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MSR fair value change to reduce BOK Financial's Q4 earnings

Tulsa, Okla.-based BOK Financial Corp. expects a decrease of around $17.4 million in its fourth-quarter pretax net income due to a change in the fair value of its mortgage servicing rights.

The reduction in bottom line will come about due to a $54.0 million loss on an MSR hedge position — maintained since mid-2016 — offsetting a $36.6 million increase in the fair value of the MSRs. The hedge position was meant to reduce the impact of a 50-basis-point decrease in long-term interest rates to within risk tolerance levels, but it increased exposure to an increase in long-term interest rates.

It turned out long-term interest rates increased. They are up more than 80 basis points so far in the fourth quarter, thanks to the outcome of the presidential election.

To prevent further material losses from an increase or decrease in interest rates for the balance of the quarter, the company adjusted the MSR hedge position Dec. 13 locking in the $17.4 million negative earnings impact.