Federal Home Loan Bank of San Francisco - FORM 10-Q - May 5, 2016

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EX-31.3 - CERTIFICATION OF THE CFO SECTION 302 - Federal Home Loan Bank of San Franciscoex313q420151.htm
EX-32.3 - CERTIFICATION OF THE CFO SECTION 906 - Federal Home Loan Bank of San Franciscoex323q420151.htm
EX-31.1 - CERTIFICATION OF THE PRESIDENT AND CEO SECTION 302 - Federal Home Loan Bank of San Franciscoex311q420151.htm
EX-31.2 - CERTIFICATION OF THE COO SECTION 302 - Federal Home Loan Bank of San Franciscoex312q420151.htm
EX-32.2 - CERTIFICATION OF THE COO SECTION 906 - Federal Home Loan Bank of San Franciscoex322q420151.htm
EX-32.1 - CERTIFICATION OF THE PRESIDENT AND CEO SECTION 906 - Federal Home Loan Bank of San Franciscoex321q420151.htm
EX-3.1 - BYLAWS, AS AMENDED AND RESTATED ON MARCH 16, 2016 - Federal Home Loan Bank of San Franciscoexhibit31bylaws.htm
EX-10.1 - EMPLOYMENT AGREEMENT - Federal Home Loan Bank of San Franciscoex101seiblyemploymentagree.htm
EX-10.2 - SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN - Federal Home Loan Bank of San Franciscoex102supplementexecutivere.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
  ____________________________________
FORM 10-Q
____________________________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2016
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number: 000-51398
FEDERAL HOME LOAN BANK OF SAN FRANCISCO
(Exact name of registrant as specified in its charter)
  ____________________________________
 
 
Federally chartered corporation
 
94-6000630
 
 
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. employer
identification number)
 
 
 
 
 
 
 
600 California Street
San Francisco, CA
 
94108
 
 
(Address of principal executive offices)
 
(Zip code)
 
(415) 616-1000
(Registrant’s telephone number, including area code)
  ____________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing for the past 90 days.    x  Yes    o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    x  Yes    o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
o
 
Accelerated filer
 
o
 
 
 
 
Non-accelerated filer
 
x  (Do not check if a smaller reporting company)
 
Smaller reporting company
 
o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    o  Yes    x  No
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
Shares Outstanding as of April 30, 2016

Class B Stock, par value $100
27,680,711



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


PART I. FINANCIAL INFORMATION

ITEM 1.    FINANCIAL STATEMENTS
 
Federal Home Loan Bank of San Francisco
Statements of Condition
(Unaudited)
(In millions-except par value)
March 31,
2016

 
December 31,
2015

Assets:
 
 
 
Cash and due from banks
$
100

 
$
1,637

Interest-bearing deposits
450

 
—

Securities purchased under agreements to resell
12,500

 
10,000

Federal funds sold
4,599

 
4,626

Trading securities(a)
1,408

 
1,433

Available-for-sale (AFS) securities(a)
5,145

 
5,414

Held-to-maturity (HTM) securities (fair values were $10,372 and $10,821, respectively)(a)
10,264

 
10,802

Advances (includes $3,722 and $3,677 at fair value under the fair value option, respectively)
49,169

 
50,919

Mortgage loans held for portfolio, net of allowance for credit losses of $0 and $0, respectively
632

 
655

Accrued interest receivable
54

 
56

Premises, software, and equipment, net
32

 
32

Derivative assets, net
39

 
44

Other assets (Note 19)
347

 
80

Total Assets
$
84,739

 
$
85,698

Liabilities:
 
 
 
Deposits
$
214

 
$
127

Consolidated obligations:
 
 
 
Bonds (includes $3,613 and $4,233 at fair value under the fair value option, respectively)
57,207

 
51,827

Discount notes
21,095

 
27,647

Total consolidated obligations
78,302

 
79,474

Mandatorily redeemable capital stock
486

 
488

Accrued interest payable
146

 
80

Affordable Housing Program (AHP) payable
186

 
172

Derivative liabilities, net
9

 
6

Other liabilities
505

 
455

Total Liabilities
79,848

 
80,802

Commitments and Contingencies (Note 17)



Capital:
 
 
 
Capital stock—Class B—Putable ($100 par value) issued and outstanding:
 
 
 
21 shares and 23 shares, respectively
2,115

 
2,253

Unrestricted retained earnings
760

 
610

Restricted retained earnings
2,054

 
2,018

Total Retained Earnings
2,814

 
2,628

Accumulated other comprehensive income/(loss) (AOCI)
(38
)
 
15

Total Capital
4,891

 
4,896

Total Liabilities and Capital
$
84,739

 
$
85,698


(a)
At March 31, 2016, and December 31, 2015, none of these securities were pledged as collateral that may be repledged.

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

3


Federal Home Loan Bank of San Francisco
Statements of Income
(Unaudited)
 
Three Months Ended March 31,
(In millions)
2016

 
2015

Interest Income:
 
 
 
Advances
$
104

 
$
67

Prepayment fees on advances, net
2

 
—

Securities purchased under agreements to resell
2

 
—

Federal funds sold
5

 
2

Trading securities
2

 
2

AFS securities
69

 
67

HTM securities
64

 
80

Mortgage loans held for portfolio
8

 
9

Total Interest Income
256

 
227

Interest Expense:
 
 
 
Consolidated obligations:
 
 
 
Bonds
104

 
76

Discount notes
19

 
6

Mandatorily redeemable capital stock
10

 
15

Total Interest Expense
133

 
97

Net Interest Income
123

 
130

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

 
—

Net Interest Income After Mortgage Loan Loss Provision
123

 
130

Other Income/(Loss):
 
 
 
Total other-than-temporary impairment (OTTI) loss
(15
)
 
(4
)
Net amount of OTTI loss reclassified to/(from) AOCI
8

 
2

Net OTTI loss, credit-related
(7
)
 
(2
)
Net gain/(loss) on trading securities
1

 
—

Net gain/(loss) on advances and consolidated obligation bonds held under fair value option
27

 
(7
)
Net gain/(loss) on derivatives and hedging activities
(65
)
 
(21
)
Gains on litigation settlements, net
211

 
459

Other
4

 
3

Total Other Income/(Loss)
171

 
432

Other Expense:
 
 
 
Compensation and benefits
18

 
17

Other operating expense
15

 
14

Federal Housing Finance Agency
2

 
2

Office of Finance
1

 
1

Total Other Expense
36

 
34

Income/(Loss) Before Assessment
258

 
528

AHP Assessment
27

 
54

Net Income/(Loss)
$
231

 
$
474


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

4


Federal Home Loan Bank of San Francisco
Statements of Comprehensive Income
(Unaudited)
 
Three Months Ended March 31,
(In millions)
2016

 
2015

Net Income/(Loss)
$
231

 
$
474

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

 
—

Net non-credit-related OTTI gain/(loss) on AFS securities:
 
 
 
Net change in fair value of other-than-temporarily impaired securities
(47
)
 
20

Net amount of OTTI loss reclassified to/(from) other income/(loss)
(8
)
 
(2
)
Total net non-credit-related OTTI gain/(loss) on AFS securities
(55
)
 
18

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

 
2

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

 
2

Total other comprehensive income/(loss)
(53
)
 
20

Total Comprehensive Income/(Loss)
$
178

 
$
494


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

5


Federal Home Loan Bank of San Francisco
Statements of Capital Accounts
(Unaudited)

 
Capital Stock
Class B—Putable
 
Retained Earnings
 
 
 
Total
Capital

(In millions)
Shares

 
Par Value

 
Restricted

 
Unrestricted

 
Total

 
AOCI

 
Balance, December 31, 2014
33

 
$
3,278

 
$
2,065

 
$
294

 
$
2,359

 
$
56

 
$
5,693

Issuance of capital stock
2

 
234

 
 
 
 
 
 
 
 
 
234

Repurchase of capital stock
(4
)
 
(412
)
 
 
 
 
 
 
 
 
 
(412
)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net
—

 
(8
)
 
 
 
 
 
 
 
 
 
(8
)
Comprehensive income/(loss)
 
 
 
 
85

 
389

 
474

 
20

 
494

Cash dividends paid on capital stock (7.11%)
 
 
 
 
 
 
(59
)
 
(59
)
 
 
 
(59
)
Balance, March 31, 2015
31

  
$
3,092

 
$
2,150

  
$
624

 
$
2,774

 
$
76

 
$
5,942

Balance, December 31, 2015
23

 
$
2,253

 
$
2,018

 
$
610

 
$
2,628

 
$
15

 
$
4,896

Issuance of capital stock
1

 
112

 
 
 
 
 
 
 
 
 
112

Repurchase of capital stock
(2
)
 
(198
)
 
 
 
 
 
 
 
 
 
(198
)
Capital stock reclassified from/(to) mandatorily redeemable capital stock, net
(1
)
 
(52
)
 
 
 
 
 
 
 
 
 
(52
)
Comprehensive income/(loss)
 
 
 
 
36

 
195

 
231

 
(53
)
 
178

Cash dividends paid on capital stock (7.99%)
 
 
 
 
 
 
(45
)
 
(45
)
 
 
 
(45
)
Balance, March 31, 2016
21

 
$
2,115

 
$
2,054

 
$
760

 
$
2,814

 
$
(38
)
 
$
4,891


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

6


Federal Home Loan Bank of San Francisco
Statements of Cash Flows
(Unaudited)

 
Three Months Ended March 31,
(In millions)
2016

 
2015

Cash Flows from Operating Activities:
 
 
 
Net Income /(Loss)
$
231

 
$
474

Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
 
 
 
Depreciation and amortization
(26
)
 
(27
)
Change in net fair value of trading securities
(1
)
 
—

Change in net fair value adjustment on advances and consolidated obligation bonds held under the fair value option
(27
)
 
7

Change in net derivatives and hedging activities
(3
)
 
(37
)
Net OTTI loss, credit-related
7

 
2

Net change in:
 
 
 
Accrued interest receivable
2

 
9

Other assets
(269
)
 
(2
)
Accrued interest payable
66

 
41

Other liabilities
64

 
44

Total adjustments
(187
)
 
37

Net cash provided by/(used in) operating activities
44

 
511

Cash Flows from Investing Activities:
 
 
 
Net change in:
 
 
 
Interest-bearing deposits
395

 
(105
)
Securities purchased under agreements to resell
(2,500
)
 
(4,000
)
Federal funds sold
27

 
3,329

Premises, software, and equipment
(1
)
 
(1
)
Trading securities:
 
 
 
Proceeds from maturities of long-term
275

 
300

Purchases of long-term
(250
)
 
—

AFS securities:
 
 
 
Proceeds from maturities of long-term
233

 
222

HTM securities:
 
 
 
Proceeds from maturities of long-term
541

 
616

Advances:
 
 
 
Principal collected
334,188

 
218,081

Made to members
(332,340
)
 
(222,810
)
Mortgage loans held for portfolio:
 
 
 
Principal collected
40

 
44

Purchases
(17
)
 
(17
)
Proceeds from sales of foreclosed assets
1

 
1

Net cash provided by/(used in) investing activities
592

 
(4,340
)
 


7


Federal Home Loan Bank of San Francisco
Statements of Cash Flows (continued)
(Unaudited)

 
Three Months Ended March 31,
(In millions)
2016

 
2015

Cash Flows from Financing Activities:
 
 
 
Net change in:
 
 
 
Deposits
(783
)
 
149

Net proceeds from issuance of consolidated obligations:
 
 
 
Bonds
11,064

 
5,027

Discount notes
15,924

 
31,965

Payments for matured and retired consolidated obligations:
 

 
Bonds
(5,716
)

(8,620
)
Discount notes
(22,477
)

(25,984
)
Proceeds from issuance of capital stock
112


234

Payments for repurchase/redemption of mandatorily redeemable capital stock
(54
)

(344
)
Payments for repurchase of capital stock
(198
)
 
(412
)
Cash dividends paid
(45
)

(59
)
Net cash provided by/(used in) financing activities
(2,173
)

1,956

Net increase/(decrease) in cash and due from banks
(1,537
)

(1,873
)
Cash and due from banks at beginning of the period
1,637

 
3,920

Cash and due from banks at end of the period
$
100


$
2,047

Supplemental Disclosures:
 
 
 
Interest paid
$
118

 
$
101

AHP payments
13

 
7

Supplemental Disclosures of Noncash Investing and Financing Activities:
 
 
 
Transfers of mortgage loans to real estate owned
—

 
1

Transfers of other-than-temporarily impaired HTM securities to AFS securities
—

 
4

Transfers of capital stock to mandatorily redeemable capital stock
52

 
8


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

8

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


(Dollars in millions except per share amounts)

Note 1 — Basis of Presentation

The information about the Federal Home Loan Bank of San Francisco (Bank) included in these unaudited financial statements reflects all adjustments that, in the opinion of the Bank, are necessary for a fair statement of results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise disclosed. The results of operations in these interim statements are not necessarily indicative of the results to be expected for any subsequent period or for the entire year ending December 31, 2016. These unaudited financial statements should be read in conjunction with the Bank’s Annual Report on Form 10-K for the year ended December 31, 2015 (2015 Form 10‑K).

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

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

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

Variable Interest Entities. The Bank’s investments in variable interest entities (VIEs) are limited to private-label residential mortgage-backed securities (PLRMBS). On an ongoing basis, the Bank performs a quarterly evaluation
to determine whether it is the primary beneficiary in any VIE. The Bank evaluated its investments in VIEs as of March 31, 2016, to determine whether it is a primary beneficiary of any of these investments. The primary beneficiary is required to consolidate a VIE. The Bank determined that consolidation accounting is not required because the Bank is not the primary beneficiary of these VIEs for the periods presented. The Bank does not have the power to significantly affect the economic performance of any of these investments because it does not act as a key decision maker nor does it have the unilateral ability to replace a key decision maker. In addition, the Bank does not design, sponsor, transfer, service, or provide credit or liquidity support in any of its investments in VIEs. The maximum loss exposure for these VIEs is limited to the Bank’s investment in the VIE.

9

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



Interest-bearing Deposits. This investment provides short-term liquidity and is carried at cost. Interest-bearing deposits include interest-bearing deposits in banks not meeting the definition of a security. Interest income on interest-bearing deposits is accrued as earned and recorded in interest income on Statements of Income.

Reclassifications of Prior Period Amounts Related to Concessions on Consolidated Obligations . On January 1, 2016, the Bank retrospectively adopted the guidance, Simplifying the Presentation of Debt Issuance Costs, issued by the Financial Accounting Standards Board (FASB) on April 7, 2015. The Bank pays concessions to dealers in connection with the issuance of certain consolidated obligations for which the Bank is the primary obligor. The amount of concessions is allocated to the Bank by the Office of Finance based on the percentage of the debt issued for which the Bank is the primary obligor. Concessions paid on consolidated obligations designated under the fair value option are expensed as incurred in non-interest expense. Concessions paid on consolidated obligations not designated under the fair value option are deferred and amortized to expense using the level-yield method over the remaining contractual life or on a retrospective basis over the estimated life of the consolidated obligations. The amortization of those concessions is included in consolidated obligation interest expense. Unamortized concessions were $8 and $9 at March 31, 2016, and December 31, 2015, respectively. Prior to the adoption of the guidance unamortized concessions were included in “Other assets.” Upon adoption of the guidance, unamortized concessions were reclassified as a reduction in the balance of the corresponding consolidated obligations, consistent with the presentation of discounts on consolidated obligations.

As a result of adopting this guidance, $9 of unamortized concessions included in other assets at December 31, 2015, was reclassified as a reduction in the balance of the corresponding consolidated obligations to conform to the financial statement presentation on the Bank’s Statements of Condition as of March 31, 2016. The reclassification resulted in a decrease of $1 in consolidated obligation discount notes and of $8 in consolidated obligation bonds at December 31, 2015. Accordingly, the Bank’s total assets and total liabilities each decreased by $9 at December 31, 2015. The adoption of this guidance did not have any effect on the Bank’s results of operations and cash flows.

Descriptions of the Bank’s significant accounting policies are included in “Item 8. Financial Statements and Supplementary Data – Note 1 – Summary of Significant Accounting Policies” in the Bank’s 2015 Form 10-K. Other changes to these policies as of March 31, 2016, are discussed in Note 2 – Recently Issued and Adopted Accounting Guidance.

Note 2 — Recently Issued and Adopted Accounting Guidance

Contingent Put and Call Options in Debt Instruments. On March 14, 2016, the FASB issued amendments to clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts. The guidance requires entities to apply only the four-step decision sequence when assessing whether the economic characteristics and risks of call (put) options are clearly and closely related to the economic characteristics and risks of their debt hosts. Consequently, when a call (put) option is contingently exercisable, an entity does not have to assess whether the event that triggers the ability to exercise a call (put) option is related to interest rates or credit risks. This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2017, and early adoption is permitted. The guidance should be applied on a modified retrospective basis to existing debt instruments as of the beginning of the period for which the amendments are effective. The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.

Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships. On March 10, 2016, the FASB issued amendments to clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under GAAP does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria continue to be met. This guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2017, and early adoption is permitted. The amendments provide entities with the option to apply the guidance using either a prospective approach or a

10

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



modified retrospective approach, retrospectively applied to all derivative instruments that meet the specific conditions. The Bank elected to early adopt the guidance prospectively on January 1, 2016. The adoption of this guidance had no effect on the Bank’s financial condition, results of operations, and cash flows.

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

The guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2019, and early application is permitted. The guidance requires lessors and lessees to recognize and measure leases at the beginning of the earliest period presented in the financial statements using a modified retrospective approach. The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.

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

The guidance becomes effective for the Bank for the interim and annual periods beginning on January 1, 2018, and early adoption is only permitted for certain provisions. The amendments, in general, should be applied by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the period of adoption. The Bank is in the process of evaluating this guidance, and its effect on the Bank’s financial condition, results of operations, and cash flows has not yet been determined.

Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement. On April 15, 2015, the FASB issued amendments to clarify a customer’s accounting for fees paid in a cloud computing arrangement. The amendments provide guidance to customers on determining whether a cloud computing arrangement includes a software license that should be accounted for as internal-use software. If the arrangement does not contain a software license, it would be accounted for as a service contract. This guidance became effective for the Bank for the interim and annual periods beginning January 1, 2016, and was adopted prospectively. The adoption of this guidance did not have an impact on the Bank’s financial condition, results of operations, or cash flows.

Simplifying the Presentation of Debt Issuance Costs. On April 7, 2015, the FASB issued guidance to simplify the presentation of debt issuance costs. This guidance requires that debt issuance costs related to a recognized debt liability be presented on the Statements of Condition as a direct deduction from the carrying amount of that debt

11

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



liability, consistent with the presentation of debt discounts. The adoption of this guidance will result in a reclassification of unamortized debt issuance costs from other assets to consolidated obligations on the Bank’s Statements of Condition. This guidance became effective for the Bank for the interim and annual periods beginning January 1, 2016, and was adopted retrospectively. See Note 1 – Basis of Presentation for discussion of the impact of reclassifications of prior period amounts.

Amendments to the Consolidation Guidance. On February 18, 2015, the FASB issued guidance intended to enhance consolidation guidance for legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). The new guidance primarily focuses on the following:
•
Placing more emphasis on risk of loss when determining a controlling financial interest. A reporting organization may no longer have to consolidate a legal entity in certain circumstances based solely on its fee arrangement, when certain criteria are met.
•
Reducing the frequency of the application of related-party guidance when determining a controlling financial interest in a VIE.
•
Potentially changing consolidation conclusions for public and private companies in several industries that typically make use of limited partnerships or VIEs.

This guidance became effective for the Bank for interim and annual periods beginning January 1, 2016. The adoption of this guidance did not affect the Bank’s financial condition, results of operations, or cash flows.

Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. On August 27, 2014, the FASB issued guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. This guidance requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year after the date the financial statements are issued or within one year after the financial statements are available to be issued, when applicable. Substantial doubt exists if it is probable that the entity will be unable to meet its obligations for the assessed period. This guidance becomes effective for the Bank for the annual period ending after December 15, 2016, and for the annual and interim periods thereafter. Early application is permitted. This guidance is not expected to affect the Bank’s financial condition, results of operations, or cash flows.

Revenue from Contracts with Customers. On May 28, 2014, the FASB issued its guidance on revenue from contracts with customers. This guidance outlines a comprehensive model for recognizing revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In addition, this guidance amends the existing requirements for the recognition of a gain or loss on the transfer of non-financial assets that are not in a contract with a customer. This guidance applies to all contracts with customers except those that are within the scope of certain other standards, such as financial instruments, certain guarantees, insurance contracts, and lease contracts.

The guidance provides entities with the option of using either of the following adoption methods: a full retrospective method, applied retrospectively to each prior reporting period presented; or a modified retrospective method, with the cumulative effect of retrospectively applying this guidance recognized at the date of initial application. The Bank is in the process of evaluating this guidance and its effect on the Bank’s financial condition, results of operations, and cash flows, but it is not expected to be material.

On August 12, 2015, the FASB issued an amendment to defer the effective date of the guidance issued in May 2014 by one year. In 2016, the FASB has issued additional amendments to clarify certain aspects of the new revenue guidance. However, the amendments do not change the core principle in the new revenue standard. The guidance is effective for the Bank for interim and annual periods beginning after December 15, 2017. Early application is permitted only as of the interim and annual reporting periods beginning after December 15, 2016.


12

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



Note 3 — Trading Securities

The estimated fair value of trading securities as of March 31, 2016, and December 31, 2015, was as follows:

 
March 31, 2016

 
December 31, 2015

Government-Sponsored Enterprises (GSEs) – Federal Farm Credit Bank (FFCB) bonds
$
1,399

 
$
1,424

MBS – Other U.S. obligations – Ginnie Mae
9

 
9

Total
$
1,408

 
$
1,433


The net unrealized gain/(loss) on trading securities was $1 and de minimis for the three months ended March 31, 2016 and 2015, respectively. These amounts represent the changes in the fair value of the securities during the reported periods.

Note 4 — Available-for-Sale Securities

Available-for-sale (AFS) securities by major security type as of March 31, 2016, and December 31, 2015, were as follows:
 
March 31, 2016
 
 
 
 
 
 
 
 
 
  
Amortized
Cost(1)

 
OTTI
Recognized in
AOCI

 
Gross
Unrealized
Gains

 
Gross
Unrealized
Losses

 
Estimated Fair Value

PLRMBS:
 
 
 
 
 
 
 
 
 
Prime
$
470

 
$
(2
)
 
$
19

 
$
—

 
$
487

Alt-A, option ARM
938

 
(47
)
 
50

 
(5
)
 
936

Alt-A, other
3,749

 
(144
)
 
120

 
(3
)
 
3,722

Total
$
5,157

 
$
(193
)
 
$
189

 
$
(8
)
 
$
5,145


December 31, 2015
 
 
 
 
 
 
 
 
 
 
Amortized
Cost(1)

 
OTTI
Recognized in
AOCI

 
Gross
Unrealized
Gains

 
Gross
Unrealized
Losses

 
Estimated Fair Value

PLRMBS:
 
 
 
 
 
 
 
 
 
Prime
$
489

 
$
(1
)
 
$
23

 
$
—

 
$
511

Alt-A, option ARM
956

 
(37
)
 
64

 
(3
)
 
980

Alt-A, other
3,926

 
(127
)
 
135

 
(11
)
 
3,923

Total
$
5,371

 
$
(165
)
 
$
222

 
$
(14
)
 
$
5,414


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

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

At March 31, 2016, the amortized cost of the Bank’s PLRMBS classified as AFS included credit-related OTTI of $981. At December 31, 2015, the amortized cost of the Bank’s PLRMBS classified as AFS included credit-related OTTI of $1,023.

The following table summarizes the AFS securities with unrealized losses as of March 31, 2016, and December 31, 2015. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position. Total unrealized losses in the following table will not agree to total gross unrealized losses in the table above. The unrealized losses in the following table also include non-credit-

13

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



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

March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
  
Less Than 12 Months
 
12 Months or More
 
Total
  
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
$
—

 
$
—

 
$
23

 
$
2

 
$
23

 
$
2

Alt-A, option ARM
208

 
1

 
414

 
51

 
622

 
52

Alt-A, other
355

 
5

 
1,425

 
142

 
1,780

 
147

Total
$
563

 
$
6

 
$
1,862

 
$
195

 
$
2,425

 
$
201

December 31, 2015
 
 
 
 
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
$
—

 
$
—

 
$
25

 
$
1

 
$
25

 
$
1

Alt-A, option ARM
—

 
—

 
435

 
40

 
435

 
40

Alt-A, other
168

 
2

 
1,521

 
136

 
1,689

 
138

Total
$
168

 
$
2

 
$
1,981

 
$
177

 
$
2,149

 
$
179


As indicated in the tables above, as of March 31, 2016, the Bank’s investments classified as AFS had unrealized losses related to PLRMBS, which were primarily due to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

Interest Rate Payment Terms. Interest rate payment terms for AFS securities at March 31, 2016, and December 31, 2015, are shown in the following table:
  
March 31, 2016

 
December 31, 2015

Amortized cost of AFS PLRMBS:
 
 
 
Collateralized mortgage obligations:
 
 
 
Fixed rate
$
1,468

 
$
1,540

Adjustable rate
3,689

 
3,831

Total
$
5,157

 
$
5,371


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

 
March 31, 2016

 
December 31, 2015

Collateralized mortgage obligations:
 
 
 
Converts in 1 year or less
$
165

 
$
102

Converts after 1 year through 5 years
29

 
99

Total
$
194

 
$
201


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


14

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



Note 5 — Held-to-Maturity Securities

The Bank classifies the following securities as HTM because the Bank has the positive intent and ability to hold these securities to maturity:
 
March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
  
Amortized
Cost(1)

 
OTTI
Recognized
in AOCI(1)

 
Carrying
Value(1)

 
Gross
Unrecognized
Holding
Gains

 
Gross
Unrecognized
Holding
Losses

 
Estimated
Fair Value

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
California Housing Finance Agency (CalHFA) bonds
$
273

 
$
—

 
$
273

 
$
—

 
$
(29
)
 
$
244

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – Ginnie Mae
1,177

 
—

 
1,177

 
25

 
(1
)
 
1,201

GSEs:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
3,506

 
—

 
3,506

 
58

 
—

 
3,564

Fannie Mae
3,897

 
—

 
3,897

 
93

 
(3
)
 
3,987

Subtotal GSEs
7,403

 
—

 
7,403

 
151

 
(3
)
 
7,551

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
858

 
—

 
858

 
—

 
(32
)
 
826

Alt-A, other
566

 
(13
)
 
553

 
12

 
(15
)
 
550

Subtotal PLRMBS
1,424

 
(13
)
 
1,411

 
12

 
(47
)
 
1,376

Total MBS
10,004

 
(13
)
 
9,991

 
188

 
(51
)
 
10,128

Total
$
10,277

 
$
(13
)
 
$
10,264

 
$
188

 
$
(80
)
 
$
10,372

 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
  
Amortized
Cost(1)

 
OTTI
Recognized
in AOCI(1)

 
Carrying
Value(1)

 
Gross
Unrecognized
Holding
Gains

 
Gross
Unrecognized
Holding
Losses

 
Estimated
Fair Value

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
California Housing Finance Agency (CalHFA) bonds
$
275

 
$
—

 
$
275

 
$
—

 
$
(33
)
 
$
242

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – Ginnie Mae
1,227

 
—

 
1,227

 
4

 
(3
)
 
1,228

GSEs:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
3,677

 
—

 
3,677

 
39

 
(20
)
 
3,696

Fannie Mae
4,136

 
—

 
4,136

 
70

 
(12
)
 
4,194

Subtotal GSEs
7,813

 
—

 
7,813

 
109

 
(32
)
 
7,890

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
905

 
—

 
905

 
—

 
(27
)
 
878

Alt-A, other
596

 
(14
)
 
582

 
14

 
(13
)
 
583

Subtotal PLRMBS
1,501

 
(14
)
 
1,487

 
14

 
(40
)
 
1,461

Total MBS
10,541

 
(14
)
 
10,527

 
127

 
(75
)
 
10,579

Total
$
10,816


$
(14
)

$
10,802


$
127


$
(108
)

$
10,821


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

At March 31, 2016, the amortized cost of the Bank’s MBS classified as HTM included premiums of $34, discounts of $37, and credit-related OTTI of $8. At December 31, 2015, the amortized cost of the Bank’s MBS classified as HTM included premiums of $39, discounts of $42, and credit-related OTTI of $8.

15

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




The following tables summarize the HTM securities with unrealized losses as of March 31, 2016, and December 31, 2015. The unrealized losses are aggregated by major security type and the length of time that individual securities have been in a continuous unrealized loss position. Total unrealized losses in the following table will not agree to the total gross unrecognized holding losses in the table above. The unrealized losses in the following table also include non-credit-related OTTI losses recognized in AOCI. For OTTI analysis of HTM securities, see Note 6 – Other-Than-Temporary Impairment Analysis.

March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
CalHFA bonds
$
—

 
$
—

 
$
244

 
$
29

 
$
244

 
$
29

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – Ginnie Mae
129

 
1

 
1

 
—

 
130

 
1

GSEs:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
50

 
—

 
19

 
—

 
69

 
—

Fannie Mae
81

 
—

 
112

 
3

 
193

 
3

Subtotal GSEs
131

 
—

 
131

 
3

 
262

 
3

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
188

 
3

 
638

 
29

 
826

 
32

Alt-A, other
8

 
—

 
542

 
28

 
550

 
28

Subtotal PLRMBS
196

 
3

 
1,180

 
57

 
1,376

 
60

Total MBS
456

 
4

 
1,312

 
60

 
1,768

 
64

Total
$
456

 
$
4

 
$
1,556

 
$
89

 
$
2,012

 
$
93

 
December 31, 2015
 
 
 
 
 
 
 
 
 
 
 
 
Less Than 12 Months
 
12 Months or More
 
Total
 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

 
Estimated
Fair Value

 
Unrealized
Losses

Housing finance agency bonds:
 
 
 
 
 
 
 
 
 
 
 
CalHFA bonds
$
—

 
$
—

 
$
240

 
$
33

 
$
240

 
$
33

MBS:
 
 
 
 
 
 
 
 
 
 
 
Other U.S. obligations – Ginnie Mae
799

 
3

 
2

 
—

 
801

 
3

GSEs:
 
 
 
 
 
 
 
 
 
 
 
Freddie Mac
1,736

 
20

 
20

 
—

 
1,756

 
20

Fannie Mae
1,095

 
9

 
154

 
3

 
1,249

 
12

Subtotal GSEs
2,831

 
29

 
174

 
3

 
3,005

 
32

PLRMBS:
 
 
 
 
 
 
 
 
 
 
 
Prime
165

 
1

 
676

 
26

 
841

 
27

Alt-A, other
10

 
—

 
573

 
27

 
583

 
27

Subtotal PLRMBS
175

 
1

 
1,249

 
53

 
1,424

 
54

Total MBS
3,805

 
33

 
1,425

 
56

 
5,230

 
89

Total
$
3,805

 
$
33

 
$
1,665

 
$
89

 
$
5,470

 
$
122


As indicated in the tables above, the Bank’s investments classified as HTM had unrealized losses on CalHFA bonds and MBS. The unrealized losses associated with the CalHFA bonds were mainly due to an illiquid market, credit concerns regarding the underlying mortgage collateral, and credit concerns regarding the monoline insurance providers, causing these investments to be valued at a discount to their acquisition cost. For its agency MBS, the

16

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



Bank expects to recover the entire amortized cost basis of these securities because the Bank determined that the strength of the issuers’ guarantees through direct obligations or support from the U.S. government is sufficient to protect the Bank from losses. The unrealized losses associated with the PLRMBS were primarily due to illiquidity in the PLRMBS market and market expectations of the credit performance of loan collateral underlying these securities, which caused these assets to be valued at discounts to their amortized cost.

Redemption Terms. The amortized cost, carrying value, and estimated fair value of non-MBS securities by contractual maturity (based on contractual final principal payment) and of MBS as of March 31, 2016, and December 31, 2015, are shown below. Expected maturities of MBS will differ from contractual maturities because borrowers generally have the right to prepay the underlying obligations without prepayment fees.

March 31, 2016
 
 
 
 
 
Year of Contractual Maturity
Amortized
Cost(1)

 
Carrying
Value(1)

 
Estimated
Fair Value

HTM securities other than MBS:
 
 
 
 
 
Due after 5 years through 10 years
$
61


$
61

 
$
56

Due after 10 years
212

 
212

 
188

Subtotal
273

 
273

 
244

MBS
10,004

 
9,991

 
10,128

Total
$
10,277

 
$
10,264

 
$
10,372

 
December 31, 2015
 
 
 
 
 
Year of Contractual Maturity
Amortized
Cost(1)

 
Carrying
Value(1)

 
Estimated
Fair Value

HTM securities other than MBS:
 
 
 
 
 
Due after 5 years through 10 years
$
60

 
$
60

 
$
56

Due after 10 years
215

 
215

 
186

Subtotal
275

 
275

 
242

MBS
10,541

 
10,527

 
10,579

Total
$
10,816

 
$
10,802

 
$
10,821


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

Interest Rate Payment Terms. Interest rate payment terms for HTM securities at March 31, 2016, and December 31, 2015, are detailed in the following table:
 
  
March 31, 2016

 
December 31, 2015

Amortized cost of HTM securities other than MBS:
 
 
 
Adjustable rate
$
273


$
275

Subtotal
273


275

Amortized cost of HTM MBS:
 
 
 
Passthrough securities:
 
 
 
Fixed rate
134


146

Adjustable rate
400


416

Collateralized mortgage obligations:
 
 
 
Fixed rate
6,842


7,224

Adjustable rate
2,628


2,755

Subtotal
10,004


10,541

Total
$
10,277


$
10,816


17

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




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

 
March 31, 2016

 
December 31, 2015

Passthrough securities:
 
 
 
Converts in 1 year or less
$
21

 
$
22

Converts after 1 year through 5 years
107

 
119

Total
$
128

 
$
141

Collateralized mortgage obligations:
 
 
 
Converts in 1 year or less
$
6

 
$
7

Converts after 1 year through 5 years
13

 
13

Total
$
19

 
$
20


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

Note 6 — Other-Than-Temporary Impairment Analysis

On a quarterly basis, the Bank evaluates its individual AFS and HTM investment securities in an unrealized loss position for OTTI. As part of this evaluation, the Bank considers whether it intends to sell each debt security and whether it is more likely than not that it will be required to sell the debt security before its anticipated recovery of the amortized cost basis. If either of these conditions is met, the Bank recognizes an OTTI charge to earnings equal to the entire difference between the security’s amortized cost basis and its fair value at the statement of condition date. For securities in an unrealized loss position that do not meet either of these conditions (the most common situation), the Bank considers whether it expects to recover the entire amortized cost basis of the security by comparing its best estimate of the present value of the cash flows expected to be collected from the security with the amortized cost basis of the security. If the Bank’s best estimate of the present value of the cash flows expected to be collected is less than the amortized cost basis, the difference is considered the credit loss.

PLRMBS. A significant input to the Bank’s cash flow analysis of its PLRMBS is the forecast of future housing price changes. The OTTI Governance Committee of the Federal Home Loan Banks (FHLBanks) developed a short-term housing price forecast with projected changes ranging from a decrease of 1.0% to an increase of 8.0% over the 12-month period beginning January 1, 2016. For the vast majority of markets, the projected short-term housing price changes range from an increase of 3.0% to an increase of 5.0%. Thereafter, a unique path is projected for each geographic area based on an internally developed framework derived from historical data.

18

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




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

For securities determined to be other-than-temporarily impaired as of March 31, 2016 (securities for which the Bank determined that it does not expect to recover the entire amortized cost basis), the following table presents a summary of the significant inputs used in measuring the amount of credit loss recognized in earnings during the first quarter of 2016, and the related current credit enhancement for the Bank.

March 31, 2016
 
 
 
 
 
 
 
 
Significant Inputs for Other-Than-Temporarily Impaired PLRMBS
 
Current
 
Prepayment Rates
 
Default Rates
 
Loss Severities
 
Credit Enhancement
Year of Securitization
Weighted Average % (1)
 
Weighted Average % (1)
 
Weighted Average % (1)
 
Weighted Average % (1)
Prime
 
 
 
 
 
 
 
2006
14.7
 
17.7
 
34.5
 
—
Total Prime
14.7
 
17.7
 
34.5
 
—
Alt-A, option ARM
 
 
 
 
 
 
 
2007
7.0
 
30.8
 
39.8
 
22.5
Total Alt-A, option ARM
7.0
 
30.8
 
39.8
 
22.5
Alt-A, other
 
 
 
 
 
 
 
2007
10.2
 
28.2
 
37.0
 
2.9
2005
13.6
 
14.9
 
39.5
 
3.8
Total Alt-A, other
11.9
 
21.7
 
38.2
 
3.3
Total
10.4
 
24.3
 
38.7
 
8.9

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

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

The following table presents the credit-related OTTI, which is recognized in earnings, for the three months ended March 31, 2016 and 2015.
 
Three Months Ended
 
March 31, 2016

 
March 31, 2015

Balance, beginning of the period
$
1,255

 
$
1,314

Additional charges on securities for which OTTI was previously recognized(1)
7

 
2

Accretion of yield adjustments resulting from improvement of expected cash flows that are recognized over the remaining life of the securities(2)
(23
)
 
(19
)
Balance, end of the period
$
1,239

 
$
1,297


(1)
For the three months ended March 31, 2016 and 2015, “securities for which OTTI was previously recognized” represents all securities that were also other-than-temporarily impaired prior to January 1, 2016 and 2015, respectively.
(2) The total accretion or amortization associated with other-than-temporarily impaired PLRMBS (amount recognized in interest income) totaled $26 and $19 for the three months ended March 31, 2016 and 2015, respectively.


19

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



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

The Bank elected to transfer any PLRMBS that incurred a credit-related OTTI charge during the applicable period from the Bank’s held-to-maturity portfolio to its available-for-sale portfolio at their fair values. The Bank recognized an OTTI credit loss on these held-to-maturity PLRMBS, which the Bank believes is evidence of a significant decline in the issuers’ creditworthiness. The decline in the issuers’ creditworthiness is the basis for the transfers to the available-for-sale portfolio. These transfers allow the Bank the option to sell these securities prior to maturity in view of changes in interest rates, changes in prepayment risk, or other factors, while recognizing the Bank’s intent to hold these securities for an indefinite period of time. The Bank does not intend to sell its other-than-temporarily impaired securities and it is not more likely than not that the Bank will be required to sell any security before its anticipated recovery of the remaining amortized cost basis.

The following table summarizes the PLRMBS transferred from the Bank’s HTM portfolio to its AFS portfolio during the three months ended March 31, 2015. The amounts shown represent the values when the securities were transferred from the HTM portfolio to the AFS portfolio. The Bank did not transfer any PLRMBS from its HTM portfolio to its AFS portfolio during the three months ended March 31, 2016.
 
Three Months Ended March 31, 2015
 
Amortized
Cost

 
OTTI
Recognized
in AOCI

 
Gross
Unrecognized
Holding
Gains (Losses)

 
Estimated
Fair Value

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
 
 
 
 
 
 
 
Prime
$
4

 
$
—

 
$
—

 
$
4

Total
$
4

 
$
—

 
$
—

 
$
4


The following tables present the Bank’s AFS and HTM PLRMBS that incurred OTTI losses anytime during the life of the securities at March 31, 2016, and December 31, 2015, by loan collateral type:

March 31, 2016
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Available-for-Sale Securities
 
Held-to-Maturity Securities
 
Unpaid
Principal
Balance

 
Amortized
Cost

 
Estimated
Fair Value

 
Unpaid
Principal
Balance

 
Amortized
Cost

 
Carrying
Value

 
Estimated
Fair Value

Other-than-temporarily impaired PLRMBS backed by loans classified at origination as:
 
 
 
 
 
 
 
 
 
 
 
 
 
Prime
$
568

 
$
470

 
$
487

 
$
—

 
$
—

 
$
—

 
$
—

Alt-A, option ARM
1,237

 
938

 
936

 
—

 
—

 
—

 
—

Alt-A, other
4,324

 
3,749

 
3,722

 
107

 
103

 
90

 
103

Total
$
6,129

 
$
5,157

 
$
5,145

 
$
107

 
$
103

 
$
90

 
$
103



20

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



December 31, 2015