Federal Home Loan Bank of San Francisco - FORM 10-Q - May 3, 2018

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EX-32.2 - CERTIFICATION OF THE CFO SECTION 906 - Federal Home Loan Bank of San Franciscoa201810qq1ex322.htm
EX-32.1 - CERTIFICATION OF THE PRESIDENT AND CEO SECTION 906 - Federal Home Loan Bank of San Franciscoa201810qq1ex321.htm
EX-31.2 - CERTIFICATION OF THE CFO SECTION 302 - Federal Home Loan Bank of San Franciscoa201810qq1ex312.htm
EX-31.1 - CERTIFICATION OF THE PRESIDENT AND CEO SECTION 302 - Federal Home Loan Bank of San Franciscoa201810qq1ex311.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 March 31, 2018
OR
o
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    o  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).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
 
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
 
 
 
 
 
 
 
 
 
 
 
Emerging growth company
 
o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.      o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  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 April 30, 2018

Class B Stock, par value $100
31,639,440



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


PART II. OTHER INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
 
Federal Home Loan Bank of San Francisco
Statements of Condition
(Unaudited)
(In millions-except par value)
March 31,
2018

 
December 31,
2017

Assets:
 
 
 
Cash and due from banks
$
15

 
$
31

Interest-bearing deposits
1,070

 
1,115

Securities purchased under agreements to resell
6,250

 
11,750

Federal funds sold
13,950

 
11,028

Trading securities(a)
913

 
1,164

Available-for-sale (AFS) securities(a)
3,686

 
3,833

Held-to-maturity (HTM) securities (fair values were $13,948 and $14,704, respectively)(a)
13,963

 
14,680

Advances (includes $6,637 and $6,431 at fair value under the fair value option, respectively)
66,642

 
77,382

Mortgage loans held for portfolio, net of allowance for credit losses of $0 and $0, respectively
2,376

 
2,076

Accrued interest receivable
138

 
119

Premises, software, and equipment, net
25

 
29

Derivative assets, net
102

 
83

Other assets
95

 
95

Total Assets
$
109,225

 
$
123,385

Liabilities:
 
 
 
Deposits
$
257

 
$
281

Consolidated obligations:
 
 
 
Bonds (includes $1,315 and $949 at fair value under the fair value option, respectively)
74,297

 
85,063

Discount notes
27,203

 
30,440

Total consolidated obligations
101,500

 
115,503

Mandatorily redeemable capital stock
309

 
309

Accrued interest payable
123

 
116

Affordable Housing Program (AHP) payable
199

 
204

Derivative liabilities, net
3

 
1

Other liabilities
158

 
165

Total Liabilities
102,549

 
116,579

Commitments and Contingencies (Note 17)



Capital:
 
 
 
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
 
 
 
31 shares and 32 shares, respectively
3,068

 
3,243

Unrestricted retained earnings
2,681

 
2,670

Restricted retained earnings
592

 
575

Total Retained Earnings
3,273

 
3,245

Accumulated other comprehensive income/(loss) (AOCI)
335

 
318

Total Capital
6,676

 
6,806

Total Liabilities and Capital
$
109,225

 
$
123,385


(a)
At March 31, 2018, and December 31, 2017, none of these securities were pledged as collateral that may be repledged.

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

3


Federal Home Loan Bank of San Francisco
Statements of Income
(Unaudited)
 
Three Months Ended March 31,
(In millions)
2018

 
2017

Interest Income:
 
 
 
Advances
$
369

 
$
153

Interest-bearing deposits
4

 
1

Securities purchased under agreements to resell
9

 
1

Federal funds sold
51

 
19

Trading securities
4

 
4

AFS securities
57

 
61

HTM securities
81

 
67

Mortgage loans held for portfolio
21

 
9

Total Interest Income
596

 
315

Interest Expense:
 
 
 
Consolidated obligations:
 
 
 
Bonds
307

 
116

Discount notes
134

 
54

Deposits
1

 
—

Mandatorily redeemable capital stock
6

 
11

Total Interest Expense
448

 
181

Net Interest Income
148

 
134

Provision for/(reversal of) credit losses on mortgage loans
—

 
—

Net Interest Income After Mortgage Loan Loss Provision
148

 
134

Other Income/(Loss):
 
 
 
Total other-than-temporary impairment (OTTI) loss
(3
)
 
(1
)
Net amount of OTTI loss reclassified to/(from) AOCI
2

 
(2
)
Net OTTI loss, credit-related
(1
)
 
(3
)
Net gain/(loss) on trading securities
(1
)
 
1

Net gain/(loss) on advances and consolidated obligation bonds held under fair value option
(41
)
 
(1
)
Net gain/(loss) on derivatives and hedging activities
31

 
(9
)
Gains on litigation settlements, net
—

 
119

Other
4

 
5

Total Other Income/(Loss)
(8
)
 
112

Other Expense:
 
 
 
Compensation and benefits
21

 
19

Other operating expense
14

 
14

Federal Housing Finance Agency
1

 
2

Office of Finance
2

 
1

Quality Jobs Fund expense
10

 
40

Other, net
1

 
4

Total Other Expense
49

 
80

Income/(Loss) Before Assessment
91

 
166

AHP Assessment
10

 
18

Net Income/(Loss)
$
81

 
$
148


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

4


Federal Home Loan Bank of San Francisco
Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended March 31,
(In millions)
2018

 
2017

Net Income/(Loss)
$
81

 
$
148

Other Comprehensive Income/(Loss):
 
 
 
Net change in pension and postretirement benefits
1

 
—

Net non-credit-related OTTI gain/(loss) on AFS securities:
 
 
 
Net change in fair value of other-than-temporarily impaired securities
17

 
29

Net amount of OTTI loss reclassified to/(from) other income/(loss)
(2
)
 
2

Total net non-credit-related OTTI gain/(loss) on AFS securities
15

 
31

Net non-credit-related OTTI gain/(loss) on HTM securities:
 
 
 
Accretion of non-credit-related OTTI loss
1

 
1

Total net non-credit-related OTTI gain/(loss) on HTM securities
1

 
1

Total other comprehensive income/(loss)
17

 
32

Total Comprehensive Income/(Loss)
$
98

 
$
180


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

5


Federal Home Loan Bank of San Francisco
Statements of Capital Accounts
(Unaudited)
 
Capital Stock
Class B—Putable
 
Retained Earnings
 
 
 
Total
Capital

(In millions)
Shares

 
Par Value

 
Restricted

 
Unrestricted

 
Total

 
AOCI

 
Balance, December 31, 2016
24

 
$
2,370

 
$
2,168

 
$
888

 
$
3,056

 
$
111

 
$
5,537

Comprehensive income/(loss)
 
 
 
 
132

 
16

 
148

 
32

 
180

Issuance of capital stock
1

 
83

 
 
 
 
 
 
 
 
 
83

Repurchase of capital stock
(2
)
 
(173
)
 
 
 
 
 
 
 
 
 
(173
)
Cash dividends paid on capital stock (9.08%)
 
 
 
 
 
 
(54
)
 
(54
)
 
 
 
(54
)
Balance, March 31, 2017
23

 
$
2,280

 
$
2,300

 
$
850

 
$
3,150

 
$
143

 
$
5,573

Balance, December 31, 2017
32

 
$
3,243

 
$
575

 
$
2,670

 
$
3,245

 
$
318

 
$
6,806

Comprehensive income/(loss)


 


 
17

 
64

 
81

 
17

 
98

Issuance of capital stock
3

 
253

 

 

 
 
 

 
253

Repurchase of capital stock
(4
)
 
(428
)
 

 

 
 
 

 
(428
)
Cash dividends paid on capital stock (7.00%)

 


 

 
(53
)
 
(53
)
 

 
(53
)
Balance, March 31, 2018
31

 
$
3,068

 
$
592

 
$
2,681

 
$
3,273

 
$
335

 
$
6,676


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

6


Federal Home Loan Bank of San Francisco
Statements of Cash Flows
(Unaudited)
 
Three Months Ended March 31,
(In millions)
2018

 
2017

Cash Flows from Operating Activities:
 
 
 
Net Income/(Loss)
$
81

 
$
148

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
4

 
(17
)
Change in net fair value of trading securities
1

 
(1
)
Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option
41

 
1

Change in net derivatives and hedging activities
141

 
(13
)
Net OTTI loss, credit-related
1

 
3

Net change in:
 
 
 
Accrued interest receivable
(20
)
 
15

Other assets
—

 
10

Accrued interest payable
8

 
26

Other liabilities
(16
)
 
(5
)
Total adjustments
160

 
19

Net cash provided by/(used in) operating activities
241

 
167

Cash Flows from Investing Activities:
 
 
 
Net change in:
 
 
 
Interest-bearing deposits
(99
)
 
(9
)
Securities purchased under agreements to resell
5,500

 
4,000

Federal funds sold
(2,922
)
 
(5,878
)
Premises, software, and equipment
—

 
(1
)
Trading securities:
 
 
 
Proceeds from maturities of long-term
250

 
601

AFS securities:
 
 
 
Proceeds from maturities of long-term
183

 
245

HTM securities:
 
 
 
Net (increase)/decrease in short-term
500

 
650

Proceeds from maturities of long-term
652

 
731

Purchases of long-term
(433
)
 
(368
)
Advances:
 
 
 
Repaid
525,362

 
332,485

Originated
(514,739
)
 
(331,705
)
Mortgage loans held for portfolio:
 
 
 
Principal collected
72

 
30

Purchases
(369
)
 
(166
)
Proceeds from sales of foreclosed assets
—

 
2

Net cash provided by/(used in) investing activities
13,957

 
617

 


7


Federal Home Loan Bank of San Francisco
Statements of Cash Flows (continued)
(Unaudited)
 
Three Months Ended March 31,
(In millions)
2018

 
2017

Cash Flows from Financing Activities:
 
 
 
Net change in deposits and other financing activities
(14
)
 
3

Borrowings from other FHLBanks
—

 
(1,345
)
Net proceeds from issuance of consolidated obligations:
 
 
 
Bonds
17,046

 
12,320

Discount notes
37,299

 
41,735

Payments for matured and retired consolidated obligations:
 

 
Bonds
(27,760
)

(13,043
)
Discount notes
(40,557
)

(40,217
)
Proceeds from issuance of capital stock
253


83

Payments for repurchase/redemption of mandatorily redeemable capital stock
—


(54
)
Payments for repurchase of capital stock
(428
)
 
(173
)
Cash dividends paid
(53
)

(54
)
Net cash provided by/(used in) financing activities
(14,214
)

(745
)
Net increase/(decrease) in cash and due from banks
(16
)

39

Cash and due from banks at beginning of the period
31

 
2

Cash and due from banks at end of the period
$
15


$
41

Supplemental Disclosures:
 
 
 
Interest paid
$
416

 
$
168

AHP payments
16

 
10


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

8

Federal Home Loan Bank of San Francisco
Notes to Financial Statements
(Unaudited)





(Dollars in millions except per share amounts)

Note 1 — Basis of Presentation

The information about the Federal Home Loan Bank of San Francisco (Bank) included in these unaudited financial statements reflects all adjustments that, in the opinion of the Bank, are necessary for a fair statement of results for the periods presented. These adjustments are of a 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, 2018. 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, 2017 (2017 Form 10-K).

Use of Estimates. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) requires management to make a number of judgments, estimates, and assumptions that may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income, expenses, gains, and losses during the reporting period. The most significant of these estimates include estimating the allowance for credit losses on the advances and mortgage loan portfolios; accounting for derivatives; estimating fair values of investments classified as trading and available-for-sale, derivatives and associated hedged items carried at fair value in accordance with the accounting for derivative instruments and associated hedging activities, and financial instruments carried at fair value under the fair value option, and accounting for other-than-temporary impairment (OTTI) for investment securities; and estimating the prepayment speeds on mortgage-backed securities (MBS) and mortgage loans for the accounting of amortization of premiums and accretion of discounts on MBS and mortgage loans. Actual results could differ significantly from these estimates.

Financial Instruments Meeting Netting Requirements. The Bank presents certain financial instruments, including derivative instruments and securities purchased under agreements to resell, on a net basis when they have a legal right of offset and all other requirements for netting are met (collectively referred to as the netting requirements). The Bank has elected to offset its derivative asset and liability positions, as well as cash collateral received or pledged, when the netting requirements are met. The Bank did not have any offsetting liabilities related to its securities purchased under agreements to resell for the periods presented.

The net exposure for these financial instruments can change on a daily basis; therefore, there may be a delay between the time this exposure change is identified and additional collateral is requested, and the time this collateral is received or pledged. Likewise, there may be a delay for excess collateral to be returned. For derivative instruments that meet the netting requirements, any excess cash collateral received or pledged is recognized as a derivative liability or derivative asset. Additional information regarding these agreements is provided in Note 15 – Derivatives and Hedging Activities. Based on the fair value of the related collateral held, the securities purchased under agreements to resell were fully collateralized for the periods presented.

Derivatives. All derivatives are recognized on the Statements of Condition at their fair values and are reported as either derivative assets or derivative liabilities, net of cash collateral, including initial and certain variation margin, and accrued interest received from or pledged to clearing agents and/or counterparties. The fair values of derivatives are netted by clearing agent and/or counterparty when the netting requirements have been met. If these netted amounts are positive, they are classified as an asset, and if negative, they are classified as a liability. Cash flows associated with derivatives are reflected as cash flows from operating activities on the Statements of Cash Flows unless the derivative meets the criteria to be a financing derivative.

The Bank uses the clearinghouse, London Clearing House (LCH) Ltd, for all cleared derivative transactions. Effective January 16, 2018, LCH Ltd made certain amendments to its rulebook, changing the legal characterization

9

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



of variation margin payments to be daily settlement payments, rather than collateral. Initial margin continues to be considered cash collateral.

Variable Interest Entities. The Bank’s investments in variable interest entities (VIEs) are limited to private-label residential mortgage-backed securities (PLRMBS). On an ongoing basis, the Bank performs a quarterly evaluation to determine whether it is the primary beneficiary in any VIE. The Bank evaluated its investments in VIEs as of March 31, 2018, to determine whether it is a primary beneficiary of any of these investments. The primary beneficiary is required to consolidate a VIE. The Bank determined that consolidation accounting is not required because the Bank is not the primary beneficiary of these VIEs for the periods presented. 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.

Descriptions of the Bank’s significant accounting policies are included in “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2017 Form 10-K. Other changes to these policies as of March 31, 2018, are discussed in Note 2 – Recently Issued and Adopted Accounting Guidance.

Note 2 — Recently Issued and Adopted Accounting Guidance

Targeted Improvements to Accounting for Hedging Activities. On August 28, 2017, the Financial Accounting Standards Board (FASB) issued amended guidance to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income. In addition, the amendments include certain targeted improvements to the assessment of hedge effectiveness and permit, among other things, the following:
•
Measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.
•
Measurement of the hedged item in a partial-term fair value hedge of interest rate risk by assuming the hedged item has a term that reflects only the designated cash flows being hedged.
•
Consideration only of how changes in the benchmark interest rate affect a decision to settle a prepayable instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest rate risk.
•
For a cash flow hedge of interest rate risk of a variable-rate financial instrument, an entity could designate as the hedged risk the variability in cash flows attributable to the contractually specified interest rate.

This guidance becomes effective for the Bank for interim and annual periods beginning on January 1, 2019, and early adoption is permitted. The amended presentation and disclosure guidance is required only prospectively. The Bank does not intend to adopt this guidance early. The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, cash flows, and financial statement disclosures has not yet been determined.

Premium Amortization on Purchased Callable Debt Securities. On March 30, 2017, the FASB issued amended guidance to shorten the amortization period for certain purchased callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. This guidance affects all entities that hold investments in callable debt securities that have an amortized cost basis in excess of the amount that is repayable by the issuer at the earliest call date (that is, at a premium). This guidance is

10

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



effective for the Bank for interim and annual periods beginning on January 1, 2019, and early adoption is permitted. This guidance should be applied using a modified retrospective method through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. The adoption of this guidance is not expected to have any effect on the Bank’s financial condition, results of operations, or cash flows.

Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. On March 10, 2017, the FASB issued amended guidance to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments require that employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the Statements of Income. This guidance became effective for the Bank for interim and annual periods beginning on January 1, 2018, and was adopted retrospectively for the presentation of the service cost component and the other components of net periodic pension cost and net periodic postretirement benefit cost in the Statements of Income. The adoption of this guidance did not have a material effect on the Bank’s financial condition, results of operations, cash flows, or financial statement disclosures.

Classification of Certain Cash Receipts and Cash Payments. On August 26, 2016, the FASB issued amendments to clarify guidance on the classification of certain cash receipts and payments in the Statements of Cash Flows. This guidance is intended to reduce existing diversity in practice in how certain cash receipts and cash payments are presented and classified on the Statements of Cash Flows. This guidance became effective for the Bank for interim and annual periods beginning on January 1, 2018. The adoption of this guidance did not have any effect on the Bank’s financial condition, results of operations, or cash flows.

Measurement of Credit Losses on Financial Instruments. On June 16, 2016, the FASB issued amended guidance for the accounting for credit losses on financial instruments. The amendments require entities to measure expected credit losses based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate under the circumstances. In addition, under the new guidance, a financial asset, or a group of financial assets, is required to be measured at its amortized cost to be presented at the net amount expected to be collected over the contractual term of the financial assets. Among other things, the guidance also requires:
•
The Statement of Income to reflect the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period.
•
The entities to determine the allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination that are measured at amortized cost basis in a similar manner to other financial assets measured at amortized cost basis. The initial allowance for credit losses is required to be added to the purchase price.
•
Credit losses relating to available-for-sale debt securities to be recorded through an allowance for credit losses. The amendments limit the allowance for credit losses to the amount by which fair value is below amortized cost.
•
Public entities to further disaggregate the current disclosure of credit quality indicators in relation to the amortized cost of financing receivables by the year of origination (i.e., vintage).

The guidance is effective for the Bank for interim and annual periods beginning on January 1, 2020. Early application is permitted as of the interim and annual reporting periods beginning after December 15, 2018. The guidance should be applied using a modified-retrospective approach, through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective. In addition, the entities are required to use a prospective transition approach for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination and for debt securities for which an other-than-temporary impairment had been recognized before the effective date. The Bank does not intend to adopt the guidance early. The Bank is in the process of evaluating this guidance and expects the adoption of the guidance may

11

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



result in an increase in the allowance for credit losses given the requirement to assess losses for the entire estimated life of the financial asset, including an allowance for debt securities. The effect on the Bank’s financial condition, results of operations, and cash flows will depend on the composition of financial assets held by the Bank at the adoption date, as well as on economic conditions and forecasts at that time.

Recognition of Lease Assets and Lease Liabilities. On February 25, 2016, the FASB issued guidance that requires recognition of lease assets and lease liabilities on the Statements of Condition and disclosure of key information about leasing arrangements. In particular, this guidance requires a lessee of operating or finance leases to recognize on the Statements of Condition a liability to make lease payments and a right-of-use asset representing its right to use the underlying asset for the lease term. However, for leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and lease liabilities. Under previous U.S. GAAP, a lessee was not required to recognize lease assets and lease liabilities arising from operating leases on the Statements of Condition. While this guidance does not fundamentally change lessor accounting, some changes have been made to align that guidance with the lessee guidance and other areas within U.S. GAAP.

The guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2019, and early application is permitted. The guidance requires lessors and lessees to recognize and measure leases at the beginning of the earliest period presented in the financial statements using a modified retrospective approach. The Bank does not intend to adopt this guidance early. Upon adoption, the Bank expects to report higher assets and liabilities as a result of recording right-of-use assets and lease liabilities for its existing leases on the Statements of Condition. The Bank is in the process of evaluating this guidance, but its effect on the Bank’s financial condition, results of operations, and cash flows is not expected to be material.

Recognition and Measurement of Financial Assets and Financial Liabilities. On January 5, 2016, the FASB issued amended guidance on certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This guidance includes, but is not limited to, the following:
•
Requires equity investments (with certain exceptions) to be measured at fair value with changes in fair value recognized in net income;
•
Requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments;
•
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the Statement of Condition or in the accompanying notes to the financial statements;
•
Eliminates the requirement for public entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the Statement of Condition.

The guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2018. While the adoption of this guidance affected the Bank’s disclosures, the requirement to present the instrument-specific credit risk in other comprehensive income did not have any effect on the Bank’s financial condition, results of operations, or cash flows.

Revenue from Contracts with Customers. On May 28, 2014, the FASB issued guidance on revenue from contracts with customers. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, and lease contracts. This guidance became effective for the Bank for the interim and annual periods beginning on January 1, 2018. Given that the majority of the Bank's financial instruments and other contractual rights that generate revenue are covered by other U.S. GAAP, the adoption of this guidance did not have any effect on the Bank's financial condition, results of operations, or cash flows.


12

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



Note 3 — Trading Securities

The estimated fair value of trading securities as of March 31, 2018, and December 31, 2017, was as follows:

 
March 31, 2018

 
December 31, 2017

Government-Sponsored Enterprises (GSEs) – Federal Farm Credit Bank (FFCB) bonds
$
907

 
$
1,158

MBS – Other U.S. obligations – Ginnie Mae
6

 
6

Total
$
913

 
$
1,164


The net unrealized gain/(loss) on trading securities was $(1) and $1 for the three months ended March 31, 2018 and 2017, respectively. These amounts represent the changes in the fair value of the securities during the reported periods.

Note 4 — Available-for-Sale Securities

Available-for-sale (AFS) securities by major security type as of March 31, 2018, and December 31, 2017, were as follows:
 
March 31, 2018
 
 
 
 
 
 
 
 
 
  
Amortized
Cost(1)

 
OTTI
Recognized in
AOCI

 
Gross
Unrealized
Gains

 
Gross
Unrealized
Losses

 
Estimated Fair Value

PLRMBS:
 
 
 
 
 
 
 
 
 
Prime
$
313

 
$
—

 
$
27

 
$
—

 
$
340

Alt-A, option ARM
681

 
(6
)
 
131

 
—

 
806

Alt-A, other
2,340

 
(18
)
 
218

 
—

 
2,540

Total
$
3,334

 
$
(24
)
 
$
376

 
$
—

 
$
3,686


December 31, 2017
 
 
 
 
 
 
 
 
 
 
Amortized
Cost(1)

 
OTTI
Recognized in
AOCI

 
Gross
Unrealized
Gains

 
Gross
Unrealized
Losses

 
Estimated Fair Value

PLRMBS:
 
 
 
 
 
 
 
 
 
Prime
$
335

 
$
—

 
$
29

 
$
—

 
$
364

Alt-A, option ARM
714

 
(10
)
 
130

 
—

 
834

Alt-A, other
2,447

 
(23
)
 
211

 
—

 
2,635

Total
$
3,496

 
$
(33
)
 
$
370

 
$
—

 
$
3,833


(1)
Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and previous OTTI recognized in earnings.

Expected maturities of PLRMBS will differ from contractual maturities because borrowers generally have the right to prepay the underlying obligations without prepayment fees.

At March 31, 2018, the amortized cost of the Bank’s PLRMBS classified as AFS included credit-related OTTI of $770. At December 31, 2017, the amortized cost of the Bank’s PLRMBS classified as AFS included credit-related OTTI of $801.

The following table summarizes the AFS securities with unrealized losses as of March 31, 2018, and December 31, 2017. 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. Total unrealized losses in the following table will not agree to total gross unrealized losses in the table above. The unrealized losses in the following table also include non-credit-

13

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



related OTTI losses recognized in AOCI. For OTTI analysis of AFS securities, see Note 6 – Other-Than-Temporary Impairment Analysis.

March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
  
Less Than 12 Months
 
12 Months or More
 
Total
  
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
$
2

 
$
—

 
$
9

 
$
—

 
$
11

 
$
—

Alt-A, option ARM
—

 
—

 
143

 
6

 
143

 
6

Alt-A, other
17

 
—

 
294

 
18

 
311

 
18

Total
$
19

 
$
—

 
$
446

 
$
24

 
$
465

 
$
24

December 31, 2017
 
 
 
 
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
$
—

 
$
—

 
$
11

 
$
—

 
$
11

 
$
—

Alt-A, option ARM
—

 
—

 
144

 
10

 
144

 
10

Alt-A, other
5

 
—

 
356

 
23

 
361

 
23

Total
$
5

 
$
—

 
$
511

 
$
33

 
$
516

 
$
33


As indicated in the tables above, as of March 31, 2018, the Bank’s investments classified as AFS had unrealized losses related to PLRMBS, which were primarily due to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

See Note 6 – Other-Than-Temporary Impairment Analysis for information on the transfers of securities between the AFS portfolio and the HTM portfolio.


14

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



Note 5 — Held-to-Maturity Securities

The Bank classifies the following securities as HTM because the Bank has the positive intent and ability to hold these securities to maturity:
 
March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
  
Amortized
Cost(1)

 
OTTI
Recognized
in AOCI(1)

 
Carrying
Value(1)

 
Gross
Unrecognized
Holding
Gains

 
Gross
Unrecognized
Holding
Losses

 
Estimated
Fair Value

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
California Housing Finance Agency (CalHFA) bonds
$
179

 
$
—

 
$
179

 
$
—

 
$
(7
)
 
$
172

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – single-family:
 
 
 
 
 
 
 
 
 
 
 
Ginnie Mae
714

 
—

 
714

 
—

 
(9
)
 
705

GSEs – single-family:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
1,901

 
—

 
1,901

 
8

 
(28
)
 
1,881

Fannie Mae
3,395

 
—

 
3,395

 
26

 
(17
)
 
3,404

Subtotal GSEs – single-family
5,296

 
—

 
5,296

 
34

 
(45
)
 
5,285

GSEs – multifamily:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
4,904

 
—

 
4,904

 
5

 
(1
)
 
4,908

Fannie Mae
2,108

 
—

 
2,108

 
1

 
(1
)
 
2,108

Subtotal GSEs – multifamily
7,012

 
—

 
7,012

 
6

 
(2
)
 
7,016

Subtotal GSEs
12,308

 
—

 
12,308

 
40

 
(47
)
 
12,301

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
481

 
—

 
481

 
5

 
(5
)
 
481

Alt-A, other
286

 
(5
)
 
281

 
10

 
(2
)
 
289

Subtotal PLRMBS
767

 
(5
)
 
762

 
15

 
(7
)
 
770

Total MBS
13,789

 
(5
)
 
13,784

 
55

 
(63
)
 
13,776

Total
$
13,968

 
$
(5
)
 
$
13,963

 
$
55

 
$
(70
)
 
$
13,948

 

15

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
  
Amortized
Cost(1)

 
OTTI
Recognized
in AOCI(1)

 
Carrying
Value(1)

 
Gross
Unrecognized
Holding
Gains

 
Gross
Unrecognized
Holding
Losses

 
Estimated
Fair Value

Certificates of deposit
$
500

 
$
—

 
$
500

 
$
—

 
$
—

 
$
500

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
California Housing Finance Agency (CalHFA) bonds
187

 
—

 
187

 
—

 
(9
)
 
178

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – single-family:
 
 
 
 
 
 
 
 
 
 
 
Ginnie Mae
751

 
—

 
751

 
1

 
(1
)
 
751

GSEs – single-family:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
2,039

 
—

 
2,039

 
12

 
(15
)
 
2,036

Fannie Mae
3,600

 
—

 
3,600

 
34

 
(8
)
 
3,626

Subtotal GSEs – single-family
5,639

 
—

 
5,639

 
46

 
(23
)
 
5,662

GSEs – multifamily:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
4,651

 
—

 
4,651

 
6

 
(6
)
 
4,651

Fannie Mae
2,131

 
—

 
2,131

 
2

 
—

 
2,133

Subtotal GSEs – multifamily
6,782

 
—

 
6,782

 
8

 
(6
)
 
6,784

Subtotal GSEs
12,421

 
—

 
12,421

 
54

 
(29
)
 
12,446

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
521

 
—

 
521

 
5

 
(6
)
 
520

Alt-A, other
306

 
(6
)
 
300

 
11

 
(2
)
 
309

Subtotal PLRMBS
827

 
(6
)
 
821

 
16

 
(8
)
 
829

Total MBS
13,999

 
(6
)
 
13,993

 
71

 
(38
)
 
14,026

Total
$
14,686


$
(6
)

$
14,680


$
71


$
(47
)

$
14,704


(1)
Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and previous OTTI recognized in earnings. The carrying value of HTM securities represents amortized cost after adjustment for non-credit-related OTTI recognized in AOCI.

At March 31, 2018, the amortized cost of the Bank’s MBS classified as HTM included premiums of $18, discounts of $23, and credit-related OTTI of $7. At December 31, 2017, the amortized cost of the Bank’s MBS classified as HTM included premiums of $19, discounts of $24, and credit-related OTTI of $7.

The following tables summarize the HTM securities with unrealized losses as of March 31, 2018, and December 31, 2017. 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. Total unrealized losses in the following table will not agree to the total gross unrecognized holding losses in the table above. The unrealized losses in the following table also include non-credit-related OTTI losses recognized in AOCI. For OTTI analysis of HTM securities, see Note 6 – Other-Than-Temporary Impairment Analysis.


16

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
CalHFA bonds
$
—

 
$
—

 
$
148

 
$
7

 
$
148

 
$
7

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – single-family:
 
 
 
 
 
 
 
 
 
 
 
Ginnie Mae
614

 
9

 
—

 
—

 
614

 
9

GSEs – single-family:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
1,098

 
19

 
300

 
9

 
1,398

 
28

Fannie Mae
883

 
12

 
191

 
5

 
1,074

 
17

Subtotal GSEs – single-family
1,981

 
31

 
491

 
14

 
2,472

 
45

GSEs – multifamily:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
1,483

 
1

 
—

 
—

 
1,483

 
1

Fannie Mae
1,118

 
1

 
—

 
—

 
1,118

 
1

Subtotal GSEs – multifamily
2,601

 
2

 
—

 
—

 
2,601

 
2

Subtotal GSEs
4,582

 
33

 
491

 
14

 
5,073

 
47

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
14

 
—

 
167

 
5

 
181

 
5

Alt-A, other
40

 
—

 
164

 
7

 
204

 
7

Subtotal PLRMBS
54

 
—

 
331

 
12

 
385

 
12

Total MBS
5,250

 
42

 
822

 
26

 
6,072

 
68

Total
$
5,250

 
$
42

 
$
970

 
$
33

 
$
6,220

 
$
75

 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
CalHFA bonds
$
—

 
$
—

 
$
178

 
$
9

 
$
178

 
$
9

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – single-family:
 
 
 
 
 
 
 
 
 
 
 
Ginnie Mae
406

 
1

 
—

 
—

 
406

 
1

GSEs – single-family:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
895

 
9

 
323

 
6

 
1,218

 
15

Fannie Mae
702

 
4

 
205

 
4

 
907

 
8

Subtotal GSEs – single-family
1,597

 
13

 
528

 
10

 
2,125

 
23

GSEs – multifamily:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
1,058

 
6

 
—

 
—

 
1,058

 
6

Fannie Mae
456

 
—

 
—

 
—

 
456

 
—

Subtotal GSEs – multifamily
1,514

 
6

 
—

 
—

 
1,514

 
6

Subtotal GSEs
3,111

 
19

 
528

 
10

 
3,639

 
29

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
2

 
—

 
202

 
6

 
204

 
6

Alt-A, other
15

 
—

 
191

 
8

 
206

 
8

Subtotal PLRMBS
17

 
—

 
393

 
14

 
410

 
14

Total MBS
3,534

 
20

 
921

 
24

 
4,455

 
44

Total
$
3,534

 
$
20

 
$
1,099

 
$
33

 
$
4,633

 
$
53



17

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



As indicated in the tables above, the Bank’s investments classified as HTM had unrealized losses on CalHFA bonds and MBS. The unrealized losses associated with the CalHFA bonds were mainly due to an illiquid market, credit concerns regarding the underlying mortgage collateral, and credit concerns regarding the monoline insurance providers, causing these investments to be valued at a discount to their acquisition cost. For its agency MBS, the Bank expects to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses. The unrealized losses associated with the PLRMBS were primarily due to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

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 March 31, 2018, and December 31, 2017, 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.

March 31, 2018
 
 
 
 
 
Year of Contractual Maturity
Amortized
Cost(1)

 
Carrying
Value(1)

 
Estimated
Fair Value

HTM securities other than MBS:
 
 
 
 
 
Due after 1 year through 5 years
$
4

  
$
4

  
$
4

Due after 10 years
175

 
175

 
168

Subtotal
179

 
179

 
172

MBS
13,789

 
13,784

 
13,776

Total
$
13,968

 
$
13,963

 
$
13,948

 
December 31, 2017
 
 
 
 
 
Year of Contractual Maturity
Amortized
Cost(1)

 
Carrying
Value(1)

 
Estimated
Fair Value

HTM securities other than MBS:
 
 
 
 
 
Due in 1 year or less
$
500

 
$
500

 
$
500

Due after 5 years through 10 years
12

 
12

 
12

Due after 10 years
175

 
175

 
166

Subtotal
687

 
687

 
678

MBS
13,999

 
13,993

 
14,026

Total
$
14,686

 
$
14,680

 
$
14,704


(1)
Amortized cost includes unpaid principal balance, unamortized premiums and discounts, and previous OTTI recognized in earnings. The carrying value of HTM securities represents amortized cost after adjustment for non-credit-related OTTI recognized in AOCI.

See Note 6 – Other-Than-Temporary Impairment Analysis for information on the transfers of securities between the AFS portfolio and the HTM portfolio.

Note 6 — Other-Than-Temporary Impairment Analysis

On a quarterly basis, the Bank evaluates its individual AFS and HTM 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 debt 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 statement of condition date. For securities in an unrealized loss position that do not meet either 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

18

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



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.

PLRMBS. A significant input to the Bank’s cash flow analysis of its PLRMBS is the forecast of future housing price changes. The OTTI Governance Committee of the Federal Home Loan Banks (FHLBanks) developed a short-term housing price forecast with projected changes ranging from a decrease of 7.0% to an increase of 12.0% over the 12-month period beginning January 1, 2018. For the vast majority of markets, the projected short-term housing price changes range from an increase of 1.0% to an increase of 6.0%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

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

For securities determined to be other-than-temporarily impaired as of March 31, 2018 (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 during the first quarter of March 31, 2018, and the related current credit enhancement for the Bank.

March 31, 2018
 
 
 
 
 
 
 
 
Significant Inputs for Other-Than-Temporarily Impaired PLRMBS
 
Current
 
Prepayment Rates
 
Default Rates
 
Loss Severities
 
Credit Enhancement
Year of Securitization
Weighted Average % (1)
 
Weighted Average % (1)
 
Weighted Average % (1)
 
Weighted Average % (1)
Alt-A, other
 
 
 
 
 
 
 
2007
9.2
 
30.7
 
42.0
 
0.8
2005
14.0
 
17.1
 
34.7
 
0.1
2004 and earlier
16.2
 
7.0
 
31.7
 
9.9
Total Alt-A, other
10.2
 
28.0
 
40.6
 
0.9
Total
10.2
 
28.0
 
40.6
 
0.9

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

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

The following table presents the credit-related OTTI, which is recognized in earnings, for the three months ended March 31, 2018 and 2017.

19

Federal Home Loan Bank of San Francisco
Notes to Financial Statements (continued)



 
Three Months Ended
 
March 31, 2018

 
March 31, 2017

Balance, beginning of the period
$
1,129

 
$
1,183

Additional charges on securities for which OTTI was previously recognized(1)
1

 
3

Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the securities(2)
(17
)
 
(17
)
Balance, end of the period
$
1,113

 
$
1,169


(1)
For the three months ended March 31, 2018 and 2017, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to January 1, 2018 and 2017, respectively.
(2)
The total net accretion/(amortization) associated with other-than-temporarily impaired PLRMBS (amount recognized in interest income) totaled $22 and $23 for the three months ended March 31, 2018 and 2017, respectively.

Changes in circumstances may cause the Bank to change its intent to hold a certain security to maturity without calling into question its intent to hold other debt securities to maturity in the future. The sale or transfer of an HTM security because of certain changes in circumstances, such as evidence of significant deterioration in the issuers’ creditworthiness, is not considered to be inconsistent with its original classification. In addition, other events that are isolated, nonrecurring, or unusual for the Bank that could not have been reasonably anticipated may cause the Bank to sell or transfer an HTM security without necessarily calling into question its intent to hold other debt securities to maturity.

In general, the Bank elects to transfer any PLRMBS that incurred a credit-related OTTI charge during the applicable period from the Bank’s held-to-maturity portfolio to its available-for-sale portfolio at their fair values. The Bank recognized an OTTI credit loss on these held-to-maturity PLRMBS, which the Bank believes is evidence of a significant decline in the issuers’ creditworthiness. The decline in the issuers’ creditworthiness is the basis for the transfers to the available-for-sale portfolio. These transfers allow the Bank the option to sell these securities prior to maturity in view of changes in interest rates, changes in prepayment risk, or other factors, while recognizing the Bank’s intent to hold these securities for an indefinite period of time. The Bank does not intend to sell its other-than-temporarily impaired securities 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 did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three months ended March 31, 2018 and 2017.

The following tables present the Bank’s AFS and HTM PLRMBS that incurred OTTI losses anytime during the life of the securities at March 31, 2018, and December 31, 2017, by loan collateral type:

March 31, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-Sale Securities
 
Held-to-Maturity Securities
 
Unpaid
Principal
Balance

 
Amortized
Cost

 
Estimated
Fair Value

 
Unpaid
Principal
Balance

 
Amortized
Cost

 
Carrying
Value