BOK Financial Corp (BOKF) 2016 Q4 法說會逐字稿

Greetings and welcome to the BOK Financial Corporation fourth-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Joe Crivelli, senior vice president, Investor Relations. Thank you, Mr. Crivelli, you may begin.

Good morning, everyone, and thank you for joining us. This morning we'll hear remarks about the quarter from Steven Bradshaw, CEO; Steven Nell, CFO; and Stacy Kymes, EVP of Corporate Banking. PDFs of the slide presentation and press release that accompany our remarks are available on our website at www.bokf.com.

As a reminder, during this presentation we will make remarks about our financial forecasts for 2017, as well as other forward-looking statements as identified on slide 2. We refer you to the Company's filings with the Securities and Exchange Commission for more details about risks that could cause actual results to differ from expectations. We assume no obligation to publicly update or revise any of the forward-looking information should our expectations change.

I will now turn the call over to Steve Bradshaw.

Thanks, Joe. Good morning, everyone. Thanks for joining us.

This morning we announced earnings for the fourth quarter of 2016. As noted in slide 4, we earned $50 million, or $0.76 per diluted share. The sharp increase in interest rates following the November election had a very significant impact on our reported results. As noted in our 8-K that we filed on December 14th of 2016, we had a $17.4 million negative change in fair value of our hedged MSR asset.

In addition, we had a reduction in value of our securities trading portfolio of $5 million. Together, these items reduced earnings by $22.4 million, or $0.23 per share.

We also had a $5 million charge associated with our October of 2016 reduction in force, and a $4.7 million charge associated with the closing of the Mobank acquisition on the first of December. Together, these items reduced earnings in the fourth quarter by an additional $0.10 per share.

We experienced a multitude of non-recurring expense items throughout 2016, but our team here at BOK Financial produced some very positive results as well. We worked through the longest downturn in the energy industry since the 1980s and a very volatile interest rate environment, while remaining solidly profitable all throughout the year, and delivering record net interest income and fee income. I feel very upbeat about how we are positioned for earnings growth in 2017.

With the closing of our Mobank acquisition in Kansas City, we are poised to accelerate momentum and drive even stronger growth in that important market. Mobank's leadership and staff did a great job of growing the bank while we waited for approval, and the earnings run rate momentum they have generated exceeded our first-year pro forma expectations With the stability we've seen in oil and gas markets for the past six months, we expect to see markedly lower credit costs in 2017.

In fact, we are already seeing this benefit, as we took no loan loss provision in the fourth quarter. The cost reductions we implemented in October will be fully realized in 2017 and should enable us to hold expense growth below the rate of revenue growth, despite layering in a full year of Mobank operating expenses. Reflecting our confidence, during the fourth quarter, we bought back 700,000 shares of our stock at an average price of just over $70 per share.

As shown on slide 5, organic loan growth was 0.2% for the quarter, or just under 1% annualized. For the full year, organic loan growth was 3.5%, which is at the low end of our growth target. This was largely due to continued paydowns in the energy portfolio, which we expected, as well as year-end paydown activity in the general commercial and industrial portfolio.

With Mobank, loan growth was 6.6% for the year. Fiduciary assets were up 1.4% during the quarter, which is a bit slower than in recent quarters, but up a strong 9% for the full year as our wealth management team continues to compete effectively for asset management business.

I will provide additional perspective on our quarterly results at the conclusion of the prepared remarks, but now I will turn the call over to Steven Nell to cover the financial results in more detail.

Steven.

Thanks, Steve.

Turning to slide 7, net interest revenue was $194.2 million, up $6.4 million for the third quarter, and net interest margin was 2.63%, down 1 basis point. Loan yields were four basis points higher this quarter while yields on available-for-sale securities and interest-bearing liabilities remain relatively flat. On a year-over-year basis, net interest income was up $12.9 million, and net interest margin was down 1 basis point, due to loan growth, better loan spreads and stability in funding costs.

On slide 8, fees and commissions were $162 million for the fourth quarter. We have indicated to investors that fees and commission revenue can vary from quarter to quarter, due to seasonality and other factors, and this quarter is an example. While revenue was down 11% from the record third quarter, it is up 5.4% year over year and 5.5% for the full year, in line with our mid single-digit 12-month growth target.

Brokerage and trading was down 25% sequentially, in part, due to the marked to market and value of trading assets that flows through the revenue line, which represented $5 million of the decrease. Excluding the marked to market and trading assets, revenues would have been down 12%, compared to the strong third-quarter results.

Transaction card revenue was up 1.7%, compared to the third quarter, 6.8% year over year and 5.5% for the full year. Transaction card revenue continues to benefit from geographic expansion, and expansion of its sales force and sales channels, as well as the transition to chip and pin security standards. Fiduciary and asset management revenue was up 1.4% sequentially.

10.8% year over year and 7.4% for the full year. This business continues to benefit from asset gathering from customers and prospects, and the Weaver acquisition earlier this year also added $2.1 million to full-year revenue. Mortgage banking revenue was down 26.2% sequentially. The decrease was due to lower origination activity in our retail and HomeDirect channels, which should be expected this time of year.

Additionally, the dramatic increase in mortgage rates likely impacted both purchase and refi activity. As noted on the bottom of the slide for presentation purposes, we reclassified certain origination expenses against mortgage revenue for the HomeDirect mortgage business for 2015 and 2016.

This adjustment had no impact on profitability, as it reduced mortgage banking revenue and personnel expense by a like amount. Deposit service charges and fees were down 1.3% sequentially, but up 2.4% year over year and 1.9% for the full year. As you know, this line item has been under pressure for some time, and this was the first year deposit service charges and fees posted four-year growths since 2012.

Turning to slide 9, expenses were $265.5 million in the fourth quarter. Personnel expense was $141.1 million, and other operating expense was $124.4 million. Mobank transaction costs totaled $4.7 million, and the reduction in force-related expenses totaled $5 million in the fourth quarter.

There was also $1.2 million of ongoing Mobank operating expenses for the month of December. We made a $2 million contribution to the BOKF Foundation, as expected. Excluding these items, expenses would have been $253 million.

Turning to the balance sheet on slide 10, the available for sale securities portfolio was $8.7 billion at quarter end, compared to $8.9 billion at the end of the third quarter. Deposits were $22.7 billion at quarter end, with Mobank adding $624 million of deposits. Excluding Mobank, organic deposit growth would have been 4.9% in the fourth quarter, due to the high volume of year-end activity with our clients.

During the fourth quarter, we deployed $102 million of capital for the Mobank acquisition, and $49 million for the share buyback that Steve mentioned earlier. Despite this, BOK Financial continues to be well capitalized, as evidenced by the capital ratios on this slide.

Turning to slide 11, our guidance for 2007 is as follows. Mid single-digit loan growth for the full year: we expect commercial real estate growth to taper off midyear, and energy loan growth to pick up in the back half of 2017. These two line items should cancel each other out, while general C&I, personal loans and mortgage loans increase.

We expect stable to increasing net interest margin, and low single-digit net interest income growth. We expect loan loss provision of $20 million to $30 million for the year, although our bias is to the low end of that range at this time. We're expecting low single-digit growth in fees and commission revenue in 2017.

This is down from our original mid single-digit forecast, as higher long-term rates are having a larger impact on mortgage production volume in the early going of 2017. Expenses in 2017 are expected to be essentially flat, compared to 2016 full-year expenses of just over $1 billion. We expect continued capital deployment through organic growth, acquisitions, dividends, and more limited stock buybacks.

Stacy Kymes will now review the loan portfolio in more detail. I will turn the call over to Stacy.

Thank you, Steven.

Slide 13 shows our loan portfolio on a market-by-market basis. Loan growth was 3.2% on a sequential basis and 6.6% year over year. Excluding $485 million of Mobank outstandings, loans were essential flat compared to Q3, and up 3.5% for the full year as paydowns in the energy portfolio continue to be a headwind. On a geographic basis, Arizona and Kansas City posted the strongest loan growth in 2016. Arizona was up 28%, and Kansas City's organic growth was 15.8% for the 12 months ended 12/31/2016. The decrease you see in Oklahoma is due to year-end paydowns from large borrowers in the general C&I portfolio.

On slide 14, commercial loans were up 2.7% sequentially and 1.3% year over year. Mobank contributed $289 million of commercial loans, excluding those balances, commercial loans were essential flat in the fourth quarter and down slightly for the full year. Energy was a headwind to growth with a net decrease of $600 million from 2015.

In the fourth quarter, services and healthcare remain strong, and manufacturing rebounded from a down quarter in the third quarter. We continue to be optimistic about the pipeline for new loans in the early going of 2017.

Slide 15 shows our energy portfolio as of December 31st. At this point, we believe we have gotten to the new normalized commodity price, with oil continuing to trade around $50 a barrel and natural gas in the mid $3 range. As I mentioned, energy loans outstandings were down $600 million in 2016, despite our consistent culling effort because of borrowers' appropriate actions to reduce leverage. We expect this headwind to subside in 2017.

E&P line utilization is now down 50%. To give you some perspective at December 31, 2014, just as the downturn was beginning in earnest, the E&P line utilization was 51%. So we are now essentially back to pre-downturn levels.

We had a net recovery this quarter of $644,000, and total criticized and classified energy loans are down 14% from the third quarter on an absolute dollar basis. This is the third quarter in a row that we have seen material decreases in criticized and classified energy loans. We expect this trend to continue for the foreseeable future.

Turning to slide 16, the commercial real estate book drew 0.4% in the third quarter, and is up 16.9% year over year. It is noted in our previous earnings call, we are right around our internal concentration limit for this asset class, and are focused on new transactions with the existing borrowers at this juncture. We expect outstandings in the portfolio to continue to show growth through the first half of 2017, and then taper off in the back half of the year.

Turning to slide 17, the credit environment continues to be relatively benign. Nonaccruals were down again in the fourth quarter. We realized net recoveries during the quarter and our combined allowance for credit losses to period end loans remains healthy and at the top of our peer group.

I will now turn it back to Steve Bradshaw for closing remarks. Steve.

Thanks, Stacy.

Ultimately, I think 2016 will be a year that we point to as a great case study on the value of our disciplined, time tested long-term focused business model. While profitability was muted due to all the factors we have discussed on this call, as a Company, we had a number of remarkable achievements. We navigated the most challenging commodities downturn we have seen in this country since the 1980s. With a $3 billion portfolio of 600 borrowers at the start of the downturn, we essentially had one borrower with material charge-off. I couldn't be prouder of our energy banking and credit administration teams.

Not only is our energy portfolio in great shape as we exit the downturn, but our bankers are better for it. Prior to 2014, few of our energy bankers had been through an extended commodities downturn, and now every single one of them has, and has learned firsthand how our disciplined approach to this specialty lending business served us well in both good times and bad.

Not only that, but despite a $600 million headwind in terms of paydowns in our energy portfolio, we still grew our loan balances during the year. This is a remarkable achievement. We expect the energy portfolio to resume growing in the second half of 2017, and should see a benefit in terms of overall loan growth as that corner is turned.

We delivered record net interest income and fee income with every single one of our fee-generating businesses posting strong year-over-year growth. Our fee businesses are not only a potent engine for growth and a terrific differentiator for us when we compete against other mid-sized regional banks, but also an important lever for driving strong performance versus mid-size regional peer banks across the economic cycle.

We repositioned our balance sheet in the face of a rising rate environment, and achieved neutrality just as real and sustained rate increases materialized. We could not have timed this any better, as we have stayed fully invested over the past several years driving literally hundreds of millions of dollars of net interest income, income that would have been forsaken had we maintained an asset-sensitive position during that time frame.

We completed the acquisition of Mobank. And while regulatory approval took longer than expected for an acquisition of this size, we are very excited about what we can achieve in Kansas city with Mobank. We are already seeing great results from the combined effort, and Mobank is well ahead of our original forecast.

Finally, we took action to reduce expenses and tighten our MSR hedging strategy to drive more stability in these line items in 2017 and beyond. All told, as I said in the press release, I have never been more excited about our Business or our opportunity to grow earnings and enhance shareholder value.

Operator, you may now open the line for Q and A.

Thank you.

(Operator Instructions)

Our first question comes from the line of Jon Arfstrom with RBC Capital Markets. Please proceed with your question.

Thanks. Good morning, guys.

Good morning.

Stacy, maybe a question for you just in terms of the loan growth drivers for 2017. You talked a little bit about hitting some of your concentration limits in CRE, part way through the year, but then seeing the energy balances pick back up again. And I guess two questions here.

Are you seeing anything in CRE that bothers you, or is that strictly about your concentration limits? And then the second part is, give us an idea of your overall energy lending appetite, given what we've been through.

Obviously your charge-offs have been very low, around 1%, but you're under 15% of the loan portfolio in energy right now. Where do we start to hit concentration limits there, and what's your growth expectation in energy?

Sure. Let me talk about theory first, and I'm glad to pivot over to energy. I think with respect to commercial real estate, we have an internal concentration limit that's measured based upon commitments, not based on outstandings.

We're basically at that concentration level. We've got some flexibility a little bit around that, but generally speaking we will be disciplined there. And what we're seeing, though, because that's measured on commitments, there's still some deals that were booked in the latter half of last year that we'll continue to fund up.

So we still expect to see outstanding growth in that portfolio through the first half of the year, but then once we get there, we're expecting it to kind of stabilize at that point and be less of a driver for total loan growth for the Company. But there's nothing inherent really in CRE that we're seeing today that has us nervous. We're similarly situated.

We're finding other similar banks who are also looking at concentration limits. Ironically, we're seeing spreads, and in many cases, structures improve because of the discipline around the industry overall in this space. In the multifamily space, which is one that has been a focus of regulators and many others, I think luxury multifamily probably is the area of most concern.

But overall, CRE has held in very well. It's just long in the tooth in terms of the recovery cycle, and we know that it tends to be the most purse cyclical of all of the lending types, so we are very disciplined there as we approach it. But we feel very good about what we are seeing both in our portfolio, how it held up during the energy downturn.

Substantially, all of our real estate, a large portion of it is in our footprint, where there was some impact from the economic downturn related to energy, and it held up extraordinarily well. So, we feel good about that.

As we talk about energy lending, as we have said, I think on virtually every call since this started, we remain committed energy lenders. We have put that in practice.

We've done a large number of deals, particularly over the last six months. We are looking for new deals. We are looking to expand relationships with the existing customers, and we have a very active energy team continuing to look to add to our energy exposure.

We are very comfortable with it. We think our performance through this cycle is reflective of the institutional knowledge and strength of our understanding of this particular lending type, and we remain committed to doing much more of this.

Our internal limit, really, is around 25% of loans. And we have, obviously, room to move there, and we will continue to focus on new energy production and growing current relationships, as well. We're obviously challenged with headwinds where borrowers who had higher leverage profiles are de-leveraging appropriately and using cash flow to pay down outstanding debt, which creates a headwind, but we are very committed to lending.

In fact, I recently saw an analysis prepared by a third party looking at the most active energy lenders over the last six months, and we were one of the top three banks, and really the top three were aggregated very tightly at the top, and not a lot of activity below that top three. So we have been very active throughout the downturn, and we remain very committed to this space.

Okay. Good. And maybe just a quick comment on pricing, pricing on energy lending.

You know, pricing improved in 2016, obviously as risk profiles changed. We see that pricing staying relatively stable. There is anecdotal evidence on a deal-by-deal basis, where there's a little bit of pricing aggressiveness coming back in, but it doesn't appear to be widespread.

I expect pricing trends that we have seen over the last six months to remain relatively stable. Maybe you take 25 basis points off the top end of the grid, the pricing grid, or something like that. But generally speaking, the pricing is still much better today than it was a few years ago in energy lending.

Okay. Thanks for the help.

Our next question comes from the line of Matt Olney from Stephens. Please proceed with your question.

Hey, thanks. Good morning, guys.

Good morning, Matt.

I want to go back to the outlook for fee income in 2017 that you guys lowered in the press release. I believe you attribute that to lower mortgage production just from higher rates, which is certainly understandable.

Are there any more notable items beyond mortgage that made you change the outlook for fee income in 2017? And specifically, can you speak to brokerage and trading outlook? Thanks.

Yes. This is Steven. All the line items in the fee area, we expect to grow next year, and advance, but the mortgage area is really the reason that we altered the guidance.

I think the industry is expecting 16% decline in origination activity. We have actually got about 13% decline in our mortgage revenue line item, and compared to the rest of the growth of the other fees, when you put all that together, we really felt like we needed to lower the overall guidance to a slightly lower level than our mid single-digit.

Yes, Matt this is Steve Bradshaw. The other thing I would add, when we adjusted our fee outlook based on changes in our rate outlook, the other area that was impacted beyond mortgage was municipal underwriting.

We have seen that pipeline slow as municipalities are contemplating what's going to happen with rates and investors obviously considering what may happen from a tax perspective, as well. So, those are the two areas that we revised downward as we looked into 2017.

And Steve, the municipal underwriting, does that fall under the brokerage and trading line item?

It does, yes, does it.

Thanks. And then on the expense outlook, it sounds like the outlook there for 2017 has improved, since we talked back in October. Anything you can point to, is it just a reflection of the lower commission payouts from mortgage, or have you identified additional cost savings beyond the $20 million that you highlighted back in October?

Yes, when we put our budget together, we of course looked at every line item. Professional fees, business promotion. We've taken some initiatives that hopefully contain that growth a little bit better than what we did in 2016.

Certainly, the $20 million reduction in force, that flows through. We're actually a little bit ahead, we think, in terms of our expense containment and reduction with our Mobank acquisition.

So we built a little bit of that in. So, it was -- it's really scattered across the expense base.

Okay. Thanks, guys.

Our next question comes from the line of Jennifer Demba from SunTrust. Please proceed with your question.

Thank you. Good morning.

Good morning.

I'm just curious as to what you are seeing from an M&A discussion standpoint right now. We've seen a fair amount of activity since the election, and just wondering if what you are looking for has changed at all in the last few months, geographically, size-wise, what have you.

Yes, Jennifer this is Steve Bradshaw. I think our first focus really remains on making sure that our combination of our Bank and Mobank in Kansas City is successful. We're off to a good start there, so that's kind of job one.

Our interest in M&A really hasn't changed. We are still biased towards in-fill opportunities. The size of the potential target could go larger over time.

A lot of it depends on what might happen from the threshold of $50 billion and whether we see an increase of that, from a regulatory perspective. That might change our appetite for a somewhat larger transaction.

But I think our base view is that we like the footprint we're in. We do see some banks out there that we think would enhance and work with us from a cultural perspective, and that appetite hasn't changed.

Steve, are you seeing any increase in just the amount of books or discussions you're having? Any material change there in the last few months?

I would say no at this point. Again, it's a fairly small group of banks that we know fairly well, so communication is pretty steady. I wouldn't say that there's an increase in terms of deals that are being presented to us outside of kind of our normal conversations.

Thanks so much.

Our next question comes from the line of Jared Shaw with Wells Fargo. Please proceed with your question.

Hi, good morning. Circling back on the energy, have you started seeing other competitors come back in?

You're talking about the top three and pricing still being good. Is that now letting some of the other smaller competitors come back in, or do you still look at it as an advantageous market from a competitive point of view?

I would say today it's still an advantageous market for us competitively. What we are seeing with some peers that had previously been more competitive is, they've got some internal concentrations that they've been able to work down to, so maybe they will do dollar in, dollar out in terms of if the deal pays off, they will do a new deal. But I think the population is awfully small, banks who are willing to grow their portfolio on a net basis in this space, and we're certainly one of those today.

And then last quarter you were talking about the strength of the new deals coming on the books, assuming that's still the case, you're still getting the better terms than you had earlier?

Absolutely. Better than a year ago. I think that's typical in any lending type when you are coming out of a prolonged downturn.

You tend to get better structures and pricing, and then over time, as the strength in the lending space gets better, you get deterioration in both. We're still at a very good place from both the pricing and structure perspective in the energy space.

As you look at the main markets of Oklahoma and Texas, how is the consumer holding up? How is the general economic picture there as energy prices have recovered but are still at historically lower levels?

Yes, this is Steve Bradshaw. I think in both Oklahoma and Texas, employment has remained relatively stable. A little softer in 2016 than what we saw in 2014 and 2015, but not dramatically so.

When you look down within our business units that are consumer driven, which I think was the core of your question, mortgage consumer banking, retail brokerage, et cetera, there's really no noticeable downturn there, nor has there been any acceleration to any credit issues related to that segment. So, I think the economies in Oklahoma and Texas have been very resilient, and are strengthening currently.

Okay, thanks. And then finally, just looking at the -- on the securities portfolio, you had a pretty big swing in [OCI] from the rate move. Was there any restructuring of the securities done at the end of the quarter, or is there any expectation to, or should we assume securities stay flat?

Yes, I wouldn't say that securities will stay flat. As we move through 2017, and we do see a rate increase environment during 2017, in order to keep our interest rate risk profile through a relatively neutral position, we will need to drop our securities portfolio balances throughout the year. We'll kind of keep you posted on that as we move through, but I would not expect them to stay stable in 2017.

And that's from an absolute dollar level or from a percent of assets, or maybe both?

It would be both, I guess, but absolute dollar level will drop the security portfolio, if we stay in an upward-moving rate environment. That's just the way we'll manage our interest rate risk exposure to that neutral position.

Okay. What was the duration at the end of the quarter?

3.1 years. And the extension and up 200, based on our analysis, was about 3.5 years. So, it's well contained from an extension perspective.

Great. Thank you very much.

Our next question comes from the line of John Moran from Macquarie.

Good morning, guys.

Good morning.

Steven, when you said absolute dollar amount needs to be dropped, you would anticipate that is just kind of roll off of maturities that then gets remixed into loans versus outright sort of a restructuring or a larger sale, correct?

That's correct. We have a pretty significant cash flow off of that portfolio on a monthly basis, so we'll just roll that into our lending activity. We won't go out and sell anything.

Got it. You referenced it here, [but the outcome] position at the end of the quarter is still pretty neutral. I notice there was a $1.7 billion decrease in wholesale funding. Did you guys unwind the wholesale trade that you had put on?

No.

Okay.

No, we still have that trade on, and it still contributes to net interest income, and it still dilutes our margin about 11 basis points, 12 basis points.

No change on that with what --

No change on that at this stage.

Okay. And then I had two kind of ticky-tack ones, one on fees and one on OpEx. The $4.7 million in Mobank one-timers looks like it was probably in other and somewhat in professional services. Do you have the split for that, or is it fair to say it was 50/50?

I don't have the exact split for that. I just have the total of $4.7 million.

There will be some additional Mobank kind of integration costs that will pick up in the first quarter as we convert that mid-February. But we have that, again, kind of built in our run rate expenses for 2017 in our plan.

Okay. And the Mobank fee contribution, it was one month in the quarter, right?

That's right.

Fee and contribution? On the fees, the two quick kind of ticky-tack ones also there, the deposit fees, I think you are saying in the guidance, everything is going to grow ex mortgage, so we're declaring victory and we've turned a corner here with them growing for the first time in a couple of years?

I think that's right. It grew in 2016. It's going to grow modestly, the service charge line item in 2017, based on our plan.

I wouldn't expect a huge amount of growth there. Just modest growth.

Okay. And then mortgage -- sorry if I missed this, but the purchase first refi for you guys, where is that running? And then the correspondent contribution was in for part of the year this year, and it's completely gone at this point.

The correspondent we've completely exited. We have no more carry-over of that. It contributed -- I don't know the exact number, a couple of $3 million perhaps in 2016.

It was a very low-margin business, so we're out of that. Looking for the split --

Hey, John, it's Joe Crivelli. Refinances were 63% in Q4.

Thanks very much. I appreciate you guys taking some detail there.

Sure, no problem.

You bet.

(Operator Instructions)

Our next question comes from the line of Brett Rabatin from Piper Jaffray. Please proceed with your question.

Hey, guys, good morning.

Good morning.

Wanted just to go back to expenses and thinking about the guidance and what you achieved this year in terms of improving the operations and efficiency. Are you thinking about any initiatives in 2017 to further think about the branch network, or are there any other things that might come up that would be opportunities for you guys to continue to work on the expense base?

Sure, Brett. This is Steve Bradshaw.

We have identified a number of different targets inside the organization that we will be working through during the course of the year to rationalize either some improvements from a pricing perspective, margin perspective, or to make a different decision. The branch network is always under constant evaluation. We did reduce that last year and the previous two years, as well.

As we continue to migrate to more mobile delivery, you can expect us to continue to rationalize that branch network. But the answer is yes, we are consistently looking down in the organization for lower margin or declining margin businesses. I think, obviously, correspondent mortgage is the most recent example, but you can expect to see more from us in 2017.

Okay. And then I guess the other question I wanted to ask was just, thinking about mortgage banking and the changes you have made with the hedging, if rates move up or down from here, can you give us some color around what might happen with the relative hedge position and thinking about how that might affect your gain or loss on that?

Yes. We've really just tried to tighten in our parameters around up and down 25 basis points and up and down 50 basis points. We had a wider view of that, I think, in 2016, and we just feel like to manage some of that volatility a bit better through the income statement will tighten those parameters.

I don't really want to speak to an exact number, because it's a difficult asset to hedge, as you know. But just know that we have -- our parameters for hedging that on a week-to-week, day-to-day basis are going to be tighter than they were in 2016.

Okay. Great. Thanks for the color.

There are no further questions in the queue. I would like to hand the call back over to Management for closing comments.

Thanks again, everyone, for joining us. If you have any follow-up questions, please give me a call at 918-595-3027. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.