Good afternoon, and welcome to the Fourth Quarter and Full Year 2017 Earnings Discussion for PennyMac Financial Services, Inc. The slides that accompany this discussion are available from PennyMac Financial's website at www.ir.pennymacfinancial.com. Before we begin, please take a few moments to read the disclaimer on Slide 2 of the presentation. Thank you. Now I'd like to turn the discussion over to Stan Kurland, PennyMac Financial's Executive Chairman.

Thank you, Chris. Let's begin with Slide 3. PennyMac Financial delivered strong results for the fourth quarter, reflecting solid earnings contributions from both our Production and Servicing segments. For the fourth quarter, PennyMac Financial earned pretax income of $121.8 million and diluted earnings per share of $2.44. Book value increased to $19.95 per share, up from $17.20 per share at September 30, and from $15.49 a year ago. The enactment of new federal tax law resulted in a remeasurement of tax-related items, which contributed $32 million to our pretax income and $1.79 to diluted earnings per share. Our Production segment pretax income was $55.3 million, down 20% from the prior quarter and down 41% from the fourth quarter of 2016, when we experienced record production levels. Our Production business delivered good results this quarter, despite the typical fourth quarter decline in origination volumes. Our ability to sustain strong profitability reflects the strength of our market-leading platform. Total Production volume for the quarter was $17 billion in UPB, down 10% from the prior quarter and down 23% from the fourth quarter of 2016. Total Correspondent government and Consumer Direct locks for our own account were $11.8 billion in UPB, down 11% from the prior quarter and down 20% from the fourth quarter of 2016. The Servicing segment recorded pretax income of $32 million, up 31% from the prior quarter and down 9% from the fourth quarter of 2016. These results were driven by strong operational performance, valuation-related gains, and growth in our Servicing portfolio, which totaled $245.8 billion in UPB, up 3% from September 30 and up 27% from December 31, a year ago. Excluding valuation-related items, pretax income for the Servicing segment was $28.2 million. Valuation-related gains totaled $11.8 million, which included a $28 million increase in MSR values, a…

Thank you, Stan. On Slide 9, let's begin with a review of market share and volume trends across PennyMac Financial's businesses. PennyMac Financial was the fourth-largest producer of mortgage loans in the United States for the fourth quarter, and we were the eighth-largest servicer at quarter-end according to Inside Mortgage Finance. Correspondent market share declined in the fourth quarter, due primarily to increased competition in the conventional market, while Consumer Direct market share increased, driven by our higher recapture activity. With the growth of our servicing portfolio, we estimate that we service 2.31% of all mortgage debt outstanding in the United States at quarter-end. And in our Investment Management business, net assets under management were $1.6 billion, essentially unchanged from the prior year. Now let's turn to Slide 10 and discuss Correspondent Production highlights. Correspondent acquisitions by PMT in the fourth quarter totaled $15.4 billion in UPB, down 12% from the third quarter and down 23% from the prior year. Government loan acquisitions accounted for 62% of total Correspondent acquisitions or $9.5 billion in UPB in the fourth quarter, down from $10.9 billion in UPB in the prior quarter and $12.5 billion in UPB in the fourth quarter of 2016. Conventional conforming acquisitions for which PennyMac Financial performed fulfillment services for PMT, totaled $5.9 billion in UPB in the fourth quarter, down 10% from the prior quarter, while down 21% year-over-year. The weighted average fulfillment fee in the fourth quarter was 33 basis points, down from 36 basis points in the prior quarter, reflecting discretionary reductions to facilitate the successful completion of certain loan transactions by PMT. The total lock volume for the quarter was $15.9 billion in UPB, down 9% from the prior quarter and 17% year-over-year. Government locks totaled $9.6 billion in UPB in the fourth quarter, down…

Thank you, David. I will highlight some of the key trends and factors in our financial results on the next few slides beginning with Slide 14, but we encourage you to read the press release on fourth quarter earnings for further details. Slide 14 summarizes the earnings contributions of PennyMac Financial's 2 major business segments, Production and Servicing, over the past 3 years. The Production segment historically contributed most of PennyMac Financial's pretax income. Our business profile, however, has become more balanced as the Servicing portfolio has grown and Servicing segment income has become more meaningful. Servicing segment income excluding valuation-related changes, has grown substantially from $15 million, 2 years ago to $103 million in 2017. We expect this trend to continue as the Servicing portfolio continues to grow, and we benefit from scale economies and other initiatives to increase the profitability of Servicing. Now let's turn to Slide 15 and take a look at the impact of our hedging approach on fourth quarter earnings. Our hedging strategy is designed to moderate the impact of volatility in interest rates on our financial results. As Stan mentioned earlier, mortgage rates increased during the fourth quarter. Fair value gains and reversal of impairment charges on the MSR asset totaled $28 million, which were due to a combination of higher mortgage rates and lower discount rates on government MSRs. The lower discount rates reflect improved market liquidity for Ginnie Mae MSRs and the reduced risk profile of our MSR portfolio resulting from the buyout of severely delinquent loans. These MSR value gains were partially offset by value declines in our hedge instruments. In addition, the value of the ESS liability was reduced as a result of yield curve flattening and higher-than-expected prepayment activity during the quarter. Now let's go to Slide 16 and…

Thank you, Andy. We remain focused on long-term initiatives to help ensure PennyMac Financial's growth and success. We continue to make progress on process redesigns that will benefit our Consumer Direct and Broker Direct channels, while in our Servicing business, we are making additional technology investments in new servicing modules to drive workflow and increased efficiencies. We also launched our Broker Direct channel, which gives us access to an additional 10% of the U.S. mortgage market. While the effects of different aspects of the new tax law are uncertain, we believe a strong economy and the stimulus provided by the tax bill, bodes well for housing and PennyMac Financial's business. Lastly, we encourage investors with any questions to reach out to our Investor Relations team by e-mail or phone. Thank you.

This concludes PennyMac Financial Services Inc.'s fourth quarter earnings discussion. For any questions, please visit our website at www.ir.pennymacfinancial.com or call our Investor Relations department at (818) 264-4907. Thank you.