Mixed Results for Risk Management.

With interest rates rising during the second quarter (the average 30-year fixed-rate mortgage was about 50 basis points higher on June 30 than on March 31) you would think this might have been the best of times for the people who manage interest rate risk on mortgage servicing rights.

And for some, that was the case. At the end of the quarter, MSRs were more valuable than at the beginning of the quarter. But then again, some lenders found that turmoil in the capital markets, much of it related to subprime mortgage lending, had negative implications for the instruments used to hedge servicing portfolios.

On the positive side, a lot of companies shared the experience of BancorpSouth, which posted a $1.2 million increase in the fair value of its mortgage servicing rights during the second quarter. The bank also posted stronger loan origination activity.

That helped BancorpSouth post slightly higher net income in the second quarter of this year than last year. The company earned $35.9 million in the second quarter, up from $35.5 million in the same period of 2006. EPS was slightly lower due to an increase in shares relating to an acquisition during the past year.

But BancorpSouth didn't need the servicing rebound to make its mortgage results look good.

Chairman and CEO Aubrey Patterson said the company was "pleased with the growth of our mortgage lending business, which generated revenue growth of 33.8% for the quarter, excluding the impact of changes in the value of the mortgage servicing asset." He said the growth provides an opportunity to strengthen existing customer relationships and add new customers.

The news wasn't quite so good at Huntington Bancshares. Huntington said that it took a $4.8 million charge as a result of its hedging of mortgage servicing rights. In terms of net of hedging activity, Huntington still reported that its MSR asset lost $2 million when it was marked-to-market.