Two Harbors Investment Corp

Good morning. My name is Jennifer, and I will be your conference facilitator. At this time, I'd like to welcome everyone to two second quarter 2025 earnings call. All participants will be in the only mode. After the speaker's remarks, there will be a question and answer period. I would now like to turn the call over to Miss Maggie Carr.

Good morning, everyone. and welcome to our call to discuss TUES second quarter 2025 financial results. With me on the call this morning are Bill Greenberg, our President and Chief Executive Officer, Nick Letica, our Chief Investment Officer, and William Dallal, our Chief Financial Officer. The earnings press release and presentation associated with today's call have been filed with the SEC and are available on the SEC's website as well as the investor relations page of our website at 2INV.com. In our earnings release and presentation, we have provided reconciliations of GAAP to non-GAAP financial measures, and we urge you to review this information in conjunction with today's call. As a reminder, our comments today will include forward-looking statements, which are subject to risks and uncertainties that may cause our results to differ materially from expectations. These are described on page two of the presentation and in our form 10-K and subsequent reports filed with the SEC. Except as may be required by law, two does not update forward-looking statements and disclaims any obligation to do so. I will now turn the call over to Bill.

Thank you, Maggie. Good morning, everyone, and welcome to our second quarter earnings call. Please turn to slide three. Fixed income and equity markets proved resilient in the second quarter, rebounding from poor performance in early April as the uncertainty of fluctuating tariff and trade policies roiled markets, spiking the VIX index to a multi-year high. As the quarter progressed, the tariff tension eased and the macro environment recovered steadily, leading the S&P to a record high and a significant recovery in the performance of agency RMBS spreads. We remained disciplined in our approach to risk, keeping our interest rate and spread exposures low across the curve. We utilized leverage judiciously and preserved ample liquidity, which allowed us to navigate these periods of heightened market volatility not seen since last October. For the second quarter, including the loss contingency accrual of $1.92 per share, we experienced a total economic return of negative 14.5% and minus 1.4% without the accrual. For the first half of the year, This results in a total economic return on book value of negative 10.3% and 2.9%, excluding the accrual. Please turn to slide 4. The 10-year U.S. Treasury rates ultimately settled near where it began the quarter, as you can see in Figure 1, but not before moving through a wide range, from a low of 3.85% in early April to a high of 4.62% in late May. The spread between 10-year and 2-year US Treasuries widened to 51 basis points, creating a steeper curve that continues to support attractive opportunities for RMBS and MSR portfolios. In this environment, we believe returns are compelling, and we expect further strengthening of the supply-demand dynamic, potentially leading to spread tightening. Mortgage rates generally track the Treasury rate environment, moving higher in April and May before stabilizing in June. The third-year fixed-rate mortgage rose from 6.6% at its low to a high near 6.9%, ending the quarter in the 6.7% to 6.8% range. While still high by recent COVID-era standards, rates remained below their 2023 peak levels, which has helped housing activity remain reasonably well-supported. The Federal Reserve maintained its cautious stance and left rates unchanged even in the face of increases in inflation and mounting political pressures. Several members of the FOMC have suggested one to two rate cuts likely occurring later this year, and the market similarly projects 50 to 75 basis points of cuts in the second half of 2025, as you can see in the blue line in Figure 2. If the Fed does indeed cut rates in the latter half of this year, we expect RMBS and MSR portfolios to respond positively. With the majority of our MSR portfolio still more than 300 basis points away from the refinancing window, we do not expect a few cuts in the front end of the yield curve to materially alter mortgage rates or prepayments. We are strengthening our direct consumer originations platform at Roundpoint, consistent with the market opportunity, in order to recapture loans in our portfolio that may refinance. Please turn to slide five. In the second quarter, we funded $48 million UPB in first liens, up from $29 million UPB in the first quarter. Although starting from a low base, this increase of 68% outpaced the overall trend in mortgage originations, which saw funded loans rising nationwide 16% quarter over quarter. We are encouraged by the growth in our first lien originations, despite the fact that most of our portfolio does not have an economic incentive to move or refinance. Additionally, we continue to actively market second liens to our servicing customers, to help them extract home equity most efficiently. We brokered $44 million UPB in second liens in the quarter, and we have begun originating second liens in our own name, which we can ultimately choose to hold, sell, or securitize. This activity not only increases revenue and improves recapture rates, but we have also noticed significantly slower prepayments for MSR borrowers who have second liens on top of their firsts. Please turn to slide six. I'd like to mention some of the really interesting things we are doing in technology in order to increase efficiencies, reduce costs, and most importantly, create better homeowner experiences. We are not alone in seeing the large opportunity that AI technologies can bring to the servicing and origination businesses, and we are making significant investments in time and resources in order to achieve the benefits that these technologies promise. Our initial focus has been within our contact center, and we are currently implementing AI in many areas across the platform. We use human emulation bots to move data across applications and to perform other repetitive tasks. Image recognition utilizes OCR technologies to help perform data validation. Speech recognition applications allow us to perform comprehensive analysis and statistics on our customer service calls. And we are using generative AI technology to create automatic call summaries which saves significant time for our contact center employees while improving accuracy. Conversational AI, which we are just beginning to explore, includes allowing customers to interact more fully with customized AI interfaces for simple situations and calling in live people for more complex problems. As we look towards the future, we are also actively evaluating the application of AI on the origination side to automate the application and fulfillment process. I like to say that AI is just the newest form of technology, and we know that this technology is integral to success in operating our business going forward. Looking ahead, we believe the combination of our investment portfolio and operating company allows us to be dynamic and responsive as opportunities emerge across the mortgage finance space. Given the strength of our platform and the depth of experience across our team, we are confident in our ability to navigate and lead through changing market cycles. creating long-term value for our stockholders, customers, and business partners. With that, I'd like to hand the call over to William to discuss our financial results.