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Derivatives

3 Months Ended

Mar. 31, 2020

NOTE 9 — DERIVATIVESThe following table presents Oriental’s derivative assets and liabilities at March 31, 2020 and December 31, 2019:

	March 31,		December 31,
	2020		2019
	(In thousands)
Derivative assets:
Interest rate caps	$	2	$	6
	$	2	$	6
Derivative liabilities:
Interest rate swaps designated as cash flow hedges	$	2,057	$	907
Interest rate caps		2		6
	$	2,059	$	913

Interest Rate Swaps

Oriental enters into interest rate swap contracts to hedge the variability of future interest cash flows of forecasted wholesale borrowings attributable to changes in a predetermined variable index rate. The interest rate swaps effectively fix Oriental’s interest payments on an amount of forecasted interest expense attributable to the variable index rate corresponding to the swap notional stated rate. These swaps are designated as cash flow hedges for the forecasted wholesale borrowing transactions and are properly documented as such; therefore, qualify for cash flow hedge accounting. Any gain or loss associated with the effective portion of the cash flow hedges is recognized in other comprehensive income and is subsequently reclassified into operations in the period during which the hedged forecasted transactions affect earnings. Changes in the fair value of these derivatives are recorded in accumulated other comprehensive income to the extent there is no significant ineffectiveness in the cash flow hedging relationships. Currently, Oriental does not expect to reclassify any amount included in other comprehensive income related to these interest rate swaps to operations in the next twelve months.

The following table shows a summary of these swaps and their terms at March 31, 2020:

Notional

Fixed

Variable

Trade

Settlement

Maturity

Type

Amount

Rate

Rate Index

Date

(In thousands)

Interest Rate Swaps

31,539

2.4210%

1-Month LIBOR

07/03/13

08/01/23

31,539

Accumulated unrealized losses of $2.1 million and $907 thousand were recognized in accumulated other comprehensive income related to the valuation of these swaps at March 31, 2020 and December 31, 2019, respectively, and the related liability is being reflected in the consolidated statements of financial condition.

Interest Rate Caps

Oriental has entered into interest rate cap transactions with various clients with floating-rate debt who wish to protect their financial results against increases in interest rates. In these cases, Oriental simultaneously enters into mirror-image interest rate cap transactions with financial counterparties. None of these cap transactions qualify for hedge accounting, and therefore, they are marked to market through earnings. As of March 31, 2020 and December 31, 2019, the outstanding total notional amount of interest rate caps was $41.3 million and $41.5 million, respectively. At March 31, 2020 and December 31, 2019, the interest rate caps sold to clients represented a liability of $2 thousand and $6 thousand, respectively, and were included as part of derivative liabilities in the consolidated statements of financial condition. At March 31, 2020 and December 31, 2019, the interest rate caps purchased as mirror-images represented an asset of $2 thousand and $6 thousand, respectively, and were included as part of derivative assets in the consolidated statements of financial condition.