14. DERIVATIVE HEDGING INSTRUMENTS

The Company can use various interest rate contracts, such as interest rate swaps, caps, floors and swaptions to help manage interest rate and market valuation risk exposure, which is incurred in normal recurrent banking activities. The Company can use derivative instruments, primarily interest rate swaps, to manage interest rate risk and match the rates on certain assets by hedging the fair value of certain fixed rate debt, which converts the debt to variable rates and by hedging the cash flow variability associated with certain variable rate debt by converting the debt to fixed rates.

To accommodate the needs of our customers and support the Company’s asset/liability positioning, we entered into interest rate swap agreements with customers and PNC in the first six months of 2017. These arrangements involve the exchange of interest payments based on the notional amounts. The Company entered into floating rate loans and fixed rate swaps with our customers. Simultaneously, the Company entered into an offsetting fixed rate swaps with PNC. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on the same notional amount at a fixed interest rate. At the same time, the Company agrees to pay PNC the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. These transactions allow the Company’s customers to effectively convert a variable rate loan to a fixed rate. Because the Company acts as an intermediary for its customers, changes in the fair value of the underlying derivative contracts offset each other and do not significantly impact the Company’s results of operations. The Company received $96,000 in fees on the transactions.

The following table summarizes the interest rate swap transactions that impacted the Company’s first six months 2017 performance.


START DATE	MATURITY DATE		HEDGE TYPE		NOTIONAL AMOUNT		RATE RECEIVED			RATE PAID			REPRICING FREQUENCY		INCREASE (DECREASE) IN INTEREST EXPENSE
01/12/17		01/12/27		FAIR VALUE	$	4,934,849		4.50	%		3.21	%		MONTHLY	$	30,361
01/12/17		01/12/27		FAIR VALUE		4,934,849		3.21			4.50			MONTHLY		(30,361	)
04/07/17		04/07/27		FAIR VALUE		2,487,002		4.35			3.17			MONTHLY		6,972
04/07/17		04/07/27		FAIR VALUE		2,487,002		3.17			4.35			MONTHLY		(6,972	)
05/19/17		02/01/27		FAIR VALUE		3,576,176		4.39			3.26			MONTHLY		4,827
05/19/17		02/01/27		FAIR VALUE		3,576,176		3.26			4.39			MONTHLY		(4,827	)
																—

The Company monitors and controls all derivative products with a comprehensive Board of Director approved hedging policy. This policy permits a total maximum notional amount outstanding of $500 million for interest rate swaps, interest rate caps/floors, and swaptions. All hedge transactions must be approved in advance by the Investment Asset/Liability Committee (ALCO) of the Board of Directors. The Company had no caps or floors outstanding at June 30, 2017.