Federal Home Loan Bank of San Francisco

11/04/2026 | Press release | Distributed by Public on 11/04/2026 14:38

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements contained in this quarterly report on Form 10-Q, including statements describing the objectives, projections, estimates, or predictions of the future of the Federal Home Loan Bank of San Francisco (Bank) or the Federal Home Loan Bank System (FHLBank System), are "forward-looking statements." These statements may use forward-looking terms, such as "anticipate," "believe," "could," "estimate," "expect," "intend," "likely," "may," "probable," "plan," "project," "should," "will," "would," "possible," or their negatives or other variations on these terms, and include statements related to, among others, gains and losses on derivatives, plans to pay dividends and redeem or repurchase excess stock, future credit losses, future classification of securities, and reform legislation. The Bank cautions that by their nature, forward-looking statements involve risk or uncertainty that could cause actual results to differ materially from those expressed or implied in these forward-looking statements or could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These risks and uncertainties include, among others, the following:
•changes in economic and market conditions, including inflation and interest rates, changes in the credit ratings of the United States, including any effects of downgrades in the sovereign credit rating of the United States, and conditions in the mortgage, housing, and capital markets;
•the volatility of market prices, rates, and indices;
•the timing and volume of market activity;
•natural disasters (such as wildfires), pandemics or other widespread public health emergencies, terrorist attacks, civil unrest, geopolitical instability or conflicts, trade disruptions, economic or other sanctions, or other unanticipated or catastrophic events;
•executive, legislative, regulatory or judicial actions or events, including changes in the FHLBank Act or Federal Housing Finance Agency (Finance Agency) regulations and regulatory oversight or changes in other statutes or regulations that affect the Bank, its members, counterparties, or investors in the consolidated obligations of the Federal Home Loan Banks (FHLBanks);
•changes in the Bank's capital structure and composition;
•changes in the Bank's capital stock requirements;
•the ability of the Bank to pay dividends or redeem or repurchase capital stock;
•membership changes, including changes resulting from withdrawals, mergers, dissolution, receivership, or changes in the principal place of business of Bank members;
•the soundness of other financial institutions, including Bank members, nonmember borrowers, other counterparties, and the other FHLBanks;
•changes in Bank members' demand for Bank advances;
•changes in the value or liquidity of collateral underlying advances to Bank members or nonmember borrowers or collateral pledged by the Bank's derivative counterparties;
•competitive forces, including the availability of other sources of funding for Bank members;
•the willingness of the Bank's members to do business with the Bank;
•changes in investor demand for consolidated obligations (including the terms of consolidated obligations) or the terms of interest rate exchange or similar agreements;
•the impact of any changes and developments in FHLBank System-wide debt issuance and governance practices;
•the ability of each of the other FHLBanks to repay the principal and interest on consolidated obligations for which it is the primary obligor and with respect to which the Bank has joint and several liability;
•changes in key Bank personnel;
•technology changes and enhancements, and the Bank's ability to develop and support technology and information systems sufficient to manage the risks of the Bank's business effectively (including cyber-security risks); and
•changes in the FHLBanks' long-term credit ratings.
Readers of this report should not rely solely on the forward-looking statements and should consider all risks and uncertainties addressed throughout this report, as well as those discussed under "Item 1A. Risk Factors" in the Bank's Annual Report on Form 10-K for the year ended December 31, 2025 (2025 Form 10-K).
Quarterly Overview
Net income for the third quarter of 2026 was $64 million, a decrease of $46 million compared with the third quarter of 2025. The decrease was primarily attributable to an increase in discretionary community investment contributions of $22 million, a decrease in other income of $17 million, and an increase in the provision for credit losses of $8 million.
The $22 million increase in discretionary housing and community investment contributions was primarily attributable to an additional mission contribution of $22.5 million that was recognized in the third quarter. The $17 million decrease in other income was substantially driven by changes in interest rates, which resulted in less favorable net interest settlements on economic hedges. The $8 million increase in the provision for credit losses was primarily attributable to declines in the fair values of certain private-label residential mortgage-backed securities.
On October 22, 2026, the Bank's board of directors (Board) declared quarterly cash dividends on the average Class B-1 membership stock and the average Class B-2 activity-based stock outstanding during the third quarter of 2026 at annualized rates of 4.75% and 10.00%, respectively. The dividends, totaling $43 million, are expected to be paid on November 10, 2026.
The Bank exceeded its 4.00% regulatory capital requirement with a regulatory capital ratio of 10.63% at September 30, 2026. As of September 30, 2026, the Bank's retained earnings totaled $4.6 billion, exceeding the $2.6 billion required level of retained earnings established under the Bank's Excess Stock Repurchase, Retained Earnings, and Dividend Framework (Framework) in accordance with Finance Agency guidance.
For more information about the Bank's required retained earnings and Framework, see "Item 1. Business - Capital," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources," and "Item 8. Financial Statements and Supplementary Data - Note 11 - Capital - Excess Stock Repurchase, Retained Earnings, and Dividend Framework" in the Bank's 2025 Form 10-K.
Financial Highlights
The following table presents a summary of certain financial information for the Bank during the three months for the periods indicated.
Financial Highlights
(Unaudited)
(Dollars in millions) September 30,
2026 		June 30,
2026 		March 31,
2026 		December 31,
2025 		September 30,
2025
Selected Balance Sheet Items at Quarter End
Total Assets $ 66,577 $ 67,977 $ 70,676 $ 73,329 $ 75,769
Advances 30,808 34,042 37,792 38,227 34,242
Investments(1)
34,658 32,798 31,761 33,968 40,416
Consolidated Obligations:
Bonds 39,142 34,024 39,539 47,254 48,747
Discount Notes 18,391 25,085 21,206 17,074 17,648
Mandatorily Redeemable Capital Stock 20 48 88 106 112
Total Capital Stock
2,456 2,489 2,538 2,552 2,439
Unrestricted Retained Earnings 3,786 3,834 3,783 3,847 3,798
Restricted Retained Earnings 815 815 815 815 815
Total Capital 7,203 7,333 7,292 7,360 7,139
Selected Operating Results for the Quarter
Net Interest Income $ 142 $ 151 $ 140 $ 157 $ 147
Provision for/(Reversal of) Credit Losses 6 6 - 1 (2)
Other Income/(Loss) 2 5 (3) 12 19
Voluntary Housing and Community Investment Contributions 28 9 27 6 6
Other Non-Interest Expense
38 38 38 45 40
Affordable Housing Program (AHP) Assessment 8 10 8 12 12
Net Income/(Loss) $ 64 $ 93 $ 64 $ 105 $ 110
Selected Other Data for the Quarter
Net Interest Margin(2)
0.83 % 0.85 % 0.77 % 0.89 % 0.77 %
Return on Average Assets 0.37 0.51 0.35 0.59 0.56
Return on Average Equity 3.52 5.09 3.51 5.77 5.98
Annualized Dividend Rate - Class B(3)
N/A 8.75 8.75 8.75 8.75
Annualized Dividend Rate - Class B-1(3)
4.75 4.75 N/A N/A N/A
Annualized Dividend Rate - Class B-2(3)
10.00 10.00 N/A N/A N/A
Dividend Payout Ratio(4)
174.67 46.09 199.16 54.82 54.72
Average Equity to Average Assets Ratio 10.44 10.08 9.85 10.19 9.44
Selected Other Data at Quarter End
Regulatory Capital Ratio(5)
10.63 10.57 10.22 9.98 9.46
(1)Investments consist of interest-bearing deposits, securities purchased under agreements to resell, federal funds sold, available-for-sale securities, and held-to-maturity securities.
(2)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
(3)Cash dividends declared and paid during the period are calculated based on the average capital stock outstanding during the previous quarter. Effective January 2, 2026, the Bank's outstanding Class B stock has been converted into Class B-1 membership stock and Class B-2 activity-based stock.
(4)This ratio is calculated as dividends per share divided by net income per share. Dividends per share included two special cash dividends, one in the first quarter and one in the third quarter of 2026.
(5)This ratio is calculated as regulatory capital divided by total assets. Regulatory capital includes retained earnings, total capital stock, and mandatorily redeemable capital stock (which is classified as a liability) but excludes accumulated other comprehensive income/(loss).
Results of Operations
Net Interest Income for the Three Months Ended September 30, 2026 and 2025. The table that follows presents the average balances of interest-earning asset categories and the sources that funded those interest-earning assets (liabilities and capital), together with the related interest income and expense. This table also presents the average rates on total interest-earning assets and the average costs of total funding sources.
Third Quarter of 2026 Compared to Third Quarter of 2025
Net Interest Spread and Margin
Three Months Ended
September 30, 2026 September 30, 2025
(Dollars in millions) Average
Balance 		Interest
Income/
Expense 		Average
Rate 		Average
Balance 		Interest
Income/
Expense 		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits $ 3,496 $ 33 3.77 % $ 3,598 $ 40 4.41 %
Securities purchased under agreements to resell 2,775 26 3.72 2,859 32 4.36
Federal funds sold 7,108 66 3.71 5,889 65 4.36
Available-for-sale (AFS) securities:(1)
MBS(1)
13,241 167 5.00 13,989 205 5.81
U.S. Treasury and state housing agency obligations
6,474 64 3.95 6,465 75 4.62
Held-to-maturity (HTM) securities: MBS 606 7 4.24 1,223 15 4.85
Advances
34,228 357 4.14 41,081 462 4.46
Mortgage loans held for portfolio(2)
609 4 2.71 660 5 3.00
Total interest-earning assets 68,537 724 4.20 75,764 899 4.70
Other assets(3)
1,168 938
Total Assets $ 69,705 $ 76,702
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds
$ 36,320 341 3.72 % $ 51,430 561 4.33 %
Discount notes
24,003 225 3.71 15,864 173 4.33
Deposits and other borrowings
1,288 11 3.52 1,361 15 4.21
Mandatorily redeemable capital stock 29 5 80.03 130 3 8.83
Borrowings from other FHLBanks 11 - 3.68 4 - 4.18
Total interest-bearing liabilities 61,651 582 3.75 68,789 752 4.33
Other liabilities(3)
775 672
Total Liabilities 62,426 69,461
Total Capital 7,279 7,241
Total Liabilities and Capital $ 69,705 $ 76,702
Net Interest Income $ 142 $ 147
Net Interest Spread(4)
0.45 % 0.37 %
Net Interest Margin(5)
0.83 % 0.77 %
Interest-earning Assets/Interest-bearing Liabilities 111.17 % 110.14 %
(1)The average balances of AFS securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value.
(2)Nonperforming mortgage loans are included in average balances used to determine average rate.
(3)Includes forward settling transactions and valuation adjustments for certain cash items received/(paid).
(4)Net interest spread is calculated as the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
(5)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
The following table details the changes in interest income and interest expense for the third quarter of 2026 compared to the third quarter of 2025. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.
Change in Net Interest Income: Rate/Volume Analysis
Three Months Ended September 30, 2026, versus Three Months Ended September 30, 2025
Increase/
(Decrease)
Attributable to Changes in(1)
(In millions)
Volume
Rate
Interest income:
Interest-bearing deposits $ (7) $ (1) $ (6)
Securities purchased under agreements to resell (6) (1) (5)
Federal funds sold 1 11 (10)
AFS securities:
MBS(2)
(38) (11) (27)
U.S. Treasury and state housing agency obligations(2)
(11) - (11)
HTM securities: MBS (8) (6) (2)
Advances(2)
(105) (73) (32)
Mortgage loans held for portfolio (1) - (1)
Total interest income (175) (81) (94)
Interest expense:
Consolidated obligations:
Bonds(2)
(220) (148) (72)
Discount notes(2)
52 79 (27)
Deposits and other borrowings
(4) (1) (3)
Mandatorily redeemable capital stock 2 (5) 7
Total interest expense
(170) (75) (95)
Changes in net interest income
$ (5) $ (6) $ 1
(1)Combined rate/volume variances, a third element of the calculation, are allocated to the rate and volume variances based on their relative sizes.
(2)Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.
Net interest income in the third quarter of 2026 was $142 million, a 3% decrease from $147 million in the third quarter of 2025. The $5 million decrease in net interest income was largely driven by decreases in advance balances, partially offset by lower costs of interest-bearing liabilities.
The following tables present the effect of derivatives and hedging activities on net interest income.
Three Months Ended
September 30, 2026
(In millions) Advances AFS Securities Consolidated Obligation Bonds
Consolidated Obligation Discount Notes
Total
(Amortization)/accretion of hedging activities $ 1 $ (23) $ - $ - $ (22)
Net interest settlements on derivatives 5 46 (13) 1 39
Price alignment amount(1)
(1) (4) - - (5)
Total effect on net interest income
$ 5 $ 19 $ (13) $ 1 $ 12
Three Months Ended
September 30, 2025
(In millions) Advances AFS Securities Consolidated Obligation Bonds Consolidated Obligation Discount Notes Total
(Amortization)/accretion of hedging activities $ (6) $ (25) $ - $ - $ (31)
Net interest settlements on derivatives 40 86 (61) (3) 62
Price alignment amount(1)
(1) (2) - - (3)
Total effect on net interest income
$ 33 $ 59 $ (61) $ (3) $ 28
(1)This amount relates to derivatives for which variation margin on cleared derivatives is characterized as a daily settled contract.
Other Income/(Loss). The following table presents the components of "Other Income/(Loss)."
Three Months Ended
(In millions) September 30, 2026 September 30, 2025
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option $ (20) $ (3)
Net gain/(loss) on derivatives 15 15
Standby letters of credit fees 5 4
Other, net
2 3
Total Other Income/(Loss) $ 2 $ 19
The higher net losses on advances and consolidated obligation bonds held under the fair value option for the three months ended September 30, 2026, compared with the same period in 2025, were primarily driven by changes in interest rates and the Bank's higher balances of fixed-rate advances relative to consolidated obligations held under the fair value option.
The Bank presents all of its derivative instruments on the Statements of Condition at fair value. Certain derivatives are associated with assets or liabilities but do not qualify as fair value hedges. These economic hedges are recorded on the Statements of Condition at fair value with the unrealized gain or loss recorded in earnings without any offsetting unrealized gain or loss from the associated asset or liability.
The following table shows the categories of economic hedges and hedged items that contributed to the gains and losses on derivatives that were recorded in "Net gain/(loss) on derivatives" in the third quarter of 2026 and 2025.
Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Three Months Ended September 30, 2026, Compared to Three Months Ended September 30, 2025
Three Months Ended
September 30, 2026 September 30, 2025
(In millions)
Hedged Item
Gain/(Loss) on
Economic
Hedges 		Income/
(Expense) on
Economic
Hedges 		Total Gain/(Loss) on
Economic
Hedges 		Income/
(Expense) on
Economic
Hedges 		Total
Advances:
Elected for fair value option $ 15 $ - $ 15 $ 4 $ 13 $ 17
Not elected for fair value option (5) 1 (4) (7) 7 -
Consolidated obligation bonds:
Elected for fair value option 1 (1) - 2 (3) (1)
Not elected for fair value option 3 (2) 1 4 (5) (1)
Consolidated obligation discount notes:
Not elected for fair value option 1 - 1 - - -
Non-MBS investments:
Not elected for fair value option 2 - 2 - - -
Total $ 17 $ (2) $ 15 $ 3 $ 12 $ 15
During the third quarter of 2026 and 2025, net gains on derivatives totaled $15 million. More favorable results on economic hedges of consolidated obligations and non-MBS investments were substantially offset by less favorable results on economic hedges of advances.
Discretionary Community Investment Contributions. During the third quarter of 2026, discretionary community investment contributions increased by $22 million compared with the same period in 2025, substantially driven by an additional mission contribution of $22.5 million recognized in the third quarter of 2026. The additional mission contribution supports efforts to expand housing supply, access to affordable housing, and other initiatives benefiting individuals and families across the Bank's three-state district of Arizona, California, and Nevada.
Return on Average Equity. Return on average equity (ROE) was 3.52% (annualized) for the third quarter of 2026, compared to 5.98% (annualized) for the third quarter of 2025. The decrease was driven by a decrease in net income for the third quarter of 2026 compared to the third quarter of 2025, while average capital balances remained relatively consistent.
Dividends and Retained Earnings. In the third quarter of 2026, the Bank paid quarterly dividends on the average capital stock outstanding during the second quarter of 2026, including dividends on Class B-1 membership stock and Class B-2 activity-based stock at annualized rates of 4.75% and 10.00%, respectively, totaling $44 million, including $42 million in dividends on capital stock and $2 million in dividends on mandatorily redeemable capital stock. The Bank also paid a special cash dividend of $75 million, including $70 million in dividends on capital stock and $5 million in dividends on mandatorily redeemable capital stock.
In the third quarter of 2025, the Bank paid dividends on the average Class B capital stock outstanding during the second quarter of 2025 at an annualized rate of 8.75%, totaling $64 million, including $61 million in dividends on capital stock and $3 million in dividends on mandatorily redeemable capital stock.
For more information on the Bank's Capital Plan and Dividend Framework, see "Item 1. Financial Statements - Note 9 - Capital" in this report and see "Item 1. Business - Dividends and Retained Earnings," and "Item 8. Financial Statements and Supplementary Data - Note 11 - Capital - Excess Stock Repurchase, Retained Earnings, and Dividend Framework" in the Bank's 2025 Form 10-K.
Net Interest Income for the Nine Months Ended September 30, 2026 and 2025. The table that follows presents the average balances of interest-earning asset categories and the sources that funded those interest-earning assets (liabilities and capital) for the nine months ended September 30, 2026 and 2025, together with the related interest income and expense. This table also presents the average rates on total interest-earning assets and the average costs of total funding sources.
Nine Months Ended September 30, 2026, Compared to Nine Months Ended September 30, 2025
Net Interest Spread and Margin
Nine Months Ended
September 30, 2026 September 30, 2025
(Dollars in millions) Average
Balance 		Interest
Income/
Expense 		Average
Rate 		Average
Balance 		Interest
Income/
Expense 		Average
Rate
Assets
Interest-earning assets:
Interest-bearing deposits $ 3,459 $ 97 3.75 % $ 3,777 $ 125 4.42 %
Securities purchased under agreements to resell 3,140 87 3.70 2,434 80 4.37
Federal funds sold 6,888 190 3.69 5,859 192 4.38
AFS securities:(1)
MBS(1)
13,413 502 5.01 13,889 595 5.73
U.S. Treasury and state housing agency obligations
6,536 192 3.94 6,450 223 4.62
HTM securities: MBS
676 22 4.32 1,359 50 4.91
Advances
36,456 1,108 4.06 43,825 1,468 4.48
Mortgage loans held for portfolio(2)
623 13 2.85 674 15 3.03
Loans to other FHLBanks - - - 2 - 4.39
Total interest-earning assets 71,191 2,211 4.15 78,269 2,748 4.69
Other assets(3)
1,232 850
Total Assets $ 72,423 $ 79,119
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds
$ 38,808 1,069 3.68 % $ 54,242 1,761 4.34 %
Discount notes
24,008 661 3.68 15,362 499 4.34
Deposits and other borrowings 1,349 35 3.49 1,439 46 4.26
Mandatorily redeemable capital stock 67 13 26.76 178 11 8.38
Borrowings from other FHLBanks 7 - 3.68 6 - 4.34
Total interest-bearing liabilities 64,239 1,778 3.70 71,227 2,317 4.35
Other liabilities(3)
855 691
Total Liabilities 65,094 71,918
Total Capital 7,329 7,201
Total Liabilities and Capital $ 72,423 $ 79,119
Net Interest Income $ 433 $ 431
Net Interest Spread(4)
0.45 % 0.34 %
Net Interest Margin(5)
0.81 % 0.74 %
Interest-earning Assets/Interest-bearing Liabilities 110.82 % 109.89 %
(1)The average balances of AFS securities are reflected at amortized cost. As a result, the average rates do not reflect changes in fair value.
(2)Nonperforming mortgage loans are included in average balances used to determine average rate.
(3)Includes forward settling transactions and valuation adjustments for certain cash items received/(paid).
(4)Net interest spread is calculated as the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities.
(5)Net interest margin is calculated as net interest income (annualized) divided by average interest-earning assets.
The following table details the changes in interest income and interest expense for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025. Changes in both volume and interest rates influence changes in net interest income, net interest spread, and net interest margin.
Change in Net Interest Income: Rate/Volume Analysis
Nine Months Ended September 30, 2026, versus Nine Months Ended September 30, 2025
Increase/
(Decrease)
Attributable to Changes in(1)
(In millions)
Volume
Rate
Interest income:
Interest-bearing deposits $ (28) $ (10) $ (18)
Securities purchased under agreements to resell 7 21 (14)
Federal funds sold (2) 31 (33)
AFS securities:
MBS(2)
(93) (20) (73)
U.S. Treasury and state housing agency obligations(2)
(31) 3 (34)
HTM securities: MBS (28) (23) (5)
Advances(2)
(360) (232) (128)
Mortgage loans held for portfolio (2) (1) (1)
Total interest income
(537) (231) (306)
Interest expense:
Consolidated obligations:
Bonds(2)
(692) (451) (241)
Discount notes(2)
162 247 (85)
Deposits and other borrowings
(11) (3) (8)
Mandatorily redeemable capital stock 2 (10) 12
Total interest expense
(539) (217) (322)
Changes in net interest income
$ 2 $ (14) $ 16
(1)Combined rate/volume variances, a third element of the calculation, are allocated to the rate and volume variances based on their relative sizes.
(2)Interest income/expense and average rates include the interest effect of associated interest rate exchange agreements.
Net interest income for the first nine months of 2026 was $433 million, compared to $431 million for the first nine months of 2025. The $2 million increase in net interest income was primarily driven by $8 million of higher net advance and MBS prepayment fees recognized during the first nine months of 2026 compared with the same period in 2025. Excluding the impact of prepayment fees, net interest income decreased primarily due to lower advance balances, partially offset by lower costs of interest-bearing liabilities.
The following tables present the effect of derivatives and hedging activities on net interest income.
Nine Months Ended
September 30, 2026
(In millions) Advances AFS Securities
Consolidated Obligation
Bonds
Consolidated Obligation Discount Notes
Total
(Amortization)/accretion of hedging activities $ (5) $ (69) $ - $ - $ (74)
Net gain/(loss) on derivatives and hedged items - (1) - - (1)
Net interest settlements on derivatives 28 137 (55) 3 113
Price alignment amount(1)
(2) (8) - - (10)
Total effect on net interest income
$ 21 $ 59 $ (55) $ 3 $ 28
Nine Months Ended
September 30, 2025
(In millions) Advances AFS Securities Consolidated Obligation Bonds Consolidated Obligation Discount Notes Total
(Amortization)/accretion of hedging activities $ (17) $ (74) $ - $ - $ (91)
Net gain/(loss) on derivatives and hedged items (1) (2) - - (3)
Net interest settlements on derivatives 125 261 (175) (3) 208
Price alignment amount(1)
(5) (11) (1) - (17)
Total effect on net interest income $ 102 $ 174 $ (176) $ (3) $ 97
(1)This amount relates to derivatives for which variation margin on cleared derivatives is characterized as a daily settled contract.
Other Income/(Loss). The following table presents the components of "Other Income/(Loss)."
Nine Months Ended
(In millions) September 30, 2026 September 30, 2025
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option $ (62) $ 34
Net gain/(loss) on derivatives 46 1
Standby letters of credit fees 16 14
Other, net 4 7
Total Other Income/(Loss) $ 4 $ 56
The lower net gains/(losses) on advances and consolidated obligation bonds held under the fair value option for the nine months ended September 30, 2026, compared with the same period in 2025, were primarily driven by changes in interest rates and the Bank's higher balances of fixed-rate advances relative to consolidated obligations held under the fair value option.
The following table shows the categories of economic hedges and hedged items that contributed to the gains and losses on derivatives that were recorded in "Net gain/(loss) on derivatives" for the nine months ended September 30, 2026 and 2025.
Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Nine Months Ended September 30, 2026 Compared to Nine Months Ended September 30, 2025
Nine Months Ended
(In millions) September 30, 2026 September 30, 2025
Hedged Item Gain/(Loss) on Economic
Hedges 		Income/
(Expense) on Economic
Hedges 		Total Gain/(Loss) on Economic
Hedges 		Income/
(Expense) on Economic
Hedges 		Total
Advances:
Elected for fair value option $ 47 $ 4 $ 51 $ (42) $ 37 $ (5)
Not elected for fair value option (20) 11 (9) (12) 20 8
Consolidated obligation bonds:
Elected for fair value option 3 (4) (1) 8 (8) -
Not elected for fair value option 8 (8) - 14 (13) 1
Consolidated obligation discount notes:
Not elected for fair value option 2 - 2 (2) - (2)
Non-MBS investments:
Not elected for fair value option 3 - 3 - - -
Price alignment amount(1)
- - - (1) - (1)
Total $ 43 $ 3 $ 46 $ (35) $ 36 $ 1
(1) This amount relates to derivatives for which variation margin on cleared derivatives is characterized as a daily settled contract.
During the first nine months of 2026, net gains on derivatives totaled $46 million compared to net gains of $1 million in the first nine months of 2025. The increase primarily reflected net fair value gains on economic hedges, particularly those related to advances held under the fair value option, compared to net fair value losses in the prior-year period, partially offset by lower net interest settlement gains associated with changes in interest rates.
Discretionary Community Investment Contributions. During the first nine months of 2026, discretionary community investment contributions increased by $38 million compared with the same period in 2025, primarily attributable to the recognition of two additional mission contributions of $22.5 million each during the first and third quarters of 2026. The additional mission contributions support efforts to expand housing supply, access to affordable housing, and other initiatives benefiting individuals and families across the Bank's three-state district of Arizona, California, and Nevada.
Return on Average Equity. ROE (annualized) was 4.04% for the first nine months of 2026, compared to 5.52% for the first nine months of 2025. The decrease was primarily attributable to lower net income for the nine months ended September 30, 2026, compared with the same period in 2025, while average capital balances remained relatively consistent.
Dividends and Retained Earnings. In the first nine months of 2026, the Bank paid three quarterly dividends totaling $147 million, including $140 million in dividends on capital stock and $7 million in dividends on mandatorily redeemable capital stock. These dividends included amounts paid at an annualized rate of 8.75% on average Class B stock outstanding during the fourth quarter of 2025, prior to the January 2, 2026 capital stock conversion, as well as amounts paid at annualized rates of 4.75% and 10.00% on average Class B-1 membership stock and average Class B-2 activity-based stock outstanding, respectively, following the conversion. The Bank also paid two special cash dividends totaling $150 million, including $142 million in dividends on capital stock and $8 million in dividends on mandatorily redeemable capital stock.
In the first nine months of 2025, the Bank paid dividends on average Class B stock outstanding at an annualized rate of 8.75%, totaling $186 million, including $168 million in dividends on capital stock and $18 million in dividends on mandatorily redeemable capital stock.
For more information on the Bank's Capital Plan and Dividend Framework, see "Item 1. Financial Statements - Note 9 - Capital" in this report and see "Item 1. Business - Dividends and Retained Earnings," and "Item 8. Financial Statements and Supplementary Data - Note 11 - Capital - Excess Stock Repurchase, Retained Earnings, and Dividend Framework" in the Bank's 2025 Form 10-K.
Financial Condition
At September 30, 2026, total assets were $66.6 billion, a decrease of $6.7 billion from $73.3 billion at December 31, 2025. The decrease in total assets was primarily attributable to a decrease in advances partially offset by an increase in short-term investments. Advances decreased by $7.4 billion, to $30.8 billion at September 30, 2026, from $38.2 billion at December 31, 2025, with the decrease largely attributable to lower advances outstanding to nonmembers and the repayment of advances by certain institutions that became nonmembers during 2026.
Total liabilities were $59.4 billion at September 30, 2026, a decrease of $6.6 billion from $66.0 billion at December 31, 2025, primarily reflecting a $6.8 billion decrease in consolidated obligations outstanding to $57.5 billion at September 30, 2026, from $64.3 billion at December 31, 2025.
Advances-Related Products. The advances-related products consist of advances and other credit products. The following table presents the advances portfolio by product type.
September 30, 2026 December 31, 2025
(Dollars in millions) Par Value Percentage of Total Par Value Par Value Percentage of Total Par Value
Adjustable - Secured Overnight Financing Rate (SOFR)
$ 3,324 11 % $ 2,455 6 %
Adjustable - SOFR, callable at borrower's option 2,600 8 4,700 12
Subtotal adjustable rate advances 5,924 19 7,155 18
Fixed 5,948 19 4,095 11
Fixed - amortizing 1 - 21 -
Fixed - with PPS
16 - 30 -
Fixed - with FPS
8,676 28 15,187 40
Fixed - callable at borrower's option with FPS
200 1 275 1
Fixed - putable at Bank's option with FPS
3,114 10 5,532 15
Subtotal fixed rate advances 17,955 58 25,140 67
Daily variable rate 7,082 23 5,854 15
Total par value $ 30,961 100 % $ 38,149 100 %
Partial prepayment symmetry (PPS) and full prepayment symmetry (FPS) are product features under which the Bank may charge the borrower a prepayment fee or pay the borrower a prepayment credit, depending on certain circumstances, such as movements in interest rates, when the advance is prepaid. In November 2018, the Bank discontinued offering advances with PPS, and any prepayment credit on an advance with PPS would be limited to the lesser of 10% of the par value of the advance or the gain recognized on the termination of the associated interest rate swap, which may also include a similar contractual gain limitation.
Mortgage-Related Products. Mortgage-related products consist of MBS investments and mortgage loans.
The Bank's MBS investments were $14.0 billion and $14.7 billion at September 30, 2026, and December 31, 2025, respectively. During the first nine months of 2026, the Bank's MBS investments decreased primarily because of $800 million in principal repayments and a $577 million decrease in the valuation adjustments for hedging activities, partially offset by $653 million in MBS purchases.
For more information on the Bank's mortgage-related products, including the mortgage loan portfolio, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Credit Risk" in the Bank's 2025 Form 10-K.
Liquidity and Capital Resources
The Bank's financial strategies are designed to enable the Bank to expand and contract its balance sheet as membership composition and member credit needs change. The Bank's liquidity and capital resources are designed to support its financial strategies. The Bank's primary source of liquidity is its access to the debt capital markets through consolidated obligation issuance which is described in "Item 1. Business - Funding Sources" in the Bank's 2025 Form 10-K. The Bank's status as a government-sponsored enterprise (GSE) is critical to maintaining its access to the capital markets. Although consolidated obligations are backed only by the financial resources of the FHLBanks and are not guaranteed by the U.S. government, the capital markets have traditionally treated the FHLBanks' consolidated obligations as comparable to federal agency debt, providing the FHLBanks with access to funding at relatively favorable rates. The maintenance of the Bank's capital resources is governed by its capital plan.
Liquidity
The Bank seeks to maintain the liquidity necessary to repay maturing consolidated obligations for which it is the primary obligor, meet other obligations and commitments, and meet expected and unexpected member credit demands. Excess liquidity may also be used for investment opportunities. The Bank monitors its financial position in order to meet these objectives.
As of September 30, 2026, and December 31, 2025, the Bank held total sources of funds in an amount that would have allowed the Bank to meet its liquidity needs and renew maturing advances without issuing new consolidated obligations for over 10 days, in accordance with the Finance Agency's guidance. In addition, the Bank's funding gap positions as of September 30, 2026, and December 31, 2025, were within the tolerance levels provided by the Finance Agency's guidelines.
For more information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources - Liquidity," "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management - Liquidity Risk," and "Item 8. Financial Statements and Supplementary Data - Note 8 - Consolidated Obligations" in the Bank's 2025 Form 10-K.
Capital
As disclosed in the Bank's 2025 Form 10-K, the Bank's capital plan, amended effective November 15, 2024, provided the Bank's Board the option to establish two subclasses of stock. On October 6, 2025, the Bank provided notice to its members that the Board adopted resolutions to provide for the mandatory conversion of the Bank's Class B stock into Class B-1 and Class B-2 stock, and to designate the rights, preferences, and privileges of such Class B-1 and Class B-2 stock, effective January 2, 2026 (see Form 8-K filed on October 6, 2025). Effective January 2, 2026, the Bank's outstanding Class B stock was converted into Class B-1 membership stock and Class B-2 activity-based stock. Class B-2 activity-based stock is equal to the Activity-Based Stock Requirement (as defined in the Capital Plan), and Class B-1 membership stock is calculated by subtracting the Activity-Based Stock Requirement from total capital stock held. If a member has no activity requiring Class B-2 activity-based stock, such member will hold only Class B-1 membership stock based on the Membership Stock Requirement (as defined in the Capital Plan). The Board also approved an update to the dividend philosophy that establishes a guideline for dividend rates for Class B-2 stock to be greater than or equal to Class B-1 stock. The decision to declare any dividend and any dividend rates are at the discretion of the Board and the Board may choose to follow or not follow the dividend philosophy in the declaration of any dividends.
The Bank's ability to expand as member credit needs increase is based, in part, on the capital stock requirements for advances. A member is required to maintain sufficient capital stock to support its advances and letters of credit activity with the Bank. Unless a member already has sufficient excess stock, it must increase its capital stock investment in the Bank as its balance of outstanding advances increases. The Activity-Based Stock Requirement is currently 2.7% for outstanding advances and 0.1% of notional balances for outstanding letters of credit. The Bank's minimum regulatory capital-to-assets ratio requirement is currently 4.00%; therefore, the Bank maintains a certain required level of retained earnings to support capital compliance and business growth.
In July 2026, the level of required retained earnings established by the Bank's Framework, implemented in accordance with Finance Agency guidance, was increased from $2.3 billion to $2.6 billion.
Risk Management
The Bank has an integrated corporate governance and internal control framework designed to support effective management of the Bank's business activities and the risks inherent in these activities. As part of this framework, the Board has adopted a Risk Governance Policy that outlines the key roles and responsibilities of the Board and management and sets forth how the Bank is organized to achieve its risk management objectives, including the implementation of the Bank's strategic objectives, risk management strategies, corporate governance and standards of conduct. The policy also establishes an independent risk oversight function to identify, assess, measure, monitor,
and report on the enterprise risk profile in relation to its risk appetite and risk management capabilities of the Bank. For more information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Risk Management" in the Bank's 2025 Form 10-K.
Credit Ratings. There have been no changes to the Bank's credit ratings since those disclosed in the Bank's 2025 Form 10-K.
Advances. The Bank manages the credit risk of advances and other credit products by setting the credit and collateral terms available to individual members and housing associates based on their creditworthiness and on the quality and value of the assets they pledge as collateral. Pursuant to the Bank's lending agreements with its borrowers, the Bank limits extensions of credit to individual borrowers to a percentage of the market value or unpaid principal balance of the borrower's pledged collateral, known as the borrowing capacity, which the Bank can change from time to time. The borrowing capacity percentage varies according to several factors, including the charter type of the institution, the collateral type, the value assigned to the collateral, the results of the Bank's collateral field review of the borrower's collateral, the pledging method used for loan collateral (specific identification or blanket lien), the amount of loan data provided (detailed or summary reporting), the data reporting frequency (monthly or quarterly), the borrower's financial strength and condition, and any institution-specific collateral risks. Under the terms of the Bank's lending agreements, the aggregate borrowing capacity of a borrower's pledged eligible collateral must meet or exceed the total amount of the borrower's outstanding advances, other extensions of credit, and certain other borrower obligations and liabilities.
The concentration of advances among the Bank's five largest borrowers was 45% of total advances outstanding, or $13.8 billion, at September 30, 2026, compared with 41%, or $15.8 billion, at December 31, 2025. At September 30, 2026, and December 31, 2025, one borrower represented 10% or more of total advances outstanding.
As of September 30, 2026, and December 31, 2025, nonmembers accounted for $0.6 billion, or 2%, and $3.8 billion, or 10%, of total advances outstanding at par value, respectively. Nonmembers, excluding housing associates in the Bank's district, accounted for $10 million and $56 million of coupon interest income on advances for the three and nine months ended September 30, 2026, respectively, representing 3% and 5% of the Bank's total interest income from advances for the respective periods. Nonmembers, excluding housing associates in the Bank's district, accounted for $36 million and $165 million of coupon interest income on advances for the three and nine months ended September 30, 2025, respectively, representing 8% and 12% of the Bank's total interest income from advances for the respective periods.
For further information, see "Item 1. Financial Statements - Note 4 - Advances - Concentration Risk."
The following tables present a summary of the status of the credit outstanding and overall collateral borrowing capacity of the Bank's borrowers.
Borrower Credit Outstanding and Collateral Borrowing Capacity
by Unused Borrowing Capacity
September 30, 2026
(Dollars in millions)
Unused Borrowing Capacity
Number of Borrowers with Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% - 10% 12 $ 4,021 $ 4,099
11% - 25% 9 750 913
26% - 50% 22 7,784 11,956
More than 50% 149 38,643 192,396
Total 192 $ 51,198 $ 209,364
December 31, 2025
(Dollars in millions)
Unused Borrowing Capacity
Number of Borrowers with Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% - 10% 6 $ 5,517 $ 5,572
11% - 25% 7 2,481 3,186
26% - 50% 21 8,861 14,565
More than 50% 159 41,582 189,102
Total 193 $ 58,441 $ 212,425
(1)Includes advances, letters of credit, the market value of swaps, estimated prepayment fees for certain borrowers, and the credit enhancement obligation on MPF loans.
(2)Collateral borrowing capacity does not represent any commitment to lend on the part of the Bank.
Based on the Bank's credit and collateral policies, its credit analysis of borrowers' financial condition and the collateral pledged as security for advances, the Bank expects to collect all amounts due according to the contractual terms of the advances. Therefore, no allowance for credit losses on advances was deemed necessary by the Bank as of September 30, 2026, and December 31, 2025. The Bank has never experienced any credit losses on advances.
As of September 30, 2026, of the loan collateral pledged to the Bank, 16% was pledged by 21 institutions by specific identification, 45% was pledged by 111 institutions under a blanket lien with detailed reporting, and 39% was pledged by 137 institutions under a blanket lien with summary reporting. For each institution that pledges loan collateral, the Bank conducts loan collateral field reviews every 6 to 36 months, depending on the risk profile of the institution and the types of collateral pledged.
As of September 30, 2026, the Bank's maximum borrowing capacities as a percentage of the assigned market value of mortgage loan collateral pledged under a blanket lien with detailed reporting were as follows: 84% for first lien residential mortgage loans, 81% for multifamily mortgage loans, 81% for commercial mortgage loans, and 69% for second lien residential mortgage loans. The maximum borrowing capacity for small business, small agribusiness, and small farm loans was 50% of the unpaid principal balance, although most of these loans are pledged under blanket lien with summary reporting, with a maximum borrowing capacity of 25%. The highest borrowing capacities are available to institutions that pledge under a blanket lien with detailed reporting because the detailed loan information allows the Bank to assess the value of the collateral more precisely and because additional collateral is pledged under the blanket lien that may not receive borrowing capacity but may be liquidated to repay advances in the event of default. The Bank may review and change the maximum borrowing capacity for any type of loan collateral at any time.
The following table presents the mortgage loan collateral pledged.
Composition of Loan Collateral Pledged
(In millions) September 30, 2026 December 31, 2025
Loan Type Unpaid Principal
Balance 		Borrowing
Capacity 		Unpaid Principal
Balance 		Borrowing
Capacity
First lien residential mortgage loans $ 153,371 $ 104,320 $ 148,345 $ 101,028
Second lien residential mortgage loans and home equity lines of credit 17,544 8,088 13,919 6,452
Multifamily mortgage loans 32,198 20,580 35,265 22,654
Commercial mortgage loans 72,973 46,562 77,045 49,939
Loan participations(1)
1,245 480 1,380 547
Small business, small farm, and small agribusiness loans 977 245 1,406 353
Total $ 278,308 $ 180,275 $ 277,360 $ 180,973
(1)The unpaid principal balance for loan participations is 100% of the outstanding loan amount. The borrowing capacity for loan participations is based on the participated amount pledged to the Bank.
The Bank holds a security interest in subprime residential mortgage loans pledged as collateral by members and by nonmembers. Subprime loans are defined as loans with a borrower FICO score of less than or equal to 660 at origination, or if the original FICO score is not available, as loans with a current borrower FICO score of less than or equal to 660. At September 30, 2026, and December 31, 2025, the unpaid principal balance of these loans totaled $5.3 billion and $5.4 billion, respectively. The Bank reviews and assigns borrowing capacities to subprime mortgage loans as it does for all other types of loan collateral, taking into account the known credit attributes in the pricing of the loans. All advances, including those made to borrowers pledging subprime mortgage loans, are required to be fully collateralized. The Bank limits the amount of borrowing capacity that may be supported by subprime collateral. At September 30, 2026, and December 31, 2025, the borrowing capacity of these loans totaled $3.7 billion and $3.8 billion, respectively.
Investments. The Bank has adopted credit policies and exposure limits for investments that promote risk limitation, diversification, and liquidity. These policies determine eligible counterparties and restrict the amounts and terms of the Bank's investments with any given counterparty according to the Bank's own capital position as well as the capital and creditworthiness of the counterparty.
The following table presents the Bank's investment credit exposure at September 30, 2026, based on the lowest of the long-term credit ratings provided by Moody's Ratings (Moody's) or S&P Global Ratings (S&P).
Carrying Value
(In millions)
Credit Rating(1)
Investment Type AA A BBB Below Investment Grade Unrated Total
U.S. Treasury obligations
$ 6,312 $ - $ - $ - $ - $ 6,312
State housing agency obligations
64 - - - - 64
MBS:
Other U.S. obligations - single-family 12 - - - - 12
MBS - GSEs:
Single-family(2)
340 - 3 1 - 344
Multifamily
12,799 - - - - 12,799
Total MBS - GSEs 13,139 - 3 1 - 13,143
Private-label residential mortgage-backed securities (PLRMBS)
10 16 18 405 406 855
Total MBS 13,161 16 21 406 406 14,010
Total securities 19,537 16 21 406 406 20,386
Interest-bearing deposits 612 2,515 - - - 3,127
Securities purchased under agreements to resell(3)
- 500 - - 4,700 5,200
Federal funds sold
1,845 4,100 - - - 5,945
Total investments $ 21,994 $ 7,131 $ 21 $ 406 $ 5,106 $ 34,658
(1)Credit ratings of BB and lower are considered below investment grade.
(2)The Bank has one security guaranteed by Fannie Mae but rated below investment grade at September 30, 2026, because of extraordinary expenses incurred during bankruptcy of the security's sponsor in 2008.
(3)Externally unrated counterparties for these investments were eligible broker-dealers under the Bank's counterparty risk framework, supported by internal credit assessments and U.S. Treasury collateral.
The following table presents the unsecured credit exposure with counterparties by investment type.
Carrying Value(1)
(In millions) September 30, 2026 December 31, 2025
Interest-bearing deposits $ 3,127 $ 3,092
Federal funds sold 5,945 5,070
Total $ 9,072 $ 8,162
(1)Excludes unsecured investment credit exposure to U.S. government agencies and instrumentalities, government-sponsored enterprises, and supranational entities and does not include related accrued interest as of September 30, 2026, and December 31, 2025.
The Bank's MBS investments include PLRMBS and agency single-family and multifamily MBS. Some of the PLRMBS were issued by or purchased from members, former members, or their affiliates. The Bank has investment credit limits and terms for these investments that do not differ for members and nonmembers. Regulatory policy limits total MBS investments to three times the Bank's regulatory capital at the time of purchase. At September 30, 2026, the Bank's MBS portfolio was 208% of Bank regulatory capital (as determined in accordance with regulations governing the operations of the FHLBanks).
The Bank executes all MBS investments without preference to the status of the counterparty or the issuer of the investment as a nonmember, member, or affiliate of a member.
As of September 30, 2026, the Bank's investment in MBS had gross unrealized losses totaling $40 million, $29 million of which were related to PLRMBS. These gross unrealized losses related to PLRMBS were primarily attributable to 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.
Derivative Counterparties. The following table presents the Bank's credit exposure to its derivative dealer counterparties at September 30, 2026.
Credit Exposure to Derivative Dealer Counterparties
(In millions)
Counterparty Credit Rating(1)
Notional Amount Net Fair Value of Derivatives Before Collateral Cash Collateral Pledged
to/ (from) Counterparty
Non-cash Collateral Pledged
to/ (from) Counterparty
Net Credit
Exposure to Counterparties
Asset positions with credit exposure:
Uncleared derivatives
A $ 6,384 $ 342 $ (341) $ - $ 1
BBB 3,056 1 - - 1
Cleared derivatives(2)
$ 42,963 $ 8 $ - $ 511 $ 519
Liability positions with credit exposure:
Uncleared derivatives
A 2,269 (37) 39 - 2
Total derivative positions with credit exposure to nonmember counterparties $ 54,672 $ 314 $ (302) $ 511 $ 523
Derivative positions without credit exposure 6,024
Total notional $ 60,696
(1)The credit ratings used by the Bank are based on the lower of Moody's or S&P ratings.
(2)Represents derivative transactions cleared with LCH Ltd, the Bank's clearing house, which was rated AA- with a stable outlook by S&P.
Critical Accounting Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to make a number of judgments, estimates, and assumptions that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities, if applicable, and the reported amounts of income, expenses, gains, and losses during the reporting period. Changes in these judgments, estimates, and assumptions could potentially affect the Bank's financial position and results of operations significantly. Although the Bank believes these judgments, estimates, and assumptions to be reasonably accurate, actual results may differ.
In the Bank's 2025 Form 10-K, the Bank identified accounting for derivatives and hedging activities as a critical accounting estimate. There have been no significant changes in the judgments and assumptions made during the first nine months of 2026 in applying the Bank's critical accounting estimate. These policies and the judgments, estimates, and assumptions are also described in "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Estimates", "Item 8. Financial Statements and Supplementary Data - Note 1 - Summary of Significant Accounting Policies" and "Item 8. Financial Statements and Supplementary Data - Note 13 - Derivatives and Hedging Activities" in the Bank's 2025 Form 10-K.
Legislative and Regulatory Developments
The Bank is subject to various legal and regulatory requirements and priorities. Certain actions, regulatory priorities, and areas of focus of the current administration have changed and continue to change the regulatory environment. These changes have affected, and likely will continue to affect, certain aspects of the Bank's business operations, and could affect the financial condition, results of operations, and reputation of the Bank. Additionally, the Bank is subject to extensive regulatory oversight, including ongoing monitoring and targeted examinations by our regulator, which could affect our business operations and financial results.
Considering the regulatory environment, there is uncertainty with respect to the ultimate result of future regulatory actions and their ultimate impact on the housing market, the Bank and the FHLBank System. The Bank continues to monitor the legislative and regulatory environments as they evolve and to evaluate their potential effects on the Bank. For further discussion of related risks, see "Item 1A. Risk Factors" in the Bank's 2025 Form 10-K.
Federal Home Loan Bank of San Francisco published this content on November 04, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on November 04, 2026 at 20:38 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]