Federal Home Loan Bank of San Francisco

05/06/2026 | Press release | Distributed by Public on 05/06/2026 11:44

Quarterly Report for Quarter Ending March 31, 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 mergers or changes in the principal place of business of Bank members;
•the withdrawal, merger, dissolution, or receivership of one or more large members;
•the soundness of other financial institutions, including Bank members, nonmember borrowers, other counterparties, and the other FHLBanks;
•changes in Bank members' demand for Bank advances;
•changes in the value or liquidity of collateral underlying advances to Bank members or nonmember borrowers or collateral pledged by the Bank's derivative counterparties;
•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 first quarter of 2026 was $64 million, a decrease of $30 million compared with the first quarter of 2025. The decrease was primarily attributable to a decrease in other income of $23 million and an increase in total non-interest expense of $9 million.
The $23 million decrease in other income was primarily attributable to fair value changes on financial instruments and derivatives, as well as net interest settlements on economic hedges. The $9 million increase in non-interest expense was primarily driven by an increase of $17 million in voluntary housing and community investment contributions, partially offset by a reduction of $8 million in operating expenses.
On April 23, 2026, the Bank's board of directors (Board) declared quarterly cash dividends on the average Class B-1 membership stock and Class B-2 activity-based stock outstanding during the post-conversion period of the first quarter of 2026 at annualized rates of 4.75% and 10.00%, respectively, and also declared dividends on the average outstanding Class B stock for the pre-conversion period of January 1, 2026, at an annualized rate of 8.75%, with total dividends for the quarter amounting to $45 million. The Bank expects to pay these dividends on May 8, 2026.
During the first quarter of 2026, the Board approved plans to voluntarily allocate 5% of the Bank's 2025 net earnings (income before interest expense related to dividends paid on mandatorily redeemable capital stock and the assessment for the Affordable Housing Program) to fund economic development and homeownership grant programs. The Board also approved an additional voluntary mission contribution of $22.5 million recognized in the first quarter of 2026, increasing the Bank's 2026 voluntary contributions commitment to approximately 10% of 2025 net earnings. Total voluntary housing and community investment contributions recognized through March 31, 2026 were $27 million, including $4 million of make-whole contributions. Excluding make-whole contributions, the Bank expensed $23 million in voluntary housing and community investment contributions through March 31, 2026, which is 5% of the Bank's 2025 net earnings.
The Bank exceeded its 4.00% regulatory capital requirement with a regulatory capital ratio of 10.22% at March 31, 2026. As of March 31, 2026, the Bank's retained earnings totaled $4.6 billion, exceeding the $2.3 billion required level of retained earnings established under the Bank's Framework in accordance with FHFA 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) March 31,
2026 		December 31,
2025 		September 30,
2025 		June 30,
2025 		March 31,
2025
Selected Balance Sheet Items at Quarter End
Total Assets $ 70,676 $ 73,329 $ 75,769 $ 83,146 $ 77,993
Advances 37,792 38,227 34,242 39,909 37,913
Investments(1)
31,761 33,968 40,416 42,115 38,982
Consolidated Obligations:
Bonds 39,539 47,254 48,747 54,061 56,079
Discount Notes 21,206 17,074 17,648 19,174 12,668
Mandatorily Redeemable Capital Stock 88 106 112 131 153
Total Capital Stock
2,538 2,552 2,439 2,575 2,443
Unrestricted Retained Earnings 3,783 3,847 3,798 3,749 3,707
Restricted Retained Earnings 815 815 815 815 815
Total Capital 7,292 7,360 7,139 7,186 7,047
Selected Operating Results for the Quarter
Net Interest Income $ 140 $ 157 $ 147 $ 142 $ 142
Provision for/(Reversal of) Credit Losses - 1 (2) 3 1
Other Income/(Loss) (3) 12 19 17 20
Voluntary housing and community investment contributions 27 6 6 10 10
Other Non-Interest Expense
38 45 40 41 46
Affordable Housing Program (AHP) Assessment 8 12 12 11 11
Net Income/(Loss) $ 64 $ 105 $ 110 $ 94 $ 94
Selected Other Data for the Quarter
Net Interest Margin(2)
0.77 % 0.89 % 0.77 % 0.68 % 0.76 %
Return on Average Assets 0.35 0.59 0.56 0.45 0.50
Return on Average Equity 3.51 5.77 5.98 5.22 5.37
Annualized Dividend Rate(3)
8.75 8.75 8.75 8.75 8.75
Annualized Special Dividend Rate 11.36 - - - -
Dividend Payout Ratio(4)
199.16 54.82 54.72 57.81 62.72
Average Equity to Average Assets Ratio 9.85 10.19 9.44 8.66 9.25
Selected Other Data at Quarter End
Regulatory Capital Ratio(5)
10.22 9.98 9.46 8.74 9.13
Duration Gap (in months) (0.1) 0.4 0.0 (0.3) (0.4)
(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)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.
(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 March 31, 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.
First Quarter of 2026 Compared to First Quarter of 2025
Net Interest Spread and Margin
Three Months Ended
March 31, 2026 March 31, 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 $ 3,435 $ 32 3.74 % $ 4,022 $ 44 4.42 %
Securities purchased under agreements to resell 3,996 36 3.69 1,464 16 4.38
Federal funds sold 6,119 56 3.68 5,423 59 4.39
Available-for-sale (AFS) securities:(1)
MBS(1)
13,575 170 5.08 13,732 195 5.75
U.S. Treasury and state housing agency obligations
6,624 65 3.98 6,429 73 4.65
Held-to-maturity (HTM) securities: MBS 760 8 4.38 1,465 18 4.99
Advances
38,823 379 3.96 42,489 473 4.51
Mortgage loans held for portfolio(2)
636 5 3.05 687 5 3.10
Loans to other FHLBanks - - - 6 - 4.39
Total interest-earning assets 73,968 751 4.12 75,717 883 4.73
Other assets(3)
1,034 753
Total Assets $ 75,002 $ 76,470
Liabilities and Capital
Interest-bearing liabilities:
Consolidated obligations:
Bonds
$ 42,889 389 3.68 % $ 55,280 594 4.36 %
Discount notes
22,572 204 3.66 11,733 126 4.34
Deposits and other borrowings
1,375 12 3.49 1,519 16 4.30
Mandatorily redeemable capital stock 102 6 22.06 256 5 7.15
Borrowings from other FHLBanks 9 - 3.69 6 - 4.39
Total interest-bearing liabilities 66,947 611 3.70 68,794 741 4.37
Other liabilities(3)
668 605
Total Liabilities 67,615 69,399
Total Capital 7,387 7,071
Total Liabilities and Capital $ 75,002 $ 76,470
Net Interest Income $ 140 $ 142
Net Interest Spread(4)
0.42 % 0.36 %
Net Interest Margin(5)
0.77 % 0.76 %
Interest-earning Assets/Interest-bearing Liabilities 110.49 % 110.06 %
(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.
Interest income included net prepayment fees on AFS MBS of $8 million and $5 million for the three months ended March 31, 2026 and 2025, respectively. In addition, interest income included net prepayment fees on advances of a de minimis amount and $2 million for the three months ended March 31, 2026 and 2025, respectively.
The following table details the changes in interest income and interest expense for the first quarter of 2026 compared to the first 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 March 31, 2026, versus Three Months Ended March 31, 2025
Increase/
(Decrease)
Attributable to Changes in(1)
(In millions)
Volume
Rate
Interest income:
Interest-bearing deposits $ (12) $ (6) $ (6)
Securities purchased under agreements to resell 20 23 (3)
Federal funds sold (3) 7 (10)
AFS securities:
MBS(2)
(25) (2) (23)
U.S. Treasury and state housing agency obligations(2)
(8) 2 (10)
HTM securities: MBS (10) (8) (2)
Advances(2)
(94) (39) (55)
Total interest income
(132) (23) (109)
Interest expense:
Consolidated obligations:
Bonds(2)
(205) (121) (84)
Discount notes(2)
78 100 (22)
Deposits and other borrowings
(4) (1) (3)
Mandatorily redeemable capital stock 1 (4) 5
Total interest expense
(130) (26) (104)
Changes in net interest income
$ (2) $ 3 $ (5)
(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 first quarter of 2026 was $140 million, a 1% decrease from $142 million in the first quarter of 2025. The $2 million decrease in net interest income primarily reflected lower yields on interest-earning assets and higher dividends paid on mandatorily redeemable capital stock.
The following tables present the effect of derivatives and hedging activities on net interest income.
Three Months Ended
March 31, 2026
(In millions) Advances AFS Securities Consolidated Obligation Bonds
Consolidated Obligation Discount Notes
Total
(Amortization)/accretion of hedging activities $ (4) $ (23) $ - $ - $ (27)
Net gain/(loss) on derivatives and hedged items - (1) - - (1)
Net interest settlements on derivatives 13 47 (27) 1 34
Price alignment amount(1)
- (2) - - (2)
Total effect on net interest income
$ 9 $ 21 $ (27) $ 1 $ 4
Three Months Ended
March 31, 2025
(In millions) Advances AFS Securities Consolidated Obligation Bonds Consolidated Obligation Discount Notes Total
(Amortization)/accretion of hedging activities $ (5) $ (25) $ - $ - $ (30)
Net gain/(loss) on derivatives and hedged items - (2) - - (2)
Net interest settlements on derivatives 46 89 (56) 2 81
Price alignment amount(1)
(3) (5) - - (8)
Total effect on net interest income
$ 38 $ 57 $ (56) $ 2 $ 41
(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) March 31, 2026 March 31, 2025
Net gain/(loss) on advances and consolidated obligation bonds held under fair value option $ (26) $ 29
Net gain/(loss) on derivatives 17 (15)
Standby letters of credit fees 5 5
Other, net
1 1
Total Other Income/(Loss) $ (3) $ 20
Net Gain/(Loss) on Advances and Consolidated Obligation Bonds Held Under Fair Value Option - The unfavorable change in net gains/(losses) on advances and consolidated obligation bonds held under the fair value option for the three months ended March 31, 2026, compared to the same period in 2025, was primarily due to the deterioration in market spreads and the Bank's higher balance of fixed rate advances relative to consolidated obligations held under the fair value option.
Net Gain/(Loss) on Derivatives - 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 accounting classification of economic hedges and the categories of hedged items that contributed to the gains and losses on derivatives that were recorded in "Net gain/(loss) on derivatives" in the first quarter of 2026 and 2025.
Sources of Gains/(Losses) Recorded in Net Gain/(Loss) on Derivatives
Three Months Ended March 31, 2026, Compared to Three Months Ended March 31, 2025
Three Months Ended
March 31, 2026 March 31, 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 $ 19 $ 2 $ 21 $ (32) $ 11 $ (21)
Not elected for fair value option (9) 6 (3) (1) 6 5
Consolidated obligation bonds:
Elected for fair value option 1 (1) - 4 (3) 1
Not elected for fair value option 2 (3) (1) 6 (4) 2
Consolidated obligation discount notes:
Not elected for fair value option - - - (1) - (1)
Price alignment amount(1)
- - - (1) - (1)
Total $ 13 $ 4 $ 17 $ (25) $ 10 $ (15)
During the first quarter of 2026, net gains on derivatives totaled $17 million compared to net losses of $15 million in the first quarter of 2025. These amounts included interest income of $4 million and $10 million resulting from net settlements on derivative instruments used in economic hedges in the first quarter of 2026 and 2025, respectively. In addition to the impact of interest income or expense from net settlements on derivative instruments used in economic hedges, the gains or losses on economic hedges were primarily associated with the effects of changes in market interest rates, interest rate spreads, interest rate volatility, and other market factors during the period.
Non-Interest Expense. During the first quarter of 2026, non-interest expenses totaled $65 million, compared to $56 million in the first quarter of 2025. The $9 million increase in non-interest expense was primarily driven by an increase of $17 million in voluntary housing and community investment contributions, partially offset by a reduction of $8 million in operating expenses. The increase in voluntary housing and community investment contributions were primarily attributable to an additional voluntary mission contribution of $22.5 million recognized in the first quarter of 2026.
Return on Average Equity. Return on average equity was 3.51% (annualized) for the first quarter of 2026, compared to 5.37% (annualized) for the first quarter of 2025. The decrease was driven by a decrease in net income for the first quarter of 2026.
Dividends and Retained Earnings. In the first quarter of 2026, the Bank paid dividends on the average capital stock outstanding during the fourth quarter of 2025 at an annualized rate of 8.75%, totaling $58 million, including $56 million in dividends on capital stock and $2 million in dividends on mandatorily redeemable capital stock. The Bank also paid a special cash dividend on the average capital stock outstanding during the fourth quarter of 2025 at an annualized rate of 11.36%, totaling $75 million, including $72 million in dividends on capital stock and $3 million in dividends on mandatorily redeemable capital stock. In the first quarter of 2025, the Bank paid dividends on the average capital stock outstanding during the fourth quarter of 2024 at an annualized rate of 8.75%, totaling $63 million, including $55 million in dividends on capital stock and $8 million in dividends on mandatorily redeemable capital stock.
For more information on the Bank's Excess Stock Repurchase, Retained Earnings, 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 March 31, 2026, total assets were $70.7 billion, a decrease of $2.6 billion from $73.3 billion at December 31, 2025. The decrease in total assets was primarily due to a $1.9 billion reduction in short-term investments. Advances decreased by $0.4 billion, to $37.8 billion at March 31, 2026, from $38.2 billion at December 31, 2025.
Total liabilities were $63.4 billion at March 31, 2026, a decrease of $2.6 billion from $66.0 billion at December 31, 2025, primarily reflecting a $3.6 billion decrease in consolidated obligations outstanding to $60.7 billion at March 31, 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.
March 31, 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)
$ 2,350 6 % $ 2,455 6 %
Adjustable - SOFR, callable at borrower's option 4,050 11 4,700 12
Subtotal adjustable rate advances 6,400 17 7,155 18
Fixed 5,187 14 4,095 11
Fixed - amortizing 19 - 21 -
Fixed - with PPS
28 - 30 -
Fixed - with FPS
13,011 34 15,187 40
Fixed - callable at borrower's option with FPS
275 1 275 1
Fixed - putable at Bank's option with FPS
5,114 14 5,532 15
Subtotal fixed rate advances 23,634 63 25,140 67
Daily variable rate 7,753 20 5,854 15
Total par value $ 37,787 100 % $ 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 $14.3 billion and $14.7 billion at March 31, 2026, and December 31, 2025, respectively. During the first three months of 2026, the Bank's MBS investments decreased primarily because of $508 million in principal repayments, partially offset by $122 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 enterprises (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, meet expected and unexpected member credit demands, and may be used for investment opportunities. The Bank monitors its financial position in order to meet these objectives.
As of March 31, 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 March 31, 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 January 2026, the level of required retained earnings established by the Bank's Framework, implemented in accordance with Finance Agency guidance, was increased from $2.0 billion to $2.3 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 in advances by borrowers and their affiliates that is 10% or more of total advances outstanding increased by $0.4 billion to $5.2 billion, or 14% of total advances outstanding, at March 31, 2026, from $4.8 billion, or 13% of total advances outstanding, at December 31, 2025.
As of March 31, 2026, and December 31, 2025, nonmembers accounted for $3.1 billion, or 8%, 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 $26 million, or 7% of the Bank's interest income from advances for the three months ended March 31, 2026. Nonmembers, excluding housing associates in the Bank's district, accounted for $86 million, or 18% of the Bank's interest income from advances for the three months ended March 31, 2025. Because nonmembers cannot replace advances as they mature or are prepaid, the Bank's level of advances and interest income may be adversely affected absent a corresponding increase in member business, which remain subject to a number of factors including, but not limited to, members' ability to generate new business, seek new advances, pursue consolidation opportunities within the banking industry, and general economic conditions. 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
March 31, 2026
(Dollars in millions)
Unused Borrowing Capacity
Number of Borrowers with Credit Outstanding
Credit
Outstanding(1)
Collateral
Borrowing
Capacity(2)
0% - 10% 6 $ 3,470 $ 3,495
11% - 25% 8 4,573 5,662
26% - 50% 24 10,671 16,916
More than 50% 156 38,693 192,579
Total 194 $ 57,407 $ 218,652
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 March 31, 2026, and December 31, 2025. The Bank has never experienced any credit losses on advances.
As of March 31, 2026, of the loan collateral pledged to the Bank, 16% was pledged by 24 institutions by specific identification, 45% was pledged by 113 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 on a one-, two-, or three-year cycle, depending on the risk profile of the institution and the types of collateral pledged.
As of March 31, 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) March 31, 2026 December 31, 2025
Loan Type Unpaid Principal
Balance 		Borrowing
Capacity 		Unpaid Principal
Balance 		Borrowing
Capacity
First lien residential mortgage loans $ 153,295 $ 104,966 $ 148,345 $ 101,028
Second lien residential mortgage loans and home equity lines of credit 16,017 7,544 13,919 6,452
Multifamily mortgage loans 34,977 22,612 35,265 22,654
Commercial mortgage loans 77,474 50,249 77,045 49,939
Loan participations(1)
1,359 490 1,380 547
Small business, small farm, and small agribusiness loans 1,738 436 1,406 353
Total $ 284,860 $ 186,297 $ 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 March 31, 2026, and December 31, 2025, the unpaid principal balance of these loans totaled $5.6 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 March 31, 2026, and December 31, 2025, the borrowing capacity of these loans totaled $3.9 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 March 31, 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
$ 6,508 $ - $ - $ - $ - $ 6,508
State housing agency obligations
53 - - - - 53
MBS:
Other U.S. obligations - single-family 16 - - - - 16
MBS - GSEs:
Single-family(2)
378 - 3 1 - 382
Multifamily
12,961 - - - - 12,961
Total MBS - GSEs 13,339 - 3 1 - 13,343
Private-label residential mortgage-backed securities (PLRMBS)
11 18 21 442 435 927
Total MBS 13,366 18 24 443 435 14,286
Total securities 19,927 18 24 443 435 20,847
Interest-bearing deposits 959 2,515 - - - 3,474
Securities purchased under agreements to resell(3)
- 500 - - 2,500 3,000
Federal funds sold
1,845 2,595 - - - 4,440
Total investments $ 22,731 $ 5,628 $ 24 $ 443 $ 2,935 $ 31,761
(1)Credit ratings grades 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 March 31, 2026, because of extraordinary expenses incurred during bankruptcy of the security's sponsor in 2008.
(3)Unrated counterparties for these investments were broker-dealers, qualifying for limited trading programs authorized by the Bank.
The following table presents the unsecured credit exposure with counterparties by investment type.
Carrying Value(1)
(In millions) March 31, 2026 December 31, 2025
Interest-bearing deposits $ 3,474 $ 3,092
Federal funds sold 4,440 5,070
Total $ 7,914 $ 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 March 31, 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 March 31, 2026, the Bank's MBS portfolio was 200% 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 March 31, 2026, the Bank's investment in MBS had gross unrealized losses totaling $33 million, $24 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 March 31, 2026.
(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 $ 2,739 $ 7 $ (5) $ - $ 2
Liability positions with credit exposure:
Cleared derivatives(2)
51,957 (15) - 571 556
Total derivative positions with credit exposure to nonmember counterparties $ 54,696 $ (8) $ (5) $ 571 $ 558
Derivative positions without credit exposure 21,442
Total notional $ 76,138
(1)The credit ratings grades 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 three 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. Changes to regulatory priorities and areas of focus, such as deregulation, by the federal executive 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 impact our financial condition, results of operations, and reputation.
In March 2026, the federal executive administration issued two executive orders that address mortgage credit availability and housing affordability that are pertinent to the FHLBanks.
One executive order directs the Finance Agency and other federal financial regulators to consider measures to expand access to mortgage credit, including potential adjustments to capital requirements for mortgage-related exposures; modernization of collateral valuation and transfer systems between the Federal Reserve Banks and the FHLBanks; expansion of access to longer-dated FHLBank advances tied to residential mortgage assets; development of targeted FHLBank liquidity programs for entry-level housing, owner-occupied purchase loans, and small residential builders; acceleration of collateral boarding and valuation processes through standardized data and digital documentation; and refocusing the FHLBanks' Affordable Housing Programs to support faster execution and greater financial leverage for small-scale and owner-occupied housing projects. This executive order also directs the
Finance Agency and the Federal Reserve Board to consider authorizing the FHLBanks' intermediate access to the Federal Reserve's discount window for the FHLBanks' depository institution members under standardized collateral, operational, and risk-management protocols. In addition, the executive order directs the Finance Agency and other federal agencies to consider standardizing the acceptance of e-notes and promoting digital mortgage standards. In addition, the Finance Agency, in consultation with other relevant federal agencies, is required to submit a report evaluating the efficiency of national housing finance markets and identifying potential regulatory or legislative recommendations to address any regulatory or oversight gaps.
The second executive order directs the Finance Agency and other federal agencies to consider reducing regulatory barriers to affordable housing construction, including by eliminating or reforming rules or programs that constrain residential development and impede housing affordability, especially the construction of affordable single-family homes.
While these executive orders could potentially affect the Bank's liquidity products, collateral and operational requirements, capital deployment, and housing-related initiatives, they do not, by themselves, change existing regulations or program requirements applicable to the Bank and the other FHLBanks. The nature, timing, and scope of any resulting changes remain uncertain and subject to further Finance Agency action, such as rulemaking or guidance. The Bank continues to monitor developments related to these executive orders and assess their potential effect on the Bank and its members.
Considering the changes in the regulatory environment, there is uncertainty with respect to the ultimate nature and result of future regulatory actions and their ultimate effects on the Bank and the FHLBank System. The Bank continues to monitor these actions as they evolve and to evaluate their potential effect 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 May 06, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on May 06, 2026 at 17:44 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]