(10.) DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities. The Company's existing credit derivatives result from participations in interest rate swaps provided to external lenders as part of loan participation arrangements, therefore, such derivatives are not used to manage interest rate risk in the Company's assets or liabilities.

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain one or more of the following provisions: (a) if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations, and (b) if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts, respective fair values of the Company's derivative financial instruments, as well as their classification on the balance sheet as of December 31 (in thousands):


					Asset derivatives					Liability derivatives
	Gross notional amount				Balance	Fair value				Balance	Fair value
					sheet					sheet
		2017		2016	line item		2017		2016	line item		2017		2016

Derivatives not
designated as
hedging instruments
					Other					Other
Credit contracts	$	12,282	$	-	assets	$	-	$	-	liabilities	$	4	$	-
Total derivatives	$	12,282	$	-		$	-	$	-		$	4	$	-

Effect of Derivative Instruments on the Income Statement

The table below presents the effect of the Company's derivative financial instruments on the income statement for the years ended December 31 (in thousands):


		Gain (loss) recognized in income
	Line item of gain (loss)
Undesignated derivatives	recognized in income		2017		2016		2015

Credit contract	Noninterest income - Other	$	131	$	-	$	-
Total undesignated		$	131	$	-	$	-