Mortgage Banking Activities

3 Months Ended

Mar. 31, 2026

Mortgage Banking Activities [Text Block]

Mortgage Banking Activities

Residential Mortgage Loan Production

The Company originates, markets, and services conventional and government-sponsored residential mortgage loans. Generally, conforming fixed-rate residential mortgage loans are held for sale in the secondary market, and non-conforming and adjustable-rate residential mortgage loans are retained for investment. Residential mortgage loans originated for sale by the Company are carried at fair value based on sales commitments and market quotes. Changes in the fair value of mortgage loans held for sale are included in Other operating revenue – Mortgage banking revenue. Residential mortgage loans held for sale also includes the fair value of residential mortgage loan commitments and forward sales commitments, which are considered derivative contracts that have not been designated as hedging instruments for accounting purposes. The volume of mortgage loans originated for sale and secondary market prices are the primary drivers of originating and marketing revenue.

Residential mortgage loan commitments are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a residential mortgage loan to when the closed loan is sold to an investor. Residential mortgage loan commitments are subject to both credit and interest rate risk. Credit risk is managed through underwriting policies and procedures, including collateral requirements, which are generally accepted by the secondary loan markets. Exposure to interest rate fluctuations is partially managed through forward sales of residential mortgage-backed securities and forward sales contracts. These latter contracts set the price for loans that will be delivered in the next 60 to 90 days.

The unpaid principal balance of RMHFS, notional amounts of derivative contracts related to residential mortgage loan commitments, and forward contract sales and their related fair values included in Residential mortgage loans held for sale on the Consolidated Balance Sheets were (in thousands):


	March 31, 2026				December 31, 2025
	Unpaid Principal Balance/ Notional		Fair Value		Unpaid Principal Balance/ Notional		Fair Value
Residential mortgage loans held for sale	$	102,250	$	101,249	$	93,110	$	93,133
Residential mortgage loan commitments	83,674		2,348		49,048		1,729
Forward sales contracts	147,000		1,276		100,500		(232)
			$	104,873			$	94,630

No RMHFS were 90 days or more past due or considered impaired as of March 31, 2026, or December 31, 2025. No credit losses were recognized on RMHFS for the three month period ended March 31, 2026, and 2025.

Mortgage banking revenue was as follows (in thousands):


	Three Months Ended March 31,
	2026		2025
Production revenue:
Net realized gains on sale of mortgage loans	$	2,823	$	1,456
Net change in unrealized gain (loss) on mortgage loans held for sale	(1,024)		994
Net change in the fair value of mortgage loan commitments	619		1,029
Net change in the fair value of forward sales contracts	1,508		(850)
Total mortgage production revenue	3,926		2,629
Servicing revenue	17,037		17,186
Total mortgage banking revenue	$	20,963	$	19,815

Mortgage production revenue includes gain (loss) on RMHFS, changes in the fair value of derivative contracts not designated as hedging instruments related to residential mortgage loan commitments, and forward sales contracts. Servicing revenue includes servicing fee income and late charges on loans serviced for others.

Residential Mortgage Servicing

Mortgage servicing rights may be originated or purchased. Both originated and purchased MSR are initially recognized at fair value. The Company has elected to carry all MSR at fair value. Changes in the fair value are recognized in earnings as they occur. The unpaid principal balance of loans serviced for others is the primary driver of servicing revenue.

The following represents a summary of mortgage servicing rights (dollars in thousands):


	March 31, 2026			December 31, 2025
Number of residential mortgage loans serviced for others	123,658			123,263
Outstanding principal balance of residential mortgage loans serviced for others	$	21,989,466		$	21,760,414
Weighted average interest rate	3.85		%	3.83		%
Remaining term (in months)	269			270

The following represents activity in capitalized mortgage servicing rights (in thousands):


	Three Months Ended March 31,
	2026		2025
Beginning Balance	$	322,724	$	338,145
Additions	4,010		2,509
Acquisitions	8,645		14,615

Change in fair value due to principal payments	(10,153)		(5,918)
Change in fair value due to market assumption changes	8,155		(7,240)
Ending Balance	$	333,381	$	342,111

Changes in the fair value of MSR due to market assumption changes are included in Other operating revenue in the Consolidated Statements of Earnings. Changes in fair value due to principal payments are included in Mortgage banking costs.

MSR are not traded in active markets. Fair value is determined by discounting the projected net cash flows. Significant market assumptions used to determine fair value based on significant unobservable inputs were as follows:


	March 31, 2026	December 31, 2025
Discount rate – risk-free rate plus a market premium	9.42%	9.31%
Prepayment rate – based upon loan interest rate, original term, and loan type	6.93%	7.07%
Loan servicing costs – annually per loan based upon loan type:
Performing loans	$73 - $94	$73 - $94
Delinquent loans	$150 - $500	$150 - $500
Loans in foreclosure	$875 - $6,000	$875 - $6,000
Escrow earnings rate – indexed to rates paid on deposit accounts with comparable average life	3.82%	3.66%
Primary/secondary mortgage rate spread	125 bps	128 bps
Delinquency rate	2.10%	2.28%

Changes in primary residential mortgage interest rates directly affect the prepayment speeds used in valuing our MSR. A separate third-party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults, and other relevant factors. The prepayment model is updated periodically for changes in market conditions and adjusted to better correlate with actual performance of BOK Financial's servicing portfolio.

BOK FINANCIAL CORP 10-Q