PennyMac reported today a loss of 61% for 2016’s first quarter in pretax income to $30.1 million, a net income of $26.5 million and revenue of $143.4 million.

The company’s results are adversely impacted by non-cash valuation losses of $125.9 million on mortgage servicing rights, however they were partially offset due to gains of $78.2 million from hedges and excess servicing spread liability.

“The mortgage banking business is inherently sensitive to changes in interest rates, and PennyMac Financial has in place a comprehensive risk management approach designed to moderate the immediate impact of interest rate changes while taking into consideration the company-wide effect on revenue opportunities over time,” Chairman and CEO Stanford Kurland said.

Ignoring MSR related valuation changes, pretax income was $77.8 million.

The product segment pretax income was up 36% from last quarter to $68.4 million. Furthermore, this quarter’s loan production of $10.9 billion in unpaid principal balance was down by 2% from the previous quarter.

Originations showed strength with an increase of 17% from last quarter to their current $1.2. The company’s $2.2 billion in unpaid principal balance is up 23% from last quarter.

“Interest rates declined during the first quarter which drove a significant value reduction in our MSRs, even after the offset from our interest rate risk management strategies.” Kurland said. “That said, PennyMac Financial’s underlying operating results and growth trends remain solid.”

Servicing segment pretax loss of $39.5 million was down from last quarter’s income of $27.9 million. The servicing portfolio, however, reached $169.9 billion in unpaid principal balance, an increase of 3% from December.

The investment management segment pretax income was up 74% from last quarter to its current $1.1 million.

Because of PennyMac Mortgage Investment Trust’s repurchase of its common shares of beneficial interest and the anticipated return of capital to investors in the private investment funds, net assets were down 6% to $1.6 billion, according to PannyMac’s release.

“Mortgage production activity is strong, particularly in our consumer direct channel which is delivering higher volumes and margins,” Kurland said. “With interest rates remaining low, we continue to experience increased volumes of applications and loans in process, which we expect to drive higher production income in future periods to further offset the first quarter impact on our mortgage servicing asset.”