10-Q 1 a630201910q.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
þ
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 000-51405
FEDERAL HOME LOAN BANK OF DALLAS
(Exact name of registrant as specified in its charter)
Federally chartered corporation
(State or other jurisdiction of incorporation
or organization)
 
71-6013989
(I.R.S. Employer
Identification Number)
 
 
 
8500 Freeport Parkway South, Suite 600
Irving, TX
(Address of principal executive offices)
 
75063-2547
(Zip code)
(214) 441-8500
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading symbol(s)
Name of each exchange on which registered
 
 
 
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 requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (17 C.F.R. §232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large accelerated
filer o
 
Accelerated
filer o
 
Non-accelerated
filer þ
 
Smaller reporting
company o
 
Emerging growth
company o
 
 
 
 
(Do not check if a smaller reporting company)
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
At August 2, 2019, the registrant had outstanding 26,321,678 shares of its Class B Capital Stock, $100 par value per share.
 



FEDERAL HOME LOAN BANK OF DALLAS
TABLE OF CONTENTS

 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 EX-31.1
 EX-31.2
 EX-32.1
 EX-101 INSTANCE DOCUMENT
 EX-101 SCHEMA DOCUMENT
 EX-101 CALCULATION LINKBASE DOCUMENT
 EX-101 LABELS LINKBASE DOCUMENT
 EX-101 PRESENTATION LINKBASE DOCUMENT
 EX-101 DEFINITION LINKBASE DOCUMENT




PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CONDITION
(Unaudited; in thousands, except share data)
 
June 30,
2019
 
December 31,
2018
ASSETS
 

 
 

Cash and due from banks
$
52,382

 
$
35,157

Interest-bearing deposits
1,146,261

 
2,500,317

Securities purchased under agreements to resell (Note 11)
5,135,000

 
6,215,000

Federal funds sold
4,755,000

 
1,731,000

Trading securities (Note 3)
3,431,038

 
1,818,178

Available-for-sale securities (Notes 4, 11 and 16) ($757,046 and $712,547 pledged at June 30, 2019 and December 31, 2018, respectively, which could be rehypothecated)
16,679,261

 
15,825,155

Held-to-maturity securities (a) (Note 5)
1,259,267

 
1,462,279

Advances (Notes 6 and 8)
38,778,599

 
40,793,813

Mortgage loans held for portfolio, net of allowance for credit losses of $731 and $493 at June 30, 2019 and December 31, 2018, respectively (Notes 7 and 8)
3,034,267

 
2,185,503

Accrued interest receivable
165,900

 
152,670

Premises and equipment, net
15,395

 
16,419

Derivative assets (Notes 11 and 12)
34,025

 
9,878

Other assets (including $13,166 and $12,376 of securities held at fair value at June 30, 2019 and December 31, 2018, respectively)
31,848

 
27,921

TOTAL ASSETS
$
74,518,243

 
$
72,773,290

 
 
 
 
LIABILITIES AND CAPITAL
 
 
 
Deposits
 
 
 
Interest-bearing
$
881,973

 
$
963,972

Non-interest bearing
20

 
20

Total deposits
881,993

 
963,992

Consolidated obligations (Note 9)
 
 
 
Discount notes
39,656,798

 
35,731,713

Bonds
29,481,562

 
31,931,929

Total consolidated obligations
69,138,360

 
67,663,642

 
 
 
 
Loan from other FHLBank (Note 18)
400,000

 

Mandatorily redeemable capital stock
7,093

 
6,979

Accrued interest payable
114,349

 
122,938

Affordable Housing Program (Note 10)
48,049

 
44,358

Derivative liabilities (Notes 11 and 12)
3,553

 
45,991

Other liabilities (Note 4)
106,781

 
161,134

Total liabilities
70,700,178

 
69,009,034

 
 
 
 
Commitments and contingencies (Notes 8 and 16)


 


 
 
 
 
CAPITAL (Note 13)
 
 
 
Capital stock
 
 
 
Capital stock — Class B-1 putable ($100 par value) issued and outstanding shares: 10,331,124 and 9,169,206 shares at June 30, 2019 and December 31, 2018, respectively
1,033,112

 
916,921

Capital stock — Class B-2 putable ($100 par value) issued and outstanding shares: 15,494,815 and 16,379,675 shares at June 30, 2019 and December 31, 2018, respectively
1,549,482

 
1,637,967

Total Class B Capital Stock
2,582,594

 
2,554,888

Retained earnings
 
 
 
Unrestricted
984,180

 
932,675

Restricted
171,187

 
148,692

Total retained earnings
1,155,367

 
1,081,367

Accumulated other comprehensive income (Note 19)
80,104

 
128,001

Total capital
3,818,065

 
3,764,256

TOTAL LIABILITIES AND CAPITAL
$
74,518,243

 
$
72,773,290

_____________________________
(a) 
Fair values: $1,271,314 and $1,478,691 at June 30, 2019 and December 31, 2018, respectively.
The accompanying notes are an integral part of these financial statements.

1


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF INCOME
(Unaudited, in thousands)

 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
INTEREST INCOME
 
 
 
 
 
 
 
 
Advances
 
$
244,658

 
$
198,670

 
$
482,522

 
$
354,015

Prepayment fees on advances, net
 
553

 
588

 
677

 
2,569

Interest-bearing deposits
 
8,368

 
939

 
19,489

 
1,708

Securities purchased under agreements to resell
 
26,177

 
15,745

 
51,474

 
22,924

Federal funds sold
 
15,953

 
17,417

 
34,457

 
46,405

Trading securities
 
19,079

 
2,597

 
37,104

 
3,166

Available-for-sale securities
 
112,788

 
104,402

 
231,796

 
184,360

Held-to-maturity securities
 
10,451

 
11,692

 
21,504

 
21,924

Mortgage loans held for portfolio
 
26,753

 
10,466

 
49,847

 
19,088

Total interest income
 
464,780

 
362,516

 
928,870

 
656,159

INTEREST EXPENSE
 
 
 
 
 
 
 
 
Consolidated obligations
 
 
 
 
 
 
 
 
Bonds
 
166,004

 
161,726

 
356,772

 
289,871

Discount notes
 
231,322

 
120,960

 
427,573

 
215,496

Deposits
 
4,697

 
3,794

 
9,619

 
6,579

Mandatorily redeemable capital stock
 
53

 
6

 
105

 
31

Other borrowings
 
110

 
18

 
111

 
77

Total interest expense
 
402,186

 
286,504

 
794,180

 
512,054

NET INTEREST INCOME
 
62,594

 
76,012

 
134,690

 
144,105

Provision for mortgage loan losses
 
120

 
7

 
238

 
7

 
 
 
 
 
 
 
 
 
NET INTEREST INCOME AFTER PROVISION FOR MORTGAGE LOAN LOSSES
 
62,474

 
76,005

 
134,452

 
144,098

 
 
 
 
 
 
 
 
 
OTHER INCOME (LOSS)
 
 
 
 
 
 
 
 
Net gains (losses) on trading securities
 
4,852

 
(542
)
 
8,079

 
(2,890
)
Net gains (losses) on derivatives and hedging activities
 
12,790

 
(2,347
)
 
21,556

 
(524
)
Net gains on other assets carried at fair value
 
353

 
202

 
1,266

 
215

Realized gains on sales of available-for-sale securities
 
140

 

 
580

 

Letter of credit fees
 
2,984

 
2,265

 
5,764

 
4,411

Other, net
 
1,025

 
847

 
1,876

 
1,487

Total other income
 
22,144

 
425

 
39,121

 
2,699

OTHER EXPENSE
 
 
 
 
 
 
 
 
Compensation and benefits
 
12,380

 
11,683

 
25,946

 
24,235

Other operating expenses
 
9,597

 
8,266

 
17,631

 
16,115

Finance Agency
 
1,183

 
876

 
2,366

 
1,839

Office of Finance
 
1,050

 
838

 
1,998

 
1,768

Discretionary grants and donations
 
1

 
195

 
39

 
1,583

Derivative clearing fees
 
314

 
311

 
610

 
620

Total other expense
 
24,525

 
22,169

 
48,590

 
46,160

INCOME BEFORE ASSESSMENTS
 
60,093

 
54,261

 
124,983

 
100,637

Affordable Housing Program assessment
 
6,015

 
5,427

 
12,509

 
10,067

NET INCOME
 
$
54,078

 
$
48,834

 
$
112,474

 
$
90,570

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

2


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited, in thousands)

 
 
For the Three Months Ended
 
For the Six Months Ended
 
 
June 30,
 
June 30,
 
 
2019
 
2018
 
2019
 
2018
NET INCOME
 
$
54,078

 
$
48,834

 
$
112,474

 
$
90,570

OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
 
Net unrealized gains (losses) on available-for-sale securities, net of unrealized gains and losses relating to hedged interest rate risk included in net income
 
(44,739
)
 
(36,262
)
 
7,524

 
4,137

Reclassification adjustment for realized gains on sales of available-for-sale securities included in net income
 
(140
)
 

 
(580
)
 

Unrealized gains (losses) on cash flow hedges
 
(33,976
)
 
4,726

 
(54,366
)
 
18,566

Reclassification adjustment for (gains) losses on cash flow hedges included in net income
 
(765
)
 
(273
)
 
(1,572
)
 
37

Accretion of non-credit portion of other-than-temporary impairment losses to the carrying value of held-to-maturity securities
 
540

 
780

 
1,133

 
1,553

Postretirement benefit plan
 
 
 
 
 
 
 
 
Amortization of prior service cost included in net periodic benefit credit
 
5

 
5

 
10

 
10

Amortization of net actuarial gain included in net periodic benefit credit
 
(23
)
 
(27
)
 
(46
)
 
(53
)
Total other comprehensive income (loss)
 
(79,098
)
 
(31,051
)
 
(47,897
)
 
24,250

TOTAL COMPREHENSIVE INCOME (LOSS)
 
$
(25,020
)
 
$
17,783

 
$
64,577

 
$
114,820


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

3





FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CAPITAL
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Unaudited, in thousands)

 
Capital Stock
Class B-1 - Putable
(Membership/Excess)
 
Capital Stock
Class B-2 - Putable
(Activity)
 
 
 
 
 
 
 
Accumulated
 Other
Comprehensive
 Income (Loss)
 
 
 
 
 
Retained Earnings
 
 
Total
 Capital
 
Shares
 
Par Value
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, APRIL 1, 2019
9,882

 
$
988,183

 
14,434

 
$
1,443,394

 
$
960,243

 
$
160,372

 
$
1,120,615

 
$
159,202

 
$
3,711,394

Net transfers of shares between Class B-1 and Class B-2 Stock
4,139

 
413,955

 
(4,139
)
 
(413,955
)
 

 

 

 

 

Proceeds from sale of capital stock
30

 
3,024

 
5,200

 
520,043

 

 

 

 

 
523,067

Repurchase/redemption of capital stock
(3,913
)
 
(391,297
)
 

 

 

 

 

 

 
(391,297
)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
43,263

 
10,815

 
54,078

 

 
54,078

Other comprehensive income (loss)

 

 

 

 

 

 

 
(79,098
)
 
(79,098
)
Dividends on capital stock (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 

 

 
(65
)
 

 
(65
)
 

 
(65
)
Mandatorily redeemable capital stock

 

 

 

 
(14
)
 

 
(14
)
 

 
(14
)
Stock
193

 
19,247

 

 

 
(19,247
)
 

 
(19,247
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JUNE 30, 2019
10,331

 
$
1,033,112

 
15,495

 
$
1,549,482

 
$
984,180

 
$
171,187

 
$
1,155,367

 
$
80,104

 
$
3,818,065

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, APRIL 1, 2018
9,307

 
$
930,662

 
14,203

 
$
1,420,281

 
$
855,150

 
$
117,285

 
$
972,435

 
$
275,627

 
$
3,599,005

Net transfers of shares between Class B-1 and Class B-2 Stock
2,561

 
256,164

 
(2,561
)
 
(256,164
)
 

 

 

 

 

Proceeds from sale of capital stock
97

 
9,711

 
5,954

 
595,466

 

 

 

 

 
605,177

Repurchase/redemption of capital stock
(3,096
)
 
(309,577
)
 

 

 

 

 

 

 
(309,577
)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 

 

 
39,068

 
9,766

 
48,834

 

 
48,834

Other comprehensive income (loss)

 

 

 

 

 

 

 
(31,051
)
 
(31,051
)
Dividends on capital stock (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 

 

 
(68
)
 

 
(68
)
 

 
(68
)
Mandatorily redeemable capital stock

 

 

 

 
(1
)
 

 
(1
)
 

 
(1
)
Stock
135

 
13,512

 

 

 
(13,512
)
 

 
(13,512
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JUNE 30, 2018
9,004

 
$
900,472

 
17,596

 
$
1,759,583

 
$
880,637

 
$
127,051

 
$
1,007,688

 
$
244,576

 
$
3,912,319


4





 
Capital Stock
Class B-1 - Putable
(Membership/Excess)
 
Capital Stock
Class B-2 - Putable
(Activity)
 
 
 
 
 
 
 
Accumulated
 Other
Comprehensive
 Income (Loss)
 
 
 
 
 
Retained Earnings
 
 
Total
 Capital
 
Shares
 
Par Value
 
Shares
 
Par Value
 
Unrestricted
 
Restricted
 
Total
 
 
BALANCE, JANUARY 1, 2019
9,169

 
$
916,921

 
16,380

 
$
1,637,967

 
$
932,675

 
$
148,692

 
$
1,081,367

 
$
128,001

 
$
3,764,256

Net transfers of shares between Class B-1 and Class B-2 Stock
9,468

 
946,796

 
(9,468
)
 
(946,796
)
 

 

 

 

 

Proceeds from sale of capital stock
33

 
3,366

 
8,583

 
858,311

 

 

 

 

 
861,677

Repurchase/redemption of capital stock
(8,699
)
 
(869,936
)
 

 

 

 

 

 

 
(869,936
)
Shares reclassified to mandatorily redeemable capital stock
(23
)
 
(2,326
)
 

 

 

 

 

 

 
(2,326
)
Adjustment to initially apply new lease accounting guidance (Note 2)

 

 

 

 
(25
)
 

 
(25
)
 

 
(25
)
Comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 

 

 
89,979

 
22,495

 
112,474

 

 
112,474

Other comprehensive income (loss)

 

 

 

 

 

 

 
(47,897
)
 
(47,897
)
Dividends on capital stock (a)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 

 

 
(131
)
 

 
(131
)
 

 
(131
)
Mandatorily redeemable capital stock

 

 

 

 
(27
)
 

 
(27
)
 

 
(27
)
Stock
383

 
38,291

 

 

 
(38,291
)
 

 
(38,291
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JUNE 30, 2019
10,331

 
$
1,033,112

 
15,495

 
$
1,549,482

 
$
984,180

 
$
171,187

 
$
1,155,367

 
$
80,104

 
$
3,818,065

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JANUARY 1, 2018
8,534

 
$
853,462

 
14,645

 
$
1,464,475

 
$
832,826

 
$
108,937

 
$
941,763

 
$
220,326

 
$
3,480,026

Net transfers of shares between Class B-1 and Class B-2 Stock
7,806

 
780,627

 
(7,806
)
 
(780,627
)
 

 

 

 

 

Proceeds from sale of capital stock
104

 
10,447

 
10,757

 
1,075,735

 

 

 

 

 
1,086,182

Repurchase/redemption of capital stock
(7,682
)
 
(768,189
)
 

 

 

 

 

 

 
(768,189
)
Shares reclassified to mandatorily redeemable capital stock
(3
)
 
(386
)
 

 

 

 

 

 

 
(386
)
Comprehensive income
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 Net income

 

 

 

 
72,456

 
18,114

 
90,570

 

 
90,570

Other comprehensive income

 

 

 

 

 

 

 
24,250

 
24,250

Dividends on capital stock (b)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash

 

 

 

 
(133
)
 

 
(133
)
 

 
(133
)
Mandatorily redeemable capital stock

 

 

 

 
(1
)
 

 
(1
)
 

 
(1
)
Stock
245

 
24,511

 

 

 
(24,511
)
 

 
(24,511
)
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE, JUNE 30, 2018
9,004

 
$
900,472

 
17,596

 
$
1,759,583

 
$
880,637

 
$
127,051

 
$
1,007,688

 
$
244,576

 
$
3,912,319


(a) Dividends were paid at annualized rates of 2.35 percent and 3.35 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the first quarter of 2019 and annualized rates of 2.50 percent and 3.50 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the second quarter of 2019.

(b) Dividends were paid at annualized rates of 1.33 percent and 2.33 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the first quarter of 2018 and annualized rates of 1.65 percent and 2.65 percent on Class B-1 Stock and Class B-2 Stock, respectively, in the second quarter of 2018.
The accompanying notes are an integral part of these financial statements.

5


FEDERAL HOME LOAN BANK OF DALLAS
STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
 
For the Six Months Ended
 
June 30,
 
2019
 
2018
OPERATING ACTIVITIES
 
 
 
Net income
$
112,474

 
$
90,570

Adjustments to reconcile net income to net cash provided by (used in) operating activities
 
 
 
Depreciation and amortization
 
 
 
Net premiums and discounts on advances, consolidated obligations, investments and mortgage loans
55,523

 
47,963

Concessions on consolidated obligations
3,640

 
2,692

Premises, equipment and computer software costs
2,066

 
1,824

Non-cash interest on mandatorily redeemable capital stock
102

 
47

Provision for mortgage loan losses
238

 
7

Gains on sales of available-for-sale securities
(580
)
 

Net gains on other assets carried at fair value
(1,266
)
 
(215
)
Net losses (gains) on trading securities
(8,079
)
 
2,890

Loss (gain) due to changes in net fair value adjustment on derivative and hedging activities
(657,843
)
 
260,783

Increase in accrued interest receivable
(13,191
)
 
(26,279
)
Decrease (increase) in other assets
24

 
(2,213
)
Increase in Affordable Housing Program (AHP) liability
3,691

 
2,979

Increase (decrease) in accrued interest payable
(8,582
)
 
16,747

Increase (decrease) in other liabilities
362

 
(5,182
)
Total adjustments
(623,895
)
 
302,043

Net cash provided by (used in) operating activities
(511,421
)
 
392,613

 
 
 
 
INVESTING ACTIVITIES
 
 
 
Net decrease (increase) in interest-bearing deposits, including swap collateral pledged
1,355,219

 
(64,922
)
Net decrease in securities purchased under agreements to resell
1,080,000

 
2,260,000

Net increase in federal funds sold
(3,024,000
)
 
(653,000
)
Purchases of trading securities
(18,128,582
)
 
(991,320
)
Proceeds from sales of trading securities
15,101,184

 

Proceeds from maturities of trading securities
1,435,450

 

Purchases of available-for-sale securities
(844,689
)
 
(1,064,115
)
Proceeds from maturities of available-for-sale securities
260,109

 
181,281

Proceeds from sales of available-for-sale securities
436,019

 

Proceeds from maturities of held-to-maturity securities
204,654

 
174,179

Principal collected on advances
318,036,587

 
405,252,902

Advances made
(315,849,697
)
 
(412,428,170
)
Principal collected on mortgage loans held for portfolio
122,935

 
37,668

Purchases of mortgage loans held for portfolio
(972,825
)
 
(482,238
)
Purchases of premises, equipment and computer software
(1,171
)
 
(2,384
)
Net cash used in investing activities
(788,807
)
 
(7,780,119
)
 
 
 
 

6


 
For the Six Months Ended
 
June 30,
 
2019
 
2018
FINANCING ACTIVITIES
 
 
 
Net increase (decrease) in deposit liabilities, including swap collateral held
(82,897
)
 
235,229

Net receipts (payments) on derivative contracts with financing elements
(161,717
)
 
75,404

Increase in loan from other FHLBank
400,000

 

Net proceeds from issuance of consolidated obligations
 

 
 
Discount notes
152,786,615

 
143,693,045

Bonds
16,100,319

 
8,702,217

Debt issuance costs
(3,780
)
 
(3,008
)
Payments for maturing and retiring consolidated obligations
 
 
 
Discount notes
(148,909,387
)
 
(136,911,184
)
Bonds
(18,800,970
)
 
(8,769,500
)
Proceeds from issuance of capital stock
861,677

 
1,086,182

Payments for redemption of mandatorily redeemable capital stock
(2,340
)
 
(5,550
)
Payments for repurchase/redemption of capital stock
(869,936
)
 
(768,189
)
Cash dividends paid
(131
)
 
(133
)
Net cash provided by financing activities
1,317,453

 
7,334,513

 
 
 
 
Net increase (decrease) in cash and cash equivalents
17,225

 
(52,993
)
Cash and cash equivalents at beginning of the period
35,157

 
87,965

Cash and cash equivalents at end of the period
$
52,382

 
$
34,972

 
 
 
 
Supplemental Disclosures:
 
 
 
Interest paid
$
745,624

 
$
460,500

AHP payments, net
$
8,818

 
$
7,088

Stock dividends issued
$
38,291

 
$
24,511

Dividends paid through issuance of mandatorily redeemable capital stock
$
27

 
$
1

Variation margin recharacterized as settlement payments on derivative contracts (Note 11)
$

 
$
250,468

Net capital stock reclassified to mandatorily redeemable capital stock
$
2,326

 
$
386

Right-of-use assets acquired by lease
$
2,539

 
$


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

7


FEDERAL HOME LOAN BANK OF DALLAS
NOTES TO INTERIM UNAUDITED FINANCIAL STATEMENTS

Note 1—Basis of Presentation
The accompanying interim financial statements of the Federal Home Loan Bank of Dallas (the “Bank”) are unaudited and have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions provided by Article 10, Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. The financial statements contain all adjustments that are, in the opinion of management, necessary for a fair statement of the Bank’s financial position, results of operations and cash flows for the interim periods presented. All such adjustments were of a normal recurring nature. The results of operations for the periods presented are not necessarily indicative of the results to be expected for the full fiscal year or any other interim period.
The Bank’s significant accounting policies and certain other disclosures are set forth in the notes to the audited financial statements for the year ended December 31, 2018. The interim financial statements presented herein should be read in conjunction with the Bank’s audited financial statements and notes thereto, which are included in the Bank’s Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 25, 2019 (the “2018 10-K”). The notes to the interim financial statements update and/or highlight significant changes to the notes included in the 2018 10-K.
The Bank is one of 11 district Federal Home Loan Banks, each individually a “FHLBank” and collectively the “FHLBanks,” and, together with the Office of Finance, a joint office of the FHLBanks, the “FHLBank System.” The Office of Finance manages the sale and servicing of the FHLBanks’ consolidated obligations. The Federal Housing Finance Agency (“Finance Agency”), an independent agency in the executive branch of the U.S. government, supervises and regulates the housing government-sponsored enterprises ("GSEs"), including the FHLBanks and the Office of Finance.
     Use of Estimates and Assumptions. The preparation of financial statements in conformity with U.S. GAAP requires management to make assumptions and estimates. These assumptions and estimates may affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. Significant estimates include the valuations of the Bank’s investment securities, as well as its derivative instruments and any associated hedged items. Actual results could differ from these estimates.

Note 2—Recently Adopted Accounting Guidance
Leases. On February 25, 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, "Leases" (“ASU 2016-02”), which requires entities that lease assets (lessees) to recognize in the balance sheet assets and liabilities for the rights and obligations created by those leases. Specifically, ASU 2016-02 requires a lessee of operating or finance leases to recognize a right-of-use asset and a liability to make lease payments for leases with terms of more than 12 months. Lessor accounting will remain largely unchanged from current U.S. GAAP. The guidance is to be applied using a retrospective transition method to each period presented or, alternatively, by recognizing a cumulative effect adjustment to the opening balance of retained earnings in the period of adoption. The transition method allowing for a cumulative effect adjustment to the opening balance of retained earnings is provided by ASU 2018-11, "Leases: Targeted Improvements" ("ASU 2018-11"). ASU 2018-11 was issued by the FASB on July 30, 2018. ASU 2016-02 also requires extensive quantitative and qualitative disclosures to help financial statement users understand the amount, timing and uncertainty of cash flows arising from leases. For public business entities, the guidance in ASU 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 (January 1, 2019 for the Bank). Early adoption was permitted. The Bank adopted ASU 2016-02 effective January 1, 2019. In conjunction with the adoption of ASU 2016-02 (as amended by ASU 2018-11), the Bank recorded (on January 1, 2019) a cumulative effect adjustment to retained earnings of $25,000 and right-of-use assets and lease liabilities approximating $2,500,000. These assets and liabilities are included in other assets and other liabilities, respectively. Because these amounts are insignificant, the Bank has not provided any quantitative or qualitative disclosures regarding its right-of-use assets and lease liabilities in these financial statements.
Premium Amortization on Purchased Callable Debt Securities. On March 30, 2017, the FASB issued ASU 2017-08, "Premium Amortization on Purchased Callable Debt Securities" ("ASU 2017-08"), which amends the amortization period for certain purchased callable debt securities held at a premium, shortening such period to the earliest call date. For public business entities, the guidance in ASU 2017-08 is effective for fiscal years beginning after December 15, 2018 (January 1, 2019 for the Bank), and interim periods within those fiscal years. Early adoption, including adoption in an interim period, was permitted. If an entity early adopted ASU 2017-08 in an interim period, any adjustments were to be reflected as of the beginning of the fiscal year that included that interim period. The guidance was to be applied using a modified retrospective transition approach, with the cumulative-effect adjustment recognized in retained earnings as of the beginning of the period of adoption. The Bank

8


adopted ASU 2017-08 on January 1, 2019. The adoption of this guidance did not have any impact on the Bank's results of operations or financial condition.
Derivatives and Hedging. On August 28, 2017, the FASB issued ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which is intended to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. This guidance requires that, for fair value hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness be presented in the same income statement line that is used to present the earnings effect of the hedged item. For cash flow hedges, the entire change in the fair value of the hedging instrument included in the assessment of hedge effectiveness must be recorded in other comprehensive income. In addition, the guidance provides for, but does not require, the use of a qualitative method of assessing hedge ineffectiveness. Among other things, the guidance also permits, but does not require, the following:
For fair value hedges, measurement of the change in fair value of the hedged item on the basis of the benchmark rate component of the contractual coupon cash flows determined at hedge inception.
Partial-term fair value hedges of interest-rate risk, in which it can be assumed that the hedged item has a term that reflects only the designated cash flows being hedged.
For prepayable financial instruments, consideration only of how changes in the benchmark interest rate affect a decision to settle a debt instrument before its scheduled maturity in calculating the change in the fair value of the hedged item attributable to interest rate risk.
For a cash flow hedge of interest-rate risk of a variable-rate financial instrument, designation of the variability in cash flows attributable to the contractually specified interest rate as the hedged risk (when the contractually specified variable rate is not a benchmark rate).
For a closed portfolio of prepayable financial assets or one or more beneficial interests secured by a portfolio of prepayable financial instruments, designation of an amount that is not expected to be affected by prepayments, defaults and other events affecting the timing and amount of cash flows as a hedged item (commonly referred to as the "last-of-layer" method).
For public business entities, the guidance in ASU 2017-12 is effective for fiscal years beginning after December 15, 2018 (January 1, 2019 for the Bank), and interim periods within those fiscal years. Early adoption, including adoption in an interim period, was permitted. If an entity early adopted ASU 2017-12 in an interim period, any adjustments were to be reflected as of the beginning of the fiscal year that included that interim period. For cash flow hedges existing on the date of adoption, an entity was required to eliminate the separate measurement of ineffectiveness in earnings by means of a cumulative-effect adjustment to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings. Among other things, an entity could elect at transition to modify the measurement methodology for hedged items in existing fair value hedges to the benchmark rate component of the contractual coupon cash flows. The cumulative effect of applying this election was to be recognized as an adjustment to the basis adjustment of the hedged item recognized on the balance sheet with a corresponding adjustment to the opening balance of retained earnings. The amended presentation and disclosure guidance is required only prospectively.
The Bank adopted ASU 2017-12 effective January 1, 2019. At adoption, the Bank did not modify any of its then existing fair value or cash flow hedging relationships. Because the Bank had not had any ineffectiveness associated with its cash flow hedges, a cumulative effect adjustment relating to such hedges was not required. The impact of recording fair value hedge ineffectiveness in the same line where the earnings effect of the hedged item is presented reduced net interest income by $15,625,000 and increased net gains on derivatives and hedging activities by an equal and offsetting amount for the three months ended June 30, 2019 and reduced net interest income by $24,965,000 and increased net gains on derivatives and hedging activities by an equal and offsetting amount for the six months ended June 30, 2019. The amended presentation and disclosure guidance was applied prospectively; prior period comparative financial information has not been reclassified to conform to the current period presentation. Upon adoption, the Bank did not elect to change the way in which it assesses the effectiveness of its hedging relationships. The Bank is continuing to assess other opportunities that are available under the new guidance including, but not limited to, the use of the benchmark rate component to measure the hedged item in some of its fair value hedging relationships entered into after June 30, 2019 and the use of the last-of-layer method for its mortgage loans held for portfolio.
Inclusion of the Secured Overnight Financing Rate Overnight Index Swap Rate as a Benchmark Interest Rate. On October 25, 2018, the FASB issued ASU 2018-16, "Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes" ("ASU 2018-16"). ASU 2018-16 adds the OIS rate based on SOFR (a swap rate based on the underlying overnight SOFR rate) as an eligible benchmark interest rate for purposes of applying hedge accounting. SOFR is a volume-weighted median interest rate that is calculated daily based on

9


overnight transactions from the prior day's trading activity in specified segments of the U.S. Treasury repo market. SOFR was selected by the Alternative Reference Rates Committee as its preferred alternative reference rate to LIBOR.
For entities that had not already adopted ASU 2017-12, the guidance in ASU 2018-16 was required to be adopted concurrently with the adoption of ASU 2017-12. The guidance is to be applied prospectively to qualifying new or redesignated hedging relationships entered into on and after the date of adoption. The Bank adopted ASU 2018-16 effective January 1, 2019. The adoption of this guidance did not have any impact on the Bank's results of operations or financial condition.

Note 3—Trading Securities
Trading securities as of June 30, 2019 and December 31, 2018 consisted solely of U.S. Treasury Notes.

Note 4—Available-for-Sale Securities
 Major Security Types. Available-for-sale securities as of June 30, 2019 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
460,500

 
$
5,482

 
$

 
$
465,982

GSE obligations
5,709,744

 
71,811

 
2,826

 
5,778,729

Other
45,332

 
412

 

 
45,744

 
6,215,576

 
77,705

 
2,826

 
6,290,455

GSE commercial mortgage-backed securities
10,337,761

 
76,798

 
25,753

 
10,388,806

Total
$
16,553,337

 
$
154,503

 
$
28,579

 
$
16,679,261

Included in the table above are GSE commercial mortgage-backed securities ("MBS") that were purchased but which had not yet settled as of June 30, 2019. The aggregate amount due of $68,613,000 is included in other liabilities on the statement of condition at that date.
Available-for-sale securities as of December 31, 2018 were as follows (in thousands):
 
Amortized
Cost
 
Gross
 Unrealized
 Gains
 
Gross
Unrealized
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
447,365

 
$
5,652

 
$
21

 
$
452,996

GSE obligations
5,610,796

 
77,868

 
1,831

 
5,686,833

Other
170,367

 
461

 

 
170,828

 
6,228,528

 
83,981

 
1,852

 
6,310,657

GSE commercial MBS
9,477,647

 
73,052

 
36,201

 
9,514,498

Total
$
15,706,175

 
$
157,033

 
$
38,053

 
$
15,825,155

Included in the table above are GSE commercial MBS that were purchased but which had not yet settled as of December 31, 2018. The aggregate amount due of $125,927,000 is included in other liabilities on the statement of condition at that date.
Other debentures are comprised of securities issued by the Private Export Funding Corporation ("PEFCO"). These debentures are fully secured by U.S. government-guaranteed obligations and the payment of interest on the debentures is guaranteed by an agency of the U.S. government. The amortized cost of the Bank's available-for-sale securities includes hedging adjustments.

10


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of June 30, 2019. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous loss position.
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number
 of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number
 of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number
 of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
GSE debentures
2

 
$
119,590

 
$
315

 
3

 
$
204,091

 
$
2,511

 
5

 
$
323,681

 
$
2,826

GSE commercial MBS
77

 
2,866,482

 
15,161

 
27

 
976,621

 
10,592

 
104

 
3,843,103

 
25,753

Total
79

 
$
2,986,072

 
$
15,476

 
30

 
$
1,180,712

 
$
13,103

 
109

 
$
4,166,784

 
$
28,579


The following table summarizes (in thousands, except number of positions) the available-for-sale securities with unrealized losses as of December 31, 2018. The unrealized losses are aggregated by major security type and length of time that individual securities have been in a continuous loss position.
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
2

 
$
59,050

 
$
21

 

 
$

 
$

 
2

 
$
59,050

 
$
21

GSE debentures
4

 
224,072

 
1,831

 

 

 

 
4

 
224,072

 
1,831

GSE commercial MBS
105

 
3,523,623

 
35,435

 
7

 
38,844

 
766

 
112

 
3,562,467

 
36,201

Total
111

 
$
3,806,745

 
$
37,287

 
7

 
$
38,844

 
$
766

 
118

 
$
3,845,589

 
$
38,053


At June 30, 2019, the gross unrealized losses on the Bank’s available-for-sale securities were $28,579,000. All of the Bank's available-for-sale securities are either guaranteed by the U.S. government, issued by GSEs, or fully secured by collateral that is guaranteed by the U.S government. As of June 30, 2019, the U.S. government and the issuers of the Bank’s holdings of GSE debentures and GSE MBS were rated triple-A by Moody’s Investors Service (“Moody’s”) and AA+ by S&P Global Ratings (“S&P”). The Bank's holdings of PEFCO debentures are rated triple-A by Moody's and are not rated by S&P. Based upon the Bank's assessment of the creditworthiness of the issuers of the GSE debentures that were in an unrealized loss position at June 30, 2019 and the credit ratings assigned by Moody's and S&P, the Bank expects that these debentures would not be settled at an amount less than the Bank's amortized cost bases in the investments. In addition, based upon the Bank's assessment of the strength of the GSEs' guarantees of the Bank's holdings of GSE commercial MBS and the credit ratings assigned by Moody's and S&P, the Bank expects that its holdings of GSE commercial MBS that were in an unrealized loss position at June 30, 2019 would not be settled at an amount less than the Bank’s amortized cost bases in these investments. Because the current market value deficits associated with the Bank's available-for-sale securities are not attributable to credit quality, and because the Bank does not intend to sell the investments and it is not more likely than not that the Bank will be required to sell the investments before recovery of their amortized cost bases, the Bank does not consider any of these investments to be other-than-temporarily impaired at June 30, 2019.
Redemption Terms. The amortized cost and estimated fair value of available-for-sale securities by contractual maturity at June 30, 2019 and December 31, 2018 are presented below (in thousands).
 
 
 
June 30, 2019
 
December 31, 2018
 
Maturity
 
Amortized
Cost
 
Estimated
Fair Value
 
Amortized
Cost
 
Estimated
Fair Value
 
 
Debentures
 
 
 
 
 
 
 
 
 
Due in one year or less
 
$
251,786

 
$
252,194

 
$
445,731

 
$
446,227

 
Due after one year through five years
 
2,679,773

 
2,698,365

 
2,398,495

 
2,420,763

 
Due after five years through ten years
 
3,198,633

 
3,252,094

 
3,256,389

 
3,312,322

 
Due after ten years
 
85,384

 
87,802

 
127,913

 
131,345

 
 
 
6,215,576

 
6,290,455

 
6,228,528

 
6,310,657

 
GSE commercial MBS
 
10,337,761

 
10,388,806

 
9,477,647

 
9,514,498

 
Total
 
$
16,553,337

 
$
16,679,261

 
$
15,706,175

 
$
15,825,155


11


Interest Rate Payment Terms. At June 30, 2019 and December 31, 2018, all of the Bank's available-for-sale securities were fixed rate securities which were swapped to a variable rate.
Sales of Securities. During the three months ended June 30, 2019, the Bank sold an available-for-sale security with an amortized cost (determined by the specific identification method) of $24,734,000. Proceeds from the sale totaled $24,874,000, resulting in a realized gain of $140,000. During the six months ended June 30, 2019, the Bank sold available-for-sale securities with an amortized cost (determined by the specific identification method) of $435,439,000. Proceeds from the sales totaled $436,019,000, resulting in realized gains of $580,000. There were no sales of available-for-sale securities during the six months ended June 30, 2018.

Note 5—Held-to-Maturity Securities
     Major Security Types. Held-to-maturity securities as of June 30, 2019 were as follows (in thousands):
 
Amortized
Cost
 
OTTI Recorded in
Accumulated Other
Comprehensive
Income
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
6,734

 
$

 
$
6,734

 
$
8

 
$

 
$
6,742

State housing agency obligation
35,000

 

 
35,000

 

 
256

 
34,744

 
41,734

 

 
41,734

 
8

 
256

 
41,486

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
GSE residential MBS
1,157,191

 

 
1,157,191

 
4,453

 
4,215

 
1,157,429

Non-agency residential MBS
69,876

 
9,534

 
60,342

 
12,563

 
506

 
72,399

 
1,227,067

 
9,534

 
1,217,533

 
17,016

 
4,721

 
1,229,828

Total
$
1,268,801

 
$
9,534

 
$
1,259,267

 
$
17,024

 
$
4,977

 
$
1,271,314


Held-to-maturity securities as of December 31, 2018 were as follows (in thousands):
 
Amortized
Cost
 
OTTI Recorded in
 Accumulated Other
Comprehensive
Income
 
Carrying
Value
 
Gross
Unrecognized
Holding
Gains
 
Gross
Unrecognized
Holding
Losses
 
Estimated
Fair
Value
Debentures
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed obligations
$
7,604

 
$

 
$
7,604

 
$
11

 
$

 
$
7,615

State housing agency obligations
135,000

 

 
135,000

 
10

 
1,043

 
133,967

 
142,604

 

 
142,604

 
21

 
1,043

 
141,582

Mortgage-backed securities
 
 
 
 
 
 
 
 
 
 
 
U.S. government-guaranteed residential MBS
475

 

 
475

 
1

 

 
476

GSE residential MBS
1,253,573

 

 
1,253,573

 
6,022

 
1,117

 
1,258,478

Non-agency residential MBS
76,294

 
10,667

 
65,627

 
13,222

 
694

 
78,155

 
1,330,342

 
10,667

 
1,319,675

 
19,245

 
1,811

 
1,337,109

Total
$
1,472,946

 
$
10,667

 
$
1,462,279

 
$
19,266

 
$
2,854

 
$
1,478,691



12


The following table summarizes (in thousands, except number of positions) the held-to-maturity securities with unrealized losses as of June 30, 2019. The unrealized losses include other-than-temporary impairments recorded in accumulated other comprehensive income ("AOCI") and gross unrecognized holding losses (or, in the case of the Bank's holdings of non-agency residential MBS, gross unrecognized holding gains) and are aggregated by major security type and length of time that individual securities have been in a continuous loss position.
 
Less than 12 Months
 
12 Months or More
 
Total
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
 
Number of
Positions
 
Estimated
Fair
Value
 
Gross
Unrealized
Losses
Debentures
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
State housing agency obligation

 
$

 
$

 
1

 
$
34,744

 
$
256

 
1

 
$
34,744

 
$
256

Mortgage-backed securities