Good afternoon, and welcome to the First Quarter 2018 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's first quarter results demonstrate the earnings power of our comprehensive mortgage banking platform against the backdrop of a rising interest rate environment and intense competition among industry participants adjusting capacity to a smaller origination market. While the market environment was challenging this quarter, the earnings contribution from our Servicing segment increased, driven by the impact of higher mortgage rates on the value of our mortgage servicing rights and solid operational execution. These results were partially offset by a decrease in earnings contribution from the Production segment, driven by lower margins. For the quarter, PennyMac Financial earned pretax income of $73 million and diluted earnings per share of $0.67. Book value per share increased to $20.74, up from $19.95 per share at December 31, 2017 and $16.01 at March 31, 2017. Our Production segment pretax income was $17.2 million, down 69% from the prior quarter and 64% from the first quarter of 2017. Acquisition and origination volume totaled $14.3 billion in UPB, down 16% from the prior quarter and 4% from the first quarter of 2017. Total correspondent government and direct lending locks were $10.9 billion in UPB, down 8% from the prior quarter and 2% from the first quarter of 2017. The Servicing segment recorded pretax income of $54.9 million, up 71% from the prior quarter and 309% from the first quarter of 2017. We continued to grow our servicing portfolio, which totaled $255.3 billion in UPB at quarter-end, up 4% from the prior quarter and 26% from March 31 a year ago. Excluding valuation-related items, pretax income for the Servicing segment was $36.3 million, up 29% from the prior quarter and 63% from March 31 a year ago. Valuation-related items for the first quarter included a $127.8 million increase…

Thank you, Stan. On Slide 6, let's begin with a review of market share and volume trends across PennyMac Financial's businesses. For the first quarter PennyMac Financial remained the 4th largest producer of mortgage loans and the 8th largest servicer in the country, according to Inside Mortgage Finance. Correspondent market share increased in the first quarter primarily because our origination volumes held up better than the market as a whole. Our consumer direct market share dipped slightly, as our volume decline slightly outpaced estimates for the decline in total retail channel volume this quarter. With the growth of our servicing portfolio, we estimate that we serviced 2.4% of all mortgage debt outstanding in the United States at quarter-end, up from 2.3% last quarter. In our Investment Management business, net assets under management were $1.54 billion, down slightly from the previous quarter. Now let's turn to Slide 7 and discuss correspondent production highlights. Correspondent acquisitions by PMT in the first quarter totaled $13.1 billion in UPB, down 15% from the prior quarter and 6% from the first quarter of 2017. Government loan acquisitions accounted for 68% of total correspondent acquisitions or $8.8 billion in UPB in the first quarter, down from $9.5 billion in UPB in the prior quarter and $9.3 billion in UPB in the first quarter of 2017. Conventional conforming acquisitions, for which PennyMac Financial performed fulfillment services for PMT, totaled $4.2 billion in UPB in the first quarter, down 28% from the prior quarter and 9% year-over-year. The weighted average fulfillment fee in the first quarter was 28 basis points, reduced from 33 basis points in the prior quarter, as the fulfillment fee rate was adjusted to reflect the more competitive market environment. Total lock volume from the first quarter was $13.6 billion in UPB, down 14% from…

Thank you, David. I will highlight some of the key trends and factors in our financial results on the next couple of slides. We encourage you to read our press release on first quarter earnings for further details. Slide 12 summarizes the impact of our hedging approach on first quarter earnings. Our hedging strategy is designed to moderate the impact of volatility in interest rates on our financial results while also considering the impact of production-related income. As Stan discussed earlier, mortgage rates increased sharply during the first quarter and ended the quarter about 45 basis points higher than where they started. We recorded fair value gains in our MSR asset totaling $127.8 million, which resulted from expectations for lower prepayment activity in the future driven by the increase in mortgage rates. The MSR gains were partially offset by associated hedging losses and an increase in the value of the ESS liability, also due to the rise in mortgage rates. Now let's go to Slide 13 and review the profitability of our Servicing segment. Pretax income from servicing in the first quarter was strong and benefited from the valuation-related gains I discussed on the previous slide. Excluding valuation-related changes, Servicing segment pretax income was $36.3 million versus $28.2 million in the prior quarter. The increase was primarily driven by elevated levels of EBO-related revenue from the reperformance of government-insured and guaranteed loans bought out of Ginnie Mae pools in prior periods. First quarter results also benefited from a reduction in the realization of cash flows from the MSR asset due to lower prepayment activity as well as a reduction in EBO transaction-related expenses due to lower buyout volume during the first quarter. These factors were partially offset by a modest decrease in operating revenue due to elevated levels of ancillary income in the fourth quarter. Operating expenses increased during the quarter driven by certain seasonally higher levels of expenses as well as an increase in corporate overhead, which is allocated across segments based upon their relative profitability. Interest expense to third parties increased primarily as a result of the accelerated recognition of costs due to the refinancing of Ginnie Mae MSR-backed term notes as well as an increase in the amount of MSR-related financing. Overall, the performance of our servicing portfolio remains strong, and we expect the segment to deliver increasing earnings contribution to PennyMac Financial over time. And with that, I would like to turn it back over to Stan for some closing remarks.

Thank you, Andy. The mortgage origination market is in a period of significant transition, with interest rates increasing meaningfully from the end of last year, resulting in a reduction of refinancing volumes. As the market continues to normalize, we believe PennyMac Financial is positioned to perform well as a result of our comprehensive mortgage banking platform and leading production and servicing businesses. We continue to pursue opportunities that are expected to help us grow. These include growth in our consumer direct channel and our recently launched broker channel. We also are focused on the expansion of our product menu to better serve our customers and drive additional volume, including a re-emphasis on jumbo loans and developing loan products to help borrowers access home equity. Technology is the foundation for these initiatives. We are investing in technology to drive greater efficiencies while at the same time focusing on continually improving interaction with our customers to ensure a successful execution of our growth strategies and our ability to deliver strong profitability in the future. Last, 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 first 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.