed in the following table:


	June 30, 2010		December 31, 2009
Amortized cost of held-to-maturity securities other than MBS:
Fixed rate	$	9,254	$	7,914
Adjustable rate		758		769
Subtotal		10,012		8,683
Amortized cost of held-to-maturity MBS:
Passthrough securities:
Fixed rate		2,317		3,326
Adjustable rate		109		87
Collateralized mortgage obligations:
Fixed rate		13,244		16,619
Adjustable rate		11,208		11,740
Subtotal		26,878		31,772
Total	$	36,890	$	40,455

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Certain MBS classified as fixed rate passthrough securities and fixed rate collateralized mortgage obligations have an initial fixed interest rate that subsequently converts to an adjustable interest rate on a specified date as follows:


	June 30, 2010		December 31, 2009
Passthrough securities:
Converts in 1 year or less	$	109	$	158
Converts after 1 year through 5 years		1,478		2,061
Converts after 5 years through 10 years		702		1,076
Total	$	2,289	$	3,295

Collateralized mortgage obligations:
Converts in 1 year or less	$	508	$	1,216
Converts after 1 year through 5 years		4,546		6,167
Converts after 5 years through 10 years		1,252		1,652
Total	$	6,306	$	9,035

The Bank does not own MBS that are backed by mortgage loans purchased by another Federal Home Loan Bank (FHLBank) from either (i) members of the Bank or (ii) members of other FHLBanks.

Other-Than-Temporary Impairment. On a quarterly basis, the Bank evaluates its individual held-to-maturity investment securities in an unrealized loss position for OTTI. As part of this evaluation, the Bank considers whether it intends to sell each debt security and whether it is more likely than not that it will be required to sell the security before its anticipated recovery of the amortized cost basis. If either of these conditions is met, the Bank recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the balance sheet date. For securities in an unrealized loss position that meet neither of these conditions, the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing its best estimate of the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. If the Bank’s best estimate of the present value of the cash flows expected to be collected is less than the amortized cost basis, the difference is considered the credit loss.

For all the securities in its held-to-maturity portfolio, 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 determined that, as of June 30, 2010, the immaterial gross unrealized losses on its interest-bearing deposits and commercial paper are temporary because the gross unrealized losses were caused by movements in interest rates and not by the deterioration of the issuers’ creditworthiness. The interest-bearing deposits and commercial paper were all with issuers that had credit ratings of at least A at June 30, 2010, and all of the securities had maturity dates within 45 days of June 30, 2010. As a result, the Bank expects to recover the entire amortized cost basis of these securities.

As of June 30, 2010, the Bank’s investments in housing finance agency bonds, which were issued by the California Housing Finance Agency (CalHFA), had gross unrealized losses totaling $143. These gross unrealized losses were mainly due to an illiquid market, causing these investments to be valued at a discount to their acquisition cost. In addition, the Bank independently modeled cash flows for the underlying collateral, using assumptions for default rates and loss severity that management deemed reasonable, and concluded that the available credit support within the CalHFA structure more than offset the projected losses on the underlying collateral. The Bank determined that, as of June 30, 2010, all of the gross unrealized losses on these bonds are temporary because the underlying collateral and credit enhancements were sufficient to protect the Bank from losses based on current expectations and because CalHFA had a credit rating of A at June 30, 2010 (based on the lower of Moody’s or Standard & Poor’s ratings). As a result, the Bank expects to recover the entire amortized cost basis of these securities.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

For its agency MBS, the Bank expects to recover the entire amortized cost basis of these securities because it 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 based on current expectations. As a result, the Bank determined that, as of June 30, 2010, all of the gross unrealized losses on its agency MBS are temporary.

To assess whether it expects to recover the entire amortized cost basis of its PLRMBS, the Bank performed a cash flow analysis for all of its PLRMBS as of June 30, 2010. In performing the cash flow analysis for each security, the Bank used two third-party models. The first model considers borrower characteristics and the particular attributes of the loans underlying the Bank’s securities, in conjunction with assumptions about future changes in home prices, interest rates, and other assumptions, to project prepayments, default rates, and loss severities. A significant input to the first model is the forecast of future housing price changes for the relevant states and core-based statistical areas (CBSAs) based on an assessment of the relevant housing markets. CBSA refers collectively to metropolitan and micropolitan statistical areas as defined by the United States Office of Management and Budget. As currently defined, a CBSA must contain at least one urban area of 10,000 or more people. The Bank’s housing price forecast as of June 30, 2010, assumed CBSA-level current-to-trough housing price declines ranging from 0% to 12% over the 3- to 9-month periods beginning April 1, 2010 (average price decline for all areas during their current-to-trough period equaled 4.5%). For each area, after the current-to-trough period, home prices are projected to increase 0% in the first six months, 0.5% in the next six months, 3% in the second year, and 4% in each subsequent year. The month-by-month projections of future loan performance derived from the first model, which reflect projected prepayments, default rates, and loss severities, are then input into a second model that allocates the projected loan level cash flows and losses to the various security classes in each securitization structure in accordance with the structure’s prescribed cash flow and loss allocation rules. When the credit enhancement for the senior securities in a securitization is derived from the presence of subordinated securities, losses are generally allocated first to the subordinated securities until their principal balance is reduced to zero. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on the model approach described above reflects a best-estimate scenario and includes a base case current-to-trough housing price forecast and a base case housing price recovery path.

At each quarter end, the Bank compares the present value of the cash flows expected to be collected on its PLRMBS to the amortized cost basis of the securities to determine whether a credit loss exists. For the Bank’s variable rate and hybrid PLRMBS, the Bank uses a forward interest rate curve to project the future estimated cash flows. The Bank then uses the effective interest rate for the security prior to impairment for determining the present value of the future estimated cash flows. For securities previously identified as other-than-temporarily impaired, the Bank updates its estimate of future estimated cash flows on a quarterly basis.

For securities determined to be other-than-temporarily impaired as of June 30, 2010 (that is, 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 amount of credit loss recognized in earnings in the second quarter of 2010.

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

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

June 30, 2010


	Significant Inputs						Current
	Prepayment Rates		Default Rates		Loss Severities		Credit Enhancement
Year of Securitization	Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %	Weighted Average %	Range %
Prime
2008	8.8	5.9 – 9.6	62.0	61.6 – 63.4	41.5	41.3 – 42.1	30.8	30.8
2006	6.7	6.1 – 7.5	19.9	18.7 – 23.5	35.8	33.9 – 41.0	7.6	7.1 – 9.3
2005	7.3	7.3	25.3	25.3	37.3	37.3	17.6	17.6
2004 and earlier	10.8	10.8	3.7	3.7	28.4	28.4	11.3	11.3
Total Prime	8.2	5.9 – 10.8	44.9	3.7 – 63.4	38.9	28.4 – 42.1	22.2	7.1 – 30.8

Alt-A
2007	8.8	4.4 – 13.7	63.5	22.9 – 89.3	48.7	40.5 – 60.4	28.2	9.1 – 46.4
2006	10.2	5.3 – 13.7	52.0	28.5 – 88.4	49.0	39.4 – 62.0	24.8	10.0 – 40.5
2005	11.3	6.5 – 15.7	38.8	15.5 – 77.7	45.7	31.8 – 59.5	15.7	5.4 – 32.0
2004 and earlier	12.3	11.8 – 12.6	42.9	34.6 – 50.8	48.0	41.7 – 55.0	20.6	14.3 – 29.6
Total Alt-A	9.9	4.4 – 15.7	52.7	15.5 – 89.3	47.8	31.8 – 62.0	23.3	5.4 – 46.4

Total	9.8	4.4 – 15.7	52.3	3.7 – 89.3	47.3	28.4 – 62.0	23.2	5.4 – 46.4

The Bank recorded OTTI related to credit loss of $142 and $88 that was recognized in “Other Loss” for the second quarter of 2010 and 2009, respectively, and recognized OTTI related to all other factors of $48 and $1,195 in “Other comprehensive income/(loss)” for the second quarter of 2010 and 2009, respectively. The Bank recorded OTTI related to credit loss of $202 and $176 that was recognized in “Other Loss” for the first six months of 2010 and 2009, respectively, and recognized OTTI related to all other factors of $180 and $2,263 in “Other comprehensive income/(loss)” for the first six months of 2010 and 2009, respectively. For each security, the estimated impairment related to all other factors for each security is accreted prospectively, based on the amount and timing of future estimated cash flows, over the remaining life of the security as an increase in the carrying value of the security (with no effect on earnings unless the security is subsequently sold or there are additional decreases in the cash flows expected to be collected). The Bank accreted $213 and $93 from AOCI to increase the carrying value of the respective PLRMBS for the second quarter of 2010 and 2009, respectively. The Bank accreted $428 and $123 from AOCI to increase the carrying value of the respective PLRMBS for the first six months of 2010 and 2009, respectively. The Bank does not intend to sell these securities and it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis. At June 30, 2010, the estimated weighted average life of these securities was approximately four years.

For certain other-than-temporarily impaired securities that had previously been impaired and subsequently incurred additional OTTI related to credit loss, the additional credit-related OTTI, up to the amount in AOCI, was reclassified out of non-credit-related OTTI in AOCI and charged to earnings. This amount was $140 and $77 for the second quarter of 2010 and 2009, respectively. This amount was $199 and $127 for the first six months of 2010 and 2009, respectively.

The following tables present the OTTI related to credit loss, which is recognized in earnings, and the OTTI related to all other factors, which is recognized in “Other comprehensive income/(loss),” for the three and six months ended June 30, 2010 and 2009.


	Three Months Ended June 30, 2010								Three Months Ended June 30, 2009

	OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI			OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI

Balance, beginning of the period	$	688	$	3,492		$	4,180		$	108	$	1,608		$	1,716
Charges on securities for which OTTI was not previously recognized		2		175			177			48		1,196			1,244
Additional charges on securities for which OTTI was previously recognized⁽¹⁾		140		(127	)		13			40		(1	)		39
Accretion of impairment related to all other factors		—		(213	)		(213	)		—		(93	)		(93	)

Balance, end of the period	$	830	$	3,327		$	4,157		$	196	$	2,710		$	2,906

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	Six Months Ended June 30, 2010								Six Months Ended June 30, 2009

	OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI			OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI

Balance, beginning of the period⁽²⁾	$	628	$	3,575		$	4,203		$	20	$	570		$	590
Charges on securities for which OTTI was not previously recognized		5		289			294			86		2,211			2,297
Additional charges on securities for which OTTI was previously recognized⁽¹⁾		197		(109	)		88			90		52			142
Accretion of impairment related to all other factors		—		(428	)		(428	)		—		(123	)		(123	)

Balance, end of the period	$	830	$	3,327		$	4,157		$	196	$	2,710		$	2,906

(1)

For the three months ended June 30, 2010, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to April 1, 2010. For the three months ended June 30, 2009, “securities for which OTTI was previously recognized” represents all securities that were also previously other-than-temporarily impaired prior to April 1, 2009. For the six months ended June 30, 2010, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to January 1, 2010. For the six months ended June 30, 2009, “securities for which OTTI was previously recognized” represents all securities that were also previously other-than-temporarily impaired prior to January 1, 2009.

(2)	The Bank adopted the OTTI guidance as of January 1, 2009, and recognized the cumulative effect of initially applying the OTTI guidance, totaling $570, as an increase in the retained earnings balance at January 1, 2009, with a corresponding change in AOCI.

The following tables present the Bank’s other-than-temporarily impaired PLRMBS that incurred an OTTI charge during the three months ended June 30, 2010, and 2009, by loan collateral type:


June 30, 2010	Unpaid Principal Balance		Amortized Cost		Carrying Value		Estimated Fair Value

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	1,265	$	1,180	$	825	$	950
Alt-A, option ARM		2,004		1,734		998		1,031
Alt-A, other		6,139		5,729		3,982		4,416

Total	$	9,408	$	8,643	$	5,805	$	6,397


June 30, 2009	Unpaid Principal Balance		Amortized Cost		Carrying Value		Estimated Fair Value

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	1,203	$	1,190	$	824	$	824
Alt-A, option ARM		4,318		4,203		2,554		2,596
Alt-A, other		1,165		1,114		515		531

Total	$	6,686	$	6,507	$	3,893	$	3,951

The following tables present the Bank’s other-than-temporarily impaired PLRMBS that incurred an OTTI charge anytime during the life of the securities at June 30, 2010, and December 31, 2009, by loan collateral type:

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


June 30, 2010	Unpaid Principal Balance		Amortized Cost		Carrying Value		Estimated Fair Value

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	1,438	$	1,345	$	956	$	1,092
Alt-A, option ARM		2,146		1,865		1,066		1,105
Alt-A, other		7,745		7,265		5,126		5,711

Total	$	11,329	$	10,475	$	7,148	$	7,908


December 31, 2009	Unpaid Principal Balance		Amortized Cost		Carrying Value		Estimated Fair Value

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	1,392	$	1,333	$	927	$	998
Alt-A, option ARM		2,084		1,873		964		1,001
Alt-A, other		7,410		7,031		4,771		5,150

Total	$	10,886	$	10,237	$	6,662	$	7,149

The following tables present the Bank’s OTTI related to credit loss and OTTI related to all other factors on its other-than-temporarily impaired PLRMBS during the three and six months ended June 30, 2010 and 2009:


	Three Months Ended June 30, 2010							Three Months Ended June 30, 2009

	OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI		OTTI Related to Credit Loss		OTTI Related to All Other Factors		Total OTTI

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	28	$	(24	)	$	4	$	15	$	312	$	327
Alt-A, option ARM		56		28			84		25		139		164
Alt-A, other		58		44			102		48		744		792

Total	$	142	$	48		$	190	$	88	$	1,195	$	1,283


	Six Months Ended June 30, 2010							Six Months Ended June 30, 2009

	OTTI Related to Credit Loss		OTTI Related to All Other Factors			Total OTTI		OTTI Related to Credit Loss		OTTI Related to All Other Factors		Total OTTI

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	34	$	29		$	63	$	15	$	312	$	327
Alt-A, option ARM		71		14			85		50		556		606
Alt-A, other		97		137			234		111		1,395		1,506

Total	$	202	$	180		$	382	$	176	$	2,263	$	2,439

The following tables present the other-than-temporarily impaired PLRMBS for the three and six months ended June 30, 2010 and 2009, by loan collateral type and the length of time that the individual securities were in a continuous loss position prior to the current period write-down:

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	Three Months Ended June 30, 2010

	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors

	Less than 12 months		12 months or more		Total		Less than 12 months			12 months or more			Total

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	—	$	28	$	28	$	—		$	(24	)		$(24)
Alt-A, option ARM		1		55		56		(1	)		29			28
Alt-A, other		—		58		58		—			44			44

Total	$	1	$	141	$	142	$	(1	)	$	49		$	48


	Three Months Ended June 30, 2009

	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors

	Less than 12 months		12 months or more		Total		Less than 12 months			12 months or more			Total

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	9	$	6	$	15	$	—		$	312		$	312
Alt-A, option ARM		—		25		25		—			139			139
Alt-A, other		—		48		48		—			744			744

Total	$	9	$	79	$	88	$	—		$	1,195		$	1,195


	Six Months Ended June 30, 2010

	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors

	Less than 12 months		12 months or more		Total		Less than 12 months			12 months or more			Total

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	—	$	34	$	34	$	—		$	29		$	29
Alt-A, option ARM		1		70		71		(1	)		15			14
Alt-A, other		—		97		97		—			137			137

Total	$	1	$	201	$	202	$	(1	)	$	181		$	180


	Six Months Ended June 30, 2009

	Gross Unrealized Losses Related to Credit						Gross Unrealized Losses Related to All Other Factors

	Less than 12 months		12 months or more		Total		Less than 12 months			12 months or more			Total

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
Prime	$	9	$	6	$	15	$	—		$	312		$	312
Alt-A, option ARM		—		50		50		—			556			556
Alt-A, other		—		111		111		—			1,395			1,395

Total	$	9	$	167	$	176	$	—		$	2,263		$	2,263

For the Bank’s PLRMBS that were not other-than-temporarily impaired as of June 30, 2010, the Bank has experienced net unrealized losses and a decrease in fair value primarily because of illiquidity in the MBS market, uncertainty about the future condition of the housing and mortgage markets and the economy, and continued deterioration in the credit performance of loan collateral underlying these securities, which caused these assets to be valued at significant discounts to their acquisition cost. The Bank does not intend to sell these securities, it is not more likely than not that the Bank will be required to sell these securities before its anticipated recovery of the remaining amortized cost basis, and the Bank expects to recover the entire

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

amortized cost basis of these securities. As a result, the Bank determined that, as of June 30, 2010, the gross unrealized losses on these remaining PLRMBS are temporary. Seventy-three percent of the PLRMBS, based on amortized cost, that were not other-than-temporarily impaired were rated investment grade (31% were rated AAA), and the remaining 27% were rated below investment grade. These securities were included in the securities that the Bank reviewed and analyzed for OTTI as discussed above, and the analyses performed indicated that these securities were not other-than-temporarily impaired. The credit ratings used by the Bank are based on the lowest of Moody’s, Standard & Poor’s, or comparable Fitch ratings.

Note 6 – Advances

Redemption Terms. The Bank had advances outstanding, excluding overdrawn demand deposit accounts, at interest rates ranging from 0.04% to 8.57% at June 30, 2010, and 0.01% to 8.57% at December 31, 2009, as summarized below.


	June 30, 2010				December 31, 2009

Contractual Maturity	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding		Weighted Average Interest Rate
Within 1 year	$	46,427	1.60	%	$	76,854	1.54	%
After 1 year through 2 years		24,176	1.41			30,686	1.69
After 2 years through 3 years		10,003	1.85			7,313	2.85
After 3 years through 4 years		5,572	2.42			9,211	1.77
After 4 years through 5 years		1,774	3.31			1,183	4.12
After 5 years		6,737	2.12			7,066	2.12

Total par amount		94,689	1.70	%		132,313	1.72	%

Valuation adjustments for hedging activities		476				524
Valuation adjustments under fair value option		523				616
Net unamortized premiums		59				106

Total	$	95,747			$	133,559

The following table summarizes advances at June 30, 2010, and December 31, 2009, by the earlier of the year of contractual maturity or next call date for callable advances.


Earlier of Contractual Maturity or Next Call Date	June 30, 2010		December 31, 2009

Within 1 year	$	46,492	$	76,864
After 1 year through 2 years		24,180		30,686
After 2 years through 3 years		10,000		7,318
After 3 years through 4 years		5,572		9,201
After 4 years through 5 years		1,766		1,183
After 5 years		6,679		7,061

Total par amount	$	94,689	$	132,313

The following table summarizes advances at June 30, 2010, and December 31, 2009, by the earlier of the year of contractual maturity or next put date for putable advances.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


Earlier of Contractual Maturity or Next Put Date	June 30, 2010		December 31, 2009

Within 1 year	$	49,054	$	79,552
After 1 year through 2 years		23,651		30,693
After 2 years through 3 years		9,452		6,385
After 3 years through 4 years		5,394		8,933
After 4 years through 5 years		1,551		942
After 5 years		5,587		5,808

Total par amount	$	94,689	$	132,313

Security Terms. The Bank lends to member financial institutions that have a principal place of business in Arizona, California, or Nevada. The Bank is required by the Federal Home Loan Bank Act of 1932, as amended (FHLBank Act), to obtain sufficient collateral for advances to protect against losses and to accept as collateral for advances only certain U.S. government or government agency securities, residential mortgage loans or MBS, other eligible real estate-related assets, and cash or deposits in the Bank. The capital stock of the Bank owned by each borrowing member is pledged as additional collateral for the member’s indebtedness to the Bank. The Bank may also accept 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) or securities representing a whole interest in such loans as eligible collateral from members that qualify as community financial institutions. The Housing and Economic Recovery Act of 2008 (Housing Act) added secured loans for community development activities as collateral that the Bank may accept from community financial institutions. The Housing Act defines community financial institutions as FDIC-insured depository institutions with average total assets over the preceding three-year period of $1,000 or less. The Federal Housing Finance Agency (Finance Agency) adjusts the average total asset cap for inflation annually. Effective January 1, 2010, the cap was $1,029. In addition, the Bank has advances outstanding to former members and member successors, which are also subject to these security terms. For more information on security terms, see Note 7 to the Financial Statements in the Bank’s 2009 Form 10-K.

Credit and Concentration Risk. The Bank’s potential credit risk from advances is concentrated in four institutions whose advances outstanding represented 63% of the Bank’s total par amount of advances outstanding at June 30, 2010. The following tables present the concentration in advances to these four institutions as of June 30, 2010, and December 31, 2009. The tables also present the interest income from these advances before the impact of interest rate exchange agreements associated with these advances for the second quarter of 2010 and 2009 and for the first six months of 2010 and 2009.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Concentration of Advances


	June 30, 2010				December 31, 2009
Name of Borrower	Advances Outstanding⁽¹⁾		Percentage of Total Advances Outstanding		Advances Outstanding⁽¹⁾		Percentage of Total Advances Outstanding
Citibank, N.A.	$	30,003	32	%	$	46,544	35	%
Bank of America California, N.A.		13,904	15			9,304	7
JPMorgan Chase Bank, National Association		8,609	9			20,622	16
Wells Fargo Bank, N.A.⁽²⁾		6,387	7			14,695	11
Subtotal		58,903	63			91,165	69
Others⁽³⁾		35,786	37			41,148	31
Total par amount	$	94,689	100	%	$	132,313	100	%

Concentration of Interest Income from Advances
	Three Months Ended
	June 30, 2010				June 30, 2009
Name of Borrower	Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances
Citibank, N.A.	$	25	6	%	$	124	12	%
Bank of America California, N.A.		34	8			31	3
JPMorgan Chase Bank, National Association		89	20			344	34
Wells Fargo Bank, N.A.⁽²⁾		25	6			61	6
Subtotal		173	40			560	55
Others⁽⁵⁾		268	60			447	45
Total	$	441	100	%	$	1,007	100	%

	Six Months Ended
	June 30, 2010				June 30, 2009
Name of Borrower	Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances		Interest Income from Advances⁽⁴⁾		Percentage of Total Interest Income from Advances
Citibank, N.A.	$	47	5	%	$	357	16	%
Bank of America California, N.A.		63	6			95	4
JPMorgan Chase Bank, National Association		226	24			741	32
Wells Fargo Bank, N.A.⁽²⁾		56	6			163	7
Subtotal		392	41			1,356	59
Others⁽⁵⁾		555	59			932	41
Total	$	947	100	%	$	2,288	100	%

(1)

Borrower advance amounts and total advance amounts are at par value, and total advance amounts will not agree to carrying value amounts shown in the Statements of Condition. The differences between the par and carrying value amounts primarily relate to unrealized gains or losses associated with hedged advances resulting from valuation adjustments related to hedging activities and the fair value option.

(2)

On December 31, 2008, Wells Fargo & Company, a nonmember, acquired Wachovia Corporation, the parent company of Wachovia Mortgage, FSB. Wachovia Mortgage, FSB, operated as a separate entity and continued to be a member of the Bank until its merger into Wells Fargo Bank, N.A., a subsidiary of Wells Fargo & Company, on November 1, 2009. Effective November 1, 2009, Wells Fargo Financial National Bank, an affiliate of Wells Fargo & Company, became a member of the Bank, and the Bank allowed the transfer of excess capital stock totaling $5 from Wachovia Mortgage, FSB, to Wells Fargo Financial National Bank to enable Wells Fargo Financial National Bank to satisfy its initial membership stock requirement. As a result of the merger, Wells Fargo Bank, N.A., assumed all outstanding Bank advances and the remaining Bank capital stock of Wachovia Mortgage, FSB. The Bank reclassified the capital stock transferred to Wells Fargo Bank, N.A., to mandatorily redeemable capital stock (a liability).

(3)	Includes advances outstanding totaling $5,000 to JPMorgan Bank and Trust Company, National Association, an affiliate of JPMorgan Chase Bank, National Association, at June 30, 2010, and December 31, 2009.

(4)

Interest income amounts exclude the interest effect of interest rate exchange agreements with derivatives 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.

(5)

Includes interest income from advances totaling $4 and $3 from JPMorgan Bank and Trust Company, National Association, an affiliate of JPMorgan Chase Bank, National Association, for the three months ended June 30, 2010 and 2009, respectively. Includes interest income from advances totaling $6 and $3 from JPMorgan Bank and Trust Company, National Association, an affiliate of JPMorgan Chase Bank, National Association, for the six months ended June 30, 2010 and 2009, respectively.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

The Bank held a security interest in collateral from each of its four largest advances borrowers sufficient to support their respective advances outstanding, and the Bank does not expect to incur any credit losses on these advances. As of June 30, 2010, and December 31, 2009, three of the four largest advances borrowers (Citibank, N.A.; JPMorgan Chase Bank, National Association; and Wells Fargo Bank, N.A.) each owned more than 10% of the Bank’s outstanding capital stock, including mandatorily redeemable capital stock.

During the first six months of 2010, eleven member institutions were placed into receivership or liquidation. Ten of these institutions had advances outstanding at the time they were placed into receivership or liquidation. The advances outstanding to these ten institutions were either repaid prior to June 30, 2010, or assumed by other institutions, and no losses were incurred by the Bank. The eleventh institution had no advances outstanding at the time it was placed into receivership or liquidation. Bank capital stock held by six of the eleven institutions totaling $30 was classified as mandatorily redeemable capital stock (a liability). The capital stock of the other five institutions was transferred to other member institutions.

The Bank has policies and procedures in place to manage the credit risk of advances. Based on the collateral pledged as security for advances, the Bank’s credit analyses of members’ 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 losses on advances was deemed necessary by management. The Bank has never experienced any credit losses on advances.

From July 1, 2010, to July 30, 2010, two member institutions were placed into receivership. The outstanding advances and capital stock of one institution were assumed by another member institution. The advances outstanding to the second institution were assumed by a nonmember institution, and the Bank capital stock held by the institution totaling $3 was classified as mandatorily redeemable capital stock (a liability). Because the estimated fair value of the collateral exceeds the carrying amount of the advances outstanding, and the Bank expects to collect all amounts due according to the contractual terms of the advances, no allowance for loan losses on the advances outstanding was deemed necessary by management.

Interest Rate Payment Terms. Interest rate payment terms for advances at June 30, 2010, and December 31, 2009, are detailed below:


	June 30, 2010		December 31, 2009
Par amount of advances:
Fixed rate	$	52,152	$	68,411
Adjustable rate		42,537		63,902
Total par amount	$	94,689	$	132,313

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Prepayment Fees, Net. The Bank charges borrowers prepayment fees or pays borrowers prepayment credits when the principal on certain advances is paid prior to original maturity. The Bank records prepayment fees net of any associated fair value adjustments related to prepaid advances that were hedged. The net amount of prepayment fees is reflected as interest income in the Statements of Income, as follows:


	Three Months Ended						Six Months Ended
		June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Prepayment fees received	$	59		$	32		$	78		$	52
Fair value adjustments		(11	)		(14	)		(19	)		(32	)
Other basis adjustments		(20	)		—			(20	)		—
Net	$	28		$	18		$	39		$	20
Advance principal prepaid	$	8,146		$	11,376		$	14,551		$	14,067

Note 7 – Mortgage Loans Held for Portfolio

Under the Mortgage Partnership Finance^® (MPF^®) Program, the Bank purchased conventional conforming fixed rate residential mortgage loans directly from its participating members from May 2002 through October 2006. (“Mortgage Partnership Finance” and “MPF” are registered trademarks of the Federal Home Loan Bank of Chicago.) The mortgage loans are held-for-portfolio loans. Participating members originated or purchased the mortgage loans, credit-enhanced them and sold them to the Bank, and generally retained the servicing of the loans.

The following table presents information as of June 30, 2010, and December 31, 2009, on mortgage loans, all of which are secured by one- to four-unit residential properties and single-unit second homes.


	June 30, 2010			December 31, 2009
Fixed rate medium-term mortgage loans	$	823		$	927
Fixed rate long-term mortgage loans		1,984			2,130
Subtotal		2,807			3,057
Net unamortized discounts		(15	)		(18	)
Mortgage loans held for portfolio		2,792			3,039
Less: Allowance for credit losses		(4	)		(2	)
Total mortgage loans held for portfolio, net	$	2,788		$	3,037

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

For taking on the credit enhancement obligation, the Bank pays the participating member or any successor a credit enhancement fee, which is calculated on the remaining unpaid principal balance of the mortgage loans. The Bank records credit enhancement fees as a reduction to interest income. For the three and six months ended June 30, 2010, the credit enhancement fees were immaterial. For the three and six months ended June 30, 2009, the credit enhancement fees totaled $1 and $2, respectively.

Concentration Risk. The Bank had the following concentration in MPF loans with institutions whose outstanding total of mortgage loans sold to the Bank represented 10% or more of the Bank’s total outstanding mortgage loans at June 30, 2010, and December 31, 2009.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Concentration of Mortgage Loans

June 30, 2010


Name of Institution	Mortgage Loan Balances Outstanding		Percentage of Total Mortgage Loan Balances Outstanding		Number of Mortgage Loans Outstanding	Percentage of Total Number of Mortgage Loans Outstanding
JPMorgan Chase Bank, National Association	$	2,211	79	%	17,575	73	%
OneWest Bank, FSB		366	13		4,610	19
Subtotal		2,577	92		22,185	92
Others		230	8		1,947	8
Total	$	2,807	100	%	24,132	100	%
December 31, 2009
Name of Institution	Mortgage Loan Balances Outstanding		Percentage of Total Mortgage Loan Balances Outstanding		Number of Mortgage Loans Outstanding	Percentage of Total Number of Mortgage Loans Outstanding
JPMorgan Chase Bank, National Association	$	2,391	78	%	18,613	73	%
OneWest Bank, FSB		409	13		4,893	19
Subtotal		2,800	91		23,506	92
Others		257	9		2,109	8
Total	$	3,057	100	%	25,615	100	%

Credit Risk. A mortgage loan is considered to be impaired when it is reported 90 days or more past due (nonaccrual) or when it is probable, based on current information and events, that the Bank will be unable to collect all principal and interest amounts due according to the contractual terms of the mortgage loan agreement.

The following table presents information on delinquent mortgage loans as of June 30, 2010, and December 31, 2009.


	June 30, 2010				December 31, 2009
Days Past Due	Number of Loans	Mortgage Loan Balance			Number of Loans	Mortgage Loan Balance
30 – 59 days delinquent	205	$	22		243	$	29
60 – 89 days delinquent	60		8		81		10
90 days or more delinquent	115		15		97		13
In process of foreclosure⁽¹⁾	104		13		80		9
Total	484	$	58		501	$	61
Nonaccrual loans⁽²⁾	219	$	28		177	$	22
Loans past due 90 days or more and still accruing interest	—		—		—		—
Real estate owned inventory	43	$	4		26	$	3
Serious delinquency rate⁽³⁾			0.98	%			0.70	%

(1)	Includes loans for which the servicer has reported a decision to foreclose or to pursue a similar alternative, such as deed-in-lieu.

(2)	Nonaccrual loans at June 30, 2010, included 22 loans, totaling $3, for which the borrower was in bankruptcy. Nonaccrual loans at December 31, 2009, included 23 loans, totaling $2, for which the borrower was in bankruptcy.

(3)	Loans that are 90 days or more past due or in the process of foreclosure expressed as a percentage of the total conventional loan portfolio principal balance.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

The Bank’s average recorded investment in impaired loans totaled $28 for the second quarter of 2010 and $15 for the second quarter of 2009. The Bank’s average recorded investment in impaired loans totaled $26 and $12 for the six months ended June 30, 2010 and 2009, respectively. The Bank did not recognize any interest income for impaired loans in the second quarter of 2010 and 2009 and in the first six months of 2010 and 2009.

The allowance for credit losses on the mortgage loan portfolio was as follows:



	Three Months Ended						Six Months Ended
		June 30, 2010			June 30, 2009			June 30, 2010			June 30, 2009
Balance, beginning of the period	$	2.0		$	1.1		$	2.0		$	1.0
Chargeoffs – transferred to real estate owned		(0.3	)		—			(0.7	)		—
Recoveries		—			—			—			—
Provision for credit losses		1.9			0.9			2.3			1.0
Balance, end of the period	$	3.6		$	2.0		$	3.6		$	2.0
Ratio of net charge-offs during the period to average loans outstanding during the period		(0.01	)%		—	%		(0.02	)%		—	%

For more information on how the Bank determines its estimated allowance for credit losses on mortgage loans, see Note 8 to the Financial Statements in the Bank’s 2009 Form 10-K.

Note 8 – Consolidated Obligations

Consolidated obligations, consisting of consolidated obligation bonds and discount notes, are jointly issued by the FHLBanks through the Office of Finance, which serves as the FHLBanks’ agent. As provided by the 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 Note 18 to the Financial Statements in the Bank’s 2009 Form 10-K. In connection with each debt issuance, 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, the successor agency to the Federal Housing Finance Board (Finance Board), 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 June 30, 2010, and December 31, 2009.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	June 30, 2010				December 31, 2009

Contractual Maturity	Amount Outstanding		Weighted Average Interest Rate		Amount Outstanding			Weighted Average Interest Rate

Within 1 year	$	59,565	1.59	%	$	75,865		1.29	%
After 1 year through 2 years		34,609	2.08			42,745		2.40
After 2 years through 3 years		14,360	2.36			11,589		2.12
After 3 years through 4 years		7,467	4.05			12,855		3.86
After 4 years through 5 years		2,415	3.02			5,308		3.11
After 5 years		8,913	4.43			11,561		4.38
Index amortizing notes		6	4.61			6		4.61

Total par amount		127,335	2.18	%		159,929		2.14	%

Unamortized premiums/(discounts)		217				251
Valuation adjustments for hedging activities		1,953				1,926
Fair value option valuation adjustments		19				(53	)

Total	$	129,524			$	162,053

The Bank’s participation in consolidated obligation bonds outstanding includes callable bonds of $19,172 at June 30, 2010, and $32,185 at December 31, 2009. Contemporaneous with the issuance of a callable bond for which the Bank is the primary obligor, the Bank routinely enters into an interest rate swap (in which the Bank pays a variable rate and receives a fixed rate) with a call feature that mirrors the call option embedded in the bond (a sold callable swap). The Bank had notional amounts of interest rate exchange agreements hedging callable bonds of $14,939 at June 30, 2010, and $25,530 at December 31, 2009. The combined sold callable swap and callable bond enable the Bank to meet its funding needs at costs not otherwise directly attainable solely through the issuance of non-callable debt, while effectively converting the Bank’s net payment to an adjustable rate.

The Bank’s participation in consolidated obligation bonds was as follows:


	June 30, 2010		December 31, 2009

Par amount of consolidated obligation bonds:
Non-callable	$	108,163	$	127,744
Callable		19,172		32,185

Total par amount	$	127,335	$	159,929

The following is a summary of the Bank’s participation in consolidated obligation bonds outstanding at June 30, 2010, and December 31, 2009, by the earlier of the year of contractual maturity or next call date.


Earlier of Contractual Maturity or Next Call Date	June 30, 2010		December 31, 2009

Within 1 year	$	74,592	$	103,215
After 1 year through 2 years		32,249		36,750
After 2 years through 3 years		10,210		5,494
After 3 years through 4 years		5,787		9,480
After 4 years through 5 years		210		593
After 5 years		4,281		4,391
Index amortizing notes		6		6

Total par amount	$	127,335	$	159,929

Consolidated obligation discount notes are consolidated obligations issued to raise short-term funds; discount notes have original maturities up to one year. These notes are issued at less than their face amount 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:

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)


	June 30, 2010					December 31, 2009
	Amount Outstanding			Weighted Average Interest Rate		Amount Outstanding			Weighted Average Interest Rate
Par amount	$	15,800		0.22	%	$	18,257		0.35	%
Unamortized discounts		(12	)				(11	)
Total	$	15,788				$	18,246

Interest Rate Payment Terms. Interest rate payment terms for consolidated obligations at June 30, 2010, and December 31, 2009, are detailed in the following table. For information on the general terms and types of consolidated obligations outstanding, see Note 10 to the Financial Statements in the Bank’s 2009 Form 10-K.


	June 30, 2010		December 31, 2009

Par amount of consolidated obligations:
Bonds:
Fixed rate	$	89,345	$	98,619
Adjustable rate		30,900		49,244
Step-up		5,522		10,433
Step-down		200		350
Fixed rate that converts to adjustable rate		1,042		915
Adjustable rate that converts to fixed rate		285		250
Range bonds		35		112
Index amortizing notes		6		6

Total bonds, par		127,335		159,929
Discount notes, par		15,800		18,257

Total consolidated obligations, par	$	143,135	$	178,186

Note 9 – Capital

Capital Requirements. Under the 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 minimum stock requirement for members 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 at least equal to its regulatory risk-based capital requirement. Regulatory capital and permanent capital are defined as retained earnings and Class B stock, which includes mandatorily redeemable capital stock that 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. (Non-permanent capital consists of Class A capital stock, which is redeemable upon six months’ notice. The Bank’s capital plan does not provide for the issuance of Class A capital stock.)

The risk-based capital requirements must be met with permanent capital, which must be at least 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 requirements as defined.

The following table shows the Bank’s compliance with the Finance Agency’s capital requirements at June 30, 2010, and December 31, 2009.

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Regulatory Capital Requirements


	June 30, 2010						December 31, 2009
	Required			Actual			Required			Actual
Risk-based capital	$	5,468		$	14,320		$	6,207		$	14,657
Total regulatory capital	$	6,328		$	14,320		$	7,714		$	14,657
Total regulatory capital ratio		4.00	%		9.05	%		4.00	%		7.60	%
Leverage capital	$	7,910		$	21,479		$	9,643		$	21,984
Leverage ratio		5.00	%		13.58	%		5.00	%		11.40	%

The Bank’s total regulatory capital ratio increased to 9.05% at June 30, 2010, from 7.60% at December 31, 2009, primarily because of increased excess capital stock resulting from the decline in advances outstanding, coupled with the Bank’s decision not to repurchase excess capital stock in 2009 and the first quarter of 2010.

Mandatorily Redeemable Capital Stock. The Bank had mandatorily redeemable capital stock totaling $4,690 at June 30, 2010, and $4,843 at December 31, 2009. The change in mandatorily redeemable capital stock for the three and six months ended June 30, 2010 and 2009, was as follows:


	Three Months Ended
	June 30, 2010				June 30, 2009
	Number of Institutions	Amount			Number of Institutions		Amount
Balance at the beginning of the period	45	$	4,858		33		$	3,145
Reclassified from/(to) capital during the period:
Merger with or acquisition by nonmember institution	—		—		(1	)		—
Termination of membership⁽¹⁾	2		12		2			20
Repurchase of excess mandatorily redeemable capital stock	—		(180	)	—			—
Balance at the end of the period	47	$	4,690		34		$	3,165


	Six Months Ended
	June 30, 2010				June 30, 2009
	Number of Institutions	Amount			Number of Institutions	Amount
Balance at the beginning of the period	42	$	4,843		30	$	3,747
Reclassified from/(to) capital during the period:
Merger with or acquisition by nonmember institution	1		—		—		—
Termination of membership⁽¹⁾	4		30		4		36
Acquired by/transferred to members⁽²⁾⁽³⁾	—		—		—		(618	)
Redemption of mandatorily redeemable capital stock	—		(3	)	—		—
Repurchase of excess mandatorily redeemable capital stock	—		(180	)	—		—
Balance at the end of the period	47	$	4,690		34	$	3,165

(1)

For the three and six months ended June 30, 2010, the capital stock of three and six institutions, respectively, was reclassified to mandatorily redeemable capital stock as a result of termination of membership. Because the capital stock of one institution in the three-month period and two institutions in the six-month period was acquired by nonmembers that were already included in the table, those institutions are not included in the number of institutions listed, while the capital stock transferred to mandatorily redeemable capital stock is reflected in the table.

(2)

During 2008, JPMorgan Chase Bank, National Association, a nonmember, assumed Washington Mutual Bank’s outstanding Bank advances and acquired the associated Bank capital stock. The Bank reclassified the capital stock transferred to JPMorgan Chase Bank, National Association, totaling $3,208, to mandatorily redeemable capital stock (a liability). JPMorgan Bank and Trust Company, National Association, an affiliate of JPMorgan Chase Bank, National Association, became a member of the Bank. During the first quarter of 2009, the Bank allowed the transfer of excess stock totaling $300 from JPMorgan Chase Bank, National Association, to JPMorgan Bank and Trust Company, National Association, to enable JPMorgan Bank and Trust Company, National Association, to satisfy its activity-based stock requirement. The capital stock transferred is no longer classified as mandatorily redeemable capital stock (a liability). However, the capital stock remaining with JPMorgan Chase Bank, National Association, remains classified as mandatorily redeemable capital stock (a liability).

(3)

On March 19, 2009, OneWest Bank, FSB, became a member of the Bank, assumed the outstanding advances of IndyMac Federal Bank, FSB, a nonmember, and acquired the associated Bank capital stock totaling $318. Bank capital stock acquired by OneWest Bank, FSB, is no longer classified as mandatorily redeemable capital stock (a liability). However, the capital stock remaining with IndyMac Federal Bank, FSB, remains classified as mandatorily redeemable capital stock (a liability).

Federal Home Loan Bank of San Francisco

Notes to Financial Statements (continued)

Cash dividends on mandatorily redeemable capital stock in the amount of $3 and $6 were recorded as interest expense for the three and six months ended June 30, 2010. There were no dividends on mandatorily redeemable capital stock recorded as interest expense for the three and six months ended June 30, 2009.

The Bank’s mandatorily redeemable capital stock is discussed more fully in Note 13 to the Financial Statements in the Bank’s 2009 Form 10-K.

The following table presents mandatorily redeemable capital stock amounts by contractual redemption period at June 30, 2010, and December 31, 2009.

Large accelerated filer

Accelerated filer

Non-accelerated filer

x (Do not check if a smaller reporting company)

Smaller reporting company